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Opinion

Can Japan have prosperity without growth?

Accepting population decline opens a new path

| Japan
Commuters walk on a passageway in Tokyo on Apr. 26: we must change the way we work.   © AP

Nobuko Kobayashi is a partner with EY Strategy and Consulting Co., Ltd., Strategy and Transactions -- EY-Parthenon.

Around the world, the countdown to humanity's numerical demise is audible. Under the influence of the pandemic, both China and the U.S. recently posted their slowest rates of population growth respectively since the early 1960s and 1900.

If any country is ahead of the curve in terms of shrinking demographics, it is Japan, where the population started its descent in 2008. The birthrate in 2019 at 1.36 is far from the 2.07 level necessary to maintain its current population of 126 million. As a result of Japan's lower birthrate and longer life span, 28.7% of Japanese are aged over 65, making Japan the oldest population in the world.

Does this mean that Japan is doomed to a downward economic spiral as its working-age population shrinks? If a growing population is synonymous with prosperity -- as conventional wisdom suggests -- then Japan appears destined to a bleak future, consigned to serve as a cautionary tale of how a series of policy oversights brought the population, and therefore the country, down.

Yet, there is an alternative path for Japan. Rather than fight to reverse a falling birthrate, Japan has the power to reframe the narrative by instead focusing on how its people can maintain the same quality of life they enjoy now.

Of course, the first step is to make it easier for couples who want them to have kids. But so far, developed countries have had little or no success using parent-friendly policies to reverse declining birthrates. Those who have succeeded have done so, though perhaps unintentionally, via an infusion of migrants, like Germany.

The old days where most parents had three to four children -- in 1957, the average number of children in Japan peaked at 3.6 -- are gone, especially with today's highly educated women having so many career choices. But it is not all doom and gloom. Fewer children mean more attention from parents.

If a declining population is a given in a maturing society, it is unwise to fight against the grain. In fact, capping population growth was once officially endorsed by Japan's government, with the first Japan Population Conference in 1974 recommending limiting households to two children each.

The conference highlighted the limitation of a model for growth tied to a rising population. It recommended focusing on mental, not material, well-being once an acceptable standard of living had been reached.

Half a century later, we are still trapped in the growth-oriented model but with no alternative. The question is: can we find one?

The greatest fear is that a falling population means that fewer young people will not be able to support the bigger, older cohorts once they stop working. So first, we must change the way we work.

Those people often relegated to the sidelines -- highly educated women, retirees, persons with disabilities -- must step into center stage. Thanks to increased digitization and automation, workplaces can now accommodate them.

Companies such as NGK Insulators, a ceramics manufacturer with 450 billion yen ($4.2 billion) in turnover since 2017, extend a full-time, fully compensated offer to their over-60 employees. Such initiatives contribute to sustaining the workforce and give a sense of purpose for older people who might relish the opportunity to continue to make a positive contribution.

If the demographic shift can accelerate work reform, so can it nudge family reform. One of the major problems with our aging population is that they are too often isolated. With one in four Japanese households with a person over 65, the higher their level of engagement, the better is their physical and mental well-being.

An old man speaks at his flat in Tokyo: one of the major problems with aging population is that they are too often isolated.   © Reuters

To this end, localism helps too. A broadly connected community with cross-generational networks encourages the social engagement of the elderly. Over the long run, this trend may challenge the modern notion of family, from an isolated nuclear family to a community-based one.

Unsurprisingly, such a community forms more easily in regional cities than megacities such as Tokyo. The pandemic could emerge as an unexpected enabler, driving people away from crowded urban environments. Last year Japan saw the largest outflow of Tokyoites since 2014, a 5% increase from 2019.

Underlying these changes is a shift in mindset. While financial gain remains an important motivator, it should not be the only one influencing life choices. Mental well-being is important, and so is the gratification that comes with helping others.

If Japan manages to become a more charitable and supportive society despite its falling population, it can be a light unto the rest of the world and no longer a demographic cautionary tale.

Still, the existential question remains. If Japan is the short-term torchbearer of finding the right balance between shrinking demographics and improving collective well-being, what will happen to its population over the long run?

A flexible work style is friendly to parents. Localism leads to having neighbors as extended family who care for the children. These trends resonate positively with parenthood.

Will these trends be powerful enough to stabilize the birthrate decline? This is anyone's guess for now. But I am convinced that, instead of magically trying to save the birthrate, focusing on improving the happiness of those of us who are here already is a much better way to go.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member companies.

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