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18Japan Cennter for Econoomic Reesearch
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April 20114

World Economic Map in 2050
April, 2014

China Likely to Stagnate
as U.S. Retains Dominance1
Our forecast assesses the economic status of sixty-four major countries, including
Japan, in the year 2050. It indicates that the United States will be the world’s dominate
economic power at mid-century. In our forecast, we have referred to a number ofindicators affecting long-term economic growth, including those created byinternational organizations and other institutions. These indicators measure politicalstability, economic liberalization, females in the workforce, ease of starting a businessand job market liberalization. If these institutional factors remain on their present
trends, growth in China will slow significantly. By per capita gross national income(GNI), a measure of national wealth, Switzerland and the countries of Northern
Europe will remain at the head of the pack.

Overview
1.

The United States will continue to enjoy economic hegemony in 2050. All of
the indicators adopted in our estimates will rise in stable fashion, with
continued improvements in productivity. As an open economy, the U.S. willsee continued inflows of people and capital, achieving growth averaging 2.0%.
There are some risks, such as whether the inflow of immigrants can continue.
However, even though our forecast does not take into account the impact of theongoing shale gas and oil revolution, we believe the U.S. economy is very
likely to continue expanding robustly.

2.

China has maintained rapid growth since the 1990s, but China’s failure to
implement timely institutional changes will undermine economic development,
and unless things change, China will tumble into the "middle income trap."
China lags behind the advanced industrialized nations in economic
liberalization and political stability in particular. As the country completes its
catch-up phase, it will be increasingly difficult to achieve growth which relies
on capital investments. Instead, productivity enhancements through reforms ofpolitical and economic institutions will be required.

3.

Small countries with small populations will rank highest by per capita GNI,
which gauges the standard of living. These include the nations of Northern
Europe and Switzerland. Among the top five advanced industrialized nations

1

Contributors include Kazumasa Iwata, JCER President, economists Sumio Saruyama, Takashi Onodera,
Tatsuo Kobayashi, Yuki Masujima, Ryo Hasumi and Tetsuya Hattori, research assistant Masato Takara andProfessor Nariyasu Yamasawa of Atomi University.

www.jcer.or.jp

2

Japan Center for Economic Research

World Economic Map in 2050

including Japan, U.S., Germany, France and Britain, the United States will
rank first by per capita GNI, which will rise 1.8-fold from $49,000 in 2010 to$87,000.
4.

Relations with the United States will be all the more important for Japan in
2050. For Japan, U.S. is not just a large market with well-heeled customers. It
is also a source for diverse business models, capital, human talent and othereconomic resources essential to achieving higher levels of economic
advancement. If Japan aims to survive, it won’t be able to do so without
strengthening economic bonds, and the first step toward that end will bejoining the Trans-Pacific Partnership (TPP).
 Fig. 1. Changes in the Global Economy 2010-2050

EU

US
China
Japan
India

Real GNI （2010）

Real GNI （2050）

12,000(billion US $)4,000

28,000(billion US $)12,0004,000[Note] Real GNI, base year 2005 (converted at market rates). Circle sizes
indicate size of relevant economy.

www.jcer.or.jp

3Japan Center for Economic Research

1.

World Economic Map in 2050

Chinese Economy: One Third That of U.S in 2050
The United States will dominate the global economy in 2050 (Fig. 1, Fig. 2)2. Many
analysts at international organizations and think tanks predict that China, with apopulation of 1.4 billion, will displace the United States as the world’s biggest economy,
but if consideration is given to the institutional conditions which sustain economic growthover the very long term, chances are high that China is rather likely to become lessrelevant.
Why will the United States continue to grow steadily as China languishes? Consider
population, a basic factor in growth. In our present forecast, we have referred to United
Nations population estimates, which indicate that China’s population, after peaking
around 2030, will turn down and begin declining, though not to the extent of Japan’s. This
trend will arise as the consequences of China’s one-child policy are felt. As a result, thispopulation factor will slow China’s growth engine.
Meanwhile, the U.S. will remain on a consistent growth track. With a constant influx offoreign students and immigrants, the U.S. population will reach 400 million by 2050.
India will experience a massive increase in population. Its population will exceed 1.6
billion by 2050, making it the world’s most populous nation (see reference figure 1 at thefoot of this report).
As China loses one factor in growth with the decline of its population, the country will
face an even more rapid decline in productivity, which up to now has been robust. Just
under 8% in the first decade of the century, China’s productivity growth will fall to 1.0%
from 2011 to 2050. China will score low on those factors supporting long-term
improvements in productivity, such as political and economic freedom, utilization of
female talent, ease of business entry, and freedom in job markets.
 Fig. 2. The Global Economy (Real GNI, 2005 Prices)120（$ Trillion, 2005 market rate basis）
100

15.8

Other Emerging
Ctys

7.2

India

80

10.0

China

13.3

Other Advanced
Ctys

60
1.2
3.9

40

5.2

22.8

14.5

20

31.5

14.2
0
1980

1990

2000

Europe

5.3

5.1
2010

2020

2030

2040

2050

5.5
（year）

UnitedStatesJapan

Source: JCER estimates (sixty-four countries). For ranking, see Table 1.

2

Forecast values for Japan in this capter are those for the Standard (Stagnation) Scenario.

www.jcer.or.jp

4Japan Center for Economic Research

World Economic Map in 2050

A central question is whether progress can indeed be made under the present politicalsystem in areas such as the guarantees on freedom of learning and the freedom ofresidence, the removal of restrictions on foreign companies and the advancement of
women in the workplace. Meanwhile, in addition to rising population, the United States
ranks high by these factors. We expect the U.S. to top China in improving productivity by
1.7% for the years 2011 through 2050 (see Fig. 3).
We will discuss the reasons for the decline in Chinese productivity below, but in general itis easier during the catch-up phase for capital and labor inputs to yield greater size andimprovements in productivity. This was Japan’s experience during the period of rapid
economic growth of the 1960s. During this phase, it is easy to achieve growth through“development dictatorship” methods in which leaders and the government dictate fields tobe emphasized.
However, it will become increasingly difficult for China to achieve self-sustaining growthunder the present political and economic order dominated by the Communist Party. Rather,
the politico-economic system itself is the problem. Japanese companies have spared noefforts in building and investing in China’s massive, steadily growing market despitedifficult political relations during the first decade of this century, but if those companies
consider their corporate strategy over the long term, they might want to think once more
about the sustainability of Chinese growth.
This does not mean that the United States has no Achilles heel. Uncertainties remain as towhether the U.S. population can continue rising on immigration and other factors andwhether the country will not turn inward. On the other hand, our present forecasts are
based on past trends and do not take account of the impact of the shale gas revolution now
underway. Thus for the forecast period, our projected rate of growth for the U.S. is 2.0%,
which is somewhat lower compared to the forecasts of other institutions (many of which
project growth exceeding 2%).
 Fig. 3. Growth Forecasts for U.S. and China
Growth Rates of China's Economy

Growth Rates of US Economy

4%p.a., contribution

3

12%p.a., contribution

Capital Stock10

Forecast

Human Capital

Forecast

Productivity

8
2

Labor Force
Growth Rates

6
4

1

2
0
0
(year)

-1
90-00

00-10

10-20

20-30

30-40

40-50

(year)

-2
90-00

00-10

10-20

20-30

30-40

40-50

Source: JCER estimates. Actual results are calculated by including demand factors in productivity.
Real values based on 2005 prices.

www.jcer.or.jp

5Japan Center for Economic Research

World Economic Map in 2050

2. Switzerland and Northern Europe Wealthiest: Female Advancement Key
By per capita GNI, which measures the standard of living, Switzerland and the countries
of Northern Europe (including Norway, Sweden, Denmark) rank highest now and willretain the highest ranking in 2050 as well.
 Table 1. Robust Income Gains Among Top GNI Nations
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

1990
Switzerland
Japan
SwedenNorwayFinlandUnited States
Denmark
Germany
Austria
CanadaFranceBelgium
Netherlands
Italy
Australia(Per Capita GNI, thousand US$ at current price)
2010

2050
NorwaySwitzerland
Japan (Growth Scenario)
SwedenCanadaUnited States
Australia
Denmark
Singapore
Austria
Finland
Belgium
FranceNetherlands
IsraelGermany

154.0
121.5
90.0
87.2
87.0
84.5
79.2
76.5
73.4
71.9
70.0
67.6
67.0
64.9
64.0
62.9

Japan (Stagnation Scenario)

56.7

22
Korea
23
Japan (Bankrupt Scenario)
Source: JCER estimates based on World Bank Statistics.
Note: Numbers in parenthesis for Korea, China and India stand for rank.

