In September 2020, Japan’s new prime minister, Yoshihide Suga, announced the formation of a “Digital Agency,” a new government entity created to help pave the way for digital transformation in Japan — a nation in many ways still attached to paper bureaucracy.
Leading this digital charge ― which is aimed at boosting efficiency in both the public and private sectors ― is Suga’s Digital Transformation Minister, Takuya Hirai. In a special session run by the Japan Association of New Economy (JANE), Hirai sat down with JANE Representative Director and Rakuten CEO Mickey Mikitani, a longtime advocate of digital progress in Japan.
Japan’s new Digital Agency: Government as a startup
Hirai has long been vocal about the need for Japan to embrace the digital age, and with this new Digital Agency, he is poised to make an impact. The administration has pledged to make the agency a reality by September 2021, a swiftness uncharacteristic of Japanese governmental organizations. “It’s like taking a company from founding to IPO in the space of a year,” explains Hirai.
Hirai has a label for this new way of doing things: government as a startup. “I want the agency itself to be a startup. And in a way it is. It started from nothing,” he outlines. While most new governmental organizations are built on top of some existing legal framework, Hirai stresses that this time, they’re building from scratch.
“Essentially we want to change the way we’ve done things up until now,” he says. “The agency is a symbol for regulatory reform, a major pillar of our growth strategy; we want to change the mindsets of every governmental agency.”
An economy with roots in the ’80s
Despite a global reputation for technological prowess, Japan’s public sector and much of its private sector have been slow to embrace the digital era.
“At the end of the ’80s and beginning of the ’90s, Japan’s economy was leading the world. What happened?” poses Mikitani. “Well, we moved from a hardware-driven world to a service- and software-driven one. And Japan hasn’t been able to adapt to that.”
Japan’s manufacturing prowess once drove its economy to extraordinary heights, before a shift towards digital services stole the spotlight away. Yet some corporate attitudes remain stuck in the old ways.
“Go back 30, 20, even 10 years ago — no-one thought autonomous driving would ever happen,” he recalls. “It pains me to say that not one of the Japanese auto CEOs I talked to back then thought the age of autonomous driving would ever come. Yet American startups are going at it with abandon.”
“Meanwhile CEOs here are watching Toyota lose to Tesla in market value and are still just thinking it’s crazy,” Hirai adds. “But unless we change that attitude, we won’t go anywhere.”
“The foundations upon which we built our society are changing from their very roots,” Mikitani continues. “If we built our society from scratch today as if it were a startup, I don’t think it would turn out how it is now. That’s why it’s so important to look forward: 100 years from now, what kind of world will we be living in?”
The pandemic: A wakeup call
A common criticism of Japanese bureaucracy is its attachment to paper, personal ink stamps (called hanko) and even fax machines that turn simple tasks like verifying one’s identity at the bank into an odyssey across numerous government offices scattered around the city.
“Japanese administrative processes can be incredibly complicated,” Hirai admits. “But people here are used to the inconvenience. They’re numb to it… Unless they experience how easy these things can be overseas, they will always be resigned to how complicated it is in Japan.”
The global pandemic, however, shone a spotlight on the inefficiencies of Japan’s paper bureaucracy, as local governments scrambled to distribute stimulus checks to the country’s 126 million residents.
“People thought that Japan was doing its best with digitalization and new technology,” Hirai said. “But when the virus forced us to look at our own society, it was obvious that neither the public nor the private sectors had the capability to deal with it effectively. It was only this year that it became obvious to people in Japan that our country was so far behind on digitalization.”
Mikitani sees a silver lining, noting that big events like the pandemic have historically been catalysts for change in Japan.
“As a general rule, Japanese society doesn’t want to change,” he remarks. “Change means that some people could lose their jobs to digitalization. There will be new jobs created, of course, but Japanese people fundamentally don’t want to change anything. It’s only because of COVID-19 that this digital transformation has accelerated all over the world. For Japan, it could be as transformational as the post World War II-era or the Meiji Restoration.”
The solution? A change in attitudes
“Political decisions invariably follow what’s biggest in the public’s mind ― there aren’t many administrations that push forward agendas that the public doesn’t care about,” Hirai comments. “That’s why digitalization has been pushed back again and again — and implemented so poorly.”
“Digital transformation is endless. There is no finish line.”Japan Digital Transformation Minister Takuya Hirai
As public attitudes begin to change, however, Hirai sees a chance to build momentum for this movement. But he needs the support of business leaders.
To do this, Mikitani thinks that Japanese corporations need to break out of the physical manufacturing mindset. “We need to think about how digital infrastructure, despite being invisible, brings about huge value, just like physical infrastructure does,” he points out.
Hirai promises that his Digital Agency will have the authority to make meaningful change, and is keen to work with key players in the private sector. Mikitani, however, believes the government must support smaller, upcoming companies as well, to maximize innovation.
“If we’re making a new Digital Agency, we need to employ more startups,” he stresses. “Japanese people have this preconception that big companies are better than startups… but we can’t just leave this digital transformation up to giant, existing manufacturers and system vendors. We need to use new companies.”
It’s no surprise that Mikitani is on board with this digital push. “If we can make a successful case with this digital transformation in Japan’s government, we can take the lead in the global market. That’s the mindset we operate under at Rakuten and JANE.”
Digital transformation: Not a goal, but a journey
Minister Hirai knows that his job doesn’t end with the establishment of the Digital Agency.
“If we built our society from scratch today as if it were a startup, I don’t think it would turn out how it is now. That’s why it’s so important to look forward: 100 years from now, what kind of world will we be living in?”JANE Representative Director and Rakuten CEO Mickey Mikitani
“Digital transformation is endless. There is no finish line,” he says. “That makes it sound really hard, but the truth is it’s the same for the private sector ― they are constantly reacting swiftly to new technologies, working out what they can adopt and how they can adapt. The government has to do that too. That’s a habit we need to form.”
“Since I started Rakuten in 1997, the speed of the internet has increased by a factor of 100,000,” Mikitani offers. “Now we have smartphones, everything’s connected through IoT, banks are even talking about launching cryptocurrencies, AI and blockchain are on the rise.”
Mikitani believes that it’s up to the private sector to lead Japan into the future. “The economy is the private sector. The government just needs to create the platform upon which this digital transformation can happen.”
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