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Immigration and American Aging

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If David Brat's huge upset of Eric Cantor has legs across America, it may well mean the end of the great political goal of immigration reform. And the impact on our economic future could hang in the balance if there are any lessons to be learned from one of the most xenophobic nations on the planet, Japan, where their own economic growth has long been crippled by lack of immigration.

Just in the last couple of weeks Japan's Prime Minister Abe made it clear he would continue to oppose any real immigration for Japan. And, its interesting that it came in parallel with his policy on corporate taxes, which were meant to spur investment and therefore economic growth. The prime minister should be applauded for lowering corporate tax rates to attract global investment and revive the sleeping Japanese economy. But why undercut such efforts with senseless, retrograde immigration policies?

The connection between economic growth and immigration is its impact on the labor supply, a point that apparently was lost in the race between Cantor and Brat.

Indeed, one of Japan's most profound economic burdens is the aging of its population. While immigration may not be the only policy that can help transform an "old" population from a burden to a driver of growth, it is self-defeating to refuse immigration to be part of the solution. America should take note as we go into our own 2014 fall election cycle, where immigration is now more likely to be on the agenda.

In the post-World War II era, Japan was long the place to look for models of economic growth. For decades, Japan seemed it could do no wrong, as it exploded from a crippled, defeated, and impoverished nation to a thriving industrial power. This rise is captured brilliantly by Ezra Vogel in Japan As Number One: Lessons for America.

But, oh, how things have changed. Their insistence on refusing to allow immigration to meet their labor needs is perhaps one of the worst.

How ironic that the subtitle of Vogel's book, Lessons for America, becomes even more true today. No lesson is more important than immigration. As the population ages -- brought by longer lives, as well as lower fertility rates, which have been prompted by modernization, urbanization, and women's liberation -- Japan offers lessons. As the "oldest" nation in the world, Japan's refusal to let go of its 20th century social welfare model shows what not to do.

Japan imported its welfare model from the industrial (mainly European) West, as it rebuilt after WWII. Over a half-century later, there emerges a fiscally unsustainable condition, which, not surprisingly, correlates with Japan's two-decades of economic malaise. Japan is now a country where in roughly a decade they will have roughly 40 percent of their population over 60; a country where by 2020 they will sell more adult than baby diapers. And yet they cling to welfare models built for populations much younger.

It's time for Japan to change course. But can America learn, too?

Prime Minister Abe is exactly right to try to attract global investment and spur economic growth, but he can't take this big step forward if he continues to take two steps back. Here are three things the prime minister can do to reenergize Japan as a global economic powerhouse.

  1. Be a leader on immigration: There are a number of countries in the region, the Philippines, for example, that are far more youthful than Japan and can be a source of labor. Allowing younger, more fertile immigrants will fill the gaps created by Japan's enduring low birth rates. While there are a multitude of sectors experiencing labor shortage, the need for care is especially dramatic. An explosive need for growth in this sector, particularly the burgeoning home care industry, can be filled immediately by immigration from many Asian countries in the region.
  2. Use tax policy even more creatively and aggressively: If the prime minister understands that tax policy can be an incentive for investment and a basis for growth, why not apply that thinking to enable greater innovation and job creation in and around the silver economy? Give tax breaks to companies that keep their older workers healthier and more active. Use tax incentives to spur entrepreneurship among older Japanese who are healthy and want to keep working by creating their own businesses. The so-called "peril" of an aging population is only the case if we apply 20th century ideas and behavior to 21st century life..
  3. Get rid of that silly retirement age: The age of 65 was chosen by Otto von Bismarck in the 19th century. He picked 65 as the age after which the newly constituted German government would give social and health benefits to its citizens. They could afford to do that for the tiny number who lived past 65 in 1880. It was still a reasonable age - fiscally manageable - in the U.S. in the 1930s when FDR embedded it into Social Security and depression-era benefits. No more. And if Japan has the distinction of being the oldest population on the planet, and therefore the first to experience all the challenges of the 21st century "more old than young" why not also lead the world on a re-thinking of the antiquated retirement age notion?

Mr. Prime Minister, you may either find "promise" or "peril" in your nation's aging population. Find the promise, and you will also find the basis for the economic solutions that have eluded your nation the last two decades. As for the rest of us, particularly in America, we have a bit more time to get policies right that will de-link the aging of our societies with the economic and fiscal funk the Japanese have been experiencing. A more enlightened path to 21st century success will rethink intolerant notions of immigration. Until now, this has been one of America's competitive advantages. Will we continue?