@Japanian – on point 4, the Wikipedia article is rather confused – the chart shows different numbers to the table. The Economist and OECD show Japanese corporate tax as 39-40.9%.
I’m no believer in the Laffer curve, but tax definitely leads to misallocation of assets in Japan. I meet companies every day who quite willingly admit that they spend their cashflow on marginal projects because the alternative is to pay it to the government. Double taxation on director/owner bonuses is a big disincentive to run a company for profit – you simply end up paying the government at an effective 70% rate. Any wonder that company presidents would rather blow the cashflow on hostess clubs and chalk it up to expenses?

Also, you are correct in saying that most Japanese save rather than invest. The largest bank in the world when measured by assets is none other than the Japan Post Bank. They pay little to no interest on deposits, yet they have over $2.1 trillion (with a t) in total assets. This has resulted in bank loans in Japan being the most popular way for businesses to finance growth, rather than selling shares as they do under the American system.

Japan’s overfishing and whaling activities are certainly problems and a reduction in population should go some way towards solving them. However, as China grows richer it is demanding more seafood, with the possible result being as Japan’s demand for seafood declines along with population, China’s demand will rise to take its place.

Riding the Tokyo Metro at rush hour has to be one of the least fun things in the world due to the number of people. But I think this is why many people don’t see a problem. Cities are likely going to be the last places hit by a falling population, but they will also feel it. It just might take a bit longer. Still I have to admit, if fewer people means a less crowded train ride then there may be some benefits.

Finally, the decline in the value of housing has more to do with bursting of property bubble in the late 80s early 90s and the resulting deflation of the lost decade. A declining population should in theory, just exacerbate this trend.

Thanks for your comments.

Most of the information given has to do with macro economics, what about the social aspect of the country? For instance, there is a growing NEET problem in the country where parents are still supporting their 20-25 year olds instead of them finding jobs because they don’t want to work. As well, while the good universities in Japan are REALLY good (ie, Tokyo, Kyoko, etc.), most of them are quite bad. Party central. Students beginning to attend University are burnt out from the strict high school and cram school environments that they don’t want to study anymore. It kind of is a backwards way of thinking. I may be simplifying, but the education system seems to need to change in order to fix some of the problems. In the past ten years, I’ve noticed a huge change in the attitude of the younger generation with regards to respecting elders and trying the best that you can. Fathers were always working so children didn’t have the attachment and appreciation they should have towards their parents.

Please correct me if I’m wrong on this point. From my experience, it seems most Japanese hide their money under their bed. Investing doesn’t seem to be a mainstream activity as in other countries. Education on Mutual Funds, ETFs, and other different financial vehicles would help grow the economy. It seems Japanese people don’t like to talk about money.

Also, with regards to overpopulation and the environment, how about food and the stripping of natural resources like trees? The Japanese eat more fish — nearly 70 kg per capita per year — than any other people (http://search.japantimes.co.jp/cgi-bin/fl20090125x1.html) which is one of the reasons why fish population have been depleting over the years. This is just an example of one country with regards to the problems with overpopulation. China imposed the one child rule about 20 years ago to try to fix their problem. This in turn has caused another problem of too many men now with no wives (with only one child, the Chinese actually aborted fetuses if they new the child would be a girl). There is really no clear answer.

Oh, and if you’ve ever ridden the trains in rush hour in Japan, you’d agree there’s way too many people in the big cities. Someone had his/her (not sure which) hand stuck on my ass during the entire trip. Not pleasant. Unless she was cute.

There are many things that seem backwards to us. For instance, when we buy a house (I’m in Canada as well), we expect the value of the house to go up in value. In Japan, the expectation is the home will LOSE value. About 30 years ago, housing was at an all time high with people paying about 3/4 million dollars for a small home in the countryside. You can buy a new home for $400K now. It seems the decline of value began much sooner than 4 years ago when the population began to decline.

P.S. I like the Fukuda quote. Damn! Why didn’t he just say, “Sucker!”

1. I agree that the current system does seem to screw over younger workers because there aren’t enough full time jobs opening up for them. And while I also agree that under the current system older workers are the most expensive; I am not sure about them being the least productive.

The fact is that the Japanese government needs more tax revenue and fewer expenses. This could easily be accomplished by postponing retirement for a few years. Moreover, given that there is going to be a labour shortage at some point, I think it makes sense to smooth out the decline in the workforce so there are no sudden gaps.

