The Demographics of Innovation

Chapter 6Japan

Japan is the best case study of an aging society, because Japan was the first large economy to experience the structural issues that an aging society causes. Some small European countries are also experiencing the effects of an aging population; however, because labor is more mobile in the EU and some countries have a large immigrant population, the effect of aging is much milder than that in Japan. Despite recent policy changes, Japan still fails to attract a large number of immigrants (immigrants make up less than 2% of the total population), which makes it an excellent case study for the effects of aging and low fertility. The negative effect of aging on innovation and entrepreneurship in Japan is something that we have discussed previously, and is a particularly alarming and unexpected outcome.

The Aging of the Japanese Economy

Over the last few years, I have often traveled to Japan to study its demographic problems. One day, I learned that one of the country's prominent Internet entrepreneurs, Takafumi Horie, was arrested for violating security laws. I did not pay a lot of attention to this piece of news at first, because his company was not very large. But when I discussed the topic of innovation and entrepreneurship in Japan with other economists, Takafumi Horie was constantly mentioned. One economist commented: “You want to know why Japan has so few young entrepreneurs? Just look at what we did to Takafumi.” Later, I found out that Takafumi was one of ...