The "Prescription" for Regional Revitalization The Real Story of the Local World

The call for regional revitalization is growing louder. The development of regional areas holds the key to the future of major cities and Japan as a whole. We asked Kazuhiko Tomiyama, CEO of Management Co-Creation Foundation, who possesses extensive expertise in corporate and business revitalization, about the reality of regional economies. What "prescription" emerged from this?

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Part 1: Correct the Misguided "Common Sense" About Regional Areas

 

――What challenges did you observe while rebuilding companies in Tohoku during its post-disaster recovery?

When discussing regional areas, we must correct misguided "common sense." First, the assumption that "regional economies are depressed, so there's a surplus of labor." Even with declining populations and shrinking economies, labor shortages persist, creating a severe supply-constrained economy.
Local service industries (tertiary sector) are primarily face-to-face, labor-intensive services. Another misconception is that "manufacturing and agriculture/forestry/fisheries are the driving forces of regional revitalization." In terms of employment, manufacturing accounts for only about 20%, while agriculture/forestry/fisheries make up a mere 4%. Without analyzing the current situation using objective, quantitative data, discussions inevitably miss the mark.
To resolve the labor shortage in locally-based, face-to-face service industries, the only options are to increase the labor force participation rate or to enhance labor productivity. While Tokyo is the leading region for global industries, the reality is that even in Tokyo, the overwhelming majority of workers are employed in locally-based service industries.
In short, the challenges facing Japan's society and economy are precisely the problems that regional areas have long confronted. This is exactly what I personally experienced while rebuilding bus companies and other businesses in Tohoku. We must correct past misconceptions about "regional areas," accurately recognize the fundamental shift in industrial and socio-economic structures, and then implement decisive policies.

Part 2: Metabolism for Production Improvement

 

――What causes low productivity?

Regional economies have operated under a sort of mini-convoy system, prioritizing the preservation of companies over innovation to build stable structures. While this system fostered social stability during the era of labor surplus, it now merely hinders innovation and competition, dragging down labor productivity. Given the current reality of labor shortages, we must undergo renewal and boost productivity or risk the collapse of the social system.
Since the bubble burst, the fixed notion of surplus labor has become ingrained, and some people still cannot shake the illusion that improving productivity leads to excess personnel. But the situation is completely different now. Improving productivity is undoubtedly a win-win for both labor and management.
 

Some point out that Japan's low productivity stems from its service-oriented "hospitality spirit."

This is half true and half false. Labor productivity is the value added per hour worked. If the value added by time spent on hospitality isn't properly converted into revenue, labor productivity will naturally decline. The cost in the service industry is time.
Customers constantly compare the value they receive against the money they pay. Wisdom and service require conscious management of costs and benefits, considering both the price charged and the time invested in operational efficiency. For the hospitality provided, you should charge an appropriate amount.
 

――Encouraging new entrants to boost productivity also raises regulatory issues.

Because the service industry is labor-intensive, relaxing entry regulations and intensifying competition can lead to employers forcing employees into low wages and long working hours. When problems then arise in safety, hygiene, etc., the discussion often turns to how excessive deregulation is unacceptable.
Indeed, the past decade has seen a backlash against deregulation. When easing entry barriers, it is essential to simultaneously strengthen smart regulation—tightening labor hour limits, minimum wages, and safety/hygiene oversight.

 

Part 3: Considering "The Happiness of Living in the Regions"

 

――What are the challenges for regional companies in securing talent?

Tokyo certainly has jobs, but many openings are for specialized, skill-based positions requiring specific training. This is true in regional areas too; Tokyo and regional areas are no different in this regard. However, parents want their children to work for well-known companies, and due to illusions and misunderstandings, young people flock to Tokyo in greater numbers than necessary.
But the reality is that Tokyo has a high cost of living and long commutes. Even after marriage, there are few places to leave children. In contrast, in regional core cities where work and home are close, it's not difficult for dual-income couples to raise children. The question is, which is truly happier?
Regarding university tuition costs, the latest regional revitalization strategy proposes establishing a tuition support system for university students who secure employment in regional areas. The economic burden of education expenses is something that can be adequately addressed through policy. In terms of life stability, alongside stable employment, raising wage levels is also necessary. Efforts should be made to increase the productivity of the entire region by consolidating businesses, aiming to raise annual incomes by 20% to 30%.

Part 4: Building "Earnings Power" in Agriculture and Tourism

 

――If productivity improvement is the foundation of "earning power," then agriculture also faces significant challenges.

Agriculture has lower productivity than service industries and has received substantial subsidies. To overcome these drawbacks, the fundamental approach is to embrace market economics. However, it is crucial to lower barriers to entry to promote renewal while simultaneously implementing smart regulations that incentivize productivity gains across all agriculture and related industries.
This does not mean indiscriminate deregulation; regulations that should be strengthened, such as land use restrictions, must be properly reinforced. Policies favoring highly productive, motivated, and skilled agricultural workers are also necessary. Above all, it is vital to increase incomes and make agriculture an attractive industry where young people feel they can marry and raise children.
On the other hand, while agriculture requires consideration from the perspectives of food security and public goods, this aspect must also be supported through taxation as a national minimum. That said, the fiscal burden is not particularly large.
 

――The number of foreign tourists is increasing. What are the challenges in making tourism a profitable industry?

As a common issue across service industries, business turnover is essential. A problem specific to tourism is the language proficiency of workers. Education and training are indispensable, but the local service industry consists mostly of small and medium-sized enterprises (SMEs), and the employment style is job-based hiring centered on specific skills.
Given these industry and employment characteristics, the optimal approach is to provide foundational training within the school system. A major challenge is effectively combining vocational training with qualification acquisition systems to train workers and communicate that these inns and hotels are safe and reliable places for foreign visitors to stay.
I believe government intervention is necessary here. The issue of education and training ultimately ties back to problems within Japan's current school system. We must fundamentally change the approach to higher education, which has become overly focused on academic general education supremacy.

Part 5: Circulate People and Knowledge Locally

 

――Even when local companies possess technology or ideas, the absence of discerning talent can prevent "seeds of opportunity" from sprouting.

Talented individuals are concentrated in major cities, trapped within closed systems, preventing people and wisdom from circulating efficiently throughout society. The fundamental premise of a market economy is a system where wisdom and money, or talents for development, sales, and management, move freely, creating new value through their combinations. Barriers prevent these optimal matches from occurring.

――Matching talent and knowledge also strengthens functions like marketing and finance, right?

Many regional companies possess the potential to compete globally, yet they often remain hidden due to a lack of talent and information access. Conversely, overseas companies sometimes discover such hidden gems.
People who worked for major Tokyo corporations return to regional areas and thrive in jobs creating added value. I've seen countless such cases. What regional areas lack is the circulation and sharing of knowledge.
The path forward is clear: implement smart regulations, foster labor market mobility, and facilitate knowledge transfer from urban to regional areas. Elevate worker skills to boost productivity, creating regions and jobs that offer "fair wages," "stable employment," and "pride."
Consequently, the earning power of regional areas increases, benefiting Japan as a whole. That is the conclusion.

――Thank you.