You are all engaged in specialized activities in the area of IT, so today I hope that my speech will be an information-sharing opportunity to broaden your perspective a little. I would be very delighted if I could convey my consciousness about the problem of how we should position the Japanese economy in the global trend and how we should recognize and give direction to the “IT Revolution,” a frequently used word in that trend.

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    Last year, the global economy, which has been growing extraordinarily, recorded a GDP growth rate of approximately 4%. We are in a tremendous situation, but we can not feel the growth now in Japan. That is why I am talking about it at the opening of my speech. There is an air of tremendous excitement among business people all over the world. They know that a once-in-a-lifetime opportunity to make a lot of money has come.

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    As you many know, energy prices have reached an extraordinary phase. “Oil import prices into Japan” have nearly tripled from $16.90 (approximately 2,000 yen) a barrel in 1999 to $52.59 (approximately 6,000 yen) a barrel in July 2005. The IT Revolution has been contributing remarkably to the expansion of the global economy, and we can verify a remarkable growth in the trade of IT related equipment if we look at analyses on the expansion of the global economy and other similar data. The so-called network information technology revolution has been significantly influencing the expansion of the global economy. If we look at major export items of neighboring countries in Asia, especially China, we can see that IT related exports are playing a very important role in the economic expansion of these countries. In fact, the IT Revolution has started to make an impact on the structure of soaring energy prices. It has drastically changed the nature of product, oil: they are no longer dependent on the actual supply and demand relationship, but are just results of a money game, including derivatives.

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    Two years ago, Japan finally overcame the lingering effects of the lost decade and returned to a path of economic growth of approximately 2%. If we thoroughly analyze the “elements that support the seemingly recovering Japanese economy,” they are converged on two: “element of restructuring of major companies” and “element of dependence on China.” The “element of restructuring of major companies” means the creation of profitable structures with no room for quibbling, by trimming “excessive employment,” “excessive facilities,” “excessive debt,” and other similar excesses. Due to this element, there is still a gap in business confidence between the management of major companies and small-business owners and between the central area and local regions. The current economic situation is a bane of economists: it can not be generalized. For example, if I say that “the automobile industry is favorable” as a whole, the reality is that some automobile companies are making huge profits, while others are struggling just to keep themselves in business. As for the functions of industry organizations, even industry unions have difficulty in leading the same industry, because management disparities have polarized companies into two extremes. In addition, we are in a strange age in which inflation and deflation are simultaneously going on as “upstream inflation and downstream deflation.” Due to soaring energy prices, primary material prices have increased by 40%, and intermediate material prices have finally reached above water. However, consumer goods suppliers are complaining about “poor sales” and are wondering at “the strange deflation.” Upstream primary material prices can not be passed on to end product prices. This scheme makes the problem more difficult.

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    Although crude steel production in China exceeded 270 million tons last year, the “export of steel products” from Japan has also been increasing. Whoever estimated that the Japanese steel industry, which was said to be a structurally depressed industry two years ago, would make such remarkable accomplishments? The most significant element is the export of steel products to China. The prices of steel products that were exported from Japan to China last year rose by 40 to 50% compared with two years ago. If you analyze corporate performance, you will see that companies with higher dependence on business models with China have recorded better results

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    The Japanese trade structure has been drastically changing. It was both common knowledge until three years ago and a continued fact for more than half a century that “Japan was a trading nation. Japan lived by trading, and its No. 1 trading partner was the U.S.” However, last year, the percentage of export to the U.S. dropped to 22%, and the percentage of import from the U.S. dropped to 14%. From the viewpoint of industry arguments, an organic linkage between Japan and Greater China, which includes mainland China and Taiwan, has been more and more deepened. How logistics, including supply chains and RFID, will change is a very important assumption for all future arguments.

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    With these changes, Japanese ports and harbors on the Pacific coast are being hollowed out at tremendous speed. It is said that Japan enjoys the world’s second largest GDP and that it is a trading nation. However, the fact is that all Japanese ports slipped from the world’s top 15 in a moment. The fact that five ports of Greater China are included in the world’s top six ports shows how logistics and industrial structures are changing. In fact, the reason that the Port of Kobe tumbled miserably is because the fifth-largest Port of Pusan stripped the position. In the past, domestic vessels sailed to Kobe and then crossed the Pacific Ocean on a major shipping route. But, vessels now avoid Kobe and sail to Pusan, because, compared with Singapore and Hong Kong, efficiency in port administration is worse and it takes more money and time in Kobe. The ranking of the Port of Tokyo has also been dropping drastically because the new logistics route to Pusan, bypassing the Tsugaru Straits all the way, has been used more and more instead of the conventional trans-Pacific route starting from the Port of Tokyo. Japan has finally started to make genuine efforts, but it is necessary to take thorough measures to improve the efficiency in ports and harbors. Logistics in Japan will be terribly inefficient if efficiency in both sea and air transportation is not strategically and quickly improved based on IT and by means of wide-range cooperation.

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    I am concerned about how processes that were promoted by the IT Revolution have changed systems in response to earthquakes, in other words, differences in system responses between the “Kobe Earthquake” and the “Niigata Earthquake.” When the Kobe Earthquake occurred, IT was not always fully functioning. From case study reports on the Niigata Earthquake, I feel that IT has spread into very rural areas of Japan in this decade. As we all know, cellular phones and convenience stores are also products of the IT Revolution. Cellular phones and especially e-mails were very meaningful in the Niigata Earthquake because they were able to convey information through all kinds of circuits due to network technology, based on the packet exchange system, even if one of the circuits was cut off. In an easy-to-understand manner, we can say that convenience stores are also products of the IT Revolution in distribution. According to a report, a store on the epicenter of the earthquake collapsed and did not function at all, but another store within 30 minutes walk from the collapsed one started to function as a place for delivering perishable box lunches and rice balls to quake-hit areas before public institutions began to provide support. How will the products of the IT Revolution change the world’s security? These new changes are just about to come.

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    Although the U.S. accounted for 35 to 36% of the world’s GDP in the past, the ratio dropped to approximately 20% at the end of the Cold War years. However, it rose again to 33 to 34% in only a decade. What supported this recovery is the creation of added values based on the IT Revolution as leverage, that is to say, “marriage between IT and FT” or financial technology based on IT. The extremely distorted result of the marriage is a scheme causing escalation in oil prices. The U.S. is changing into a “money game country without manufacturing industries,” and there are companies whose specialties are not clear. The U.S. economy, which is exhausted by the war in Iraq, has to make efforts to recover now. In what R&D and technologies will the U.S. find a new paradigm? This is my current interest.

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    As you know, there are 3 million jobless people now in Japan. The number of jobless people increased by 1.5 million in this decade. In which industries are they going to make a living without problem consciousness? What are left to them are only vain positions such as those held by NEET and freeters (part-time jobbers). If a solid axis is not shown to those who are doing really meaningful jobs by the sweat of their brow in manufacturing industries, the future of this country will be vain and uncertain. As platforms, airport infrastructures need to be improved, but I think that there are other very important areas, including robots. I think that the only consistent theme is that we need to be more and more serious about how to create basic infrastructures and industrial platforms that will be cornerstones for the Japanese industrial paradigm shift.

(Dictated by the Secretariat of ECOM)

Profile of the lecturer: Mr. Jituro Terashima President of the Mitsui Global Strategic Studies Institute Chairman of the Japan Research Institute Professor of the Graduate School of Asia-Pacific Studies, Waseda University

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