Bending Adversity: Japan and the Art of Survival (22 page)

Koizumi’s policies may have contributed marginally to the widening wealth gap. Cuts to health provision undoubtedly made life more difficult for some. A further liberalization of the labour market allowed manufacturers to hire casual staff with lower wages and benefits. There were record numbers on welfare. Koizumi also broke his party’s
modus operandi
of siphoning money from the cities and spreading it around the countryside. In stemming public works and clamping down on tax transfers to local governments, he may have
exacerbated the already widening gap between isolated rural communities and Japan’s giant metropolises where wealth tended to concentrate. In truth, though, his policies probably didn’t make a huge difference. Mainly, he was channelling trends already in progress since the economy had slowed in the 1990s and the transition from manufacturing to knowledge-based industries had intensified. It was true that some of Koizumi’s advisers did advocate an end to what they saw as the paternalistic, ‘socialist’ policies of the past and the creation of a society where individual responsibility and hard work were better rewarded. Yet the truth was that inequality had been rising for many years before Koizumi took office. Much was the consequence of international trends, particularly the incorporation of hundreds of millions of Chinese workers into the global workforce after Beijing’s accession to the World Trade Organization in 2001. The middle class has been squeezed all over the world. Yuriko Koike, a prominent politician who had become close to Koizumi, dismissed the idea of yawning inequality. ‘Among the capitalist societies, Japan is almost like a socialist country. The disparities in Japan are 0.01 of an inch,’ she said, holding her well-manicured thumb and forefinger in the air by way of illustration. ‘The disparities in the rest of the world, in places like Russia or China, are more like the distance between the moon and the earth.’
⁴⁹

Yasuhiro Nakasone, prime minister from 1982 to 1987 and the only Japanese leader in three decades to rival Koizumi’s influence, agreed with Takenaka that Koizumi had done too little, not too much. I spoke to him shortly after Koizumi had refused to allow him to stand for re-election on the very un-Japanese grounds that he was too old. Koizumi had set an age limit of seventy-three for parliamentarians as a way of flushing out what he considered the reactionary old guard of his party. At the time, Nakasone, who had been a parliamentarian for six decades, was eighty-five. He was still fuming at the affront to his dignity and quoted me a haiku, of his own composition, on his feelings about being pushed out. (‘Everything is human theatre/The autumnal sun is now setting.’) Koizumi, he said, was a showman who lacked gravitas. ‘Reform has ended up as a mere slogan.’ Nakasone pointed to his own record of privatizing the railways, a far more meaningful endeavour, he thought, than tampering with the
post office. ‘I believe that politics should focus on constitutional reform, education, social security, financial reform and diplomacy, particularly relations with other Asian countries,’ he said at the time. ‘His tendency to get sidetracked by less important projects rather than more substantial concerns facing the country has earned him criticism, which, in my view, is well-founded.’
⁵⁰
Nakasone was not the only critic of Koizumi, whose reputation for grandiloquent rhetoric had earned him the nickname ‘Nato’ – short for ‘No Action, Talk Only’.

•   •   •

Like a kabuki actor, whose garish make-up and larger-than-life gestures are meant to enrapture spectators, Koizumi loved nothing more than playing to the gallery. When he wanted to privatize the road corporations, he set up a televised commission that brought to light the lavish expenditure of those opaque bodies. Critics charged that the privatization itself was a fudge. For Koizumi, though, the grand gesture of opening up wasteful spending to public scrutiny (and outrage)
was
the policy. It sharpened the appetite for change by engaging and energizing the public. To call Koizumi a showman was not necessarily to criticize him. It was to identify his strength as a politician.

