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The Aging of Japan

Written By: Tony Cannon

Kyoto Japan

Japan is in a period of time when it needs to re-calibrate its bearings. The last fifty years have provided spectacular growth as rewards for a diligent and patient class of workers. They have put up with high prices and crowded living standards in order to share in the miracle that was the post war period. However, these same workers now are reaching retirement age, and their situation poses a new set of problems on the future. As Japan now faces the 21st century, a new set of problems are forcing Japan to change in many different directions. However, the work force of the post war miracle is keeping Japan back from reforming too quickly. Although not an immediate threat to the economic security of Japan the rapid aging of society has many long term reaching affects which will shape how Japan competes in the 21st century.

The Facts: There are three important facts that we need to understand before we proceed.

Family ready for the festival1) As of the present day, 15% of the population is 65 years or older. This is a normal ratio that can be found in many industrialized nations. However, with the baby-boomer generations retiring in the next century, that number will soon more than double to 33% by 2050. Japanese that are in the category of 15-64 years will fall by 17% by the year 2025. This is due to the fact that the Japanese live longer lives on average than anyone else on the earth. (Women live 83 years, while men live 77.)

2) Japanese women are having less and less children. In the latest report, Japanese women are having an average of 1.39 children. With pressures to find jobs and a sense of wanting freedom, women are turning away from marriage and motherhood. And those that do are getting married later and have children later as well. In the 1950's 15% of women were employed, whereas now, more than 40% are employed. On the same token, in the 1970's more than 80% women got married, compared with only 52% today.

3) Adding up 1 and 2 will lead to the obvious conclusion that the population of Japan will decline. It is already slated that the population of Japan will peak in 2007, and slowly decline from there. If there are no changes in societal structures concerning the family, it is predicted that Japan will have half as many people by the end of the 21st century...that means a drop from 126 million people to just over 60 million.

The Problems: With the aging of society comes a greater tendency for conservatism. The Elderly are less willing to sacrifice the present comforts for greater prosperity in the long run. This kind of thought is already running through senior salary men as they look forward to retirement. In an interview with a regional bank Vice President, he voiced his opinion that "Changing the economy takes time, negotiations and not market forces...One of the reasons (Prime Minister) Hashimoto was unsuccessful was because he did too much!" This type of attitude shows how the elderly are more willing to sacrifice the future for present, status-quo policies.

Because more and more people will be retired, this will create a burden on the future workers of Japan. In September of 1997, Japan announced that medical costs not covered by insurance would double from 10% to 20%. Some economists note that in order for the future, declining work force to sustain various transfer payments to the elderly, it would require a 15%-20% sales tax, up from a present 5%. All in all, a future Japanese salary man could expect to have 35% of his/her paycheck taken out for the sole purpose of welfare, pensions and other subsidies for the elderly. This will in turn cause a decline in benefits. Many companies right now are giving their workers a choice of whether to take their pension up front (all cash) or wait until the pension comes to fruition. Many workers are opting to take the money on a lump-sum basis. This hurts companies who don’t have the available cash in the system to pay everyone lump-sum. Also, the pension system is so severely under-invested that many top companies are 40% behind on their payments. Those that choose to wait for their pension to come due risk the possibility that it will not be there.

The labor of Japan is noted as being one of the heavy contributors to the economic miracles of the post war era. With a factor such as this in decline it will be inevitable that without some reform and innovation (which I will go into later) Japan will see a decline in GDP. According to the Japan Center for Economic Research (JCER) the real GDP rate will continue to rise in the long term, but will then shrink during the time period 2010 and 2015, (from 701 trillion yen to 628 trillion yen). During the same time period, per capita GDP will remain the same, (5.6 million yen) where the savings rate will fall from 26% to 17%.

What Needs to be Done? Japan needs to do a combination of things. These things, of course, are very detailed and I wont cover them in great detail in this article. (Partly because I don’t have the answers!) The first and foremost thing that government or private business can do is to create an atmosphere that is conducive for women to work and feel comfortable with marrying and having families. Because there are strong barriers women need to hurdle after having children in order to return to work, these are the first that need to be razed. Companies should bring it upon themselves to create day care. They should see the inherent crisis that is coming up in the future and react now to insure they wont be adversely affected.

The government needs to open the economy enough to allow the economy to react to market forces. With swift and efficient resolution of the banking debts, this will allow for future growth. A proper Big Bang affect would allow more international influences to enter into the financial industry. These influences will spread into all areas of business life and cause great sweeping changes away from life-time employment and seniority based pay. This will lead to a merit-based pay and an incentive to be more creative. This will lead to many innovations that should be in a response to the society's calling needs. Those needs would be obviously, personal investing for retirement, retirement homes, pharmaceuticals, day care, etc. The Japanese should allow themselves be dictated more on the market. Sure this means short term unemployment, but it will mean long term economic security.

This economic security is what Japan should be looking for. They are already rewards of their system after the war. They have a corrupt political/bureaucratic system, debt laden banking system, shattered consumer confidence and stagnant economy that is very stubborn. The only way they can fix the economy is by changing the system...cutting the fat. If the status quo is to remain, it will ruin Japan as an economy, and doom it from the ranks of the most competitive in the 21st century.

 
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