43.1
40.7

35.0
27.6
26.6
26.0
25.2
24.2
24.1
20.6
20.2
20.2
20.1
19.0
18.8
17.9
17.4

NorwaySwitzerland
Denmark
SwedenUnited States
Netherlands
Finland
Austria
Australia
Belgium
Germany
CanadaIrelandSingapore
France
Japan

86.9
73.7
59.6
50.9
49.0
48.5
47.1
47.1
46.3
45.8
43.3
43.3
42.8
42.5
42.3
42.2

18

What exactly are the unique features of those countries which rank highest by per capita
GNI? Our present forecast assumes that institutional conditions will support sustained
improvements in productivity, so we have examined how the five institutional indicators
we have adopted are distributed (Fig. 4).
For the U.S. and the U.K., these indicators are strong, evenly balanced and will all gain
further strength through 2050. Though scoring low in labor market liquidity, Norway iswell along in advancing women in the workplace, as by providing generous support forchildcare. Norway is thus a good example of the Northern European growth model.
Germany and France are also characterized by major efforts that are likely to bringsignificant advances for women in the workforce. The countries of the European
continent had already acquired greater openness with the EU integration, and they areusing the advancement of female workers as yet another engine for growth.
Another country outdoing Japan in advancing women in the workforce is South Korea,
which we expect to more than double its per capita GNI from $20,000 in 2010 to $43,000
by 2050. This trend may even accelerate now that a woman has been elected president.
The outlook for South Korea is brighter than that of Japan because that nation has beenwww.jcer.or.jp

6Japan Center for Economic Research

World Economic Map in 2050

more aggressive in efforts to internationalize and open its markets. This effort has
followed from the fact that South Korea’s domestic market is small so the only choice ispursuing business overseas. The South Koreas are also ahead of Japan in joining free
trade agreements (FTA) and in achieving higher average TOEFL scores for the English
language.
Under our Standard (Stagnation) scenario, which assumes improvements will continue atthe current slow pace, Japanese per capita GNI will only rise about 1.3-fold owing toJapan’s sluggish pace in freeing up labor and capital and its comparatively slow progressin advancing women in the workplace. Some observers seem to think a 1.3-fold increase
would be good. But at 100 million, the Japanese population in 2050 will be 20% lower
and shrinking rapidly, which likely means that the economy will be shrinking as well.
There is real concern that it will be impossible to maintain certain aspects of the nationalframework such as government finances and the social security system.
China will boost its per capita GNI from $4,000 to around $12,000. But it will be difficult
for China to join the “$50,000 Club,” which confers leading nation status, and many
Chinese will have a standard of living at which they can’t really feel prosperous. China is
at grave risk of falling into the “middle income trap.”
 Fig. 4. Five Institutional Indicators to Determine Productivity Growth
USA

2010

Politics
70

SWITZ

2050

60

60
Flex
Labor

50

Open
Market

40

Flex
Labor

UK

GenderPolitics
70

2010

GERMANY

2050

Open
Market

40

Flex
Labor

GenderPolitics
70

2010

KOREA

Flex
Labor

50
40

Open
MarketFlex
Labor

Politics
70

2010

FRANCE

2050

GenderGender2010

Politics
70

2050

60

50

Open
Market

40

Flex
Labor

50

Open
Market40
30

GenderPolitics
70

50

2010

中国
CHINA

2050

Open
Market40

Starting
Business

GenderPolitics
70
60

Flex
Labor

30

30

Starting
Business

Starting
Business

Gender

60

60

Open
Market40
30

Starting
Business

2050

2050

50

Flex
Labor

30

30

日本
JAPAN

Open
Market40

2010

Politics
70
60

60

50

Starting
Business

NORWAY

2050

50

Starting
Business

60
Flex
Labor

2010

30

30

Starting
Business

Politics
70

50
40

2010
2050

Open
Market30

Starting
Business

GenderStarting
Business

GenderNote: The mean for sixty-four countries covered in the forecast as of 2010 is set 50, and one standard
deviation as 10. Outward expansion of the pentagon indicates better quality of institutions.

www.jcer.or.jp

7Japan Center for Economic Research

World Economic Map in 2050

3. Moderate Migration to Underpin U.S. Growth Growth Rate 0.4 Points Lower with Zero Immigration
Immigration is one feature of the United States that Japan does not share. Our present
forecast projects that the rate of growth in the United States will exceed that of Japan by
about 1 to 2 percentage points. One factor in this gap in growth momentum is labor,
mainly in the form of immigration into the U.S., and another is the expansion of thecapital stock induced by that immigration.
However, the inflow of immigrants which has supported America’s rising population isslowing. Underlying this development are the tighter legal restrictions on immigration
imposed after 2000 as well as the downturn in new immigrants into the United Statesfrom 2006. Since the Lehman Shock, the number of emigrants leaving the U.S. has also
risen sharply (Fig. 5-8).
 Fig. 5. Rate of Increase in the U.S. Population(%、%pt)Other EffectMigration EffectPopulation Growth■Fig. 6. Growth Rate Gap: Japan and U.S.
Labor(%、%pt)3.5
Productivity
Human Capital
3.0
Capital
2.5
Real GDP growth rates

2.0
1.8
1.6
1.4
2.0
1.2
1.5
1.0
1.0
0.8
0.5
0.6
0.0
0.4
-0.5
0.2
0.0
-1.0
1950 -55 -60 -65 -70 -75 -80 -85 -90 -95 -00 -05 -10
Note: Population growth rates are the five-year averages
Source: UN, World Population Prospects:The 2010
Revision"

US<Japan
90-00 00-10 10-20 20-30 30-40 40-50
Note: U.S. growth rates minus Japan's
Source: UN, "World Population Prospects: the 2010
Revision"; BLS, JCER Estimates Fig. 7. U.S. Immigration Law and Immigration■Fig. 8. Factors in the Flow of Migrants

2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0

（million people）（Tightness of immigration reforms,1980=0）

Loose
Tight

Immigration Flows
Tightness of Immigartion Reform（Right Axis in Reverse）

-8
-7
-6
-5
-4
-3
-2
-1
0
1
2

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Source:OECD; "Interntaional Migration Database"、 Ortega
and Peri (2009) "The Cause and Effects of International
Migrations: Evidence from OECD Countries 1980-2005",
NBER Working Paper No. 14833

GDP growth
US>Japan4（million people）

3
2
1
0
-1
-2
-3

Inflows
Outflows

Death
Net

2000-02 02-04
04-06
06-08
08-10 year
Source:Center for Immigration Studies (2010)"Immigration and Economic Stagnation: An
Examination of Trends 2000 to 2010"www.jcer.or.jp

