Japan Can Again Become the Land of the Rising Sun

What the Future May Hold for Japan

by Fabius Maximus

Summary: Today we look at the future of Japan. The bad news suggests some tough times ahead, but their unique strengths (some wrongly considered weaknesses) suggests the 21st century might become a century of the rising sun over Japan.

Content

1. The bad news
2. The Robot Revolution
3. Falling population is a boon for Japan
4. For More Information

(1) The Bad News

In July 2009 I wrote this conclusion to As Japan sails into the shadows, let’s wish them well and wave good-by: Japan’s political regime may have passed the point of no return. The demographics are essentially fixed for a generation or two. The debt is too large and too short-maturity to inflate away — rising interest expense would bankrupt the government (or force hyper-inflation) before it reduced the real debt. And its too big to pay — or even sustain.

That still looks likely. In 2009 there were many Japan-boosters, forecasting a strong recovery and bright future. Their ranks have thinned since then (example: “Forget Europe: Is the Real Debt Crisis in Japan?“, The Diplomat, 30 October 2012). This graph shows the why. Japan has stabilized their economy since the 1989 crash through massive fiscal stimulus. Year after year. Decade after decade. The resulting numbers — GDP, income, investment, retail sales — look fine. But at the cost of rising government debt. Japan might have passed the point of no return, with little prospect of the rapid growth that could save their regime.

But just as America is not the Second Republic, Japan is not its political regime. If we look out to longer horizons Japan has a bright future. Japan might have the formula for success in the 21st century:

1. A highly educated and hard-working people with a high-savings rat (the foundation for economic success),
2. a homogeneous population with strong social cohesion (avoiding the internal turbulence possible in multi-ethnic societies), and
3. a shrinking population.

The latter is usually considered a negative, especially compared with exceptional America with its large numbers of families that breed like bunnies. Some economists believe a falling population means economic decline, pointing to formulas that show more people = more national income. That’s mad for an over-crowded island like Japan. And it is probably wrong about the nature of national prosperity in the 21st century.

(2) The Robot Revolution

The next waves of automation already looms ahead with massive job loses from machines having rudimentary senses and processing capabilities. In the future beyond that lie semi-intelligent machines. The result will be massive structural unemployment, shifting the shares of national income decisively from labor to capital. Look around to see it happening now, slowly accelerating. Unusually high unemployment, rising levels of income inequality (both have other drivers as well, of course).

A highly educated but shrinking population like that of Japan is well-suited for this new era. They will have lower unemployment, so reducing the inevitable social stress of this technological transition, and facilitate adoption of this world-changing technology. The obvious contrast is with America, and its growing population of increasingly poorly educated people.

See the links at the end for more information. You’ll be hearing more about it during the coming years.

(3) Falling Population Is a Boon for Japan

Japan’s population peaked in 2008 at 128 million (their baby boom ran from 1947- 1949), crowded into a narrow urban belt along the coast — at densities far beyond any rational level. By 2100 their numbers might be half that, back to the level of 1930. perhaps as low at 60 million (1925) or even 50 million (1910). Their living conditions, Japan’s overall environment, will be improved.

Japan could be a garden with the cleaner technology of that era (a common question in grade-school history will be “Teacher, what is ‘pollution’?”).

The transition might prove painful. Like most late 21st century societies, Japan probably will be an old society and so quite different than those of our time (or anything seen in history). Look at this graph from Japan’s National Institute of Population and Social Security Research showing the coming evolution of age distribution in Japan.Click for larger, sharper image.

For More Information

The next phase of automation (aka The robot revolution):

1. The coming big increase in structural unemployment, 7 August 2010
2. The coming Robotic Nation, 28 August 2010
3. The coming of the robots, reshaping our society in ways difficult to foresee, 22 September 2010
4. Economists grapple with the first stage of the robot revolution, 23 September 2012
5. The Robot Revolution arrives, and the world changes, 20 April 2012