We need investment strategies for new infrastructures

Professor Noriyuki Yanagawa submitted an article titled “The development of IT, and its effects on investment.” to Nikkei Shimbun.

The summary of the article is as follows:

1) Information technology such as the internet, phone apps, and social media are becoming the base, with sharing and blockchain technologies seeing more and more activity. Companies like Google and Amazon are making their AIs open to the public, and developing related services.

2) These new technologies are infrastructures that encourage investment. New infrastructures like these are vital. IT and AI are like engines that give birth to new infrastructure, meaning that one infrastructure leads to another.

3) New infrastructures are handled by private enterprises, and have the characteristics of change and expansion. The strategy of the modern age will be to invest more in superior new infrastructures in order to increase the amount of new businesses that will use it.

This theory encourages the reform of public economics. Infrastructure such as roads, airports, waterworks, and electricity are public goods, meaning that they cannot function for business purposes and are left to the country, municipalities, public-service corporations, or any other entities in the “public” sector. They are financed by taxes and use fees.

New infrastructures will be provided for free by pure private enterprises. By working economies of scale, they gain compensation from derivative businesses as well as obtain client information and other big data.

For this, Professor Yanagawa believes that large companies, not start-ups, will take the reins. Because this is a matter of new infrastructure, I too believe that for Japan, it is more realistic to make a large-scale investment in a major company than it is to invest in a startup.

The problem with these new IT/AI infrastructures is that they will inevitably cross borders, meaning that no restrictions on foreign capital investment can be made and that global companies are guaranteed to invade. We cannot compete with national power alone. This is yet another reason why we need to reconsider public economics, which uses the policies of sovereign nations as the base for its theory.

Furthermore, the concept of market failure, a part of public economics, is relevant here. How do we overcome the problem of insufficient infrastructure investment? Professor Yanagawa mentions that the decrease of capital investment caused by the application of infrastructure will bring down economy aggregate demand. I would like to see this analyzed from an economist’s point of view.

New infrastructures are known for becoming cross-industry. This is why they requires new rules, rather than vertical stove-pipe regulations for each individual sector.

To maximize the benefit for these new infrastructures, we must promote investment and form policies that allow the benefits of utilization to become widespread.

The government must break down the stove-pipes, and commence deregulation and the formulation of policies to promote use. One valid measure would be to introduce a tax system that promotes both the use and investment of the new infrastructures.

On the other hand, targeting specific sectors with subsidiary aid to promote growth is likely to fail. A better idea would be for the government itself to take the lead by being a consumer, which would encourage investment by the private sectors.

Our problem is that the IT and AI sectors are already controlled by the U.S., and we are unlikely to ever gain the lead. What we need to do instead if aim for the layers above, such as IT, robots, blockchain platforms, or application areas such as education, medical care, disaster prevention, agriculture, and urban management.

To make this a reality, a comprehensive strategy is essential. The IT Headquarters and Intellectual Property Strategy Headquarters is currently working on both intangible/tangible strategies. Of course, Professor Yanagawa and myself are participating as well. However, what we require is a different strategy, one to promote new infrastructure investment.