By Miyakawa Makio, former special advisor, National Security Secretariat
The United States is losing its position of preeminence in the international community. China is no longer hiding its intention to change the status quo through enhanced military capabilities supported by its growing economy. Japan is being forced to strengthen its own defense, and an increasing number of Japanese people are now advocating using economic power to beef up national security. However, heated debate in Japan has yet to produce a concrete plan as to what steps should be taken to do so.
Economic security is described as “Economic Statecraft” in the English-speaking world. It refers to economic strength that enables a nation to be in control of its own internal politics and diplomacy. A couple of points need to be clarified: The first point is that economic security doesn’t mean taking measures to ensure the safety of economic and business activities. The goal of economic security is to protect the interests of a sovereign state, and it means using the country’s economic power to defend its interests from political as well as military pressure and attacks from abroad. The other point is that economic security is not an argument like the one once advocated by the left-wing intelligentsia in the past, which claimed so long as Japan has a strong enough economic power, it doesn’t need military capabilities to remain at peace. Economic security doesn’t aim to replace military capabilities with economic strength. Rather, it aims to complement military power.
Economic power helps nations to advance science and technology. Today, an increasing number of technologies are dual-use, and both military and civilian sectors benefit from the same technologies. One pillar of economic security is to advance science and technology in the private sector to improve the nation’s defense equipment, thereby boosting its overall military capabilities.
This means that Japan now has two separate sets of policies to achieve two different goals: The traditional economic policy, whose target is to increase economic activities through liberalization and deregulation, and a new type of economic policy, whose goal is to enhance national security. They are not mutually exclusive. Rather, the two economic policies complement each other. Greater economic growth that translates into a stronger economic foundation will enable the country to advance its security. A threat to the country’s national security would hinder the private sector’s profit-earning efforts.
International law recognizes governments’ concerns about economic security and allows separate rules to be applied to the two sets of economic policies. The World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD) both allow exemptions to their rules for economic activities that affect national security and leave national governments to act according to their own domestic laws regarding tariffs, corporate offices overseas, direct/indirect investment decisions, and governmental subsidies.
Legislating economic security: how to improve deterrence power
The Japanese government is planning a new economic security bill. From the security point of view, those who are involved in the effort will likely consider applying a separate set of rules for domestic regulations and business practice. They will discuss implementing the separate sets of rules for Foreign Exchange Law, the Public Finance Act, the Anti-Monopoly Act, the Patent Act, and others. A rule under Corporate Governance Code which requires information disclosure to stockholders, for example, shouldn’t be applied to companies that are involved in national security-related business.
Even though economic activities should be left to the private-sector initiatives in principle, certain policies that contradict that principle should be included in the economic security bill. For example, the government should be able to sign a long-term funding contract with private firms to support their research and development efforts, thereby encouraging the firms to increase production of goods and services that contribute to Japan’s national security. That would be part of the effort to nurture the country’s industrial and technological base to boost national security. The government should conduct a strategic review of the procurement system and promote single tendering with the aim to advance space, cyber, robot, and quantum technologies to encourage the growth of the defense industry.
The COVID-19 pandemic has revealed, much to the dismay of the global community, that so many vital nodes of supply chains have been controlled by China. Faced with the possibility that the supply of semiconductors and other strategically important products utilizing sensitive technologies could someday be intentionally severed, the Japanese government will likely reconsider the current international division of labor and move toward providing domestic corporations with subsidies so as to boost domestic production of such products.
Although the global community has focused on making investments to resolve global issues such as climate change, “sustainable developmental goals (SDGs),” and “environment, society, and corporate governance (ESG),” national security constitutes an equally important objective. Therefore, the Japanese government should raise funds in the market, make targeted and large-scale capital investments, improve production capacities and technological standards, and consider ways to expand business operations, all under the banner of economic security.
Furthermore, the government should implement policy measures to steer the large retained earnings of Japanese corporations to investments that would strengthen the nation’s industrial base in a way that improves national security, while still benefiting the firms’ investment activities.
Meanwhile, it is also important to implement protective measures to prevent Japan’s economic resources, such as information on advanced technologies, from leaking overseas, especially to problem nations. It is particularly urgent to take measures to prevent leakage of inventions involving sensitive technologies: Patents on such inventions should be allowed to remain closed to the public at the time of patent application. When the government contracts private firms for a strategically important infrastructure project, it should ensure that the applying firms are not under the control of a foreign corporation and that there is no danger of information leaking from communication equipment or encryptors used in the project. Additionally, the government should ensure that foreign researchers and students at Japanese corporations and universities won’t leak information overseas.
These measures are akin to “deterrence” in that they aim to discourage potential attackers from striking Japan. The measures aim at strengthening Japan’s economic security and improving preparedness against attacks, including non-armed violations of national sovereignty as well as diplomatic interference and pressure. As mid- to long-term goals, Japan should focus on supporting technological development and boosting higher education to nurture engineers who can advance space, cyber, and quantum technologies.
Japan should pursue economic security through diverse and extensive means. It should well in advance establish an economic framework that would enable an effective and swift counterattack in case Japan’s national security comes under threat. This amounts to asking ourselves whether Japan is capable of enforcing economic sanctions, which would include raising tariffs, banning imports, restricting corporate/real estate investments, halting currency transactions, freezing assets, and restricting the flow of people.
Some limitations must be set on most-favored nation treatment and national treatment of foreigners living in Japan, their employees, and sponsor institutions. For a developed country to impose such restrictions, the government needs to prepare an appropriate framework in advance. Rules for the above issues would be included in a new set of laws governing economic security.
Sometimes, in China and elsewhere, sanctions may be imposed without any legal basis. A foreign corporation’s application to expand its production site or to transfer personnel from the home country could be indefinitely delayed as a means of de facto sanction. In these cases, the Chinese government would claim no knowledge of the practice.
How to protect Japan as the civil-military distinction disappears
In considering economic security, we must recognize that in today’s world, the line separating military power and economic power is fading rapidly. Traditionally, using lethal weapons or devices with the ability to inflict direct damage was regarded as a military action. Today, military operations are carried out using equipment that in itself has no offensive capacity. Examples are advanced communication systems, high-speed computers, complex cryptographic equipment, and satellites deployed in space. Even inductive sensors mounted on missiles include a wide range of innocuous electronic devices.
Modern weapons have been made more precise and operate at higher speeds. They have become more automated, and militaries are increasingly capable of unmanned operations. Computers and sensors of various kinds have become the main components of defense equipment. And entire systems now largely depend upon the country’s capacity to process information. The strategic and operational arena has expanded into outer space as well as cyber space. Dual-use technologies pervade advanced defense equipment, blurring further the line dividing military operations and commercial activities. We are living in an era in which national security requires joint efforts by the government and corporations. Or rather, our world has returned to such an era.
The concept of combat has evolved as well. We cannot simply refer to the current international legal definitions, which clearly distinguish wartime from peacetime, when unmanned weapons are deployed to a military front. The distinction between defensive and offensive actions is blurring as well. Soon, such words as “exclusive defense” will become totally meaningless.
Economic security is not almighty. Once a contingency occurs, Japan would have to pursue every available means to protect national security, and economic security would be only one of means. It is an effective tool for a country with a strong economy, But, for some reason, Japan has been reluctant to commit to economic security until now. Although it is rather late in the game, the Japanese government must urgently take measures to strengthen the country’s economic security, as the situation surrounding Japan doesn’t allow it to hesitate any longer.