Enhancing Rural Innovation in Japan

1. Assessment and Recommendations

Japan is the third most populous country in the OECD, home to 125 million inhabitants in 2022, after Mexico (126 million) and the United States (332 million). However, over the last two decades, Japan’s regional population declined on average by 0.32% annually (0.05% in terms of population weighted averages) between 2000 and 2021. This decline has mainly occurred in non-metropolitan regions, with growth occurring only around its three largest metropolitan areas of Tokyo, Osaka and Nagoya. These trends are contributing to the disappearance of communities in Japan each year. Around 140 communities disappeared between 2015 and 2019 (MIC, 2019[1]). Second, Japan’s non-metropolitan regions have an older and ageing workforce. This makes demographic change one of the most important underpinnings of public policy and governance challenges in rural Japan.

National innovation initiatives are often identified as tools used for adapting to and meeting the challenges of delivering more services with fewer resources, whether in the public or private sector. In this aspect, Japan has a comparative advantage as one of the most innovative countries in the world, when it comes to high-tech innovation, with patenting intensity more than double the OECD average over the 2016-2020 period. As one of the OECD countries at the forefront of high-tech innovation, the diffusion of advances in technologies can be a solution to challenges in non-metropolitan regions. However, Japan also has one of the largest territorial gaps among OECD countries in terms of high-tech innovation intensity, with the majority of patenting activity taking place in metropolitan regions.

That being said, scientific and technological innovation, in itself, is not the only solution to rural challenges, nor does it indicate any measure of diffusion or adoption of innovation. More importantly it does not necessarily encompass innovations that support locally led innovation efforts and that may not fall under the traditional science and technological umbrella. As such, despite the fact that Japan is a strong high-tech innovation country, there is a much less emphasis on finding ways to promote a more holistic view of innovation in rural areas. For instance, data that is available on the rates of entrepreneurship show that despite the fact that there are more entrepreneurs per individual in non-metropolitan regions of Japan, entrepreneurship, an important proxy for innovation, is falling in rural areas. In 2007, the rate of entrepreneurship 90.1 per 1 000 workers in non-metropolitan regions and fell to 74.8 entrepreneurs per 1 000 workers. In comparison, entrepreneurship also fell in metropolitan regions of Japan. The numbers of entrepreneurs per workers in 2018 declined to 71.5 entrepreneurs per 1 000 workers in metropolitan regions and as compared to 89.5 per 1 000 workers 2007.

In a context of demographic decline and structural change, innovation adoption becomes paramount as governments, communities and firms will need to do more with less. This is not just because of challenges associated with a smaller and older labour force, but also because demographic decline entails larger structural changes. For example, a shrinking workforce and growing elderly population can have fiscal implications for regional and national governments. It increases the unit cost for providing services, and increases demands for services specialised to an ageing population, thus making rural places increasingly dependent on fiscal redistribution. This emphasises the importance of innovation in the provision of services, as well as place-based innovation opportunities that require more horizontal and vertical government coordination, as well as government support for bottom-up and community-driven initiatives and finally prioritizing programmes that take a territorial approach across administrative delineations to increase the scale of rural places.

Initiatives to support innovation that go beyond science and technology and to adapt policy and governance to the context of rural places are critical to sustaining services and well-being in rural places. As such, high-tech innovation alone, which is a narrow view of innovation, cannot address the main challenges facing rural Japan. Innovation in rural areas needs to be broader than high-tech, science and technology. It needs to include i.) community-based innovation for public service delivery and community revitalisation, ii.) public sector innovation to better deliver programmes fit for rural communities, iii.) entrepreneurship support that includes innovation initiatives targeted at rural firms and iv.) innovation in land use.

This report focuses on innovation in rural areas as a means of addressing current and emerging demographic challenges. It includes a diagnostic chapter on rural Japan, and a chapter on rural policy, innovation in rural areas and innovation through land-use. The report primarily uses the Japanese classification of densely populated districts (DID) for analysis within Japan, and when comparing to other OECD countries, the analysis uses a classification based on the OECD’s typology of small (TL3) regions based on accessibility to functional urban areas in metropolitan and non-metropolitan regions (prefectures). The research for the report reflects a combination of statistical analysis, desk research, virtual missions and fact-finding visits to Tokyo and Yamagata. These missions explore initiatives and programmes from public (national, prefectural, and local governments), private and local communities.

