Aging in Asia
When the Structure of Prosperity Changes

By Keiichiro Oizumi

Public-Interest Incorporated Foundation

Oriental Life Insurance Cultural Development CenterTokyo, Japan

About the Release of the Translated Version
This book is a translated version of The Ageing Asia (老いてゆくアジア),
which was published in 2007. This translated version has incorporated updated
data such as the UN’s World Population Prospects, the 2012 Revision (updated
in June 2013) and the most recent data and information has been used for thedescriptions presented in other parts of the book as much as possible.
While population statistics are known for their small margin of error, I was
surprised anew to learn that changes were not required for the most part. In
other words, population aging has advanced steadily since 2007, with thenumber of the elderly in East Asia alone growing by 5 million people per year.
As time goes by, the governments of countries including South Korea, China,
and Thailand are becoming more and more aware of the seriousness of
population aging, and many workshops have been held between these countries
and Japan, where population aging has advanced the most out of the countries
of East Asia.
Meanwhile, the World Bank, the Asian Development Bank, and otherinternational institutions have put forth the new concept of inclusive growth asa framework for supporting developing countries. As their policy of support
under the concept of inclusive growth, they stress that economic growth shouldbe accompanied by the development of fair social security systems for all
members of the population. Amidst these circumstances it is safe to say that
there is a sense of crisis toward the advance of population aging in developing
countries.
Furthermore, the concept of a demographic dividend that was used in thisbook to explain the relationship between demographics and economic growthhas become more widely used. Incidentally, the number of research papers
found when searching Google Scholar for the Japanese term for “demographic
dividend” in English has nearly doubled between 2007 and 2012, growing
from 296 papers to 579 papers. Demographic factors such as the decrease in
the working-age population and population aging have been cited as factors
leading to the slowdown in China’s growth in recent years. We have been
forced to revise an optimistic outlook expecting that the high levels of growth
enjoyed up until now would continue.
While awareness of population aging has grown, it cannot really be said that
population aging countermeasures have been developed sufficiently in the
countries of East Asia. Especially following the global economic crisis
happened in 2007, the governments of both developed countries anddeveloping countries have prioritized the maintenance of their economies, andthe development of social security systems, particularly population aging
countermeasures, has been postponed as a result. It should be noted that theilarge-scale fiscal stimulus measures being implemented to maintain economies
are restricting the freedom of financial resources that could be provided forcountermeasures in response to aged societies in the future. Many people still
fall outside the scope of social security systems.
This book stresses that we cannot afford to be optimistic toward theeconomic growth of East Asia due to population aging. Recently the term
middle income trap has been used in reference to emerging countries anddeveloping countries whose economic growth slows before becoming highincome countries. However, an even graver situation is one in which
population aging advances in emerging countries and developing countries
before they become high income countries. I refer to this concept as the middle
income country’s cliff. While innovation to increase productivity is required toescape the middle income trap, in order to overcome the middle income
country’s cliff it is necessary to rethink the stance toward population aging
throughout society as a whole. It is not sufficient to merely focus on how to
support the continually increasing number of elderly people. We should instead
rethink the practice of defining the elderly by age alone and focus on
increasing the number of elderly people that are healthy physically andmentally and able to live well independently. The most important thing to do is
to form societies that can actively utilize the wisdom and experience of theelderly. The biggest lesson learned since 2007 is how important increasing thenumber of active elders is for the achievement of an abundant aged society. If
this can be achieved, East Asia will continue to shine.
This English translation version was made possible through grants provided
by the Oriental Life Insurance Cultural Development Center. I would like toexpress my sincere gratitude for this support.
I would be overjoyed if this book provided an opportunity for the reader toconsider the achievement of an abundant aged society in East Asia.

October 2013
Keiichiro Oizumi

iiForeword
By
Akira Suehiro
Professor of the Institute of Social Science, the University of Tokyo
Aging in Asia. Some readers may wonder why such a title was selected. Thisis because that for many people, their image of Asian countries continuing toenjoy high levels of growth overlaps with an image of countries still in their
youth. Concepts associated with this image include the East Asian miracle, theAsia that serves as a driver for global growth, the Asian century, and emerging
Asia. The words that are used to talk about Asia's economy all bring to mind ayouthful Asia.
Meanwhile, the population explosion problem has been stressed when
discussing demographic issues in developing countries in the context ofdevelopment economics. The population explosion concept refers to the
explosive increase in population that results when moving from the high-birth,
high-death phase to the high-birth, low-death phase. Fortunately, population
control measures in East Asia have been successful as we see the cases ofThailand’s effective birth-control campaign and China’s one-child policy, andthe population that had grown before these measures has been transformed intoa young, abundant, and high-quality working population. As a result, East Asia
has been able to achieve export-oriented industrialization with a focus onlabor-intensive industries and a high level of growth among the developing
countries. This can be said to be the standard understanding of East Asian
economies.
However, the situation has drastically changed since the 1990s. What havecharacterized East Asia since then are a decrease in the total fertility rate andan increase in the elderly population at a speed never experienced bydeveloped countries and all at once with no relation to the differing economic
levels of the individual countries. The demographic dividend period will sooncome to an end in several countries of East Asia (Korea, Singapore, China andThailand) and as a result labor supply shortages will cause real wages to rise.
The simultaneous advance of population aging and fertility lowering together
with the movement of young people to urban areas and transformations infamily structures has caused the serious social issue of who would care for theelderly left behind in rural areas. As long as there are no improvements in laborproductivity or advances in innovation, increases in real wages can only lead toa slowdown in growth and reaching income ceilings. In this sense, East Asia is
now at a crossroads, being known as “the middle-income trap” or “themiddle-income country cliff.”
iii

