Bending Adversity: Japan and the Art of Survival
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To present ageing in wholly negative terms can border on the absurd. One well-known Japanese sociologist told me a possible ‘solution’ to demographic problems might be ‘to lower life expectancy’. He didn’t specify how this happy outcome might be achieved.13 That he mentioned it at all suggests we might be looking at the problem backwards.14 Nor is Japan the absolute outlier it is sometimes made out to be. In fact, the world’s lowest fertility rates are to be found not in Japan but in more than ten other countries, including South Korea, Poland, Belarus, Hong Kong and Singapore. Most of East Asia has sub-replacement fertility rates, as do many countries in South and Central America. In the Muslim world, Algeria, Tunisia, Lebanon and Turkey all have birth rates insufficient to maintain their populations over the long run. The fastest ageing societies turn out to be not in Japan or Italy, another country often placed in the category of ‘demographic doom’, but rather South Korea, Singapore and, because of its one-child policy, China.15
Japan then is not alone. Though some countries will have ‘better’ demographics than Japan for many decades and others will import people from abroad, the long-run global tendency is in the same direction. By 2050, there will be roughly 2 billion people aged over 60, three times the 673 million in 2010.16 ‘Some countries will age more slowly than others, but, one by one, we are all moving into the third stage of ageing,’ says Magnus.17
It would be foolish to suggest that rapid ageing doesn’t present big challenges. Most pension and healthcare systems have not been designed with such large elderly populations in mind. ‘A declining population is a negative for economic growth and a negative for any institution which is built on the assumption of increasing population or increasing GDP,’ says Ito. ‘You can live with a declining population [only] if all the institutions are built to cope with it.’18 In the end, Japanese taxpayers will have to decide what kind of safety net they are willing to provide. That is bound to cause pain and will mean some people are not as well taken care of as they expect.19 We should, however, put such problems in perspective. In 1920, the normal retirement age in advanced societies was seventy to seventy-four, hardly a burden on pension systems given that the average life expectancy was then fifty-five to sixty. Even in 1960, the average retirement age was sixty-five.20 The pension problem, then, is relatively recent, born of over-optimistic assumptions when post-war welfare systems were being designed. Fixing it will require a combination of raising the retirement age and getting individuals to save more for their old age. It will mean adapting the healthcare system. It should not be beyond the wit of man.
Japan has taken tentative, though insufficient, steps. It has pushed through reform to link rising national life expectancy with an automatic reduction in pension benefits. It also mandated a steady increase in contributions to state pensions from 13.6 per cent of wages to 18.4 per cent. On the negative side – from a sustainability point of view, that is – it has not insisted that supposedly indexed pensions fall in line with deflation. The retirement age is, however, gradually being raised from sixty to sixty-five, with further rises expected.21
Those measures are enough to keep the existing pension system going, at least for now. Perhaps a bigger concern is that a large slice of the workforce has no pension coverage at all. Many part-time workers, a rising share of the labour force, are opting out of paying pension contributions entirely. That is partly, surveys show, because they do not believe the system will last long enough to pay them back. Savings rates are falling. Those in their thirties save only about 5–7 per cent of their income compared with the 25–28 per cent put away by today’s retirees.22 The huge nest egg on which Japan is now pleasantly slumbering is not likely to be around indefinitely.23
In general, there are three things societies can do to mitigate the effects of ageing, says Atsushi Seike, a labour expert at Keio University. They can raise fertility, productivity or labour participation. Japan has done poorly at increasing fertility compared with countries like France, which has successfully used incentives to reverse the long-term decline. (That, of course, is expensive. France’s state sector is much bigger than Japan’s.) Japan has been slow to establish affordable childcare for children up to five, essential if working women are to consider having babies. That is partly due to bureaucrats’ anachronistic views about women and work and to pointless turf wars between ministries with overlapping responsibilities.24 More could be done on productivity too, though in spite of Japan’s image as an economic laggard, since the mid-1990s improvements in productivity per hour have not been significantly far behind those in the US.25 Productivity in the service sector is still poor by some measures, suggesting there is some low-hanging fruit if Japan needs to harvest it.
As for participation rates, one way is to encourage people to work longer. ‘The motivation and willingness of older Japanese to continue working is pretty high,’ says Seike. Three-quarters of Japanese men aged sixty to sixty-five are still working, the highest level of any advanced country. Still, most large companies have traditionally forced their employees to retire at sixty. The seniority pay system, in which wages rise with length of service, means older workers are expensive. As a result, companies have opposed government efforts to raise the mandatory retirement age to sixty-five. Many have got around the problem by rehiring workers over sixty on contracts at lower wages.