Assessments

Demographic change and economic transformation are impacting opportunities in rural Japan

Japan is the third most populous country in the OECD, but its population is declining

With close to 125 million inhabitants in 2021, Japan is the third most populous country in the OECD. The population, while still large, has fallen by 1.4 million from 2000-2021. This represents a 0.05% decline nationally or 0.32% decline on average across its 47 TL3 regions. In contrast, during the same period only 9 out of 38 OECD countries declined in population and on average TL3 regions grew 0.45% per year.

Population declines in Japan occurred primarily in non-metropolitan regions….

Despite high levels of population, population in Japan is in decline, especially in non-metropolitan regions. Within a 2-decade span from 2000 to 2021, the average regional population fell by 0.32% in Japan. In comparison, the population increased over the same period by 0.45% in terms of regional averages in OECD countries (or 0.05% in terms of population weighted average). In non-metropolitan regions of Japan, containing an important share of rural places, the trend is accentuated. Declines in average regional population amount to 0.64% in non-metropolitan regions close to mid-sized cities and 0.61% in non-metropolitan regions close to small cities. On the other hand, across the OECD non-metropolitan regions close to mid-sized cities grew by 0.36%, non-metropolitan regions close to small cities grew by 0.38%, and non-metropolitan remote regions grew by 0.27%. Nonetheless shrinking trends in non-metropolitan regions were present in some countries. For example, Hungary, Germany, Portugal and Poland all observed a decline in non-metropolitan regions close to mid-sized cities, while population also declined in non-metropolitan regions close to small cities in countries like Lithuania, Latvia, Estonia, Hungary, Germany and Poland.

…and the workforce is relatively older in rural areas.

As in many OECD countries, rural areas in Japan have a smaller share of younger workers (ages 15-34) compared to urban areas. In 2020, rural areas had 24 younger workers per 100 working-age individuals (ages 15-64), which was 4 fewer than in urban areas, where the figure stood at 28 per 100. Youth employment in rural Japan have also been declining: in 2010, there were 27 young people per 100 employed individuals in rural areas, but this dropped by 3 over the decade. Meanwhile, the number of rural youth not in employment, education, or training (NEET) has risen. In 2020, there were 18 NEET youth per 100 employed individuals in rural Japan, up by nearly 5 since 2010 (12.8 per 100). In urban areas, the NEET rate rose even more sharply, with 22 NEET youth per 100 in 2020—an increase of 7 since 2010 (when it was 15 per 100).

In Japan, rural areas have a larger proportion of older workers (ages 45-64) compared to urban areas. In 2020, 53 out of every 100 employed individuals in rural areas were in this age range, up from 49 in 2010. In urban areas, this number was 49 per 100 in 2020, rising from 43 in 2010—an increase of 6, slightly higher than the 4-person increase in rural areas, though rural areas still had a larger overall share of older workers. Additionally, rural areas had a higher ratio of older NEET individuals in 2020 (68 per 100) compared to urban areas (65 per 100), indicating a potentially untapped labour resource. Given the ageing workforce in rural areas, innovation policies must address skill upgrades and job opportunities for older workers.

The rural economy is transforming bringing new opportunities for innovation

Innovation adoption can provide one solution to addressing labour and skills shortages in a declining and ageing population, and the generation of new ways of delivering public services can also help address challenges in providing service delivery, in particular through locally-led solutions. However, in many cases, the policy strong focus on agriculture as a main source of economic activity in rural areas can limit transformation in rural places.

The traditional view of rural places as primarily containing agricultural employment is outdated. Transformation of the rural economy is occurring, both in terms of the total jobs in each sector, and in terms of the relative share of jobs in the rural economy. In order to encourage innovation in rural places, it is critical to understand that rural areas are neither only agricultural, nor even primarily agricultural. Using statistics, based on definitions related to densely inhabited districts, the largest sector for employment (headcount) in rural Japan is in the trade and services sector (38%), followed by public works and services sector (25%) and the manufacturing sector (19%). This is broadly in line with observations in other OECD countries at the regional level. While the share of agriculture is higher in rural areas than in urban areas, it is still small as compared to other sectors. In 2020, 9% of employment in rural areas was in the agricultural sector, compared to 1% in urban areas of Japan. Similarly, on a regional level, among the 26 OECD countries for which data are available, agricultural sector accounted for 9% of employment in remote rural regions and 1% in large metropolitan regions, among the 26 OECD countries with available data in 2020 (weighted averages).

