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The world's longest life expectancy and a low birth rate are crippling Japan's economy. The world should take note, as many other prosperous countries are following in its path.
TOKYO — On a remote island in Yamagata prefecture, a few hundred kilometers north of Tokyo, this month's opening day ceremony at the local elementary school provided a microcosm of what may be the most important challenge now facing the world’s second-biggest economy. All the pupils come from the same family. That’s less remarkable when you learn the student body amounts to a single pair of siblings. After nine dormant years, the school had just reopened.
The father of the third-grade girl and her fifth-grade brother recently moved to the island, tellingly, to start a home care business tending to the needs of the aging local population. The school, run by the municipality, had nearly 300 pupils just after World War II. Hit by the falling birthrate and the exodus to the big cities, the region is typical of many in Japan.
It is not only the rural areas that are being hit by these demographic changes. A government white paper on population released on April 16 showed that the elderly (65 and over) exceed children in every prefecture except the southern island of Okinawa. Seniors aged 75 and over now outnumber children in 12 of Japan’s 47 prefectures. Nationwide, 23 percent of Japanese are over the age of 65, while less than 13 percent are younger than 15. The imbalance will get staggeringly worse in the coming decades.
With both the longest life expectancy and one of the lowest birthrates on the planet, Japan is currently at the beginning of an enormous social experiment with repercussions for other aging societies around the globe: how to support the oldest population humankind has yet known, by means of a steadily dwindling workforce. The rest of the world should watch closely as many countries are facing the same trend.
The Japanese workforce actually peaked back in 1995 at 87 million, and has been declining since. It is already less than 67 million, and is predicted to fall to between 55.8 and 61.8 million by 2030.
“Once upon a time many young workers paid into the pension system but now that pyramid has been turned upside down,” says Hiroshi Udo, director of the Dai Ichi Life Research Institute. He points out that many people are no longer confident they will receive a pension on retirement and that this negatively impacts consumption as people save more for an uncertain future. Certainly the economic boost that Japan expected as baby-boomers began retiring with generous company bonuses rewarding lifetime-employment hasn’t yet materialized.
Other than the longest average lifespan in the world — 86 for women and 79 for men — there is another issue that sets Japan apart from many other countries in the demographic stakes: an unwillingness to accept immigration on any meaningful scale. In the United States, foreign-born workers make up more than 15 percent of the labor force; in Japan, it’s closer to 1 percent. Many of those classified as foreign are actually Japan-born second or third generation Koreans and Chinese.
There is, of course, no shortage of potential immigrants. In a world with millions of refugees, Japan has resettled within its borders only 450 over the last quarter century, according to the United Nations High Commission on Refugees. (It should be noted that Japan is a relatively generous foreign aid donor.)
During the recent economic expansion, Japan needed more workers so it made it easier for South Americans of Japanese descent to get visas. The assumption was that shared blood would smooth their assimilation. Yet cultural and language difficulties (the vast majority don’t speak Japanese) caused more friction than expected. Nonetheless, many of these ‘nikkei’ staffed the giants of Japanese manufacturing and their suppliers.
As the downturn began decimating Japan’s export-dependent manufacturers, these contract workers were the first to be cut. With a welfare system ill-equipped to cope, the government is making it clear to the nikkei that their residency in the motherland was meant to be temporary. It is now offering $2,000 to $3,000 to help with their flights back to South America, providing they agree not to come back until the economy is booming again.
Many ordinary Japanese are uncomfortable about a big influx of ‘gaijin,’ or outside people. “Japan still has an island mentality I think, and if we let more foreigners in then Japanese people would have a more international outlook,” says Miwa Hashimoto, an employee at a U.S.-owned company, “But there is the danger of some bad types coming in, and crime rising. Sorry, I don’t mean that to sound prejudiced — but I think Japanese people worry about that.”
This uneasiness is stoked by more vocal groups such as Zaitokukai, a new right group whose full name translates roughly as “the citizens group that will not forgive voting and citizenship rights for ethnic Koreans.”
“Immigration would do a lot of damage to Japanese culture,” says Makoto Sakurai, Zaitokukai’s president. “It hasn’t been successful anywhere; look at Italy, or France where they had youngsters rioting. Why should something that hasn’t worked elsewhere be forced upon Japan?”
Sakurai concedes that a shrinking population will have a negative impact on the economy but maintains that Japan “can create a society that can cope with that. Letting immigrants in might boost GDP, but we would have to change our whole lifestyle. I don’t mind if we can no longer boast of being the second-biggest economy in the world.”
With mass immigration an unlikely solution, what can Japan do then to stave off the inevitable economic stagnation?
One option would be to raise the birthrate by making it easier for women to return to the workforce after childbirth. This would provide a double benefit to the economy and to gender equality in a society still lags in that area. One of the few countries with a lower average birthrate than Japan is neighboring South Korea — equally renowned for old-boy chauvinism.
“If I believed that I’d get proper support from the law and the government, I would have as many kids as I could,” says Hashimoto, who is currently childless. “But now companies can still ask if you have kids when you’re applying for jobs,” and they can discriminate if you do.
The government appointed a minister of state for social affairs and gender equality in September last year. Yuko Obuchi was quickly christened the ‘minister for babies’ as she was given the task of raising the birthrate. While aggressive policy measures have yet to materialize, at least she has been practicing what she preaches by becoming the first pregnant cabinet minister.
If the opposition Democratic Party of Japan wins this year’s election, a distinct possibility, it promises a monthly allowance of 26,000 yen ($260) for every child until high school. In the near term, of course, that could add to Japan’s public debt.
Nippon Keidanren, the nation’s main business federation, has been urging the government to increase direct funding for education and childcare, and to reform the tax system, which currently penalizes working wives. “We also propose tax credits for having children that would make it easier for younger families,” explains Mie Sako, deputy head of Keidanren’s Social Policy Group. “The issue of work-life balance also needs examining.” Keidanren acknowledges that even this will not be enough though and has urged the government to also rethink its approach to immigration.
In the absence of any major shift from its current course, Japan’s population is expected to fall from its present 127 million, to 90 million by 2050. The ratio of working people to retirees will be one that has never been seen before. Tax revenues look set to shrink even as welfare costs rise, in a country where national debt will soon be nudging 200 percent of GDP. All of Japan’s famed ingenuity will be required to square this circle as the rest of the world looks on, in both hope and trepidation.