Prepared for the IIPS Symposium on

Upcoming Changes in Japanese Society and theFuture Shape of the Nation
Tuesday, 6 December 2005TokyoSession 1

Portrait of a Shrinking Society—Diversifying Values
and a More Mature View of Prosperity

Yuri Okina
Chief Senior Economist
Economics Department
Japan Research InstitutePortrait of a Shrinking Society—Diversifying Values and aMore Mature View of Prosperity
Yuri Okina
Chief Senior Economist
Economics Department
Japan Research InstituteJapan’s population will soon start to decline. Whereas the twentieth century witnesseda population increase, the twenty-first century will see a decline. Unlike thepopulation in the twentieth century, which could be represented by a pyramid, that of
the twenty-first century is shaped like an inverted pyramid. This change in theconfiguration of Japan’s population suggests that we Japanese may be forced toradically alter our lifestyles.
As these great changes unfold, what should the Japanese government and people
do in the future in order to continue to live in prosperity? It is necessary to consider
two aspects of prosperity—economic prosperity and the notion of a rich lifestyle,which is not entirely quantifiable in economic terms.

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Boosting Economic Prosperity(1) Taking responsibility as a generation
Is the pursuit of economic prosperity impossible in a society whose population isdeclining? This does not seem to be the case at all. From a macro-economic
perspective, the shrinking labor supply and contracting Japanese markets seemingly
make a decline in the economic growth rate inevitable. However, this does notnecessarily signal a decline in the economic growth rate for the individual. The factthat the global economy (of which Japan is an integral part) is expanding means thatJapan too should experience growth. If, despite the shrinking labor supply, overall
productivity is increased, Japan’s economic growth should continue, enabling people
to enjoy continued economic prosperity. Whether or not this will be possible depends
more on the capabilities and talents of the various age groups that comprise Japanesesociety rather than on the issue of a declining population.
Thus, the pursuit of economic prosperity requires efforts on two fronts from thepresent generation—the one that is currently working and nurturing the nextgeneration. First, we must fulfill our obligation as a generation, and not allow debt toballoon out of control, which would impose an excessive burden on future generations.
If the population continues to shrink and society continues to age rapidly, social
security costs (pensions, medical care, nursing, etc.) will automatically rise, and thiswill inevitably impose a huge financial burden on future generations. If this burden
becomes too great and bankrupts the public finances, it is bound to have a profoundeffect on the economy itself, in the form of a rise in long-term interest rates,depreciation of the yen, and inflation. In light of these expectations, fiscal spending
cannot be allowed to continue at current levels, with the government, private citizens,and business all clinging to their own interests. As plans are made to drastically revise
expenditure and streamline the bureaucracy, it seems vital that the public be weaned
off its over-dependent attitude and that the private sector be entrusted with whateverfunctions it can undertake, which will stimulate the economy, make the current
1generation as self-reliant as possible, and avoid leaving behind a burden of debt thatwould sap the will to work of future generations.
In order to sustain growth in Japan, it will be particularly vital to turn the primarybalance to surplus in the early part of the decade starting in 2010, and to maintainfinancial discipline in the medium term thereafter. In order to achieve a fiscal surplus,
two policy measures should be implemented as soon as possible. First, sharper cutsmust be made with a view to reducing annual expenditure. As a matter of priority, theannual expenditure framework must be drastically revised by increasing efficiency
and promoting outsourcing to the private sector. This includes drastically reducing
public works, abolishing quasi-public organizations, privatizing government functions,and introducing competitive bidding. At the same time a fundamental review of social
security expenditure (the largest item of future expenditure) probably needs to becarried out. Second, a management cycle consisting of the following steps needs to beestablished: prepare estimate, settle accounts, assess policy, and compile budget. All
government departments must make use of the policy assessment process to compile
smaller budgets and voluntarily make deep cuts in specific operations, rather thansimply setting numerical targets.
Stronger risk management for overall government debt is also extremelyimportant. The amount of outstanding Japanese government bonds is now at its
highest level since World War II and the debt-to-GDP ratio exceeds 100%. Unless theratio of outstanding debt to nominal GDP is reduced, extremely serious problems willarise. Aside from the national debt, the Japanese people are shouldering an enormous
level of public debt, which currently includes local government grant debt,
government-guaranteed bonds, and a vast quantity of municipal bonds, as well as
longer-term pension liabilities. In the future, there will have to be a special accountingof these debts, which accrue to the entire nation, as well as a general accounting.
Local governments and public corporations, such as special corporations andindependent administrative institutions, must fully disclose information regarding all
public debt that they hold, establish frameworks for comprehensive risk management,
and be fully accountable.
(2) Harnessing the power of the individual
The second front will involve harnessing the power of each individual to build asociety in which everyone participates and that can make use of this individual power.
From a macro-economic perspective, a decline in the population will cause the overalllabor supply to contract, as mentioned previously. From an international perspective,
however, Japan’s manpower resources are endowed with enormous potential. For
example, Japan’s precision craftsmanship and anime and other software products areheld in high regard around the world.
It follows that Japan must improve its productivity across the board by further
boosting the potential capabilities of the individual, increasing labor productivity, andcontinuing to raise the bar of excellence in the field of technological innovation,
where creativity abounds. The key to achieving these aims would seem to be todevelop a richer curriculum throughout the educational system (right from theelementary level up to university and graduate school) and thereby create an
educational environment that develops individual prowess.
Unstinting private efforts will also be vital in enabling Japan to make use of its
valuable labor resources and establish a framework that continues to yield technology
with added value. Private companies both big and small, operating under soundcorporate governance and increasing their profits by focusing on innovative ideas tosatisfy consumer requirements, are indispensable to the construction of a wealthy2society for the future. In the process the increased added value will be channeled backinto investment in personnel and technical development, and this is bound to create avirtuous cycle in which productivity is increased even more. It will also be importantto establish employment systems and structures that can make good use of the powerof the individual.
Global markets will continue to expand, and seniors will become a highly
discerning demand segment. To support these innovative companies, the government
must maintain a suitable business environment, for example by providing competitive
conditions and maintaining financial markets. In particular, the government should
create an environment in which energetic efforts are made to revive companies indanger of failing and that facilitates the movement of management resources such as
personnel, goods, and risk money.
The nature of our lives 30 years from now will depend to a great extent on
developments in science and technology and on innovations by companies. For
example, 30 years ago no one foresaw how popular mobile telephones would become,or that they would come equipped with various software applications and would not
only provide a means of communication but would also provide conveniences such asaccount settlement through electronic payments. For this reason too, Japan should
harness the competitivity of the entire nation as developments in science andtechnology lead to economic growth and make people’s lives easier. The mostimportant tasks for achieving this goal would seem to be to develop highly skilledhuman resources (since in the twenty-first century the quality of personnel is more
important than their numbers) and to create a society that can make the best use of
their talents.

