[VIEWPOINT] Learn From Japan and Be Prepared

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[VIEWPOINT] Learn From Japan and Be Prepared

The world is watching Japan to see which direction its economy will take having effectively "lost" 10 years since its economic bubble burst in the early 1990s. Concerns are focused on whether it will recover and how will the world economy be affected by the combined impact of the United States' economic downturn. As Japan is both a neighbor and a great importer of Korean products, Korea is particularly concerned.

It is generally accepted that Japan's current situation stems from not a single cause but from a combination of factors, including tardiness in corresponding to globalization and revolutionary changes in information technology, postponement of financial and corporate reforms, absence of political leadership, the continual sliding of the financial market, insolvency of corporations and stagnating consumption. To cope with this, the Japanese government introduced public investment totaling 100 trillion yen ($82 trillion), but this measure was ineffective despite Japan's zero-level interest rates. Moreover, as Japan's aggregate national finance deficits reached 650 trillion yen, approximately 1.4 times the country's total gross domestic product, Finance Minister Kiichi Miyazawa admitted that the nation's finances were on the brink of collapse. The resuscitation of the Japanese economy depends on whether private consumption, which makes up 55 percent of GDP, recovers. The Japanese, caught in a "liquidity trap," have curtailed consumption and are saving their money, even though they are hit with the lowest interest rates in the history of capitalism.

Why don't the Japanese loosen their purse strings? The overriding reason for their caution is uncertainty. At the root of this phenomenon is population reduction and aging. The Japanese birth rate began to decrease in 1975. The futurologist Peter Drucker predicted that Japan's population, currently 125 million, be between 50 million and 55 million at the end of the 21st century. Also, the number of people under the age of 14 has halved in the last 30 years, now accounting for 14.8 percent of the total, while those over 65 make up 16.7 percent of the population. If this trend continues, in 2015 one in four people will be over 65 years in age and by 2050, it will be one in three.

This "aged Japan" saps the vitality of Japan and worries its people. The days of dependence on offspring are over and the bankrupt government does not seem forthcoming with help. Increasing lay-offs and corporate restructuring also make Japanese corporations an unreliable safety net. There are slight possibilities that the stock market will soar or real estate prices will rise. The individual can only place his trust in himself. Therefore, it is natural that the Japanese are saving every penny and preparing for the future on their own. When many Japanese stopped consuming all at once, it became a vicious economic circle. Due to the depression and reduced consumption, sales went down and corporate management got worse, boosting unemployment. This made people more anxious about the future. Strong national leadership, which could have turned the situation around, is non-existent. Japan needs new momentum to halt the downward spiral.

The phenomenon of the "aged Japan" has great significance for Korea, which officially became an aged society in 2000 as those over 65 accounted for at least 7 percent of the total population. They are predicted to comprise 14 percent in 2022. We must prepare for the long-term depression of the Japanese economy and prepare for our own aging society. Each individual's sustainable economic productivity should be enhanced through education and technology innovation and Korea must create an environment in which older people are able to work. We must calm anxieties about the future by maintaining sound national finance and expanding social safety nets, to create a "young Korea," which prizes experience, passion and spiritual youth.

The writer is a director at A.T. Kearney Consulting.

by Lee Hyun-seung

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