I. Research Objective
In December, 1993, The RIALS initiated the Research Committee for the Industrial Structure of the 21st Century, which after two years of research and discussion, is able to report future prospects of industry in the year 2010 as well as elucidate imminent industrial trends for the 21st century. However, as was the case when the research began, some aspects of uncertainty remain due to the recent wave of industrial restructuring efforts and adjustments.
II. Report Structure
The following report consists of two separate parts. Part I highlights international and domestic industrial trends in the 21st century as well as a direction for Japan that best facilitates the achievement of "The Advancement of Living Standards" model-Industrial Structure Scenario. Part II is a simulation and as such serves as a forecast for industry and employment in the year 2010.
III. Main Points of the Report
Part I . Industrial Structure in the 21st Century Japan
1. Advancement of Living Standards Model Industrial Structure Scenario
One trend in industry which is imminent in the 21st century is that of an era of "mega-competition" between international enterprises coupled with the continued globalization of business. The manufacturing capability of the Japanese World Factory, which until now has reaped benefits from investment limited to domestic functions, will decrease in strength as corporations increase investment abroad, particularly in Asia. However under such a scenario, the Japanese economic structure will not be hollowed out but rather will serve as the centerpiece of the Asian Economic Zone Network.
The second trend under this scenario will be information networking. At the turn of the century, industries which will lead society and the economy will be those in information and knowledge intensive sectors such as micro-electronics, computers and software, telecommunications, biotechnology, and new-material development. Research and Development will necessarily become increasingly important, and as technology in all fields is compounded and merged, the information and communications network will prove to be an essential infrastructure facilitating their linkage.
Finally, as we believe it is natural and in fact inevitable that citizens desire and pursue bountiful social welfare, the third trend of the 21st century will be an increase in the peace and comforts of society as a whole. As Japan faces issues surrounding a gradually aging society in which birth rates are gradually decreasing, it is crucial to construct an industrial society as a social system where a feeling of real wealth can be achieved.
2.Core Competency Proposal
The aforementioned research committee compiling this report has established for the scenario a style of thinking termed, Core Competencies", which refers to the presence of an energetic industry base that promotes dynamism in the industrial sector. We are considering for our scenario six specific areas of importance. The six areas of importance are as follows: 1) The advancement of living standards, 2) Environment and Recycling, 3) Personnel Utilization, 4) Information and Knowledge, 5) Creative Research and Development, and 6) Minimum Industrial Base.
With 21st century Japan's specialized and co-operative international industry structure serving as a base, these six fields are important to the common wealth of citizens in the sense of construction of a society which focuses on living standards and harmony with the environment. Here, then, we propose a new idea which states each of these six areas will simultaneously bring about revitalization of traditional industries as well as the creation of new industries.
PART II SIMULATION RESULTS
1. Pre-Conditions for Simulation
By using input-output table we performed a simulation of industrial structure for the year 2010. Our simulation differs from macro-economic models which forecast areas such as aggregate economic growth rates, employment levels, consumer prices, income and expenditures, etc. Rather, using a macro-economic simulation utilizing real growth rates as well as other factors as our base, we analyzed how industrial and labor structure will develop.
In this simulation, we forecast how domestic industry and employment will be influenced by the shift overseas of Japanese business and how their structure would be affected when changes are made in the 21st century demand structure scenario (excluding financial and service sectors).
Using the 1990 input-output table as a base, we made estimates for 1993 and forecast industrial structure for the years 2000 and 2010. The primary assumptions and procedures which apply to our forecast can be found below. (Detailed information on the case organization is shown in Figure 1.)
In "Advancement of Living Standards Case":
(1) The real growth rate until the year 2000 is set at 2.7% while that for 2001-2010 is fixed at 2.4%. The export rate grows at 2.0% per year for the entire period.
(2) Effects of the shifting of business overseas, the so-called "de-industrialization", will influence domestic production and employment.
(3 In the case of "moderate growth" estimated from the above assumptions, we forecast production and employment totals for the 405 industrial sectors by combining the impact from six areas of "core-competencies", which as predicted leading sectors in the next century, are expected to provide significant growth(figure 2).
