Download ICT and Productivity: Japanese data and possible

IT Revolution’s Implications
for the Japanese Economy
Kazuyuki Motohashi
RCAST, University of Tokyo & RIETI
http://mo.rcast.u-tokyo.ac.jp/
Outline
1. Slowdown of Japanese Economy in Information
2.
3.
4.
5.
Age
Macro view of IT and economic growth: JapanUS comparison
Firm level view of IT and productivity
IT, business strategy and performance
Some implications for developing countries,
focusing on Thailand
IT and Economic growth: Japan and US
GDP (1990=1)
IT Investment/GDP
1.6
5.0%
1.5
4.5%
4.0%
1.4
3.5%
1.3
3.0%
1.2
2.5%
1.1
2.0%
1
1.5%
0.9
1.0%
0.5%
0.8
0.0%
0.7
2004
2002
2000
US
1998
1996
Japan
1994
1992
1990
1988
1986
1984
1982
1980
2000
1998
US
1996
1994
1992
1990
1988
1986
1984
1982
1980
Japan
0.6
What is ‘New Economy’?
Information technology revolution


Moore’s Law and computer downsizing
IT infrastructure and network externality: Internet
US economic resurgence in 90’s


Productivity growth and economic growth not incurring
inflation
Lowering NAIRU
But not for Japan?

True? If so, why?
Comparative Analysis of Japan and US
Jorgenson and Motohashi (2005)
wI ,n  ln I n  wI ,c  ln I c  wI , s  ln I s  wI ,t  ln I t  wc ,n  ln C n  wc ,c  ln Cc 
v K ,n  ln K n  v K ,c  ln K c  v K , s  ln K s  v K ,t  ln K t  v L  ln L   ln A
Output: Ic: Investment in computers
Is: Investment in software
It: Investment in communications equipment
Cc: Consumption of IT products
In, Cn: investment and consumption of non-IT
Input: Kc: Capital service flow from computers
Ks: Capital service flow from software
Kt: Capital service flow from communications equipment
Kn: Capital service from non-IT
L: Labor service
Total Factor Productivity: A
Result (1): Output Decomposition
4.5
4.0
3.5
(%)
3.0
JAPAN
US
Non-IT sector
2.5
IT sector
2.0
GDP
1.5
1.0
0.5
0.0
1975- 1990- 199590
95
03
1973- 1989- 199589
95
03
Result (2): Input Decomposition
5
(%)
4
3
TFP
2
Labor
non-IT
IT Capital
1
GDP
0
JA P A N
US
-1
1975- 1990- 199590
95
03
1973- 1989- 199589
95
03
TFP decomposition
2.0
1.5
JAPAN
US
(%)
IT
1.0
Non-IT
TFP
0.5
0.0
1975- 1990- 199590
95
03
1973- 1989- 199589
95
03
IT and productivity at macro level
Productivity
at IT supplier
IT innovation
Competition
Productivity
at IT supplier
Sharp price
Decline of IT
IT investments
At user sectors
？
Productivity at
Macro economic level
ICT expenditure by industry (2000)
Other services
3%
IT services
26%
Primary
industry
1%
Construction
2%
Manufacturing
31%
Utilities
6%
Financial
services
20%
Retail/Wholesal
e
9%
Trans. &
Comm.
2%
IT investment and Productivity:
Industry Look
12%
10%
Labor Productivity Growth
in 1990's
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
0.0%
0.5%
1.0%
1.5%
IT Expenditure/Sales (90's average)
2.0%
2.5%
IT and productivity at firm level
Motohashi (2006)
Data: BSBSA (all firms with 50 employees and 30
mil yen capital, for manufacturing and
wholesale/retail, about 15,000 samples from 912000)
IT network use (only in 91, 94 and 97, (2000))


Intranet, CAD/CAM, CALS, EDI, EC
Type of business process
Occupation mix: information processing workers
Information related expenses (incl. Computer
rental fees, but not investment)
IT network and productivity
Intra Firm Network
5%
4%
3%
2%
1%
0%
-1%
1991-94
1994-97
Manufacturing
1997-2000
Wholesale/Retail
Inter Firm Network
4%
3%
2%
1%
0%
-1%
1991-94
1994-97
Manufacturing
Wholesale/Retail
1997-2000
Comparison with US
(Atrostic, Motohashi and Nguyen 2005)
5%
4%
3%
2%
1%
0%
Inter-firm Network
(Japan）
Intra-firm Network
(Japan）
IT Network
（ US）
IT Network
（ Japan）
Needs to look into ‘black box of firm’
1.
US Studies


2.
Bresnahan, Brynjolfsson and Hitt、QJE2001
IT＋HR/Org strategy (flat organization、performance based
payment、bottom up business practices such as QC circles）
→productivity
Japanese Studies



Same kind of approach: FRI(1996)、EPA(2001)
Not only decentralization but also centralization may work?
But organizational rigidity hinders productivity gain from IT
investment?
J-US economic system different?
Firm level observation
Cross functional
coordination
Job description and
reponsibility
Decision making
process
Knowledge Creation
Process
A-type
J-Type
Inactive
Active
→
Clear
Unclear
→
Top-dowm
Bottom-up
→
Explicit knowledge
Tacit knowledge
→
Implications for IT use
Comparative disadvantage
in using IT tools
Difficulty in business
process reengineering
Fragmentation of
IT system
Ineffective use of
digitalized information
Aoki, Nonaka-Takeuchi, Kagono et. al
Economic system level observation
• Japan’s Economic Model, particularly life-long employment
practice hampers IT based restructuring of firms: CIA by Aoki
• In-house R&D and fragmented innovation system of Japan
Firm’s organizational changes across countries
90%
80%
70%
60%
Japan
50%
US
40%
Europe
NIEs
30%
20%
10%
0%
Delegating
Flat
organization responsibility
structure
Cross
functional
team
Business
practice
adjustment to
IS
Fragmented IT system
Type of Information System and Effect on Managament
Quick Decision Making
in Management
Business Process
Reengineering
Differentiation of
products and services
Reponse to Globalization
0%
5%
10%
15%
No IS
20%
25%
IS by department
30%
35%
firm wide IS
40%
45%
Ineffective use of digital information (explicit
knowledge)
Organizational IQ Survey, RIETI
Brief Summary
Slowdown of Japanese economy, but IT contribution is not
so small as compared to US
From growth accounting exercise, slowdown comes from
labor and non-IT capital contributions
TFP growth also slows down, coming from TFP growth in
non-IT sector
Firm level analysis shows productivity premium of IT use
is smaller for Japanese firms
Possible factors hampers effective use of IT


Organizational inertia for J-type firms
Bottom-up decision making system of Japanese firms
Implications for Developing Countries:
Particularly for Thailand
Importance of IT Infrastructure

Broadband accessibility

Effective use of Wireless technology, even 3G mobile system
Importance of complementary investments (HR,
organization etc.) to maximize IT investments


SMEs: HR development, manager’s IT skills
Manufacturing: Front loading in product development – 3D CAD
(becoming a part of global supply chain of multinationals)
Japanese model?


Importance of tacit knowledge for manufacturing process (vs
digital revolution and speed in Chinese system)
Across ASEAN countries