Thursday, January 5, 2017

How Does Old Age of Its People Transform An Economy

Japan is a country of old people, the stats are very clear on this point.  With one of the world's lowest birthrate and the highest median age, the country is set to become more and more elderly in the coming years and decades.  But those numbers do not really sink in until one hits the streets and sees the country at work.  Especially on menial public services jobs (such as street cleaners, trash pickup, train station maintenance staff), the average worker is definitely no less than 40, and more realistically (averaging) somewhere in the 50-60-years-old range.  It is sad to see such old folks bending over to carry large bags or wipe low places.

For most foreigners, the first thing they jump to when they see such sights is two things.  1. Japan need to embrace foreign immigration, and 2. Japan need to improve maternity support systems to encourage higher number of births per woman.  Neither solution is immediate. Both requires deep cultural changes that restructure and transform the entire mentality of the Japanese worldview, and any radical push for such will be political suicide for anyone willing to take up the challenge.  Better, at the moment, at least, is to assume no change and think about the real consequences on the streets of a continuingly greying society.

There is, like many things in the world, a good and bad side to this situation.  The good side is found not even outside the author's hotel room.  In the (not even so high-end) hotel he stays at, every room includes a in-room washing-and-drying-machine combination.  The extremely quiet machine takes your dirty clothes and detergent, and then give you perfectly dried, soft, and not-wrinkled output in under three hours, without the user ever needing to check up on the progress.  All the user needed to do is take out the clothes and fold after the machine beeps to signal the finish.

The washing-drying machine in the hotel room is but one example of cutting edge automation that are ubiquitous in Japan.  Toilets and faucets here are generally motion-sensored, vending machines on the streets sell anything imaginable, and household adoption of automatic cleaning robots like Roomba are off the charts.  New R&D projects on automation will surely replace aging menial workers, cleaning the streets and pick up trash for humans in the near future.  With supply chains for robotics built up in the process, Japan can then quickly tailor such cutting edge manufacturing to meet new needs for robotic labor in the future.

The bad side, however, may be a general depression of consumption among the populace.  It is reasonable to assume that old people tend to spend less money and use less resources (with the exception of health) per capita than someone who is younger.  Young people take vacations, adopt new consumer electronics, and eat out in new restaurants.  Elders have neither the energy nor the desire to do so even though their higher savings correlates with much higher disposable incomes than available to and possible for younger people.  Older folks have money but simply will not spend them.

In the past years, Japan's quirky solution to the paradox is to ignore them wholesale.  Instead, to prop up shrinking domestic consumption, it has become more and more reliant on foreign tourists purchasing products and services when they visit Japan, most notably through an ever-expanding network of duty-free shops across the country near major tourist sites.  More foreign employees are brought into these duty-free shops to cater to non-Japanese-speaking customers that now make up the bulk of the majority.  Much energy is spent on analyzing what sells well to what customers from which countries.

One might ask why this may be considered the "bad side."  The main issue here is unreliability of foreign tourist spending.  In an age of global trade, products available in one country but demanded by another one can quickly be transported to the other country to be sold.  To buy the same products in another country generally mean either 1. those products are so new that they are not yet available everywhere, 2. the same products are not to be trusted to be equally high-quality everywhere, 3. due to exchange rates and government-set tariffs, the same products can be priced significantly differently in different countries.

The first two will be changed over time, and the third will continue to fluctuate.  There certainly is not only one place in the world where high-quality products exist, and consumers have choices of where to buy those needed products.  Japan may be the top choice for some now, but it may will be a btoom choice for everyone in the near future when the Yen becomes too valuable or if Japan-quality products go truly global.  Tourists will leave and domestic consumption that has long evolved to cater mainly to their needs (instead of local people, young or old) will collapse in turn.

A rural African resident may have little idea on what is it like for a society to be 40-something in average age of its residents, but honestly, they should be happy that they are not in that position.  Despite the potential for automation that comes with society in old age, any positive effects there are likely to be offset by the decline in domestic consumption that can only sometimes by compensated by foreign tourist spendings.  It is only unfortunate that Japan has few cards to play if the fundamental problems of old age, such as the discouraging environment for childrearing.  With economic transformation due to old age already under way, it would be wise for the government and people here to think deeper and harder about possible and acceptable solutions that are not yet raised.

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