With demographic change, the structure of employment in rural areas of Japan is also undergoing a period of transition. Between 2010 and 2020, rural areas lost a net 1.8 million jobs (employment headcount), while urban areas lost only 200,000 jobs. The largest number of job losses were in the trade and service industries in both rural and urban areas. This amounted to 1.3 million jobs in urban areas, and 840 000 jobs in rural areas. These losses were mostly compensated by increases of jobs in the public works and services sector in urban areas, but were not similarly compensated in rural areas. However, this is also expected given national population declines and agglomeration in urban areas. Taking in account the national context of population decline and agglomeration, in terms of relative declines in rural areas, the agricultural sector experienced the greatest relative decline in the share of employment, that amounted to a 1.32 percentage point decline. In the trade and services sector in rural areas, job losses resulted in a 0.82 percentage point decline in the share of employment. The decline in the agricultural sector was not necessarily led by productivity gains as low productivity in land-intensive agriculture is a challenge, in a context of a relatively larger share of small size of farms (Jones and Kimura, 2013[2]). The only areas of relative employment growth were in the public works and services sector, which expanded by 3.6 percentage points in urban areas and by 2.8 percentage points in rural areas.

The transformation in employment in sectoral activities of firms suggests that policies to support innovation in rural areas, need to consider a multi-sectoral approach to innovation that goes well beyond agricultural innovation, and in particular support manufacturing and the trade and service sectors. In Japan, encouraging innovation and entrepreneurship in both the manufacturing and trade and services sector has the potential to further support the so called sixth industry (or the value-added dimensions associated with the agricultural production as it goes through the value chain or downstream processing). This includes focusing on a more wholistic approach to industrial development that includes rural manufacturing (which is not necessarily high-tech) and the trade and services sectors. Furthermore, transitioning the economy can be encouraged through the creative destruction of entrepreneurial efforts and start-up activities.

Doing more with less: Innovation for all in the context of demographic change

Because rural places are losing population, there is a need to do more with less resources. Innovation can be one solution to the challenge, but not the whole solution. Further efforts should be placed on supporting broader innovations that can be driven by entrepreneurial effects, as well as communities within rural areas. In general, innovation support mechanisms tend to overly focus on high-tech innovation, that is heavily clustered in metropolitan regions. A stronger emphasis on innovation fit for rural places is beneficial to better understanding how the government can encourage sustainability, resilience, and revitalisation of rural places.

Japan continues to be a powerhouse for high-tech innovation among OECD countries

Despite demographic challenges and population declines, Japan remains one of the leading high-tech innovators among OECD countries. From 2016 to 2020, Japan had an exceptionally high number of patent applications (around 222,000), second only to the United States (approximately 269,000) among OECD countries. Japan also leads in patent intensity, with an average of 0.35 patent applications per 1,000 individuals—double the OECD average of 0.14 and higher than other high-patenting countries such as Norway (0.14) and the United States (0.16). Similarly elevated patent intensities are seen in Sweden (0.33), Switzerland (0.31), and Korea (0.31).

Furthermore, high-tech innovation intensity has grown in Japan over the decade leading up to 2020, mirroring a similar trend in 24 of the 36 OECD countries with available data. Japan’s patent intensity rose from 0.30 patents per 1,000 individuals in the period from 2011 to 2015 to 0.35 patents per 1,000 individuals in the period from 2016 to 2020. This 0.05 increase in patent intensity was the second highest among OECD countries, surpassed only by Korea, which saw a 0.08 increase. Other high-patent-intensity countries, such as Sweden and Switzerland, showed comparatively smaller gains; patent intensity in Sweden rose by just 0.001, while in Switzerland, it increased by 0.014.

However, innovation is highly concentrated in metropolitan regions

Nevertheless, high-tech patenting activities are concentrated in metropolitan regions of Japan. Despite Japan's strong national innovation performance, there are significant disparities in the performance of metropolitan and non-metropolitan regions. The difference in the average patent application intensity between Japan's metropolitan and non-metropolitan regions is 0.32 patents per 1,000 individuals (in levels) over the 2016-2020 period. This represents the greatest disparity observed in all OECD countries for which data are available. Furthermore, the gap has increased from the period 2011-2015 by 0.05 patents per 1 000 individuals (0.27 patents per 1 000 individuals in the 2011-2015 period). In contrast, the average gap in OECD countries was 0.15 in the period of 2016-2020, with only a marginal increase of 0.01 from the 2011-2015 period.

