Japan’s Population Officially Shrinks

Back in the 1980s, Japan was on a roll. Japanese management techniques were all the rage in western businesses, and Japan had a trade surplus it had trouble recycling. Thirty years later, Japan’s lethargic economy has ended the talk of a Japanese takeover of the world. Instead, Japan appears to have lost its mojo. With the latest census complete, Japan’s fate as an almost-was power appears sealed. There are 1 million fewer Japanese than there were 10 years ago, and the trend will likely accelerate as the society ages. This has wide-ranging implications for economics, politics and social behavior — not just in Japan but for all societies.

The BBC sums up the situation, “New census figures in Japan show the population has shrunk by nearly one million in the past five years, in the first decline registered since 1920. As of October last year the country has 127.1 million people, 0.7% fewer than in the last census. Demographers have long predicted a drop, citing Japan’s falling birth rate and a lack of immigration. The rapidly ageing population has contributed to a stagnating economy and worries of increasing health costs.”

The Beeb also said, “According to government projections, by 2060 about 40% of its citizens will be sixty-five or older, and the general population will be one-third smaller than it is now. Prime Minister Shinzo Abe has made it a priority to boost the birthrate from 1.4 children to 1.8 children per woman, including improving childcare and tax incentives. Advanced economies usually require a rate of at least 2.1 for a stable population.” In other words, even if he reaches his target, Prime Minister Abe’s policy will merely slow the drop in population and decelerate the rate at which Japan is aging.

The simple truth is that a man or woman at 25 has a great deal of spending to do to get through life. Homes, cars, children and their upbringing, vacations, special occasions all add up to quite a bit of demand. People at 75 have already done all that spending. Their total expenditures decline across the board save for healthcare which rises. At the societal level, an aging population spends less, which means it needs to produce less, which runs contrary to more than two centuries of economic thinking.

All of economics, and the political systems that condition the economic arrangements of various nations, rests on the presumption that economic growth is necessary to ensure that a growing population does not wind up poorer than the preceding generation. If population is actually declining, that can be reversed by more babies as per Mr. Abe, or by importing people. Europe currently is having trouble integrating its newcomers. At the same time, American hegemony is in no small part a result of new people coming to work and raise families.

But as economies develop, their people have less incentive to move. The number of European immigrants to the US is small by historical standards. Europe is safer and richer than it used to be, so there is no reason to go to America. Asia is growing, Latin America is becoming richer, and some day, Africa will be a continent of developed economies. The pool of immigrants will dry up.

As nations get rich, they stop having lots of children, and eventually, population decline is an issue. With 7 billion people on the planet, this journal believes population reduction would be good for the planet and the homo sapiens who live on it. Yet as Japan is showing, having fewer people in a society creates economic problems, which rapidly become political and social problems.

Businesses that borrow to grow may be operating in an economy that doesn’t need to grow. What becomes of that debt? Resources need to shift from education to healthcare when there are more grandparents than grandchildren, but what of the younger generation? In many ways in the 1980s, Japan was seen as the future of the world. Today, that may well be the case, and that is scary.