Why Japan can become an economic star of the 21st century

Summary:  Today we look at the future of Japan, and speculate at how well it will cope with the new industrial revolution. Their unique strengths (sometimes wrongly considered weaknesses) suggest that the 21st century might see the sun again rising over Japan. America too will face this challenge; we should watch and learn from Japan.   {1st of 2 posts today. It is a revised version of posts from 2013 and 2014}


  1. A falling population is a boon for Japan
  2. A new Industrial Revolution
  3. Japan: suited to be a star of the 21st Century
  4. For More Information


(1)  A falling population is a boon for Japan

Japan’s government has worried about its overpopulation since the Meiji Restoration when they had about 30 million people (1868). They encouraged emigration to Korea, to no effect. They had 50 million in 1910, 100 million in 1967, and a peak in 2008 at 128 million — all crowded into a narrow urban belt along the coast. At their current level of fertility, by 2100 their population might be half of today’s, back to the level of 1930.  If fertility continues to fall, population might fall to 60 million (1925) or even 50 million (1910).

The effect on Japan’s environment would be wonderful. Japan could become a garden with the cleaner technology of that future era (a common question in grade-school history will be “Teacher, what is ‘pollution’?”).

See this graph showing the coming evolution of the age distribution in Japan (source; see more information from their National Institute of Population and Social Security Research).

Japan's population

Many economists look at this data and conclude that Japan needs more immigration, otherwise their national income (GDP) will fall along with their population. The New York Times says Insular Japan Needs, but Resists, Immigration. The Washington Post says Strict immigration rules may threaten Japan’s future. These prescriptions for Japan show the limits of economics as a guide to public policy. GDP is not the only measure of a nation’s well-being, or even the best. Worse, economists sometimes see only linear trends of the past, blind to future developments visible even today.

A tool of 15th century labor protest

(2)  A new Industrial Revolution

There have been several industrial revolutions. Somewhat arbitrarily, we had the first in 1750-1850, and the second in 1860-1920. Their productivity gains were not shared. Hence “sabotage”, as textile workers protested by throwing their wooden shoes (“sabot”) into the machines.

These rebellions grew in breadth and scale, with peaks during the revolutions of 1848 and the 1917 Russian revolution. Frightened by those and the turmoil of the Great Depression — plus the need for high social cohesion to fight the two world wars and the cold war — the West’s elites decided that more sharing was necessary. That created the western societies we see today, with their large middle classes.

Now the information revolution has begun, so far the smallest in its effects on productivity. Massive job losses lie ahead from machines with rudimentary senses and powerful algorithms. Beyond that lie semi-intelligent machines and and even larger job losses.

A Life for the Stars
Available at Amazon.

Under our current system this will shift the shares of national income from labor to capital. How to share this revolutions vast productivity gains among the different classes might become a — or perhaps the — major social issue of the 21st century.

Failure might create massive structural unemployment. People cannot spend money they do not have, so aggregate demand will crash, as foreseen in 1962 by James Blish in A Life for the Stars, second in his Cities in Flight series

The cab came floating down out of the sky at the intersection and maneuvered itself to rest at the curb next to them with a finicky precision.  There was, of course, nobody in it; like everything else in the world requiring an I.Q. of less than 150, it was computer-controlled.

The world-wide dominance of such machines, Chris’s father had often said, had been one of the chief contributors to the present and apparently permanent depression: the coming of semi-intelligent machines had created a second Industrial Revolution, in which only the most highly creative human beings, and those most fitted at administration, found themselves with any skills to sell which were worth the world’s money to buy.

Cyberpunk science fiction shows another future if current trends continue, a “nightmarish world of corporate control and extreme wealth disparities.”

(3)  Japan: a star of the 21st Century

Consider Japan’s special characteristics which might make them an economic leader 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 — minimizing the domestic turbulence common in multi-ethnic societies when under stress.
  3. A shrinking labor force — able to more easily absorb the job destruction from automation.

These advantages are mutually reinforcing. A highly educated population suits the available jobs. A shrinking population more easily accommodates job losses from automation, which reduces the social stress of this transition (more about this here). Less social stress might facilitate adoption of new technology and methods. The obvious contrast is with America, and its growing population of increasingly poorly-educated people, in a society fracturing by ethnicity, race, religion, and ideology.