Takatoshi Ito, the Tokyo economics professor and a one-time government adviser, praised his leadership skills. ‘I think Koizumi was wonderful. He demonstrated what strong political leadership could achieve and how to make people rally behind him . . . I still think it was a good moment in history.’ Although Ito, like Nakasone, believed Koizumi ought to have pursued more radical change, he argued that the charismatic prime minister galvanized national morale. ‘There has been very little optimism in the past twenty years, when people finally started to believe in the recovery and saw the light at the end of a long tunnel,’ he said. ‘That kind of optimism was limited to Koizumi’s years in office.’
⁵¹

Koike, who served as Koizumi’s environment minister, also felt he had brought a sense of direction. ‘Leaders must make decisions and then convince people to do it,’ she said. ‘We are no longer in an age when we should base everything on consensus.’
⁵²
Iijima, Koizumi’s crafty political secretary, said much the same thing. ‘For the first time in decades, a prime minister has tried to assert top-down authority,’
he told me. He had also been the first to take Japan’s budget deficits seriously, he said. ‘People say a lot of things about Koizumi. That he’s not good at economy. That he doesn’t know a thing about finance or monetary policy.’ But Koizumi knew one thing, Iijima told me. ‘Japan is the most indebted country in the world. We have to stop pouring money away like this. We have to turn the tap off.’ Many, including Koike, said that what the prime minister had tried to start had been blocked, even reversed, after he left office. Ippei Takeda, a friend who ran a business in Kyoto, compared Koizumi’s agenda to a seed that had been planted but not properly nurtured.
⁵³

In the past thirty years, Koizumi stands out as Japan’s most exceptional prime minister, perhaps the only one with a truly international reputation. He was, in many ways, Japan’s Barack Obama, promising change his nation could believe in. But the public, it turned out, didn’t always know what kind of change it really wanted and Koizumi was not always able to deliver. Koizumi was as much a manifestation of structural shifts already in progress as the actual agent of change. Societal convulsions had long been in train, brought about by the collapse of the bubble, the end of the Cold War and the intensification of international competition. Koizumi’s skill as a politician was to recognize those new realities and to try to articulate a response. ‘Japan has changed so much since the 1990s,’ Gerald Curtis of Columbia University told me in October 2011. ‘The changes are societal and Koizumi has been riding them.’

Ezra Vogel, who had boosted public morale three decades previously with his book
Japan as Number One
, told me that, for all Koizumi’s radical break with the past, Japan remained in political transition. A new sustainable system had yet to be built. ‘The country needs a political system with the capacity to respond effectively to problems in a long-term way,’ he said.
⁵⁴
‘This coherence ended in the 1990s when there was a collapse of the parties. Japan hasn’t built the right political system to put things back together again.’

A symbol of Koizumi’s ultimate failure to enact change was the fate of his beloved postal privatization. After he left office, the legislation he had fought so passionately to enact became associated with the ills of rising inequality and a less caring society. ‘There has been a very significant move away from the past, more inclusive, way of doing
things,’ said Hama, the economics professor who had been so invigorated by the 2005 election. After Koizumi, she said, Japan looked for ways of going back to a more inclusive society, what she called ‘protection against the jungle’ of the free market. If a private post office had become symbolic of an overgrown free market, in 2012 legislators brought out their machetes by passing an amendment to Koizumi’s bill, scrapping the deadline for postal privatization. In theory, that would allow the state to own the post office indefinitely. For Koizumi loyalists, the amendment ripped the guts out of his bill and proved that politicians lacked the nerve to press on with his painful, but necessary, programme. For opponents, Japan had put the former prime minister’s un-Japanese free-market ideas to rest. Of the handful of parliamentarians who voted against the amendment, one was none other than Shinjiro Koizumi, the 31-year-old son of the former prime minister and the fourth generation in the family to occupy the parliamentary seat at Yokosuka. Shinjiro, handsome and dashing like his father, was the great-grandson of Matajiro, the ‘tattooed minister’ who had run the post office eighty years before. Storming Osaka Castle turned out to be more difficult than anyone had imagined.