More women are working as they delay marriage and childbirth. Still, a lower proportion of women work in Japan than in many advanced countries. The rate, at 48 per cent according to the World Bank, is higher than Italy, at 38 per cent, but much lower than Britain, at 55 per cent, the US, at 58 per cent, and Norway, at 63 per cent.26 Even the increase in Japan is not all good news. Many women take low-paid, part-time work, either to supplement falling household wages or to provide for children as head of a growing number of one-parent families. Higher female participation is thus as much a sign of rising hardship as of women’s emancipation.27 Still, by one calculation, if women’s participation in the workforce could be raised to the same level as men’s, Japan could increase its workforce by 8.2 million and expand the size of the economy by 15 per cent.28
Another potential source of labour is immigration. The Keidanren, the main business lobby, has periodically come up with eye-catching estimates suggesting Japan needs to import millions of workers if it is to make up a labour shortfall of 6 million people by 2025. Given that Japan is home to only around 2 million ‘non-Japanese’, many of them long-term Korean residents, it is impossible to imagine it opening the floodgates to that extent. Some years ago, I asked a senior Japanese official, urbane in the extreme, about the latest Keidanren report urging mass immigration. He visibly shuddered. ‘For the rewards you get in terms of economic rejuvenation the costs are simply too high,’ he said without explanation, though he was clearly alluding to the perceived social problems in multicultural western societies. ‘We’ve seen what has happened in the US and Europe.’29 After the Lehman shock, when the economy contracted, the Japanese government actually went the other way. It began a scheme to pay Japanese workers of Brazilian descent, many of whom were encouraged to come to Japan in the 1990s, to go back home. The stipulation of accepting a one-way ticket plus cash was that they never returned.30
There is a compelling case for opening up Japan to more immigration in order to spark fresh ideas, innovation and more fluid links with the outside world. Without big doses of youthful infusion, Japan’s economic vigour could slowly seep away. In the absence of sufficient young people of its own, an influx of young immigrants might bring the economic vitality it lacks. ‘The importation of labour would not be for the labour per se, but to bring in people with different mindsets, to shake things up a bit,’ says Hugh Patrick, who has been studying the Japanese economy at Columbia University for half a century.31
The case for immigration, on purely numerical grounds, isn’t always as compelling as it is sometimes made out to be. As we have seen, a little over 4 per cent of
Japanese are unemployed, a figure that, as in other countries, underestimates the true number of those out of work. Youth unemployment is around double that.32 That doesn’t immediately suggest a serious labour shortage, although there are certain dirty, dangerous and low-paid jobs in construction and other industries many Japanese are not prepared to do. If manufacturing companies are looking for cheaper foreign labour they can get it in one of two ways. They can bring people to Japan or they can set up factories abroad. Japanese manufacturers have done both. At home, many have operated in grey areas of the law to employ foreign workers who sometimes lack the appropriate visas. More still have established factories abroad, in Southeast Asia, China, the US and Europe. By 2014, more than three-quarters of Japanese cars will be built outside Japan.33
In the services sector, Japanese companies employ less foreign labour, but still some. A few companies operate call centres based in China and some back office work is done in places such as India and the Philippines. In Japan itself, many of the ubiquitous convenience stores, such as Lawson and Family Mart, are staffed by Chinese workers with near-impeccable Japanese and an appreciation of the ultra-demanding service culture. Japan’s service sector remains more ‘inefficient’ than that of other advanced countries, meaning there are more people to help the customer – wrapping items, pressing lift buttons and bowing graciously. This is the sort of thing that gets visiting time-and-motion consultants in a rage. If they are right that this is a hopeless waste of human capital – rather than part of one of the world’s most pleasant service experiences – then Japan’s much vaunted coming labour scarcity is surely exaggerated. Perhaps Japan won’t need 6 million foreign workers after all. It can simply redeploy to other industries the hordes of lift girls and night-stick-wielding building site workers (who warn passing cars of construction ahead). ‘Right now, I don’t think we have a very serious labour shortage,’ says Seike, who believes the real problem is a mismatch between jobs and skills and the precipitous growth of poorly paid work.
An obvious exception is the health sector, particularly when it comes to care for the elderly, where low wages make it hard to attract Japanese workers and there may be a shortage of up to 700,000 staff.34 One option, if the money could be found, would be to raise salaries. For society as a whole that would be a way of transferring the excess savings of the elderly to younger generations who are being squeezed – through low wages, higher pension payments and so on – as part of Japan’s adjustment to lower growth. Another way to solve the problem would be to allow in more nurses and care workers from countries such as the Philippines and Indonesia. Pilot schemes have been introduced, but numbers are pathetically small, restricted to a few hundred each year. Even then, care workers who want to stay have been subject to overly stringent language requirements, justified on the grounds of patient safety. I once watched a television documentary about an Indonesian healthcare worker who appeared to be devoted to her job in a nursing home where she was adored by her elderly patients with whom she communicated perfectly well. However, she was unable to pass the strict exam in written Japanese, since there weren’t enough hours in the day to study the formidable lists of required characters, vocabulary and grammatical formulations. She was sent home.