2Prosperity in Terms of a Full Life

The second subject that is worthy of discussion is prosperity in terms of a full life.
Prosperity in life is not simply a matter of financial prosperity. During the period ofhigh economic growth, the pursuit of economic prosperity was the primary goal, andin this Japan was successful. As a result, however, the Japanese seem to be groping
even harder for the next level of prosperity. The following famous dictum is attributed
to Kuan Chung (Guan Zhong), prime minister during the Chunqiu period in China:
When the granaries are full, people will understand social codes andmoderation; when their food and clothing are adequate, they willunderstand honor and disgrace.
In other words, until the rice granaries are full, people will not concern
themselves with propriety and morality, or learn to distinguish right from wrong.
Only when people have enough food and clothing to lead a settled life will they
develop a sense of honor and disgrace. This expression is the derivation of theJapanese proverb “Fine manners need a full stomach,” implying that those who haveattained a certain standard of material prosperity will then wish to achieve spiritual
comfort. As people’s values become more diverse, the sense of what constitutes
prosperity also varies more from person to person. Thus, unless the very structure ofsociety is changed to accommodate this diversity, friction between society and theindividual will increase. People have different notions of what is important: “to enjoy
working for its own sake,” “to be of service to people within the community,” “topursue my intellectual curiosity,” “to spend quality time with my family,” “to enjoy
raising the children,” or “to devote substantial time to my hobbies.” A society must be
created that enables people who harbor these individual notions of spiritual prosperity
to live the lifestyles they desire while working and contributing to society.
3Japanese society still retains the company-centered structure that prevailed in theperiod of high economic growth, and this seems to have generated various problems.
Amid the prosperity of Japan, where it is easy to make a living, growing numbers ofyoung people suffer from an inability to identify their purpose in life. Among them isa burgeoning group known as NEETs (people who are Not in Employment, Education,or Training). During the period of high economic growth, many women threw
themselves headlong into the corporate culture, which was spawning corporate
warriors. However, there is now concern that it is hard to combine work withchild-rearing and family life. In addition, the baby-boomers—who have been battlingaway as corporate warriors—feel unsure of themselves in a rapidly aging society andworry about what they ought to do after retirement. At least part of the reason for thecontinuing problem of the declining birthrate would seem to reside in the fact that thesocial structure remains unchanged since the period of high economic growth. Whatefforts must people make then, to achieve a rewarding life?
(1)
Balance between work and lifestyle for senior citizens
In a shrinking society it will probably be important to make use of women and seniorcitizens who possess the will to work in the pursuit of economic prosperity. At thesame time, an environment must be maintained in which age, gender, time, and place
are immaterial, and in which a balance can be struck between family, work, the local
community, and other factors.
It is predicted that by 2030 the average Japanese will live a healthy life until theage of 80. Given this extended period of good health, there is now much debate over
how seniors will make use of their precious time after retirement. In the future, seniorcitizens will comprise the majority of the population. Seasoned consumers (not onlyof the basic necessities of life)—as they become health conscious and avidly branchout into areas such as renewed study, leisure, and entertainment—will stimulate anendless stream of innovative ideas from companies and fuel the pursuit of economic
prosperity. Furthermore, many of these seniors possess marvelous skills, such aspracticed craftsmanship and traditional techniques that ought to be passed on to future
generations. These people (whether working within companies or independently)
could make an enormous contribution to society by passing on these superb skills andtraditions, and it will probably be necessary to allow these seniors to work in a
flexible fashion. The government is also relaxing restrictions on various civic
activities on which it has hitherto maintained a monopoly. This will allow theburgeoning ranks of seniors to lead varied lives in which they are able to play asignificant role in the public life of the community through activities newly devolved
to NPOs.
Likewise, “Japan’s 21st Century Vision,” which was released this year by theCouncil on Economic and Fiscal Policy, also emphasizes the need to build a society inwhich the seniors of tomorrow, with their newly acquired free time, can lead active
lives and put this precious time to good use. In such a society it would be meaninglessto categorize people as “aged.” We ought to regard the aging of society not as anincrease in the number of aged people who need assistance and support, but rather as
in increase in the number of seniors actively engaged in society, whose very lives
represent a huge contribution to the economy and society. To this end it is essentialthat various modifications be made to the social environment (for example, a moreeven-handed social security system needs to be established) and that companies andlocal governments change their way of thinking.

