In one of those strange coincidences the world’s second and third largest economies are both scheduled to have elections next month – Japan on 11 September, and Germany on the 18th. The coincidences go further, since these two societies are leaders in another, non-economic, sense: they are leaders in the great global ageing revolution. Japan (at 42.64) and Germany (at 42.16) have the highest median ages of any OECD country (Italy comes third at 41.77, while the US is still a sprightly and young 36.27). The two countries also share the problem that they cannot pump up economic growth by introducing more liquidity (money) into the system, or at least the impact rates of doing so have become very low (see this post on the German problem) .
In fact the comparison goes even further since at the end of the day the elections are about pretty much the same issue: how to make the respective economies grow fast enough to be able to pay for the growing pension and health needs.
The Financial Times today has an interview with outgoing Japan economics minister Heizo Takenaka, and Takenaka is quite explicit: changing demographics is Japan?s biggest challenge.
?From now on, the total population of Japan will start falling,? he said. ?That means if we don?t create a system in which the private sector can carry more responsibility, the burden on taxpayers and on the state will become unsustainable.?
The facts indeed are compelling. Japan is in the process of becoming the first major state to experience structurally declining population (correction: as David points out in comments this is misleading for a number of reasons so lets say Japan is the first post-modern state or society with a developed economy to experience structurally declining population. It was not my intention to indirectly pass any judgement on whether Russia is a major state or not). Population was predicted to start falling in 2007, but preliminary data from the first half of the year suggest that the decline may have already begun. There is no end point in sight. The decline, which is also known as the second stage of the demographic transition, is a result of continuing low fertility, and so far there is no clear way back. Most demographic models suggest that fertility in low fertility countries may bounce back a little, but not sufficiently to reach the 2.1 TRF replacement rate (normally the assumption is in the region of 1.9, and estimates vary as to whether this will arrive in 50 years, or in 100). Meantime the UN median estimate seems to suggest that the total population of Japan (currently something over 125 million) will be around the 45 million mark come 2100. Europe and the US look carefully and take note.