Daily Times

Shinzo Abe saying “I have absolutely no worries about Japan’s demography” should worry economists – none more so than Bank of Japan Gov. Haruhiko Kuroda. Far from seeing an aging and shrinking population as a crisis, the prime minister thinks it’s a boon. The widely-held view his 127 million population will plunge below 100 million by 2050, Abe told Reuters, “paradoxically, is not an onus, but a bonus.”

The real paradox is how the leader of the No. 3 economy reckons “robots, wireless sensors, and artificial intelligence” will “grow our productivity” so the size and quality of the workforce doesn’t matter anytime soon.

We’ve seen this film before – it’s called “Wall-E.” The 2008 animated Pixar flick depicts a dystopian future of technology doing all the work, while humans become useless couch potatoes. Of course, this isn’t Abe’s vision for the decades ahead, but his remedies for a fast-graying
nation are just as fanciful if he doesn’t start revolutionizing Japan Inc. immediately.

One spoiler: A public debt two-and-half times the size of an economy underwhelming in terms of growth, innovation, competitiveness and avoiding mass immigration. The disconnect between debt and the working-age population might seem less dire if not for a birthrate of 1.4 children per woman. Even if Abe could raise it to 1.8, as he hopes, the population would still decline. Even that target is a huge “if” given his milquetoast remedies like easier access to child care and modest and unimaginative tax incentives.

Will those who rate Tokyo’s credit be patient? Investors like Jim Rogers who have long avoided Japanese government bonds on demographic grounds – “There will be no Japanese. Who will pay the enormous debt?,” he’s warned – get sideways looks in Tokyo. Yet it’s a valid concern.

Looked at another way, Japan is an environmentalist’s dream come true. Our planet is fragile enough, never mind in 2050 when there may be 9.7 billion humans. Japan is humankind’s laboratory for deriving greater growth, efficiency and wealth from fewer bodies. Advancements in technology and industrial processes could be a quantum leap for sustainable development.

I’d feel better if the real priority today weren’t denial. As Kuroda struggles to drive the economy toward inflation,
he’s running into a roadblock 35 million people deep. Japan’s 65-plus generation isn’t buying homes, cars,
Sony PlayStations or lavishing fixed incomes on
fashion, pricey meals and travel.

Let’s, for a moment, give Abe the benefit of the doubt. In May 2015, Tokyo opened a Robot Revolution Initiative Council, urging companies to “spread the use of robotics from large-scale factories to every corner of our economy and society.” This five-year government push has 200 corporate and university backers working to deepen the role of “intelligent machines” in supply chains, manufacturing, health care and construction. It aims to expand robotics sales from about $5.5 billion annually to over $20 billion by 2020.

Already, Japan’s Fanuc, Kawasaki Heavy Industries and Yaskawa Electric have 50 percent of the global market in factory robots. Laboratory Japan has a 90 percent share in precision gears, specialized sensors and servo motors to move robotic limbs.

But Japan needs to squeeze more productivity out of today’s humans, too. That means shaking up a rigid business culture, liberalizing education, making Japan Inc. more meritocratic, scrapping seniority-based promotions and investing tens of billions of dollars more on research and development to engineer the Isaac Asimov future Abe envisions. Luckily, Japan has a couple of cushions in the shorter run. One is a still underutilized female workforce. Another: an enviable stable of skilled retirees companies can rehire at discounts to their working-age pay contracts.

That’s good for a decade, or so. The question is how Japan pays its growing debt with fewer people after that? Abe’s robots/wireless censors/AI vision sounds intriguing, but the growing 65-plus generation still poses huge challenges. And Japan’s hopes of creating a productivity generation will require a policy revolution Abe has so far avoided. A society aging as fast as Japan’s is inherently deflationary, no matter how much yen Kuroda prints. The answer, of course, is Abe accelerating structural reforms to fuel a startup boom, deregulate industry, inspire greater innovation and empower women. Any of these steps over time would do more than the BOJ’s liquidity injections.

Abe also needs to be careful what he wishes for as science fiction becomes economic fact. A 2015 report by Nomura Research Institute and Oxford’s Michael Osborne found intelligent machine could put 49 percent of Japan’s workforce out of jobs within 10 to 20 years. Clearly, a happy medium between productivity and mass homelessness would have to be found. Like Abe’s other big ideas, looking at a “Wall-E” inspired future sounds intriguing, but the question of how Japan gets there in time to placate Moody’s and Standard & Poor’s and aid the BOJ stares back at him.