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Japan: world leaders in robots and growing old

Japan is a global leader in two opposing growth dynamics – a declining workforce, which is a drag, and robotics, which is beneficial to productivity.

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The adverse implications of an ageing and declining population for growth are behind the Abe administration’s ambitious Society 5.0 strategy.

" In 2015, 27 per cent of Japan’s population was older than 65. This is expected to rise by over 10 percentage points to 38 per cent by 2050.”

The adverse implications of an ageing and declining population for growth are behind the Abe administration’s ambitious Society 5.0 strategy.

Society 5.0 envisages greater adoption of artificial intelligence (AI), robotics and big data to enhance long-term productivity. These technologies will help fill the void of a declining workforce and/or augment the existing labour force.

With a number of other leading economies also facing declining and ageing populations, Japan’s endeavour should provide a useful case study for the future of work.

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Below 100 million

Japan’s population fell by a record-breaking 264,000 in 2018 to 126.4 million. With little prospect of immigration being on the government’s agenda, it will decline further in coming years given the current birth rate (1.4) is significantly below the steady-state rate (2.1). By 2050 Japan’s population is expected to fall below 100 million.

In 2015, 27 per cent of Japan’s population was older than 65. On current trends this will rise by over 10 percentage points to 38 per cent by 2050.

But there will be more robots. Automation and robotics are not new for Japan. The nation has long been a world leader in technological development, especially in robot technology. In 2018, Japan exported $US2 billion worth of industrial robots.

This was more than the next five largest exporters (Germany, Italy, France, China, Denmark) combined.

It is one of the most robot-integrated economies in the world in terms of “robot density” – measured as the number of robots relative to humans in manufacturing and industry.

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Lack of pressure

Traditionally much of Japan’s investment in robotics has been in the export orientated manufacturing sectors, especially automotive and electronics, where automation features significantly in the production process. Very little investment has been made by the much larger services sector, which accounts for almost three quarters of the economy.

Indeed the lack of technology investment by the service sector likely contributes to the sizeable productivity gap between the manufacturing and service sectors.

There has been very little productivity growth in the services sector over the past couple of decades. This lack of investment may partly reflect the fragmented state of many service-based industries and the lack of competitive domestic pressure.

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Productivity in the services sector has also lagged that of other main advanced economies. Notably the labour productivity of the non-manufacturing sector in Japan is about 60 per cent of that of the United States.

There would seem room for both a catch-up and an organic improvement in the underlying productivity of the service sector. This should yield substantial dividends to gross domestic product (GDP) growth, given the service sector accounts for nearly three quarters of the economy.

Future of work

Japan’s Society 5.0 envisages a super-smart society where technologies such as big data, Internet of Things (IoT), AI and robots are present in every industry and across all social segments. This revolution would make everyday life more comfortable, efficient and sustainable.

As part of this integrated strategy, the government has produced a number of detailed and ambitious reports, including: IT Strategy for Data Utilization, Robot Strategy and an Artificial Intelligence Technology Strategy.

Recent surveys highlight a pick-up in both actual and planned capital expenditure on new technology. This trend is notable for small and medium enterprises that need to compensate for scarce labour while staying competitive.

Game-changing five

Japan’s comprehensive blueprint for Society 5.0 includes strategic objectives, implementation scenarios and key performance indicators. Some examples of current and future integration include:

• electronic payments and self-checkout registers in retail outlets;

touch-screen menus in hospitality to streamline operations;

• drones to deliver goods in remote areas, survey property and support disaster relief;

• online medical care to enhance best practice, reduce travel, increase support to less-mobile

patients and conveniently offer 24/7 monitoring, including nursing robots; and

autonomous transport (driverless buses, cars and trains). 

Robotic invasion?

The empirical evidence on the impact of automation and technology on jobs is mixed. In the short term, some workers are more vulnerable to displacement, so there are likely to be transition costs leading to undesirable consequences of lost income, income polarisation and rising inequality.

In the long run, however, technological advances boost productivity, which over time creates new jobs, allowing incomes and living standards to rise.

A 2017 RIETI discussion paper, using Japanese prefectural data, found increased robot density in manufacturing to be associated not only with greater productivity but also with local gains in employment and wages. This suggests embracing innovation outside of manufacturing should also provide long-term dividends. Technical innovation is also necessary to help alleviate a declining workforce.

That said, the Japanese government will need to carefully manage the transition.

Strong and effective social safety nets will be crucial to support workers displaced or disadvantaged. In addition, the government can take a proactive position in educating and reskilling workers to enable them to take advantage of jobs in a high-tech world.

Increasing technological change in Japan will affect a spectrum of industries and improve quality of living. Japan is a relatively unique case in the world given its negative labour-force dynamics.

Productivity supported by investment in automation, AI and technology will need to feature strongly as an engine supporting long-term economic growth. Japan’s experience could hold valuable lessons for economies such as China, South Korea and Europe, which are facing similar demographic trends.

お誕生日おめでとうございます

ANZ has been established in Japan for 50 years, opening an office in Tokyo on December 3, 1969. A full banking authority was approved in 1985, an Osaka branch in 1990 and a licence to deal in securities in 2018.

ANZ Japan has been instrumental in supporting the development of Australia-Japan trade and investment throughout that period, a time in which Japan became Australia’s most significant trade partner. The bank offers a full range of services to corporate and institutional clients together with retail and wealth products for individual investors.

Tom Kenny is a Senior Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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