Just to provide an on the ground anecdote about Japan's relative lack of exporting...
I live in Vietnam which, for whatever reason, is one of the few places that does seem to attract Japanese exports. And it really drives home how absent they are in other countries (I'm most familiar with Australia and the US).
When I go to a baby store we can choose diapers from Merries, Moony, Genki, and Whito. For formula there's Meiji and Yokogold.
And that's just one tiny example from one store. You wonder why you never see these things anywhere else.
Hawaii has half and half Japanese and American 7/11s; you really get to see how much better those products are.
On the other hand, FamilyMart tried to reenter LA like some other Japanese retail brands have, but by selling the same things as American 7/11, i.e. the entire store was made of corn syrup, and it failed.
I bought a thing of cling wrap from Family Mart here in Vietnam. Was a Japanese brand called Asahi Kasei or something like that. It is by far the best cling wrap I've ever used in my life. Easy to cut, never tangles it itself. It's honestly 10x better.
I really enjoyed your article; I hope that you might agree to have it translated into Japanese so that it could be picked up by someone in Japan who might work on the points you brought up.
I especially like the Hong Kong in Japan idea; I think Japan has the financial strength to carry it off, but needs a more externally oriented outlook for trade. I truly believe Japanese engineering is high quality, but the lower tier SMEs are reluctant or unable to market overseas. Foreign workers would greatly help. Once, and if, the economic ball starts rolling it might be easier to deal with the welfare problems.
Help me out here: how did you normalize (renormalize) productivity per labor hour (dependent variable) against labor productivity per worker (independent variable) without accounting for capital? This is a huge point in your argument and I’m missing the CAPEX impact upon the dependent variable.
The first thing Japan needs to do is to get rid of the insane consumption tax, which destroys 10% of the domestic economy (and falls most heavily on the weakest/poorest and elderly). Next is to raise the minimum wage. Third is to print more money and spend it. Increased government domestic spending (e.g. paying helpers for the infirm elderly better) would boost the economy.
Japan's falling fertility rate is due to the fact that the median income has been falling for at least 25 years. People aren't having as many kids as they want because they can't afford them. (Japan is also the most expensive industrialized country to raise a kid through high school. And then there's the inverted university system, in which the top/most elite schools are the (somewhat) affordable national universities, and people who can't get into those have to pay to go to a private uni.)
That is: the most important thing is getting more money into the hands of the Japanese consumers.
All these are things that Yamamoto Taro is saying. You might want to check him out.
Unfortunately, I couldn't find median income in this database. (Nor could I find Taiwan!) I also wonder about comparing South Korea and Japan over equivalent periods starting from a certain point in their development, e.g. end of war or reaching 1/2 of US GDP per capita, rather than over the same period. Not knowing how to actualize this idea, I didn't.
Nevertheless, the TFR contrast between South Korea and Japan, and my assumption that median income has increased relatively more in South Korea than in Japan during 1997-2020, makes me wonder whether your explanation is sufficient.
Yeah, and the same could be said for China, where TFR is also collapsing even though incomes have grown rapidly.
I don't really have any deep thoughts on this, except that YIMBYs always point to Tokyo as a city that keeps housing costs low by making construction easy. So that's probably not Japan's main issue either.
Nobody really understands the causes of changes in fertility but common sense suggests that people respond to incentives. It might be very expensive to set child benefit high enough to make parenthood dramatically more affordable and attractive--i.e., even higher than the most generous European welfare states--but if East Asian countries don't find a solution of some kind they're literally going to disappear. (You can't replenish China's population through immigration!) So a very generous child benefit program seems like the logical first step.
I think the falling median income is "sufficient" in the sense that without doing something about that problem, whatever else you do won't work. Not only won't things work, but they'll look really silly (e.g. you end up making life easier for affluent folks who are already having kids).
