The world is “graying” at an unprecedented rate. According to the UN’s World Population Prospects 2019, the number of persons over the age of 65 is growing the fastest and expected to more than double by 2050, then triple in another 50 years’ time.

Some Asian countries in particular, plagued by population aging, declining fertility, and gender imbalance, are facing a grim outlook for a demographic crisis. In Japan, one in five people is now 70 or older, birthrate has dropped to a historic level, and the population declined by more than a quarter of a million last year. Meanwhile, South Korea is aging more quickly than any other developed country: with seniors on the verge of making up 14% of the population, the country is on the cusp of becoming an “aged society.” The potential impact of population aging on the labor market and the fiscal pressures on the public systems of healthcare, pensions, and social protection schemes for older adults are some of the many problems that these and other countries must tackle.

Against this background, Shorenstein APARC recently held the third annual gathering of the Stanford Asia-Pacific Innovation project, a Center-led initiative that produces academic and policy-relevant research to promote innovation and entrepreneurship in East Asia. Held in Chuncheon, South Korea and organized jointly with Hallym University’s Institute for Communication Arts and Technology, this year’s conference focused on the intersection of aging, technological development, and innovation in the region.

(Gi-Wook Shin)

APARC Director Gi-Wook Shin opened the two-day session, introducing the conference’s themes. “What policies can promote innovation and entrepreneurship in aging populations?” Shin asked. “What opportunities do new technologies offer for addressing challenges posed by East Asia’s demographic shifts, and what are the threats involved in the adoption of these new technologies?”

Joon-Shik Park, vice president of the Office of Vision and Cooperation at Hallym University,  the conference host, noted that “East Asian countries are the most important testbeds on issues related to aging and innovation,” and that sharing meaningful research and implications from the region “will provide invaluable insights for all the societies around us.”

(From left to right, Yong Suk Lee , Junichi Yamanoi , Young-Bum Kim, and Jiyoung Liu)

Family Business Succession

Demographic forces and population aging at the macro level are altering family structures and assumptions at the micro level. For example, Junichi Yamanoi of Waseda University presented a study that examined how expectations around managerial succession at family firms had a significant impact on a firm’s long-term investments.

The study surveyed over 15,000 small and medium enterprises (SMEs) in the Tokyo metropolitan area. The participants were initially asked about their firm’s attributes, CEO demographics, and succession expectations. More than a year later (a time lag that eliminated reverse causality), a sampling of respondents was then asked about their current long-term investments (e.g., R&D, new product development, and internationalization activities).

Yamanoi and his coauthors found that, when a family business’ CEO was confident that a successor would follow, their firm was more likely to engage in long-term investment. Additionally, a CEO’s expectations that the successor would be someone other than their child resulted in an even greater likelihood of long-term investment.

As part of its policy propositions, the study recommends that government agencies and SME officers eager to increase investments by SMEs introduce external candidates to such firms. Moreover, family CEOs should be cautioned against investment decisions that are too short-term in orientation, as, due to inherent aversion to losses of socioemotional wealth for the family, they may unconsciously avoid long-term investments.

(Javier Miranda)

Rethinking Age and Entrepreneurship

At a luncheon keynote address, Javier Miranda, principal economist at the U.S. Census Bureau,  shared insights into the correlations between age and high-growth entrepreneurship, considering when in life people start firms and when they start the most successful firms.

Miranda acknowledged that youth is often perceived as being crucial to entrepreneurial success, referring to Mark Zuckerberg’s dictum, “Young people are just smarter.” Venture capitalist (VC) activity seems to support this notion, said Miranda, citing a sample of 35 VC-backed “unicorns” that resulted in a mean founder age of 31. He explained that VCs' high regard of young entrepreneurs may be attributed to a belief in young people's greater deductive reasoning, transformative thinking, and higher energy, optimism, and confidence.

But does the statistical evidence support such a view? It would seem not. Miranda’s data showed that the mean age for founders of any type of firm is 41.9. Furthermore, the mean age for founders of the most successful firms (those ready for Initial Public Offering market) was 45, and a founder at age 50 was approximately twice as likely to experience successful exit or high growth compared to a founder 20 years their junior.

In fact, dependent on the starting of a firm, the probability of a founder’s success peaked in the age range of 45-59. Pointing directly to entrepreneurs like Jobs and Bezos, Miranda conceded that even extremely talented people, who may be talented enough to succeed when young, peaked in middle age.

The results of Miranda’s study seem at odds with VC attraction to younger entrepreneurs. Experience, Miranda concluded, appeared to overwhelm any potential age advantage, but more research was needed to unpack the underlying predictors of entrepreneurial success over one’s life cycle.

Role of Technology in an Aging Populace

Day two of the conference focused on the promising role technology may play as populations age. APARC Research Scholar Kenji Kushida detailed both the current and impending problems Japan faces as its population both ages and shrinks in size, and the solutions possible through technological advancement like robotics, AI, and wearable devices.

