Ageing Japan defies demographics


JUST returned from a brief trip to Sapporo.

Japan’s demographics defies destiny. A year ago, Japan was consigned to economic stagnation and then, contraction with its rapidly ageing population and continuing shrinking fertility rates. Their impact is evident everywhere you go. Don’t see too many kids around; many schools are empty (2,000 primary schools shut in 2016); old people are most visible.

By 2040, more than one in three in Japan will be over 65, the highest ratio in the world. These are signs of the time: today’s population is smaller than it was in 2000; already 27% of the population is over 65; 50% is over 50; and deaths have exceeded births. Unemployment is near a 25-year low, at 2.5%. The ratio of job offers per applicant is near its 1963 all- time high of 1.6.

A year ago, Japan’s GDP contracted by 0.2% in the first quarter (1Q18), ending eight consecutive quarters of growth – its longest period of uninterrupted growth since 1989. Then, it was the only G-7 nation to start 2018 with a shrinking economy. Then, Japan’s GDP growth was among G-7’s lowest over the past 20 years, coming second only to Italy. Still, Japan’s GDP growth per person of working age is, in fact, the second-best performing G-7 nation, after Germany, over the past 20 years.

Despite a shrinking labour force, its economy remains robust. March 2019 OECD forecasts (which downgraded almost every G-20 nation) now expects Japan’s GDP to rise by just 0.8% in 2019 (and 0.7% in 2020), with outcomes still weaker if downside risks materialised (Brexit and Chinese slowdown bringing about negative spillovers). The International Monetary Fund (IMF) estimated that ageing could potentially drag down Japan’s average annual GDP growth by one percentage point over the next three decades.

Global phenomenon

Today, 40 nations have shrinking working-age (15-64 years old) populations, up from only nine in late-1980s. China, Russia and Spain joined recently; Thailand, Malaysia and Sri Lanka soon will. This poses a problem: losing a traditional driver of growth. With fewer workers, nations need to raise productivity even more to keep GDP expanding.

The national debt will be borne on fewer shoulders. Fewer people will be around to come up with the sort of innovative ideas that can enrich a nation. Businesses may well loath to invest.

In fast-shrinking Japan, even domestic firms focus on foreign markets. The old will weigh more heavily on society, too. The balance between people over 65 and those of working age (old-age dependency ratio) can tip even in countries where the working-age population is growing: just look at Australia or the United Kingdom.

But it is likely to deteriorate faster if the ranks of the employable are thinning. In Japan, where young people are getting fewer and lives are long, demographers expect there to be 48 people over the age of 65 for every 100 people of working age in 2020 (just 17 in 1990). Some nations face gentle downward slopes; others are on cliff-edges.

Whereas, France is gradually losing the working-age group, China’s will soon plunge – a consequence of its one-child policy. Chinese 15 to 64-year-olds (peaked at just over one billion in 2014) is expected to fall by 19 million between 2015 and 2025; by another 68 million the following decade; and 76 million in the one after that.

How to prevent the economic cake from shrinking? Besides raising existing workers’ productivity, I see three policies which can greatly alleviate the effects of a shrinking working-age population:

> Encourage more women to do paid work. Female participation in the labour market lags behind men’s in all but three countries worldwide; the gap is especially wide in Greece, Italy, Japan – even South Korea, where 59% of working-age women work, compared with 79% of men;

> Tap older workers. Today, Chinese workers typically retire between 50 and 60; but by 2050 about 35% of the population is expected to be over 60. Thanks to generous early-retirement policies, only 41% of Europeans (60-64) are in paid work. Among 65 to 74-year-olds, it’s lower than 10%; and

> Lure more migrants in their prime years. The trouble is that nations with the biggest demographic shortfalls are often opposed to immigration. Until recently, Japan viewed immigrants more negatively than any G-20 nations. China has never been a country of immigrants. But it is trying to lure back the ethnic-Chinese diaspora. In theory, every rich country can prise open the demographic trap – if it wants to. It just needs political will.

