Japan's birthrate is 1.25, while a birthrate of 2.1 babies per woman is needed to maintain the population. Japan's population is both aging and shrinking. One would expect the future to be bleak for Japan. ... or maybe not.
Below is an excerpt from an article about this phenomenon. For the full article, please click on the title of this post, and you'll be directed to the original page at Bloomberg.com.
Japan's Population Fall a Case for Freakonomics?: William Pesek
By William Pesek
Dec. 7 (Bloomberg) -- It's a worthy question for the ``Freakonomics'' guys: is a shrinking population, contrary to conventional wisdom, actually good for an economy?
Last year, Steven Levitt, a University of Chicago economist, and writer Stephen Dubner made a splash with a book turning traditional economics upside down by puzzling out everyday conundrums. The world's demographic quirks would seem a perfect candidate for their attention.
Most economists will roll their eyes at the question itself. Well of course, they will argue, dwindling ranks will lead to less growth. Shrinking populations reduce labor forces, crimp productivity, hurt tax receipts and boost debt levels.
At least in the case of Japan, Sharmila Whelan of CLSA Asia- Pacific Markets begs to differ. In a September report, the Hong Kong-based economist committed demographic heresy by arguing that fewer people will brighten Japan's outlook.
The plot has thickened since Whelan's report began making the rounds. Last month, the government said that in 2005, the population shrank for the first time -- excluding a dip during World War II -- since Japan began compiling data in 1899. The birthrate fell to a record 1.25 babies per woman, well below the 2.1 needed to maintain today's population of 127 million.
Complicating things, a rapidly-aging population means Japan's demographics are becoming ever more lopsided. A recent government report said Japan's workforce will shrink by as much as a third by 2050 if more women and elderly workers aren't hired.
Demographic Riddle
An aversion to immigration doesn't help. While estimates vary too widely to bother mentioning here, Japan may need to import millions of workers in the years ahead to fill gaps in the labor pool. Never mind that those of us living in ultra-crowded Japan wonder where we will fit several million more bodies -- the economy needs the manpower.
Some observers are finding silver linings. In a new book, ``The Japanese Money Tree,'' economist Andrew Shipley takes an intriguing look at the bright side of a graying Japan.
``Investors are ignoring an arguably much more important demographic shift,'' Shipley wrote.
``A younger generation of politicians, executives and policy makers is poised to take charge.''
CLSA's Whelan says fewer people will do for Japan what former and current prime ministers Junichiro Koizumi and Shinzo Abe have been unable to: catalyze an innovation boom that makes Japan more productive.
``High population growth alone never delivered high economic growth,'' Whelan report. ``If it did, this report would be about Africa, not Japan.''
Innovation is Key
It's a good point. When you ask executives why they're investing in China, two words come up immediately: cheap labor. Yet if economic potential were only about cheap labor, money would be rushing to Sudan and Myanmar. In the same way, if population growth were all that mattered, then Indonesia, the Philippines and Cambodia would be thriving.
Whelan's optimism is based in part on history. Growth, she argued, tends to be driven by ``specialization, innovation and trade.'' Investment, like labor, tends to go where returns are highest. As Japan moves more toward a knowledge-based economy driven by increased research and development, its citizens will prosper.
Similar demographic trends didn't hold back Venice's economy in the 11th century, Whelan said. Nor did they imperil the Dutch Republic in the 14th century. Likewise, Whelan said, ``in the coming decade, Japan's shrinking population is the least of her problems as far as growth goes.''
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