Hampered digitalization: Institutional failure and new instability in Japan

This article examines how business, labor, and the state have adapted to digitalization, highlighting the critical role of national institutions in shaping how societies experience this global shift. By drawing on Régulation Theory and considering the case of Japan, this article analyzes the interplay between competition, wage-labor relations, and the state. The paper argues that Japan’s response to digitalization has reinforced neoliberal restructuring without establishing a new mode of regulation (which would require the reconciliation of the competing interests of labor, capital, and the state). Digitalization has intensified competition, placing downward pressure on wages and exacerbating skills shortages while also creating a digital divide between large firms and SMEs. The existing low-wage problem has been exacerbated by rising investment in technological upgrades without commensurate wage increases. Finally, the Japanese state’s failure to effectively coordinate labor market policies with digitalization efforts has exacerbated existing inequalities and hindered the development of a stable regulatory framework. Consequently, instead of reconciling the competing interests of labor, capital, and the state, current institutional adjustments to digitalization in Japan have generated further instabilities, hindering the realization of any growth potential.