How does Japan start to cope with fewer births, longer lives?

by Shinji Fukukawa

Economic growth depends on the rates of population increase and technological evolution, among other factors. Technological evolution relies on the capacities of human beings. So its kernel factor is human power.

At the outset of the 21st century, the perception that “international competition is competition over human resources” widely prevails, and the prediction that China will become the world’s largest economic power, surpassing the United States in 2030, is taking on a tinge of reality.

As far as Japan is concerned, the aging and numerical decline of its population is rapid, and if this trend persists much longer, its economic scale is bound to shrink and its international status will decline. Japan’s population reached a peak of 127.77 million in 2004. The National Institute of Population and Social Security Research predicts that this country’s population will be down to about 90 million in 2055.

The average age of Japanese people was 45 in 2010; it is predicted to reach 55 in 2055. The ratio of this country’s working-age population to its aged population was 10:1 in 1960. At present it’s 3:1 and is forecast to reach 1:1 in 2055.

Since the rate of economic growth depends on the rates of population increase and technological progress, the economic growth rate will decline unless the progress of technological innovation surpasses the pace of population decline and aging. Japan’s labor force population is expected to decrease at an annual rate of 0.7 percent in the years to come, which is likely to cause a decline in its supply capacity and a decrease in demand. In addition, the aging of the population will cause the savings rate to drop and interest rates to rise, leading to a decline in investment. The securities markets might also lose momentum.

Because the corporate environment of this country, such as its corporate tax system, is unfavorable for enterprises — compared with other advanced nations and neighboring countries — their relocation from Japan to other countries is already progressing. The trends of declining births and an aging population will accelerate the flight of businesses and industry out of this country. If the nation’s production capacity weakens, its balance of trade will go into the red. If the gap cannot be rectified by the gains in the income balance, the current account balance of payments will worsen.

Generally speaking, the decline in the birthrate and the increase in the number of aged people are considered likely to result in a rise in social insurance expenses, causing the nation’s financial structure to weaken. Currently, Japan’s ratio of outstanding public debt to gross domestic product (GDP) is estimated at 184.6 percent, the worst level among advanced countries. The situation is unlikely to take a favorable turn as long as deflationary economic conditions persist. Although there is no alternative to relying on a higher consumption tax, the tax increase will prolong deflation and force people to lower their standard of living.

Nursing care for aged people will be an important social problem in the years to come. But even if service robots are utilized in medical and nursing care facilities as well as at individual homes, there will be a serious shortage of nursing care human resources.

In the political sector, generational conflicts are likely to arise. As aged people assume a larger share political influence, political momentum will move toward expanding social security benefits payments for medical and nursing care services and pensions. If that happens, the sentiment of dissatisfaction will mount among younger people so much as to undermine the unifying force of Japanese society.

The education of young people is Japan’s vital policy task if Japan is to strengthen its future human resources. If efforts to address this problem should slacken, Japan’s strength to create values will weaken.

The reduction of financial allocations for national security measures would adversely affect the functions of Japan’s national security. In the 21st century the international community will become multipolarized and uncertainty will increase around the world. If Japan fails to provide international public assets adequately, it would cast a dark shadow over its national security functions.

Nonetheless, neither the earlier governments of the Liberal Democratic Party nor the current government of the Democratic Party of Japan have fully recognized this critical situation facing this nation. They failed to take adequate measures, without learning anything from the historical examples shown by such countries as France and Sweden.

Under the circumstances, here are five things Japan should do now:

• Work out a clear vision to create a future vision as a country with a middle-size population. Even if its population should come down to tens of millions, it would still be larger than that of many European countries. If Japan builds a strong society capable of creating intellectual values based on this premise, it could still contribute sufficiently to the world. In order to do so, it is necessary for this country to reform its economic structure by making efforts through participation in the Trans-Pacific Partnership and free trade and economic partnership agreements with other countries and to clearly design its way for its financial reconstruction.

• Make all-out efforts to help increase the birthrate. If the tendency for young people to remain unmarried and the rising average age of marriage are responsible for the accelerating decline in the birthrate, efforts should be made to provide hopes of marriage for people and help restore family bonds. There is the urgent need to work out and implement comprehensive measures designed to stabilize the employment situation, to establish a sustainable social welfare system embracing pensions and medical and nursing care services, and to build up facilities for enhancing child care. Merely sprinkling public money around the nation won’t do.

• Take measures to expand the participation of women and aged people in the labor market. For this to happen, it is necessary to improve the working and social environment so as to make it easier for women and aged people to work.

• Step up productivity through technological innovation. For this to happen, it is essential to bring up young people of abundant intellectual creativity who can start and carry out innovations. After the Meiji Restoration, Japan intensified its popular education efforts. We must learn from that experience.

• Bolster efforts to introduce foreign workers into this country under certain conditions. There are fears that if permits are given unconditionally for the entry of foreign workers, the nation’s law and order and social solidarity might be damaged as was the case with some European countries. If, however, workers with required qualifications and abilities are introduced under certain designated conditions, it is expected to stimulate intellectual activities in this country and contribute greatly to social advancement.

All things considered, Japan is likely to tread a path of decline unless it makes all-out national efforts now to overcome the current national crisis.

Shinji Fukukawa, former vice minister of the Ministry of International Trade and Industry and president of Dentsu Research Institute, is now chairman of the Machine Industry Memorial Foundation.