This book uses the three angles of demographic transitions, economic
growth, and social security to vividly present a real picture of East Asia that isundergoing a period of major transition. In stark contrast to the traditional Asia
theory based on the keywords of industrialization, export promotion, anddevelopmental dictatorship, this is a completely new view of Asia. The original
Japanese version of this book that was published in 2007 not only received
great acclaim, but it also won the Award for the Promotion of Studies on
Developing Countries from IDE-JETRO in recognition of presenting a fresh
perspective in contrast to existing Asia theory.
With this English edition, efforts have been made to present the latest
information by updating all of the data used in the original Japanese version. In
the process of updating the data it was discovered that the problem of low
fertility and population aging does not appear to be improving, that thesituation is becoming more serious in China and Thailand, and that the same
issues are occurring in other East Asian countries, although there are somevariations in their levels. I hope that this book will serve as an essential tool forunderstanding contemporary Asia so that the future of Asia can be put in its
proper perspective.

iv

Contents
About the Release of the Translated Version ...................................................... i
Foreword ........................................................................................................ iii
Introduction ........................................................................................................ 1
The trend of declining birthrates and aging populations ................................ 1
Moving beyond the myth of Asia’s miracle ................................................... 6
Chapter 1: The declining birthrate and aging population in Asia ...................... 7
1. The world population and Asia .................................................................. 7
From a century of population explosion to a century of population decline.................................................................................................................... 7
The accelerating decline in birthrates on a global level ............................. 8
A decline in the population growth rate in developing countries ............... 9
Flying-geese pattern of population change............................................... 11
2. Background behind the rapid decline in birthrates in Asia ...................... 12
Demographic transition model ................................................................. 12
From the high-birth, high-death phase to the high-birth, middle-death
phase ......................................................................................................... 13
The decline in the birthrate and the one-child policy ............................... 16
Utilities and disutilities of having children............................................... 19
From a low-birth, low-death phase to a declining birthrate phase............ 22
How will birthrates change in the future? ................................................ 24
3. The acceleration of population aging in Asia ........................................... 26
The era of the elderly population explosion ............................................. 26
The transition from an aging society to an aged society .......................... 27
East Asia’s transformation into a global aging region.............................. 28
Chapter 2: The demographic dividend that has supported economic growth inEast Asia ....................................................................................... 30
1. What brought the East Asian miracle to life? ........................................... 30
Is economic growth the cause or the result? ............................................. 30
Population size and economic growth ...................................................... 31
Population structure and economic growth .............................................. 33
2. What is the demographic dividend? ......................................................... 37
Economic growth as a dividend ............................................................... 37
Increase in labor inputs from the baby boom generation ......................... 38
The rise in the domestic savings rate encouraging investment................. 41
Productivity improvements through the spread in primary education ...... 43
How long will the demographic dividend continue? ................................ 45
3. How have countries in Asia been able to enjoy the benefits of thedemographic dividend? ............................................................................ 46
Changes in the benefits of the demographic dividend .............................. 46
Japan: the period of high growth supported by the baby boom generationv

.................................................................................................................. 48
South Korea and Taiwan: the deployment of demographic trend-friendly
policies ..................................................................................................... 51
China and the ASEAN 4: Missing out on the benefits of the first half of thedemographic dividend .............................................................................. 57
Chapter 3: The impact awaiting after the coming of the demographic dividend....................................................................................................... 66
1. Transition from the demographic dividend to the demographic onus ...... 66
2. Changes in growth elements caused by population aging ........................ 67
The declining labor force ......................................................................... 67
The decline in the domestic savings rate from the life-cycle perspective 71
The required improvements in total factor productivity ........................... 73
3. Barriers to high growth in China and the ASEAN 4 ................................ 75
Surplus labor force and urbanization ........................................................ 75
4. The difficulty of improving the productivity of the baby boom generation................................................................................................................. 76
The conversion from agriculture to industry and productivity ................. 76
Aging of the baby boom generation ......................................................... 79
A future of the Asian economy that does not allow for over optimism.... 83
Chapter 4: Who will take care of East Asia’s elderly? .................................... 85
1. Social security systems in East Asia ........................................................ 86
Growing momentum................................................................................. 86
Social security systems in the countries of East Asia ............................... 87
The impact of democratization movements.............................................. 89
The focus of international organizations on social protection .................. 91
2. Issues in the establishment of social security systems ............................. 93
Increasing burdens caused by population aging ....................................... 93
A pension burden that already cannot be covered .................................... 96
The five pension system pillars of the World Bank ................................. 97
The political aspects of pension system reform...................................... 100
Population aging and human security..................................................... 100
3. The difficulties facing developing countries .......................................... 103
The pension system in Thailand ............................................................. 103
The universal pension system that never came to life in Thailand ......... 105
Chapter 5: Community welfare and the East Asian Community ................... 111
1. From welfare states to welfare communities .......................................... 111
Communities hold the key ...................................................................... 111
Transition to welfare communities ......................................................... 111
2. Lessons learned from community welfare activities in Japan ................ 113
History of community welfare in Japan ................................................. 113
Division of roles between the nation and local communities ................. 115
Coordination between social welfare supporters and the participation ofvi

