What? No babies?

Politicians and media have for some time been bemoaning the projected shrinking of the Japanese population. Among the expected effects: labor shortages combined with higher payroll taxes, leading to an unbearable social security burden.

Among the proposed solutions from a cited joint council report were (1) means-testing social security, (2) more daycare centers for working women to encourage working women to become mothers, and mothers to join and/or remain in the workforce, and (3) limiting increases in contributions from the "actively engaged" (i.e., working) population.

Political and logistical problems make this slim agenda very problematic indeed. A recent editorial ends by counseling "ingenuity" but offers no fresh ideas - only known ideas that are unlikely to work, or that are already too little, too late.

Means-testing social security won't fly - it will simply be too unpopular with the people who count. Older people vote, and they vote with their pocketbooks. And older people are concentrated in the countryside, which has disproportionate clout at the polls, and probably always will.

More daycare centers for working women? This won't work until there is more space on the trains during commuting hours, or more work centers near where families live, or more cheap housing located where working mothers work. There is, and will be, some progress on all these things. If nothing else, a declining population will, all other things being equal, yield a few more train-seats. But all in all, it's too little, too late - movement should have started on this one 10 years ago or more.

Limiting future contributions can only go so far without sharpening the social-security funding crisis; but not going far enough in easing payroll taxes could lead to more freeter-underemployed, or to a brain-drain of the more talented young people, or (more likely) both. This proposal must also be counted among the "too little, too late."

Answers?

So what are some solutions that might work?

At this point, they have to be relatively drastic. Workable solutions will require exploitation of huge, currently underutilized, resources. These resources exist. They are: technology, land (yes, land), and - first and last - people.

Technology

First, improve white-collar productivity, where Japan trails at #7 among the G7. Distantly, by some measures.

Actually USE computers, not to make more jobs, but to eliminate them. This seems cruel, but will free up capital for further productivity investment - and for occupational retraining, which will bring most of the jobs back.

Japan should not simply copy the U.S. in this, for the simple (if not yet obvious) reason that most of the supposed IT-led productivity gains in the U.S. have been illusory, a macroeconomic accounting fiction. Japan will have to find its own way. A firm, almost ruthless, approach to office automation will help Japan deflate the yen while avoiding the liquidity trap in deflation: there WILL be productive investments worth making.

Productivity improvements (and higher unemployment) are deflationary. This in itself will go part of the way toward solving the problem of how to provide for the aged: their fixed incomes will simply be worth more.

Land

To be blunt: end these ridiculous tenant protection measures. The most common reason cited by young mothers for not having another child is that space is too expensive. And the main reason rental apartments are so small - especially at the low end of the market, where families are forced to start, and forced to stay for too long - is that landlords have such a hard time evicting tenants. So they naturally spread their risk over a greater number of tenants by offering smaller spaces, and charging those tenants more, both to get in, and to stay.

Likewise, end the system of owner-occupied housing being virtually "unevictable" when the householders do not even own the land. The current housing/land ownership split puts a damper on residential development. Unsurprisingly, much of that pork-barrel construction money goes out to the countryside for unneeded projects.

What's needed, in addition, are property taxes calibrated to reasonable market values of properties, while abolishing - or at least reducing - these confiscatory capital gains taxes on sales of property. These capital gains taxes have outlived their ostensible anti-speculative rationale, if in fact they ever worked to that effect.

Believe it or not, there is space for those new cribs - it's just tied up in an illiquid property market.

People

Finally: Japan needs an Ellis Island. Japan should become the land of opportunity for the teeming masses of Asia, who have no shortage of youth and energy, who obviously want to have children, and who, like people everywhere, want a better life for those children. For all its problems, Japan will probably still be a better place to live in 2050, even under the worst case crash scenarios, than 90% of mainland and pacific Asia. Japan could attract far more immigration than it does.

Major progress on this issue is unlikely until the requirements for citizenship are substantially loosened, until housing for immigrants is made more affordable, and until prices generally drop under the pressure of greater (IT-assisted) productivity. But certain careful loosenings could push this agenda forward to the point where the floodgates would open.

As part 1 of a bootstrap initiative: let's have a special dispensation for foreign laborers entering Japan to work specifically in urban housing construction and in certain carefully classified and monitored supporting activities.

Mandate that some portion of the current economic-stimulus budget be set aside to defray relocation expenses and to cover payroll taxes - up to say, four years - for any such workers who bring their spouses to Japan and enroll their children in Japanese public schools.

Offer low-hassle citizenship conversion to ALL members of ANY immigrant family that sees high-school graduation in Japan among even one of its children. Any such graduates should also enjoy low-interest loans (or outright grants) to defray the tuition costs of attending trade schools, especially in IT-related disciplines.

Publicize this program through all of Asia, with special emphasis on China and Korea.

On the property side, part 2 of the bootstrap initiative: exempt landlords from the current eviction laws in the case of housing these foreign laborers. Offer subsidized insurance rates on the properties so long as they are immigrant-occupied. There will be bad apples floating across, and the owners should have the full support of the legal system, and some financial padding, to cover the added risk.

And, as an interim measure, allow householders to surrender their living quarters to these specially-classed immigrants as the sole occupants, while retaining the ownership privileges that ordinarily come with continued family occupation of such structures. (Indeed, this should be the ONLY way to hold on to such privileges, in the long run. But you have to start somewhere.)

The owners, being mostly older, can retire to the countryside and vote their pocketbooks (retaining urban homeowner equity, earning rental income, and gaining eviction rights), thus helping to perpetuate - with enhanced rural voting clout - the practice of bringing in foreign labor to build urban housing. This might even provide some older couples with a compelling pretext to finally "evict" their "parasite singles" offspring - probably the best favor they could ever do certain young people, in most cases. In this, owner-occupiers will be brought into common cause on both the demand side and the supply side with an interest that is currently antagonistic to them: urban residential property developers. Under this new system, fear of social-security collapse will become, if anything, an incentive, rather than an obstacle, to householders vacating these underutilized properties.

Implementations of proposals like these will not be painless, and are not without their dangers. However, there aren't many really workable solutions in the air. The choices are narrowing.

Can the Japanese put their famed "gaman" spirit into solutions like these? Maybe they will, if they start to see even more gaman spirit from new arrivals. Will these proposals be unpopular? Certainly. The political trick is to make them popular - or at least acceptable - with the voters who count. Ultimately, it's not difficult. it's about making the increasingly silver-haired care about the fates of their grand-children - especially the older women of Japan, who hold the purse-strings and who forced to become more investment-minded as the system creaks and teeters ever more, year by year, even day by day.

These are women who know sacrifice, because they grew up with it. And who worry about their grand-children - or, in many cases, whether they will ever SEE grandchildren. Get their votes, and my bet is that the rest of the country follows.

The result should be more children (from native Japanese AND naturalized immigrants), an improved standard of living in Japan (for both), a more culturally diverse Japan, more meaningful work for most in the long run, a better-funded safety net for those who will inevitably lose out, and reduced risk of systemic collapse of the social security system in the long run.

Michael Turner (leap@gol.com)
Tokyo
April 2001