New technology underlying the emerging US-China Cold War: Toward the realization of Japan’s unique redefinition of capitalism

Izumi Harada, Chairman, Crisis & Risk Management Society of Japan / Executive Fellow, Institute for International Socio-Economic Studies

   When the Cold War ended in the 1990s, it seemed that capitalism and democracy had achieved victory. However, 30 years on, authoritarian and non-democratic former soviet states are playing an increasing role in global capitalist markets, and things have now reached the point where a so-called New Cold War has started between the US and China. This power struggle is being played out on the Internet via technologies such as AI, IoT and Big Data, but these are technologies that are more compatible with non-democratic authoritarian countries with centralized power.

   Perhaps as a result of anxieties brought about by this situation, the idea of redefining capitalism was raised at the last Davos meeting and at last year’s Business Roundtable, which is the US equivalent of the Japan Business Federation (Keidanren). Capitalism currently prioritizes the profits of shareholders above all other concerns, making it unsuitable for addressing wider issues such as inequality and climate change.

   Instead, a new approach called “stakeholder capitalism” was advocated as a way of taking employees, societies and the environment into consideration. Similar ideas had already been put forward in Japan by George Hara, who proposed Public Interest Capitalism as a way of sharing profits fairly among corporate members including shareholders, employees, trading partners, customers and local communities, and even earlier by Eiichi Shibusawa, who proposed the ideology of “Gappon capitalism” that combined both private and public interests, and by the merchants of Shiga Prefecture who sought to provide benefits not only to buyers and sellers, but also to society as a whole.

   That being the case, this redefinition of capitalism can be regarded as an opportunity for Japan. However, Japanese companies are currently in a situation where it is difficult to raise their essential profits in the face of international competition. Unless profits are raised sufficiently, these ideas of combining a fair distribution of profits with a balancing of private and public interests will amount to nothing more than wishful thinking.

   To prevent this, Japanese companies must first implement bold changes by promoting DX (digital transformation), which involves computerizing the entire process from a long-term perspective, including the external environment and business strategy. Also, unlike in authoritarian countries, it is essential to respect human rights and actively introduce security-by-design and privacy-by-design. Only by preserving these qualities will it be possible to realize the principles of Japan’s own democratic stakeholder capital model.

   Furthermore, in computerizing this model, Japan should seek to position itself as a decentralized edge-computing AI country, instead of following the lead of countries with US-style cloud-based AI monitoring based on diverse foreign and domestic data collected by the likes of GAFA (Google, Amazon, Facebook, Apple) and the NSA, or countries with Chinese-style cloud-based AI monitoring of data collected by BAT or the government.

   Cloud computing involves the centralized collection, analysis and storage of information, while edge computing involves processing information in terminal networks instead of at a centralized location. In Japan, we should not implement a cloud-based AI-type network society that seeks to improve the overall efficiency of the state and giant companies, but should instead concentrate on promoting decentralization while ensuring efficiency.

   The free will and privacy of individuals should be afforded the utmost respect. To this end, we should aim for a democratic society based on a distributed cloud-edge AI-type community network, where data can be collected, analyzed and stored locally and within communities. Here, “community” basically refers to the local governments of prefectures and municipalities, although the economic zones formed by 146 credit unions throughout Japan could also be described as regional financial communities, and these can be regarded as being centered around universities and civic activities.

   When a nation consists of a group of communities, its security and privacy should be ensured by a system where the flow of data between communities and the nation is irreversible only when necessary, and an organization should be established to allow citizens to check that abuses of power and runaway use of data do not take place. At the same time, looking outwards we should contribute to the creation of norms that respect human rights and privacy in the digital and AI fields. Therefore, corporations, business fields, local governments and countries should first establish their own correct codes of ethics and organizations, and these should be widely disseminated to countries sharing the same values together with Japan’s own model as described above.