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Archive for Thursday, September 7, 2006

Japan faces economic shift

September 7, 2006

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— Longevity is a blessing, but the Japanese live inconveniently long lives. Inconvenient, that is, for those who administer Japan's welfare state.

Welfare states are made possible by the productivity of modern economies, which make possible living conditions - improved nutrition, hygiene, housing, medical care, education, environment - that increase life expectancy. That increase threatens the solvency of welfare states, because the elderly receive most government transfer payments - pensions and medical care.

The life expectancy of Japanese women (85.5) is the world's highest and that of men (78.5) is behind only Hong Kong and Switzerland. The median age in Japan is 41.2, compared with 36.5 in America, and is projected to be 49.5 in 2050, when 37 percent of the population - twice today's rate - will be more than 65. And 41.7 percent will be more than 60, compared with 26.4 percent in America.

Japan, which has closed 4,000 schools in the last 20 years, has a fertility rate - the number of children per woman of childbearing age - of 1.32. The replacement rate, which keeps population from shrinking, is 2.1. Last year, deaths exceeded births by 21,408. The U.S. fertility rate is barely at replacement level, but immigration is one reason why demographer Nicholas Eberstadt expects America to be the "only industrialized country to hold its share of global population in the next half century."

Japan has never been welcoming toward immigrants. Shinzo Abe, who almost certainly will become prime minister this month, says he wants a Japan where "people in other parts of the world would like to live" and "become citizens." But other senior officials say the way to square a declining population and work force with the pension costs of long-lived retirees is to rethink retirement - to "work for life," one official says.

Another says of immigration that it is wrong to import workers to do "hard, risky jobs. Hardships should be shouldered by the Japanese themselves." And, he asks, "Why should we increase our population?" Leaving aside the welfare state's grinding imperatives, that is not a foolish question. In 1920, Japan's population was 56 million. Today it is 127.5 million on a landmass the size of California (population 36 million) that is three-quarters mountainous.But the welfare state's imperatives cannot be ignored, and the Japanese will not dismantle that state. So the alternative is to pursue increased revenues from rapid economic growth achieved by sacrificing equity, understood as job security and other entitlements, in the interest of efficiency.

Japan cherishes what Prime Minister Junichiro Koizumi calls, disparagingly, a "sanctuary" economy. Also called a "convoy" economy, it is one in which many workers enjoy extraordinary job security and benefits. But today, almost one-third of all workers are "non-regular" (up from one-fifth in 1990) and have little security and few benefits.

Until the "lost decade" of 1990s deflation, Japan seemed to be a rarity, a command economy that worked. But the economy succumbed to the cumulative inefficiencies of government commands. It buckled beneath the "iron triangle" of favors-seeking big businesses, the favors-dispensing Liberal Democratic Party, and government bureaucracy. That system produced the ballooning of nonperforming financial assets.

Japan's nominal GDP still is less than it was in 1997; America's GDP has increased more than 50 percent since then. But Japan's economy has been growing since 2002, even though Koizumi, who would be a better member of America's Republican Party than most Republicans are, has cut public works spending - formerly one of the economy's locomotives - from 8 percent of GDP to 4 percent.

The Japanese may now re-experience the 1980s - theirs and America's. Theirs, in a humming economy. America's, in an unpleasant byproduct of that humming - the super-rich (think of Gordon Gekko in the 1987 movie "Wall Street") whose vulgarity and shady dealings shock Japanese sensibilities.

Because of those sensibilities, statements that strike Americans as banalities can startle the Japanese, as when Koizumi told parliament, "I don't think it's bad that there are social disparities." When Abe said, "It is important to create a society in which losers don't stay losers," the news was that Japan, with its centuries of commitment to social harmony, must accept temporary losers.

About the simultaneous pursuit of equity and efficiency, one official acknowledges that something must give: "We are chasing two rabbits." The rabbits do not run in tandem, so Japan, like other welfare states, must increasingly, if reluctantly, chose efficiency over sanctuary.

George Will is a columnist for Washington Post Writers Group.

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