local residents ......................................................................................... 116
3. Toward the formation of ideal East Asian Community.......................... 118
Cooperative frameworks in the East Asian region ................................. 118
Challenges in the formation of an East Asian community ..................... 119
Social welfare network in Asia............................................................... 122
References ..................................................................................................... 124

vii

viii

Introduction
The trend of declining birthrates and aging populations
East Asia is rapidly aging. Declining birthrates and aging populations havealready become problems that are common throughout East Asia.
These trends were first seen in Japan. The total population of Japan has beenon the decline since 2005.
It is not rare for a country’s population to decrease at some point in time inits history. The world has experienced declines in its population many times
throughout history, caused by factors ranging from famine caused by unusual
weather, epidemics such as the plague, and war damage. However, thesedeclines in population have all been temporary.
But the decrease in population that Japan is currently facing is being caused
by a prolonged low birth rate, and even should birthrates recover in the future,
it represents a social problem that cannot be avoided.
Meanwhile, the population of elderly people age 65 or more in Japan was
29.25 million as of 2010, which is equivalent to 22.7% of the total population(this ratio is referred to as the population aging rate). For this reason, Japan has
the highest population aging rate in the world. According to the estimates of
the National Institute of Population and Social Security Research for 2012, thepopulation aging rate will reach 31.6% by 2030 and 38.8% by 2050.
This means that as the scale of Japan’s economy contracts with the decreasein population, the aging population will further increase social security costs,
thrusting Japan into a situation difficult to resolve.
In contrast to Japan, the East Asian economy is considerably strong.
Towards the end of the 20th century, it was often said that the 21st-century
would be the “Asian Century,” and this has begun to take on a sense of reality.
The real GDP growth rate of East Asia in recent years is displayed in Table
0-1. You can see that during the period from 1980 to 2010, the economic
growth rate for Asia excluding Japan was significantly higher than the world
average. China’s double digit growth during the 1990s and 2000s wasparticularly pronounced.
As a result of this high growth, East Asia’s (including Japan) share of the
global economy grew from 20% in 1990 to 25% in 2011. According toforecasts by the IMF, this share is expected to further increase to 29% by 2017.
Although East Asia suffered an economic recession of an unprecedented
scale due to a currency and economic crisis during the second half of the 1990s,
it has overcome this challenge and proceeded on a course for new growth. This
growth has been particularly impressive in contrast to the slowdown in theeconomies of the developed nations following the bankruptcy of Lehman
Brothers.
In face of these circumstances, Japan and other developed nations are1

actively working towards achieving sustainable development by deepening ties
with East Asia.
Table 0-1 Real GDP Growth Rate of East Asia(%)
1980-90Japan

1990-2000 2000-2010

4.6

1.1

0.8

Korea

9.7

6.5

4.2

Taiwan

7.6

6.2

3.9

Hong Kong

6.7

3.9

4.0

Singapore

7.7

7.1

5.6

China

9.3

10.4

10.5

Thailand

7.9

4.4

4.3

Malaysia

6.0

7.1

4.5

Indonesia

5.5

4.0

5.2

Philippines

1.7

2.9

4.8

World

3.3

3.2

3.6

NIEs

ASEAN4

Source: IMF, World Economic Outlook Database October
2012

For example, the following opinion is offered in the White Paper on
International Economy and Trade 2005 released by Japan’s Ministry of
Economy, Trade and Industry:
There is a need for Japan, which will find it difficult to expect higheconomic growth given its aging society with a falling birthrate andshrinking population, to further promote interdependence with the East
Asian economy, which is expected to continue experiencing high growth.
Taking this situation into account, Japan’s economic growth strategy should
actively incorporate the vitality of the East Asian economy, with which
economic interdependence is deepening as has already been explained.
In fact, following the Plaza Accord in 1985, Japanese companies haveaccelerated entry into East Asian markets and established networks of goods,
money, and information throughout the region. To boost these developments,
Japan’s government has worked towards concluding comprehensive EPAs
2

