The digital drivers of maturing economies: lessons from Asia
Japan is steering a path through the challenges of a maturing economy with a human-centric brand of innovation. Fujitsu’s Dr Martin Schulz outlines what business leaders — and other Asian economies — can learn from its experience.
For more than a decade now, Japan has been working through a tricky set of economic conditions. Redefining the hallmarks of a mature economy, the country has come to terms with consistently low growth levels, persistent deflation, relentless urbanization and the consequences of a rapidly aging society.
But while many business leaders in the West have looked at Japan’s ‘lost decades’ and decided there is little to learn from them, Dr Martin Schulz, from the Fujitsu Research Institute, argues that they ignore such challenges at their peril. The renowned economist, who has been based at the privately funded think-tank since 2000, believes that the experiences of Japan present some clear pointers as to what can be expected in Asia in the not too distant future — and indeed in much of Europe as well.
“In the kind of emerging economies we’re seeing in Asia, we usually first have raw growth trends, urbanization, the copying of technologies and investing at extreme levels. That usually lasts for two decades — maybe even three, as in China’s case — but it runs its course.” What comes next has been playing out in Japan since the mid-1990s.
“Japan is the forerunner of basically all the growth and technology trends evident across Asia,” says Dr Schulz, from China and Vietnam to Malaysia and South Korea. “Japan has done that [maturing phase] a long time ago and is now at the next frontier.” That next frontier, he highlights in I-CIO’s exclusive video interview, has one key characteristic: a demographic time-bomb and the natural cap that that puts on economic growth.
In Japan, the percentage of the working-age population peaked at 69% in the mid-1990s. Since then it has tumbled precipitously to around 56%, and will sink below 50% towards 2040, according to UN figures. But Japan is just the forerunner of such trends in Asia, Dr Schulz observes. When China’s working-age proportion peaks at around the same level over the next few years, the decline will become even steeper as it heads for the 50% point towards 2050. South Korea, Thailand and others in the region are all moving in the same direction too.
“Of all the trends at the top of the minds of policymakers and corporate CEOs in Asia, demographics is one of the most important. Asia has been the youngest region, growing tremendously over the past few decades. But, demographically, it is now very quickly becoming the oldest region anywhere. The adjustment is an enormous challenge to every society in Asia. In Japan, which was the youngest society in the region in the ’70s and ’80s, this trend has been worked out in recent years.”
From ‘New Normal’ to ‘Normal Normal’
This is not just an Asian phenomenon. Countries across Western Europe — from Spain and Germany to the UK and Italy — will also need to face up to falls in the working-age of populations.
What is evident is a productivity gap and an inevitable need to adjust to a new set of economic realities, Dr Schulz says. “This is what we are seeing now in places such as the UK and the US: economies are gradually growing again but the productivity is not really picking up, and despite the effort they are putting in, growth is not coming back. Our colleagues in the US now call this ‘The New Normal’: we work hard, we have all the technologies, but growth is not picking up as in the old days.”
“Japan has been adjusting over the last 20 years and has learned the lesson about demographics — how to adjust to become a mature economy, a mature society. It’s Japan’s ‘Normal Normal’ by now. What we have learned is that it takes a long phase to move to the next level.”
The drivers of such a new reality are different, argues Dr Schulz. They are about efficiency and productivity implemented in a way that is no longer oriented towards generating growth but towards supporting wellbeing — the creation of better services in areas such as healthcare, social infrastructure, mobility and communications.
Technology focused on people
“This is the kind of innovation aging societies need,” he says. “As a forerunner of such trends, Japan has been focusing on using technologies to get fast-aging societies growing and moving again.”
“When we look at how technology is evolving in areas such as education and healthcare, we see completely new levels of caring, of focusing technologies on people and their wellbeing,” Dr Schulz observes.
“This is the introduction of technology focused on people,” or as Fujitsu terms it: Human Centric Innovation. “This is driving not just markets but society too, and this is what we should be focusing on over the next years and decades.”
• Dr Martin Schulz will be speaking on ‘Improving Society through Technology — the Japanese Way’ at Fujitsu Forum 2015 in Munich (18-19 Nov).