Tokyo's Akihabara electronics district (photo: TWPhoto/Corbis)
It was an uncomfortable moment when the train north from Tokyo pulled into Fukushima, a city now synonymous with catastrophic nuclear accident; after a brief stop, we headed further north to the region overwhelmed by the tsunami on 11th March, 2011, which left 16,000 confirmed dead, and nearly 3000 missing.
From where I stood in the town of Otsuchi, you couldn’t see the sea, and yet cars crushed by the 10 metre high wave lay in piles, next to a mangled fire engine. Across the valley floor sat the concrete bases of houses, shops and offices, destroyed by the water and then bulldozed. Kazuyuki Usuzawa, a 28-year-old guide who lost his fiancée that day, explained that some had perished because they remained behind after the initial earthquake, trying to find family members and neighbours. A large group of old people had gathered in a temple, which was swept away. Usuzawa told visitors: “When you go back, embrace the people you love and tell them.” But he also gave a different message. Those that had survived, including some 200 children in school, had got out in time because they followed a very simple instruction: run for your life to high ground and forget everyone around you. The authorities had concluded that this should be standard practice in future and that the advice should be much more forcefully given.
If Japan became a society where everyone saves himself first, that would mark a profound change. There is no question that the tsunami and nuclear meltdown at Fukushima were a shock to the nation, although some argue that they also reawakened the post-war resilience and drive that made Japan the world’s industrial giant. But many say that for all the visible damage of the natural disaster, the deeper shock to Japan has come from 20 years of economic paralysis—its “two lost decades”—which have shaken Japanese society into a different form; changing the kind of jobs people do, how they do them, and even altering relations within families.
Japan faces three problems at once: painfully slow economic growth, rising government debt, and an ageing population. There are clear warnings here for the developed world, where many countries share those problems—for Europe, obviously, for America to some extent, and for Asian countries, including China, South Korea, Singapore, Taiwan and Thailand. And Japan’s inability to escape from its economic stagnation means that an even greater crisis is still to come. “The situation is not sustainable,” many acknowledge, or as Kohei Otuska from the ruling Democratic Party of Japan puts it: “The deficit and debt is something like an earthquake. It may come tomorrow or in 10 years, but it is coming.”
For a visitor to Tokyo, it is hard to see how anyone could describe such a wealthy and well-groomed country as being so fundamentally flawed. If this is an economy that is collapsing, it seems to be going down in enviable style. Unemployment is about half the level now common in western Europe. Wealth and ambition in quality and aesthetics are all around you, from the way a formal dinner is presented to the feats of robotic design that the engineers at Honda proudly show off. Asimo, their world-famous humanoid unveiled in 2000, is now a highly-developed machine that can run and kick a football; it is astonishing to see a robot unscrew the top of a bottle and pour the liquid perfectly into a paper cup without crushing it or letting it slip as its weight increases.
While Japan, with its robots, microchips and skyscrapers clad in neon lights, has long offered visitors a vision of tomorrow, another reason to go there today is to catch a glimpse of a darker future. In the 1980s, Japan was riding high, the second largest economy in the world, so much that bookstalls were full of predictions it would soon overtake America. Tokyo had the most expensive land prices on the planet—in 1989, at prime locations in the Ginza district of Tokyo, a square metre of land was traded for as much as $215,000; Van Gogh’s Sunflowers sold to a Japanese buyer for $39.9m in March 1987. But when the bubble burst, sending property values and the stock market plummeting, Japan plunged into a predicament from which its leaders have been unable to find an escape.
Government debt has rocketed from 60 per cent of annual economic output in the early 1990s to 230 per cent today. The number of people who are of working age is shrinking—and so, then, are tax revenues; there simply will not be enough working-age people in future to support their elders on current levels of pension income. Already, almost a quarter of the population is over 65; by 2025 they are expected to make up just under 30 per cent, and by 2050, perhaps 36 per cent. You can see unfolding in Japan the spreading realisation among younger people that they will not enjoy the same security and support that their parents have enjoyed—with some startling and visible results.
Munetomo Ando, an associate professor of economics at Nihon University, says that, at the moment, about two thirds of the workforce is permanently and securely employed; these are the classic Japanese company men (as a rule), who work their whole career at the same firm, climbing the ladder of seniority towards retirement and a good pension. The 35 per cent who are temporary workers have minimal job security, few workplace benefits, and far inferior pensions. Yet they have virtually no prospect of switching to the other tribe. The end of university is the single best shot at landing a secure, permanent job. Fail at that hiring round and your chances of success later are vanishingly small. Even moving from a permanent job at one company to one at another is rare.
Ando’s figures suggest that about a decade from now, the number of temporary workers will be as great as those in permanent work—a growing contingent of Japanese effectively excluded from secure employment for life. As Yamada Masahiro, a professor of sociology at Chuo University, puts it: “If you are outside the system you have no guarantees, no protection, no opportunities.”
One consequence of this is that Japan will soon become a society in which significant numbers of people retire without ever having left their parents’ home. The proportion of unmarried 35-44 year olds living with their parents has almost tripled since 1990 to 16 per cent and continues to rise. Some, says Masahiro, withdraw from the world of work entirely and rely on their parents’ earnings or pension to support the household. “There have been cases in which some people have not reported their parents’ deaths and have continued to live illegally on their pension income.”