Access to resources for innovation are more challenging in non-metropolitan areas.

Foreign sources of general funding and funding for innovation are more limited for non-metropolitan firms. While little is known about access to domestic investment opportunities for rural entrepreneurs at large, the lack of access to funding for rural firms has been reported to hinder both expansion and innovation activities in rural areas. Improved access to funding, including in building a competitive environment for private commercial banks, whether the source is domestic or foreign, can be an important enabler of innovation.

In Japan, inward foreign direct investment (FDI) has increased over the past two decades. However, FDI was primarily concentrated in metropolitan areas. Between 2003 and 2022, only 10% of all FDI investments were directed towards non-metropolitan firms in Japan. This was lower than the OECD average of 31%, that included all 38 countries and 2 additional key partner countries. In comparison, other high-innovation countries saw relatively larger shares of total FDI investment in non-metropolitan regions. For instance, over the period from 2003 to 2022, 51% of all inward investments in Norway were directed towards non-metropolitan areas. In comparison, the United States and the United Kingdom both had close to the OECD average of FDI investments in non-metropolitan areas, with 31% and 32%, respectively. While there are low shares of FDI in non-metropolitan regions, the share of FDI in non-metropolitan regions has increased over time in Japan. From 2003 to 2022 the share of total FDI investment in Japan increased from 0.1% in 2003 to 5% in 2022 in Japan. The highest point was in 2006 and 2020, when the share of FDI to non-metropolitan regions was close to 20% of total FDI.

The proportion of foreign direct investment (FDI) in non-metropolitan regions allocated specifically to innovation activities through research and development is low in Japan. Among 40 OECD and partner countries, 15% of all FDI in R&D activities was directed towards non-metropolitan regions between the years of 2003 and 2022. In Japan, the share was close to 2%. In other high-innovation countries, such as Norway and Germany, this share was considerably larger, at 28% and 13%, respectively.

In addition to access to financial resources, digital markets can also be a barrier for rural firms, despite the fact that digital access in non-metropolitan areas of Japan is less of a challenge than in other OECD countries. Based on user-generated statistics, access to high-speed internet is lagging in non-metropolitan regions with average internet download speeds for users performing 21 percentage points slower in non-metropolitan regions far from metropolitan areas, than in metropolitan regions. While this is substantial, it is lower than the disparities on average in OECD countries. On average, in OECD countries, there is a 25-percentage point difference between the average user-experienced speed in non-metropolitan remote regions and metropolitan regions.

While reducing the territorial gap is critical to assuring equal opportunities for innovation, the relatively lower territorial divide in high-speed digital internet also suggests that this resource could be better used to provide some of the more challenging but potentially remote public services in rural areas. For example, in 2022, there was a 22-point difference between PISA reading scores of those living in cities and those living outside of cities. While there are socio-economic reasons driving such differences, one way of addressing this gap can be through the provision of high-quality public education services via remote learning channels that can only be enabled through access to higher digital speeds.

Innovation to address demographic change and economic transition

In the context of demographic change where we need to do more with less, innovation is paramount in order to address demographic and economic changes. Innovation can help reduce the demand for labour, while at the same time, the presence of innovative individuals and entrepreneurs can drive local initiatives that aim to respond to revitalisation initiatives. There is a need to promote all forms of innovation and entrepreneurship in rural Japan which include reskilling and activating the local labour force, in particular women and older workers, re-invigorating entrepreneurship and innovation diffusion, innovation in the use of land, public sector innovation, social entrepreneurs and community revitalizers.

Japan can better release the full potential for labour by further supporting women and older-workers in the labour force.

With demographic decline, the lower size of the labour force creates challenges for firms and communities to find sufficient number of workers with the appropriate skills for the local economy. While investing in labour saving capital innovations, the fall in the supply of labour is still problematic for entrepreneurs and firms seeking to adopt existing innovations and scale up on innovative new practices and products that cannot be easily replaced by labour saving capital investments.

