When Janet Yellen speaks about the structural policy vs. the fiscal or monetary policy that's needed to fuel economic growth and job creation, she might also consider the developed countries of Japan and within Europe, which need the structural shift even more than we do in the U.S.
Consider Japan’s diminished stature as an economic power, which has been evident for at least 20 years now. Abenomics isn’t making anything better. The economy shrunk by an annualized 6.8 percent in the second quarter. But this setback isn’t a momentary lapse; it's a deeply structural issue, which is also not being addressed by Abenomics.
By structural, I mean the demographic shift brought about by the aging of the Japanese population. This aging phenomenon has been cascading for decades, and it is undeniably connected to the beginnings of Japan’s economic malaise years ago. It’s with us here in the U.S. and connects intimately to structural underemployment, which goes to the over-55 crowd who still want to work, need to work and could be working.
It's not a coincidence that Europe – the second oldest population on the planet – is also stuck economically. Even the great German economy is sputtering. In fact, during recent IMF meetings, Christine LaGarde admitted a scenario of no-growth and a “lackluster jobless recovery” for Europe.
The latest quarterly reports, which show stalled growth in Germany and further economic problems in Italy and France, have prompted Paul de Grauwe, an economist at the London School of Economics, to highlight the Europe-Japan parallel: “We should not wait until we all become Japan, we should act now.” How true. Demographically, however, Europe is becoming like Japan, right on Japan’s heels, with the over-60 population reaching an incredible 40 percent of the overall population in the next few years.
America is right behind. So leaders ignore at their peril the connections of population aging and 21st century economic policy. The spending cycles we created in the immediate post-war years assumed a completely different demographic makeup than the one that characterizes our time now.
Here’s where Japan can take control of its economic destiny and show global leadership as well. Japan is the “oldest” country in the world – the so-called “canary in the mineshaft.” As such, it has the incentives to trigger an economic revolution in which growth can be sustained even as there are more old than young, and more people at “traditional retirement age” than “20th-century working age.”
Japan can be the first to build its economic policy on 21st century demographic realities, and, in the process, create the path for growth.
Paradoxically, the only serious solution for Japan’s decades-long economic downturn is also its path back to global leadership. Japan can be the first country to have an aging strategy under which all else falls – tax, pension, trade, education, workplace and workforce, innovation and health policies. This will mean re-imagining 20th century social, retirement and health policies.
In Japan, a strategic aging policy designed to transform its over-55 population into a source of economic growth and jobs creation can become the framework for all else. Everyone in Japan knows this. Yet it's virtually ignored as a serious public policy initiative. In this construction, Abenomics would become only part of a larger and more compelling framework in which an aging growth strategy is the centerpiece of everything they do.
Such an approach would also be the strategy for its global leadership, since virtually every other nation is facing the same challenge as Japan – from Europe to China, America to Brazil, Turkey to Australia. This global impact was noted most accurately in Standard & Poor’s 2010 Global Aging Report: “No other force is likely to shape the future of national economic health, public finances and policymaking as the irreversible rate at which the world’s population is aging.”
What would a foundational aging strategy look like for Japan? It would center on 5 key planks:
- End the “retirement age”: The retirement age of old is an artifact of 20th century industrial economies and only feasible in a demographic equation in which there were more young than old. It's time to lose a designated age for retirement that simply doesn't make sense today.
- Create working incentives: Business needs incentives to provide employees with options for longer and more flexible working lives. Wholesale changes in pension policy and an aggressive use of tax policy would be good places to start.
- Focus on prevention and wellness: Shift health care spending to prevention and wellness initiatives, with a particular focus on age-related non-communicable diseases, such as Alzheimer’s, cancer, diabetes, etc. Then leverage health policy to promote activity, engagement, and economic value.
- Reframe caregiving: Treat caregiving as a driver of productivity as much as a social good. And reimagine how the private sector, business, and markets can provide care and tools for prevention.
- Change education: Overhaul the approach to education in order to recognize and account for the 40-60 years of working life that we will have in the 21st century. When you work until age 80, does it really make sense to end your training and skill development at age 21?
Last week’s quarterly economic numbers in Japan and around Europe were dismal. The 2008 financial crisis has not yet fully abated, but the stagnation we are seeing now is the result of something far deeper and more structural. It’s been building for decades. That 2008 fiscal crisis is more of a catalyzing event than the cause itself of the malaise.
An economy simply cannot grow when over one third of its people is treated as if they are dependent or disabled. This might have been valid in 1950 or even 1980. It is not so in 2014 - and it’s preposterous for 2030.