The IT Revolution and Regulatory Reform

Yoshihiro SUZUKI
(Member of the Regulatory Reform Committee / Executive Advisor to NEC Corporation / Vice Chairman, Institute for International Socio-Economic Studies)

1. What is the IT Revolution?

As the name indicates, the IT Revolution is one of the huge changes in society since the Industrial Revolution.

Prime Minister Mori 's address (149th Diet session, July 28, 2000) presented the Japanese government's definition of the IT Revolution as "A revolution in the structure of industry and society through the utilization of advanced telecommunications technology on a global scale". Considering that "in addition to being the impetus for a new economy, it also will bring about major changes in the activities of society in a short period of time," the government is making efforts to achieve a "Made-in-Japan IT society" with benefits that can be enjoyed by all members of society, from the youngest to the oldest. (See site http://www.kantei.go.jp/foreign/it_e.html).

In fact, IT forms the new infrastructure of the knowledge and services industries that are at the core of the economy of the future (the "New Economy"). This will not only give rise to various businesses and services that did not exist, and could not be imagined under the old systems, but also will cause profound changes in existing economic and production activities (the "Old Economy"). There can be free exchanges of information and capital across long distances without regard to national boundaries, production efficiency can be increased drastically, and more speedy and flexible methods of operation will be possible.

To say it another way, in this time of a worldwide trend toward globalization and market capitalism following the collapse of the cold war machinery, the IT Revolution is a social movement to create an environment (systems, physical infrastructure, knowledge base, sense of values) to facilitate the smooth functioning of economic activities and the daily lives of individuals, whereby companies and individuals make use of a technology system centered around an independent, distributed computer network known as the Internet, and operating under the principles of personal responsibility and autonomy.

Therefore, the culmination of the IT Revolution will be the birth of a new society -- an information society that will be significantly different from the current industrial society and from society and the economy as a whole. It is likely that the system of rules and regulations that govern the old economy will not apply to this information society and the New Economy.

Currently in Japan the IT Revolution has just begun, and the deficiencies of the existing Old Economy regulatory systems are being exposed. So we are now in the process of making revisions in the form of deregulation.

However, revisions to the existing legal systems should not stop. Rather, it is important to quickly create a new legal framework adapted to handle this new world growing from the IT Revolution. The nations that take the lead in this situation will be the leaders in the coming IT society, bringing greater wealth and benefits to their citizens.

2. Recent IT-Related Regulation Reforms

The Regulatory Reform Committee noticed that the unique characteristics of the IT Revolution contained the potential to further advance Japan's restructuring, and in fiscal year 2000 investigated the kinds of regulatory reforms required from the perspective of promoting the incorporation of IT in various areas of society and the economy, particularly as multi-disciplinary measures.

In July 2000 deliberations were held in public forums on the following three issues; 1) "Regulatory reform related to infrastructure development" as a start toward development of telecommunications networks, 2) "Regulatory reform related to content expansion", aimed at the increase in electronic commerce, and 3) "Regulatory reform related to system growth", in order to prepare to create a system that will handle electronic commerce.

The following is a list of specific future issues related to IT.

• Handling the fusion of communications and broadcasting: In the broadcasting field, ensure fair and effective competition, and ensure quality content (telecommunications infrastructure preparation)
• Develop conditions of competition for networks of e-commerce operators: Circuit construction problems, revision of NTT methods (telecommunications infrastructure preparation)
  Revise laws that do not consider or account for trading on the Internet: Ensure validity of the IT Revolution through the harmonization of regulations that do not cover trading via a network, such as written delivery and face-to-face sales (content expansion)
• Promote information technology in education: Promote school coursework that uses computers and the Internet, provide telecommunications as a curriculum of university graduate study (content expansion, system development)
• Promote information technology in government (make applications electronic, provide functions on-line): Promote digital government (content expansion)
• Diversify equity finance methods: Expand framework for issuing preferred shares of stock, and simplify issuing procedure to expand methods for raising capital for new companies (system development)
• Improve systems related to corporate governance: Revise the system of board of directors, auditors, etc, and fully implement a system of stockholder representation in lawsuits in order to achieve a more liberal governing system (system development)
• Improve the auditing system: Make it possible for there to be substitutions for investigations with lawyers, etc., and promote start-up companies and company reorganization (system development)

(See site http://www.soumu.go.jp/gyoukan/kanri/top.htm)

3. Future Issues

It is important to consider the international competitiveness improvements, benefits to citizens, and activation of the economy associated with the advancement of the IT Revolution, as well as regulation reforms.

If the IT Revolution occurs, Japan's growth will increase and alleviate problems associated with low growth, like business bankruptcies and unemployment, making it easy to forget the need for structural and regulatory reforms that are subject to a great deal of political resistance. However, in the midst of major changes in the social and economic environment, maintaining the systems and customs of the past will make it difficult to realize a vitalization of the economy through the IT Revolution. The USA is leading the way in the IT Revolution, supporting it by instituting various system reforms for environmental changes that occur with the conversion to IT, and creating many employment opportunities. The IT Revolution becomes meaningful starting with a focus on regulation reforms for the various fields that have traditionally been handled by the regulatory reform committee, using the shift to IT as the starting point. Simply working on the issues associated with IT and ignoring existing regulation problems will only lead to a worsening of these problems.

The Regulatory Reform Committee is not simply replacing existing procedures with electronic ones. We believe that continuing to reform regulations to change the existing systems so that they can handle the changes in the socio-economic situation and the shift to IT is an important factor in the restructuring of Japan and the revitalization of business and personal activities. To achieve this, it is necessary to make a variety of innovations through private competition, based on market principles, and to clarify the role of government in developing an environment that ensures fair competition conditions. Under these conditions, it is believed that it will be possible to speed up regulation reforms while following the "Basic Law on the Formation of Advanced Telecommunications Network Society", actively promoting the development of the IT Revolution and resolving issues like the factors that hinder the development or problems like the "digital divide", which arise from such development.