Indeed, there are stronger declines in employment in rural areas, than in urban areas. From 2010 to 2020, the overall decline in the number of workers in Japan was 3.3%, or 0.3% in terms of compound annual growth rates (CAGR). The decline was more pronounced in rural areas, where the total number of employed individuals fell by 8.9% (aggregate change) or 0.9% annually (CAGR) between 2010 and 2020, in comparison to a decline of approximately 0.49% (aggregate change) or 0.05% annually (CAGR) in urban areas.

Women are increasingly participating in employment in both rural and urban areas, but there is some evidence to suggest that there may be a higher share of women taking more part-time and low paid employment opportunities than regular (full-time, full-year) contracts. Across geographical regions, the proportion of men and women participating in the labour force is becoming more equal in Japan, despite national level evidence that women’s wages and part-time and part-year work patterns still differ significantly from men. This is evidenced by the observed slow but increasing female share of total employment between 2010 and 2020. In 2010, 43% of total employment was women (42.5% in urban and 43.3% in rural). By 2020, this rate had increased to 45%, with improvements observed in both rural and urban areas (45.5% in urban and 45% in rural). A similar pattern was observed in OECD metropolitan and non-metropolitan regions. However, women tend to still have a higher share of the non-standard (not full year, or full time) employment, and therefore, can be a source of additional labour if they were better activated in the labour market.

Rural areas have a higher percentage of older workers, and older workers are not leaving the workforce as much as they are in urban areas. As such, older workers are an important part of the rural labour force, that could more substantially contribute to the rural labour market, in particular, if tacit and shared knowledge can continue to be shared, and important efforts are made in continuous upskilling. However, there are several first-hand reporting of challenges for upskilling an ageing population. While there are reports of firms consulting with workers on the adoption of some forms of high-tech innovation, such as artificial intelligence, for non-technical or digital innovation, adoption is still a challenge.

Foreign labour can provide a resource for replenishing the labour supply. Currently the foreign share of labour is low but growing in Japan and in rural areas. In Japan, the proportion of foreign-born workers was relatively low, and even lower in rural areas. In the most recent year for which data are available, 2015, the proportion of foreign-born workers in Japan was 1.4%, with the majority of these workers hailing from other Asian countries. In rural areas, the proportion of foreign-born workers was lower, at 1.05%, while in urban areas the proportion was higher, at 1.53%. These numbers, while still small, have shown improvements from 2010 with 0.97% in rural areas and 1.43% in urban areas. In most OECD countries, there is a higher proportion of foreign-born workers in metropolitan regions. In 2020, there was a 2.1 percentage point higher share of foreign-born workers in metropolitan regions in comparison to non-metropolitan regions. Lightening the pressures on the labour market could consider incentives for foreign employment in non-metropolitan regions, such as is done in Scotland (UK) and Canada’s rural visa programmes.

Entrepreneurship rates are higher in non-metropolitan regions but are declining across the country.

Entrepreneurship rates, new firm formation and firm churning are signs of a dynamic and healthy economy. Furthermore, a higher level of entrepreneurship rates can indicate more agency over the creation of new solutions, and competitive incentives to bring more innovation within firms as they move towards a leaner and more efficient form of production. Entrepreneurship rates in Japan are higher in non-metropolitan regions as compared to metropolitan regions. However, the rate of entrepreneurship in Japan and in rural areas of Japan have declined, both in metropolitan and non-metropolitan regions of Japan. In 2007, the rate of entrepreneurship was 89.5 per 1 000 workers in metropolitan regions, and slightly higher at 90.1 per 1 000 workers in non-metropolitan regions. The numbers declined to 71.5 entrepreneurs per 1 000 workers in metropolitan regions and 74.8 entrepreneurs per 1 000 workers in non-metropolitan regions in 2017.

Innovation in land-use can create conditions needed to revitalise communities and more effectively deliver services.

Within the context of demographic change, Japan is pursuing a strategy for revitalisation of communities and rural areas focused on encouraging innovation and innovation diffusion across places. Since depopulation and ageing rural population are key factors that cause rural land-use change, community disappearance and land-use change are advancing concurrently in rural areas of Japan. The effect of land-use change is considerable especially in remote rural areas, making rural land-use topologically more difficult to manage. As a key area for rural areas, forestry and agriculture are still an important source of rural land-use, accounting for 78% of landmass in combined. However as both the geography and demography of rural places change and communities more economically diverse, using regional and rural lens to promote a more sustainable and forward-looking land management system becomes increasingly critical.

