Low fertility and an aging population are demographic challenges that are going to affect East Asia’s three major economic engines of China, Japan and South Korea. Japan sits at the vanguard of this demographic transformation. How it manages its demographic conundrum will have significant consequences for the region, but importantly in how Japan sustains its security, economic influence and potentially its identity.
Japan’s demographic metamorphosis will be startling. To illustrate, according to the Japan’s Bureau of Statistics the total population as of January 2018 was 126.96 million (Statistics Bureau, 2018). By 2040, the population is expected to drop to 110.92 million, to 99.24 million by 2053, and to 88.08 million by 2065[i]. Even more pronounced will be the proportion of those people who will be 65 years of age and above. Respectively, they account for 27.8% in 2017, but will account for 35.3% of the total population in 2040, 38% in 2053 and 38.4% in 2065[ii].
The consequences of this inverting population pyramid are wide ranging. It will require heretical thinking mirroring the revolutionary Meiji Restoration[iii] which occurred 150 years ago. At that time, Japan transformed itself from a mostly isolated feudal state, to a modernized nation state that could effectively compete with the European imperial powers at the time. The quandary policy makers’ face today is how to untie this demographic Gordian knot. The challenge they face as Japan rapidly ages relate to all elements of national power including but not exclusive to economy, migration policy, security, culture and soft power. Will demography be destiny or will Japan’s use its population problem as an endogenous force for structural and societal change with Japanese characteristics to create a modern Meiji Restoration?
Economy and Trade Policy
Policy makers in Japan have acquiesced to the reality of a dwindling population and have set a goal of maintaining a population of 100 million as outlined in PM Abe’s “Ichi-oku So-katsuyaku Shakai” (A Society in Which All 100 Million Japanese Take Active Parts[iv] initiative. This smaller population will have obvious impact on the Japanese economy with a larger number of citizens drawing on Japan’s generous social-welfare system while at the same time it will have fewer payers into the system. With a smaller number of workers fuelling economic grow domestically, the Government of Japan (GoJ) has engaged proactively in securing new consumer markets to sustain economic growth through signing the Japan-EU Economic Partnership agreement[v] and the recently agreed upon Comprehensive Progressive Trans Pacific Partnership (CPTPP) agreement. Both of these agreements will boost GDP by around 0.99%[vi] (around 5.2 trillion yen increase compared to 2016) and 0.06%[vii] (average change of GDP in EU-28) respectively. At the same time, the Japan-EU EPA and the CPTPP are not merely trade deals, they focus on intellectual property rights (IPR), the service sector and the environment.
Each of these areas plays to Japan’s comparative advantages and puts Japan in the position of being at the forefront of new trade regimes. The open nature of the CPTPP is salient as well as it leaves the membership open to countries that are interested in a 21st century trade agreement that stimulates innovation through the protection of R&D investment. Within the region, both South Korea and Taiwan would be natural members owing to their economic development and commitment to rule-based trade regimes that protect IPR and place limitations on the role of state-owned enterprises.
Importantly, the design of the CPTPP has also intentionally left room for the US to return to the agreement once the administration in Washington makes the necessary domestic corrections to argue that return to the CPTPP is now appropriate as it has been made “fairer”.
In addition to bolstering trade through multilateral trade agreements, the GoJ has also skilfully employed tourism as a vehicle to bolster the domestic economy[viii]. By the 2020 Summer Olympics, Tokyo is aiming to attract 40 million tourists annually to Japan[ix]. According to the Mizuho Research Institute, this increase in tourism and 2020 Olympic is estimated to boost Japan’s GDP by 36 trillion JPY[x].
In response to a rapidly tightening labour market, Japan has adopted a multi-steam migration[xi] scheme aimed at mitigating the labour shortage in industries deemed kitsui, kitanai and kiken (difficult, dirty and dangerous). For ordinary Japanese, triple-k jobs have been not only unattractive to university graduates since at least the 1980s, they also have not been a necessity as white-collar jobs were plentiful. Second, these jobs are by-and-large low paid and subject to irregular hours compared to full-time, white-collar jobs. Third, in concert with a declining number of new graduates entering the workforce, and a relative improvement of the Japanese economy for middle-class workers, the unemployment rate has dropped to 3 per cent[xii].
The pressures associated with low birth rates and smaller cohorts of fresh university graduates means that new graduates will enjoy the fruits of a sellers’ market in which businesses will have to compete for workers through more generous total compensation such as working conditions, increased wages and benefits[xiii]. At the same time, the difficult, dirty and dangerous industries will find it more and more difficult to attract native sources of labour opting for temporary migration[xiv]. This trend can already be seen in the service sectors such as restaurants and convenient stores but also in factors in which a growing number of Southeast Asians and South Asia such as Nepalese and Bangladeshi can be found working as temporary migrant labour.
To inculcate more innovativeness and new ideas into the economy, the GoJ has also adopted a highly-skilled foreign professional stream[xv]. Here talented migrants who work in international firms or who set up innovative businesses and invest in Japan find that migration barriers have been dramatically lower. Their insertion into the Japanese economy has been facilitated through fast-track schemes they have accelerated access to permanent residency.
