Japan can again become the land of the rising sun. We should watch and learn from them.

Summary:  Today we look at the future of Japan, and how well it will cope with one of great trends of the 21st century: the next industrial revolution. Japan’s weaknesses suggest they have some tough times ahead, but their unique strengths (sometimes wrongly considered weaknesses) suggests the 21st century might become a century of the rising sun over Japan. America too will face this challenge; we should watch and learn from Japan’s experiences — successful or otherwise.

Contents

1. Bad news: current weakness, massive debt
2. The next Industrial Revolution
3. Falling population is a boon for Japan
4. For More Information

 

(1)  The bad news: current weakness, massive debt

In July 2009 I wrote this conclusion to As Japan sails into the shadows, let’s wish them well and wave good-by:  Japan’s political regime may have passed the point of no return.  The demographics are essentially fixed for a generation or two.  The debt is too large and too short-maturity to inflate away — rising interest expense would bankrupt the government (or force hyper-inflation) before it reduced the real debt.  And its too big to pay — or even sustain.

That still looks likely. In 2009 there were many Japan-boosters, forecasting a strong recovery and bright future. Their ranks have thinned since then (example: “Forget Europe: Is the Real Debt Crisis in Japan?“, The Diplomat, 30 October 2012). This graph shows the why. Japan has stabilized their economy since the 1989 crash through massive fiscal stimulus.  Year after year. Decade after decade. The resulting numbers — GDP, income, investment, retail sales — look fine.  But at the cost of rising government debt.  Japan might have passed the point of no return, with little prospect of the rapid growth that could save their regime.

But just as America is not the Second Republic, Japan is not its political regime.  If we look out to longer horizons Japan has a bright future. Japan might have the formula for success in the 21st century:

1. A highly educated and hard-working people with a high-savings rate (the foundation for economic success),
2. a homogeneous population with strong social cohesion (avoiding the internal turbulence possible in multi-ethnic societies), and
3. a shrinking population.

The latter is usually considered a negative, especially compared with exceptional America with its large numbers of families that breed like bunnies. Some economists believe a falling population means economic decline, pointing to formulas that show more people = more national income. That’s mad for an over-crowded island like Japan.  And it is probably wrong about the nature of national prosperity in the 21st century.

(2)  The next industrial revolution

There have been several industrial revolutions, usually described as the first (1750-1850), second (1860-1920) , and third (information revolution, so far the smallest in its effects). The first two reshaped society, but the productivity gains were shared only after long periods of social violence. Eventually elites in the developed nations, frightened by the communist revolution and Great Depression) decided that sharing was the price of social stability.  The word sabotage might refer to poor textile workers tossing their wooden shoes (“sabot”) into the machines as a protest.

The next wave of automation already looms ahead, with massive job losses from machines having rudimentary senses and processing capabilities. In the future beyond that lie semi-intelligent machines. The result will be massive structural unemployment, shifting the shares of national income decisively from labor to capital. Look around to see it happening now, slowly accelerating.  Unusually high unemployment, rising levels of income inequality (both have other drivers as well, of course).

The process of sharing these vast gains among the different classes might become a — or perhaps the — major social issue of the 21st century. A highly educated but shrinking population like that of Japan is well-suited for this new era. They will have lower unemployment, thus reducing the inevitable social stress of this technological transition, and facilitate adoption of this world-changing technology. The obvious contrast is with America, and its growing population of increasingly poorly educated people.

See the links at the end for more information.  You’ll be hearing more about it during the coming years.

(3)  Falling population is a boon for Japan

Japan’s population peaked in 2008 at 128 million (their baby boom ran from 1947 – 1949), crowded into a narrow urban belt along the coast — at densities far beyond any rational level. By 2100 their numbers might be half that, back to the level of 1930.  perhaps as low at 60 million (1925) or even 50 million (1910). Their living conditions, Japan’s overall environment, will be improved.

Japan could be a garden with the cleaner technology of that era (a common question in grade-school history will be “Teacher, what is ‘pollution’?”).

The transition might prove painful. Like most late 21st century societies, Japan probably will be an old society and so quite different than those of our time (or anything seen in history). Look at this graph from Japan’s National Institute of Population and Social Security Research showing the coming evolution of age distribution in Japan.

(4)  For More Information

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about the new industrial revolution, especially these…

1. The coming big increase in structural unemployment, 7 August 2010
2. The coming Robotic Nation, 28 August 2010
3. The coming of the robots, reshaping our society in ways difficult to foresee, 22 September 2010
4. Economists grapple with the first stage of the robot revolution, 23 September 2012
5. The Robot Revolution arrives, and the world changes, 20 April 2012