Two interesting articles in this week’s Nikkei Veritas. (http://veritas.nikkei.co.jp/index.aspx – all in Japanese, and you’ll need to buy a subscription to read the whole edition).
First – the feature article spends about four pages talking what Japan might look like for the typical household in 2020. It doesn’t paint a pretty picture – average annual GDP growth of only around 1%, average number of people paying into national pension/health insurance per senior citizin falling from 2.82 in 2009 to 2.05, a 4 million person decline in the total workforce, number of nursing care providers needed to take care of an aging population increasing from 1.2 million in 2008 to 2.14 million…
The article suggests a number of possible proposals to address these problems: Pushing back the retirement age to 67 or even 70 (one assumes that this would be in tandem with a hike in the minimum age at which one can receive benefits), or raising the consumption tax to at least 10%. Another big initiative is to get senior citizens and women into the workforce. This, of course, has two drawbacks – first, having more women in the workforce probably won’t do Japan’s already-low birth rate any favors. Second, Japan already faces a shortage of nursing/health care providers – having more senior citizens and women leave the home and move into the workforce isn’t going to help matters. We saw above that Japan will need another 1 million care providers by 2020, and that’s without having any increase in women/senior citizens participating in the labor force.
Finally -irony of ironies – one major topic was expanding the tourism trade to attract 20 milloin people to visit Japan by 2020, more than double the current level.
I say that is ironic because NO WHERE does the article mention the best and most obvious choice for a country with a dwindling workforce and rapidly aging population: Immigration. Tourists, yes! Come spend your money here. Just don’t stay too long. That immigration wasn’t even mentioned suggests Japan would rather fade into an irreversible decay of sub-standard living standards and global irrelevance before it let more foreigners in. The biggest danger I see is that the everyday man on the street seems to think that ‘no economic growth’ will mean things just stay as they are – which they might IF the country wasn’t already facing a declining workforce and aging population.
Even without going into the deep economics of it, immigration makes sense conceptually. For example: For the first 20 years or so of their lives, children are a massive fiscal drain for a country – children need health care and education, but selfishly don’t work to offset the costs. In return, however, they work for 40 years or so after getting out of school, and pay in to the pension/healthcare system. Once they retire, however, they have to depend on the country again for 20 years or so.
Immigrants, on the other hand, tend to be young adults – just at the starting points of their careers. And some (many?) end up going back to their native lands at some point. In other words – immigrants often make a big fiscal contribution to the country by being here in there working years, but are often not a drain on the country because they aren’t here as children and/or retirees. If Japan is serious about tackling is problems of future growth, immigration is going to have to be on the ticket.
The second article is by Takeshi Nakano, a To-dai grad and former MITI (MIET) wonk currently working as a professor at the University of Edinburgh. He argues that free trade is wrong, and that protectionism is good – that protecting local industries results in thriving local eocnomy, and that thriving economy is what boosts trade. In other word, free trade is a result of – not a cause of – economic growth.
Somewhere, Adam Smith and David Ricardo are spinning around in their graves as 250 years of economic thought are flushed down the drain.
Nakano’s first evidence is the 19th century: an era of global free trade from 1860 through 1892 or so, coincided with the long global depression (dates vary, but generally run from 1870 through the early part of the 1890s for Europe, and much shorter for the US, 1872-1879), and that countries only pulled out of the (series of) recessions from 1892-94 as European governments started implementing protectionist policies. He also says that overall trade flourished over the latter half of the 19th century – and that trade increased fastest in countries with the most protectionist policies, but that England – which maintained the most open trade policy – suffered the most severe downturn. Finally, he says that Paul Krugman agrees with this view, in a Feb 1 2009 NY Times piece (full piece here: http://krugman.blogs.nytimes.com/2009/02/01/protectionism-and-stimulus-wonkish/)
His thinking is shaky at best. The late 19th century depression is mostly considered to be a fall in prices, not a depression-level fall in actual output. Secondly, he is so far wrong on his dates that one can only conclude he is being deceptive on purpose: many nations did indeed turn to protectionism as the recession worsened – but far, far earlier than Nakano says. Germany and France dropped their free trade stance in the late 1870s, for instance. One could suggest that these protectionist movements were a reason the recession lasted so long in the first place. Nakano also fails to note that this was long before Keynsian economics came along to change in thinking regarding government involvement in national economic strategy.
Worse, he completely (deliberately?) mis-reads Krugman’s article and cherry-picks his quotes. Krugman is clearly noting that the extreme circumstances of the time and the short-term/long-term trade-offs and risks. Protectionism in the form of subsidies and tax incentives is NOT the same thing as restricting imports and increasing tariffs.
Finally – Nakano simply fails to adhere to one the most basic principals of economic thought: What is good for one might not be good for the whole. If I stand up at a football match, maybe I have a better view (to the detriment to the people behind me). If everyone in the stadium stands up, I may be no better off – or indeed, I maybe worse off. Germany and the rest of Europe may have benefitted in the late 19th century specifically because the UK and (for the most part) the US continued to buy their goods, even though they did little to return the favor.
Nakano’s thinking is clearly that protectionism is better for me, as long as you keep buying my stuff.