But, sure. It's not "sufficient" in the sense that there are social problems in Japan that also need work. All the things that France has done remain undone in Japan. And pretty much all modern industrialized countries are seeing low TFRs. So it's a hard problem. But, again, (according to the people I'm listening to here), Japan is the only industrialized country that's seeing a falling median income. (We think of the US as a country of barristas, but in real life, the US creates large numbers of new decent-paying jobs every year, year in, year out.)
Also, grumble, comparing Japan with South Korea and Taiwan isn't somthing I'm fond of: the conditions, situations, cultures, politics are all just too radically different for comparisons to be reasonable.
I'm probably jumping ahead of Noah's series here, but how could he not mention child benefit? For a country with an inadequate welfare state and below-replacement fertility this should be a no-brainer.
I appreciate that social support for families with kids hasn't had all that much impact on fertility rates in Europe but it does appear to have some: in France, for example. Why not try making child benefit even bigger than in the most generous Western countries and see if that produces more babies, with the side effect of eliminating child poverty?
This is, of course, a sensible idea. The problem is that Japan has been getting poorer for the majority of the Japanese for the last 25 years. Even getting married is out of the question for a lot of Japanese. There was a program to give one-time benefits to families with kids, but when they ran the numbers, it was clear that those benefits ended up going mostly to the seriously affluent. (Since the Japanese aren't idiots, the Japanese who are having kids are the rich ones.) They went through a stage of making that benifit means tested, but the fine print got silly (handling two-income vs. one-income families).
Which brings us to the other problem: trust. The LDP has a stranglehold on the government, and they really don't have a clue what it's like to be anything other than very rich. There was an ex-BOJ LDP twat on the tube the other morning, and the announcers put up the median income numbers, and the twat just kept repeating "the economy is doing really well right now." (The stock market is doing fantastically well just now. (Or was until a couple of weeks ago, any way.)) So no one trusts the LDP to have policies that would continue to help families.
Aren't you a little concerned that your proposed solution has already failed repeatedly and your answer is "but you need to spend even more than Scandinavia on child benefits!"
Like... Maybe try something else that hasn't already failed instead?
I'm all for child benefits because rich countries can afford to be compassionate and they should do it for that reason alone.
But there's like 30 years of evidence of it failing to affect birth rates in any kind of remotely cost effective way.
Most of these proposals will not address the underlying Japanese productivity problem, which is not really rooted in office culture. In his The Power of Productivity, William Lewis points out that national productivity is just the average of productivity in individual economic sectors, weighted by the proportion of the population working in each sector. He explicitly reviews Japan, and highlights the sizeable sectors that drag down Japanese aggregate productivity -- especially food production, wholesale and retail distribution, and construction. There are fundamental cultural and institutional reasons why Japan does not produce at top international levels in those economic sectors. Those are obviously difficult to remove, otherwise Japan would have done it already. And your proposals do not address any of them.
I'm trying to understand exactly why Japan needs to grow its economy and what part of it. Japan does seem to have a free time issue with too many people working long hours, but that is something that requires a cultural fix, especially if those hours are just face time and not very productive. Still, you don't get more free time by growing the GDP. The US is a good example of how that doesn't work.
So, what exactly are the Japanese unable to get that could be provided by a larger economy with a higher GDP per capita? Are the poor malnourished? Are there people who can't get medical care or only substandard care? Is there a problem with homelessness? Are old people dying prematurely for lack of care? Would growing the GDP fix those problems or would fixing those problems, as a side effect, expand the GDP? In the US, we can grow our GDP per capita just fine, but it doesn't make housing, medicine or education more affordable; it just makes wealthier billionaires.
If you are looking at GDP per capita, then there are two ways to increase it. You can increase the GDP or decrease the population. As someone with economics training, I'm sure you've studied the French demographic transition in the 18th century. France dramatically cut its population growth and raised living standards. People started practicing withdrawal, using condoms and exploring other ways of having fun without having babies. England didn't catch up in GDP per capita for a century, and France stayed surprisingly rural into the 20th century.
