Thursday, April 28, 2005

A Japanese solution for the EU?

Taking a look at Morgan Stanley's analysis of the new economic strategy paper of the Japanese government – the Takenaka Report - it is evident that there are some lessons here for the EU. Europe is also facing the same problems of the challenge of globalisation, a rising pensions burden on government, and an aging population.

The report takes a very pro-immigration stance

The report advocates that Japan greatly expand the skill sectors where immigrants are permitted, and guarantee against discrimination in the workplace. The report also says that Japan should recognize certifications from foreign countries, if they meet Japanese standards. Schooling and healthcare for foreign families are also advocated. Most surprising, the report says that Japan should actively establish schools in Japanese language and culture abroad, as a way of attracting talent.
Some, though by no means all, EU states are probably more advanced than Japan in this area. However, selling the need for expanded immigration, even if it is that of skilled immigrants, is proving very difficult in a Europe where popular opinion is becoming increasingly anti-immigrant with the result that more barriers to immigration are being put up than taken down. It is, I accept, a highly emotive issue, and one that is open to political exploitation .......

In the area of agriculture the proposal is for ...
... the removal of trade barriers on agricultural products, and a shift of policy to direct support of “producers with the desire and ability.” The report states bluntly that Japan should raise agricultural productivity and competitiveness, increase quality and specialization of products, and become an exporter of high-quality produce and foods.
Ending the Common Agricultural Policy (CAP) in Europe is long overdue but the French will lead the opposition to it as they receive the bulk of the subsidies under the system. It is high time Europe’s agricultural industry competed on a level playing field instead of relying on protectionism, and subsidies, to keep cheaper competition out, and guarantee itself a captive market. This is a major structural reform that has frequently been dodged, and, as RJW commented in response to my post of yesterday, the subject of stitch-ups and backrooms deals by Europe's political leaders. The CAP is a source of considerable tension with the developing world. The European Commission has in simple terms frequently said “Yes, but look at the USA” - whatever happened to leading by example??

On the issue of encouraging the population to have more children ….
The children of the baby boomers are now in their late 20s and early 30s, and still have a window to produce a larger cohort of children, if the economic burden of child-raising can be eased. To this end, the report advocates greatly expanded support for families with young children, and further expansion of daycare centers. To pay for such support, the report bluntly states that a shift of emphasis in social spending is needed, away from spending on the old and toward spending on the young. This could be accomplished by increased emphasis on preventive medicine, by expansion of the idea of “living wills,” and by a (gingerly worded) “rethinking of end-of-life care.”
Again this is a route Europe could do well to follow. However, given the demographics of the voting public, less state money for the old is going to be a difficult one to sell not to mention the rather cryptically phrased “rethinking of end-of-life care.”

The Morgan Stanley analysis concludes by observing of Japan that ...
... it will age, regardless of who may be in power. Globalization will proceed, regardless of who may be in power. Unaddressed fiscal deficits will strangle the economy, regardless of who may be in power. Hence, any government will have to adopt an economic strategy similar to that suggested in the new Takenaka report, or face extinction. Just as economics trumped politics in pushing the Japan-China relationship back on track despite recent bumps, so economics will trump politics in pushing economic policy in the direction of the Takenaka report, despite likely bumps.
Broadly speaking the same is true for Europe, unless of course populist politicians irreversibly poison the process; in which case Europe risks revisiting a past that the EU was set up to prevent happening again.

All quotes taken from Japan - Economic Future: Outline of opportunity