Life After Growth

It was actually a Japanese health minister who raised the spectre of the Japanese people one day disappearing altogether. ‘If we go on this way, the Japanese race will become extinct,’ Chikara Sakaguchi said melodramatically in 2002.
¹
Sakaguchi was basing his alarmist prediction on extrapolation. If you continue any downward-moving graph far enough into the future it will eventually reach zero. Japan’s fertility rate fell below 2.1, the level needed to maintain a population, in the 1980s.
²
Between 2005 and 2010, it averaged just 1.27.
³
Although it has edged back up again, not nearly enough babies are being born to replenish the population. Japan’s case is particularly stark since it is more resistant to immigration than most countries in its less-than-fecund position. Britain’s population would be at risk of falling too were it not for a steady influx of outsiders.
⁴

Part of the ‘problem’ is that people are living too long. Japan’s life expectancy has risen dramatically. It is now the highest in the world, with men living to an average age of eighty and women to a remarkable eighty-six. In 1947, the average was fifty and fifty-four respectively. As a result, Japan’s population is ageing rapidly. In 1950, only 5 per cent of the population was over sixty-five. Today that figure is 25 per cent. By 2035, one in three could be that age. As people retire and fewer youngsters enter the job market, the workforce is shrinking, by roughly 0.6 per cent a year. In 1960, there were eleven people of working age to support every person over sixty-five. By 2010, that number had dwindled to 2.8. On current trends, by 2055, there will be only 1.3 people of working age for every person theoretically retired.
⁵

The seemingly inexorable maths leads many to depict Japan as a
ticking time bomb. It implies there will be fewer workers paying taxes to fund the pension payments and medical bills of an increasing number of retirees. That is true so far as it goes, though as people grow older, they also tend to work longer, thus lowering the notional ‘dependency ratio’. Still, in modern times, we have become accustomed to ever-rising populations. George Magnus, an economist who has written extensively about demographics, describes Japan, and other similarly placed countries, as being on what he calls a ‘demographics death row’. By that he means that, barring a dramatic reversal, Japan’s population will continue to shrink. On current trends, by 2050, there will be 25 million fewer Japanese, cutting the population to 102 million.
⁶
Under the most pessimistic assumptions, the population will drop to 45 million by 2100, the same as in 1910 Meiji Japan.
⁷
The proportion of Japanese in a still rising global population will also fall. In 2005, Japanese made up 2 per cent of the world’s inhabitants. By 2050, they are likely to account for just 1.1 per cent. If population equals power, then Japan’s national vigour is waning.

Before we proceed too far down the path of ‘demographics equals destiny’, it’s worth peering a little below the surface gloom. For a start, and to state the obvious, longevity should be counted as a success not a failure. By 2050, according to some projections, there could be as many as 1 million Japanese over 100 years of age.
⁸
Doubtless this will present numerous challenges. Old people tend to fall sick and need caring for. Some are very poor. But the underlying reason for the existence of so many elderly people is that Japan is rich and medically advanced. Whether for reasons of diet, the quality and availability of healthcare, a sense of social wellbeing or some other factor, Japan does a better job of keeping its citizens alive and healthy than any other large nation. Life expectancy in the United States (fortieth in the list of nations to Japan’s first) is a full five years below Japan, at seventy-five for men and eighty-one for women.
⁹

Similarly, low birth rates, though not always desirable, are often a direct consequence of higher standards of development as women take greater control of their fertility. In Japan’s case, one can certainly argue that women would be more inclined to have children if they felt more economically secure and if society did a better job of helping
them juggle work and family. ‘If you ask a married couple what is the ideal number of children, they would tend to say two,’ says Takatoshi Ito of Tokyo University. ‘They are somehow being discouraged from having families of an ideal size.’
¹⁰
Women are also postponing marriage. The average age for a woman to get married has risen steadily from twenty-three six decades ago to twenty-eight.
¹¹
Another reason for the low birth rate may be the widespread availability of higher education. One British study found that 40 per cent of female graduates remained childless at the age of thirty-five.
¹²
Unless our remedy for Japan is to stop educating its women – and no doubt there are a few Japanese traditionalists who would advocate just that – we shouldn’t spring too readily to the conclusion that a low birth rate is a sign of society gone wrong.

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