America might look to Japan for ideas in the years to come. We do not appear to have many of our own. Without Japan’s advantages we might need bolder measures.

Our world in their hands.

(4)  For More Information

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28 thoughts on “Why Japan can become an economic star of the 21st century”

  1. This is very well-done, FM. An excellent dip into the waters of the future. I have only a couple of minor things to add:
    1. Semi-intelligent machines are either already here or very, very close. We’ve got industrial robots that can learn their actions and the tests of driverless cars are proving to be much more successful than originally expected.

    The impact of driverless cars (which is easier to predict at this stage) will be vast and will likely generate an awe-inspiring amount of social change and problems. Uber, taxi cab drivers, and truck drivers are all suddenly (over the next 25 years) going to be redundant. The Teamsters Union is going to have to mutate or vanish. Several ways for immigrants to get to the middle class will be blocked.

    Auto and life insurance companies are going to have the justification for a large percentage of their premiums (car accidents) vanish. Life expectancy will probably go up at a slightly faster pace. Two and three car garage will probably go back to being only offered to rich people because the rest of us won’t need to own so many expensive pieces of equipment. And, of course, hackers will have a new target, the computer brains in the cars we can no longer directly control (either because we’ve removed the control equipment or because we no longer practice driving skills).

    2. You make an excellent point that Japan can become an economic super-star again. Economists have long viewed people’s money earning and spending habits as the ultimate basis for an economy, but what happens when an increasingly large number of people have an increasingly hard time earning money? Sabotage and social cohesion issues logically follow.

    A long study of history has shown me that over thousands of years basic things keep flipping between being an advantage and a disadvantage. I think you’ve nailed it when you say that increasing population is no longer necessarily a prerequisite for an increasing economy.

    The next 50 years or so are likely to generate a lot of messy but historically important moments, just like the last two industrial revolutions did. I can hardly wait to see what happens next…

    1. Pluto,

      I agree on all points, but we define semi-intelligent differently. The industrial robots and self-driving cars are just fancy algorithms — what I described as the first stage. “Semi-intelligence” in the sense Blish used it — as the next stage — implies higher capabilities, such as adaptability, simple learning, judgement, and ability to interact with people. Such as that of a nurse practitioner doing a initial assessment of a non-critical patient. A tax preparer at H&R Block. First line people at customer service centers and help desks. Librarians answering questions. Technicians in a wide variety of fields.

      These are things that cannot be programmed as a complete skill set, unlike an industrial robot.

      Sidenote: I’m skeptical about the driverless car. Google has carefully avoided releasing details about its cost or real-world effectiveness. Use on a mass scale might be many years away, perhaps a decade or two.

    2. I now better understand by what you mean but semi-intelligent but I suspect that we will hit the major issues before we reach the full meaning of your definition of semi-intelligent. I also agree that my definition of semi-intelligent is “fancy algorithms” but it is amazing how far we can go with fancy algorithms.

      Let’s use your examples and see what current life is like. I no longer use tax preparers because the state of tax preparation software is good enough to handle the complexity of my tax situation. If I want information about potential medical issues, I increasingly turn to online information resources instead of scheduling an appointment with a medical professional.

      First line customer service and help desk people are already being increasingly replaced by fancy algorithms because computers are infinitely more patient with really stupid people than human beings are. I can’t think of the last time I asked a librarian a question simply because the online reference tools are already so good.

      Technicians in a wide variety of fields are currently safe from fancy algorithms but I, personally, am REALLY looking forward to replacing human order takers at McDonalds with self-service kiosks. I am tired of having my order scrambled by people who have terrible problems understanding me because of their inability to hear me in a noisy environment or who have English as a 5th or 6th language.

      So there are some areas that will have to wait for your semi-intelligence but there are quite a large number of areas where the fancy algorithms are making large waves.

      Sidenote: I started off as a skeptic of self-driving cars but am now something of an optimist. For example, Mazda has introduced a lot of the basic tools for self-driving vehicles (sensors and software to notify the driver) in their Mazda3 which is a pretty cheap vehicle. But driverless cars have gone from dream to testing stage in such a ridiculously short period of time that I would be surprised if there are not some teething problems once they hit the mass production stage.

