RIETI BBL
Tokyo, 20 December 2013
JAPAN’S GROWTH STRATEGY –
WHAT CAN BE LEARNED FROM
INTERNATIONAL GOOD PRACTICES?
Dirk Pilat, Deputy Director
Directorate for Science, Technology and Industry,
OECD
dirk.pilat@oecd.org
Outline
– Japan’s productivity performance
– Some important drivers of productivity
• Globalisation - Engagement in global value chains
• Investment in knowledge, upgrading and
competitiveness
• The role of entrepreneurship
• Other key drivers: human resources, science,
innovation and ICT
– Conclusions
2
Japan’s income gap is primarily due to low
productivity levels ..
Differences in GDP per capita levels compared with OECD average, 2012
Gap in GDP per capita
=
Gap in GDP per hour worked
+
Gap in hours worked per capita
-80
-60
NOR
89
80
CHE
USA
AUS
NLD
CAN
DEU
GBR
FRA
JPN
ITA
NZL
ESP
KOR
ISR
PRT
CHL
POL
MEX
TUR
-80
-60
-40
-20
0
20
40
60
80
-80
-60
-40
-20
0
20
40
60
80
-40
-20
0
20
40
60
80
3
Source: OECD Compendium of Productivity Indicators 2013, http://dx.doi.org/10.1787.888932936522
… that have grown only little in recent years
Growth in GDP per hour worked, total economy, annual percentage change
1995-2012
2001-07
2007-12
8
7
6
5
4
3
2
1
ITA
ISR
ESP
CHE
CAN
MEX
NLD
NZL
FRA
DEU
JPN
GBR
FIN
AUS
USA
SWE
CHL
TUR
IRL
KOR
-1
POL
0
4
Source: OECD Compendium of Productivity Indicators 2013, http://dx.doi.org/10.1787.888932936522
Japan’s positioning in global value chains
5
Global Value Chains and Measuring
Trade in Value Added: the iPhone
10 million units exported
from China to the US
Components
229
207
TWN
161
800
CHN
USA
DEU
?
KOR
Upstream
input
suppliers
413
Assembly
65
ROW
Final good
1,875
US trade balance
CHN
Gross
-1,646
0
0
0
0
-1,646
-65
-207
-161
-800
-413
-1,646
Value added
TWN
DEU
KOR
ROW
World
The analysis takes only into account the direct suppliers of
the Chinese assembler
6
OECD-WTO database on Trade in Value Added
•
•
•
•
•
•
Global Input-Output Model: national IO tables linked by bilateral trade
statistics
Based on official statistics
Large and growing coverage
– 57 countries (all OECD, BRIICS, SE Asia)
– > 95% of GDP, > 90% of world trade
– China; distinction between processing and non-processing trade
First release (of results) on 16 January 2013 – second release at OECD
Ministerial Meeting (May 2013)
Trade flows in value added and applied indicators
Further work: employment and skills, income, firm heterogeneity…
7
Japan is a strong participant in GVCs …
For a large economy, Japan is a strong participant in global value chains, 2009 …
Backward participation
80%
70%
60%
50%
40%
30%
20%
10%
0%
Forward participation
28
15
Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded
8
.. in particular in some sectors
… in particular in heavy and high-tech manufacturing, 2009
Backward participation
Forward participation
Korea
25%
20%
15%
10%
5%
0%
Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded
9
… though value creation through services
is lagging …
A growing share of value creation in trade is due to services, especially business services
(Services value added embodied in manufacturing exports, 1995 and 2009)
Wholesale, retail, hotels & rest.
Transport, storage & telecom.
Finance & Insurance
Business services
Other services
1995 total
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded
10
… and Japan has lost ground as a manufacturing
exporter, also in value added terms
Percentage shares of total world manufacturing goods, 1995 and 2009
%
16
Gross exports
%
16
Value added
1995
12
12
8
4
8
0
4
0
Source: OECD-WTO, Trade in Value Added (TiVA) database, May 2013.
11
Employment in Japan has benefited
from engagement in GVCs …
Jobs in the business sector sustained by foreign final demand, 1995 and 2008
As a percentage of total business sector employment
%
2008
1995
40
30
20
10
0
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932904469
12
… with demand from many regions affecting
jobs in Japan
Jobs sustained by foreign final demand, by region of demand, 2008
As a percentage of total jobs embodied in foreign final demand
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932904507
13
GVCs: what they mean for policy
•
Trade and investment:
–
–
–
–
•
GVCS depend on the easy/smooth circulation of productive resources
No more mercantilism: GVCs are about imports and exports;
Barriers to import = tax on exports
Trade facilitation + efficient services
Competitiveness:
– Competitiveness is about activities instead of industries: in GVCs, what you
do (the value you create) matters more than what you sell.
