Wither Japan?

The August 21st-27th 2010 issue of The Economist is like a special issue of "Asian Demography." The spotlight is especially on India and China, but in the shadows of those two demographic giants lies Japan. Much has been made of Japan's total economic output falling to third behind the United States and China, although by World Bank reckoning this happened several years ago, not in 2010. The difference is whether you measure GDP in current $US (in which case Japan slipped to third in 2010), or in Purchasing Power Parity (PPI--the measure preferred by the World Bank), in which case Japan was already in third place in 2005.

Either way, Japan has failed to contend with demographic reality. After WWII, the birth rate plummeted in Japan, creating one of the first modern instances of the "demographic dividend"--a high proportion of young adults with relatively few older or younger dependents. In a well-educated highly industrial society this led to rapid economic growth which, as is so often the case, was mistakenly believed to represent an ever-upward curve. The economic slowdown began in the 1990s as the age structure moved toward an inverted pyramid--an increasingly older population that was not being replaced at the younger ages. Economic progress could have been sustained by allowing greater freedom to women in the labor market (Japan remains "the land of the rising sun, where only the son rises"). It could also have been aided by immigration. But the concept of "racial purity" has prevented any letup in the country's very restrictive immigration policy. In the absence of some miraculous demographic renewal, Japan will not be forgotten, but it will be gone.