Proposals on Japan's IT strategy: Enhanced efforts necessary to develop excellent human resources

Consulting Fellow, RIETI

The volume of electronically recorded and stored information and the types of such information have been expanding with the advancement and diffusion of information technology (IT). The advent of social networking media such as Twitter and Facebook has enabled even informal discussions like water-cooler conversations to be recorded electronically for reuse. People's expectations for using so-called big data have also heightened, with such data having been stored in large amounts. One after another, information services using big data are expected to become available in the future since such services can be provided at a reasonable cost.

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While expectations for using big data are rising, the volume and types of such data actually in use in our business society are very limited. Potentially useful information has been accumulated, but most of it has remained "buried"—or unused.

This issue needs to be addressed from two aspects. One aspect is that we should recognize the large gap between Japan and other advanced countries in the use of big data. Japan should work harder to become the leader in technological development in the IT fields. Japan should also make efforts to catch up with the United States and Scandinavian countries in cloud computing and open data, including information disclosure by the public sector. In fact, Japan lags far behind these countries where private businesses and government agencies are accelerating efforts to promote cloud computing and open data services.

The second aspect is that the extent of use of big data differs across sectors. On the one hand, records of purchase history such as point-of-sale (POS) data are already used widely and efficiently, while those of search history and information on social network sites (SNS) have been increasingly used in recent years. On the other hand, records kept by public agencies, information on the use of electricity, and records of medical treatment and checkups are used in very limited forms. As a general tendency, records and information kept by the government and public or quasi-public agencies are less used than those kept by the private sector.

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Potentially useful data have remained "buried" in Japan mainly due to three bottlenecks: (1) a lack of technology and human resources, (2) an inability to plan and conceptualize a business model that is necessary for the effective use of data, and (3) a lack of social systems necessary for the active use of data. Information does not become valuable just through its accumulation. Massive amounts of data have been stockpiled recently in an accelerated manner, but technologies and services that can process such data effectively cannot catch up with the speed of accumulation.

Among information-processing technologies currently drawing global attention are natural language processing (NLP), which converts human language into computer-manipulatable formats; network analysis, which finds patterns of relations among actors; machine learning, which recognizes patterns automatically from data and makes predictions based on such learned data; and applied technologies related to machine learning. Japan lags far behind the United States in all of these fields. Among some of the world's most renowned journals, research papers contributed by Japanese research institutes, for example, account only for a few percent of the published papers.

The number of so-called data scientists is far from sufficient in Japan. This is in stark contrast with the United States, where a large number of graduate school-level data scientists had been trained even before Google Inc. and Microsoft Corporation began business. It was only in the late 1990s that such education became full-fledged in Japan (Refer to Figure). In Japan, companies are competing fiercely to recruit the best data scientists.

Figure: Master's degree holders in information fieldsFigure: Master's degree holders in information fields

As for the second bottleneck, we should recognize that despite declines in information access costs and data-accumulation costs, information-related costs including that for analysis remain high in Japan. What is necessary is to build a business model that can create a virtuous cycle in which analysis and utilization of information bring about value added, spurring an inflow of money for maintaining a system for data-gathering and analysis, and leading to further data accumulation. One of the most successful of such business models is Google. But Japan's information sector is not conducive to the easy emergence of a second or third Google. One of the reasons for this is that analyzing parties are not capable of accurately grasping market needs and social problems that should be solved. Data scientists tend to focus their interests on technological aspects, and there is a division with human resources who are knowledgeable of IT markets and relevant problems.

Another problem is a lack of technical capacity necessary to support the business model. For example, there will be a tremendous gap between the value added created by Japanese online stores—which recommend the same book to all customers based on the same purchase history—and the services started and that have been already used widely by U.S. online stores using machine learning—which automatically predict and recommend merchandises that each customer may wish to purchase on an individual basis.

The third bottleneck is a lack of social systems that are necessary for the active use of data. Such social systems include: (1) rules and standards on protection and use of data, (2) standards on ensuring data security, and (3) a mechanism aimed at linking and combining various types of information belonging to the same entity, such as individuals' social security numbers and corporate identification numbers.

Business risks from using information will increase if social consensus is not obtained sufficiently over the scope of information to be protected, the extent of information security to be ensured, and the scope of information to be used. There will be more value added if different sets of information, such as medical treatment records and medical checkup records, are combined. How much one will invest is determined generally by the expected return on the investment and inherent risks. Active use of information cannot be expected in a society where business risks are high and turning business opportunities into profitable business is difficult. Information is used actively in some fields but not in others. This gap mainly results from different levels of dependence in each field on the relevant social systems when information is used.

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In order for Japan to achieve the active use of the world's most advanced information, Japan needs to overcome the aforementioned three bottlenecks and solve the two aspects of "hidden information" issues. A declaration on creating the world's most advanced IT nation released by the Japanese government in June 2013 should be highly evaluated for covering a broad range of measures necessary to address the three bottlenecks and the two aspects. On that basis, I would like to propose three policies that are necessary to give impetus to the government's growth strategy.

The first and the most important is for the government to express a firm intention to make Japan the world's most advanced IT nation such that the IT strategy will not end up being impractical.
Upon his inauguration, U.S. President Barack Obama and his administration pledged to reform the nation's health care system and the energy market as their two major policy goals. The Obama administration apparently hoped to show the strong national commitment in accelerating the structural reform using IT, by focusing on health care and energy—two huge markets left behind in terms of active IT use—in order to resolve various social issues and achieve economic growth in an efficient manner. Its attempt to realize structural reform will lose momentum if its enthusiasm for achievement is seen as tepid. In Japan, the prime minister's strong leadership is essential in focusing on public sector projects, energy, agriculture, and medical services as its priority fields to attract advanced investment and eliminate resistance to such.

The second is for the government to have a special sense of speed. Our society has been changing socially and economically at an extraordinarily rapid pace thanks to the advancement and active use of IT. If we are too familiarized with the speed at which non-IT fields are changing, we will misunderstand the speed in the IT field. To attain the goal of creating the world's most advanced IT nation, Japan should surpass its rivals in terms of speed in implementing IT policies. The growth strategy released by the government is not clear about the details, but it is necessary to establish a policy mechanism in which rivals' moves are subject to constant monitoring and the results are reflected in a revised strategy

Furthermore, a large number of young digital natives—who stay most updated with the global IT information—should be given a decision-making role within the government in planning and promoting such strategies. The government deserves to be commended for trying to manage the implementation of the strategy in a transparent manner through its devising of key performance indicators (KPI) and a work schedule, as ways to make the strategy effective. But this should not lead to postponing what can be done immediately. For example, in evaluating the e-government services, checking and analyzing web traffic, the duration of viewings, and the number of page views can be started immediately, requiring no work schedule.

Third, Japan should step up efforts to reinforce the development of advanced technologies and human resources. As I stated earlier, Japan is not the world leader in artificial intelligence and information-processing technologies. Human resources in these fields are scarce, and educational systems for developing such resources are insufficient, compared with those of the United States, where efforts to foster graduate-level human resources started even before relevant markets and industries had grown by inviting potentially talented people from India and other countries. National investment projects are necessary based on the recognition that no strategy will be effective unless the foundation of technology and human resources are strengthened.

>> Original text in Japanese

* Translated by RIETI.

August 30, 2013 Nihon Keizai Shimbun

October 2, 2013