(economic partnership agreement) with the countries of East Asia that not only
liberalize trade of goods and services, but also encourage the movement ofpeople and money, protect intellectual property rights, provide for investment
rules, and support and cooperate for technology development.
As of November 2012, EPAs with Japan have taken effect with 13 countries
and regions (Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei,
ASEAN, the Philippines, Switzerland, Vietnam, India, and Peru), mainly in the
East Asian region.
However, it should be noted that this strategy is based on the assumptionthat East Asia can be expected to be a growth center in the future. In otherwords, it is being assumed that while Japan is becoming an aging society witha decreasing population and is entering a period of low economic growth, thedemography of other East Asian countries remains young and they are
undergoing a period of high economic growth.
But what would happen if it turned out that the declining birthrates andaging populations were prevalent in all of East Asia?
Table 0-2 Total Fertility Rate and Population Aging RateJapan

Total Fertility Rate
1990-95
2005-10
1.48
1.34

Aging Rate
2010
2030
23.0
30.7

NIEs
Korea
TaiwanHong Kong
Singapore
China

1.70
1.79
1.24
1.73
2.05

1.23
1.26
1.03
1.26
1.63

11.1
10.7
12.9
9.0
8.4

23.4
23.3
26.5
20.5
16.2

ASEAN4Thailand
Malaysia
Indonesia
Philippines
World

1.99
3.42
2.90
4.14
3.04

1.49
2.07
2.50
3.27
2.53

8.9
4.8
5.0
3.7
7.7

19.5
9.7
9.2
6.3
11.6

Source: UN. World Population Prospects: The 2012 Revision

It turns out that in fact, birthrates are declining and populations are aging
throughout East Asia. By looking at the total fertility rate (the number ofchildren a woman gives birth to throughout her life) and the population aging
3

rate (population ratio of people age 65 or more) in Table 0-2, it can be seen thatthe total fertility rate for the NIEs (South Korea, Taiwan, Hong Kong, andSingapore) is lower than Japan, and that for China and Thailand, the total
fertility rate has already become lower than two (the number required tomaintain population levels). Meanwhile, the population aging rate for the NIEs,
China, and Thailand has exceeded 7%, indicating that they are already aging
societies. Furthermore, the recent drastic decline in birthrates will speed up theaging of the population in the future. According to the population estimates of
the United Nations, the population aging rate will exceed 20% for the NIEs and
14% for Thailand and China by 2030 as they become aged societies. By 2030,
all countries in the region except the Philippines will become aging societies.
The declining birthrate and aging population should be regarded as aproblem that affects all of East Asia.
In consideration of this, this book aims to study whether the vitality of East
Asian economies is sustainable in the future and what kind of problems East
Asia will face 10 or 20 years from now.
This book is composed of the following five chapters.
Chapter 1 focuses on the actual state of the abovementioned declining
birthrate and aging population in the East Asian region.
Although the population growth rate is declining around the world, this trend
is particularly pronounced in the East Asian region. The factors underlying thedrastic decrease in birthrates in East Asia include both an increase in income
levels and rapidly changing lifestyles. Declines in birthrates are expected tocontinue in the future, and it has been pointed out that there will be an
explosion in the elderly population as the baby boom generation of each East
Asian country reaches old age.
Of course, even though these societies are aging, it is no easy task toascertain the effect this is having from the current state of the economy in East
Asia. For example, China has maintained double-digit growth for the past 20
years, and is seemingly establishing a position as the driver for growth in Asia.
Chapter 2 focuses on the relationship between demographic trends in Asiaand economic growth in connection to the concept of a demographic dividend,
an increase in the working-age population. The demographic dividend refers to
the concept that the increase in the working-age population (age 15 to 64) that
accompanies a decline in birthrates leads to an increase in the quantity of labor
supply and the domestic savings rate, which encourages economic growth as aresult. Of course, the effect of the demographic dividend varies depending on
the policies implemented by each country. We will look at the economic
growth from the perspective of the demographic dividend for three separate
regions: Japan, South Korea and Taiwan, and China and Thailand.
The effect of the demographic dividend will become diluted as societies age,and the impact of aging populations is expected to become more severe in the4

NIEs, China, and Thailand from 2015 onwards.
Chapter 3 focuses on the kind of problems East Asia will face after thedemographic dividend. Specifically, it will be demonstrated that improving
productivity is the key to sustaining growth as the decrease in labor inputs andthe decline in the domestic savings rate that accompany aging populations
serve to inhibit growth. Furthermore, it will be pointed out for China and theASEAN countries that while the benefits of the demographic dividend can beenjoyed in urban areas if the surplus workforce in rural areas is used efficiently,
if something is not done soon to improve the productivity of the baby boom
generation left behind in rural areas, the impact of the aging population in there
will become more serious in the future.
Chapter 4 will focus on the issue of the establishment of social security
systems to support aged societies. There has been an increasing momentum
towards the establishment of social security systems throughout East Asia.
However, in China and the ASEAN region where income levels are low, theestablishment of social security systems that are available in Japan such aspensions, medical insurance, and nursing care insurance has not yet beenpossible due to the lack of funds, human resources, and established programs.
Thailand will be used as a case study to demonstrate the difficulties of
establishing the universal pension systems that are available in developed
countries. However, if these countries are slow to respond to their aging
populations, human security problems could develop, putting the lives of
elderly people in rural areas at risk. It will be pointed out that the problem of
who is going to take care of the elderly in East Asia is an issue that we should
start to address now in order to create prosperous societies throughout East
Asia, and that focusing on simply maintaining economic growth is not
sufficient.
Chapter 5 will examine regional cooperation in East Asia in response to theissue of aging populations. Japan can be expected to play the role as a leader interms of how it has responded to being an aged society. Of course, while Japanhas yet to find a miracle cure for aging populations, from the perspective of
placing value on the role of communities in elderly social welfare, local
governments in Japan have accumulated much experience and knowledge overmany years relating to social welfare (community welfare). Moreover, theissue of aging populations, along with environmental and energy issues, should
be viewed as shared problems that extend above and beyond regions, and forthis reason the establishment of cooperative frameworks that allow for themutual sharing of wisdom and learning opportunities is necessary. Recently
there has been much debate over what the East Asian Community should aim
for, and I believe that addition to economic prosperity, its aims should also
include the achievement of peaceful and secure societies. I believe that whether
or not East Asia can become a true community is up to whether or not we can5

