July 24, 2024

One way for Minnesota to distinguish itself from other places that are contending with workforce and population struggles is to face them head on.

It will be no small feat.

It’ll take some brave Democrats to move the party beyond its focus on anti-corporate populism, some brave Republicans to move beyond reflexive bashing of immigration, some union leaders who realize how their rules inhibit growth and business leaders who recognize that a dearth of workers and customers is becoming a bigger problem than taxes.

Minnesota is in the vanguard of U.S. states to face the problem of staying rich without growth. We can learn from places in Asia and Europe that have been dealing with it longer.

On visits to Seoul and Hong Kong last month, two cities where I lived before coming to Minnesota in 2013, I met some economic policymakers and analysts who wish leaders had confronted demographic challenges more aggressively before reaching the difficult stage they’re now in.

In Hong Kong, one of Asia’s longtime economists, Frederic Neumann of HSBC, reminded me Japan was the first country to see its population level off and start to decline. An economic powerhouse in the 1980s, Japan’s performance since has been dubbed “the lost decades” due to slow growth, recessions and deflation.

“We can blame monetary policy mistakes or fiscal policy mistakes for the sluggishness of the Japanese economy, but the reality is 70 percent or 80 percent of the lost decades is explained by demographic headwinds,” Neumann said. “And I think that’s a precursor of what you’re seeing elsewhere.”

Today, South Korea has an even lower birth rate than Japan. It’s about 30% lower than 20 years ago when it was the same as today’s birth rate in Minnesota.

On the surface, South Korea looked fine last month, even better than fine. Seoul was packed with tourists attracted by Korea’s pop stars, dramas, shopping districts, palaces, mountains and a food scene with few equals. Thanks to new parks and other civic improvements, the city is more attractive than when I lived there.

However, while walking in the Gangseo district of western Seoul, a friend and I passed an elementary school that closed due to the dwindling number of students. Such closings were common in smaller cities and rural areas 15 years ago, but they have now reached the capital metropolis, with a population exceeding 10 million.

A week before I arrived, President Yoon Suk Yeol asked the South Korean National Assembly to create a new ministry, to be called the Ministry of Low Birth Rate Counterplanning, to deal with what he calls the “national emergency” of demographic decline.

He began his term in 2022 by eliminating a ministry working to bridge the income gap between men and women that despite several presidential administrations remains the widest among all developed countries.

The demographic challenge is so acute and risk of long-term economic fallout so great that the nation’s central bank, the Bank of Korea, or BOK, is now producing research about it.

The bank has suggested ways to reduce employment and housing insecurity, ease competition in the education system and increase spending on family benefits. The big goal is to support the lives of women, who, for a variety of reasons, are choosing to have fewer children.

“It may sound unusual for the BOK to speak up about structural issues such as demographics, as central banks typically do not have a legal mandate in this area,” Rhee Chang-yong, the bank’s governor, told me. “However, considering the importance and urgency in resolving these issues, the BOK can provide objective and analytical opinions on structural issues to the government as a think tank for the Korean economy.”

I first met Rhee in the late 2000s, when he was an economic adviser to South Korea’s president and a key organizer when the country hosted the 2010 G-20 summit. He went on to senior posts at the Asia Development Bank and International Monetary Fund before returning to Seoul to lead the BOK.

In a brief meeting at the bank, Rhee and I discussed how Minnesota and several other U.S. states were also on the low-growth track that South Korea reached around the time of the summit.

The bank’s researchers suggest it may be possible to more than double South Korea’s fertility rate, from 0.7 to 1.6, though that will still mean a declining population in the long run. Just holding steady would require a fertility rate of 2.1. (Minnesota’s is around 1.7.)

The BOK’s research on low growth has sparked some protests, particularly a study that showed the value of welcoming more immigrants for caregiver and other health care jobs. Labor unions objected to findings on the efficiency of a lower minimum wage for household helpers, as is common in other parts of the region.

Chae Min-sok, a BOK researcher, noted the bank stopped short of recommending a specific wage because Korean regulations prohibited it. Like the U.S., South Korea has a huge baby boom population that is heading into retirement and care costs already exceed the median income of South Koreans older than 65.

“Most people choose home care over institutionalized care, so even those who receive government assistance often hire private caregivers or have family members provide care for additional hours beyond the government-funded hours,” Chae said.

Another effort to tackle the health care employment challenge also produced a backlash. Yoon this spring authorized the nation’s medical schools to raise admissions by 66% and spread doctors around the country. Many doctors want to work in Seoul where they can earn more, a preference for urban areas that we also see with doctors in the U.S.

Doctors have been protesting the prospective surge of competition in their field. They staged a walkout in February and threaten to strike this week.

Not too long from now, slow growth and even decline will become the dominant economic story and trait of Minnesota.

When I see stories about “digital residents” saving small towns in Japan, senior citizens working longer there, strife in Korea over labor reform, Finland scrambling to find nurses, I know I’m looking at Minnesota’s future.

And the leaders of Minnesota’s businesses, unions and political institutions need to start working on it now.

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