Hiroshi Mikitani is a great believer in encouraging Japan to look outward. A successful financier at the Industrial Bank of Japan, he was exposed to new ways of thinking when the bank sent him to study at Harvard Business School. There he learned a new word, so unfamiliar he was forced to spell it out in the phonetic Japanese alphabet used for imported concepts: ‘entrepreneurship’. He founded an internet company that evolved into Rakuten, today Japan’s Amazon and eBay rolled into one. In 2012, Forbes put his wealth at $6.5 billion. Rakuten has expanded aggressively in countries such as Brazil, Indonesia, France and Russia. But Mikitani also wants to bring foreign influence to Japan. His boldest initiative, one that has attracted ridicule as well as praise at home, is to insist that his staff become proficient in English. His campaign bears the rather unfortunate name of ‘Englishization’. Even the menu at the staff canteen is printed in English. Mikitani, who wears open-neck shirts and polo sweaters, told me that learning English and being more open to the outside world was vital for Japan’s economic rejuvenation. ‘If all the employees of Panasonic or Sony could communicate in English, they could be far better than Samsung,’ he told me of the South Korean company that has left its Japanese rivals in the dust. ‘A language will open your eyes to the “global”, and you will break free from this conventional wisdom of a pure Japan. English is a tool to globalize you, to make you change.’35
Being open may be just as important as being fertile. Equating ageing with a dying economy implies that only countries with growing populations can be healthy. The late James Abegglen pointed out that, when Japan’s population nearly tripled in the twentieth century, critics complained about its overcrowded islands where people had to live in ‘rabbit hutches’. Now the prospect of a declining populace filled everyone with alarm. One need only consider Pakistan, a country whose population has nearly quadrupled to 190 million since 1960, to realize that we cannot draw any neat correlations between population growth and prosperity.
Yet unless we expect the population of the world to keep growing indefinitely, all economies will one day face the problems now confronting Japan. The idea that richer countries should simply import labour from poorer ones implies an endless supply of people from somewhere else. That proposition must also eventually run out of road. If we are not to argue for an ever-larger global population – or, perhaps, the importation of guest-labour from some far-off galaxy – societies will one day have to find a way of prospering without the impetus of ever-greater numbers. Japan is a stark example since its population is not merely stagnant, but on the verge of rapid decline. Much of the slowdown in headline growth over the past twenty years is the result of less favourable demographics. As the population shrinks, there will undoubtedly be severe strains as the country seeks to balance competing generational needs. Japan will need to come up with a serious policy and societal response. However, I’m willing to place a little wager with Sakaguchi, the doomsday former health minister. The Japanese will be around for a little while longer yet.
• • •
I was to imagine a grain of rice. Ippei Takeda, the avuncular chief executive of Nichicon, sat in his office in Kyoto, where the high-tech components maker has its sleek and rather daring offices. The spacious lobby looked more like an avant-garde art gallery than a corporate headquarters. I’d been escorted to the lift and along the corridor by one of his assistants to a large office on an upper floor. An immaculately dressed female attendant had just brought us both tea. She bowed as she entered the room, bowed as she silently set the little bowls of green liquid before us and bowed again at the doorway as she left. Takeda, engrossed in his story, appeared not to notice. He was blinking behind his silver-rimmed glasses and chuckling. The rice, he was saying, should be Japanese short-grained, about half the size of longer-grained foreign varieties. Now, he said, to make one of the aluminium capacitors that his company produced, I must imagine drilling 300,000 holes into that single grain, flipping it over and doing the same on the other side. It was vital that the holes didn’t meet in the middle. An oxide layer, about eight to ten angstroms thick, must then be applied. He checked a little book with columns of figures before writing down the numerator, 1, followed by a denominator of 10,000,000. The thickness of the layer should be measured in ten-millionths of a millimetre. I must have looked nonplussed. ‘It’s very thin,’ he clarified.
The point of Takeda’s story was that there were still some things Japan did well. Making very small things was one of them. Nichicon’s energy-storing capacitors went into almost every conceivable electronic device from air conditioners to mobile phones. Though his company had many foreign factories, including in China, where it made some capacitors at three-quarters of the Japanese price, the really c
omplicated stuff was still produced at home. The quality and consistency were superior in Japan, he said, better even than in South Korea. Some capacitors cost only a few cents each but, if they went wrong, they could disable devices worth hundreds, even thousands of dollars. Manufacturers paid a premium for quality. ‘If you’re asking me can Japan survive as a manufacturing nation, my answer is, yes, without a doubt.’
That view is not shared by everyone. Japan is even more paranoid than other advanced countries about what it calls the ‘hollowing out’ of its industrial base. The proportion of Japanese workers employed in manufacturing has been steadily declining for years, from 27 per cent in 1970 to 17 per cent today. That makes manufacturing more important than in Britain or the US, where about 10 per cent of workers are engaged in industry, but slightly less important than in Germany and Italy with about 20 per cent.36 Japan has been pressured by the emergence of lower-cost manufacturers in places such as China and by a strong rising yen. Since the tsunami, the drift of manufacturing abroad has accelerated, as companies worry about the safety of their supply chain and the reliability and cost of non-nuclear energy after the Fukushima disaster. ‘If you look at it logically, it doesn’t make sense to manufacture in Japan,’ says Akio Toyoda, president of Toyota Motor Corporation, still a symbol of Japanese manufacturing excellence.37