The New Cold War
America, China, and the Echoes of History
The results of this weekend’s upper house election in Japan’s Diet will hinge on voters' assessment of Prime Minister Shinzo Abe's economic stimulus plan, his proposals to revise the constitution, and his relations with neighboring countries. In other words, yet another election will pass with hardly a mention of the single-most important factor for the country’s prospects: demographics.
No country is aging faster than Japan. Between 1985 and today, the percentage of the Japanese population over 65 rose from a tenth to nearly a quarter. By 2060, that figure will rise to nearly 40 percent. And by that point, Japan’s population will have shrunk from around 128 million to less than 100 million people.
Although this transformation has only just begun, it is already weighing heavily on Japan’s national finances. It is widely known that the country’s public debt levels are expected to hit 240 percent of GDP next year -- higher than in Greece. But it is less well understood that a portion of Japan’s debt comes from funding the national pension program. Indeed, total spending on social benefits, including health care, pensions, and nursing for the elderly, now exceeds spending in all other categories combined, including education, defense, and Japan’s beloved bridge and tunnel building programs. Much of those expenses are directly related to the rising costs of caring for the elderly. Japan's total expenditures on those 65 and older tripled in the two decades before 2004 and have only continued to increase since then. Spending on families and the young, by comparison, has not increased nearly as much.
In Japan, these vital issues are subjected to very little public discussion. Particularly ahead of elections, politicians avoid addressing subjects that are sensitive for the elderly, such as the over-generosity of the pension system, the excesses and inefficiencies in the health-care system, and the economic difficulties facing young people, which dampen already low fertility rates. The reason: voter demographics. Over the last three decades, as Japan’s population has aged, the percentage of Japanese voters over 60 has more than doubled, to 44 percent. By comparison, as of November 2012, only 21 percent of registered U.S. voters were over 65. Meanwhile, the share of Japanese voters in their twenties has fallen, from 20 percent in 1980 to 13 percent today.
In other words, Japan has two problems: It is rapidly aging, and its old folks will not let politicians do anything about it. The longer Japan waits to confront its aging society, the higher the cost to the economy. The country must start thinking less about elderly voters and more about young families, or its economic prospects will remain assuredly grim.
Japan’s elderly do not need to throw their weight around through interest groups like the AARP, as senior citizens do in the United States. The structure of the political system does the work for them.
For one, the overrepresentation of rural areas in the legislature gives older people greater influence. The disparity is a legacy of the decades-long rule of the Liberal Democratic Party, which depended heavily on the farm vote, and a failure to keep up with the country's demographic change. Over the last few decades, most of Japan’s youth in the hinterlands has fled for the cities in search of jobs, leaving the countryside -- and all its votes -- ever grayer. Although there have been reforms to the system, the exodus of young people from rural areas has outpaced these changes.
Take Kochi Prefecture, one of Japan’s most rapidly aging areas. Today, its population stands at roughly 760,000, 29 percent of which is over 65. Kochi sends three members to the lower house. Compare this to the much younger Chiba (where 22 percent of the population is over 65), a bustling prefecture with more than six million people and 13 representatives in the lower house. Although it has far fewer members in the Diet in real terms, Kochi is still overrepresented: A vote cast in the third electoral district of young, populous Chiba Prefecture is worth just 0.41 votes in Kochi's third voting district.
Reforms of the electoral system have also increased politicians’ incentives to court the elderly. Until 1994, when new electoral reforms were introduced, Japanese parties would run four or five candidates in each district. The party needed only 20 to 30 percent of the total vote to win the whole district. Each party’s candidates thus appealed to different geographic areas, interest groups, and industries. Now, parties run only one candidate, and that candidate needs a majority to win. So the elderly became a crucial demographic. By appealing to them, candidates can attract support from a cross section of industries and regions. Further, Japanese, like Americans, tend to vote more as they age, so they are a more reliable constituency.
Even the way Japanese politicians canvas for votes favors the elderly. The koenkai, local groups that mobilize support for particular candidates through personal networks, may be less influential than they used to be, but their members still organize meetings and press their friends and business contacts to vote for their preferred candidates. And they are dominated by the elderly. Participation in koenkai is highest among people in their fifties, sixties, and seventies, according to Japanese government surveys. A politician’s koenkai members tend to age further as the politician does, and they tend to reach out to other voters in their own age bracket.
Compounding all this are the strict laws that have prevented the use of the Internet for electioneering, thereby limiting politicians' appeal to younger voters. Until recently, Japanese politicians were barred from using social media and even updating their Web sites during campaign season. This weekend's election marks the first time the government has allowed parties to campaign online. Parties have embraced social media, distributing iPads to politicians, posting on Facebook pages, creating videos for YouTube, even Tweeting.
Older voters’ outsized influence in elections naturally gives them a larger voice in policymaking. And Japan’s elderly, predictably, are interested in protecting their own benefits. In a 2009 survey conducted by Japan’s Ministry of Health, Labor, and Welfare, two-thirds of respondents over the age of 70 identified nursing services and medical care for the elderly are the most important elements of social security, compared with only a third of people in their twenties. According to the same poll, support for family-friendly policies (those that would support families and encourage Japanese to pair off) falls off dramatically when Japanese enter their forties.