While calls to adopt a point-based immigration system to deal with population decline, these voices are few and far between with the major of Japanese citizens not in favour of immigration. As a result, temporary migration schemes and automation will be the preferred approaches to manage population decline.
Security Policy Transformation
Japan’s precipitous population decline will also impact Japan’s ability to mitigate its security concerns in Northeast and Southeast Asia. At the first level, we are seeing a continuing drop in the number of new recruits into the Japanese Self Defence Forces (JSDF) resulting in a decreased capacity to maintain a large self-defence force. Critics argue that the drop is related to PM Abe’s September 2015 Collective Security Bill[xvi] and his perceived more hawkish approach to security[xvii]. In reality, the tight labour market, full employment for graduates and higher wages for working in the private sector has been the gravitational force behind that drop in troop number[xviii].
This structural feature of the economy will continue to pull young men and women away from military service in the years ahead making it increasingly difficult for Japan to security its peripheral territories such as the Senkaku/ Diaoyu Tai islands in the East China Sea (ECS).
To overcome this demographic bottle neck, Japan is automatizing is defence systems to defend peripheral territories in the East China Sea[xix]. This modernization includes investing in autonomous defence systems[xx] and the acquisition equipment with very specific mission specifications such as amphibious vessels meant to reacquire island territories that were taken by another country[xxi].
Investing in automation to deal with the decreased numbers of self-defence forces has been complemented by the formation of strategic partnerships in and outside the region. To date, Japan has formed strategic partnerships with Australia[xxii], New Zealand[xxiii], Vietnam[xxiv], India[xxv] and it is exploring cooperation with the Philippines, Indonesia and Malaysia. These partnerships fall short of a formal alliance and are characterized by being nimble partnerships that focus on training, human capacity building, interoperability training, the provision of naval vessels but also economic and other forms of cooperation. In short, a shrinking Japan needs not only economic partners but also security partners to manage security challenges in the ESC and SCS. This trend will continue as Japan’s youth population feels the pull to work in the private sector.
The declining attractiveness of the military in an era of population decline also contributes to a decline in nationalism and momentum to revise Article 9 of the Japanese Constitution which renounces the right to use war as a tool of foreign policy. In terms of nationalism, secure jobs and raising wages mean that ordinary Japanese will not feel marginalized within their society economically or culturally. Economic and cultural inclusion are the anti-dote to both populism and nationalism as citizens live as stakeholders who are benefiting from the socio-economic system. It would be difficult to imagine citizens enjoying relative socio-economic prosperity choosing to alter their Constitution that is bringing them a high quality of life.
Culture, Identity and Soft Power
The economic, trade and migration strategies elucidated above are contradictorily making Japan more internationally connected while at the same time consolidating an ethno-culturally homogenous Japanese identity. At the international level, economic and trade relations have compelled Japan to open its markets to trade and to internationalize its youth such that they can effectively compete on the global stage. This requires foreign language and cultural skills, education schemes that stress flexibility, communication skills and innovativeness. These reforms are already in place in preparation for the 2020 Tokyo Summer Olympics.
Herculean efforts have been made to make Tokyo and Japan more accessible to the millions of tourists that are now visiting Japan but for those who will be visiting in 2020 and beyond. Multilingual signage, translation and interpretation devices, the hiring of foreign language speaking staff have transformed the urban landscapes making them infinitely more accessible for visiting tourists from around the world. The 2019 Rugby World Cup and efforts to host the 2025 World Expo will further consolidate the infrastructure and human capital necessary to attract tourists but also compete internationally.
Japan’s opening up to tourism has been extremely successful with tourists interested in both Japan’s tradition and modern culture. The commodification of these cultural assets in urban and rural areas has been an important component of the success of Japan’s tourism policy. That being said, it has also strengthened the dichotomy between what is Japan and what is not. Cuisine, clothing, religion, entertainment, transportation and even the idea of omotenashi (Japanese hospitality) have all been “nationalized” to stress the ethno-cultural uniqueness of Japan, her people and culture. In this sense, strategies to boost the Japanese economy as the pressures of demographic decline become more intense are strengthening the narrative of ethno-cultural homogeneity and uniqueness.
Despite the contradictions of Japan’s tourism policies, they have contributed to both the economy and Japan’s soft power in the region. This soft power, especially in Southeast Asia has been a cohesive that binds Southeast Asians to Japan at the cultural level but also at the normative level. Visitors leave Japan with a strong, positive impressions about its culture, environment, etiquette, its democracy and the nature of its open society. Rivals in the region as well leave Japan with positive impressions and knowledge that they may not have experienced in their home countries without a visit to job.
Demography as a critical juncture towards a modern Meiji Restoration?
Without question, Japan’s shrinking and greying population is its most pressing issue. It has the potential to turn Japan’s relative decline towards terminal decline sans a comprehensive policy approach. Much more needs to be done in the areas of gender equity policies, transforming work-life balance, corporate culture and even rethinking Japan’s reticence to a points-based immigration policy. Notwithstanding, in the areas of trade and economy, migration policy, security, culture, identity and soft power, Japan’s population crunch has been a critical juncture compelling the GoJ to adopt a comprehensive set of policies that are transforming Japan at a structure level and socio-cultural level that may lead to a modern Meiji Restoration.