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(2)

Balance between work and lifestyle for womenJapan should also create an environment that makes it easy for women tocontinue working after having children, if they so desire. At the same time must be
made it easier for women giving birth to take a temporary leave of absence and thenreturn to work.
A key issue over the next 30 years will be whether Japan can arrest the decline in
the birth rate and make use of woman who want to work, so as to achieve both
economic and spiritual prosperity. This will require efforts on several fronts. At thepractical level, infrastructure such as nursery schools and daycare facilities must be
established and the financial burden of raising children must be minimized. In
addition to this, on a conceptual level the country must engage in a fundamental shift
in thinking and build a society that does not make child-rearing such a burden.
The job of raising children is pleasurable and fun, and also represents theimportant task of turning out the next generation of youngsters and working people.
Working life is founded on family life. Companies need to fully recognize theimportance of this fact and act accordingly. It is essential that they institute more
flexible employment contracts that allow discretionary working conditions (such aspart-time employment for regular employees and flexible working hours). In thefuture, they must also expand initiatives that grant mothers and fathers equal time off
for child care, and establish a working environment that enables people to concentrateon family life.
With the growing ranks of the very old requiring ever more nursing and care, andin light of the belief that people must balance their working and family lives, thesemeasures are absolutely vital. It is also essential that society create a framework to
support child-rearing and education in the home at the local level, too. To create thisframework, men and women need to join forces at home and share the domestic
chores, care for the children, and raise the next generation. Hence, the notion of abalance between work and life for men as well needs to be more firmly established.
(3)
Creating a society in which everyone participates
As Japan has grown to become Nippon Inc., the things that the Japanese look for in acompany have greatly altered. During the period of high economic growth, employees
relied on their companies for everything—the homes in which they lived, pensions,and recreational facilities. They worked as company warriors in return and in theprocess made Japan an economic powerhouse. Nowadays, however, workers nolonger invest their entire lives in a single company, and it is not unusual for people toswitch companies. “Japan’s 21st Century Vision” includes the phrase “two jobchanges and four education periods in a lifetime.” People now seem to have a range ofattitudes towards working for a company—for example, some people are looking only
to make a living while others are looking to satisfy their intellectual curiosity. The
values of the individual are diversifying; it is vital that companies embrace thischange and communicate their belief that this approach constitutes an extremely
important contribution to society, which itself will serve to create a virtuous cycle inwhich the companies’ worth will also rise.
In this shrinking society, the breadwinners—seniors, women, foreign workers—
are becoming increasingly diverse. For Japan, the key to pursuing both economic andspiritual prosperity will surely be the extent to which, by embracing this diversity,
they can build a society in which all participate. There are many changes that must be
made in order to achieve this, but probably the things most in need of change are thecompany-centered system (a hangover from the era of high growth), the existing
government dominance over public functions, and the mindset of the people.
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