So goes the headline of a November 12, 2018 PEW Research Center report on the Japanese population’s feelings of their future. Gloom and doom, indeed.
I had a conversation with Dan Suzuki recently, a portfolio strategist at Richard Bernstein Advisors LLC. Dan is a senior member of the RBA Investment Committee and is responsible for portfolio strategy, asset allocation, investment management and marketing to major wirehouses and other financial professionals. He also happens to be a former classmate of mine from Osaka International School.
He seems to agree with the sentiment expressed in the PEW report. Dan made the following points as reasons for the overall pessimistic outlook on Japan’s future:
As immigration continues, crime in Japan will increase. Japan has one of the lowest crime rates in the world – it is inevitable that as populations from countries with higher crime rates immigrate to Japan, this will have an impact.
The near homogeneous population is what makes Japan unique, but that will cease to be the same.
Japan is currently the world’s third largest economy, but it will continue to be overtaken by fast growing countries, as China replaced Japan as the world’s second largest economy in 2010.
Dan personally is trying to convince his mother to spend her retirement years out of Japan.
It’s true there are several structural challenges that Japan faces, a significant one being its decline in population. Less talent, less growth, and also an increasing number of the up and coming generation must take on careers supporting the elderly, who are among the longest living in the world, diverting income and energy from domestic investment.
Dan makes some good points. In response to Dan’s points, I say the following:
Dan may be right when he predicts an increase in Japan’s crime rate. However, Japan has not always been the crimeless utopia that many in the world think it is. In fact, it has experienced anarchy on multiple occasions for prolonged periods. Japan has experienced and dealt with crime and turmoil in the past and is capable of handling any potential rise in crime.
The Japanese government has set a time limit of labor immigrants at five years, also barring them from bringing their families into Japan. The Japanese government wants foreign labor, but it does not want them to stay. Knowing the strict nature of Japanese law enforcement, they will be sure to enforce this provision. Also, the Japanese historically have not been as homogeneous as many argue.
Yes, Japan’s economic dominance will most likely recede, but so will America’s. No society historically has perpetually maintained dominance, militarily or economic. Japan is no exception. That does not mean Japan will no longer be significant on the world stage.
If Dan wishes his mother near him for personal reasons, that’s fine, but if he wants her to leave due to his fear of Japan’s future, that is not a valid reason.
What about this declining population?
Population decline is also the saga of industrialization and the modern day market economy, not just Japan. Korea, Russia, and even China face a declining population, as children go from necessity of survival to a luxury, coupled with advances in birth control technology, which is available ever more cheaply and abundantly.
Japan isn’t the only country facing this dilemma then: changes in demographics and immigration have socio-economic, geopolitical, and cultural implications for Japan and a plethora of other countries, from Germany, Great Britain, and also the United States.
Japan is an island country with a robust history of isolationism and strict immigration control, while other countries have already experienced much immigration. Japan will, as Dan predicts, change as its population declines, economic dominance continues to recede, and immigrants from the developing world go on to take low skilled work in Japan.
But I do not write Japan off. In spite of Dan’s points and the survey of the Japanese public’s sentiment. Here are the reasons I believe the Japanese can look forward to their future:
Japan is one of the most well-educated societies on the planet maintaining a competitive edge in technological and scientific research.
Cultures change, and there are no guarantees that current trends are permanent. For example, if Prime Minister Abe continues on his path of remilitarizing Japan, that will have an impact on Japan’s culture.
Japan’s economic ranking may shift some in the coming years, but will retain its ability to have a global impact and take on leadership roles, as it is doing now with initiatives like the Comprehensive and Progressive Trans-Pacific Partnership which replaced the old TPP after the US withdrawal under President Trump.
Japan is not the only country with domestic structural problems that have macroeconomic consequences for the nation at whole. The world is in flux, especially as the effects of climate change continue to become worse. Many of the challenges Japan faces are global in nature, shared by the international community at large, not just Japan. Japan has the capacity to be taking on a leadership role globally as the world faces 21st century challenges.
Women are rising in influence in Japan to a degree unparalleled in its history because of both choice and necessity. Women in Japan up to now have been an untapped talent source. This development will be sure to have a constructive impact on Japan’s society and economy.
Japan tends to be reluctant to change, but when change is presented, they adopt it efficiently. This has happened on a number of occasions: the Meiji Restoration of 1868 and the resulting fundamental shifts in Japan’s social structure; Japan, one of the few uncolonized countries left on the planet, was effectively competing with rival Imperial powers in the early 20th century; the adaptation to the social engineering initiated by Douglas MacArthur after the Second World War; corporate Japan effectively coordinating business policy with the long term planning of the Japanese Federal Government, among others.
Japan has been consistently underestimated by the West ever since it opened its ports to the outside world in 1853, but it has proved the international community wrong multiple times. The Japanese public and the international community should keep this in mind and realize that no country ever remains the same. Japan has experienced rapid change before, it is currently experiencing change, and it will continue to do so. That is also true for the world at large. The Japanese have what it takes to make this inevitable change work for them constructively.