Japan's over-regulated economy plunged to 16th place last year from third in 1990 in potential competitiveness rankings of 31 OECD and Asian nations in a study released Monday which put the US in top spot.
The small number of highly-educated graduates and the low level of technology infrastructure meant that Hong Kong, Singapore and Taiwan are all better equipped than Japan to seize the information technology revolution, the new study by the Japan Center for Economic Research said.
"The weakness in this field might affect future competitiveness fatally," the center warned.
"Potential competitiveness is not a result of economic growth but competitiveness for the future," the center noted.
"For example, high educational standards, and adequate infrastracture means high potential competitiveness."
The survey, commissioned by the Nihon Keizai Shimbun economic daily included rankings for eight categories: international trade and finance, corporations, education, domestic finance, government, science and technology, social infrastructure, as well as IT.
The US topped the overall rankings with Singapore rated second, and Hong Kong was fifth. South Korea was 23rd, one place behind Italy. China was ranked 27th, while the Philippines took the wooden spoon out of the 31 countries.
The most competitive European country was the Netherlands in third place, followed by Finland. Norway, Sweden, Australia, Britain and Switzerland made up the lower five of the top ten.
Japan did not achieve first place for any of the categories, while it came bottom in terms of education out of 25 countries assessed. Its best score was second place in terms of science and technology.
Despite spawning world-beating electronics companies, Japan ranked 14th in terms of IT competitiveness, reflecting the penetration of telephones, personal computers, and Internet access which make up business infrastructure.
The United States was first, with Singapore in sixth place, the highest ranking in Asia, followed by Hong Kong in 11th place, and Taiwan 13th, ahead of Japan.
"The reason why Japan lagged behind in IT fields is the percentage of IT investment is low," it continued.
"There are synergy effects of raising capital and labour productivity which cannot be taken advantage of because the ratio of IT stocks to total capital stocks remained around half that of the US," it said.
"There are regulations hampering competition in products markets such as price controls, and labour market flexibility which in turn become obstacles to IT," the center added.
Japan's ranking for the competitiveness of its domestic finance system plunged sharply to 13th place from the third in 1990, and education fell to 25th place from 18th ten years ago.
The center pointed to the low numbers of students at Japanese graduate schools struggling to complete their studies with little in the way of financial assistance from the government.
Only three percent of students in Japanese higher educational institutions go on to graduate schools in Japan, a lower figure than in South Korea or China, the survey said.
Primary school teachers tended to be in charge of much larger classes than than their counterparts in Norway and Denmark, while Japan's spending on education as a percentage of GNP was 17th.
"When we consider that globalization is inevitable, the importance of specialized education will increase, not decrease," the report said.
The Japanese government said it was concerned by some of the issues highlighted by the report but declined to comment on its conclusions.
"We cannot make any comment on the ranking itself as we do not know whether the criteria used for the survey were appropriate or not, but we share the same understanding of the issues," said Kazuhiko Koshikawa, deputy press secretary to prime minister Yoshiro Mori -- TOKYO (AFP)
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