Oh boy: Prince imperils Japan's economy
Japan's newest royal won't save the world's second largest economy from its epic baby bust - and may even aggravate it.
By Clay Chandler, Fortune senior writer

HONG KONG (Fortune) -- Like a comforting fairytale, the birth Wednesday of the Chrysanthemum throne's first male heir in 40 years has saved Japan's imperial family from a succession crisis -- seconds before the biological clock struck midnight.

In Japanese markets, word that Princess Kiko, the 39-year old wife of the emperor's second son, had given birth to a boy triggered a burst of irrational exuberance. Think tanks forecast a surge in marriages and newborns. Department stores slapped up celebratory banners. The nation's largest online retailer promised to ship baby goods free for a week.

But over the long run, the new arrival won't deliver the world's second-largest economy from a larger peril: its plummeting fertility rate. Indeed, the appearance of a male heir might even aggravate Japan's epic baby bust. Before the announcement Princess Kiko was expecting, Japanese lawmakers had begun debating whether to rewrite a 1947 imperial law to enable women to assume the throne. With odds dwindling that any of Emperor Akihito's three children would produce a grandson, female succession seemed to many the only politically palatable means of perpetuating Japan's 1500-year old imperial line.

Wednesday's glad tidings promptly scuttled that discussion -- suggesting to some that, for all the bold talk about economic reform and building a new Japan, one facet of Japanese life remains immutable: boys rule.

Deserved or not, that's a perception Japan can ill afford. Many studies show a strong link in developed economies between low national birth rates and measures of gender inequality. Kuniko Inoguchi, a Yale-trained political scientist appointed last October by prime minister Junichiro Koizumi as Japan's first minister given sole responsibility for matters of gender equality and social justice, says two variables have a particularly strongly correlation with low birth rates in industrial societies: the number of hours men help out at home, and ratio of women who participate in the labor force.

Japan gets low marks on both counts. Japanese men in families with children under 6 devote an average of less than an hour a day to child-rearing and housework, compared to more than 2.6 hours for their U.S. counterparts and nearly 4 hours for men in Sweden and Canada, according to the Paris-based Organization of Economic Cooperation and Development. Only about 55 percent of Japanese women participate in the labor force, compared to 62 percent in the United States, notes Goldman Sachs strategist Kathy Matsui, who calls women "Japan's most underutilized resource."

Inoguchi cites a host of measures championed by the Koizumi government to aid young families. Among them: adding slots for 45,000 more children to Japan's network of 2 million government child care centers. From October, the government will pay $3,000 to the parents of each new baby.

"These problems aren't that difficult to solve," Inoguchi insists. "Mostly, it takes common sense. You just have to find out what young families need and find ways the government can help."

When Koizumi steps down as prime minister this month, he'll bequeath his successor a strong economy. Japan is in its fifth consecutive year of expansion and most economists think it can manage steady growth of better than 2 percent for another year or two. But even optimists warn that a demographic time-bomb lurks just over the horizon. The number of new births per woman has plummeted to 1.25, well below the 2.1 needed to keep the population from shrinking.

Many experts expect the Japanese population to peak at 128 million this year, then begin a precipitous decline. By 2050, Japan's population will fall to about 100 million, with more than 40 percent of that total over age 65. Government experts warn that unless something is done, by the end of the century, the population will slump to about half its current level -- leaving Japan's little prince a much littler nation over which to reign.

Reversing the birth dearth

The day before Japan's imperial family announced the arrival of a new male heir, Fortune's Asia Editor Clay Chandler spoke with Kuniko Inoguchi, Japan's Minister for Gender Equality and Social Justice (and mother of twins), about Japan's birth dearth and how it might be reversed.

Are you making any progress in slowing Japan's declining birth rate?

I'm encouraged by the fact that number of people getting married and the number of newborns has increased this year. The Koizumi government has sent a strong signal that it means to support young families and civil society is responding.

What happens if nothing is done, or if the trend can't be reversed?

The danger is that Japan's fertility rate could become a kind of demographic Niagara Falls -- big, dramatic declines, year after year, going down, down, down.

You've spoken often about the importance of making it easier for women with children to stay in the labor force. Is this widely accepted in Japan? Or do business and political leaders fear helping women to work will make motherhood less appealing?

People are beginning to understand these relationships. But some find them counter-intuitive. It takes a while to change the mindset. I have a series of charts that I take with me when I go to meet with other politicians. Sometimes I have to play the role of professor, explaining about statistical correlations and cross-national comparisons. But that's my challenge: to take new ideas and find a way to get them into the mainstream.

You've worked hard to find your own balance between work and family. Is gender equality a personal issue for you?

I saw this problem all the time in my own career as a professor. I taught a whole generation of capable female students who did so well in my classes only to go out into the labor market where they had limited opportunity to put their skills to full use. Many of these women wound up in unsatisfying jobs where they had many troubles or became so discouraged that they stopped working altogether after marriage.

Can Japan learn from other countries in grappling with its birth dearth?

These problems can be solved, but Japan will need to develop its own model. We'll never go for the Swedish approach, where the state provides many services to support families but also collects 70 percent of income in taxes. At the same time, it would be hard for people here to accept a U.S.-style model where the basic principle is self-help.

We're searching for a middle way: state-sponsored social institutions that provide support for families at a minimal tax burden. Top of page

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