Geezernomics: Can Migration Revive Japan, Inc?

♠ Posted by Emmanuel in , at 11/27/2008 08:46:00 AM
Can a country's level of xenophobia be so high that it would rather sacrifice its economic future than admit more immigrants? That, my friends, is what I wonder about when it comes to Japan. It is ironic that some of the most closed societies are the ones that can benefit the most from migration. The archetypal case in point is, of course, Japan. The roots of its current economic malaise are in large part demographic. Never forget that the benefits from social cohesion borne out of homogeneity have costs in terms of economic dynamism.

Efforts to spur domestic consumption at a time of export weakness face huge difficulties in Japan. Aging workers save perhaps excessively from understandable fears that mostly non-existent future generations of laborers won't be able to pick up the slack. Couple the fact that the Japanese are the longest-lived people on Earth with their unusually low fertility rate and you have a demographic disaster whose effects are already being felt. That Japan's projected old-age dependency ratios are off the charts is no mystery.

What can gaijin do to help remedy this situation? Their influx may help alleviate a deflationary trap on a number of fronts. First, their eventual integration can reduce old-age dependency ratios, giving retirees and those nearing retirement more confidence that pensions and suchlike will actually be funded going forward. Second, and perhaps more immediately, they can provide sources of domestic demand at a time when Japan is running a trade deficit--a bad omen for any export-driven economy. Third, they can inject cultural dynamism in a country already seeking to become more cosmopolitan in outlook, particularly in the stagnant services sector.

If I sound Philippe Legrain-ish, so be it. I have always thought that good public policy is crucial to ensuring that chances of immigration resulting in smoother integration can proceed. Truly, it's a liberal idea in the classic sense. There is no lack of quite frankly racist migration agendas in the political discourse of any number of industrialized countries facing similar challenges, but I will have none of it here. These countries will have to import manpower given that they aren't going on babymaking binges anytime soon. The only question is whether they will come up with thoughtful solutions to the migration dilemma or just keep kicking the can down the road to no one's real benefit.

Here are key excerpts from a Financial Times piece that inspired this post, although the rest of its is well worth reading:
Private consumption has been edging down, to about 57 per cent of GDP. In the view of some, a greying – indeed, decreasing – population means domestic demand is doomed to continue a relentless decline and that Japan’s future depends on even greater expansion overseas. “The domestic economy can’t grow. The smart thing to do is focus on overseas markets,” says Martin Schulz, senior economist at Fujitsu Research Institute...

For one thing, the argument goes, people spend less as society ages. Already, “household surveys show that 27 per cent of households with two people or more have no employment, that is, they are pensioners,” says Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “Pensioners don’t spend that much money regardless of their economic conditions...”

Ms Ota also points to the need for reforms to improve productivity in services, a sector that accounts for 70 per cent of GDP. “In the 1980s, when manufacturing was strong, it was able to pull the economy up with it. But with globalisation, manufacturers can move overseas,” she says...

Owners could be encouraged to rent out unused retail properties to businesses that better meet the needs of consumers, Ms Ota also suggests. That is what Marugame, on the south-western island of Shikoku, did and its shuttered shopping street was transformed into a thriving neighbourhood, she points out. By taking such steps to boost productivity in a broad range of sectors, domestic growth could be revived significantly, analysts say. “Japan has one of the lowest levels of productivity in services worldwide, so the growth potential is huge,” says Mr Schulz...

Critics point out that the Council on Economic and Fiscal Policy has lost its clout and the momentum behind deregulation that invigorated the Koizumi era is gone. The immediate outlook for further bold reforms is not promising. “Unless we bring new ideas and new people from overseas, Japan can’t grow,” says Ms Ota.