In more concrete terms, the scale of the market for the six core-competency areas is expected to reach 303 trillion Yen. This figure corresponds to 23% of total output in the "moderate growth" case, and we regard it as 23% of final demand for the same case. Next, by subtracting this amount uniformly from all sectors and re-distributing it by rearranging it according to the final-demand vector created separately, we arrive at our "Advancement of Living Standards" Model Industrial Growth Scenario.
Figure 1- Four Cases of the Simulation and their pre-conditions
1. Growth Maintenance Case
In the growth maintenance case, real growth of less than 3% will be maintained, domestic final demand and export growth will remain relatively high, little effect will be felt from de-industrialization, and the basic industrial structure will remain unchanged.
2. Moderate Growth Case
This case will provide stability be maintaining a real growth of about 2.5%. Also, domestic final demand and export growth will be slightly less than the above case, but little effect will be felt from de-industrialization and little change will occur in the basic industrial structure.
3. Advancement of Living Standards Case (hereafter, ALS)
The pre-conditions for this case are basically the same as those in the moderate growth case. However, qualitative changes in living standards should be felt through a changing industrial structure.
4. De-industrialization Case
Pre-conditions here are a rapid advancement of de-industrialization followed by a low real economic growth rate of only about 1.4%. This leads to lowest growth of domestic final demand and domestic production figures.
<Final Demand and Export pre-conditions for four cases>
Growth Rate(%/year) 1994-2000 2000-2010 1. Growth Maintenance Case Final Demand 3.0 2.7 Exports 2.5 2.5 2. Moderate Growth Case Final Demand 2.7 2.4 Exports 2.0 2.0 3. ALS Case Final Demand 2.7 2.4 Exports 2.0 2.0 4. De-industrialization Case Final Demand 1.6 1.2 Exports 1.6 1.2
Figure 2-Market Scale forecasts for the Six "Core-Competencies"
1995 2010 Industrial Sector Amount Composition Amount Composition (trillion yen) (%) (trillion yen) (%) Advancement of Living Standards 59.8 49.4 117.0 38.6 Environment/ Recycling 17.7 14.6 39.4 13.0 Personnel Utilization 2.0 1.7 12.6 4.2 Knowledge/ Information 11.7 9.7 86.3 28.5 Creative R&D 13.8 11.4 24.5 8.1 Industrial Minimum 16.1 13.3 23.5 7.7 Total 121.1 100.0 303.3 100.0 note: Rounding May cause the Composition % to be greater or less than 100%
2. Simulation Results Summary
(1) The Appearance of Model Industries For the 21st Century
Heading into the 21st century, the results of changes in industry structure precipitate the appearance of new leading industries. Through the arrangement of simulation results into three categories, traditional industry, high-growth industry, and 21st century model industry, we have created a comparison of the present (1993) and the year 2010. The simulation points out that the make-up of the industries which led the second half of the twentieth century, namely traditional and high-growth industry, remained virtually unchanged and indicated tendencies toward maturation. However, the relative weight of the 21st century model industry group increased significantly from 13.7% of total employment to 19.2%, thus securing them as the leading industries.
(2) Growth Industries (Information/Communications, Lifestyle/Welfare, Services)
In the figure 3 we have listed in order of their growth rate, predictions for the top ten industries from the years 1993 to 2010. Although the top ten sectors are listed in order beginning with communications, they are easily divided into three broader groups, the first of which contains industries that are based on information development; communications, information services, and publishing.
Figure 3. Top Ten Growth Industries through 2010
Industry Growth Rate(%) (Production in 2010/ Production in 1993) x 100 1. Communications 277 2. Information Services 268 3. Personal Services 228 4. R&D 217 5. Public Service 210 6. Office Services 197 7. Leasing 186 8. Publishing 185 9. Electric/Gas 181 10. Lumber 164 Average For All Industries 143
The second group contains R&D, office services, and leasing, and growth here is the result of creative strengthening of fundamental technology as well as corporate structural changes due to out-sourcing of management resources.