Sustainable land-use management can take a more multi-functional approach that goes beyond only land-based activities. This can be done by looking for more bottom-up approaches that engage with horizontal and vertical (hierarchical) levels of government looking to find innovative solutions to land-use and community management. This requires breaking ministerial and prefectural silos and building mechanisms to increase coordination between national and prefectural governments, while avoiding institutional arrangements that may hinder a horizontal approach for local innovation.

Rural policy would benefit from local-resource-assessment to foster more bottom-up approach. Examples of this are done through the EU Leader and Community-Led Local Development (CLLD) programmes and Canada’s Community Futures Initiative that build local development and innovation plans in collaboration with local stakeholders who conduct larger local consultation initiatives.

Public sector innovation is a critical part of rural revitalization

Social entrepreneurs and public sector innovation can be an important lever to enable local communities and entrepreneurs in sustainable land-use management. With such initiatives, the public sector innovation and social entrepreneurs can build opportunities together to jointly bring profitability and local public goods provision. An example of this is in Yamagata Prefecture, where public sector “entrepreneurs” are able to work with local stakeholders to reach a consensus to take collective actions for local development for sustainable land-use management. Providing training and capacity development for public sector workers and social entrepreneurs can be critical for continuing to support them in, including in other prefectures. This includes programmes to bolster digital literacy.

Subnational government in Japan has a major role to play and is indeed an important catalyst for private investment. Sub-national governments have an important role to better integrate national rural innovation programmes to the needs of each region and seek for complementarities with regional and local programmes. Local communities and regions can support innovation initiatives in rural areas by incentivising their communities and resources through bottom-up initiatives and more effective use in the utilisation of land. This calls for the mobilisation of a wide range of policy drivers to support them. Policy complementarity and coherence can be better realised and coordinated at sub-national government. Prefectures should play a stronger role in aligning top-down programmes with bottom up led initiatives and play coordinating role in aligning the interest of both. Building the capacity of the prefecture government is an important pillar to carry out this task.

Recommendations

Japan’s national and prefectural governments are critical for supporting innovation initiatives in rural areas. The Japanese government entities that support and innovation for rural areas should consider: i) support further access to information on rural areas; ii.) place a rural lens on innovation initiatives; iii.) consider tackling governance challenges for promoting innovation and entrepreneurship in rural places; iv.) consider how to promote innovation fit of the changing rural demographics; v.) encourage innovation for sustainable rural land-use management.

Place a rural lens on innovation in Japan

Go beyond Science and Technology for direct support for innovation in rural areas

Programmes for innovation are currently focused on high-tech innovation. While Japan is clearly a leader in high-tech innovation, other types of innovation such as public sector innovation and innovation that results in the development of new business and services are often overlooked both in policy and often are not recorded in statistics. These types of innovation and entrepreneurial activities can help revitalise rural communities based on local assets. The Japanese government, and its prefectural governments should consider developing strategies and programmes that:

• Explicitly support public sector innovation for the delivery of programmes for rural innovation, such as the rural planner programme in Yamagata Prefecture.

• Consider social innovators as partners in the development of strategies for rural innovation within national, prefectural, and municipal programmes, as is integrated in Scotland’s Highlands and Islands strategy for rural innovation.

• Re-enforce initiatives that support product and process innovation in the service and trade sectors that do not necessarily result in high-tech innovations.

• Consider how to implement the Digital Garden City Nation Strategy to better suit innovation in rural places that are in line with revitalisation initiatives, public sector innovation and engagement with rural communities and entrepreneurs.

Develop a rural lens on indirect support for innovation in rural places

Japan, with a unitary government, has the opportunity to more directly apply a rural or regional lens on innovation policies. In coordination with activities undertaken at the prefectural level, the national government of Japan can consider conducting an analysis of how the innovation support programmes that led to high-tech innovation progress could be better diffused and adopted outside of the large metropolitan areas of Japan. This includes implementing policies that can support public sector innovation and prioritizing bottom-up or community-led approaches for building an eco-system for rural innovation. With the help of local networks, the government of Japan should:

• Improve access to human resources (skills) by:

  • Consider collecting data on projected skills demand and supply to provide information in sub-national levels of government, for policy makers looking to better attract and train human capital.

