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Japan Diary

April 23, 2011

Economic policy should be rearranged around GDP per capita instead of GDP

The pessimistic statement has been around for a while that Japan has already lost its power and status as its population is shrinking rapidly (On the contrary the earthquake and tsunami will probably boost construction and various consumption) . But people seem to ignore the fact that before the W.W. II, Japan's population was no more than 70 million (today about 120 million).

Even the declining work force will not constitute a serious problem. In fact, it only takes a shift of its manufacturing abroad and Japan could gain enough profit to support its senior citizens. In addition, the problem of decreasing domestic market can also be solved by an effort to increase export volume. In contrast to the past exercise of Japan who forced other countries in Asia to import its goods in the name of Greater East Asia Co-Prosperity Sphere, Japan now acts in accordance with WTO and FTA and the whole world has become Japan's exporting market. Japan's trade surplus against China (except for last year) and South Korea is quite remarkable.

Having said that, there are several points that need attention. That is whether the decline in work force is being compensated by an increasing number of working female and foreign workers. To have a clearer picture of the situation, I have done a brief online research, and the results are as follows. According to the survey carried out by the Bureau of Statistics, amidst the economic boom in January 1965, the number of work force was 47.13 million. Right after the bubble economy, that is to say the peak of Japanese economy, the number was 63.27 million. In January 1998, this number rose to 65.6 million, the highest in the record. On the other hand, in November 2011, the number is slightly lower, 62.33 million.

Among the working population, the number of women has risen from 18.75 million in January, 1965, 25.81 million in January 1991, 26.89 million in January, 1998, to 26.33 million in November 2010. However, their share in the entire working population has stayed almost unchanged ranging from 40% in 1965 to 42% to 2010.

The total female population in the ages between 20 and 60 was 333 million as of 2008. Compared with the number of female working population of 266.7 million as of January 2008, it means that as much as 80% of all women in these ages have jobs. However, if another 10% will start working, then the number of the working population will increase by 3 million.

From argument above, one can easily tell how important it is to solve the shortage of day nurseries. Because of the long waiting line for a place in day nurseries young mothers are tied to their home, unable to go to work. Opening of more day nurseries will be much more effective for mitigating the problem of birth rate fall than the government's policy for stipend for all children, which seems to be nothing other than an electoral policy. It seems that even among Democratic Party and Social Democratic Party there are politicians who hold the stereotype that women should do nothing more than housework.

Another point worth attention is foreign workers. According to the estimate by the Ministry of Health, Labor and Welfare, their number had risen from 0.26 million in 1990 to 0.92 million in 2006 (including illegal workers), whereas the number of naturalized foreigners is not large (each year around 10 thousand to 20 thousand foreigners are naturalized).

All in all, judging from pure statistics, even if the Japanese labor force in is facing sharp declines, the whole labor pool will not be affected seriously as Japanese women and foreign workers can compensate. On top of that the direct investment by the Japanese companies abroad with employment of the local workers would mean that the Japanese economy is effectively importing large working force. The income Japanese companies gained from their subsidiaries abroad was equivalent to 3% of the GDP i.e. 163.2 billion dollars. 1.9 million workers would be needed to produce this size of wealth.

Some may allege that the investment abroad will reduce domestic employment, but if the Japanese working force dwindles in coming years, why not transfer production abroad and repatriate part of the profit for financing our pension and medical insurance?

To conclude, there is no need to get panic for the decline in labor force. Since our whole population is going down, there is no point in struggling to maintain GDP as before. In fact, it is just for caring the senior citizens that we should devote efforts to maintain a certain level of GDP. This sum can be mathematically calculated.

Such thoughts would naturally lead our attention to GDP per capita. To put it another way, the time has ceased when GDP sum was the most important indicator in economic policies. Instead, GDP per capita should be attached more significance, and financial and monetary policies should be rearranged around the objective: --- to maintain or even raise GDP per capita for Japan. This goes true for other industrially developed nations, too.

Single-minded obsession with GDP is often found to be a shared characteristic in a developing stage of industrialization. To further promote our well-being isn't it a good idea to switch our focus from GDP to GDP per capita?


Author: Tom Gowing | January 18, 2012 10:23 AM

Excellent comments which can promote good discussion on conventional GDP and its limitations. I would like to use some of these statistics in my classes if you are ok with it? Best Regards,

Thomas Gowing

(Thank you for your attention. Please feel free to do so. Akio KAWATO)

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