– Competitiveness depends on exports and imports; offshoring and
outsourcing can reinforce competitiveness.
– The manufacturing of goods remains core in GVCs but is increasingly
dependent on efficient services that enable customisation to demand.
14
The role of innovation for upgrading in global
value chains
15
Value creation in global value chains is
often linked to knowledge and services ..
The smiley curve; value creation in the
value chain
Value added
R&D
Global Value Chain in the 2000s
Services
Design
Marketing
Logistics: purchase
Logistics
Production
Pre‐production
Intangible
Pre‐production
Tangible activities
Value Chain in the 1970s
Post‐production
Intangible
Value chain
activities
16
.. and investment in knowledge-based capital
now accounts for close to half of all business
investment in several OECD countries
Business investment in KBC and tangible assets (% adjusted GDP, 2010)
%
Non-residential physical assets
Software and databases
R&D and other intellectual property products
Brand equity, firm-specific human capital, organisational capital
35
30
25
20
15
10
5
0
Source: OECD calculations based on INTAN-Invest, Eurostat and multiple national sources.
17
What is knowledge-based capital (KBC) ?
Computerised information
Innovative property
Economic competencies
18
What is knowledge-based capital (KBC) ?
Computerised information
Software and databases
Innovative property
Economic competencies
19
What is knowledge-based capital (KBC) ?
Computerised information
Innovative property
Copyrights, patents, trademarks, designs
Economic competencies
TM
20
Japan is a strong performer in IP,
though mainly in patents
(IP bundle of top applicants, 2010-2012)
EPO Patents
OHIM Trademarks
OHIM Designs
Thousands of applications
150
125
100
75
50
25
0
Statlink 2: http://dx.doi.org/10.1787/888932892575
Source: OECD (2013), OECD Science, Technology and Industry Scoreboard 2013: Innovation for Growth, OECD Publishing,
www.oecd.org/sti/scoreboard.htm.
21
What is knowledge-based capital (KBC) ?
(brand equity, firm-specific human capital, business networks,
organisational know-how that increases enterprise efficiency, etc.)
Computerised information
Innovative property
Economic competencies
22
Knowledge based capital – adding value
to production and enabling differentiation
Source: IMD (2000) Innovation and Renovation: The Nespresso Story, IMD046,
03/2003. © Nespresso
23
Retaining value in GVCs: knowledge-based
capital and the role of “sticky” factors
•
Policies that can make value ‘stick’ to a location (or country), e.g.:
– Quality of institutional and policy frameworks
– A sound business environment, adapted to the growing importance of
investment in knowledge, i.e. beyond R&D
– Sufficient public investment in skills, research, infrastructure –
possibly with some strategic choices
– Strong domestic capabilities, including a strong SME supplier base
– Links between stages of the value chain, e.g. R&D, design, production,
services, etc. – enabling the co-location of activities
– Efficient support for innovation and entrepreneurship
– The social fabric of society (ability to change)
– Services, but with a strong link to manufacturing
24
Entrepreneurship - How does Japan
compare?
25
Where are the new opportunities
coming from? Young firms …
The contribution of firms to job creation, average over 15 countries, 2001-2011
Young firms (5 years old or less)
Old firms (6 years old or more)
Total
%
6
4
2
0
-2
-4
-6
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932889383
2008-09
2009-10
2010-11
26
… independent of their size …
Average over 15 countries, 2001-2011
%
Employment
Job destruction
Job creation
45
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
Small young
Small old
Medium young
Medium old
Large young
Large old
Small young
Small old
Medium young
Medium old
Large young
Large old
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932889402
27
… and across most countries
Employment, job creation and job destruction in young firms, 2001-11
Percentage shares, non-financial business sector (firms of 5 years old or less)
Employment
Job destruction
Job creation
%
80
70
60
50
40
30
20
10
0
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932892917
28
But growth of young firms is a challenge in many
OECD countries
Average size of firms less than 3 years old and 11 years old or more, 2001-2010
11 years old or more
Less than 3 years old
Employees
100
80
Manufacturing Services
60
40
20
0
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932904279
29
Investment in risk capital is a challenge …
(Venture capital investment, 2012, as a percentage of GDP)
Early stage
Later stage
Breakdown not available
%
0.40
0.035
0.35
0.30
0.030
Magnified
0.025
0.020
0.25
0.20
0.015
0.010
0.005
0.15
0.000
0.10
0.05
0.00
Source: OECD, Entrepreneurship at a Glance 2013, http://dx.doi.org/10.1787/888932892993
30
… and regulation could be further improved
Scale of 0 to 6 from least to most restrictive
Index
Administrative burdens on start-ups
Regulatory and administrative opacity
Barriers to competition
Barriers to entrepreneurship in 1998
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Source: OECD, Product Market Regulation Database, www.oecd.org/economy/pmr, June 2013
31
Policies to enable entrepreneurship
•
Allow for experimentation: Reduce barriers to the entry (e.g.
administrative regulation), growth (e.g. size-specific regulations), and
exit/failure of firms (e.g. penalising bankruptcy legislation).
