The Real Crisis Facing Japan: Part 3 The Solution?
In the first two parts this article, I have written as if Japan's demographic decline is a given, which of course it is not. Essentially, Japan has 3 potential options to solve this issue. The first is to do nothing and try to mange the decline as best as possible. The second is to allow mass migration to Japan. This would the easiest and fastest option (and the one I would personally recommend) but I don't think this is a likely option given the mood of the Japanese society. This leaves rapidly increasing the birthrate back to replacement level.
Since I think option 1 is the most likely outcome but option 3 is the most desirable (since I do not foresee mass immigration becoming a politically viable option anytime soon), I will give recommendations on what should be done now to deal with population decline and how to move towards increasing the birthrate.
The first thing that needs to be done in Japan is to increase the age at which retirement benefits start and move away from mandatory retirement. It makes absolutely no sense for workers in one of the longest lived and healthiest workforces in the world to be forced to retire at 60 or 65 whether they want to or not. This is not to say that people can't or shouldn't still retire, but just that there is no longer really a need to do so at 65.
The second thing to be addressed is defense policy. Japan should keep its pacifist constitution and refrain as much as possible from foreign entanglements. Japan's low defense burden has been a blessing to its economy despite what some politicians would have people believe. It would be insane at this point for Japan to start playing a more active military role in the world when it can least afford to do so.
The third thing that needs to be done is quickly start balancing the budget. Japan's debt burden is far too large already and if it is not fixed very soon it could spell economic disaster. Unfortunately, this will almost certainly mean higher taxes, but this could be offset somewhat if they increase the age at which people get retirement benefits and would allow workers to continue working longer. It will also require an end or at least a large reduction in subsides to agriculture and industry. The longer the Japanese government waits, the more painful these changes are going to be when they are made.
Finally, on the topic of increasing the birthrate back to replacement level. Even if this were to happen tomorrow it would still not fix the problem. It will take at least 20 years for those born today to start entering the workforce. But that doesn't help us with getting back to replacement level. Japan is by no means the only country to be facing this problem; it is just the most extreme example.
The only way things are going to change is if Japanese society changes – taking care of kids has to become a more equal burden. Basically, men will have to do more to take care of kids or the government will have to provide options for taking care of kids. Essentially, Japanese women shouldn't be punished for choosing to have children. More egalitarian Western societies tend to have higher birthrates compared to more male dominated ones.
A more egalitarian society would also have another hugely important benefit; it would allow more women to enter the workforce. Increasing female participation in the workforce is critically important if Japan wants to avoid the worst effects of a shrinking workforce. Essentially, more women working would offset some (but not all) of the decline in workers as well as increasing the tax base. This is true whether or not Japan is able to bring its fertility rate back up to replacement level.
So there we have it, the demographic issues facing Japan are its biggest problem by the simple fact that they touch on almost all other policy areas, from economic growth and public debt, to things such as defense policy and even gender politics. All of them have or will be impacted by Japan's aging and shrinking population.
As I mentioned earlier the easiest, fastest and (in my opinion) best option to solve the crisis would be to allow large scale immigration to Japan, even if it were only a temporary measure until it could get its birthrate back to replacement level. However, since I don't think this will happen, Japan is left with many difficult tasks ahead. It is going to have to become ever more automated, shifting resources away from labour and into machines and robots, while also providing retirement benefits to an ever increasing group of people, all while (hopefully) not adding too much to its debt.
Will Japan succeed? Only time will tell, but given what they have manged to overcome in the last 200 years, I would be somewhat reluctant to bet against them.