2050 Vitality Index – Japan

21.07.14 Publication:

We know that we cannot forecast far into the future. Nevertheless, here in the second decade of the 21st century, there is an impressive consensus about what are the main forces that are destined to shape that future. So we ought to be able to prepare for them. But are we doing so?

That is the question I am seeking to answer by constructing a new statistical indicator of how well our affluent, mature developed countries are preparing themselves for these long-term trends. I am doing this as part of the work of a new educational non-profit foundation I have established, “The Wake Up Foundation”, and am calling the indicator “The Wake Up 2050 Vitality Index”.

So for this column I thought I would take a look at some of the indicators of how well Japan might be preparing for the world of 2050. We are all naturally focused on short-term issues, such as whether Abenomics’ third arrow will stimulate economic growth next year. Let’s try to look instead at the long term.

The forces about which I think there is a consensus include at least these ones: demography, the “knowledge economy”, technological innovation, climate change and globalisation.

But what are the most important measures of these, as far as long-term preparation is concerned?

Starting with demography, of course we all know that Japan’s population structure is ageing rapidly, and that by 2050 nearly 40% of the population will be over the age of 65, unless there is a dramatic change in immigration or the birth rate. The OECD’s statistics use two significant words to describe this over-65 population: “elderly” and “dependant”.

Yet really these words are outdated and misleading. The true measures of how well Japan is preparing itself for 2050 in demographic terms must be measures that indicate a steady redefinition of at least the age group between 65 and 75: that it is healthy and that it is not “dependant”, probably because a rising proportion of that age group should still be working productively—so as to contribute to the economy and tax revenues, and to stay physically and mentally healthy.

Japan has been more advanced than many western countries in raising the retirement age to 65. According to the OECD, 65% of Japanese between the ages of 55 and 64 are in employment, compared with 61% for America, 58% for Britain and just 40% for Italy. Yet even that will not be enough. Reliable statistics on how many over-65s are in the labour force are scarce, but it appears that the figure is about 50% for those aged 65-69 and 20% for the over-70s. In future, both of those figures will have to rise.

On education and the knowledge economy, Japan scores well. In the OECD’s international “PISA” assessments of high-school education, Japan is the top-ranking big country, coming 4th overall in science and reading, and 7th in mathematics (the higher countries are all small city states such as Hong Kong and Singapore). Japan also scores well on the proportion of the age-group 25-34 who have benefited from tertiary education: nearly 59%.

On measures of innovation, Japan’s performance is more mixed, however. It is clearly top of the class in terms of patents registered per head of population, scores highly on the ratio of research and development spending to GDP, and on the contribution to GDP of information and communications technology. But it is rather lower if measured by the number of researchers actually employed in the business sector, and on the contribution to employment of the IT and other innovation-based sectors.

Climate change is another challenge: despite disputes over the science, the pressure to reduce greenhouse-gas emissions is only going to increase. Japan’s annual emissions have remained either the same or slightly higher than they were in 1990, which makes its performance similar to that of the USA but much worse than Germany or indeed Europe as a whole.

Globalisation is harder to guage. Measured by trade as a share of GDP, Japan is low, but so is that of the USA, which is surely a country well connected to the world. Measuring it by foreign direct investment may be more meaningful, as for mature countries it may indicate how integrated into global business networks are a country’s companies: we all know that Japan attracts quite little FDI into the country, but it is also one of the OECD countries with the lowest stock of outward FDI as a percentage of its GDP.

What ranking will these and similar measures give Japan on my “2050 Vitality Index”? Well, I will reveal the answer to that later this year.