The Japanese people are well-educated and industrious. In the 1960s, Japan’s economic growth rate was often over 10%, rising to an astounding 13%. By the 1980s, pundits and economists were telling us that the US should be copying Japanese economic policies. I knew people who studied Japanese because they were convinced that it would be the international language of business.
In 1989, Sony paid nearly $7 billion in current dollars for Columbia Pictures. Shortly afterward, Mitsubishi Estate Company of Tokyo bought Rockefeller Center. That includes Radio City Music Hall and 19 high-rise office buildings in the heart of America’s most prestigious section of real estate.
Japan appeared to be an economic juggernaut. At the time, the total price of Tokyo’s real estate was valued on paper higher than the entire land mass of the United States.
Behind the scenes, however, something was changing. About 18 years before Mitsubishi bought the heart of Manhattan, Japanese birth rates went into freefall. Few noticed.
Most economists ignored birth rates as a factor in economic growth. This is probably because peacetime populations had always grown. Since we’d never seen anything else, few wondered about the alternative. Moreover, it takes at least 18 years for changes in birth rates to hit the work force.
When the supply of new workers stagnated, Japan’s economic growth rate fell by more than half. It wasn’t attributed to birth rates, however, and most economists assumed the downturn was temporary. Despite a shrinking population of future taxpayers, spending did not go down. Debt increased.
In the early 1990s, Mitsubishi was hurting due to the collapse in Japanese economic growth. Then, rents dipped in Manhattan. Mitsubishi filed for bankruptcy protection and walked away from Rockefeller Center.
More importantly, Japan entered its “Lost Decade.” That lost decade stretched into decades. Pundits who had held Japanese policies up as the model for economic growth came up with new theories.
Only today are economists beginning to recognize the connection between birth and economic growth rates. It’s not the sole factor, but it should have been obvious. GDP is, after all, worker productivity multiplied by the number of workers. The connection is mathematical, not theoretical.
The connection between fertility and economic strength goes further than total population, however. Economists have recently begun to look at the impact of the increase in average worker age on economic vigor and growth.
Younger workers are willing to do the harder jobs and put in more hours than older workers. Without the vigor of youth, the economy changes. Today, Japan is struggling to fill even its most basic blue-collar positions. With much more time to recover from failures, younger white-collar workers are also bigger risk takers—a prerequisite for innovation.
To make up for missing revenues caused by a shrinking worker base, Japan borrowed staggering amounts of money to fund services for its rapidly aging population. Debt, however, reduces economic growth rates. Poor economic conditions further reduce birth rates.
Today, Japan pursues two conflicting goals. One is to get more women into the work force to pay down the debt. The other is to make it easier for women to have babies. Even women who want larger families are often forced to work to make ends meet.
One solution is to lower taxes to give families more options. That can’t happen, however, without reducing government spending significantly. We know how hard it is to cut government budgets.
The other solution is to keep older Japanese healthier and working longer. This would reduce the burden on Japanese taxpayers and give families more freedom to have additional children.
The Japanese know this and have instituted a radical regulatory reform called “conditional approval.” This system allows biotechs with new anti-aging therapies to sell products that have passed safety trials. This means that the entire Japanese public can participate in self-funding efficacy trials. In that way, we get evidence about the effectiveness of those therapies.
When President Trump was choosing his new FDA chief, he considered several candidates who favor conditional approval for the US. The enormous industry that profits from the current regulatory model fought back with all its resources. And Trump backed down.
At some point, the US, Europe, and the rest of the developed world will adopt the Japanese regulatory model. There is no other option.
In the last months, I’ve had discussions with several companies developing extremely promising anti-aging therapies. All of them are actively exploring partnerships with Japanese companies that can navigate that country’s regulatory waters. Several have made important but unheralded deals.
I am convinced that effective anti-aging and regenerative medicine is the biggest financial opportunity of the 21st or any other century. Most of these therapies could be provided via health tourism.
Japanese clinics could easily serve wealthy Americans and Europeans who want to turn back the clock of biological aging. Japan, out of necessity, has taken the first steps toward cornering that market. Studying Japanese may turn out to be a smart business decision after all.
Read more from Patrick Cox at Mauldin Economics.