On Japan: Let the Private Sector Do It

A Japanese-language version of this article appeared in the March 29, 2000 issue of Newsweek Japan

One of my old economics professors had a “baby-boom” investment strategy. In the late 1940s, he put his money in companies producing baby food and other goods for infants. By the late 1950s, he was investing in companies publishing textbooks or specializing in public-school design and construction. If he were around today, he would be investing in companies involved in the market for senior citizens. Although the change is not as dramatic as in Japan, both the absolute number of elderly people in the United States and their share in the population is increasing. My baby-boom generation will cause the numbers to rise more—with those over 65 reaching 18 percent of all Americans in 25 years.

The private sector is already responding to the needs of this segment of the population. Governments of all advanced nations, including the United States and Japan, finance all or part of the health care for older people. But senior citizens have needs beyond health care. High on the list of older Americans’ concerns is housing, an area that has seen great change in the United States.

In the past, older people had three choices. They could live independently, move in with their children, or spend their waning years in a nursing home. But in the past three decades, the United States has experienced an explosion of new housing options. As a result, the nursing home population has remained flat even though there are many more elderly people. Independent residential communities were the first, offering housing and some recreational facilities (like golf courses) for those over age 55. But now there are assisted-living facilities, where people have their own apartments but receive personal aid with some daily activities. The newest part of the industry is continuing-care communities, where people can live independently but have access to assisted care or full nursing-home care if or when necessary.

My parents moved into a continuing-care facility recently and have been very satisfied with it. The apartments are designed for the needs of older people—doorways that can accommodate wheelchairs, handrails in the bathroom, no stairs to climb and buzzers to bring emergency assistance. They have their own kitchen but can eat one meal a day in the community dining facility. They still own a car, but when they stop driving, the complex provides buses to local shopping and entertainment. They live an independent life, but were grateful for the community’s nursing facilities when my mother injured her leg and needed care for several weeks.

Both assisted-living and continuing-care facilities are popping up all over the country. There are now 17,000 full nursing homes, 28,000 assisted-living facilities, and 900 continuing-care communities in the United States. (By contrast, Japan has about a third as many nursing homes to serve two thirds the number of elderly.) Much of the current growth in the United States is in the continuing-care segment of the market. Some such facilities are run by for-profit companies, others by non-profit organizations (including churches). Both operators and residents of these facilities are organized into associations that discuss ways to improve technology and the quality of facilities and care, as well as lobby the government on regulatory and other related issues. Overall, this is a vibrant, rapidly growing sector of the private economy that is helping to improve the quality of life for senior citizens.

If I were Japanese, I would want to invest in companies engaged in providing similar housing options for older people. Sadly, there appear to be few choices. Japan does some things quite well. The government was a pioneer in providing medical care for the elderly, and the new program to subsidize nursing care will be quite beneficial (if the politicians and bureaucrats ever decide how to pay for it). But in many ways, the quality of life for older people suffers needlessly because of the lack of a vigorous private-sector industry providing better housing options.

Apparently, the government believes that the appropriate solution is for older people to live with their children. While 16 percent of Americans over 65 live with their children, about 55 percent of Japanese do. But the percentage in Japan has been falling and will fall farther. The reality is that people in all societies lived with their children when they were poor and governments provided no financial support—the multi-generational household is not a unique Japanese or Asian phenomenon. But with affluence, government pensions and public health-care insurance, these living arrangements have been diminishing. While the government still pushes this concept as a superior “Japanese” approach to life, it is less than ideal. After all, the trauma of daughters-in-law has been the stuff of fiction for centuries. People in all societies value a greater degree of independence when they can afford it. Often people find they can love their parents more, and even take care of them better, if they are not in constant contact in the same dwelling.

However, the alternatives to living with one’s children remain rather limited. Japan does have a large and growing nursing-care industry. And there has been rapid growth in day-care centers for elderly people living with children who cannot care for them throughout the day. In typical bureaucratic fashion, the Ministry of Health and Welfare actually separates nursing care facilities into 16 formal categories! But where are the alternatives for people who are not so disabled or ill that they need constant care? The view of both the government and the private sector has been far too narrow in approaching the broader issue of lifestyle for older people.

My Japanese in-laws looked into the equivalent of continuing-care communities several years ago, but even in their densely populated suburb near Tokyo they could find nothing suitable. There was at least one apartment complex designed for senior citizens, but it was inconveniently located and not well designed. Why has no entrepreneurial, technologically aggressive industry blossomed in Japan to build and operate housing for senior citizens?

Regulation may be part of the answer. Perhaps the new nursing care law will provide a financial incentive to build assisted-care and continuing-care housing facilities. I fear, however, that the bureaucrats at the Ministry of Health and Welfare will erect other barriers to creative new approaches by companies and NPOs (unless the ministry sees an opportunity to fill a new industry with amakudari officials). Even in the current era of deregulation, government can find many ways to obstruct the private sector, and this ministry impresses me as particularly control-oriented.

Part of the answer also lies in the real-estate market. Anything in Japan that involves buying land for the purpose of new development is both expensive and time consuming. Better elderly housing would benefit from revision of taxes dealing with real estate, zoning statutes and other related regulations.

Right now one of Japan’s greatest concerns is the lack of new industries to push the economy back toward healthy growth. Information technology has attracted a lot of media attention, but that industry is too small to be much of an engine of growth all by itself. Society needs other engines as well. Housing for the elderly could easily play this role. The need and opportunity are obvious. The economy would benefit, and so too would the lives of older people. Just get the government out of the way and let the market work its magic.