Arguing that the Japanese should grow their population may prove counterproductive. If you want immigrants, they might solve the home health care aide shortage today, but they are going to stay in Japan, grow old and need care themselves. If you don't draw the line at some point, you'll have the same problem of elder care and sclerotic growth, except with a diverse population of a billion. That doesn't sound easier to solve.
More of a wish-list than anything practical/possible and none of these suggestions are very new either (except the last point, which even the author acknowledges as a stretch). A much more interesting piece would chart the evolution of 2 decades of failed attempts to move in this direction.
Asking an economy to 'change' is very easy in theory....and very difficult in practice. Institutions, social structures, political realities and economic frameworks don't just start bending because someone has a few nice bullet-pointed suggestions and a couple of fancy graphs.
In China, Hong Kong was a temporary expedience, a matter of convenience that outlived its usefulness. China was never fully colonized like many other nations in the region, but it learned to resent the concessions and cantonments at a gut level. I doubt the Japanese would appreciate a similar model.
There is so much capital floating around in the world today and so few investment opportunities due to our current economic ideology, that one doesn't need a Hong Kong and consessions to lure in foreign capital. All one needs is a vibrant home grown economy. That approach worked for the US for a long time, and in a world awash with concentrated wealth, it is likely to continue working.
These are basic common sense ideas, but the japan that i live in and have lived in (and wrote a book about) since 2001, will NEVER implement these ideas. Japan is hopeless. Its like a really slowly sinking titanic.
I doubt any potential immigrants will stay in depopulating regions. Bright, young professionals, the people you suggest that Japan should bring in are not going to stay in mid-level, depopulating city any longer than they have to. Most will go to Tokyo/Osaka as soon as possible, exarcebating the issues. Same thing happening with your Canadian example where the immigrants to the Canadian Maritimes, see the place as a temporary, necessary "evil" before the eventual move to the Greater Toronto Area.
few thoughts : (1) when you look at that productivity chart regression and see ireland and luxembourg, clearly shows impact of financial sectors on "productivity" calcs. (2) your very "viewed from space" map on renewables in Japan seems very dubious, in the sense that is hugely simplistic. Following this logic, sahara should be covered in solar panel and greenland in wind turbines. Except not where population lives and terrain reality (climate, mountains etc) ignored (3) late stage funding : quasi ONLY the US system manages to do it, and probably a feature, not a bug. Winner takes all logic + very unique capital market structure in the US. Smarter niche positioning like Israel are successful ones outside US. (4) Japanese HK... same problem again. Very limited room for major global financial center. Basically three worlwide (3x8 hours spread geographically). Japan law standards very different etc. etc. Looks highly unrealistic. (5) reboosting birth rates can help smoothen transition but developped countries HAVE to transition to lower birth rates. Issue is how to get qualitative growth vs. quantitative. What I believe would change economic outcome is bottom up "new model" from younger japanese generation of leader. Impossible to predict but answers lie with them, not some ready made macro view. We all think changing the economic/political makeup of a country should be easy. It never is.
the export (and import part) probably the most promising. But again, requires cultural/economic model shift. Are Japanese really willing to fully "open" ?
Just to provide an on the ground anecdote about Japan's relative lack of exporting...
I live in Vietnam which, for whatever reason, is one of the few places that does seem to attract Japanese exports. And it really drives home how absent they are in other countries (I'm most familiar with Australia and the US).
When I go to a baby store we can choose diapers from Merries, Moony, Genki, and Whito. For formula there's Meiji and Yokogold.
And that's just one tiny example from one store. You wonder why you never see these things anywhere else.
Hawaii has half and half Japanese and American 7/11s; you really get to see how much better those products are.
On the other hand, FamilyMart tried to reenter LA like some other Japanese retail brands have, but by selling the same things as American 7/11, i.e. the entire store was made of corn syrup, and it failed.
