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In the spring of 2007, news broke that Japan’s Social Insurance Agency, which administered the country’s public pension system, was unable to match more than 50 million records to premium-paying citizens. The problem stemmed from the agency’s mishandling of the merging of a patchwork of pension systems into a single one in 1997. The incident revealed problems with the digitization of pension records, ineffective mechanisms for collecting contributions, and incompetence on the part of the agency’s staff. It led to widespread public outrage, contributed to the opposition party taking control of the upper house of the Diet, and significantly lowered the approval ratings of Prime Minister Shinzo Abe, who resigned not long after the upper house vote.
On June 1 of this year, Abe, who was reelected in 2012, was once again forced to confront a problem with the management of Japan’s pension system. The Japan Pension Service (JPS), the organization that was created in response to the earlier incident, announced that, as the result of a computer virus, personal data, including names, birthdates, pension numbers, and addresses for more than 1.25 million individuals were accidentally made public. Estimates suggest that, so far, 52,000 individuals had all four types of information leaked, and in parliamentary questioning last Wednesday, JPS President Toichiro Mizushima expressed his concerns that the number of affected individuals could grow.
Although history is unlikely to repeat itself—unlike in 2007, the opposition is too disorganized to use the data leak to pressure the prime minister—this revelation could nevertheless be a serious political problem for Abe at a time when he can ill afford it. His government is already engaged in a major parliamentary fight over revisions to Japan’s national security laws and preparing for the potentially controversial decision to restart a pair of offline nuclear reactors later in the summer.
The simple reality is that, with one in four Japanese age 65 or older, the public is sensitive to any sign that the pension system is less than secure. Most pensioners—nearly 60 percent according to Japan’s Ministry of Health, Labor, and Welfare—depend on the public pension for 100 percent of their income. Not surprisingly, then, polls regularly find that citizens want Japan’s leaders to make pensions and social security more broadly their top priority: for example, in a poll conducted in April, by the Nikkei Shimbun, Japan’s leading financial newspaper, 55 percent of respondents said that they wanted the Abe government to prioritize pensions, compared with 42 percent who said it should prioritize economic policies. Both were far ahead of other policy issues.
As a result of growing dependence on the pension system and shortcomings in protecting confidential information, the public simply does not trust the government to act responsibly, which in turn makes it difficult, if not impossible, for political authorities to introduce cost-saving measures and modernize pension administration. This incident, in which officials repeatedly downloaded attachments from suspicious e-mails even after being warned not to, may only deepen public distrust of Tokyo’s attempts to encourage more widespread use of information technology and big data in the public and private sectors.
Abe has embraced technology as a key for boosting productivity in the private sector and for reducing wasteful government spending. Not only did his government issue its Declaration to Be the World’s Most Advanced IT Nation within months of taking power but the prime minister has met regularly with Japanese tech entrepreneurs and their Silicon Valley counterparts and inaugurated a Japan Venture Prize awarded by the prime minister himself to encourage innovation. According to the OECD, as of 2012, Japan’s labor productivity, as measured by GDP per hour worked, was 62.5 percent of that in the United States despite Japanese working more hours than all but Americans and Russians.
Meanwhile, according to data compiled by the Research Institute of Economy, Trade, and Industry, a think tank affiliated with Japan’s Ministry of Economy, Trade, and Industry, between 2007 and 2010, total factor productivity, which captures the growth impact of technological and organizational change, was virtually flat across all sectors of the economy.
That includes the public sector. Although past administrations have fretted about wasteful public spending, the Abe government seems determined to place improving public-sector efficiency at the heart of its plan for fixing public finances. Abe’s leading economic advisers have recommended that the government embrace information technology and private-sector management practices to make Japan’s government more efficient. This suggestion will be the basis for the fiscal reform plan that the Abe government will unveil in late June. The government is particularly interested in greater efficiency in the provision of public services by local governments as a means of reducing the central government’s budget deficit, because local governments depend heavily on money from Tokyo to finance their operations. Technology solutions will undoubtedly be part of this economy drive. Tokyo has also already been preparing to launch in January 2016 the My Number system, which is intended to streamline the collection and distribution of taxes and pension benefits by issuing a single number for both systems.