8Japan Center for Economic Research

World Economic Map in 2050

With the exception of wartime, the recent downturn in American working population
following the Lehman Shock was the first such downturn in 111 years (Fig. 9). The
principal factors include changes in population demographics which caused the working
age population to decline and an increase in emigration out of the United States with therise in demand for labor in emerging countries. There is another possible factor slowing
the flow of immigrants into the United States. Such as Great Britain, Australia andCanada have been more active in accepting in foreigners, including foreign students, inorder to take advantage of the immigrant labor. If these circumstances go unaddressed,
they risk undermining U.S. economic growth over the long term.
If immigration into the United States were to halt, the result would be a 0.4 percentage
point decline in America’s economic growth rate between 2010 and 2050 (Fig. 10). One
aspect of U.S. strength has been the continued inflow of workers of all kinds from othercountries. A slowdown in this inflow would not just be a problem of population. It
threatens the loss of a basic feature of the U.S. The actual impact of reduced immigration
could very possibly exceed the impact of any decline in the labor force by a great deal.
■Fig. 9. U.S. Economic Growth Rate and Labor Force7(%、%pt)Labor Force(Baseline Scenario)
Labor Force（Zero Immigration）
Real GDP（Baseline Scenario）
Real GDP（Zero Immigration）

6
5
4

Labor
Productivity
Human Capital
CapitalReal GDP growth rates

3.5
3.0

Base Scenario

Zero
Immigration

1.5

1
-1

(%、%pt)

2.0

2
0

4.0

2.5

Forecast

3■Fig. 10. Factors in the U.S.
Economic Growth RateWorld
War II

World

-2
1900

1.0

KoreanWar

Subprime
crisis

0.5
0.0

20

40

60

80

2000

20

40

Source: UN, World Population Prospects the 2010 Revision";
Haver Analytics, The Historical Statistics of the United States:
Vol. 3, Economic Structure and Performance, U.S. Census,
BLS, JCER estimates

リーマン
ショック

1990-2000 2000-10

2010-50

2010-50

Source: UN, World Population Prospects the2010 Revision"; BLS, JCER estimatesyear Shale Revolution to Boost US GDP by 0.5%
One positive development on the energy front, however, is that the shale revolution could
give a boost to America’s growth potential. According to the International Energy Agency(IEA), the United States may very well become the world’s largest oil producer by theyear 2020. Although it is not widely known, recent advances in energy efficiency in the
United States rival those achieved by Japan in the wake of the oil shocks. The U.S. has
rapidly improved its energy intensity (necessary energy consumption per unit of GDP).
U.S. energy consumption will not increase for the most part even at the 2.0% average
growth rate projected under our forecast (Fig. 11).

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9Japan Center for Economic Research

World Economic Map in 2050

Recent developments indicate that energy consumption is not likely to rise as the structureof industry changes, as rising energy prices encourage energy conservation in various
industries, and as improvements are made in energy intensity. Production of shale gas andshale oil is also expected to rise.
 Fig. 11. U.S. Projected Energy Consumption
120(CY2010 = 100)
forecast
110

100
JCER forecast
IEA New Policies Scenario

90

IEA Current Scenario(year)

80
1990

2000

2010

2020

2030

2040

2050

Source: JCER estimates based on U.S. Energy Information Agency “AEO2013.”

 Fig. 12. Projected U.S. Fossil Fuel Imports
25(quadrillion Btu) Net Import Volume of Fossil Fuels
Coal

20

Natural Gas

Oil

Total

15

7500

Net imports of Fossil Fuels(100 Million $)

6000
4500

10
3000
5
1500

0

0

-5

Exports

Exports
-10
2010

2020

2030

2040 (year) 2050

-1500
2010

2020

2030

2040

2050

Note: Assumptions same as for Fig. 11.

The U.S. Energy Information Agency predicts that net oil imports of fossil fuels will
decline even if the U.S. maintains a growth rate of 2.5% (Fig. 12, left panel). If the trendof imports of oil, coal and natural gas between 2031 and 2040 is maintained, net imports
will fall further from and after 2040. (The direct economic impact would be to narrow thetrade deficit and boost GDP.) However, the EIA projections do not assume that society
will change due to falling gas prices resulting from increased shale gas production. (Forexample, it does not assume that natural gas vehicles will displace gasoline-powered
vehicles as the main type of vehicle.)www.jcer.or.jp

10Japan Center for Economic Research

World Economic Map in 2050

Likewise, the right panel of Fig. 12 shows the net import value based on the EIA’s 2040
projections for oil and natural gas prices, or $268.50 per barrel and $12 per million Btu,
respectively. Prices are expected to remain unchanged after 2040. Depending on the
projected price of crude oil adopted, the net import value could balloon to around 600
billion dollars.
The decline in net imports will be around 0.5% of GDP, with GDP receiving a boost tothat same extent. We have also assumed that, of the increase in income arising from thedecline in new imports, about half will be rotated into investment and consumption, thewhole impact of which will be 1% to nominal GDP. (Our estimates do not take into
account any impact resulting from increased real household income or improved
industrial competitiveness following from any decline in overall fossil fuel prices as may
arise from the production of shale gas.)

4. China Faces “Middle Income Trap” Due to Poor Reform Prospects
Having achieved rapid economic growth since the 1990s, China will face a steadily
emerging series of factors undermining growth. In addition to the problems of aging andpopulation decline highlighted in our 2007 long-term economic forecast “Population to
Change Asia—The Shape of the World in 2050”, China will very likely face major
barriers to growth in the form of its own political, economic and social institutions.
 Population Onus and Lewisian Turning Point Await
China will increasingly face the downside of the one-child policy instituted to prevent
rapid population growth from resulting in poverty. China’s labor force participation rate
may have peaked in 2014(Fig.13). According to United Nations forecasts, China’s
population will begin to decline after 2030. The Chinese government figure for the 2010
fertility rate was 1.18, lower than Japan’s.
 Fig. 13. China Facing Population-Onus
70

（%）
80

（%）
Labor Force Ratio

70

Japan
China
Korea

65
60

60
50

55

Japan
China
Korea

forecast

40

50

30

45
40

Aged/Working Population Ratio

20

forecast

10(year)(year)
01990 2000 2010 2020 2030 2040 2050
1980 1990 2000 2010 2020 2030 2040 2050
Source: Estimates by The National Institute of Population and Social Security Research for Japan and United Nations("World(年)
Population Prospects, the 2011 revision") for China and Korea.
JCER has made a projection on the labor force ratio based on the estimates byf ILO.
35
1980

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11Japan Center for Economic Research

World Economic Map in 2050

If, despite shrinking population, China can transform its industrial structure from one
based on primary industries (agriculture, forestry and marine industries) tohigh-productivity industries such as manufacturing and services, growth will continue.
During Japan’s period of rapid economic growth, surplus manpower from farming
villages in the country flowed into the cities, supported the development of Japaneseindustrialization and caused national income to double. As the influx of population ran its
course, Japan reached the Lewisian turning point in the 1970s, signaling an end to therapid modernization of the industrial structure. China’s primary industries, however,account for over 30% of all employed persons, which is the level prevailing in Japan in
the early sixties. It also appears that the influx of people from the countryside willcontinue.
 Fig. 14. Worker Shortage Despite Slowing Economy
1.2（ratio）

（%）

20

1.0
15
0.8
0.6

10

0.4
5

Ratio of Job Applicants to Offers
0.2

GDP Growth rate (year on year, right axis)

0.0

0
2001
02
03
04
05
06
07
08
09
Source: National Bureau of Statistics of China, Haver Analytics

10

11

12

13 （year）

Kwan Chi Hung, Senior Fellow at Nomura Institute of Capital Markets Research,
believes that China has passed the Lewisian turning point3. For although the economy has
recently been slowing, the job openings to applicants ratio has not declined (Fig. 14). The
economic growth rate and the job openings/applicants ratio had been positively correlated,but despite the recent economic slowdown, the latter has remained high. It is possible thatthe decline in the working age population associated with the erosion of the population(the population onus) coupled also with the passage of the Lewisian turning point will
present a dual problem for China.
 Heavy Local Government Debt Burden Possible Trigger
Following the Lehman Shock, bank lending expanded with infrastructure investment
following a 4 trillion RMB economic package and a boom in real estate. As a result,
China’s ratio of credit to GDP in 2013 was over 1.6-fold, the highest level since 1978
when recording of the statistics began.
Meanwhile, restrictions on bank lending were tightened, with banks being required tohold 20% of their deposits as reserves. But domestic credit continued to expand with3

JCER Seminar, November 27, 2013.