Fertility

Falling fertility rates (number of live births per woman) add to Japan’s woes amid an ageing population. The United Nations’ (UN) best estimate suggests that fertility will fall gradually and lifespans increase, so the world’s population will rise from 7.7 billion today to 11.2 billion by 2100.

But UN often underestimates. Data from before the Industrial Revolution are spotty but evidence suggests that a typical woman had seven or more children. By 1960, the global fertility rate had fallen to five. Today, it’s 2.4, only just above the “replacement rate” of 2.1, at which the population remains stable, with each generation replacing itself but no more.

Nearly all rich countries have sub-replacement fertility rates: the OECD average is 1.7. It’s 1.44 in Japan; 1.62 in China, 1.77 in the United States and 1.9 in Malaysia. Middle-income countries are close, at 2.3. Only in poor countries is fertility rate still high enough to fuel rapid population growth.

In sub-Saharan Africa, it is 4.8; in “heavily indebted poor countries”, 4.9.

Pre-Industrial Revolution fertility rates persist only in the poorest parts of the poorest countries. No doubt, the 21st century will be African. In 1990, sub-Saharan Africa accounted for 16% of world births. Because African birth rates are so much higher, this proportion has risen to 27% and is expected to hit 37% in 2050. About a decade later, more babies will be born here than in the whole of Asia, including India and China.

The danger is not a Malthusian crisis, whereby countries run out of food or farmland at some point in the future. It is true that Africa, although vast, is already a net food importer. But that would be fine if Africans were otherwise productive. The real problem is that too many babies sap economic development and make it harder to lift Africans out of poverty.

In the world as a whole, the overall dependency ratio (the share of those under 20 plus those over 65 who are provided for by working age population) stands at 74:100. In sub-Saharan Africa it is a staggering 129:100. Many African countries already struggle to build enough schools and medical clinics for their existing children, let alone the masses to come.

The trouble is that the fall in fertility rate is happening much more slowly in Africa than elsewhere. One-half of Nigerians already live in cities, compared with 1/3 of Indians. Yet, Nigeria’s fertility rate is more than double India’s. Overall, the fertility rate in sub-Saharan Africa is dropping about half as quickly as it did in Asia or Latin America when families were the same size. Still, lots of children is regarded as an investment; an insurance policy that pays off.

The African proverb sums it up: “A child comes with two hands and only one mouth.” Getting old, but not yet rich

The demographic outlook is fuelling fears that most of Asia, including China, are growing old before it gets rich, leaving it with too few workers to cover the cost of keeping its ageing population. China is greying earlier and faster than other countries. In 1970, China’s median age was nearly 10 years younger than US; by 2015, it was older.

By 2050, there will be only 1.3 workers for each retiree, compared with 2.8 now. It’s about the same level in US now, and 2.2 workers for every retiree by 2035. China’s overall population is expected to start declining in 2030, after peaking at 1.44 billion. Like China, Vietnam is also greying fast, even though its medium age is only 26. Over-60s make up 12% of the population, a share that is forecast to jump to 21% by 2040, one of the quickest increases in the world. That is partly because life expectancy has increased from 60 years in 1970 to 76 today, thanks to rising incomes.

Growing prosperity has also helped bring down the fertility rate in the same period from seven children per woman to less than two. Demography is changing in similar ways in many Asian countries. But in Vietnam it is happening while the country is still poor. When the share of the population of working-age climbed to its highest in South Korea and Japan, annual GDP per person (in real terms, adjusted for purchasing power) stood at US$32,000 and US$31,700 respectively. Even China managed to reach US$9,500.

In Vietnam, which hit the same peak in 2013, income averaged a mere US$5,000. Indonesia and the Philippines are expected to reach the turning-point in the next few decades, with an income level several times higher than Vietnam’s. Many countries in Asia are ageing fast. But growing old before it becomes rich makes Vietnam’s problems all the more difficult to resolve.Ceiling on age

Humans aren’t built to last forever. How long is life? In 2016, a team of scientists reported the upper limit to be 115 years. But in June 2018, researchers reviewing death rates among elderly Italians suggested that there may be no limit at all.