The lack of basic computer security awareness displayed by JSP officials, who continued to open and download malware even after police had begun investigating the incident and warned employees to be alert, is alarming.However, if the public does not trust officials to use new technology responsibly, and if officials themselves are reluctant to learn the systems, reforms will not only fail to lower costs but they could deepen the public’s mistrust of the bureaucrats who manage the public services and their political overseers. Even before the pension system data breach, many citizens were skeptical of the My Number system. In a poll conducted in January by Japan’s Cabinet Office, when asked what made them most uneasy about the My Number system, 32.6 percent of respondents said that they feared that their privacy would be invaded due to data leaks. Another 32.3 percent said that they feared they would be harmed by improper use of the personal identification number or other personal data.
The government has sought to address these fears by strengthening guidelines for the management of personal data, creating a watchdog group, and boosting Japan’s cybersecurity capabilities. Earlier this year, for example, the government established a cybersecurity headquarters under the prime minister’s leadership that aims to bring Japan’s cybersecurity standards up to international levels. But the data breach shows how far Japan has to go before it can, in fact, become the World’s Most Advanced IT Nation. The lack of basic computer security awareness displayed by JSP officials, who continued to open and download malware even after police had begun investigating the incident and warned employees to be alert, is alarming.
Even worse, low public investment in technology matches low levels of investment, or even interest in investment, in IT by the private sector. According the OECD, as of 2009 (the most recent comparative data), IT investment as a share of total fixed non-residential investment was more than 30 percent in the United States and less than 15 percent in Japan. This issue is particularly pronounced among Japan’s small and medium-sized businesses, which employ nearly three out of every four Japanese workers; increased IT expenditures have been concentrated among firms with at least 100 billion yen (about $796 million) in capital, while the average amount of annual expenditures on IT by firms with one billion yen ($7.96 million) or less in capital, the vast majority of firms, has been flat for almost a decade.
But public distrust is not limited to technology or the pension system. Since Japan’s economic bubble burst in the early 1990s, the ability of citizens to trust their government—to believe that the government is transparent and is looking out for the public interest—has been repeatedly undermined by a series of incidents that have at times led to the loss of life. Numerous corruption scandals have tarnished the reputations of both elite bureaucrats and elected officials. A scandal involving HIV-infected blood led to health ministry officials being convicted for involuntary manslaughter. And clumsy responses to the Great Hanshin earthquake in 1995, the Aum Shinrikyo attack on the Tokyo subway in 1995, and the 2011 disaster at the Fukushima Daiichi nuclear power plant have diminished Japanese confidence. The problem is not that institutions made mistakes but that officials were reluctant to acknowledge and learn from mistakes, and that they often appeared to prioritize their organizations’ interests over the broader public interest.
The pension data breach suggests that public distrust will remain a significant constraint on Japan’s government, despite Abe’s high approval ratings. To the extent that the pension scandal leads citizens to question Tokyo’s trustworthiness, it will limit Abe’s ability to deliver on ambitious reforms. Even before the news broke, lingering suspicion of public authorities was one factor in public opposition to Abe’s ambitions to expand the role of Japan’s Self-Defense Forces and restart Japan’s nuclear reactors. In both cases, opposition may have less to do with the policy details and more with the perception that the Abe government is not being forthright and will not safeguard the public interest. In the case of nuclear reactors, for example, polls show that voters are opposed to restarting reactors even as they recognize the need for nuclear power.
Abe has embarked on an ambitious program of reversing slow growth and deflation and bolstering Japan’s leadership position in Asia. Reversing the two-decade decline in public trust is of no less importance, because sweeping reforms will be impossible unless citizens trust the government’s intentions and capabilities. Frankly addressing the problems in the pension system would be a good way for the government to start winning back public confidence.