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Japan: “I Really Don’t Know How We Go Forward”

Business, Company Strategy, Economics, Japan
By John Richardson on 17-Nov-2014


By John Richardson

THERE is no debate. Everyone agrees that Japan simply must overcome its demographic challenges. Here are a few sobering facts which indicate the scale of these challenges:

  • Should current trends continue, Japan’s population will have fallen to 87 million from its current size of 127 million by 2060, according to this article in The Diplomat.
  • Of the 87 million, as much as 40% of the population could be 65 or older.
  • Japan’s current fertility rate, according to the World Bank, sits at 1.39 births per woman — one of the lowest in the world.
  • Japan’s birth rate has not been above the two level since 1974.
  • If the present trends continue, by 2050 there will be only 1.3 workers to support each senior, from 2.6 workers currently.
  • By 2026, social security costs are expected to climb to 24.4% of GDP, up from 22.8% in fiscal 2012, the country’s welfare ministry projected. “Japan’s social security system will probably collapse,” warned Masahiro Yamada, a sociology professor at Chuo University in Tokyo, in this Bloomberg article.

As an aside, I continue to find this perplexing: Whereas there is no debate about Japan’s need to address its demographic crisis, far too few people realise that the West is heading in the same direction because of the retirement of its Babyboomers.

But recognising there is a problem isn’t of any of use if the policies you then enact are wrong. This is the case with Abenomics as Monday’s announcement that Japan has slipped back into recession  clearly indicates.

“The situation feels hopeless. I really don’t know how we go forward,” said a friend of mine, a retired Japanese petrochemicals industry executive who lives in Kyoto.

He said that that he became really worried a year  ago about his 17-year-old who was refusing to get out of bed in the morning.

“What’s new in that?” I asked him, “I thought all teenagers were inherently lazy, needing more sleep than the average cat. I certainly was.”

But he told me I didn’t understand the malaise that is afflicting Japan‘s younger generation.

“We need to reinvent our economy, to improve our innovation, but that is not happening because young people, from an early age in in our education system, are encouraged to be afraid of failure. They just don’t take risks anymore. It is all about rote learning and memorising useless facts. Young people, like my son. are not stupid. They see what’s wrong with the system, but feel powerless to do anything about it.

“Big corporations get all the money from the big banks and the big corporations have lots of cash on reserve that they don’t want to spend on research and development in new industries, such as healthcare solutions for older people and information technology.

“We are very good at making automobiles and electronics for export, but the trouble is so is China. In five years’ time they will be doing what we do in consumer-goods industries, except that they will be doing it a lot cheaper and the quality will be as good, or almost good enough, to make the cost savings for their customers worthwhile.

“My son understood all of this and said, ‘What’s the point in staying here when the government is so hopeless?’ I couldn’t lie to him and say, “Son, you are wrong’. I admired his honesty and intelligence and so I pulled him out of school here and sent him to the US to complete his education.  I realise I am lucky because I can afford to do this.”

My friend said he worried that Shinzo Abe, Japan’s prime minister, was so much “part of the establishment” that he would fail to carry out the reforms that have to take place if Japan is going to escape from its demographic crisis.

“What we need is to deal with over-generous depreciation allowances for big corporations and a tax system that favours the big companies over the small, start-up companies.

And he added that Japan needed to tackle its “cultural aversion” to immigration. “We can solve our demographic problem if we start to accept more immigration from highly qualified younger people from overseas.”

The former petrochemicals industry executive also conceded that “my wife is twice as intelligent as me, but she felt there was a glass ceiling stopping her from getting a good job in Japan, and so she ended up staying at home. We need to improve female participation in the workforce.”

The same article from The Diplomat, which we linked to above, made this following point:

One policy approach could be to address Japan’s workplace gender inequality, which discourages women from pursuing both a career and a family. The World Economic Forum’s Global Gender Gap Report ranked Japan 105 out of 136 countries based on a series of gender equality indicators.

“These are big changes that we have to make, but what choice do we have?” added the former industry executive.