I bought a thing of cling wrap from Family Mart here in Vietnam. Was a Japanese brand called Asahi Kasei or something like that. It is by far the best cling wrap I've ever used in my life. Easy to cut, never tangles it itself. It's honestly 10x better.
Really well written
Thanks!
I really enjoyed your article; I hope that you might agree to have it translated into Japanese so that it could be picked up by someone in Japan who might work on the points you brought up.
I especially like the Hong Kong in Japan idea; I think Japan has the financial strength to carry it off, but needs a more externally oriented outlook for trade. I truly believe Japanese engineering is high quality, but the lower tier SMEs are reluctant or unable to market overseas. Foreign workers would greatly help. Once, and if, the economic ball starts rolling it might be easier to deal with the welfare problems.
Help me out here: how did you normalize (renormalize) productivity per labor hour (dependent variable) against labor productivity per worker (independent variable) without accounting for capital? This is a huge point in your argument and I’m missing the CAPEX impact upon the dependent variable.
Thanks
It's not a graph of a statistical relationship, just a way of plotting two pieces of data at once. A little confusing.
Your HK in Japan sounds rather like a modern version of Dejima?
On the interesting Hong Kong idea, how do you avoid Japanese companies doing a Delaware and thereby eroding Japan’s tax base?
Maybe having government debt at 200 percent of GDP doesn't help, either
The first thing Japan needs to do is to get rid of the insane consumption tax, which destroys 10% of the domestic economy (and falls most heavily on the weakest/poorest and elderly). Next is to raise the minimum wage. Third is to print more money and spend it. Increased government domestic spending (e.g. paying helpers for the infirm elderly better) would boost the economy.
Japan's falling fertility rate is due to the fact that the median income has been falling for at least 25 years. People aren't having as many kids as they want because they can't afford them. (Japan is also the most expensive industrialized country to raise a kid through high school. And then there's the inverted university system, in which the top/most elite schools are the (somewhat) affordable national universities, and people who can't get into those have to pay to go to a private uni.)
That is: the most important thing is getting more money into the hands of the Japanese consumers.
All these are things that Yamamoto Taro is saying. You might want to check him out.
> Japan's falling fertility rate is due to the fact that the median income has been falling for at least 25 years.
25 years ago, in 1997, Japan's TFR was 1.4. In 2020, it was still 1.4. South Korea's TFR was 1.5 in 1997 and 0.8 in 2020 (https://data.worldbank.org/indicator/SP.DYN.TFRT.IN?locations=JP-KR).
In the same time period, measured in current international $, Japanese GDP (PPP) per capita rose from 25600 to 42400. South Korea's rose from 15700 to 45200 (https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?locations=JP-KR).
Unfortunately, I couldn't find median income in this database. (Nor could I find Taiwan!) I also wonder about comparing South Korea and Japan over equivalent periods starting from a certain point in their development, e.g. end of war or reaching 1/2 of US GDP per capita, rather than over the same period. Not knowing how to actualize this idea, I didn't.
Nevertheless, the TFR contrast between South Korea and Japan, and my assumption that median income has increased relatively more in South Korea than in Japan during 1997-2020, makes me wonder whether your explanation is sufficient.
Yeah, and the same could be said for China, where TFR is also collapsing even though incomes have grown rapidly.
I don't really have any deep thoughts on this, except that YIMBYs always point to Tokyo as a city that keeps housing costs low by making construction easy. So that's probably not Japan's main issue either.
Nobody really understands the causes of changes in fertility but common sense suggests that people respond to incentives. It might be very expensive to set child benefit high enough to make parenthood dramatically more affordable and attractive--i.e., even higher than the most generous European welfare states--but if East Asian countries don't find a solution of some kind they're literally going to disappear. (You can't replenish China's population through immigration!) So a very generous child benefit program seems like the logical first step.
I think the falling median income is "sufficient" in the sense that without doing something about that problem, whatever else you do won't work. Not only won't things work, but they'll look really silly (e.g. you end up making life easier for affluent folks who are already having kids).
