Growth and the People Factor

The biggest economic challenge to both the U.S. and global economy is strengthening growth. Both the quantity and quality of people are central to the rate of growth a country can achieve.

The real crisis facing Japan has nothing to do with earthquakes, tsunamis or nuclear meltdowns -- but declining population. Japan has been in an economic funk for more than a decade, and a key reason is flat domestic consumer demand. Economists don't like to talk about this because it does not fit comfortably within the usual economic terms -- like GDP, interest rates, unemployment rates, etc. -- but if your population is flat lining, it undermines growth.

In 2010, Japan's population contracted by 123,000 people -- the fourth consecutive year of decline. The reasons are simple -- the population is aging, fewer people are starting families, and immigration is negligible. The first reflects the triumph of modern medicine, but the latter two are self-inflicted wounds. The Japanese people are constrained by rigid social codes that sharply circumscribe the roles of married women. A growing number of young Japanese women reject that traditional role, preferring to remain single.

As for immigration, the Japanese have a profound aversion to people from other cultures or nationalities living in their midst. For a foreign born immigrant to acquire Japanese citizenship is almost unheard of. Even people who speak fluent Japanese and possess skills in sharp demand are given the runaround.

The solutions to this quandary seem simple enough to us. All the Japanese need to do is accept changing roles for women in society and welcome foreigners. But as yet there seems to be no Japanese national movement in that direction.

There are at least two clear lessons for us to learn from what is happening in Japan. First, our acceptance of an expanded role for women in society -- and our continuing quest for equal opportunity for all -- is one of our strongest assets. Whatever economic troubles we have today would be infinitely worse if women were not free to reach their potential and contribute freely.

And second, our acceptance of immigrants brings us a constant infusion of talent and ambition that contributes to economic growth. We need to focus on this because there is an unfortunate anti-immigration sentiment in some parts of our society that we need to recognize and overcome. Whether it is a foreign student with a Ph.D. who wants to live and work here, or an ambitious immigrant from Central America who is willing to perform the jobs few Americans want, we need immigrants.

A growing economy has many components and the quantity and quality of its people are central. While innovation, taxes and trade are key elements of any growth strategy, people are even more important.