In a lecture given on the 12th of December 2014, Olivier Blanchard, Chief Economist at the IMF, presented the state of the world economy. He divided the major economies in the world into two categories: those troubled by the issues caused by the past, and those concerned by the challenges in the near future. Japan found itself in the group of countries anxious about their not so optimistic future.
The aggressive monetary policy of Japan featuring, but not restricted to, keeping interest rates near zero for 20 years, and the recently announced increase in purchases of long dated government bonds (by 80 trillion yen per year), all try to battle the current deflationary spiral. This is indeed part of Shinzo Abe’s master plan to get the economy back on track. More specifically, it is the second arrow – stimulating domestic demand with government spending. Together with the first arrow – printing currency, and the third one – structural reforms aimed at encouraging Japanese companies to be more competitive, it forms the Abenomics, a new approach to reviving Japanese economy, implemented since 2012 elections.
But one major aspect missing in this plan are immigrants and the immigration reform. The phrase “cultivating global human resources” applies to highly skilled, high income foreign professionals. The reality is stark when compared to political phrases – the word “migrant” (imin in Japanese) is missing from legal and popular discourse, substituted by “entrant” or “foreign worker”. It becomes interesting to ask the question: how is Japan to return to its booming growth rates of 1960s and 1970s when actual immigrants in Japan count for as little as slightly over 1% of the total population? Moreover, Japan’s shrinking population is also the world’s oldest, noting record birth lows (1.03 million), while forecasts predict that by 2060 people over 65 will account for 40% of the population. The conclusion is brutal and simple; it will be impossible to support the population by 2060 while preserving the same standard of living.
If no radical changes are implemented, then the Japanese society will have to tighten the immigration laws to withstand migration pressures from outside (mainly China but later also other Asian neighbors), and wait for development of a smaller society, with around 80 million people. There are a few opportunities if this turn of events will take place (assumed it is mindfully guided by government policies) that are outlined in the “Immigration Battle Diary” by Sakanaka Hidenori: key positions will be still held by Japanese citizens, there will be less environmental destruction, and after some time the families will perhaps adapt to the new economic climate, increasing birthrates. However, there are a number of dangers associated with this option.
Firstly, Japan would have to increase taxes to cover the rising costs of welfare because of the higher number of pensioners, as well as to decrease the pensions themselves. Secondly, the lack of workforce and their high concentration in cities (particularly the younger people) may cause extinction of much of rural life and mountainside communities, as it is no surprise that the average farmer is 65.8 years of age. Smaller workforce may cause decrease in GDP, causing the economy to stagnate and contract. Japanese people will have to adapt to a newer way of life. Thirdly, Japan’s citizens may even completely die sometime in 22nd century, due to their aged population. Taking those facts and estimates into consideration yields an even more interesting question: what options are there for Japanese government besides shifting levers of monetary and fiscal policies?
The title of this article is taken from the name of a 2014 symposium, which explored the potential answers to that question. It seems that the other alternative is “ The Big Option”, featuring a complete overhaul of Japan’s approach to the immigration. Sakanaka Hidenori, the proponent of this idea, estimates that to compensate the decrease of Japanese population, the country would have to accept 10-20 million immigrants during the next 50 years. This can make or break Japan for the years to come, and the government will have a central role in that. The challenge of encouraging multiculturalism, changing the paradigm from which the authorities currently view immigrants to less defensive, and ensuring they are smoothly integrated into society are just a few examples of the herculean challenge that stands before the Japanese government. The migrants will bring in fresh ideas and reinstall the confidence of investors in Japan as a place to invest, spurring economic growth.
Those migrants, however, have to be accepted as permanent residents, not as temporary workforce, as it is in custom now, with the Japan’s trainee programs. In short, a complete U-turn has to be made in the government’s policy to accommodate the coming workforce. The Japanese society will have to embrace the differences of the individuals. Japanese companies will have to develop a corporate culture that will grade employees based solely on their ability, so that no discrimination can take place. Japanese citizens will have to be educated in schools, universities and workplaces that immigration doesn’t pose a threat to their country, but that it is an opportunity. Some issues have to be monitored though, for example, the damage to the environment and overpopulation, as they can quickly worsen the state of the country.
Concluding, Japan currently stands in front of a major decision, which will not only decide on the Japan’s economy, but possibly also its place in the world. It relies solely on their government and citizens to decide which road to take.