But, sure. It's not "sufficient" in the sense that there are social problems in Japan that also need work. All the things that France has done remain undone in Japan. And pretty much all modern industrialized countries are seeing low TFRs. So it's a hard problem. But, again, (according to the people I'm listening to here), Japan is the only industrialized country that's seeing a falling median income. (We think of the US as a country of barristas, but in real life, the US creates large numbers of new decent-paying jobs every year, year in, year out.)
Also, grumble, comparing Japan with South Korea and Taiwan isn't somthing I'm fond of: the conditions, situations, cultures, politics are all just too radically different for comparisons to be reasonable.
Don’t push abominable Reiwa cult. A shame.
Japan don’t need another Aum Shinrikyo cult/teoorisit anymore.
I'm probably jumping ahead of Noah's series here, but how could he not mention child benefit? For a country with an inadequate welfare state and below-replacement fertility this should be a no-brainer.
I appreciate that social support for families with kids hasn't had all that much impact on fertility rates in Europe but it does appear to have some: in France, for example. Why not try making child benefit even bigger than in the most generous Western countries and see if that produces more babies, with the side effect of eliminating child poverty?
This is, of course, a sensible idea. The problem is that Japan has been getting poorer for the majority of the Japanese for the last 25 years. Even getting married is out of the question for a lot of Japanese. There was a program to give one-time benefits to families with kids, but when they ran the numbers, it was clear that those benefits ended up going mostly to the seriously affluent. (Since the Japanese aren't idiots, the Japanese who are having kids are the rich ones.) They went through a stage of making that benifit means tested, but the fine print got silly (handling two-income vs. one-income families).
Which brings us to the other problem: trust. The LDP has a stranglehold on the government, and they really don't have a clue what it's like to be anything other than very rich. There was an ex-BOJ LDP twat on the tube the other morning, and the announcers put up the median income numbers, and the twat just kept repeating "the economy is doing really well right now." (The stock market is doing fantastically well just now. (Or was until a couple of weeks ago, any way.)) So no one trusts the LDP to have policies that would continue to help families.
This is wrong.
Since 2005 to up until Covid pandemic Japan’s TFR is not on downturn trends.
Below is stats from MoHLW
https://www.mhlw.go.jp/stf/wp/hakusyo/kousei/19/backdata/01-01-01-07.html
Given the fact that Japanese couples like to have kids when they marry, your hypothesis that “marriage is unaffordable” does not match to reality.
Try being rich and comprehensively compassionate, it's a tough one.
Aren't you a little concerned that your proposed solution has already failed repeatedly and your answer is "but you need to spend even more than Scandinavia on child benefits!"
Like... Maybe try something else that hasn't already failed instead?
I'm all for child benefits because rich countries can afford to be compassionate and they should do it for that reason alone.
But there's like 30 years of evidence of it failing to affect birth rates in any kind of remotely cost effective way.
Most of these proposals will not address the underlying Japanese productivity problem, which is not really rooted in office culture. In his The Power of Productivity, William Lewis points out that national productivity is just the average of productivity in individual economic sectors, weighted by the proportion of the population working in each sector. He explicitly reviews Japan, and highlights the sizeable sectors that drag down Japanese aggregate productivity -- especially food production, wholesale and retail distribution, and construction. There are fundamental cultural and institutional reasons why Japan does not produce at top international levels in those economic sectors. Those are obviously difficult to remove, otherwise Japan would have done it already. And your proposals do not address any of them.
I'm trying to understand exactly why Japan needs to grow its economy and what part of it. Japan does seem to have a free time issue with too many people working long hours, but that is something that requires a cultural fix, especially if those hours are just face time and not very productive. Still, you don't get more free time by growing the GDP. The US is a good example of how that doesn't work.
