Prospects and Policies on the Economy and Society
in the Post COVID-19 Pandemic “New Normal” Era

March 2023

Economy and Society Study GroupNakasone Peace InstituteKey Points for Future Policy Direction
Economy and Society Study Group Summary Report
FY2020–2022

The Economy and Society Study Group at Nakasone Peace Institute conducted a threeyear study on the subject of “The Transformation of Japan’s Economy and Society after
the Outbreak of the Novel Coronavirus Pandemic” for FY2020–2022. The researchfindings revealed that the Novel Coronavirus pandemic triggered several major changes
in Japan’s economy and society, including accelerated population decline, the diffusionof digital technology, and the impact on cities and regions. How to respond to this “newnormal” will be a major point in considering post-pandemic socio-economic policies.
These issues and their prospects from the discussions by the study group, as well as
the direction of future policy responses, are summarized as follows.
1. Work to review population policy with new ideas, aiming to achieve thenation’s desired fertility rate in the short term and raise it in the long term.
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The government’s “Outline of Measures for a Society with Declining Birthrate”(decided by the Cabinet in May 2020) calculates the nation’s desired fertility
rate as 1.8 and sets this rate as a policy goal to achieve. However, there isanother estimate based on the latest statistical survey that indicates that thenation’s desired fertility rate is approximately 1.6. The nation’s desired fertility
rate can be interpreted as the short-term upper limit for the fertility rate, but for
the time being, it will be necessary to set that rate as a goal and take all possible
measures to address the declining fertility rate within a certain period of time.
However, in principle, it is impossible for the fertility rate to exceed the nation’sdesired fertility rate, and, in the long run, some kind of breakthrough is needed
to raise the nation’s desired fertility rate itself. Along with the economic burdenof raising children, people are becoming aware of the magnitude of thepsychological and physical burden. If the decline in the nation’s desired fertility
rate is a reflection of this tendency, then the socio-economic framework inJapan is not necessarily an environment that is child-rearing friendly, and thecultural background of the country may also be an issue.
In light of this situation, the government is required to take unprecedented
measures to cope with the declining fertility rate. The remaining tasks require
further study and discussion, including international comparisons, on how
population policy should be implemented as a countermeasure against declining
fertility rates in a different dimension in the post-pandemic era.
12. Build momentum to “give it a try” and “adjust as necessary” throughout theeconomy and society, and skillfully apply digital technology to solve various
issues in the economy and society.
◼ The digitization of the economy and society is based on a kind ofstandardization in the sense that certain common software and services must be
used to be effective. Given these characteristics, it would be impossible topromote digitization without bringing about some changes in the way people
behave in their daily lives, just as, for example, in the employment and labor◼

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field, it would be necessary to review work flows to accommodate digitaltechnology.
Digitalization is often pointed out to be lagging behind in Japan. However, interms of the digital foundation as an infrastructure, Japan is not inferior to othercountries. Further, in the wake of the pandemic, telework and online
conferencing have already taken root to a certain extent in Japan. If theconvenience of digital technology is recognized by users, there are sufficientgrounds for its diffusion in Japan as well.
The risk associated with the diffusion of fast-evolving digital technologies may
lie in the decision-making process and its speed in government and business. InJapan, the emphasis on process has made each decision to “do something” or“change something” too weighty, making it difficult to respond flexibly tochanges in the environment. It is necessary for the entire economy and society
to share and practice the concept that even if something is not perfect, it should
be introduced to society as soon as possible, used by everyone, and improvedand evolved into something better and better.
It is difficult to discuss the digitization of the economy and society as a wholebased solely on individual technologies and the experiences of their use. Theremaining challenges for the future are, for example, to make efforts tounderstand the digital industry based on objective data and evidence, and, at thesame time, to discuss its ideal form and the direction of its future development.

3. Combine inter-regional cooperation and “sympathetic” creation of cities torealize a “smart shrink” that aims to maintain and improve people’s well-being
even under a declining population.
◼ Measures to address a declining fertility rate are palliative policies against adeclining population, and they do not have immediate effects. For the timebeing, it is necessary to consider “smart shrink” as an adaptive policy thatchanges the economic and social framework while maintaining and improving
people’s well-being, based on the premise of a declining population. The2◼

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compact city concept as a sustainable creation of cities concept that also takes
population decline into account will continue to be a viable option. Based on thepremise of inter-regional cooperation, it is desirable to maintain and improve
the well-being of residents by sharing and mutually accommodating thefunctions necessary for cities and regions.
In an era in which the assumptions underlying creation of cities can change
rapidly, such as accelerating population decline and the diffusion ofdigitalization, it is difficult to indicate a priori what the right form is for acertain city or region. It is necessary to combine not only the “normative”
process, in which compact cities and inter-regional cooperation are regarded as
norms and presented as policy goals by policymakers and experts, but also the“sympathetic” process, in which residents themselves participate in consensus
building based on the assumption that they can feel the effects of policies.
What could be the new driving force behind the process of “sympathetic”
creation of cities in the future may be the soft power of the “land,” including,for example, common history, traditions, and culture, regardless ofadministrative boundaries. Making the best use of the individuality andstrengths of each “land” will respond to the diversification of households’ andcompanies’ location choices in the post-pandemic era and will ultimatelyorganically link multiple cities and regions, both at the resident level and theadministrative level. This approach can be the source of strength to solve social
problems together in the city or region and improve the well-being of theresidents.

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