The best solution on this front I have read about so far comes from The Economist (http://www.economist.com/opinion/displayStory.cfm?STORY_ID=13900145): The key line: “In Japan, where pensions are Spartan and lots of people are still working in their later 60s and even 70s, big companies like Hitachi have found ways of re-employing staff after retirement – but in a different capacity and, significantly, at lower pay.”

This seems like the ideal solution to me. However, if more companies don’t adopt this sort of system the government will be forced to cut pensions, hurting those who have already retired and can no longer work the hardest.

2. I am not sure where you got your data for this one, but I will take your word for it. I was able to find this brief survey which shows that the number of children Japanese woman want (on average) is much higher than the current fertility rate. (2.48 vs 1.37) http://iussp2009.princeton.edu/download.aspx?submissionId=90784

3. I agree immigration can be a problem especially when the host society is extremely resistant to outsiders and/or there are few to no jobs available for newcomers. Countries like Canada (where I’m from) and the US have and continue to benefit from immigration but perhaps these are the exception rather than the rule. Anyways as I said in my article, large scale immigration is extremely unlikely to happen in any form so this is really a moot point.

4. I don’t want to get too much into tax policy but I will say that while Japan’s corporate tax rate is relatively high, it is not the highest in the world. http://en.wikipedia.org/wiki/Tax_rates_around_the_world . Also, correct me if I am wrong but you seem to be implying that cutting taxes will spur enough economic growth to make up for lost government revenue. If this is what you are saying, you are basically arguing in favour of the Laffer curve. Now, I am deeply skeptical about the Laffer curve but I recommend people have a look at Wikipedia’s overview of it here: http://en.wikipedia.org/wiki/Laffer_curve and make up their own minds.

Despite my skepticism, I totally agree that a lot of projects with little – or as you say – even negative utility seem to receive cash in Japan. At the corporate level this could be caused by tax policy but at the government level this is a result of politics more than anything else.

Finally, I agree that the frustrating thing is not the problems themselves (quite frankly they can be dealt with) but the fact the government ignores all possible solutions. Your choice of quote from Fukuda perfectly sums up the governments position and (in)action dealing with the problem.

Thanks once again for your detailed and insightful comments on each of the 3 parts of this article.

1. Raising the retirement age is quite the worst thing that could happen. Effectively you’re recommending keeping the most expensive, and least productive, segment of the workforce employed for even longer – with the inevitable result that the younger segment gets screwed on wages and conditions, and companies continue to focus their efforts on providing a comfortable and unchallenging existence for their geriatric workers. Why not simply reduce pension payouts instead?

2. The problem is less that of birthrate than marriage rate – fertility among married women is largely unchanged over the past 30 years. If married life became more attractive to (especially) women, then the birth rate should rise as a consequence. As you rightly point out, this comes down to a change in society’s attitudes towards childcare, but it also requires that young Japanese men start to make the effort to appeal as marriage material.

3. Large scale immigration is problematic. Japan, quite rightly, looks to the problems in France and Australia (to name just two) and realises that ghettoised immigration serves nobody well, either host country or immigrant. The Singaporean experiment is a model they need to focus upon – encouraging educated entrepreneurs to set up growth businesses, with tax breaks for employing local workers, etc. But we sadly know this will not happen…

4. On the subject of tax, Japan’s corporate tax rate is the highest in the world, and there is double-taxation on director bonuses – none of which exactly motivates you to run a company for profit. They need to take the hard road of tax reduction, and realise that getting 25% of a pie that is 50% bigger is better than getting 40% of a pie where every company pads their expenses and wastes cash rather than pay taxes. Without tax reform, economic growth continues to stagnate, cash gets funneled (at both corporate and government levels) to projects of marginal or negative utility, and there can logically be no link between productivity and compensation. Hard work doesn’t pay, the young have no prospects, so why bother getting married and bringing children into the equation?

The frustrating thing about Japan is not its problems. It’s the fact that the wealth of possible solutions are perpetually ignored by the government. But I’m reminded of the response ex-PM Fukuda gave when asked by a young rural voter about what he was doing to improve the lot of Japan’s youth:
“That’s your problem. I’m old, you’re young. You figure it out.”

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