provide the support and cooperation that is necessary for the establishment of asociety that tends for all the elderly people living in East Asia.
Moving beyond the myth of Asia’s miracle
The message throughout this book is that while populations age in East Asia,
we cannot afford to be overly optimistic towards continued prosperity.
The US economist Paul Krugman posed doubts towards the sustainability ofAsia’s high growth rates in his essay “The Myth of Asia’s Miracle” (1994). In
this essay Krugman makes the claim that Asia’s high growth has been
supported by an expansion in inputs including labor inputs and capital stock,and that because no technological innovations or other improvements to
production efficiency are apparent, this growth will eventually undergo
adjustments. Some believe that this observation predicted the economic crisis
that entire Asia region suffered three years later in 1997 triggered by acurrency crisis in Thailand, and the truths behind this observation seem evenmore apparent in face of the current aging population. For this reason, thecountries of East Asia will have to seek for a means to respond to thisdilemma.
While “The Myth of Asia’s Miracle” points out issues with the sustainabilityof economic growth, the aging population issue is a grave issue that goesbeyond economic growth, as it will test societies as to whether they are capableof true prosperity that allows their elderly people to live secure and peaceful
lives.
I hope this book will allow the reader to think beyond the myth of Asia’s
miracle and provide the reader with a chance to consider what needs to be donein order to achieve true prosperity in Asia.
Note that this book will primarily focus on the countries and regions of East
Asia, including Japan, the NIEs (South Korea, Taiwan, Singapore, and HongKong), China, and the ASEAN-4 (Thailand, Indonesia, the Philippines, andMalaysia). However, the statistics on East Asia also include Vietnam,
Cambodia, Laos, Brunei, and Myanmar.

6

Chapter 1: The declining birthrate and aging population in Asia
1. The world population and Asia
From a century of population explosion to a century of population decline
In a true sense, the 20th century was the century of population explosion.
The world population of approximately 1.7 billion in 1900 grew to 2.5 billion
in 1950, and 6.1 billion in 2000. During the one hundred years of the 20th
century, the world’s population increased by approximately four times.
As of 2010, there were approximately 7 billion people living together on the
Earth. According to the UN’s population estimates (UN World Population
Prospects: The 2012 Revision: Medium Variant), the world’s population is
expected to continue to increase, reaching 9.6 billion by 2050. This means thatthe population will grow by more than 3 billion during the first half of the 21st
century. Looking at the entire Earth, the world’s population is still on the rise,
and the impact of this increasing population on the Earth’s food, energy,
natural resources, and environment is enormous.
However, the speed of population growth has slowed with time. The world’s
population growth rate peaked at 2.1% from 1965 to 1970 and dropped to 1.2%
from 2005 to 2010. This downward trend is expected to continue in the future,
dropping to 0.9% from 2020 to 2025 and 0.5% from 2045 to 2050. While theworld’s population will exceed 10 billion by the end of the century, thepopulation growth rate will drop to almost zero, and the world’s population
will begin to decrease in the 22nd century. In other words, the 21st century
can be said to be a century of transition from a century of population explosion
to a century of population decline.
Thomas Robert Malthus’s theory of population is often cited whendescribing the rapid increase in population during the 20th century. Althoughpeople need food to live (means of subsistence), the population continues toincrease while there are not any limitations on food production. Additionally,
the population grows exponentially (1, 2, 4, 8, etc.) every 25 years. Meanwhile,food production only increases arithmetically (1, 2, 3, 4, etc.). For this reason,
the growing population will eventually run up against the barrier of foodshortage. This is Malthus’s theory of population.
Furthermore, it was feared that this population explosion would eventually
use up all of the Earth’s resources. For example, according to The Limits toGrowth released by the Club of Rome in 1972, if nothing is done theexponentially increasing population will not only cause a food shortage, butalso cause resources to become depleted and environmental pollution to
become more severe. The computer simulations in the book that demonstrated
that the world (and the human race) would soon reach the limits of its growthshocked the world (Meadows et al. 1972).
7