For example, Japan’s demographic shift has had a double knock-on effect on agriculture, with the percentage of farm workers age 65 or older steadily rising over the last five years and the total cultivated agricultural land decreasing each passing year. Kushida described how ICT-enabled bulldozers allow farm owners to more precisely flatten the ground in rice paddies, resulting in both greater yields and cost savings as much as 40%.

Healthcare is another significant area of concern in Japan, as healthcare costs for people over 65 are four times that of younger people and medical costs as a proportion of GDP have been increasing sharply, especially in rural areas. Shortage of physicians and diagnostic technicians is another challenge. Kushida gave an example of a technology healthcare resource that enables clinics and hospitals to upload patient medical images which are then diagnosed by medical doctors affiliated with the tool's startup developer. This low-cost solution allows smaller, rural hospitals to tap into a larger network of physicians and specialists online.

While Japan’s technological trajectory has been driven primarily by the private sector, Kushida pointed out the important role played by government actors. Specifically, within the “Abenomics” reforms of Prime Minister Shinzo Abe, several key performance indicators include support for digitizing medical records, adoption of robotics in nursing care, and extending “healthy” life expectancy.

Edited volumes collecting the papers from the annual Stanford Asia-Pacific Innovation conferences are forthcoming. These will serve as valuable references for scholars and policymakers. The first conference was held at Stanford in 2017, and examined the industrial organization of businesses and innovation clusters and how such environments affect entrepreneurship. The second conference, held in September of 2018 in Beijing, analyzed the impact of public education and financial policies pursued by East Asian countries to promote entrepreneurship.

Type 2 diabetes has become a major public health problem in South Asia in recent decades. The region is now home to an estimated 84 million people suffering from diabetes—approximately one-fifth of the world’s 451 million adults with diabetes—a number that is expected to rise by 78% by 2045. Even more concerning, across South Asia the disease burden increasingly occurs in the most productive midlife period. Among Indians, for example, diabetes is estimated to occur on average 10 years earlier than their western counterparts, and almost half of Indian patients with type 2 diabetes are diagnosed before age 40.

How do South Asian health system influence diabetes care? What is the magnitude of the economic impact of diabetes in South Asia? And what can be done to mitigate that economic burden? These are some of the questions that a team of researchers, including Karen Eggleston, APARC’s deputy director and director of the Asia Health Policy Program, set out to answer in a new study published in the journal Current Diabetes Reports.

Eggleston co-authored the study with Kavita Singh of the Public Health Foundation of India and the Centre for Chronic Disease Control in New Delhi, and with M. Venkat Narayan, Professor of Medicine and Epidemiology and Director of the Global Diabetes Research Center at Emory University. They find that diabetes-related complications lead to enormous treatment costs, causing catastrophic medical spending and illness-induced poverty for many households.

The new study is related to a broader research project led by Eggleston, entitled Net Value in Diabetes Management, that compares health care use, medical spending, and clinical outcomes for patients with diabetes as a lens for understanding the economics of caring for patients with complicated chronic diseases across diverse health systems. This international collaborative research convenes teams of clinicians and health economists in ten countries (and growing) across Asia, as well as the United States and The Netherlands. Together, they analyze big data—detailed, longitudinal patient-level information for large samples from each country, including millions of records of clinical encounters, health-check-up, and medical spending—to compare the health care use and patient outcomes for adults with type 2 diabetes in their health systems.

In the new publication, Eggleston and her co-authors first introduce several unique features that characterize the type 2 diabetes epidemic in South Asia. These include a high risk of developing diabetes even at lower levels of body mass index than observed among western populations; a high prevalence of glucose intolerance, low levels of HDL cholesterol, and high levels of triglycerides; a relationship between impaired fetal nutrition, diabetes, and cardiovascular risk; and the likelihood of rapid urbanization impacting the diabetes burden of the wealthy and the underprivileged differently.

Furthermore, South Asian countries face difficult challenges in delivering diabetes care. The health sector in the region has little organized financing, leading to heavy out-of-pocket spending by patients. Limited availability and affordability of anti-diabetic drugs is a major driver of lower use of such medicines. These factors, combined with a general lack of health care professionals and infrastructural resources and low quality of healthcare governance, all contribute to poor health outcomes.

Eggleston and her co-authors assess the current literature on the economic impact of diabetes in South Asia. They show that, compared with the high prevalence of diabetes in South Asian countries, the total health spending as a percentage of GDP in the region has remained low and fairly constant (3-4% in most countries) over the last two decades, with less than 1% of GDP spent on healthcare by the government, and a miniscule 0.2% by pre-paid private insurance, resulting in a large proportion of out-of-pocket healthcare spending. The financial burden of diabetes and its complications can therefore have catastrophic implications for households that are often driven to sacrifice disastrous proportions of their income to cover treatment costs.

Diabetes causes premature mortality, high morbidity, and disability. To mitigate the economic and social welfare burden of the disease, the researchers conclude, policymakers in South Asia must take urgent action “to increase investment in evaluating cost-effective strategies to manage diabetes and preventative approaches.” The team offers a set of policy recommendations, including monitoring the economic burden of diabetes and the quality of care; focusing on the screening and prevention of diabetes and its risk factors; strengthening government health facilities and primary care services; expanding access to affordable, essential medicines, and more.