Others earn enough from temporary jobs to finance their lifestyle—while remaining in their parents’ home—but they don’t earn enough to marry, given that traditional expectations of marriage have not yielded to economic pressure. Masahiro, who has coined the unflattering term “parasite singles” for working-age Japanese who are unmarried and living with their parents, says that almost 70 per cent of Japanese women insist their future husband should earn at least ¥4m per year (£31,200). Only a quarter of unmarried men actually clear this hurdle.
Yet polling shows that growing numbers of people aspire to have a traditional family life and the alternatives remain socially marginal: only one in 50 children is born out of wedlock and rates of cohabitation are similarly low. This unbridgeable gulf between expectations and economic reality has led to a crisis in what Masahiro calls “couple formation,” while the population, starved of children, steadily shrinks. “The declining birthrate in Japan is because people want to create the traditional family but men are unable to provide sufficient income,” Mr Masahiro says. “The women stay with their parents and forever wait for their prince.”
Even with Japan’s great strength as an industrial exporter, and a population happy to put their savings into government bonds, it has struggled to counter the financial effects of this demographic trend. Sales tax is due to rise in two stages over the next couple of years, but analysts do not project that this would be enough to bridge the huge annual gap between the government’s spending and its income.
Looking back over the two lost decades, what Japan might have done differently is, unsurprisingly, a theme of much debate. Perhaps they might have tried even more aggressive monetary easing by the central bank, although the country was a pioneer of “quantitative easing”—printing money, when interest rates could not be lowered any further. Might the government have raised the retirement age? What if it had done more to encourage larger families? Or even encouraged large-scale immigration of foreign workers? But these all represent significant social changes, not least the notion of immigration, which remains politically toxic, even though many analysts argue that a supply of cheap foreign childcare would enable far more of Japan’s highly educated women to go out to work.
Throughout the crisis, Japan’s political system has seemed incapable of producing a government that could provide a solution. Since 2006, there have been six prime ministers. There must be another general election before the summer of 2013; many think this will result in a three-way grand coalition between the Democratic Party of Japan (DPJ), the Liberal Democratic Party that dominated Japanese politics throughout its long decades of growth, and the People’s New Party, the junior partners in the present DPJ-led coalition. Toru Hashimoto, the charismatic and populist mayor of Osaka, has recently announced the launch of the Japan Restoration Party, which is exciting both interest and anxiety. Hashism, one person called it. But few seem to think this would make much difference.
There is surely no chance that Japan can grow its way out of its problems. Even if the birthrate picked up, having more children is anything but a quick solution; for the first 20 years of their lives or so, children simply swell the number of people relying on the taxes paid by the working population. So a moment of crisis appears inevitable—a point when Japan, finally, cannot meet its obligations to pay state pensions, or to pay the debt holders who have lent it so much.
Some of Japan’s problems are peculiarly Japanese, such as the gulf between conditions for permanent and temporary workers, resistance to immigration, and the barely changing expectations of marriage. Japan’s critics argue that its predicament reflects a failure to adapt socially as much as a misjudgement of economic policy. But others argue that its instinct for social cohesion has been its strength in containing the great strains of 20 years of stagnation—a strength not shared by many of the other countries now facing similar problems. When my interpreter rendered the English phrase “the canary in the coalmine,” she brought forth a knowing murmur from the room. “Japan is the front-runner for every economic problem,” a senior official remarked.
European countries, with their ageing populations, high levels of debt and, now, recession, face the same challenges. The number of Britons turning 65 this year reached a record of 726,000, a rise of 30 per cent over 2011, according to the Office for National Statistics, as the children born in the 1947 baby boom reach retirement age. Germany, today the rock on which Europe’s hopes rest, faces a dramatic decline in its working-age population between now and 2050—and this at a time when the country is taking on growing liabilities to help secure the future of the euro project. The dangers of allowing debt to spiral just as a country’s demographic outlook starts to darken are nowhere more powerfully illustrated than in Japan.
Less obviously, Japan’s example is a warning to much of Asia; to China and Singapore above all, as those superstars of the world economy suddenly wake up to find that their workers are becoming pensioners. Over the coming two decades, workforces across Asia will start to shrink, in some cases very rapidly, including those in Hong Kong, South Korea, Taiwan and Thailand. When their workforce is a smaller proportion of their population, it will check their rate of growth. As Asia is currently the fastest growing part of the global economy, that will have consequences for us all.
One lesson from Japan is that the intractable worsening of a country’s finances is not an event but a process. Progress towards financial default happens so slowly that it’s almost impossible to see, but it produces, over a decade or two, enormous and troubling social change.
A second lesson is that democratic politics may ultimately be unable to deliver the scale of change required to confront the problem, until crisis arrives. Democratic governments must get elected and older people in Japan, as elsewhere, are much more likely to vote than the young. Successive governments come and go safe in the knowledge that the moment of crisis did not occur on their watch, while the country progresses steadily towards that point.
Third, when the actual default comes for Japan, and the moment arrives when it can no longer pay its debts, its powerful sense of social cohesion could enable it to tolerate the huge redistribution of wealth that will occur as the living standards of the older generation come under intolerable pressure and are forced down. But no one should underestimate the strains that this places on a society, least of all Europe, where immense social pressures are building up.
Japan forces us to ask whether our societies are strong, stable and flexible enough to cope with the huge change that we are undergoing—and with crisis, if it comes. When the pain has to be shared out in Europe, we may find the sort of social cohesion and solidarity still evident in Japan is in dangerously short supply closer to home.