•
Level the playing field for new and innovative firms: Some
policies may end up favouring incumbents and MNEs, that often also
have greater influence on policy making.
•
Strengthen the innovation system for young and innovative
firms, e.g. through enhanced access to (risk) capital, network
development, mentoring of entrepreneurs, skills development, further
improvement in technology transfer from universities and PROs, etc.
•
Policies for SMEs are not the same as policies for young firms.
32
How does Japan compare on some key drivers
of growth – human resources, science,
innovation and ICT?
33
Human resources are a concern …
43 47 45 51 45 46 45 42 50 46 49 49 51 44 53 46 47 43 43 43 32 51 57 53 52 44 47 30 38 44 47 52 51 47 45 46 42 42 40
2011
4
%
Graduation rates at doctoral level, 2000 and 2011
As a percentage of the population in the reference cohort
4
2000
3
Percentage of doctorate
degrees awarded to women
3
2
2
1
1
IDN
ZAF
CHL
MEX
TUR
RUS
BRA
POL
HUN
ISL
GRC
JPN
ESP
CAN
EST
ITA
PRT
ISR
KOR
CZE
BEL
FRA
OECD
SVN
USA
NLD
SVK
AUS
IRL
NOR
NZL
AUT
DNK
CHN
GBR
FIN
DEU
SWE
CHE
0
34
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890789
… and the number of new doctorates may not be
sufficient …
New doctorates in science and engineering, 2007-2011
Countries with largest number of average annual counts
All degrees
Science and engineering degrees
Graduates
80,000
8,000
6,000
60,000
4,000
2,000
40,000
0
20,000
0
35
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890827
… and education and training are a challenge
in many OECD countries
Participation in job-related education and training by level of problem solving in
technology-rich environments, 2012 (as % of adult population at relevant level)
%
Most proficient (Level 3)
Least proficient (below Level 1)
No ICT experience / Failed core ICT test
90
80
70
60
50
40
30
20
10
0
Source: OECD, Survey of Adult Skills Database, PIAAC, April 2013
36
The quality of science could be improved …
Quantity and quality of scientific production, 2003-2011
Number of documents and percentage of world’s top-cited
%
Number of publications (Thousands)
Percentage of excellence
20
Number of publications (thousands)
2 000
1 500
10
1 000
5
500
0
0
USA
CHN
GBR
DEU
JPN
FRA
CAN
ITA
ESP
IND
AUS
KOR
NLD
BRA
RUS
CHE
POL
SWE
TUR
BEL
ISR
AUT
DNK
GRC
FIN
MEX
CZE
NOR
PRT
NZL
ZAF
IRL
HUN
CHL
SVK
SVN
IDN
EST
ISL
LUX
15
37
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891568
… with international cooperation low …
Quality of scientific production and international collaboration, 20032011 (as a percentage of scientific publications)
Top cited publications, domestic leading author
Top cited publications, other leading author
%
International collaborations
(right-hand scale)
%
20
80
15
60
10
40
5
20
0
0
38
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891606
… and international mobility lower than in
other advanced economies;
International mobility of scientific authors, 1996-2011
As a percentage of authors with two or more publications, by last reported affiliation
New
Newinflows
inflows
Returnees
Returnees
Stayers
Stayers
%
%
40
40
100
100
30
30
20
20
10
10
00
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932891530
39
… increasing it could help enhance the
impact of research
Impact of scientific authors, by category of mobility, 1996-2011
Based on the median source-normalized impact per paper (SNIP)
Stayers
Returnees
New inflows
Outflows
Impact factor
1.5
1.0
0.5
0.0
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932891549
40
Support for business R&D is
relatively modest …
As a percentage of GDP, 2011
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932891112
41
… the R&D tax credit could be better
adapted to young firms ..
