Bringing Japanese utilities into the digital age requires a legal revolution

Japan’s efforts to bring its public services into the digital age come with a certain financial burden.

The government’s digital agency, established last September, is expected to have 472 billion yen to spend in the next fiscal year, starting in April. Its budget priorities are heavy on technology upgrades: promoting My Number ID cards (102.7 billion yen), subsidizing new industrial infrastructure (2.2 billion yen), and accelerating research on semi- next-generation conductors (¥14.8 billion) and post-5G telecommunications networks (¥10 billion).

Yet achieving a digital transformation of government requires more than new technologies. Laws and regulations must also change. According to some estimates, as many as 60,000 national and local rules need to be revised to make online public services possible. This is a daunting task, especially in a country whose legislative wheels turn as slowly as Japan’s.

Jonathan Soble spoke with Teruka Sumiya, Project Specialist at the World Economic Forum’s Center for the Fourth Industrial Revolution, about what is being done to bring Japan’s laws and regulations into the digital age, and how far the country is still has to go.

We hear a lot about how the Japanese government is trying to go digital and bring public services online. It’s a lot of work — hanko stamps and filling out forms at town hall won’t give way to smartphone apps overnight. And it’s not just about technology, is it? There is a whole legal aspect that makes it an even bigger task than people imagine.

That’s right. Behind every outdated administrative process is an outdated rule, like a law that says forms must be submitted in person or manually checked by a government official. Even when analog procedures are not explicitly required, they are often encouraged by default.

Many regulations do not include record keeping standards, so different agencies and local governments offer their own formats and processes. The result is a hodgepodge of mostly low-tech incompatible systems.

Modernizing the rules is as important as modernizing the technology, if not more so. This is going to require a whole new approach to legislation. Laws and regulations are revised infrequently – every three years at best, but sometimes once every few decades.

Obviously, with tens of thousands of rules that need to be updated, this is not enough to accomplish digital transformation.

We need a way to go faster. And there must be rules for rules – requirements for every law to be compatible with a digital world. These requirements did not exist before, leading to missed opportunities.

What kind of missed opportunities?

Take tourism, for example. In 2017, the government revised the Hotel Business Act, the main law governing licensing and regulation of the hotel industry. The law was written in the 1940s and has not been updated since. The revision notably eliminated the legal distinction between Western-style hotels and traditional hotels. ryokanand removing minimum room requirements to accommodate smaller operators like guesthouses and Airbnb.

One of the casualties of Japan’s drive to digitize will likely be the official stamp, which is already being phased out in some areas. | KYODO

But that did nothing to make licensing and record keeping digital. Different prefectures still have different license number formats, different application forms, and of course everything is on paper and accessible only by rummaging through filing cabinets. These issues could have been resolved when the law was updated – that was only five years ago, after all, long before the digital revolution – but they weren’t.

So what, if anything, has changed since 2017?

A lot, in fact. We finally see a real movement of change, especially in the last year or two.

The new digital agency is one of them, and there are some important new initiatives to address the regulatory aspect of digital transformation in particular.

For example, the Center for the Fourth Industrial Revolution Japan advised a government task force that worked on a set of “digital principles” that could shape legislation for the digital age – exactly the kind of rules I mentioned previously.

The idea is that all laws and regulations, national and local, should tick five boxes before being passed. The fundamental principle is that all administrative procedures required by law must be executable digitally. The others have to do with things like making government data more standardized and shareable, as well as – and this is a particularly crucial point in my view – making regulation more nimble.

What exactly does “more agile” regulation mean?

Agile governance means establishing flexible and responsive rules, rules that can adapt to changing circumstances or be adapted to meet different needs or levels of risk. This is the opposite of the traditional static, one-size-fits-all approach to regulation.

One of the reasons governance needs to become more agile is to keep up with technological changes, but technology also enables a more agile approach. Innovations such as Big Data and the Internet of Things allow regulators to gather more information faster, and often in less intrusive ways.

Take factory inspections, for example. Traditionally, inspectors visit a plant once in a while – once a week or once a month, for example – to look for safety or environmental violations. Inspection often requires the temporary shutdown of production lines. But in modern factories – so-called smart factories – each piece of machinery is equipped with sensors that transmit data about their operations to information networks.

Regulators can use it to keep tabs on real-time issues. So instead of making a law that says “factories should be inspected once every X weeks by Y people”, it makes more sense to say “factories should be monitored to prevent X behavior or control risks Y”.

If done right, everyone benefits — the public gets better regulation at a lower cost, and the burden on businesses is also reduced.

In Japan, there has recently been some limited experimentation with agile regulation. The Ministry of Economy, Trade and Industry, for example, has a pilot program involving petroleum refineries. But making agility a fundamental tenet of governance in the digital age would be a huge step forward.

So we have a government that clearly wants to go digital, and now a set of principles that could guide the legal side of the process. But who is going to make sure this actually happens?

One of the ideas we advocate is to create a central authority to review laws and regulations to ensure they are fit for the digital age. We think of it as the Digital Cabinet Legislation Bureau – after the Cabinet Legislation Bureau, which is an actual agency that reviews bills to make sure they don’t conflict with other laws, which they are constitutional, etc. The CLB is a powerful organism. Its digital equivalent would send rules to the drawing board that don’t make sense in the digital age.

It will also be important to educate the people who make the rules in the first place. I think Japan could emulate countries like Denmark, which has training programs for civil servants and legislators to make them aware of technological developments and their implications for governance.

And finally, there is the public pressure, which I think is increasing. People expect to be able to do things online easily and smoothly now, and the COVID-19 pandemic has made differences in the technological capacity of different governments stand out even more starkly.

People know that Japan is backward and that at some point a government that does not keep its promises will pay the price.

The five digital principles of Japan

The government’s ad hoc task force on digital government recently proposed five digital principles to shape the work of lawmakers and civil servants in the digital age.

  • Digital execution and automation: Procedures should not require written forms, in-person filings, or hands-on checks by officials at designated physical locations – they should be digitally executable and, where possible, automated. The goal is end-to-end digital processing, both within government and between government and its constituents, suppliers and other stakeholders.
  • Agile governance: Regulations should focus on desired end results—risks to be mitigated or performance to be achieved—rather than stipulating rigid, uniform processes and procedures. Regulatory oversight should take full advantage of available data and be open to continuous updates and improvements.
  • Private public partnership: The government should use private sector innovation to improve user experiences, for example by adopting user interfaces and other technologies developed by private companies.
  • Interoperability: Systems must be interoperable, so that national and local governments, quasi-public entities and the private sector can share data smoothly.
  • Infrastructure sharing: The public and private sectors should share a common basic digital infrastructure for things like digital IDs and basic registries. Procurement specifications should be standardized to avoid silos between different agencies, levels of government and other entities that provide public services.

Jonathan Soble is the Editorial and Communications Manager at the World Economic Forum’s Center for the Fourth Industrial Revolution in Japan, which focuses on projects related to data governance, smart cities, healthcare data policy health, agile governance and other areas.

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