Skip to comments.Japanís Geriatric Future (How will a shrinking economic power handle a rapidly aging population?
Posted on 04/29/2010 6:45:30 AM PDT by SeekAndFind
In the 2009 Pew Global Attitudes Survey, conducted last spring, only 18 percent of Japanese said they expected economic conditions in their country to improve over the next year. Remarkably, that represented a 13-percentage-point increase from 2008, when just 5 percent of Japanese said they expected improvement. The corresponding 2009 figures in China, India, and the United States were 82 percent, 75 percent, and 59 percent, respectively. Fewer than one-fifth (19 percent) of Japanese told the 2009 Pew interviewers that children in their country would grow up to be better off than people are today, compared with 89 percent of Chinese, 78 percent of Indians, and 36 percent of Americans.
Japans economic pessimism is part of a deeper societal malaise. The Asian giant never fully recovered from its early-1990s asset-price collapse and subsequent lost decade of stagnation (which actually lasted more than a decade). Within a short period, Japan went from being hyped as an emerging superpower to being dismissed as a sclerotic basket case. In 1992, Japans per capita income ranked fifth among OECD countries; in 2002, it ranked 19th. Under Prime Minister Junichiro Koizumi, a conservative who held office from 2001 to 2006, Tokyo belatedly forced Japanese financial institutions to tackle their nonperforming loans. This ended a protracted banking crisis and bolstered the economy. Thanks to Koizumis achievements and a post-2002 export surge, Japan enjoyed its longest unbroken expansion since the conclusion of World War II.
Then came the Great Recession, which took a massive toll on all export-oriented economies and proved disastrous for Japan. The country plunged into its worst downturn of the modern era. Though it returned to growth in mid-2009, the durability of that growth is uncertain. Japans wobbly recovery has been propelled by a host of government stimulus measures and an improving export picture. In its new World Economic Outlook, released earlier this month, the International Monetary Fund predicts that Japans real GDP will expand by 1.9 percent in 2010, after shrinking by 5.2 percent last year. On April 14, Bank of Japan governor Masaaki Shirakawa said that concerns about a so-called double-dip recession have been greatly receding.
Yet the country is still grappling with deflation, and Finance Minister Naoto Kan has cautioned that we need to see corporate and consumer spending rise to say this recovery is self-sustaining. Perhaps most ominously, Japans gross public debt will soon be double its GDP (if it isnt already), the highest such ratio in the OECD. Granted, nearly all of that debt is held domestically, but it remains a grave threat to future prosperity. In January, Standard & Poors slashed its outlook for Japans sovereign-debt rating from stable to negative. Last week, Fitch Ratings warned that absent a sustained economic recovery and fiscal consolidation, government debt will continue to rise, placing downward pressure on sovereign credit and ratings over the medium term.
Steering Japan through these choppy waters is Prime Minister Yukio Hatoyama, who took office in mid-September after a historic election that saw the Liberal Democratic Party (LDP) lose power for only the second time since the creation of Japans modern political system in 1955. A member of the Democratic Party of Japan (DPJ), which was established just twelve years ago, Hatoyama began his premiership with great fanfare. However, his popularity has fallen sharply since then, amid campaign-finance scandals, persistent economic pain, and turbulence in the U.S.-Japan alliance.
Some Japan watchers initially declared that the DPJs victory amounted to a revolution. Hatoyamas policy choices suggest that these claims were overblown. Its less a revolution than a throwback, says William Overholt, a Japan expert at Harvard. In December, the government announced that it was suspending the privatization of Japan Post, a notoriously wasteful institution that delivers mail and also effectively serves as the worlds largest savings bank, boasting total assets in the neighborhood of $3.4 trillion. Postal privatization was a much-ballyhooed Koizumi initiative that dominated Japans 2005 national election. Last month, Hatoyamas minister for financial and postal services, Shizuka Kamei, outlined a plan to roll back privatization and double the ceiling on deposits at Japan Post. Various cabinet officials ripped the Kamei proposal, but Hatoyama embraced it.
The Economist has referred to Kamei as a blathering anti-capitalist. He is the leader of the Peoples New Party (PNP), one of the DPJs two coalition partners in the upper house of parliament. Even though Japans lost-decade banking crisis was fueled by a proliferation of bad loans, Kamei has championed a conditional loan-repayment moratorium, which took effect in December. By siding with him on postal privatization, Hatoyama sent a discouraging signal about his commitment to reform. But the move was hardly a surprise. Thus far, the prime ministers economic policies have been a jumbled mess. When he unveiled a growth blueprint late last year, it was widely panned. Richard Katz, editor of the Oriental Economist Report, quipped that his growth strategy includes neither growth nor strategy.