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12Japan Center for Economic Research

World Economic Map in 2050

company bond issues after 2010 and again this year in the form of “shadow banking”
activities, which include financing via trust companies (Fig. 15). In addition to greater
lending through trust companies, the emergence of informal lending by institutions suchas “underground banks” are reported by media, but such lending does not appear in thestatistics. Underlying this trend has been the fact that local governments, unable to look toreal estate development as a source of income due to slumping land prices, have had
difficulty financing infrastructure investments. This has resulted in a vicious cycle ofrefinancing and an expansion of “bad credit” extended to borrowers paying interest on
loans.
 Fig. 15. Expanding Domestic Credit and Shadow Banking(%, ratio to nominal GDP)（%pt, change in ratio to nominal GDP）
50
250
domestic
creditratio(stock, right axis)
bank
loans
45
total social financing
shadow
corporate bonds etc
40
200(flow)
banking
via trust corp.
35
30
150
25
20
100
15
50
10
5
0
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 （year)
Note: Total social financing indicates the value of increase for the year.
Domestic credit ratio is expressed in the ratio of domestic credit outstaning to nominal GDP.
Source: Haver Analytics

The Chinese authorities are not standing idly by in the face of this situation. In March
2013, the China Banking Regulatory Commission (CBRC) acted on shadow banking byordering a reduction in loans extended to local governments, excepting those made byrural financial institutions. In May 2013, the CBRC also began requiring banks to cut
back lending to local governments and tighten their risk management. The CBRC hastaken measures to effectively prohibit new lending to some local financing platforms withlarge borrowings by requiring that the ratio of such loans to their entire loans not exceedthat of the previous year. (Local financing platforms are platform companies which
procure financing for local governments.)
In December, the State Council (the China’s cabinet) showed guidelines that called forstrict monitoring of shadow banking. However, at the same time the council pointed outthat the development of the Chinese economy naturally led to the expansion of shadowbanking, and it is beneficial. The Chinese government had wanted to avoid a rapid
economic slowdown, but unless the government acts quickly to control the rapid growthof shadow banking, the excessive debts of local governments could trigger a financial
crisis.
 No Serious Reform Under Communist Party Dictatorship
There are two aspects to the Chinese growth model. First, the country has grown by
developing the ability to manufacture low-priced products under conditions of severe

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13Japan Center for Economic Research

World Economic Map in 2050

competition, as in the field of electronics. Second, it is a state-capitalist system
encompassing energy and other public utilities as well as state enterprises operating insome materials industries, for example. Efficient private companies are mixed together
with inefficient enterprises tied to the state system, and the state companies often grow at
the expense of private companies. Elimination of such inefficiencies will be critical toachieve long-term growth. Mariko Watanabe of the Institute of Developing Economies
argues that the solution is privatizing state enterprises, energizing market mechanisms andgreatly strengthening the rule of law4.
 Fig. 16. Quality of China’s Institution Restrains Its Growth
USA
90

GNI

2010

SWITZ

2050

90

70
CapitalInstitutions

Capital30

Education

GNI

2010

90

Institutions

Capital

Education

JAPAN
GNI

2010

2010

Education

Education

90

50

Institutions

Capital

2010

GNI

2050

50

Institutions

30

Education

GNI

2010

Ageing50

AgeingEducation

CHINA
90

2050

2010

GNI

2050

70
Institutions

Capital30

30Institutions

70

90

Capital50

FRANCE70
Institutions

2050

Ageing

2050

KOREA

70

Ageing

GNI

Ageing

2050

2010

GNI

30

30

Ageing50

Capital70

30

CapitalInstitutions

Education

GERMANY

2050

50

90

90
70

50

Ageing70
CapitalNORWAY

2050

30

Ageing

90

2010

70

50

UK

GNI

50

Institutions

30

Education

AgeingEducation

Note: The mean for sixty-four countries covered in the forecast as of 2010 is set 50, and one standard
deviation as 10. Outward expansion of the pentagon indicates better condition for economic growth.

Our forecast indicates that China will not likely be able to implement this solution. If
present trends remain unchanged, it will be impossible for China to improve the quality of
its political and economic institutions and join the ranks of the advanced developed
nations by 2050. An assessment of Chinese politics, for example, shows that China will
not reach the value of 50 (the mean of 64 nations as of 2010 and a standard deviation
equal to 10) by 2050. The advanced nations have achieved values of around 60, and theirpolitical stability is very different indeed. In market openness, China ranks behind Japandespite the shackles on people and money in Japan. In large part these problems originate
4

See Chapter 2 of “China’s Industrial Power: Its Strength and Problems,” JCER ed., March 2013.

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14Japan Center for Economic Research

World Economic Map in 2050

in nothing other than the political system dominated by the Chinese Communist Party,
which indicates that furthering reforms will be far more difficult in China than for suchcountries as Japan, South Korea and the countries of Europe and North America.
Then why has it been possible for China to achieve unusually rapid growth without thenecessary institutional requirements? One solution to this puzzle was offered by Princeton
University Professor Dani Rodrik5.
A look at the data shows that convergence does not happen automatically, with emerging
countries catching up with developed countries. The convergence that takes place iswithin the same industries. For example, for the same transportation machinery industry,
regional differences in productivity are steadily shrinking. The closer an industry is to themachinery sector, the faster the speed of convergence. The key to growth for emerging
countries is shifting employment to such industries. Professor Rodrik calls this “getting
on the elevator.” After this stage, growth takes place automatically.

 Fig. 17. Progress Leads to Growing Harms
State intervention, protectionism etc.
Success using system contrary to
textbooks











Protection and nurturing of industries
easy during catch-up phase
Jobs shift to high-productivity
industries
Gradual opening cultivates seeds ofgrowth

Inadequate knowledge, supporting
industries, financeHard to grow industries under laissez
faire
Harmony of interests among (local)
government and enterprises,
offsetting inadequate legal regime

 Currency devaluation policy

 Industrial policyInadequacy of market mechanisms
in developing countries

Tariffs, import restrictions, tax
incentives“Free” and “open” in “special zones”

Industrial policy difficult with WTO
membership
Currency devaluation from 2000 usedinsteadCorruption
Vested interest
conflicts

Unsuited foradvanced fields

Blocking ofinternational
competition

International
imbalances breed
crisesPolitical
destabilization

Growthcrimped

Friction withother countries

Imbalances

Eventually,
impossible toignoreSource: Adapted from Dani Rodrik, “The Future of Convergence: Do not Expect
Miracles” (2011), with modifications and additions.

5

See Dani Rodrik, “The Future of Convergence: Do not Expect Miracle,” a paper prepared for the Jackson
Hole Symposium of the Federal Reserve Bank of Kansas City, 2011.

