This may seem to be a story about goings-on in a far distant land, but then again some of the implications may arrive a lot nearer home than we may like to admit. Most of you will have noticed that in recent days the press has been full of material about a Japanese pensions scandal. Without getting bogged-down in the minutiae, the key point seems to be that various politicians haven’t exactly been paying their dues. Now where’s the big deal in this you might ask………. well the problem is that a not insignificant number of Japanese citzens already believed before the scandal broke that the fund wouldn’t live to see the day when current contributions could be recovered in the form of benefits.
Now they have simply discovered that many of those responsible for running the thing have also come to the same conclusion….
Eight senior politicians have now admitted failing to make at least some of the required payments into the country’s mandatory pensions scheme.
“Sixty-two percent of respondents to a poll by public broadcaster NHK had less confidence in the pension system since hearing that lawmakers had missed paying their premiums. Another 26 percent said they didn’t have much faith in the system to begin with.”
Meantime yesterday the Japanese lower house of parliament voted in favour of a reform of the pension system, a reform absent which as the BBC says:
” the scheme could collapse as the workforce shrinks and is outnumbered by retired people claiming pension benefits.”
Now as everyone knows, the numbers of pensioner in Japan is rising dramatically (as it is elsewhere in the OECD), and many Japanese have reservations about paying into a pension scheme which is at best unlikely to afford them significant benefits when they retire (in fact after previous reforms the levels of benefit are already quite low) due to the comparatively small numbers of young people available to contribute.
This time even the ever optimistic Economist isn’t too convinced that the proposed reforms will make the system work judging by the article it had back in December entitled: “Don’t grow old – The government’s proposals will surely fail to fix the public pension system”
All of this should obviously sound ominously familiar to readers in Germany, France, Belgium, Spain, Italy etc.
Free Rider Problem?
Now the problem of Japanese public finances is well known. The Japanese government is the most indebted in the world – 150% of GDP and rising was the last figure I saw. Japan is running substantial fiscal deficits, and there really is no end-date in sight for when, if ever, they could return to surpluses and start repaying all that debt. So each year it simply gets worse.
But what I didn’t realise before today was just how many people had already alighted from the about-to-crash bus. From the BBC:
“Either deliberately or by accident, about 40% of the 18 million self-employed people and students aged 20 or older did not pay the obligatory premiums for the National Pension System in 2002, according to the social insurance agency“.
Is this some sort of perverse new version of the ‘free-rider’ problem, were you keep the whole system afloat by pretending to pay whilst at the same time walking away from the building before it collapses? Is this going to be yet another example of ‘self-fulfilling expectations’? Are we reaching a backward induction point? Will there be a long slow sucking sound?
Next stop Italy? Watch this space.