Decreasing Population, Increasing Profits.

(From Journal of Japanese Trade & Industry (JJTI))

Byline: Hatakeyama Noboru

The economic growth of a country equals the population growth plus the per capita productivity growth. The population of Japan will start declining from 2006. Unless the increased per capita productivity growth can offset this negative factor, the country's economic growth will be much smaller than before. Japan's population used to increase by 1% each year, so when its per capita productivity growth rate was 3%, its economic growth rate was 4%. If the population declines by 1% every year, however, the economic growth rate would only be 2%. If per capita productivity improves by 1% in addition to the 3% mentioned above, Japan's economic growth rate would still be 3%, offsetting the negative impact caused by population decline. How is this possible? Japan's productivity rate for competitive manufactured goods is said to be 20% higher than that of the United States. However, for other goods and services, Japan's productivity is about 40% below that of the United States. Japan's productivity for agriculture and construction is especially low. Since competitive manufactured goods only account for 10% of Japan's economy, its average productivity is only two-thirds of the US rate. So Japan has to improve its productivity from the standpoints of catching up with the United States and coping with population decline. There are two possible scenarios for Japan.

The first one would be to improve the productivity of goods and services other than competitive manufactured goods. If female and elderly people who have not been seeking jobs start working, Japan's per capita productivity will surely increase because additional goods or services which are the numerator for calculating productivity would increase regardless of their skills whereas Japan's entire population, the denominator, would remain unchanged. In addition, FTAs with other countries would be able to play a big role to improve productivity. If Japan's agriculture and service sectors are exposed to more foreign competition due to FTAs, their productivity should be improved for survival. Of course strong political leadership is needed for this scenario to be realized. The second scenario would be to shift resources such as labor and capital to more productive sectors. However, the most productive sectors such as automobiles may not need any additional resources. Promising service industries such as health care, tourism, business support and entertainment contents would need them. Tourism includes businesses for convention centers. Business support includes agencies that introduce or dispatch workers to companies.

From the viewpoint of the ...