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15Japan Center for Economic Research

World Economic Map in 2050

Then why is it that China did well by building institutions contrary to the textbook models
while Latin America did not after pursuing liberalization? The reason originates in theinadequacy of institutions to support markets in emerging countries. Nurturing industry
requires the spread of various kinds of know-how, the cultivation of subordinate
industries, and the procurement of capital for investment. These requirements do not
simply drop into place under a system of laissez faire. In China, the government took thelead in protecting and cultivating industries to get on the elevator, bringing in support
from overseas in the form of direct investment. The underdeveloped legal regime isanother hallmark of the situation in China, but the rights of enterprises have beenprotected because the interests of local governments and local enterprises were inharmony and the work of local governments replaced the law. Thus, the Chinese placedfaith not in the “Washington Consensus” of achieving the best results throughliberalization and market principles but in a “China Consensus” of assisting economic
development through government intervention and gradual liberalization.
However, the very factors which have supported these advances are now beginning tochange into barriers to growth. Government discretion gives rise to vested interests andcorruption. It is fine and well when it is clear which elevator one is to get on, but thisapproach is not suited for finding subsequent generations of elevators. Policies ofprotecting industries and keeping currencies undervalued breed friction and distrust in
relations with other countries and are a factor in exacerbating imbalances in theinternational balance of payments and finance.
In order to achieve sustained growth that will enable China to escape from the middle
income trap, the Communist Party and local governments will have to refrain frominvolvement in industrial policy. In reality, though, state companies have advanced at theexpense of private firms, and even with a change in leadership, vested interests haveprevailed. When politics dominates economics, degeneration results. This is the view ofProfessor Daron Acemoglu of the Massachusetts Institute of Technology and James
Robinson of Harvard University, who looked back over many examples of how prosperity
declined in Rome, Venice, the Soviet Union and elsewhere6. This seems to be the paththat China has embarked upon.

6

Acemoglu, Daron and James Robinson, Why Nations Fail: The Origins of Power, Prosperity and Poverty,
Crown Business, 2012.

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16Japan Center for Economic Research

World Economic Map in 2050

 Reference Fig. 1.

Projected World Population（100 million people）（1980 ＝100）

300

80
70

250

60
50

19.0

Other
Developing
Countries

India

27.2

200

20

150
12.1

India

16.2
100

13.6

China

Other
Developed
Countries

USA

40
30

Other
Developing
Countries

13.8

Other
Developed
Countries

China
Europe
Japan

50
4.1
3.0
5.0
Europe5.0
4.0 USA
3.1
0
0
1.3
1.0
Japan 1980 1990 2000 2010 2020 2030 2040 2050
1980 1990 2000 2010 2020 2030 2040 2050
（year）（year）[Note] UN estimates for sixty-three countries (medium variant, 2010).
NIPSSR estimates for Japan (medium variant, 2012).

10

 Reference Table 1. Ranking by Size of Economy(Real GNI. 2005 price, trillion $)
1990
2010
2030
2050
1 United States
8.44 United States
14.24 United States
21.59 United States
31.46
2 Japan
4.15 Japan
5.10 China
7.83 China
10.01
3 Germany
2.30 China
3.86 Japan
5.81 India
7.25
4 France
1.64 Germany
3.09 Germany
3.83 Japan
5.54
5 United Kingdom 1.47 United Kingdom 2.40 United Kingdom 3.49 United Kingdom 4.56
6 Italy
1.44 France
2.28 India
3.32 France
4.31
7 Russia
0.72 Italy
1.78 France
3.18 Germany
4.08
8 Spain
0.72 India
1.24 Italy
2.08 Mexico
2.98
9 Canada
0.70 Spain
1.15 Canada
1.91 Canada
2.68
10 Mexico0.55 Canada
1.14 Mexico
1.89 Brazil
2.35
11 China
0.53 Korea
0.98 Korea
1.76 Italy
2.27
12 Brazil
0.50 Mexico
0.95 Brazil
1.65 Korea
2.07
13 Netherlands
0.44 Brazil
0.93 Spain
1.46 Indonesia
1.76
14 Australia
0.38 Russia
0.75 Australia
1.11 Saudi Arabia
1.60
15 Korea
0.36 Australia
0.71 Russia
1.04 Australia
1.58
16 India
0.35 Netherlands
0.68 Saudi Arabia
1.02 Spain
1.47
17 Switzerland
0.34 Turkey
0.52 Turkey
1.00 Turkey
1.38
18 Belgium
0.28 Switzerland
0.47 Indonesia
0.97 Russia
1.28
19 Sweden
0.27 Sweden
0.43 Netherlands
0.86 Argentina
1.04
20 Turkey
0.25 Belgium
0.41 Switzerland
0.65 Netherlands
0.99
Source:JCER Estimates based on World Bank Statistics.

www.jcer.or.jp

17Establish National Targets to Halt Population Decline
April, 2014

Follow France’s Example andStabilize Population at 90 Million7
Overview
Japan is likely to tip into fiscal collapse due to rising tax and social security burdens in
the future, or Japan’s standard of living is likely to erode. At the root of the problem
lies population decline. If no action is taken, the population will shrink to 30% of its
present size in 100 years and to around 10% of its current size in 200 years, andJapan’s presence in the international community will gradually diminish. To avoid
such a situation, the Japan Center for Economic Research proposes the establishmentof national population targets, aimed at raising the birthrate over the course of forty
years and maintaining a stable population of 90 million. We propose combining thiswith a policy of opening up Japan and inviting people, expertise and investment fromoverseas.
 Fig. 18

2.5

Halt population decline and aging① Base scenario (If no action is taken to stop population decline)② Birthrate up 1.8% + 200,000 immigrants per year
③ Birthrate up to 2.1(People)14

Birthrate

12

2

8

1

6
4

0.5

2

（Year）

0
1980

15

Population

10

1.5

20

（Ten million people)

2000

2020

2040

2060

2080

0
1980
2000
2020
2040
2060
（%）
45
Percentage of elderly
40
35
30
25
20
15
10
5
(Percentage of population aged 65 or over)
0
1980
2000
2020
2040
2060

2100

（%）

Percentage of foreigners(Percentage of population that has foreign nationality)

10
5
0
1980

（Year）
2000

2020

2040

2060

2080

2100

（Year）
2080

2100(Year)
2080

2100

Source: JCER estimation. ① is comparable with the mid-range scenario of the National Institute ofPopulation and Social Security Research. ② is the case where, toward 2050, the birth rate is raised to 1.8
and 200,000 immigrants (equal to around half of the UK's intake in proportion to population) are accepted peryear, and ③ is the case where the birth rate is increased to 2.1 toward 2050 and the intake of foreigners is
kept at the current level.
7

Contributors include Kazumasa Iwata, JCER President, economists Sumio Saruyama, Tatsuo Kobayashi, Ryo
Hasumi, Tetsuya Hattori, Shinji Takenaka, Takashi Onodera and Yuki Masujima, Professor Nariyasu Yamasawaof Atomi University, cooperative researcher Yoichi Tsuchiya, and research assistants Masato Takara and Yuki
Sotozono.

www.jcer.or.jp

18Japan Center for Economic Research

Establish National Targets to Halt Population Decline

 Reality of population decline--Fear of decline in standard of living due to heavy burden
The fertility rate in Japan today is 1.4 children per woman mother. The population of the
new generation will shrink to approximately 70% of the parent population. If this trend
continues, the population will decline to 30% of its present size in 100 years and around
10% of its present size in 200 years. Japan is a society with a large proportion of elderly
people where one in four is a latter-stage elderly person aged 75 and over and where, atthe same time, the population continues to shrink.
The chances of the standard of living falling due to rising tax and social security burdens
are high. The decline in the number of workers undermines the sustainability of thegovernment debt and, if the heavy burden becomes untenable, there is also every
possibility of fiscal bankruptcy. Even if growth picks up, the structure in which theworking generation shoulders a heavy burden will not change. To avoid such a situation,
the public and private sectors must work together to create a society that overcomes thefalling birthrate problem while keeping women in work.