Of late, scientists are reported to have identified the four cellular and molecular processes causing deteriorating old age, viz. chronic inflammation; cell dysfunction; changes in stem cells that make them fail to regenerate tissue; and cellular senescence, the accumulation in tissue of ageing cells that accompanies disease.

Healthy young people have few of these ageing cells. But after age 60, they begin to accumulate, and their increasing quantity correlates with disabilities of old age. Scientists now agree that there is possibly an upper limit to how long we can live – about 85 years.

Parts of the body, including the brain, are not designed for long-term use. The consequences of pushing the limits of survival: rise of Alzheimer’s disease, dementias, joint and hip problems, loss of muscle mass. In my view, these are not the consequences of failure. Rather of success in extending “health span, not life span”.

Japan is very clearly at the global forefront of ageing. Its population has peaked out. It’s now shrinking. The 2016 book: The 100-Year Life was a huge best seller. Its central thesis: individuals, institutions, government, finances and infrastructure need urgent preparation for a time when millions can reasonably expect to live for a century.

The consequences: Young Japanese may husband their yen carefully; but seniors are spending more on meat, cars, smartphones and package tours. Brokers have even identified three related “buy” calls: companies that run nursing homes or dispatch caregivers; manufacturers of robots to help or replace Japan’s greying workforce and fitness centres that focus on gym fanatics in their latter decades.

Japan’s embrace of the 100-year life has become the call of the century. It is likely that half the children born today will live beyond 100. Fifty years ago, Japan had just 327 centenarians; in 2017 it had 67,824, and the largest per capita ratio in the world.

The facts: 107 (age expected to be reached by 50% of Japanese born in 2007); 3.36 million (Japanese men and women aged over 69 who were still working in 2016); 40% (senior employees who say they want to work as long as they can). So, people are working much later into their lives. They remain in better health, continue to gain skills, and invest for a long stay on earth.

This optimism is already making its mark in one fundamental area of Japanese life – its “slash and burn” housing market. People today want homes that are built with much longer potential lifespans of up to at least 50 years (instead of 30 years), use more durable materials, and with designs that allow the interiors to be easily converted to make them easier to live-in when they are older. It also foresees the mass ageing of Japan’s construction workforce.

Hence, the need to seriously innovate: labour-saving construction techniques, and house designs that can be easily upgraded by elderly renovators.What then are we to do

The puzzle: what to do about older men? It’s an issue that age discrimination laws make it harder to ease them out. Many have 20 or more active years ahead. They have no wish to spend the rest of their lives gardening or pottering around the house. While this is today a gender issue, it will in time become a generational one.

The women who are now moving into their rightful places in the organisational hierarchy will soon grow older. Many of them have the same desire to continue to engage in meaningful work. While the gender pay gap may narrow as women rise through the ranks, company costs will continue to grow as high-paid staff either decide to stay, or feel they have no choice but to carry on. Younger employees will look at senior colleagues who are much older and wonder how long they will have to wait to reach the top.

What can companies do? They can test the age discrimination laws by pushing older workers out. This is too drastic. Companies have ways of making it clear that your time is up. This is common. But legally risky. Or companies can start thinking creatively. While older workers may not want to retire, they may welcome a shorter week. It is a win-win solution: leaving experienced employees in the workplace (with more leisure), while reducing costs. Another option includes offering older employees consulting contracts with the company if they leave.

Once again, this keeps them working, cuts the overall salary bill, and opens up promotion prospects for younger staff. But this should not be left just to employers. Older workers can take the initiative. It is wrong to generalise about an entire generation. We all have our own skills, and ones we can readily pick up. Some may have given up learning. Most have not. Former banker, Harvard educated economist and British Chartered Scientist, Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015) & Turbulence in Trying Times (Pearson, 2017). Feedback is most welcome.

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