A genuine strategy would focus on boosting labor productivity, especially in services, which account for 70 percent of value-added and employment in Japan, according to the OECD. The country must become friendlier to foreign investment and start-up companies. In the World Banks most recent global survey of the easiest places to do business, Japan ranks 15th out of 183 economies, but it ranks 91st in the Starting a Business category and 123rd in the Paying Taxes category. It has the highest overall corporate-income-tax rate in the OECD, and many of its regional banks remain poorly capitalized. In general, Japanese firms need to become more reliant on capital markets and less reliant on banks, says economist Edward Lincoln, director of the Center for Japan-U.S. Business and Economic Studies at New York Universitys Stern School of Business. Tokyo should also seek to deregulate certain woefully inefficient industries, such as agriculture, food processing, and construction.
Fostering a more dynamic Japan means building on the Koizumi reforms, which were essential for pulling Japan out of its long period of stagnation, says economist Takeo Hoshi, a Japan specialist at the University of California, San Diego. On the other hand, those reforms were not nearly as radical or sweeping as some critics have suggested. Moving forward, Hoshi stresses that Japan needs more foreign workers, more flexible labor markets, and a more liberalized agricultural policy none of which the current government is likely to pursue.
Speaking of labor flexibility, Japans shift toward non-regular employment, such as part-time or temporary work, has been a double-edged sword: It has made Japanese labor markets less rigid, but it has also increased inequality and reduced companies incentives to invest in human capital. The OECD reports that non-regular workers, who tend to earn substantially lower wages than their full-time counterparts, represented 34 percent of all Japanese workers (excluding executives) in 2008, up from 20 percent in 1990. The ongoing retirement of Japanese baby-boomers will exacerbate this trend.
#pagei#Which brings us to Japans calamitous demographics. According to one set of projections from the countrys National Institute of Population and Social Security Research (NIPSSR), the Japanese population will shrink by roughly 25 percent between 2010 and 2050, plummeting from 127 million down to 95 million. In 1970, people over the age of 64 made up only 7.1 percent of the Japanese population; today, they represent t23.1 percent; by 2050, they will account for 39.6 percent. Meanwhile, the population share of those aged 15 to 64 will drop from 63.9 percent in 2010 to 51.8 percent in 2050. Over that same period, the population share of those under age 15 will fall from 13 percent to 8.6 percent.
The United Nations Population Division (UNPD) notes that Japan has the worlds longest life expectancy at birth which is a good thing, except that the country is relying on an ever-shrinking supply of workers to support an ever-growing number of retirees. Using medium-variant estimates of birth levels, the NIPSSR reckons that Japans old-age dependency ratio that is, the number of elderly divided by the number of working-age Japanese will increase from 36.2 percent in 2010 to 79.4 percent in 2055. By then, the NIPSSR calculates, female life expectancy at birth in Japan will be 90.34 years.
Japan already has the oldest population on the planet it has the highest median age, followed by Germany and Italy and the UNPD projects that it will still be the grayest in 2050 (apart from the Chinese territory of Macau). At the midpoint of the 20th century, Japan was the worlds fifth-most-populous country, behind only China, India, the U.S., and Russia. Now it is the tenth-most-populous; by 2050, according to UNPD calculations, it will be the 17th-most-populous, with fewer people than the Philippines and Vietnam. Only a handful of countries all of them in Eastern Europe are expected to experience a steeper population decline over the next four decades. Even Russia, with its myriad demographic woes, inferior health care, and lower life expectancy, will lose a smaller share of its population than Japan will.
The nature of Japans demographic challenge is hardly unique among advanced industrial democracies, all of which must address societal aging and strained welfare systems, and some of which (such as Germany and Italy) are entering a period of major population contraction. In certain ways, however, Japan is sui generis: It must deal with the triple whammy of exceptionally low birthrates, relatively low levels of female labor participation, and minuscule amounts of immigration.
Japans total fertility rate has been below replacement level (2.1) since the mid-1970s, and it hit an all-time low of 1.26 in 2005. This can be explained partly by marriage trends. Only a tiny fraction of Japanese births are non-marital, and Japans marriage rate peaked in 1971 (prior to the first global oil shock, which triggered a vicious recession), before declining steadily through the late 1980s. The Japanese are also delaying marriage longer than ever before. In 1970, just 7.2 percent of Japanese women aged 30 to 34 had never been married; by 2005, that figure had climbed to 32 percent. Among Japanese men aged 30 to 34, the never-married segment grew from 11.6 percent in 1970 to 47.1 percent in 2005. By that point, 30 percent of Japanese men in the next age cohort, 35 to 39, had never been married, compared with only 4.7 percent in 1970.
