Summary: Japan continues to prosper, defying the doomsters’ forecasts. Is this a delay of their end times, or the taxing down the runway before lift-off? Japan is in some ways further into the future than the rest of the world. We should watch and learn from them.
Since Japan’s long crash began in 1989, people have predicted doom. From their massive gross government debt: 237% of GDP in 2015. From their aging shrinking population and refusal to flood the island with immigrants. From their interventionist government and central bank. From the certain-to-come hyperinflation caused by their monetary policy. All so unlike America!
A quarter-century has passed, but Japan refused to cooperate and sink beneath the Pacific. Doubts have risen about their doom, although not to the extent as I wrote in 2012: Japan can again become the land of the rising sun. We should watch and learn from them. Here is a smart example.
“Japan’s tight labour market generates deflation”
At Macrobusiness (hat tip to Naked Capitalism).
“Just a quick observation today as Japan released its October unemployment rate at 2.8%, way below supposed full employment. Yet it’s still waiting for wage inflation to kick in, for about twenty years now. Japan is unique in some ways with its social contract between dead wood salarymen and other stabilising institutions, still as the leading indicator for our post-crisis developed economies it’s hardly irrelevant:
- balance sheet recessions and their aftermath take generations to restore animal spirits for debt;
- aging population;
- advancing automation.
“What it doesn’t have that other {developed nations} do is inequality but that’s also a powerful deflationary force. Nor does it have a flood of cheap migrant labour which equally deflationary, especially when you’re already over-supplied. Just sayin’, for all of you inflation hawks out there.”
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Japan’s economic performance is even better than that article suggests. Despite the doomsters’ list of Japan’s awful policies — so unlike America! — Japan’s real GDP growth has been similar to that of the US since 2004 — in the terms that matter to its people and our people: per capita GDP. The 2004 values for both nations were set to 100. Click to enlarge.
This might be just the beginning. Japan might become a star in the 21st century, growing faster than America — or as fast but with less social turmoil.
(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 fewer people and the cleaner technology of the future (when common question in grade-school history class will be “Teacher, what is ‘pollution’?”).
(2) What about the economy?
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 effects on employment and productivity are small, as industries slowly develop new methods to use these new tools. But massive job losses lie ahead from machines with rudimentary senses run by powerful algorithms. Beyond that lie true semi-intelligent machines (e.g., totally self-driving cars) and and even larger job losses.
There need be no social turmoil if the gains from the new tech are shared. That will be easier with a highly educated and shrinking population — hence less unemployment and an easier adjustment to new jobs. Japan is by far further along in this process.
Boosting population with culturally different people is a guarantee for social chaos in the coming years. Just as the “Washington Consensus” economic policies brought trouble or ruin to developing nations who took our advice (unlike the Asian “Tigers” who ignored us), western economists have exactly the wrong advice for the 21st century.
(3) Conclusions
Japan’s characteristics can make them an economic leader in the 21st century.
- A highly educated and hard-working people with a high-savings rate — the foundation for economic success).
- A homogeneous population with strong social cohesion — minimizing the domestic turbulence common in multi-ethnic societies when under stress.
- 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, other than deregulating industry, wrecking the education system, cutting social services, and reducing taxes for the rich. Without Japan’s advantages we might need bolder measures to prosper.
Or we might try something new. We might learn from other nations.
For More Information
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about Japan, about the new industrial revolution, and especially these…
- Japan can again become the land of the rising sun. We should watch and learn from them. (2012) — Falling population & faster automation are great for Japan.
- Must our population always grow to ensure prosperity? (2013) — Spoiler: no. More about the benefits of a shrinking population & automation.
- A rocky road lies ahead to a far smaller world population.
- Why Japan can become an economic star of the 21st century.
- The facts behind the scary new UN population forecast & those doomster headlines.
- Doomsters warned of End Times from overpopulation. Now *fewer* people are disastrous.
To better understand Japan, read this!
To understand Japan’s underlying problem, its most serious weakness, I recommend reading The Enigma of Japanese Power: People and Politics in a Stateless Nation
Published just before its economy collapsed in 1989, he describes a Japan governed by businessmen and bureaucrats, supported by a public that fears hostile powers threatening their economy, culture, and purity of their race. Japan’s diffuse power structure prevent effective action today, as it did during WWII.
