Japan – The ‘Silver Shift': Will this be a burden or an opportunity?
This is the first of two postings.
As well as time in Africa, I have spent 5 weeks in Japan this year and a significant amount of time since 2010. If Africa is the population growth story for the 21st century, then Japan is the leading story of ageing and declining population. Japan won’t be alone as Europe, China and South Korea are already in decline. Japan’s population will decline from a peak of 128 million in 2009 to an estimated 77 million by the end of the century. In contrast, Africa’s population will grow from 1.04 bn in 2009 to an estimated 3.8 bn by the end of the century.
The implications of decline vs. growth are immense. In Japan, for every 100 working-age people, there are 50 people aged 64 or older. In an ageing population, the need for social security and health care services is enormous compared to that of a growing population. In contrast to an ageing population, the burden on the young is much less. You really need to consider the combined burden of youth and ageing on governments and taxpayers.
In addition, you can imagine the different consumption patterns for an ageing vs. a youthful country. McKinsey Global Institute (MGI) forecasts that total direct consumption of 65+ year olds in Japan will increase from 32% to 43% of total spend from 2023 to 2050. The major differences in ageing and declining populations are increasing proportions of spending on health, home and social care services, and declining costs in education and other services such as restaurants and hotels. Understanding the specificities of product and service demand by age group and population segment will be vital going forward, as past trends will not continue. Japan’s changing age distribution shows that the past is not a predictor of the future.
The declining population is also expected to significantly affect wealth accumulation among youth. Historically, a significant proportion of wealth accumulation has come from increasing real estate prices. In the US, real estate has contributed to over 50% of the wealth of the 65+ year old population, according to McKinsey Global Institute. This will not be the case for the younger population when the housing stock starts to outstrip the population’s needs. Price declines have already been seen worldwide as rural property supply outstrips demand due to urbanisation. The ability to save and invest also becomes more difficult as the burden of caring for the elderly takes an increasing grip on the working population's funds.
Traditional economic thinking equates population growth with prosperity and decline with stagnation. Historically, workforce ageing has also reduced the potential for productivity growth. What is the economic equation for Japan with a declining population? Where are the wealth creation opportunities? How can Japan harness the latest technologies to turn problems into opportunities? What other policies and societal reframings are needed? Is Japan making progress against these challenges? In the next post, I will explore these questions.
