Japan’s ‘Digital Reform’



Introduction: Digital Reform


On May 12, 2021, the upper house of the Japanese Diet passed the ‘Bill concerning Digital Reform,’ which included six different bills introduced by the Cabinet Office and the Ministry of Internal Affairs and Communications (MIC). This legislative package seeks to deliver Prime Minister Yoshihide Suga’s campaign promises to establish a ‘Digital Agency,’ reform data governance, and digitalize public service.


Source: Cabinet Legislation Bureau (https://www.clb.go.jp/)


Looking ahead to these laws coming into force this September, this post provides a backgrounder on Japan’s efforts for digitalization, a summary of the new laws, and an analysis of the Japanese Digital Reform.


Background: Japan’s Digitalization Paradox


Japan has been known to be tech-savvy, associated with its cutting-edge electronics and automobiles. For instance, a character in a sitcom shows off his plasma TV that covers an entire side of the wall, and he says, “they only sell them in Japan, but I know a guy.” However, Japan has surprisingly fallen behind in adopting digital technology.


According to a recent report by McKinsey and Company, Japan ranks 27th in digital competitiveness. The penetration rate for e-commerce (9%), healthcare (5%), and finance (6.9%), as well as the percentage of citizens using digital government applications (7.5%), are all in single digits. Last year, the reporting that 95% of businesses in Japan still use fax machines became a rallying cry for a ‘digital reform’ in Japan.


In recent years, the Japanese government has made substantial efforts to become competitive in the digital space. Former Prime Minister Shinzo Abe’s administration put forward the concept of ‘Society 5.0,’ which was a key piece of ‘Abenomics,’ the national strategy that sought to revitalize the Japanese economy and society. Society 5.0 presented the vision of leveraging the Fourth Industrial Revolution technologies, such as artificial intelligence (AI), the Internet of Things, or robotics, to address the challenges that the Japanese society and economy faced. Tokyo then developed national strategies for enhancing digital competitiveness around Society 5.0. For instance, Tokyo created the ‘Strategic Council for AI Technology’ to coordinate AI-related policies across key ministries and released the AI Technology Strategy, which outlined Japan’s AI R&D and industrialization roadmap.


At the same time, Tokyo sought to take Society 5.0 abroad. Abe introduced the concept of ‘Data Free Flow with Trust (DFFT)’ at the World Economic Forum in 2019 and launched the ‘Osaka Track’ within the G20 meeting in Japan. Japan also joined Canada-led Global Partnership on AI as one of the founding members in 2020. Domestically and abroad, Tokyo has shown the determination to play a leading role in the digital space.


However, Japan’s digitalization agenda has not moved as quickly as expected, which became even more apparent during COVID-19. For instance, consider the difficulties Japanese citizens experienced during the COVID-19 crisis. Japanese residents had to wait months to receive the COVID-19 relief payments because they needed to have either the ‘Social Security and Tax Number System’ (also known as ‘My Number System’), a national registry system that is meant to anchor the digitalization of public services, to apply online or apply with paper applications.


The problem was – both applying for a new My Number card and applying with paper applications took months for processing, and in April 2021, only 16% of Japanese residents had signed up for My Number, which had been introduced in 2016 with the intent to be a universal program. This fiasco highlighted Japan’s delay in the digitalization agenda and drew criticism to the Abe government.


When Abe resigned citing health reasons in August 2020, Suga got elected as the ruling party leader after running a campaign centred on eliminating bureaucratic red tape and getting the digitalization agenda on track. Coming to power, Suga’s administration made it a priority to enact these reforms before the end of the Diet session in June and the party leadership race in September.


What do the new laws do?


There are numerous items introduced through these Digital Reform bills. This section highlights the three most significant points: digital agency, data governance, and digitalization of public service.


Establishment of a Digital Agency

Broadly, the proposed Digital Agency is expected to function as a ‘control tower’ to digitalize Japan’s public service with significant powers over ministries, agencies, and local governments. On more concrete and immediate deliverables, the Digital Agency is expected to push for universal adoption of the My Number System and improve data and systems interoperability within government. The Agency is expected to hire more than 500 ‘technologists’ for its operations.


Data Governance

The Digital Reform package proposes to centralize the governance of data under the Personal Information Protection Commission, as well as to consolidate three laws (Act on the Protection of Personal Information, Act on the Use of Numbers to Identify a Specific Individual in Administrative Procedures, and Act on the Protection of Personal Information Held by Administrative Organs) upon a review of the personal information protection system.


Personal data will be labelled into ‘national,’ ‘private sector,’ and ‘local government’ categories and the national government will provide a unified set of guidelines on data anonymization and sharing. These measures aim to allow the flow of data between the national government, local governments, and the private sector. Further, in accordance with the GDPR, data for academic research will be exempted from the regular requirements.


Digitalization of Public Service

This legislative package also seeks to eliminate physical paperwork and bureaucratic red tapes through the My Numbers System. The new laws would enable Japanese residents to access public service (e.g., obtaining government certificates) at local post offices through the My Numbers System. Individuals would also download the My Numbers mobile app to verify their identities and access public services. In addition, responding to the COVID-19 relief payment fiasco, the new laws allow the linkage of the My Numbers service with banking information to facilitate the efficient distribution of payments from the government.


Analysis


Clearly, Suga hopes to make Digital Reform his signature policy and his administration has shown significant commitment to it. Interestingly, Suga’s bills are missing the term ‘Society 5.0,’ which could be interpreted as his efforts to create his own signature policies beyond the shadows of Abenomics.


Now, following the passage of the Digital Reform bills, there are three key things to watch.


First, Japan’s private sector, which boasts a world-class robotics industry, electronics and automobile manufacturers, and systems integrators, is likely to move to embrace digitalization at a faster pace. The McKinsey report underscores that government agencies have often played the role of a pioneer or first-mover in new sectors in Japan and that the private sector had been waiting for signs from the government to take more aggressive steps in digitalization. Suga’s Digital Reform bills are these signs for the private sector.


Second, the attempt to facilitate the free flow of data between different ministries, agencies, and local governments will be of interest for Canada, as it grapples with similar problems within its federal system, which has become especially apparent during the COVID-19 crisis. There are concerns that Tokyo’s attempt to create a national standard for all levels of government might create unexpected loopholes, considering that some local governments have very stringent data protection policies that might have to get loosened up. Also, others are worried that the Personal Information Protection Commission might not be well-equipped to address increased responsibilities as the sole entity overseeing data privacy.


Finally, it will be important to follow the public buy-in of these new measures. There certainly are some institutional issues that have undermined the public trust in digital services by the government, but such a low uptake of digital solutions not just in government services but also in e-commerce, digital payment, and healthcare for a country that is known to be tech-savvy has been attributed to deeply ingrained cultural attitudes. The efforts by the Suga administration to turn things around and build public trust in digital services, if successful, will provide useful insights for other countries grappling with similar challenges.

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