However, at the same time as being a century of population explosion, the20th century was also a century of science. Thanks to the development ofchemical fertilizers and high-yielding varieties of crops and the modernizationof distribution, at the very least mankind managed to avoid any fatal
insufficiencies of food or natural resources. Moreover, the growth rate of theworld’s population has begun to decline before reaching the limits of foodsupplies and resources that were pointed out by Malthus and the Club of Rome.
The countries that have had the largest decreases in population growth rates are
the developed countries without many resources limitations. It is believed thatthe decline in the population growth rate in developed countries has beencaused by changes in lifestyles instead. Meanwhile, fact is that population
growth rates remain high in developing countries where standard of living islower and food supplies are insufficient.
The accelerating decline in birthrates on a global level
While the population is expected to continue to increase during the 21st
century, the “population explosion” or rapid increase in the world’s population
has been avoided and the population growth rate has declined over time.
Triggering them is the effect of a decline in birthrates that has accelerated at a
speed faster than expected.
Figure 1-1 displays changes in the global total fertility rate during the second
half of the 20th century. The total fertility rate indicates the number of children
a woman gives birth to throughout her life.

8

Looking at the global total, while the total fertility rate was high at 5.0 from1950 to 1955, it began to strongly decrease from the 1970s onward, reaching
2.5 from 2005 to 2010. Of course, the total fertility rate is lower in thedeveloped countries. While the total fertility rate in the developed countries
was already relatively low at 2.8 from 1950 to 1955, it dropped even lower to
1.7 from 2005 to 2010. Throughout this, Japan’s total fertility rate has
constantly remained below the average of other developed countries, and was
1.3 in that period.
In order for a country’s population to stay stable, it is necessary for parents
to have two children. However, because it turns out that there are somechildren that die before becoming adults, the total fertility rate required forkeeping the population stable is approximately 2.1 (this is referred to as “thereplacement level”). Because the total fertility rates in most developed
countries have stayed below the replacement level for a prolonged period oftime, it is only natural that the world’s population should begin to decrease atsome time.
It was during the mid-1970s when Japan’s total fertility rate fell below the
replacement level. At that time, it was only viewed as a temporary
phenomenon. It was believed that the total fertility rate would move back up to
the replacement level once economic and social conditions improved. However,
the reality is that the total fertility rate has continued to decline since then, anddifferences between expectations and reality have caused social security costs
to increase more than expected.
A decline in the population growth rate in developing countries
Because there has been a significant decline in birth rates in the developed
countries since around the 1980s, the world’s population problems can beunderstood respectively as aging populations accompanying declining
birthrates in developed countries and as population growth rates in developing
countries remaining at high levels (a population explosion).
In reflection of this, the UN’s population estimates have looked at thedeveloped countries and developing countries separately. According to thesestatistics, the population in developed countries increased from 813 million in1950 to 1,241 million in 2010, while the population in developing countries
increased from 1,713 million to5,675 million during the same period. Thismeans that the developing countries account for 90% of the population increase,and as result the percentage of the world’s population accounted for by thedeveloped countries dropped from 32.2% to 17.9% from 1950 to 2010, while
this percentage increased from 67.8% to 82.1% for developing countries during
the same period.
This trend will continue in the future. While the population of developed
countries will increase to 1,294 million in 2030 and 1,303 million in 2050, the9population of developing countries will increase to 7,131 million in 2030 and
8,248 million in 2050. For this reason, by 2050 the percentage of the world’s
population accounted for by the developed countries will change to 13.6% andby developing countries to 86.4%.

The developed countries as defined by the UN include all the countries in
Europe, as well as Canada, the US, Australia, New Zealand, and Japan.
However, the UN’s definition does not include countries such as South Korea,
Taiwan, Singapore, and Hong Kong that have already achieved developed
country income levels and conversely includes countries such as Romania andBulgaria with low income levels. Despite this issue, there is no change in thefact that developing nations account for a larger percentage of the world’s
population than developed nations and that this tendency will become stronger
in the future.
One thing that should be noted is that even among the developing countries,
a clear distinction is beginning to develop between countries in which the
population growth rate is declining and those in which it is not. The UN
releases population statistics on the least developed countries of the developing
countries separately from the developing countries not included in thiscategory (there are 50 countries included in the least developed countries
10

