Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Rise and Fall of Japan

          Like Roger Federer in world tennis, Japan is now Number 3 in the ranking of the most powerful economies in the world.  It gave way to China last year for the position of Number 2.  The U.S., still Number 1, may be feeling the heat from China in the same way that Rafa Nadal is being challenged by Novak Djokovic, for the number one position in tennis.  A recent article by Shinji Fukukawa, former vice minister of the Ministry of the International Trade and Industry and president of Dentsu Research Insitute, diagnosed how Japan rose to the top, almost challenging the U.S. for number one position in the last century, and why it is now facing a rather bleak economic future.

          Mr. Fukukawa made it crystal clear that population increase was a major factor for the economic progress that Japan attained in the last century:  "Economic growth depends on the rates of population increase and technological evolution, among other factors.  Technological evolution relies on the capacities of human beings.  So its kernel factor is human power."  Indeed, as Julian Simon wrote in his best seller, population is the ultimate resource.  The greatest folly for a country to commit is to control its population growth.  Because of rapid population growth at the beginning of the last century, the Japanese were challenged to use their brains and creativity to transform one of the most natural resource-poor countries on this planet to become the second most economically powerful country in the world.

          The Japanese minister looks nostalgically at the time when Japanese population was still increasing.  In fact, there was a time in the last century that Japan's total population was inching up towards 200 million.  That is now an impossible dream.  Without any State-sponsored birth control program, the normal processes of urbanization, education of women, later marriages and other sociological factors resulted in smaller family sizes. The Total Fertility Rate dropped way below the replacement of 2.1 and is now at 1.4.  It is highly improbable that the TFR can be reversed.  By 2055, it is expected that the working age population to the aged population will have a ratio of 1:1, as contrasted with 10:1 at the beginning of the 1960s.  According to Mr. Fukukawa, Japan's labor force population is expected to decrease at an annual rate of 0.7 percent in the years to come, which is likely to cause a decline in its supply capacity and decrease in demand.  In addition, the aging of the population will cause the savings rate to drop and interest rates to rise, leading to a decline in investment.  The securities markets might also lose momentum.

          Among the most important solutions suggested by Mr. Fukukawa to this problem of economic stagnation is an all-out effort to help increase the birth rate.  If the tendency for young people to remain unmarried and the rising average of marriage are responsible for the accelerating decline in the birthrate, efforts should be made to provide hopes of marriage for people and help restore family bonds.  There is the urgent need to work out and implement comprehensive measures designed to stabilize the employment situation, to establish a sustainable social welfare system embracing pensions and medical and nursing care services, and to build up facilities for enhancing child care.  Merely sprinkling public money around the nation won't do.

          As Japan struggles to increase its birth rate, a medium-term solution is to relax the very restrictive policies concerning immigrant workers.  Mr. Fukukawa suggests the practical solution of bolstering efforts to introduce foreign workers into Japan, under certain conditions.  He calms the fears of those who are worried about the damage to the country's law and order and social solidarity that may result from an uncontrolled influx of foreign workers, as happened in some European countries.  Japan can emulate the example of Singapore where foreign workers with required qualifications and abilities are introduced under certain designated conditions.  As has happened in Singapore, the "brain gain" approach can stimulate intellectual activities and contribute greatly to social advancement.

          I sincerely hope that the lessons from the Japanese experience will not be lost to our leaders who are fixated on the negative impact of population growth.  As Mr. Fukukawa explains in the most lucid manner, population growth and technological evolution were among the most important stimuli to economic progress in the Japanese experience. Let us literally make hay while the sun shines.  As we are still enjoying the demographic dividend, when our labor force is still growing more rapidly than the dependent population of children and senior citizens, let us invest in our abundant human capital.  No one can ever deny that the human resource is the "ultimate resource."  For comments, my email address is bvillegas@uap.edu.ph.