Tama New Town — a bedroom community in Tokyo’s western suburbs — is no longer new.

It was booming when it opened in 1971 in a hilly area cleared of its trees. The town was designed to provide apartment and other inexpensive housing for a flood of young couples while land and houses in central parts of the capital were increasingly becoming too costly.

But Tama New Town’s population is now rapidly aging. Fewer kids are being born and fewer young couples have settled in the area.

Its population peaked at 145,677 in 1994 before sliding to 141,180 as of 2002.

The decline appears steeper regarding children. The total number of pupils at Tama’s public schools has halved from a peak of 16,779 in 1988 to 7,487 in 2002, prompting local authorities to to close six out of 37 schools over the past decade.

And more schools are on a waiting list.

Tama New Town’s population is aging faster than the national average, but it reflects a general long-term trend for the whole country, said officials of the city of Tama, roughly 70 percent of whose population lives in Tama New Town.

“Do you really think you can reverse this trend? We don’t,” said Toshifumi Nagao at Tama’s policy planning section when asked what measures the city has adopted to increase its population.

The city now has adopted roughly 200 measures to support child-raising households, including dispatching helpers for pregnant women and households with infants, but none of the steps has proved effective in reversing the decline, city officials said.

Tama New Town has its own reasons for its population decline, including that many young couples are no longer interested in old apartment units with small rooms built on earlier standards.

But simulations by experts and the central government show that in the long run, what is happening at Tama New Town will not be an exception as the Japanese population rapidly ages.

Decline to start in 2006

The population has been predicted to start shrinking in 2006 — its first decline, except for a brief dip during the war, on current record. The government began taking population statistics through scientific means in 1872.

According to a medium variant scenario of a prediction by the National Institute of Population and Social Security Research, Japan’s population will be almost halved to 64 million in 2100 after peaking at 127.7 million in 2006.

To maintain the current population size, Japan needs a fertility fate of 2.07. But the figure for 2003 stood at a record low 1.29, rekindling fears of a shrinking population, heavier social security burdens and a long-term fall in economic growth potential for future generations.

According to a simulation in a 2003 Bank of Japan working paper, the expected population fall will expand downward pressure on the nation’s economic growth potential. By the mid-2010s, Japan will lose about 1 percentage point of its gross domestic product growth annually due to the population decline alone, the paper said.

A long-term surge in the number of elderly will also push down household savings and thereby reduce the nation’s capital accumulation, a key factor in a country’s economic growth, the paper said.

Economic growth will keep slowing, and plunge into minus territory in 2023, the paper predicted.

The BOJ simulation concerns the nation’s potential ability for economic growth, or the supply side only, and does not cover other factors, including growing social security costs to support the aging population.

And growing social security costs normally hinder economic growth.

No surprise: burdens hurt

“The higher a country’s tax and social security burdens are, the lower its economic growth potential. That’s a general tendency you can see among member countries of the Organization of Economic Cooperation and Development,” said Hideaki Imamura, deputy director at the Finance Ministry’s Budget Bureau’s Research Division.

In 2000, every seven people aged between 20 and 64 supported two people aged 65 and older in Japan.

But the ratio will shift to 3-to-2 in 2050, substantially pushing up social security costs, including pension, health and nursing insurance systems, said officials at the Health, Labor and Welfare Ministry.

According to the Finance Ministry, social security costs borne by the public sector and individuals are estimated to nearly double from 78 trillion yen in fiscal 2004 to 155 trillion yen in fiscal 2025, accounting for 56 percent of the whole national income.

To cover the growing costs of the public pension, health and nursing insurance, a consumption tax increase is considered a foregone conclusion.

But the major political parties have yet to agree on an agenda for overhauling the social security system, and despite an agreement between the ruling coalition and the Democratic Party of Japan, they have not even started discussions in the Diet.

Yutaka Harada, chief economist at Daiwa Institute of Research Ltd., said social security programs, particularly the public pension system, will not be sustainable without fundamental reforms, including drastic cuts in pension benefits.

“Even now, people don’t pay into the public pension system. How could they be willing to do so when the premium burden is raised even higher?” Harada asked.

About 40 percent of the people who are supposed to be paying in to the National Pension System, which mainly covers the self-employed and students, have not paid their required premiums.

According to a 2002 survey by the Social Insurance Agency, 62.4 percent of the respondents who have failed to pay the premiums said they are so high that they cannot afford them. The number of pollees was not provided.

Another 12.2 percent said they did not or could not trust the public pension system, while 4.9 percent said the benefits they receive after retirement are too small compared with the premiums.

Some say small is good

Not all economists agree that a shrinking population will only bring negative economic effects.

Harada pointed out that other countries’ statistics show that a shrinking population can lead a nation to an increase in labor productivity.

Higher productivity paves the way for stronger per capita GDP growth, which Harada says is much more important for the welfare of each individual than the total GDP of a nation.

Among 21 OECD member countries with a population of 3 million or more, Denmark, Portugal, Britain, Italy, Sweden, German and Finland saw their populations decline from 1990 to 1998.

Meanwhile, the seven nations posted average labor productivity growth of about 2 percent each year, outperforming OECD members that marked population increases, Harada said.

For Japan, 2 percent annual productivity growth every year is enough to maintain constant per capita GDP growth, Harada claimed.

“Like those European countries, a decreasing population will prompt Japan to make more use of its workforce in its inefficient industries,” Harada said, adding that Japan has much room to boost productivity in many industry sectors.

For example, Japan’s labor productivity is reportedly higher or on the same level as the United States in only three sectors — machinery, primary metal and chemical.

Japan’s construction industry productivity is only 76 percent that of the U.S., the transport and communications 68.1 percent, wholesale and retail industry 63.5 percent and agriculture and fisheries 23.5 percent, according to data compiled by Harada.

Harada, however, might be more optimistic than many other experts.

Statistics show that Japan’s labor productivity grew by an average of only 0.5 percent each year over the past decade — the figure reflected in the more pessimistic simulation in the BOJ working paper.

But as Japan enters the shrinking-population age, the people might need to measure economic development differently, instead of believing the GDP must keep expanding.

A shrinking population will bring a better living environment for each individual in this small crowded country, including fewer commuters on rush-hour trains and greater residential space per person, Harada reckoned.

“Simple GDP comparisons with other countries, including China, will be meaningless,” Harada said.

Tama New Town officials share a similar view.

Their priority is to prepare a better living environment for residents. A sheer population increase is not their goal, they said.

“A town friendly for children should be friendly for all residents. That’s the view we take in preparing policy measures for children,” said Nagao of the city government.

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