Implied tax subsidy on R&D expenditures, 2013
Source: OECD Science, Technology and Industry Scoreboard 2013.
http://dx.doi.org/10.1787/888932891150
42
… Japan is a strong investor in business R&D …
(R&D intensity and support, as a percentage of GDP, 2011)
Volume ofoftax
to business
R&D,
20112011
(million
USD PPP)
Volume
taxsupport
support
to business
R&D,
(million
USD PPP)
No incentive No data available
USD 75 millionUSD 75 million
No incentive
USD USD
2 5002million
500 million
USD 250
USD
million
250 million
3.5
KOR
ISR
3.0
JPN
FIN
BERD, as % of GDP
2.5
SWE
CHE
USA
DNK
AUT
2.0
DEU
SVN
FRA
EST
1.5
BEL
AUS
GBR IRL NLD
LUX
CHN
CAN
1.0
NOR
PRT
ITA
ESP
CZE
HUN
RUS
NZL
0.5
SVK
CHL
MEX
0.0
0.00
ZAF
TUR
BRA
POL
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
Total government support (direct and tax) to business R&D, as % of GDP
43
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890143
… but scores relatively low in innovation surveys …
(Innovation in the manufacturing sector, as a percentage of all
manufacturing firms, 2008-10)
Product or process innovation only
Product or process & marketing or organisational innovation
Marketing or organisational innovation only
%
80
60
40
20
0
44
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932892423
… and international collaboration is low …
(firms engaged in international collaboration, 2008-10, as % of product
and/or process innovative firms)
%
Large firms
SMEs
70
60
50
40
30
20
10
0
45
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891416
… and almost completely absent in patenting
International co-inventions in patents, 1999-2001 and 2009-11
As % of the economy’s total patents
25
%
20
15
10
5
JPN
KOR
TUR
CHN
BRIICS
USA
OECD
ITA
ESP
ZAF
ISR
BRA
CHL
AUS
DEU
NOR
NLD
FRA
FIN
NZL
EU28
SWE
MEX
RUS
DNK
IND
GBR
SGP
CAN
IRL
TWN
CHE
BEL
0
46
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932891739
Big data is offering new opportunities
for growth …
47
… as costs of data are falling …
Average data storage cost for consumers,
1998-2012
60
in exabytes (billions of gigabytes)
USD per GB
Estimated worldwide data storage
HHD
56.30
SSD
50
40
40
30
20
CAGR 1998‐2012: ‐39%
CAGR 2007‐12: ‐51%
10
1
0.05
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: OECD based on IDC Digital Universe
research project.
Source: OECD based on Pingdom (2011)
48
… but Japanese firms are not yet as active in ICT
than firms in other OECD countries …
Enterprises selling on-line, 2009 and 2012, as % of enterprises in the
same size category)
60%
2012 large 2009
50
40
30
20
10
ITA
JPN
CAN
ESP
KOR
IRL
AUS
FRA
NLD
DEU
GBR
FIN
NOR
CHE
SWE
DNK
0
49
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932893430
… , not yet as well connected to broadband …
Enterprises with broadband connection, by employment size, 2012
Fixed and mobile connections, as % of all enterprises
Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932892176
50
… and Japan has little presence in ICT services
OECD and major exporters of ICT services, 2000 and 2012
Billions of USD and percentages of total world exports of ICT services
Computer and information
Communication
Total value, 2000
50
0.0
0.1
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.3
0.4
0.4
0.6
0.7
0.7
0.8
0.8
1.0
1.0
1.2
1.3
1.9
2.3
2.4
2.5
2.7
2.7
2.8
2.8
3.1
4.4
7.0
7.3
8.0
12.7
13.5
USD billions
Magnified
3
40
2
30
1
20
0
10
0
Source: OECD, STI Scoreboard 2013.
51
Drivers of growth
•
Human resources:
– A major concern for the future, with low participation of women and rapid
ageing
•
Science:
– Strong public investment, but quality could be further improved
– Little international mobility of scientists, little international cooperation
•
Innovation:
– Strong investment in R&D – but will need to be turned into growth
– Support for business R&D: some redesign?
– Lack of internationalisation of innovation, little cooperation
•
ICT:
– Big data recognised as future driver
– But Japanese firms don’t use ICT yet to its full potential
– Strong in hardware, but little presence in services
52
In sum: some key issues for Japan
•
Global Value Chains:
– Performance has deteriorated, services content is relatively low and has not
increased in recent years
– GVCs are highly dynamic – preparing for their future evolution
•
Entrepreneurship:
– Risk capital and regulation
– Some strong SMEs – but a sufficiently strong role of young firms and
sufficient structural change to develop new areas of strength?
•
Innovation and investment in knowledge:
–
–
–
–
Reflect on necessary policies for full range of investments in knowledge
Human resources a major concern
Scientific research could be strengthened
Lack of internationalisation
– ICT – services and applications are lagging
53
Relevant OECD work
Tiny urls:
oe.cd/tiva
oe.cd/gvc
Tiny url:
oe.cd/kbc
54
Thank you
Contact:
dirk.pilat@oecd.org
For more data:
www.oecd.org/sti/scoreboard
55