I remember when I was a child and they gave us free copies of “Reader’s Digest” as challenge material, or just because it was donated for free. I read an article in one on the topic of: Should America adopt the Metric System?
One argument against it was that if America did that, we’d be following everyone else’s lead, and America isn’t a follower, it’s a leader. I remember this because on that day, around age 10, I thought: What a crock of crap.
But it’s widespread so I doubt we’ll be learning much from abroad any time soon, unfortunately. I am certainly glad to see your perspective on Japan, given that the running joke of this nation (where my faith rests, though I am American) is “oh they’re doomed, har har, not enough kids.” Never mind a birth rate above Italy’s. Indeed, if they do have an economic resurgence, that might up the fertility rate somewhat, as one of the major stumbling blocks I have seen is “I can’t afford kids (and modern technology means I don’t get them on accident).”
SF,
That’s a well said but sad commentary about America. You nailed it. Refusal to adopt the metric system was stupidity on steroids. Economists’ belief that Japan — grossly overpopulated – needs more people is insane.
Static or lower population would, all else being equal, tend to drive wages up, and that seems to be greeted with religious horror. (Automation of course changes those figures, but I imagine it doesn’t fundamentally change the trend.) Avoiding that seemed to be a big, if unstated, concern of economists.
SF,
That’s an important point. Any profession is driven to some extent by those who fund it. Economics is no exception. A great example is to refer to rising wages — even if the increase in wages is less than the increase in productivity — as “wage inflation.” That’s analytically bogus, but perfectly meets the needs of corporations.
More people also meets their needs. Lower wages, more consumers.
This is a perfect example of a country that is not advocating an open door migration policy to make up for any potential labour shortages. Europe should look at Japan as a model of what can work without having to sacrifice national cultures and values.
I totaly agree with you.
I don’t know about becoming a star, but I’m convinced the doom predictions are off. What I tell my friends, the difference is that generally, the USA is run for corrupt banks and financiers, Japan is run for corrupt industrialists and construction companies. Japan’s rulers aren’t any less greedy, but at least with a construction company, you get the construction, you get the jobs to make the stuff. This spreads out the wealth more evenly than the USA and the wealth gap between rich and poor is way better than the USA. People there are mostly kind of poor and barely eeking out an existance but they do have jobs. There are depressed regions, but they don’t feel like the ‘US sacrifice zone’ situation that Hedges describes in the USA.
Japan proves the deficit hawks are basically wrong. That the central bank of Japan, for how many billions/trillions of public bonds it owns, it will never turn the austerity screws on Japan, because why should it? The ‘central bank independence’ thing in Japan is basically show for western investors. And the bank will do what it has to do to keep the corrupt construction companies and industrialists going, and as a result Japanese people will continue earning their meager wages.
The China/Japan animosity, it’s there, but having spent some time in China, my gut is that it’s trending towards a France/Germany situation. Even though broadcast TV in the PRC is basically 24-hours WW2, what’s happening is middle-class Chinese are going to Japan to visit, watching Japanese media. I think the challenge here is 50 years or so of no war — this will chill. I don’t think that the growth story for China is over yet, Japan won’t beat China, but Japan generally benefits by its proximity to China as long as there’s no war.
Good article, but there is a typo. Japan’s population at the time of the Meiji Restoration was about 30 million, not 3 million.
Geoffrey,
Thanks for catching that! Fixed!
I’m inclined to disagree with you here. While I don’t think Japan is doomed, it certainly seems like it’s going to be entering a rough patch. Broadly speaking, compared to the situation 30 years ago, the public doesn’t really support the establishment it did then. The main reason why the establishment continues to stay in power is the lack of a viable alternative. I get the sense that things there are building to some sort of reckoning. (Like in the US, though I’m not sure if things will be quite as bad as they’re going to be here.)
FDW,
This was looking at the economy. You might be right about the politics. I know almost nothing about their politics.
I agree with your observations about US politics.
I don’t have the most detailed insight either, but I can give you a general idea: The dominant faction in Japanese Politics are the Liberals. I’m using “faction” rather than party because the Liberal faction extends beyond the LDP proper to several opposition parties and beyond parliament to a large chunk of the business class and bureaucracy. In addition to that, I mean something rather different than how it’s used in North America. I’m using “Liberal” as a synonym of “Moderate”, but defining itself against a different kind of Left-Right divide than what you see in the west.
