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Monday, March 19, 2001

Technological advances pose challenge for 21st century

Progress and technological innovation bring economic prosperity, as everyone knows. The advent of the steam engine brought about the Industrial Revolution, and the information technology revolution has reinvigorated the U.S. economy today. It is only natural for us to expect technology to continue contributing to global productivity in the 21st century.

On the flip side of the coin, however, it is imperative for us to fully recognize that innovation tends to cause friction among existing organizations. At the outset of the Industrial Revolution, workers who saw their jobs threatened by the advent of a mechanical civilization started a movement to smash labor-saving machines. We have recently seen similar actions being taken by developing countries and nongovernmental organizations at international gatherings.

To overcome such a situation, we need to push for structural reforms in economies at different stages of development. All of them, be they developing nations or industrialized countries, need to bear the pain of such reforms.

However, recent moves by Japan's towel industry to call for restrictions on imported products bring to mind the trade friction that has arisen between Japan and the United States in the postwar era.

Further progress in globalization is expected in the new century, but it is an inescapable fact that national boundaries and regions with historical backgrounds still exist.

In democracies, individual industries wield great influence over politics, and their activities make microeconomic problems difficult to solve.

This putting-off of reforms is also the reason behind Japan's lackluster economic performance in recent years. In the 21st century, it will be imperative for each nation to carry out internal structural reforms and solve their problems one by one while building mutual trust in one another.

One key to creating a network of trust is improved global productivity, a benefit of the IT revolution. However, recent incidents are symbolic of key IT problems that still need to be solved.

These include the near-miss involving two Japan Airlines planes over Shizuoka Prefecture in late January, the collision between a Japanese fisheries training vessel and a U.S. submarine off Oahu Island in Hawaii, and the power outages in California.

To maintain some form of order as the skies and seas become more congested, it is necessary to make use of visual screens that use IT technology. The accidents confirm for us that IT is incomplete and that the people who use it remain a very important part of its viability.

Furthermore, we need to note that while those screens are indispensable for maximizing the performance of airplanes and submarines, they cannot be operated solely by virtual technology.

Other shadows creeping up on the U.S. economy, represented by the continued fall in the NASDAQ composite index, serve as confirmation that a national economy cannot thrive on dot-coms alone.

Unless we live as hermits, we will not be able to subsist on this mist called software. If we do, then expanded imports and a widening current account deficit are the price that will be paid for such an economy.

The rolling blackouts in California signify the negative effects of what seems to be common sense in the IT world. In an area where change is rapid, the tendency rises for matters to be considered within time frames often shorter than three months.

The electricity shortage and ensuing blackouts are a result of corporate management being poisoned by such thinking and focusing only on short-term gains, rather than taking medium- and long-term investment as seriously as they should have.

The relationship between economic reality and finance is an old yet new matter for the science called economics. The fact that the increased supply of funds brought about by an ultra-easy monetary policy has not contributed to expansion of the actual economy has posed a grave question about Japan's monetary policy.

What is the challenge of the 21st century? It requires recognition of the effects of the technological progress called IT -- including its negative side -- and having a well-balanced grasp of the triangular relationship entwining economics, finance and technology. We must then create an economic system and nurture human resources capable of adapting and reacting to such triangular changes.

Teruhiko Mano is an adviser to Tokyo Research International Ltd.

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The Japan Times

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