      1. Pluto,

        “So there are some areas that will have to wait for your semi-intelligence but there are quite a large number of areas where the fancy algorithms are making large waves.”

        Yes, that’s what I’ve been saying in all these posts. Lots of jobs will be lost in the next decade from standard automation (e.g., self-service at McDonalds). But that’s just one wave. Lots more coming. That’s why it’s an industrial revolution: waves of changes over several generations that reshape the world. In 1870 half of US workers were on farms; by 1980 only 4% were (since then 1/3 of those jobs vanished, 1.1 million jobs gone).

        As for self-driving cars: People have absurd expectations for the time required to roll-out new tech on a large scale. Making it sufficiently reliable and robust, then reducing the cost to mass market levels takes a long time. These are generational scale processes. The iron rule is that people over-estimate the short-term effect of new tech and under-estimate the long-term effect.

  2. Depopulation will not only reduce GDP but also wealth, as large portions of residential and commercial real estate will no longer have occupants. As evidenced by our recent recession, that is not a pleasant outcome. The gradual nature of Japan’s population decline may make that change less disruptive, but additional discussion would be helpful.

    1. DMK,

      (1) The nature of progress inherently destroys wealth. The British aristocracy was crippled by the 19th Century fall in agriculture prices, which reduced their income and land value. New technology and methods obsolete phystical plant long before the end of its operational life — and does the same thing to human capital even faster. But it does so while creating new wealth. It’s a more reliable process than the replacement of new jobs for old.

      (2) My point was not that population reduction reducing GDP (although it doesn’t necessarily reduce per capita GDP), but that this might be more than offset by the fantastic productivity growth of an industrial revolution. Looking just at one side of the ledge gives a misleading picture.

  3. The real change will occur not when the first autonomous vehicles arrive but when the very last human driver leaves. Only then can the promise of fully coordinated traffic movement under automation occur. This can happen one city at a time but just one mere mortal on the road will ruin the opportunity for total coordination. Such a city would profoundly outperform the slow adopters. Traffic lights would not exist and average travel times would plummet. Others would soon follow. I won’t be surprised if Scranton PA is the last to go, just like the Cities In Flight.
    Hey. On a longer time scale the same is true for the day when our last human ruler steps aside to the machines.

    1. Peter,

      That’s an interesting observation, but that day will be a long time coming. The average age of US cars today is over 11.4 years (from 8.4 in 1995), and today’s cars probably will last longer than those on the road today built 15+ years ago. Plus today’s new cars are barely affordable by a large fraction of the population, being sold only by massive expansion of sub-prime auto lending and extension auto loan durations (from 61 months in 2010 to 65 months now).

      Fortunately self-driving vehicles will provide benefits to us all as their incrementally rolled out. It’s seldom mentioned that commercial vehicles are likely to be the early adopters: the added cost probably will be a smaller fraction of the total cost, the cost is tax-deductible, and the cost of insurance much larger (hence larger potential savings).

  4. Very thought-provoking analysis of Japan’s premier position.

    I have a couple more advantages I would like to add:
    1. It seems to me their physical infrastructure (such as houses, offices, roads, trains, factories, ports) is already mostly built-out, leaving mostly only the burden of maintenance for this future, smaller generation.
    2. They’ve seen this coming for at least a generation, hence the culture’s fascination with robots. I think they will likely have better general understanding and acceptance of the economic changes that come with automation, and less “sabotage”.

    Also, a couple thoughts:
    a. An admittedly loose historical precedent for dramatic depopulation: http://foreignpolicy.com/2013/03/04/life-after-death/
    “… the population shock of the Black Death was so dramatic that it caused a permanent increase in incomes … Plagues act as what Voth calls a “neutron bomb,” removing people but relatively little in the way of economic capital …”
    b. “America might look to Japan for ideas …” ? Haha, America look to another country for ideas. That’s funny.

    1. Todd,

      Lot’s of interesting ideas in that comment. Especially comparing the coming population crash (inevitable for many nations now, as their fertility is so far below replacement level) with the Black Death in Europe! That’s brilliant. Thanks for sharing that insight. It’s well worth thinking about.