Now to elaborate on this more, I need to give a little lesson. The Tokugawa Shogunate was overthrown by a coalition of Liberals and Nationalists. While these two groups did have a large overlap, incidents like the Seikanron (and the rebellions that it led to) showed that these factions had different visions for what Japan was going to be. Still, both sides spent the next 4 decades working together. Things began to come apart after the First World War, where a combination of internal and external events cause the Nationalists to take defect power. The Second World War come around, and serves to discredit the Nationalists. Since then, the Liberals have dominated, with some exceptions. These being 1993-1994 and 2009-2012, when voters decided to experiment.
The terms “Left” and “Right” work a little differently in Japan than they do in the West. As I see it, the Japanese Left wants to converge more culturally with the West, while the Right wants to Diverge Culturally from the West. While on the other hand, they invert on Economic/Military issues: The Right is fine with the current economic/Military links to the US, while the Left wants to restore Japans “True Neutral” status of old. Now, the Japanese Left, like the Left in many parts of the West is divided into a “Hard Left” (The Japanese Communist Party), and a “Soft Left” (which I won’t name because they changed their name too much, but they use Blue as their color). In Japan, the “Hard Left” has never been banned, but never allowed to enter coalitions. This has changed with the with the most recent election: Prime Minister Shinzo Abe’s attempts to rewrite Japan’s constitution has seems to have changed the game for the Left. I see interesting times ahead for Japan.
Japan is a land of contrast.
Japan is seen as a grave obstacle to the goals of both Russia and China (to say nothing of North Korea). Those oppressive regimes would enjoy seeing Japan roll over and die.
The demographic crisis in Japan is real, but it is only a symptom of a deeper moral and psychic crisis of Japan’s people. The deeper problem is the one that Japan will need to solve if it is to continue playing an important role in world affairs.
Japan is using robots to care for the aging, to watch over children, and to guard its extensive shorelines. But there are limits to what robots can do to replace humans if a human nation is to remain a going concern. Japan may soon be exploring those limits.
alfin,
“Japan is seen as a grave obstacle to the goals of both Russia and China”
That seems unlikely to me. Your evidence?
“The demographic crisis in Japan is real, but it is only a symptom of a deeper moral and psychic crisis of Japan’s people. ”
What crisis? The island is crowded beyond any sane levels. A smaller population would be wonderful.
“if a human nation is to remain a going concern.”
Japan could be a “going concern” with its present fertility thru the 21st century. With the tech we might have in 2100, a population of 30 million might work great. With a cleaner Japan and fewer people, fertility might return to replacement levels. If not, they can adjust public policy to encourage children. Those have been shown to work well.
True, you will certainly not read about this kind of thing in the newspaper. But strategists in China and Russia have been chafing over these things for a long time.
Geographically, Japan’s extended archipelago partially blocks China’s access to the blue sea. Hence the territorial disputes recently ginned up by China against traditionally Japanese islands. Taiwan’s location also constitutes a “blocking action” against China’s blue sea access.
Japan’s advanced navy reinforces the inconvenient blocking nature of Japan with regard to China’s (and Russia’s) naval access to the Pacific. Would-be superpowers need to be able to travel the globe unhampered.
Historically, Russia fought a war against Japan in the early 1900s at least in part over the same issue, and the tensions have not actually eased in terms of island ownership (access to sea lanes). [The ongoing dispute with Russia involves the Kuril islands and with China the Ryuku islands are at play] These are not minor disputes in the eyes of any of the countries involved.
Japan’s population is slowly falling for now, but more significantly the demographic changes in age cohorts clearly point to accelerating decline of workforce and breeding populations. Births and marriages are falling while deaths are rising and average age climbs. The chart in this article: https://www.nextbigfuture.com/2017/12/japans-slow-demographic-apocalypse-90000-per-year-are-dying-and-rotting-alone-in-japan.html makes the problem more clear.
There are about 38 million people in the greater Tokyo area. That probably seems crowded to some, but out in the countryside villages are disappearing from north to south.
One can not look at the aging issue without also looking at the possibility of widespread use of rejuvenation therapies. With the way things are going now, it seem like barring some disaster that Japan (and other areas like the former Soviet Union) are going to avoid the very worst case scenario.