  • Incentivising upskilling for all workers, and especially older workers in rural areas. This can be included as part of a digital capacity development programme within the Rural Innovation initiative that does not engage enough in digital literacy development. An example of initiatives to expand take-up of digital tools and capacity already in place is “Senior Smartphone Ambassadors” within its broader Digital Support initiative, to assist older residents with smartphone use at Kaga city, Ishikawa Prefecture.

  • Re-enforcing access to foreign national workers through:

    • Enhancement on a job-matching platform that gives skilled workers an opportunity to consider their career in rural Japan and also helps rural firms seeking to recruit foreign national workers. An example of this is the Atlantic immigrant pilot programme in Canada.

    • Support in the integration of newcomers to local communities, including measures such as language courses and settlement services that are more readily available in urban areas.

Governance challenges for promoting innovation in rural areas at scale

Encourage more horizontal and vertical co-ordination in regional and rural policy, including to strengthen the regional dimension in public services for innovation.

While rural policy, at the national government level, is implemented partially within agricultural administration, rural policy requires a broader remit of implementation. This in turn will warrant institutional co-ordination and coherence. Institutional coordination and coherence with regional policy is especially crucial. The government of Japan and prefectural governments should:

• Strengthen co-ordination and collaboration between different government agencies (horizontal), assigning direct responsibility to each ministry, in particular in critical ministries for rural policy such as Ministry of Agriculture, Forestry and Fisheries (MAFF), Ministry for Internal Affairs and Communications (MIC) and Ministry or Land, Infrastructure, Transport and Tourism (MLIT). Examples can be drawn from the Swiss Secretary of Economic Affairs (SECO) that has targeted to increase rural-proofing and co-ordination with those in the employment, education and spatial development networks, to create a strategy for addressing demographic disparities in age-based and gender-based participation rates in the rural economy.

• Examine mechanisms to engage in vertical institutional co-ordination that brings national policies in line with initiatives from prefectural and local governments (municipal). This can include establishing regional (multi-prefectural), or prefectural innovation system that acts as a coordinating body for encouraging regional innovation in partnership with firms, the public sector, civil service and universities, as in the case of the Swiss Regional Innovation system, built in alignment with the national spatial plan. This can be outlined within National Land Plan (MLIT) that provides guidance in the implementation of regional plans in a flexible way, which shall allow for more flexibility for prefectures.

• Consider building rural-to-rural prefectural or local government (municipal) collaboration that crosses prefectural and municipal boundaries to build scale and linkages in joint strategies. An example of this is the Yamagata Sake Brewing Research Society’s initiative to valorise the terroir of the Yamagata landscape, strengthening connections between local producers and the regions identity. The second example can be found in the United States’s Department of Commerce’s Build Back Better Initiative that encourages joint application for funding initiatives for local development within and across administrative boundaries.

Further develop capacity-building to support bottom-up initiatives

A place-based approach with bottom-up engagement could help manage land-use in a sustainable manner. However, to do so, it is important to first develop a strategy by assessing challenges and opportunities in rural areas through the engagement and involvement of bottom-up initiatives with local stakeholders. This assessment should be made at the national scale aiming to identify specificities of each rural region. In this respect, the government of Japan should:

• Consider developing a strategy that allows for bottom-up development initiatives or joint opportunities based on functional areas of rural regions, which is similar to the Land Use Management Concept (MLIT) however consider critically incorporating local public sector capacity building within the strategy. Examples of this type of approach is apparent in the Community Futures Programme in Canada, the European Union LEADER programme and the Swiss Regional Innovation System.

• Continue to support capacity-building initiatives driven through public sector entrepreneurs that can help create systemic change for rural communities while valorising local assets. The Ministry of Agriculture, Forestry and Fisheries (MAFF) has started a capacity building programmes to foster those who can take a role of community-revitaliser. This type of capacity-building programme is valuably designed and implemented at subnational government to be complimented with the national level one. Another example includes the United States’s Department of Agriculture’s Boot’s on the Ground approach.

Innovation fit for demographics of rural communities.

Consider how to better target innovation and entrepreneurship policies to serve women, youth, and older workers.

