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How to overcome the Silver Democracy in Japan?
December 3rd, 2014 Naohiro Yashiro
International Christian University [email protected]
2
Japan’s population will decline from 127 million in 2010 to 87 million in 2060
80000
85000
90000
95000
100000
105000
110000
115000
120000
125000
130000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
1000
Source: Population and Social Security Institute
Population estimates 2012.1
2002 2006 2012
Rapid aging of the elderly
0
5
10
15
20
25
30
35
40
45
1950 60 70 80 90 2000 10 20 30 40 50 60
Mill
ion
Source: Population and social security institute 65-74 75+ Ratio of age 65 and above(％）
Significant inequality in net social security benefits between generations
4
Japan’s social security entirely depends on deficit financing
5
0
20
40
60
80
100
120
1975 1980 1985 1990 1995 2000 2005 2010 2013
Source: Population and Social Security Research Institute
Social security expenditures and contributions (Trillion yen)
Social security expenditures Social security contributions National bond issues SS balance
Silver democracy: voting ratios are constantly higher for older age groups
20
30
40
50
60
70
80
1989 1992 1995 1998 2001 2004 2007 2010 2013
20-29
30-39
40-49
50-59
60-69
70 and over
Pensions and medical care for the elderly account for a large share of social security
Political intervention prevented reducing pension benefits due to deflation
• The Pension Law requires automatic adjustments of the benefits according to price changes. But, politicians passed the special law to freeze it in case of deflation.
95
95.5
96
96.5
97
97.5
98
98.5
99
99.5
100
2000 2005 2010 2013
Source: Ministry of Health, Lbor and Welfare
The statutory and actual level of pension benefits (1999=100)
Actual level Statutory level
Proposals for revising the election scheme to reduce the elderly’s voice
• Voting rights should be appropriated to parents by the number of their children.
• A Diet member should be proportioned in “young bracket（20-30 year）”
“middle-aged bracket（40-50 year） ”, and “elderly bracket（over 60s years） ”.
Who is to bell the cat?
• Any trials to reduce the political power of the elderly are likely to be rejected under the silver democracy.
①Threatening the elderly
• The social security fund has been shrinking, and is likely to be exhausted by 2030.
• If the credibility of national bond declines, 40% of the benefits may well be cut.
• Current social security is “high risk, high return assets” for the elderly.
• By cutting the benefits by 20% now, it becomes “low risk, low return assets”.
12
Credibility of government bonds will decline with accumulating debts
0
50
100
150
200
250
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source OECD Economic Outlook
Public debt to GDP ratios (%)
Japan
USA
EURO
②Appealing to altruism of the elderly
• The Japanese elderly do care for their grand- children and spend on average $2400 in a year for them.
• If the elderly were well informed the current situation on significant income transfers from the grand children’s generation, they may well accept cuts in social security benefits.
Small differences in views on social security burden sharing by age groups
0
5
10
15
20
25
30
35
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+
Source: Ministry of labor,Health and Welfare
Opinion poll on the social security burden sharing, 2012
Increasing burden on the working generation Increasing burden on the elderly generation
Economic revitalization policies to address the demographic challenge
• Higher labor force participation of women and 30% target for female managers;
• Lower corporate tax rate; • Improving labor market mobility.
Growth accounting of Japan (%)
GDP Contribution ofgrowth rate Labor Capital TFP
1980-1990 4.64 0.6 2 .19 1.841991-2000 1.13 -0.48 1.2 0 .42001-2010 0.76 -0.49 0.48 0.77
Source: Mizuho Research Institute
Reviewing the role of the Government
• Basic social security and health care provision is the governments responsibility;
• They could be combined with value added private services in the markets;
• Regulatory reform of health and nursing care provision would create production and employment as well as tax revenues.
Summing up
• Aging of the population is gloomy for the public sector with growing expenditures;
• An increase in the elderly population implies growing markets for the private sector;
• Expanding “Silver Markets” through regulatory reform is the key to Japan’s economic revitalization.