Thanks to these factors and others, Japans population has been shrinking for several years now. In May 2008, the Washington Post reported that Japan now has fewer children who are 14 or younger than at any time since 1908. Hatoyama has advocated pro-natalist measures, such as offering cash payments to families with kids. But Overholt expects such initiatives to be ineffectual, because the system makes it so impossibly difficult for women to have children and a job. A 2005 Goldman Sachs study found that if Japanese women participated in the workforce at the same rate as American women, Japans GDP would begin to grow much faster.
#adHigher levels of immigration would also have an impact. Today, foreign-born residents make up less than 2 percent of the Japanese population. (By comparison, they accounted for 12.5 percent of the U.S. population in 2008, according to the Census Bureau.) The country doesnt have a future without workers from overseas, Hidenori Sakanaka, director of the independent Japan Immigration Policy Institute, told the New York Times last year.
Solving its demographic problem may require Japan to embrace a fundamentally new set of economic and social policies policies that are less protectionist, less hostile to foreign investment, more growth-oriented, more supportive of female employment, and more welcoming to immigrants. Unfortunately, neither the incumbent party nor the opposition has coalesced around a bold agenda for structural reform. The DPJ is rooted in the same interest groups as the LDP, says Overholt.
Right now, Japanese politics is in flux. Hatoyamas ongoing travails could conceivably shorten his premiership and spur an LDP comeback. This summers upper-house elections will be a barometer of DPJ strength. Over the longer term, as Lincoln explains, there are three possible scenarios: (1) The LDP could refurbish its brand, recover its political strength, and remain competitive with the DPJ, all without undergoing a thorough makeover. (2) The LDP could collapse, allowing the DPJ to dominate Japanese politics for an extended period. (3) Both the LDP and the DPJ could fracture internally, leading to an ideological reshuffling that would make the Japanese political system more like the American system, with one big center-right party and one big center-left party.
Nobody knows which of these scenarios is going to play out, says Lincoln. It could take another decade to find out.
Duncan Currie is deputy managing editor of National Review Online.
send our illegals over there.
“Japans Geriatric Future (How will a shrinking economic power handle a rapidly aging population?”
Keep bringing in Moose limbs that multiply like rabbits with their barely teen age brides...it’s working pretty well for Europe!
Japan could actually seriously consider overhauling their immigration program. Thus far, only a few ethinic groups have bothered to apply for immigration -— Koreans, Chinese and Taiwanese ( who are also Chinese ).
There are a few caucasians who have become Japanese citizens but you can count them on your fingers.
The rest that I know of are American Sumo wrestlers from the Islands.
Coming soon to an America near you...too bad those 30+ million aborted babies weren’t around to pay into Socialist Security, huh?
i’m sure many people would love to immigrate there, but i don’t
think they are big multiculturalists. i think they would rather have
population problems than immigration problems.
yes, it certainly can be managed better. i still don’t think
the japanese want to import people.
“ineffectual, because the system makes it so impossibly difficult for women to have children and a job. A 2005 Goldman Sachs study found that if Japanese women participated in the workforce at the same rate as American women, Japans GDP would begin to grow much faster.”
They still don’t get it do they? This will fix their GDP problem, but it won’t fix the demographic problem.
Do what I did. Marry a Japanese woman, and get her pregnant a lot.
It’s called repopulation.
RE: Do what I did. Marry a Japanese woman, and get her pregnant a lot.
Its called repopulation.
Yeah, but do you both live in Japan and do your children ?
If not, you’re adding to America’s population, not Japan’s.
I don’t care who you “import,” an aging population means a dead country. Most innovation and invention comes from the young, and not immigrants, who typically are older when they arrive.
This avoids many problems, and introduces some new ones of its own. There is no quick, easy fix for this long-standing issue.
China is not far behind...
RE: Japan’s nationalism and ethnocentricity
How about a slow change in cultural attitude through education ? We live in a global economy now and I am sure that most Japanese are aware of this demographic problem.
One other possibility would be to ENCOURAGE more children via incentives.
If they had not have been aborting most of their children for these many years...
I wonder how the abortion rate in Japan is compared to that of the USA. Do you know of any reliable source for figures ?
RE: Do what I did. Marry a Japanese woman, and get her pregnant a lot.
Its called repopulation.
>>Yeah, but do you both live in Japan and do your children ?
>>If not, youre adding to Americas population, not Japans.
Yeah, you’re right. My wife doesn’t want to live in Japan.
Plan would pay Japanese families to have kids
Japans birthrate is one of the lowest in the world. With about a quarter of the countrys population older than 65, the forecast is that by 2050, this will reach 40 percent if things dont change fast.
Japanese families have kept their children low in number because of financial difficulties. Out of this comes the cash for kids plan, a brainchild of Japans new ruling Democratic Party to pay parents $3,400 a year per child until the child reaches high schoola program which is criticized by some.