Rural Japan is still experiencing transitions in demographics and labour force. Rural places now have more employed women and are actively looking for ways to engage with a shrinking younger population while advancing on supporting the continuing activity of older workers. Innovation and entrepreneurship policies need to consider that these populations are an important dimension of bringing sustaining rural communities and bringing innovation and new opportunities to rural places. The government of Japan should:

• Co-ordinating across ministries to work on specific programmes to support diversity in innovation and entrepreneurship in rural areas. This can include:

  • Building public-private engagement in early entrepreneurship training for youth with local firms. An example of this is already in place in Yamagata Prefecture at the Yamagata university.

  • Conducting research to understand and address the challenges women entrepreneurs face in starting innovative companies and scaling up.

  • Conducting research to understand and address the challenges that older entrepreneurs face in starting innovative companies as well as trends in transition of ownership of firms at the time of retirement from the active labour force.

Access to information on rural areas

Consider alternative place-based approaches to defining rural areas based on functionality, rather than solely on density or sector specific criterion.

Rural areas, if considered primarily in the agricultural industry, or with low population density, can unintentionally lead policy makers to overlook some of the non-agricultural activities that are important to keep rural areas thriving. In addition to the classification using density defined areas (or districts) or areas defined by sectoral specialisations, taking a functional approach to defining rural areas can better address the needs and opportunities of rural areas beyond agricultural, fisheries and forestry sectors. The Japanese government, in collaboration with the Statistics Bureau of Japan, should:

• Facilitate access to and publication of more harmonized statistics in rural and urban areas by collecting and publishing data:

  • On innovation as defined in the Oslo Manual, which includes information on significantly improved or new product or process innovation beyond those in science and technology activities.

  • On firm dynamics such as start-up and closure rates, which can give a better understanding of more updated entrepreneurship trends within different geographies of Japan.

  • On access to services critical to innovation and entrepreneurship, including education, health and finance.

  • On functional rural typologies that goes beyond the agricultural land-use typology to better outline the provision of social services in rural areas, adapting the needs and realities of the rural socio-economic condition

Innovation for sustainable rural land-use management

Incorporate comprehensive and coordinated land-use governance for sustainable land-use management at regional scale

The split of land-use regulations among different sectors in Japan complicates the implementation of policies through poor horizontal and vertical co-ordination and differing institutional priorities and capacities. While national policies deliver general guidance for land-use managing at regional scale, when it comes to actual land-use regulation, lands are classified (demarcated) for the specific purposes that may no longer be suitable for rural places. The system lacks a coordinated and comprehensive governance approach to optimise land-use management at the regional level. Furthermore, the forest-agricultural frontier is often rarely demarcated, and in some cases a revision of the land-use from agricultural to forestry could be a more sustainable way forward. This type of transition is, in part, needed to adapt to depopulation trends and loss of rural communities. To this end, the government of Japan and its prefectures should:

• Allow for a coordinated and comprehensive land-use governance which entails institutional arrangements that are more easily able to adapt to depopulation, while upholding the changing needs of rural communities looking to building scale through land-use management. An example of this is the National Land Management Concept. Furthermore, examples of flexible planning to encourage more initiatives that build scale include the paddy terrace initiative in Yamagata Prefecture that re-cultivates abandoned farmland.

• Re-evaluate rural land-use status including agriculture-forest frontiers in line with changing demographics.

• Propose a sustainable land-use governance system that takes into consideration changes in technological frontiers impacting the changing nature of economic activities and lower population density in rural areas and encourages more collaborative initiatives that build scale across different sectors and places.

Implement a place-based approach to sustainable land-use management by considering different challenges and different opportunities of each region

Different places have different set of opportunities and challenges, and that an assemble of policy complementarity cannot be the same on different types of rural regions. A place-based approach, thus, can be a step to reconciliate challenges in coordination within policy making. Assessment of local resource can be the cornerstone for the place-based approach deployed for the sustainable land-use management. The government of Japan and its prefectures should:

• Assess options for creating a place-based system for land-use management that incorporate the perspective of local community opportunities when elaborating land-use regulations.

• Consider integrating concerns of local rural entrepreneurs systematically into the process of elaborating land-use regulation, as well as during rural foresight initiatives.

References

[2] Jones, R. and S. Kimura (2013), “Reforming Agriculture and Promoting Japan’s Integration in the World Economy”, OECD Economics Department Working Papers, No. 1053, OECD Publishing, Paris, https://doi.org/10.1787/5k46957l0rf4-en.

[1] MIC (2019), A Study of curret cnditions of communities in depopulated areas (in Japanese).