  5. Fabius,

    How is a high savings rate good for Japan’s economy? Who’s spending the money then? Foreigners via exports?

    Japan’s homogeneous population didn’t stop their over-aggression nor prevent obeisance to government policy in WWII.

    Also, Japan has few natural resources and is dependent on foreign resources in a region that will be dominated by a super-power that hasn’t forgotten Japan’s war-crimes of the last century.

    If Japan can get past being a consumer society (they don’t even like sales, for crying out loud!) and become energy-independent, then maybe they’ll prosper, but not on a world-scale since they’ll essentially have to cut themselves off from the outside world. It’s not like they haven’t done that before…


    1. Jason,

      All good questions! Most of these result from applying the views of the post-WWII era to an era of industrial revolutions — something we have not seen since the 1920s.

      (1) “How is a high savings rate good for Japan’s economy? Who’s spending the money then?”

      During the slow-tech decades since WWII return on investment has been falling, so exporting capital was of relatively little benefit. Industrial revolutions require capital for investment, which bring high returns for those willing to take the risks. The gains go to those with the capital — a process which made Victorian Britain rich. So Japan’s domestic source of low-cost capital becomes an asset.

      (2) “Japan has few natural resources and is dependent on foreign resources”

      Just like 19th C Britain and post-WWII Singapore.

      (3) “a super-power that hasn’t forgotten Japan’s war-crimes of the last century.”

      That hasn’t hurt Japan so far (nor Germany). Also, people born in 1945 are now 71. Memories don’t fade, but usually have less influence on behavior as generations pass.

      (4) “If Japan can get past being a consumer society … and become energy-independent”

      I don’t believe “consumer society” is an economically significant term. “Energy independence” is a US fetish, one of zero economic significance (energy is just another trade good).

      (5) “essentially have to cut themselves off from the outside world”


      (6) “it’s not like they haven’t done that before”

      The nation that passed the Taft-Hartley bill, helping spark the Great Depression, shouldn’t throw stones about that.

    1. infowarrior,

      As for mecha — we might have already passed that phase. Giant fighting robots might not need human pilots. Google probably already has a prototype testing in the desert.

      As for kawaii… giving the rampant ugliness of the world, more kawaii must be good.


      1. Yeah agreed. I just wonder what got lost on the way that we construct such ugly urban monstrosities.

        Its like we lost our sense of beauty. I think back in another comment how modernity can take aesthetic lessons from fantasies like LOTR. And ancient and medieval history.

      2. One thinks if the free market is really just a way by which human nature can fully express itself in its beautiful and its ugly aspects. Perhaps the ugliness of soul is what results in ugliness of creation and of kitsch in the best of cases.

        Even the rich are unable to access the best of beauty given the ugliness of soul that produces such buildings. This thought came to mind when thinking about the dwellings that the rich in Dubai purchased in a documentary I watched about the lifestyles of the rich.

        Not beautiful at all in my opinion. Or attempts at beauty resulted in kitsch.

      3. Infowarrior,

        “One thinks if the free market is really just a way by which human nature can fully express itself”

        I strongly disagree with that. Free markets express only those values that are monetized. Others are displaced, even trampled.

        The religion of free markets is IMO quite mad, often claiming wonders from markets that are — to put it kindly — lacking empirical support.

      4. Info warrior,

        That is far broader than what I was saying. I was not describing Heaven, or saying that it was possible on Earth.

        Rather free markets express monetary values, and deprioritize others. Other systems, such as aristocracies, tend encourage expression of other values. But they too have their limitations.

        These series of industrial revolutions now running open the possibility of better systems, transcending the limits that material scarcity imposed.

      5. ”These series of industrial revolutions now running open the possibility of better systems, transcending the limits that material scarcity imposed.”

        I find there floats an idea like the “living wage” which will be made possible by the industrial revolution. Is that part of this systems that are emerging that you are talking about?

      6. What do you think of copying? You know torrents and things like that? Opensource software that are free and do not cost any money?

        Can be categorized as part of the free market?

      7. Info warrior,

        There is no Hoyle for such terms, but in general usage capitalism is one form of economic system based on free markets.

        An example of a social system is America, based on a republican political regime, a capitalist economic regime, and British-derived culture.

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