The result is that elderly-friendly policies get top priority, seemingly regardless of their cost to Japan’s long-term economic health. For example, Japan passed a comprehensive law on policies for an aging society in 1995; a law setting out policies for coping with low fertility was not passed until 2003. The first white paper on the elderly was published in 1989; the first white paper on the issue of low fertility was not published until 1994. At the same time, it has been hard to scale back elderly-friendly benefits. In 2009, Japanese policymakers made what was meant to be a temporary cut from 20 percent to ten percent in the copayments that older citizens pay for health care. (Japanese under 70, except preschool children and the unemployed, pay 30 percent of the costs of their care.) Despite the poor state of Japan's finances and promises to restore the copayment to a higher level, the government has yet to do so, in part because of pressure from the elderly.
Low copayments for seniors encourage frequent use of the system, a recipe for rising health-care costs. Japanese seniors visit a doctor between two and four times as often as the elderly in the United States, Germany, and Sweden. Japanese stay in hospitals far longer than people in any other country in the Organization for Economic Cooperation and Development (OECD). Hospitals are, goes a common joke in Japan, where old people go to socialize. As a result, nearly half (48 percent) of Japan’s health-care spending goes to people over 65.
Politicians have also been loath to tackle the public pension system. Japan has one of the most generous pension systems in the developed world. Benefits begin at 65, two years earlier than in Germany and the United States. And given Japan’s long life expectancy (79 years for men), the Japanese pension system pays out longer. The irony is that because Japan’s elderly worked and saved through Japan's economic boom years, between the 1970s and early 1990s, many elderly Japanese are wealthier than those of working age, who reached adulthood just as the economic bubble burst.
The inequity of the system might not even be its biggest problem; the system is running out of money. The portion of the population paying into the pension system is falling, in part because the workforce is shrinking, but also because the number of people opting not to pay into the system has increased. Since 2009, Japan's pension fund has been paying out more in benefits than it receives in contributions. It has made up the difference with government bonds, adding to an already substantial debt burden.
The government currently assumes that the pension fund can last a century. But that estimate is based on outdated assumptions about interest rates and wages. A 2004 actuarial evaluation of the pension plan was based on a long-term investment return of 3.2 percent and continual wage increases of 2.1 percent; a 2009 assessment assumed a 4.1 percent return on long-term investment and a 2.5 percent wage increase. According to studies released by Japan's National Institute for Research Advancement, which uses actual interest rates and alternative wage trends, the government’s pension assets will dry up sometime between 2032 and 2038.
YOUNG AND RESTLESS
To shore up its political and economic health, Japan must find a way to get young people more involved in the political process. In polls, young Japanese say that there are no politicians whose policies reflect their own concerns, and so their vote would not matter. Japan's political parties must, therefore, aggressively recruit younger politicians. They should also seek to raise the percentage of young people on government advisory committees, which play a crucial role in Japanese policymaking. Japan should also consider appointing a minister of youth affairs and establishing fellowships in the Prime Minister’s Office modeled on the White House Fellows program. These would help bring young people into the political process earlier and ensure that they have a seat at the table when decisions were made.
More fundamentally, Japan should lower its voting age from 20 (the highest in the OECD) to 18, which would widen the voter base by millions. In fact, Japan passed a referendum that paved the way for a lower voting age in 2007, but the idea remains controversial among some political parties. In addition, introducing more civics into school curriculum from middle school onward would help prepare Japanese youth for greater political involvement.
Second, Japan must start reviewing its pension and medical systems, given their impact on the country's long-term financial health. In the end, the country will likely have to cut health-care spending and pensions, and it might consider introducing a family doctor system similar to the United Kingdom’s to prevent the overuse of medical benefits. Regularly scheduled independent audits of the pension system, in particular, would at least reveal just how unsustainable the current system is, taking into account the country's rapid aging population, and help start the conversation.
Abe’s ruling Liberal Democratic Party has already promised to review the medical, nursing care, and pension systems. The challenge will be turning those words into policy. Toward that end, the government has announced plans to increase the consumption tax and put some of the extra revenue toward social welfare programs. But even that tax hike, which will contribute only modestly to the hole in Japan's pension reserves, is subject to economic considerations and could yet be delayed if Abe feels the economy is not strong enough to take it.
If Japan wants to encourage young people to get married and start families, it should start by tackling the country's overly rigid labor market, where promotions and raises are dependent on age, where it is very difficult to fire even unproductive employees, and where young people are increasingly offered lower-wage "contract" jobs -- even as older staff, mostly men, hold onto their jobs for life. The marriage rate for young men with "contract" jobs is half that of men with staff jobs. In a country where only two percent of children are born out of wedlock, reform of the employment system is an important family-friendly policy.
Finally, Japan needs to reform its electoral system, redrawing electoral districts in line with the current populations to create a fairer distribution of voting power. Courts have declared the results of the 2009 and 2012 elections unconstitutional because of the imbalance in representation, and one of these cases has made its way to the Japanese Supreme Court, which should put pressure on politicians to reform. For more than four decades of previous electoral system reforms, politicians have insisted on adjusting the system themselves -- an obvious conflict of interest. Responsibility for electoral reform should be moved to an independent external commission.
Of course, electoral reform will not change the underlying reality: Even with redistricting, Japan's population structure means that the proportion of elderly voters will still be high. But the gaps in representation between districts and regions would not be as large.
Japanese politicians' preference for the elderly over the young is one of the reasons the country has been so slow to change over the last two decades, despite economic stagnation. Fear of losing the elderly vote has shortened the time horizons of Japanese politicians, to the detriment of young families. A frank debate about preparing for this demographic tremor is long overdue.