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Fig. 29 shows the change of per capita disposable income over the period from 1955 to 2010. Real per capita disposable income (benchmark year 1990) increased fast and steadily from 839 thousand yen in 1955 to 3,421 thousand yen in 1997. But it started to decline to 2,993 thousand yen in 2010.
Data Source: 19-4 Population 15 Years Old and over by Labour Force Status and Sex - Labour Force Survey (1948--2010), Statistical Survey Department, Statistics Bureau, Ministry of Internal Affairs and Communications.
The unemployment rate has been rising recently. During the high economic growth period of the 1960’s, it was as low as 1.1% or just above 1.0%. But it started to rise after the first oil shock year of 1973 to 2.8% in 1986. In the bubble economy period of the 1980’s it dropped to 2.1% in 1990 and 1991. Then it started to rise throughout the 1990’s and reached the peak of 5.4% in 2002 and it is still high at 5.1% in 2010.
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population. The government takes various measures to increase the birth rate and increase the young population. The young today do not get married. They get married very late in their age so that they do not bear many children if they ever do. The creation of environment where the young couples can bear and raise children without too much difficulty is important and various specific measures are taken such as providing child allowance, building many more nursery schools that charge low nursing fees, giving more paid holidays for bearing and upbringing children. Ease of married housewives to return to the previous jobs so that they do not have to sacrifice their careers for the children.
At the same time, the value of children has been declining. In the old days, children were considered precious treasures as they were the only social security for their old age days.
Nowadays, it is easier to stay single and get support of the government in various welfare measures in their old age. The burden is imposed upon those who get married and bring up their children as these children are the ones who support the elderly people by paying taxes and social security contributions.
5-2. Self Reliance of the Elderly People
With the change of population structure, the young working age population has to support more elderly population if the elderly people simply rely upon social security for their life after retirement. With longer life expectancy, they have to live on social security many more years than before. The social security system has almost collapsed already because of too much financial burden of supporting the elderly people.
Nowadays the retirement age is mostly 60 which means that the retired workers have to live almost 20 years on social security, the pension benefits. The working age should be extended so that the elderly people can support themselves by their working, perhaps to 75.
The jobs for the elderly people should be expanded without displacing work opportunities of the young people. Life expectancy is increasingly longer, and the pension alone cannot sustain their living after retirement at the age of 60 or 65.
5-3. Restoration of Fiscal Discipline
In the mass democracy, people do not want to pay taxes and want to get public services free. The Japanese government had to meet public expenditures with public bond revenues as current revenues such as taxes and charges are not sufficient. It has piled up enormous public debt, more than 200% of GDP. Such enormous fiscal deficit and debt cannot be sustained and even a nation or a local authority can get bankrupted. The rating of Japanese government bonds has already been lowered and the confidence in them has been declining. To sell government bonds, higher interest rates may be demanded or they simply cannot be subscribed by the public. This is pure bankruptcy with all sorts of difficulties in the Japanese society and economy.
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But fiscal discipline should be maintained in spite of popular Keynesian fiscal policy that absorbs idle money in the private sector in the form of public borrowing. It is tempting for politicians to raise money in the form of public bond revenues rather than tax revenues. But there must be a limit to public borrowing. Even though the redemption of capital may be met by issuing the same amount of new public bonds, the annual interest payment must be met by current revenues such as tax revenues. The rating of Japanese government bonds is lowered and the confidence in Japanese government bonds is falling. If the fiscal conditions of Japanese government becomes dangerously low, the pressure from international institutions such as OECD and IMF will be increased, and austerity measures will be imposed as the case of Greece. Before such foreign interventions are imposed, Japan should give more consideration to fiscal discipline rather than too much reliance on Keynesian fiscal policy.
5-4. Attracting More Foreign Direct Investment
Investment is extremely important both in creating effective demand and expanding productive capacity and raising labor productivity. Japan’s domestic capital formation has been very sluggish and decreasing domestic saving is invested abroad. China and India and many other countries are enjoying very lively economy by inward foreign direct investment.
Japanese government must create more favorable environment for foreign investors and there should be more deregulation for foreign investors. The mentality of Japanese people should also change and become more pragmatic as the famous word by Deng Xiaoping who said
“what matters is not whether the cat is red or white, what matters is whether the cat catches mice.”
Foreign direct investment made in Japan gives just as good effects as the investment made by Japanese.
5-5. Importing Foreign Labor Force
Japan has been notorious in very strict immigration policy. Japan has been kept extremely homogeneous with merits and demerits. Recently Japanese have been spoiled by long peace and prosperity and do not have entrepreneurship, innovative minds, and hard work discipline.
Many foreign workers of developing countries are more eager to work hard and can contribute to giving competition and stimulus to Japanese people. As the population of young Japanese people is shrinking, it will supplement shortage of workers in Japan as well.
5-6. Reform of Education
The most lamentable condition of Japanese society is clear lack of qualified leaders with high ability, lofty ideals and integrity, commitment to public interests. The Japanese government today cannot decide anything and implement necessary policies. The same poor conditions prevail among public servants, private company workers, and students in school.
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They do not want to go abroad either as students, or workers of private companies or civil servants such as diplomats. Japanese people would be more and more isolated from the global trend and decline in relative position in the international community.
Too much egalitarianism has been stressed in Japanese education after the war and the proper division of labor according to aptitudes and aspirations has been neglected. Noblesse oblige once prevailed among Samurai class in the feudal Japan and the Japanese society before the war. But in the mass democracy introduced into Japan after the war, it has been regarded as something bad and discriminatory. This is the major factor of not producing good leaders in Japan. And good leadership is pure public good that gives enormous benefit for all nationals of Japan.
5-7. Managing the Society with Libertarian Principles
Nowadays, the government is demanded to provide too many public services and the public simply extend hand for free provision of these services. But of course, the law of scarcity prevails in real world and the government finance collapses. Too much stress on welfare state is wrong and destroys the self reliance of individuals. Libertarianism should be practiced more in today’s welfare states.
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Speech 2