People today can generally expect to live longer and, in some parts of the world, healthier lives. The substantial increases in life expectancy underlying these global demographic shifts represent a human triumph over disease, hunger, and deprivation, but also pose difficult challenges across multiple sectors. Population aging will have dramatic effects on labor supply, patterns of work and retirement, family and social structures, healthcare services, savings, and, of course, pension systems and other social support programs used by older adults. Individuals, communities, and nations around the world must adapt quickly to the demographic reality facing us and design new approaches to financing the many needs that come with longer lives.

This imperative is the focus of a newly published special issue of The Journal of the Economics of Ageing, entitled Financing Longevity: The Economics of Pensions, Health and Long-term Care. The special issue collects articles originally written for and discussed at a conference that was dedicated to the same topic and held at Stanford in April 2017 to mark the tenth anniversary of APARC’s Asia Health Policy Program (AHPP). The conference convened top experts in health economics and policy to examine empirical and theoretical research on a range of problems pertinent to the economics of aging from the perspective of sustainable financing for long lives. The economics of the demographic transition is one of the research areas that Karen Eggleston, APARC’s deputy director and AHPP director, studies. She co-edited the special issue with Anita Mukherjee, a Stanford graduate now assistant professor in the Department of Risk and Insurance at the Wisconsin School of Business, University of Wisconsin-Madison.

The Financing Longevity conference was organized by The Next World Program, a Consortium composed of partners from Harvard University, Fudan University, Stanford University, and the World Demographic and Aging Forum, and was cosponsored by AHPP, the Stanford Institute for Economic Policy Research, and the Stanford Center on the Demography and Economics of Aging.

The contributions that originated from the conference and are collected in the Journal’s special issue cover comparative research on more than 30 European countries and 17 Latin American countries, as well as studies on Australia, the United States, India, China, and Japan. They analyze a variety of questions pertinent to financing longevity, including how pension structures may exacerbate existing social inequalities; how formal and informal insurance interact in securing long-term care needs; the ways in which the elderly cope with caregiving and cognitive decline; and what new approaches might help extend old-age financial security to those working outside the formal sector, which is a major concern in low-income countries.

Another challenge of utmost importance is the global pension crisis, caused due to committed payments that far exceed the saved resources. It is a problem that Eggleston and Mukherjee highlight in their introduction to the special issue. By 2050, they note, the pension gap facing the world’s eight largest pension systems is expected to reach nearly US $400 trillion. The problem cannot be ignored, as “the financial security of people leading longer lives is in serious jeopardy.” Indeed four of the eight research papers in the special issue shed light on pensions and inequality in income support for older adults. The other four research papers focus on health and its interaction with labor force participation, savings, and long-term care.

The issue also features two special contributions. The first is an interview with Olivia S. Mitchell, a professor at the University of Pennsylvania’s Wharton School and worldwide expert on pensions and ageing. Mitchell explains the areas offering the most promise and excitement in her field; discusses ways to encourage delayed retirement and spur more saving; and suggests several priority areas for future research. The latter include applying behavioral insights to questions about retirement planning, improving financial literacy, and advancing innovations to help people imagine themselves at older ages and save more for their future selves.

The second unique contribution is a perspective on the challenges of financing longevity in Japan, based on the keynote address delivered at the 2017 Stanford conference by Mr. Hirotaka Unami, then senior Director for policy planning and research of the Minister’s secretariat of the Japan Ministry of Finance and currently deputy director general with the Ministry’s Budget Bureau.

In Japan, decades of improving life expectancy and falling birth rates have produced a rapidly aging and now shrinking population. Data released by Japan’s Statistics Bureau ahead of Children's Day on May 5, 2019 reveal that Japan’s child population (those younger than 15) ranks lowest among countries with a total population exceeding 40 million. In his piece, Unami focuses on the difficult tradeoffs Japan faces in responding to the increase in oldest-old population (people aged 75 and over) and the overall population decline. Japan aspires to do so through policies that are designed to restore financial sustainability for the country’s social security system, including the medical care and long-term care insurance systems.

Unami argues that Japan must simultaneously pursue a combination of increased tax revenues, reduced benefit growth, and accelerated economic growth. He notes that these three-pronged efforts require action in five areas: review Japan’s pension policies; reduce the scope of insurance coverage in low-risk areas; increase the effectiveness of health service providers; increase a beneficiary’s burden according to their means; and enhance policies for preventive health care for the elderly.

The aging of our world’s population is a defining issue of our time and there is pressing need for research to inform policies intended to improve the financial well-being of present and future generations. The articles collected in the Financing Longevity special issue and the ongoing work by APARC’s Asia Health Policy Program point to multiple areas ripe for such future research.

View the complete special issue >>

Learn more about Dr. Karen Eggleston’s work in the area of innovation for healthy aging >>