One Prescription for Japan’s Revival: Spend More on a Safety Net

Inside AnimeJapan 2014
Photographer: Noriko Hayashi/Bloomberg

Kazuhisa Takemura has an idea for helping Japan’s struggling economy: Entice younger consumers to spend more by providing them a financial and emotional cushion.

Takemura, a professor of psychology at Waseda University in Tokyo who focuses on decision theory, says that if younger consumers in Japan had a bigger "safety net" via expanded spending on education and child care, they might feel encouraged to dole out more themselves.

“According to a theory of developmental psychology, in order to develop stimulus-seeking behavior, safety might be needed,” Takemura said. “For example, if a child is raised by parents in a good environment, the child may be more likely to seek new things and take risks. This might be related to consumption behavior as well.”

While this concept may be anathema to laissez-faire economists, it might well take a radical approach to bring change to Japan -- where people in their 20s and 30s have had their behavior shaped by decades of deflation, economic stagnation and shrinking job opportunities. In many other developed nations, the younger generations are helping drive non-discretionary spending.

Spending on Elderly

The latest supplementary budget in Japan -- a 3.5 trillion yen package -- instead contained funds to tackle Japan’s demographic issues and regional revitalization, as well as cash handouts to low-income pensioners. Many older people on fixed incomes tend to focus on buying essentials.

As a country ages it is natural that the government will spend an increasing amount on the elderly population. Still, compared with other aging countries such as Italy and Finland, Japan spends far less on social welfare programs for the younger population. Among 33 OECD-member nations, Japan ranked 25th in spending on family benefits in 2011.

Despite budget limitations, Japan should at least spend the OECD average to encourage a more positive consumer environment, Takemura said. Increasing the present social welfare budget by 50 percent would suffice, he said, though it would take several years to foster feelings of safety and security for consumers.

Japan has for years spent less on social programs than other developed nations, according to the OECD Social Expenditure Database.

Several economists said this prescription makes sense to them. “I think spending more money on younger people is a good idea,” said Masaki Kuwahara, a senior economist at Nomura Securities in Tokyo. “The problem is where to draw the money from.”

This budget focus could encourage consumer spending, said Hiroaki Muto, chief economist at Tokai Tokyo Research Center, yet choices would need to be made. “In order to increase spending on child care and education we should decrease spending on the older generation,” he said. “The problem is that the elderly have the most electoral power,” he said, meaning policy makers wouldn’t want to provoke them by cutting their programs.



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