category). The population growth rate in the least developed countries
remained at the high level of 2.3% from 2005 to 2010. It can be safely said thatthe population explosion is still continuing in these countries.
In contrast to this, the population growth rate in the less developed regions
excluding least developed countries is clearly declining. The population growthrate in these regions declined from 2.1% in 1980 to 1985 to 1.2% in 2005 to2010. This trend is expected to continue in the future as the population growthrate will drop to 0.3% in 2045 to 2050. This is being caused by a decline in thebirthrates of developing countries similar to the trend in developed countries.
The total fertility rate for developing countries dropped from 3.9 in 1980 to1985 to 2.4 in 2005 to 2010 (in comparison the rate for the least developed
countries fell from 6.5 to 4.4 during the same time, which is still a considerablyhigh level).
In other words, there has to be a change in our image up until now ofdeclining birthrates in developed countries and a population explosion indeveloping countries.
Flying-geese pattern of population change
Population growth rate trends and declines in birthrates differ by region.
In the UN’s population estimates, the world is classified into six regions:
Africa, Asia, Europe, South America, North America, and Oceania. In
accordance with this classification, the region with the highest population isAsia, with 4.2 billion people as of 2010, or 60.2% of the global population.
However, many countries become included in the Asia region as a result of thisclassification.
When the figures are recalculated for East Asia defined as Japan, the NIEs
(South Korea, Taiwan, Hong Kong, and Singapore), China, the ASEAN 4(Thailand, Malaysia, Indonesia, and the Philippines), CLMV (Cambodia, Laos,
Myanmar, and Vietnam), and Brunei, the population of East Asia as of 2010
was 2.2 billion, or 31.3% of the global population. This means that one in threeof the Earth’s people live in East Asia.
However, the population growth rate for East Asia was only 0.8% in 2010,
and after reaching a peak of 2.4 billion in 2038, the population for the region
overall is expected to decrease. While Japan has already become a society witha decreasing population, by the mid-2030s South Korea, Taiwan, China, andThailand are also expected to be transferred into societies with decreasing
population. However, populations are expected to continue to grow until 2050
in Hong Kong, Malaysia, Indonesia, the Philippines, Cambodia, and Laos. In
this manner, East Asia is totally moving from a period of population explosion
to a period of population decline.
The major factor behind this change in demographics is the decline inbirthrates. East Asia’s total fertility rate was above the global average by 197011

to 1975. However, the birthrate from 2005 to 2010 was 1.8%, a level similar tolevels in the developed countries.
Declines in the population growth rate and declines in the birthrate are
known to have a strong correlation with income levels in general. To be more
precise, for Japan, the NIEs, China, the ASEAN 4, Vietnam, and India, there isa tendency for birthrates to decline for the countries with high income levels
first and for countries to become societies with decreasing populations in thesame order.
The pattern of economic development being led by Japan, and followed by
the NIEs, China, and the ASEAN countries has been called the flying-geese
pattern of development. It is extremely interesting that in terms of
demographics, a phenomenon that could be called a flying-geese pattern of
population change is now occurring.
Within the scheme of flying-geese pattern of development, the more of alatecomer a given country is, the more that country can benefit from thelatecomer’s advantage that enables rapid industrialization through the use oftechnologies that have been accumulated by developed countries. In terms of
demographics as well, while the population increases more rapidly the more ofa latecomer a given country is, by incorporating the experiences as well as newhealth and medical technologies and systems of developed countries at thesame time, the country may also enjoy the advantage of being able to respond
appropriately to population issues. However, because latecomers become aging
societies with a decreasing population while income levels are still low, thesocioeconomic impact is higher than in developed countries. This will be
described in further detail later.
2. Background behind the rapid decline in birthrates in Asia
Demographic transition model
Why have birthrates declined so rapidly in East Asia? In order to understandthis, it is necessary to first have an understanding of the background behinddemographic trends in Asia.
The population of a given country can be explained based on the natural rateof increase accounted for by changes in the number of births (birthrate),changes in the number of deaths (mortality rate), and the movements of
populations across national borders. Here, we will view the population growthrate as referring to the natural rate of increase accounted for by the population
change according to the birthrate and the mortality rate.
The demographic transition model (Figure 1-3) explains population changes
in terms of changes in birthrates and mortality rates, based on data from
Europe and North America. This model classifies population changes into thefollowing four phases in accordance with levels of and changes in mortality
12

rates and birthrates.
Figure 1-3 Demographic TransitionRate
1st Phase

2nd Phase

3rd Phase

Crude Death Rate

4th Phase

Crude Birth Rate

Population Growth Rate

Time
Source: Author

The first phase is the “high-birth, high-death phase” during which both themortality rate and birthrate are high. The second phase is the “high-birth,
middle-death phase” during which the mortality rate declines in advance ofthe birthrate. The third phase is the “middle-birth, middle-death phase”
during which the birthrate declines after the decline in the mortality rate. The
fourth phase is the “balanced population phase” during which both themortality rate and the birthrate are stable at low levels. This model is useful forunderstanding population changes in developing countries.
Using this model, I would like to look at how countries in East Asia have
tried to resolve population issues while still at low income levels and whybirthrates have declined in these countries while they are still at low income
levels. In order to compare birthrates and mortality rates, the demographictransition model uses crude birthrates and crude mortality rates that
respectively express the number of births and deaths per 1,000 people(units: ‰). Hereinafter these rates will simply be referred to as birthrates andmortality rates.
From the high-birth, high-death phase to the high-birth, middle-death
phase
During the first phase of demographic transition both the birthrate andmortality rate are high. During this phase, populations are unstable and volatile13