 Establish population targets(1)-- Raise the birthrate through French-style policies
The first step in a new phase of reforms never before attempted is to establish national
population targets. Japan must put in place and financially support a childcare system thatmakes it easy for women to raise more than one child if they so wish while demonstrating
their talents in the workplace. Analysis of the relationship between the birthrates andchildrearing policies of thirty major countries shows that Japan could raise the birthratefrom its present level of 1.4 to around 1.8 by 2050 if it expanded and improved benefits
and childcare subsidies at an annual rate of 1.5% of gross domestic product (GDP)(increase of 7–8 trillion yen) to a level comparable with France, which overcame lowbirthrates8. It took thirty years from the time France introduced work-life balance policies
in earnest for France’s birthrate to approach 2. Japan must also commit to such policies
according to a long-term plan.
France put in place initiatives to make it easier to balance raising a child and work, and tocover childrearing costs through (1) various childcare options and public subsidies for
each, and (2) a system of benefits and income tax breaks that are more generous thehigher the number of children 9 . The amount of benefits paid until a child reaches
adulthood is at least 10 million yen greater for the third child than for the first child (seeFig. 19). Supporting childbirth and childrearing so that women can have the number ofchildren they wish does not constitute over-interference by the state.

8

Fig. 18 also showed the case where the birthrate is raised to 2.1. In this case, childrearing benefit andchildcare subsidies equal to 2.7% of annual GDP would be required. On the other hand, the increase in theshare of the foreign-born population would be limited. For further details, please refer to the in-depth report“Establishment of Population Targets” to be published shortly.
9
Please refer to Madoka Kitamatsu (2013) for details on the actual childrearing system in France.

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19Japan Center for Economic Research

Establish National Targets to Halt Population Decline Fig. 19 The higher the number of children, the more generous childrearing benefits＜Main childrearing benefits (payments) until child reaches adulthood＞(Ten thousand
yen, cumulative)

2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
-200
-400
-600

(Ten thousand
yen, cumulative)

Japan

2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
-200
-400
-600

Actual childcare expenses
University tuition feesChildrearing benefit
Total

1st child

2nd child

3rd childFranceFamily coefficient rules
Actual childcare expenses
University tuition feesChildrearing benefit
Total

1st child

2nd child

3rd child

Source: Comparison of main benefits and expenditures where there is a considerable difference between Japanand France. Expenses such as elementary and junior high school education expenses and cram school
expenses are excluded. Cumulative amount until child reaches adulthood. France's childrearing assistanceassumes use of the full amount. "Family coefficient rules" is an income tax initiative whereby the higher thenumber of children, the lower the income tax, and is figure assuming household with taxable income of 30,000
euro according to Takeshi Fujii(2007). Converted based on 2010 nominal exchange rate of 130 yen per euro.
Data is produced by JCER based on evidence gathered locally, etc.

 Establish population targets(2)-- Increase intake of immigrants to 200,000 per year
Besides raising its birthrate, Japan must also focus on the intake of immigrants as anotherone of the policies in its new phase of reforms. Though the intake of immigrants involves
government expenditure, it also has the advantage of increasing tax revenues 10 . If
overseas human resources increase, productivity will also improve thanks to skills andideas not found in Japanese workers, and this will doubtless provide the impetus forforeign investment in Japan. If Japan has immigrants taking charge of nursing care andchildcare, which are areas with enormous potential demand but insufficient manpower,
the number of people that benefit will also increase.
Foreign students are the eggs from which highly skilled human resources hatch, andsocial friction can also be reduced. “Education channelled immigration” is a strong option.
In view of the size of the Japanese economy, it would not be surprising if the foreign
student population was doubled its present size (138,000 students in May 2012). Rather
than pursuing the introduction of lectures in English, Japanese universities should
endeavor to attract students by pushing Japan’s strengths - like its technologies - to thefore.
We propose Japan gradually increases its intake so that, from 2050 onwards, the net
10

The impact of migration on the balance of government revenue and expenditure has been reported to varydepending on the circumstances, for example, generally speaking, if the percentage of skilled human resources
is high, tax revenues exceed expenses and the balance is positive, while in the case of unskilled workers, thebalance is said to be negative (Vargas-Silva, 2013). Here, the net fiscal effect is simply assumed to be zero.

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20Japan Center for Economic Research

Establish National Targets to Halt Population Decline

number of immigrants is 200,000 people per year. In proportion to population, this isequal to half the UK’s present intake. In this case, the percentage of the population that isforeign-born will increase from its present level of 1.8% to 6% in 2050 and to around
13% in 2100.

 Establish population targets(3)-- Achieve reversal of population aging from 2050
The combination of raising the birthrate to 1.8 and accepting 200,000 immigrants per year
will halt population decline. The population will stabilize at 90 million from 2100. The
percentage of the population that is elderly will stop rising and start to fall from around2050 (see Fig. 18). The improvement and expansion of childrearing policies and theintake of immigrants will be accompanied by a fiscal burden and a certain degree ofsocial friction. However, such expense is investment for the future and will soon be
returned when the number of workers increases. The public burden will increase towards
2030 in the case where Japan seeks population stability (an extra 3% in the case of
consumption tax), but will then start to fall and become lower than the case where noaction is taken to prevent population decline from 2050 (see Fig. 20). By 2100, the publicburden will fall to 45% and the tax and social security system will stabilize.
 Fig. 20．Public burden will decline due to population stability

60

(%)

55

No action is taken to prevent population decline.
Population stabilization (birth rate up 1.8% + 200,000 immigrants per year)

Public burden

50
45
40
35
30
25
1980

(Year)
2000

2020

2040

2060

2080

2100

Note: Both cases are based on the scenario where growth accelerates as a result of system reforms. In the
Stagnation Scenario, the burden would be higher. The fiscal burden to increase the birth rate (family
allowance) is taken into account. Assumes that toward 2030, consumption tax is raised to 25%.

If no action is taken to prevent population decline, the Japanese economy’s presence in
the international community will gradually diminish. An examination of share of world
GNI (64 countries) shows that while Japan accounted for a share of around 15% in 1990
during the bubble economy years, in the case of the Stagnation Scenario11, Japan’s
presence will diminish to around one tenth of its former size in just over 100 years, with
11

In Stagnation Scenario, it is assumed that reforms continue to proceed at the gentle pace of the past 20 years.
We also assumed that the GNI per capita growth rate from 2040 to 2050 will continue thereafter and we
multiplied this by the size of the population to calculate GNI in 2100.

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21Japan Center for Economic Research

Establish National Targets to Halt Population Decline

its share shrinking to 5.2% in 2050 and 1.7% in 2100 (see top part of Fig. 21). Itspresence in proportion to the United States will shrink from around 50% in 1990 to 5% ofthat level in 2100. China’s presence will also stop rising steadily as it will also experience
population decline in the future, but even so it will still be four times that of Japan in 2100.
Japan will fall to 11th in the global rankings. Under such circumstances, it will no doubt
become difficult for Japan to negotiate with the United States and China on an equal
footing.
 Fig. 21

China
1.9%

Others20%

14.6% Japan

Japan’s economic presence will shrink to one tenth of its present size
if no action is taken to prevent population decline
Share of world GNI

USA

34%

30%

Europe34%・Case of stagnation + No
action to prevent population
decline・Share of world GNI(64 leading nations)

30%

9.4%

22%
5.2%
2050

1990
24%
2010

29%

2100

43%

33%

7.8%
10.3%

18
16
14
12
10
8
6
4
2
0

(%)

15%

29%

6.6%

Difference according to growth and population scenarios（share of real world GNI）
14.6

1.7%

10.3

Growth + Population stability
global ranking

8.0

3

5.0

4

2.7
1.7

7

Growth + No action taken to prevent
population decline
Stagnation + Population stability
Stagnation + No action taken toprevent population decline

11

1990
2010
2050
2100（year） （Base scenario is stagnation + population decline)(Note) "Long-term World Forecast” extended to 2100. "Population stability" assumes that the birth rate is
raised to 1.8 and Japan accepts 200,000 immigrants per year. The "Stagnation Scenario" is where reforms
only proceed at the pace of the past 20 years. The Growth Scenarios are where the extent to which Japan
opens up increases, progress is made in terms of women's labor force participation and their appointment toleadership roles, and improvement in productivity picks up pace . For 2050 to 2100, the GNI per capita
growth rate from 2040 ~ 50 was extended and mutliplied by the population. The overseas population is basedon the UN neutral scenario.