So, what exactly are the Japanese unable to get that could be provided by a larger economy with a higher GDP per capita? Are the poor malnourished? Are there people who can't get medical care or only substandard care? Is there a problem with homelessness? Are old people dying prematurely for lack of care? Would growing the GDP fix those problems or would fixing those problems, as a side effect, expand the GDP? In the US, we can grow our GDP per capita just fine, but it doesn't make housing, medicine or education more affordable; it just makes wealthier billionaires.
If you are looking at GDP per capita, then there are two ways to increase it. You can increase the GDP or decrease the population. As someone with economics training, I'm sure you've studied the French demographic transition in the 18th century. France dramatically cut its population growth and raised living standards. People started practicing withdrawal, using condoms and exploring other ways of having fun without having babies. England didn't catch up in GDP per capita for a century, and France stayed surprisingly rural into the 20th century.
Arguing that the Japanese should grow their population may prove counterproductive. If you want immigrants, they might solve the home health care aide shortage today, but they are going to stay in Japan, grow old and need care themselves. If you don't draw the line at some point, you'll have the same problem of elder care and sclerotic growth, except with a diverse population of a billion. That doesn't sound easier to solve.
More of a wish-list than anything practical/possible and none of these suggestions are very new either (except the last point, which even the author acknowledges as a stretch). A much more interesting piece would chart the evolution of 2 decades of failed attempts to move in this direction.
Asking an economy to 'change' is very easy in theory....and very difficult in practice. Institutions, social structures, political realities and economic frameworks don't just start bending because someone has a few nice bullet-pointed suggestions and a couple of fancy graphs.
This Japanese Hong Kong sounds like your dream Noah.
In China, Hong Kong was a temporary expedience, a matter of convenience that outlived its usefulness. China was never fully colonized like many other nations in the region, but it learned to resent the concessions and cantonments at a gut level. I doubt the Japanese would appreciate a similar model.
There is so much capital floating around in the world today and so few investment opportunities due to our current economic ideology, that one doesn't need a Hong Kong and consessions to lure in foreign capital. All one needs is a vibrant home grown economy. That approach worked for the US for a long time, and in a world awash with concentrated wealth, it is likely to continue working.
These are basic common sense ideas, but the japan that i live in and have lived in (and wrote a book about) since 2001, will NEVER implement these ideas. Japan is hopeless. Its like a really slowly sinking titanic.
They should call it kaminato to really play on the HK idea
I doubt any potential immigrants will stay in depopulating regions. Bright, young professionals, the people you suggest that Japan should bring in are not going to stay in mid-level, depopulating city any longer than they have to. Most will go to Tokyo/Osaka as soon as possible, exarcebating the issues. Same thing happening with your Canadian example where the immigrants to the Canadian Maritimes, see the place as a temporary, necessary "evil" before the eventual move to the Greater Toronto Area.
few thoughts : (1) when you look at that productivity chart regression and see ireland and luxembourg, clearly shows impact of financial sectors on "productivity" calcs. (2) your very "viewed from space" map on renewables in Japan seems very dubious, in the sense that is hugely simplistic. Following this logic, sahara should be covered in solar panel and greenland in wind turbines. Except not where population lives and terrain reality (climate, mountains etc) ignored (3) late stage funding : quasi ONLY the US system manages to do it, and probably a feature, not a bug. Winner takes all logic + very unique capital market structure in the US. Smarter niche positioning like Israel are successful ones outside US. (4) Japanese HK... same problem again. Very limited room for major global financial center. Basically three worlwide (3x8 hours spread geographically). Japan law standards very different etc. etc. Looks highly unrealistic. (5) reboosting birth rates can help smoothen transition but developped countries HAVE to transition to lower birth rates. Issue is how to get qualitative growth vs. quantitative. What I believe would change economic outcome is bottom up "new model" from younger japanese generation of leader. Impossible to predict but answers lie with them, not some ready made macro view. We all think changing the economic/political makeup of a country should be easy. It never is.
the export (and import part) probably the most promising. But again, requires cultural/economic model shift. Are Japanese really willing to fully "open" ?