Innovation new key to old problem of aging population

Thanks to the advances in medical science and technology, the mortality rate across the world, especially in developed countries, has decreased while the social and economic cost of bringing up a child has increased, leading to a rapid decline in childbirths and rapidly aging populations.

And an aging society brings about intergenerational conflicts as science fiction writer Bernard Werber has shown in his short story, The Tree of Possibilities. It is about a government comprising young individuals that confines senior citizens above a certain age to facilities where they can live humanely but with limited access to even essential medical and welfare services, in order to reduce social welfare expenditure.

The old-age dependency ratio (old-age to working-age demographic ratio), according to the Organisation for Economic Co-operation and Development, is defined as the number of individuals aged 65 or above per 100 people of working age (defined as those aged between 20 and 64). As the economically dependent elderly population of a country increases, its growth potential will decline and social expenditure for the elderly will increase.

The evolution of old-age to working-age ratios depends on the mortality rate, fertility rate and migration. For example, OECD countries have been seeing a continuous increase in life expectancy which most analysts say will continue. This means an increasing number of aged people and most likely pensioners. This indicator is measured as a percentage.

As of 2022, 29.1 percent of Japan's population, 18 percent of the Republic of Korea's population and 14.9 percent of China's population were aged 65 or above. Although the aging populations of the ROK and China are relatively low, their pace of transition to an aging society is expected to be quite rapid. Also, in all the three countries, the working-age population has been dwindling due to the declining fertility rate.

As the old-age dependency ratio increases, the social costs of supporting the elderly will also increase. This requires a trade-off between equity and growth. A choice has to be made between using limited resources and factors of production such as capital, technology and labor for economic growth, or providing welfare for the elderly.

But emphasizing the former, for groups of people like those in Werber's short story, is tantamount to violating human rights, which could give rise to social conflict that can hinder long-term growth.

Countries witnessing declining populations have implemented various policies to help increase the total fertility rate and overcome the aging population problem. The ROK, for example, has introduced an extended paternity leave system, increased public childcare facilities and offered more tax reduction to parents for every child they have. Japan, on its part, provides subsidies for parents with young kids and has reduced children's education costs to help increase the fertility rate.

But none of the measures has yielded the desired results because they are aimed at short-term solutions when family planning decisions are based on long-term cash flow.

Rather than focusing on policies to address the falling fertility rate and declining population, it is necessary to implement policies that maximize the use of socially available resources to achieve sustainable growth. To increase productivity, physical and intangible assets can be used through digital transformation and technological innovation; and to make the labor market more flexible, available human resources can be maximized through the implementation of policies.

According to a 2023 International Monetary Fund report, "Accelerating Innovation and Digitalization in Asia to Boost Productivity", indicators show that Asian companies, especially those of the ROK, Japan and China, are leading the process of digital transformation and innovation in productivity. If medical and education services can be stably provided through digital transformation and productivity can be improved by using artificial intelligence, the decline in productivity caused by an aging society can be overcome.

But to achieve these goals, it is necessary to encourage spillovers of knowledge and diffusion of technologies by strengthening intra-regional cooperation among Asian countries. And cooperative policies should be designed to provide incentives for technology innovations by improving regulations and strengthening intellectual property rights protection. In particular, policies aimed at promoting the spread of technologies should be implemented to strengthen intra-regional cooperation among Asian countries.

On the other hand, non-frontier enterprises can get the opportunity to promote innovations and contribute to sustainable growth through the diffusion of technologies.

They have a better chance to improve their productivity through intra-regional cooperation in productivity innovation. And apart from cooperation among the ROK, China and Japan, higher levels of technology diffusion and innovations in productivity can be achieved through global trade, participation in global value chains and foreign direct investment in Asian countries.

For a sustainable society in the ROK, China, and Japan, it is expedient for the three countries to form a trilateral cooperation mechanism on aging societies to overcome the common challenges of the negative effects of population aging.

The author is an associate professor in the Department of International Trade, Kangwon National University and a TCS Guest Scholar.

The views don't necessarily reflect those of China Daily.