In the Growth scenarios, Japan will be able to maintain a 5.0% share of world GNI in
2100, but it will still be the land of the setting sun (see the bottom part of Fig. 21).
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22Japan Center for Economic Research

Establish National Targets to Halt Population Decline

However, if Japan were to stabilize its population, the Japanese economy would accountfor around 8% of world GNI in 2100, making it the third largest economy in the worldand enabling Japan to maintain a voice on the world stage.

Fully exploit the potentialof women and foreigners
 Early appointment to managerial position effective towards a quota system
The second step is to put in place initiatives that enable women to balance work andraising children. The continuation of work is also important to secure the income
necessary to raise more than one child. Enterprises should start by trying to achieve the“early appointment” of women. In most cases, women who were entrusted with work at
an early stage and achieved results continue to work even after giving birth and raisingchildren. In Japan, the percentage of women in leadership roles, for example, thoseserving as company directors or in managerial positions, is noticeably low compared withoverseas. “Early appointment” increases women’s motivation and is also effective as afirst step towards a quota system to establish numerical targets for the appointment of
women. In Japanese society, where the employment system and assessment structure havebeen established around men, the aim of such treatment is to make conditions which are
disadvantageous to women at least equal to those of men, and it does not constitutefavorable treatment for women.
 Fig. 22

Balancing work and raising a child is easier if duties are clarified【Question】Based on your experience, which work style reforms are most importantfor balancing childrearing and work (no more than two)
（Total responses of female regular employees and directors, N＝181)
0

10

20

30

40

（%）50

(1) Correction of long working hours(2) Clarification of duties(3) Short working hours(4) Long maternity leave and childcare leave(5) New thinking(6) Employment mobility

Source: Based on an internet survey conducted by JCER in September 2013.

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23Japan Center for Economic Research

Establish National Targets to Halt Population Decline Duty-based employment hold the key
At the same time, “clarification of duties” is the keyword. According to a recent survey
conducted by the JCER, the number of respondents wanting clarification of work content
as a measure to support a balance between child rearing and work exceeded those wanting
correction of long working hours. This suggests that women judge that they will be able
to adapt to slightly longer working hours to a certain degree, provided it is possible topredict when work will be busy and slack.
Duty-based employment is also an effective way of harnessing the abilities of foreigners.
Japanese employment contracts have few stipulations on duties compared with those ofoverseas countries. Typical contracts for simultaneously recruited graduate employees areoften nearly blank when it comes to the kind of work they will do. Unlike Japanese male
employees who work until mandatory retirement age and can expect reward in any case,foreigners often change the companies and countries where they work every two or three
years in the hope of career advancement. Such foreigners are more likely to demonstrate
their abilities with a short-term employment contract clarifying the work to be assigned
and remuneration (assessment).
The foreign students that Japan has gone to the trouble of inviting over cannot
demonstrate their abilities if they are treated in the conventional way, that is, starting bytreating them all the same and getting them to do anything, and they might end up leaving
Japan without having a good impression. Duty-based employment would also help tochange the system of assessment of regular male employees which assumes long working
hours, and, as a result, is likely to bring about a positive cycle of male participation inchild rearing-->facilitation of the career advancement of women-->growth in labor
force-->enhancement of growth potential.
The key to changing the style of working is to change the thinking of senior management
and managers and to take another look at their roles. At Japanese enterprises in the past, it
was usual to allocate work to “employees who look available” and “employees who
appear to have free time” there and then. While this has the advantage of making it easier
to deal with an emergency, it also tends to bring about long working hours. This isbecause employees who are able to comply with this are assessed as being “useful.”
However, if short-term, duty-based employment increases, it will be important to (1)clarify the necessity and prioritize the order of work, and (2) consider in advance whatkind of action will be taken if the business environment changes or in the event of an
emergency. People management will also probably be much more complex. Managerial
positions that do the same job they did yesterday will no longer be sufficient. There are
already some enterprises that have established numerous managerial positions to deal
with the appointment of women. Management functions will need to be powered up.
According to the Gender Gap Index (published by the World Economic Forum), whichmeasures the social participation of women compared to men, Japan is currently woefully
low in the world rankings, down at 101st. We should follow the example of theNetherlands with respect to the women’s active role. They have produced an advanced
employment framework including “the same wage for the same job” principle. They

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24Japan Center for Economic Research

Establish National Targets to Halt Population Decline

promoted rapidly the rate of female labor participation for the last 20 years and now enjoy
50 thousand dollars in its per capita GNI.
We propose introducing targets for the appointment of women (quotas) : raise the numberof women in managerial positions to 40%, and the number of female Diet members to
70% of the number of their male counterparts respectively, thereby bringing both in linewith the present levels in the Netherlands (see Fig. 23). According to survey results, few
respondents take a negative view toward the quota system.
 Fig. 23
1.0
0.9（Male＝１）

Increase the social participation of women to levels seen in the Netherlands
through a quota system
Gender Gap Index

Q．The advantage of a quota system
for the appointment of women is ..... (one response)

0.8

0

0.7

Japan

Holland

0.6
0.5

10

20

30 （%） 40 01020

30 （%）40

Improvement in
the organization’s
results

0.4
0.3

Increase in senseof responsibility
and ambition

0.2
0.1
0.0
Labor force
participation

Managerial
positionsParliamentary
positions

Source: World Economic Forum“The Global Gender Gap Report 2012"

There is noadvantage

Male senior
managers anddirectors

Female senior
managers anddirectors

Source: An internet survey conducted by JCER in September 2013

Activate university-based innovation– combined with employment system reform Human resources retained within enterprises and post-docs
One of the main objectives of working-style reforms is to create innovation. Japan istrailing behind not only the United States but also South Korea and leading European
countries in venture generation to create new industries. This is because Japan has not
used its human resources efficiently. More than 4,000 people with PhDs are unable to findwork every year and corporate overemployment is also estimated at 4 million. If thegeneration of new ventures increased, this would provide an opportunity for the effective
utilization of such human resources. As in the case where an engineer who left a leading
Japanese electronics company is invited to join an enterprise in South Korea or China, forexample, the utilization of contacts and know-how — though difficult within a large
enterprise — is likely to be possible within a venture enterprise. Also for post-docs whoare struggling to find work, venture enterprises represent a chance that will open up new
avenues. Even if the human resources capable of developing technologies or businesswww.jcer.or.jp

25

Japan Center for Economic Research

Establish National Targets to Halt Population Decline

models to serve as the seeds of new ventures will only be produced according toprobability theory, staff to support them will be required and, in Japan today, such humanresources are buried within its enterprises.
Here too, it is necessary to change the nature of employment. The twenty-year
employment system for graduate recruitment is one solution. Retirement benefit programs
and suchlike based on the present lifelong employment system, though effective as ameans of retaining human resources, put a burden on enterprises grappling withoveremployment, and it may be necessary to consider introducing atwenty-year-employment system at the same time as the switchover to a quota system andduty-based employment.
 Fig. 24
20 (%)

Retirement benefit programs are an obstacle to career moves
30

Rate of decrease in retirement benefits
due to job change

100(Million Yen)