Health services such as nursing, housekeeping, aesthetic salons, fitness clubs and swimming schools belong to the third industrial group. Moreover, this industry group includes businesses such as pet services, "cram" schools, culture centers, and bridal services, all of which are personal service industries responding to the changing needs of a growing aged population, increased social awareness, and varying lifestyles in a more symbiotic male-female society. Three public services impacting social welfare, namely gas, electric, and sewer services also belong to this group and will realize gains due to improvements in living conditions as will the social welfare maintenance functions of the lumber and housing renovation industries.
(3) Industrial Structure Moves Towards The Service Sector
Industrial organization in the year 2010 will have shifted to a more service oriented structure. The percentage of service sector businesses will increase from 28% to 31% in terms of production, and employment will reach 37% of the national total. Numbers for the tertiary industry, which is the aggregate of wholesale and retail sales and the service sector, comprise approximately 60% of total industrial employment. On the other hand primary industry, as well as wholesale and retail sales alone, experienced a large drop in employment percentages while most other sectors showed insignificant employment percentage fluctuations due mainly to an appropriate balance of both industry and living standards from the six "core competency" areas.
(4) The Creation of Over One Million Jobs
Following the aforementioned shift in industrial structure, significant changes will occur in employment structure from 1993 to 2000. Particularly, over a million jobs each will be lost in fisheries, agriculture, and construction, while losses will also be felt in wholesale and retail, finance, insurance, and food and beverage for a total of 6.07 million lost jobs. Conversely, the personal service sector is poised to create 2.99 million employment opportunities while 7.41 million new jobs will emerge in information services, public service, R&D, communications, medical care, office services, and social services. As a net total, 1.35 million new employment opportunities will be created.
(5) High Unemployment Resulting from Failure to Reform Industrial Structure
Under the assumption that heretofore discussed structural changes occur in both industry and employment, unemployment in the year 2010 will stand at approximately 1.56 million, which corresponds to the "full employment" rate of 2.5%. This result, however, is predicated on "core competency" being reached in the six industrial areas, and that these areas maintain moderate growth as leading sectors of the economy. Should this scenario not result, however, the outlook changes completely; even if moderate growth is realized, failure to reach "core competency" in the six sectors will lead to 2.23 million jobless corresponding to an unemployment rate roughly equal to the present 3.3%. Along the same lines, replacing the "moderate growth" case with the "de-industrialized" case results in unemployment forecasts of 11.99 million or 17.8%.
(6) De-Industrialization (The Effect of Shifting Employment overseas)
Direct and indirect influences on Japanese domestic production and employment due to the advancement overseas of Japanese firms are described and analyzed in the following five categories:
(a) "Capital Movement Effect": Domestic investment will decrease as money which normally would remain in Japan is invested abroad; the effect is negative.
(b) "Capital Goods Effect": Due to overseas investment, capital goods such as machinery and equipment manufactured in Japan will be exported, adding to the export totals; the effect is positive.
(c) "Parts Exporting Effect": Deriving from the Capital Goods Effect, spare parts from capital goods will be exported; the effect is positive.
(d) "Re-importation Effect": Goods produced by Japanese corporations located abroad are re-imported into Japan (Boomerang Effect); the effect is negative.
(e) "Substitute Export Effect": Products made overseas will be directly exported to third party countries, thus decreasing exports directly from Japan; the effect is negative.
The cumulative effect of these five factors is that in the "growth maintenance" and "moderate growth" cases, 620,000 jobs will be lost in 2010, a slight increase from 520,000 in 1993. However, in the "de-industrialization" case, yearly job losses will reach 2.14 million, which is greater than the current job-loss rate of 3.6%. Regarding individual sectors, electronics will be the hardest hit at 710,000 jobs lost, followed by automotives and wholesaling at 360,000 and 270,000 jobs, respectively. Moreover, increases in unemployment will not only be limited to industries shifting overseas, but will in fact spread through most industries including office services and transportation.