Wednesday, August 31, 2016

Japan’s Notable Population Experiment

Somewhere around 2010 Japan’s population peaked at 128 million.  Since then it has fallen by about 1 million.  The world’s population reached 7 billion around 2011.  It has continued to rise as about a twelfth of a billion people are added each year.  At that rate the world would have about 15 billion people by the year 2100.  This is a worst case scenario.  Experts expect the growth rate to decrease significantly over time, but still yield a growing population of 11.2 billion at 2100.  For those who believe we already have more people than the planet can tolerate, an increase of over 50% is difficult to contemplate.  Meanwhile, Japan’s population is expected to continue falling for the foreseeable future—at the rate of about 1 million people per year.  It is projected to reach a population of 86 million in 2060.

Why should we be interested in the future of Japan?  If the world is to continue to be hospitable to humankind, we must dramatically lower our impact on it.  The best way to do this is to decrease the number of people competing for limited resources and producing various forms of pollution.  Economists tend to deny the viability of an economy with a falling population.  They argue that an aging population requires an ever growing number of workers to support the increasing number of seniors.  Unfortunately, this implies populations growing without end.  Japan seems determined to follow along its current path.  If it can continue to provide a healthy economy for its people, it will demonstrate that foolish economists are in fact foolish, and will set an example for the rest of the world.

The journal The Economist always promotes the conventional wisdom of the economics profession.  In a recent article it took Japan and its leaders to task for not opening its borders and allowing hordes of immigrants in to provide cheap labor for its businesses.

“The country has remained relatively closed to foreigners, who make up only 2% of the population of 127m, compared with an average of 12% in the OECD, a club of mostly rich countries. Yet Japan is especially short of workers. Fully 83% of firms have trouble hiring, according to Manpower, a recruiting firm, the highest of any country it surveys. And the squeeze is likely to become much worse. The population is projected to drop to 87m by 2060, and the working-age population (15-64) from 78m to 44m, because of ageing.”

One of the most firmly entrenched orthodoxies of the economics profession holds that low unemployment and high worker demand inevitably leads to inflation.  According to the IMF Data Mapper, Japan currently has an unemployment rate of 3.3% and an inflation rate of -0.2%.  Japan has long had low unemployment and a deflationary economy.  Sometimes societies deviate from economic models.

The article looks hopefully for slight trends toward greater approval of immigration.

“Shinzo Abe, Japan’s prime minister, says he would prefer to raise the relatively low proportion of Japanese women who work, and to keep all Japanese working later in life, before admitting droves of foreigners. But his government has nonetheless taken a few small steps to boost immigration. It has quietly eased Japan’s near-ban on visas for low-skilled workers, with agreements to allow foreign maids to work in special economic zones. It is now talking about relaxing requirements for Filipino carers. The authorities have also made student and trainee visas easier to obtain, and turned a blind eye to those who exploit them to recruit staff for jobs that involve very little study or training at kombinis (the ubiquitous corner stores, often staffed by Chinese) or in forestry, fishing, farming and food-processing.”

“All this is starting to make a difference. Last year the number of foreign permanent residents reached a record 2.23m, a 72% increase on two decades ago—and the number of people on non-permanent visas is also rising. But the goal seems to be a surreptitious increase in the number of temporary workers and a more accommodating system for skilled workers, not the settlement of foreigners on a grand scale. Only tiny numbers of foreigners become Japanese citizens….and even fewer are granted asylum: only 27 in 2015, a mere 0.4% of applicants.”

The article then draws its inevitable conclusion.

“But the economic case for a bigger influx is undeniable. For those, like Mr Abe, who speak of national revival, there are few alternatives.”

But is Japan really in need of a dramatic “revival”?  And has a stagnant and now falling population been a problem?  Economists tell us that a growing number of workers are a good thing.  They also tell us that many occupations will be replaced by computers or automation in the coming years.  This apparent inconsistency is dealt with by claiming that eliminating jobs always creates new jobs.  Always?  It happened once in the past and generated great suffering and a few revolutions.  Projecting the future to be an extension of the past is a good way to get in trouble.  If instead of the necessity of creating new jobs, Japan can combine its falling population with its cleverness in automating tasks it may find itself on a healthier trajectory than the rest of the world.

Alec Ross assesses where Japan is headed in an important area related to its changing demographics in his book The Industries of the Future.

“Japan already leads the world in robotics, operating 310,000 of the 1.4 million industrial robots in existence across the world.  It is turning to eldercare robots in part because it has to and in part because it, uniquely, is in a great position to leverage its advanced industrial technology toward the long assembly line of the human life span.  But can robots really take care of humans?”

“Japan’s private and public sectors certainly think so.  In 2013, the Japanese government granted $24.6 million to companies focusing on eldercare robotics.  Japan’s prominent Ministry of Economy, Trade and Industry chose 24 companies in May 2013 to receive subsidies covering one-half to two-thirds of the R&D cost for nursing care robots.  Tasks for these robots include helping the elderly move between rooms; keeping tabs on those likely to wander; and providing entertainment through games, singing, and dancing.”

All of this might seem fanciful, but if the economists have their way they will talk Japan into breeding or importing many millions of workers and condemning them to lives of low wages and menial tasks.  Let us hope that Japan is successful in this endeavor.  That will make it that much easier for the rest of the advanced world to free itself from the perceived need to continue to grow its population.

Japan has a viable economy.  It has maintained a positive growth in GDP per capita—the true measure of economic growth—comparable to that of other developed nations.  It has its societal peculiarities like any other country.  Let us leave it be and hope that it succeeds in gracefully lowering its population.  Japan and the world will be better places for it.  One should also recognize that massive, highly populated China is rumbling down the same path as Japan with similar aging and declining population issues. If China gets it wrong the whole world will notice.

The interested reader might find the following articles informative:

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