Retirement benefits(Model calculations)

20

▲10
▲20
10

▲30

Revised in proportion to
years of service
Retirement benefit model
research▲40▲50

University/Graduate school graduates
25

30

35
40
45
Job change age

50

0
5

55

10

15

20
25
30
Years of service

35

38

Source: Produced by the JCER based on “Useful Labor Statistics 2013” published by the JILPT, and“General Survey on Wage” published by MHLW

Even if the twenty-year employment system is not introduced straight away, it might be
an idea to make a start on the review of retirement benefit programs. For example, many
Japanese corporations would see a large reduction in retirement benefits if employees
were to leave the company before they reach their mid-forties, and employees leaving intheir fifties could receive relatively advantageous retirement benefits (service of thirty
years or more on the retirement model research line on the right side of Fig. 24). We
suggest that switching to a program of retirement benefits that are fully proportionate toyears of service would be a good place to start.
The nature of academia-university cooperation is also in need of reform. Japan’s progressin establishing initiatives so that universities can embark on business in collaboration withenterprises was on a par with that of the United States from the mid-1990s. Japan also has
the angel tax system of special incentives for the promotion of investment in venturebusinesses. However, whereas in the United States, the number of new start-ups per year
continued to rise even after the Lehman shock, in Japan, growth in new start-ups was
slow from before the Lehman collapse, and the two countries are on different paths.
According to our Long-Term World Forecast to 2050, the ease of venture generation isconsidered to be one factor that determines growth. A difference in venture investment
could well lead to a difference in national vitality (see Fig. 25).
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26

Japan Center for Economic Research Fig. 25800
600

Establish National Targets to Halt Population Decline

Difference in venture investment makes a difference to Japan’s vitality(For Japan, data is published up to FY2011)

4

Number of start-ups
Japan

United States(Triilion Yen)

Amount

3

400

2

200

1

0

0

2006 2007 2008 2009 2010 2011 2012
(Source) “FY2011 Status of Academia-Industry (Fiscal year)
Cooperation at Universities" prepared by the MEXTAUTM U.S. Licensing Activity Survey

Japan

United States2007 2008 2009 2010 2011 2012
(Source) "FY2013 Survey of Venture Capital (Year)
Investment Trends" prepared by Survey VentureEnterprise Centre

In fact, in Japan, patents generated at universities are not used by venture enterprises.
According to the estimates of Professor Watanabe Toshiya et al. of the Policy Alternative
Research Center, University of Tokyo, out of the approximately 6,500 patents for whichapplications are filed in Japan per year, thirty-one are used by ventures. In the meantime,
the number of patents for which universities file applications jointly with large enterprises
is approximately 2,800, demonstrating that far fewer patents are used by ventures. In the
United States, 12,000 patent applications are filed per year, but 1,800 are used by ventures.
This means that, in Japan, the technologies that are the seeds of ventures are not being
channeled towards the creation of industry to begin with. In Japan, academia-industry
cooperation is often undertaken with large enterprises that provide large amounts ofresearch funds, but, as shown in Fig. 26, this often results in sleeping patents. This isbecause, in some cases, innovative technological developments and business models are
not consistent with the technologies or sales channels introduced by the large enterprises
or would cause cannibalization with the products and services that are being sold.
 Fig. 26 Sleeping patents are on the increase
160
140(Ten thousand
patents)（％）

Sleeping patents
Patents in use
Sleeping patent ratio (right scale)

120

67
66
65

100

64

80

63

60

62

40

61

20

60

0

59
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010
2011
（Fiscal year）

Source: Basic Survey of Japanese Business Structure and Activities prepared by METI

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Japan Center for Economic Research

Establish National Targets to Halt Population Decline

To put in place a structure under which universities supply patents to ventures, it isnecessary for universities to establish their own financial base to enable then to pursue
independent research and development without being over-reliant on joint research withlarge enterprises. Prominent private universities in the United States have established theirown financial base through asset management, and surely it is necessary for Japan also to
consider the privatization of universities and for universities to freely manage their own
assets. To enable this, stronger management would be essential while the self-governanceof universities would need to be respected. The successful development of
university-originated ventures would also serve to underpin the financial base ofuniversities, and, as is the case with prominent universities in the United States, revenues
from investment would support university finances and ultimately facilitate theestablishment of “self-governance”; in other words, it is likely that a positive growth
cycle would be created .

3500

Fig. 27

Harvard University generates revenues from investment(100 million yen)

3500

The University of Tokyo

3000

Other

3000

2500

Donations

2500

Research contracts

2000

Facilities expenses andsubsidies
Hospital revenues

1500

2000
1500
1000
500
0

（100 million yen）

Harvard University
Other

TuitionSubsidies for operating
expenses

Investment revenues
Donations

1000

Tuition500

Income from thegovernment and enterprises

0

Source: Revenue structures of the top universities in Japan and the United States FY2012

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Japan Center for Economic Research

Establish National Targets to Halt Population Decline

Maintain position as a first-tier nation
Even with a declining population, there is a way to accelerate growth, through a
combination of working-style reforms to fully utilize human resources, including womenand foreigners, and policies to open up Japan and invite people, expertise and investment
from overseas. It is also possible to (1) lower the public burden through stabilization of
fiscal and social security systems and (2) ensure Japan’s presence on the international
stage, by introducing a policy of population targets. In order to maintain its position as afirst-tier nation, Japan must pursue these policies as part of a comprehensive program
toward 2050.
To release the latent abilities of human resources and technological resources, Japan must
implement a new phase of reforms, reviewing the employment practices built up during
the era of high growth with zero based thinking methodology. In order to strengthen
support measures for the younger generation, it is also necessary to accept further tax
increases and a temporary decline in the level of pensions. The reforms will take a longtime. Deciding to raise the consumption tax rates in increments of 1% over the long term(for example, over a period of fifteen years starting in FY2016) may also be an effective
way of achieving hardship now, pleasure later.
Some people in Japan take the view that it is fine for Japan not to remain a leading
economic power, but if Japan, a country reliant on exports for many of its resources, is tomaintain its present standard of living, then it needs to maintain its position as a first-tiernation. It must also not be forgotten that Japan’s social and cultural wealth is, in somerespects, supported by its economic strength. Looking back on Japan’s history from the
Asuka and Nara periods to the Meiji Restoration and postwar Japan it is clear that in thedays when Japan adopted a policy of opening itself up to the rest of the world andattempted to become a first-tier nation, its social systems and culture also developedmassively. The common theme running through all such periods is that Japan was notbound by the past but resolutely implemented a new phase of reforms in its various
political and economic systems.

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Japan Center for Economic Research

Establish National Targets to Halt Population Decline

References
Acemoglu, Daron and James Robinson(2012), “Why Nations Fail: The Origins of Power,
Prosperity and Poverty”, Crown Business
Kitamatsu, Madoka (2013)“Measures to Encourage Both Women Labor Participation andChildrearing:”(in Japanese). JCER, October 2013
Japan Center for Economic Research (2013) “JCER Long-term World Forecast—Three
Scenarios,” May 2013
Fujii, Takeshi (2007) “We Can Improve Birthrates”(in Japanese), Chuokoron, March 2007
Rodrik, Dani (2011) “The Future of Convergence: Do not Expect Miracles,” paper prepared
for the 2011 Jackson Hole Symposium of the Federal Reserve Bank of Kansas
City.
Vargas-Silva, Carlos(2013) “The Fiscal Impact of Immigration in the UK.” Migration
Observatory briefing, COMPAS, University of Oxford, UK, February 2013
Watanabe, Toshiya “Where Has Industry-University Collaborated Patent Application
Gone? ”(in Japanese, Intellectual Property Association of Japan 10th Annual
Conference, 2012)

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