in response to exposure to the risk of the mortality rate increasing due toweather conditions or disease.
In terms of mortality rates in the countries of East Asia, while rates were low
in Japan in the 1950s, they were still high in China, the ASEAN 4, andVietnam. Looking at mortality rates from 1950 to 1955, the mortality rates forIndonesia of 25.2‰ and China of 22.1‰ were significantly greater than the
global average of 19.1‰. There were large numbers of deaths caused bybacteria infections such as cholera, dysentery, malaria, pneumonia, andtuberculosis, and the mortality rate was high among infants with low resistanceto disease. The number of deaths among infants under age one (“the infantmortality rate”) for every 1,000 live births was very high for Indonesia at
188.4‰, a level nearly the same as in Africa. In other words, two out of every
ten persons born in Indonesia did not live to reach their own first birthday.
With such a high infant mortality rate, people sought to have more children
in order to maintain the population and their lives, as a result pushing thebirthrate up. Furthermore, some also believe that the drastic increase in ricecultivation in East Asia upon entry into the 20th century served to push up
birthrates as a large labor force was required for rice planting and harvesting.
In any case, birthrates in China, the ASEAN 4, and Vietnam exceeded 40‰
during the 1950. Total fertility rates were incredibly high, exceeding 6 in mostcountries and exceeding 7 in the Philippines.
During the second phase of demographic transition, the mortality rate drops
in advance of the birth rate with improvements in living standards and in healthand sanitation.
Mortality rates in developed countries gradually fell from the 18th to 19th
century as productivity in these societies was enhanced through the agriculturaland industrial revolutions. Mortality rates dropped further entering the 20th
century as nutritional conditions improved, new drugs including vaccines andantibiotics were developed, and sanitation management technologies were
improved.
This decline in mortality rates in developed countries was achieved as aresult of efforts within societies to improve productivity, the penetration of theconcept of health and sanitation, and the development of medical technologies.
However, for mortality rates to fall from 30‰ to 20‰, it took France 78 years,
Sweden 37 years, the US 32 years, and the UK 27 years.
In contrast, mortality rates in developing countries including Asia fell
rapidly following WW2. The wide scale penetration of communicable disease
control and medical technologies and methodologies developed in advanced
counties contributed to this. The insecticides, antibiotics, and vaccines createdin developed countries that were introduced to developing countries throughaid in response to troubling issues including cholera, dysentery, and malaria
made a particularly important contribution that saved a large number of lives.
14

The high effectiveness of these innovations is clear when looking at the
decline in the mortality rate among infants with low resistance to disease.
Comparing the infant mortality rate from 1950 to 1955 with that from 1970 to
1975, it dropped drastically from 138‰ to 38‰ in South Korea, from 121‰ to
47‰ in China, and from 120‰ to 62‰ in Thailand. As a result, the crude
death rate (CDR) rapidly dropped from 16‰ to 8‰ in South Korea, from 22‰
to 8‰ in China, and 15‰ to 9‰ in Thailand (Figure 1-4).

While the decline in mortality rates in developed countries was
endogenously - generated through efforts made by these societies to enhance
productivity and develop medical technologies, the decline in mortality rates indeveloping countries was exogenously-generated through the adoption of theexperiences and technologies of developed countries (Watanabe 1986).
Undoubtedly, the countries of East Asia have benefited from the latecomer’s
advantage in terms of the population issue.
Meanwhile, declines in birthrates were more gradual because there were no
sudden changes in the sense of values, traditions, cultures, and systems thatserved to support high birthrates. Comparing the birthrate from 1950 to 1955
with that from 1970 to 1975, while it dropped from 36‰ to 30‰ in South
Korea, from 42‰ to 35‰ in Thailand, and 42‰ to 31‰ in China, the speed ofthese changes was significantly less than the speed of the decline in themortality rate.
This gap between the rapid decline in mortality rates and the gradual decline
in the birthrates served to increase the population growth rate. The population
15

growth rate exceeded an annual average of 3% in the NIEs from 1950 to 1960
and the ASEAN 4 countries from 1960 to 1970. As a result, accompanying thedecrease in the area of arable land per person in farming communities, people
became strongly aware that excessive populations served to impede economic
development in developing countries. The word “population explosion” wasthen applied to these types of drastic population increases, and this served tounderpin the global spread of the views espoused in The Limits to Growth of
the Club of Rome that was previously mentioned. Note that the population
pyramid for this second phase of the demographic transition contains a highyouth population and resembles a peaked mountain (Figure 1-5).
Figure 1-5 Population Pyramid of Thailand in 1975

(1,000 People)

Male

Female(Age)(1,000 People)

80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
4,000

3,000

2,000

1,000

0

0

1,000

2,000

3,000

4,000

Source: UN, World Population Prospects: The 2012 Revision

The decline in the birthrate and the one-child policy
During the third phase of demographic transition, the decline in birthrates
follows the drop in mortality rates. Because the gap between birthrates andmortality rates becomes gradually smaller during this phase, this leads to a
decline in the population growth rate. However, it should be noted that thefactors that cause birthrates to drop are complicated and differ by country.
First, population control measures were implemented as high-priority
policies in an effort to address drastic population increases.
16

In Japan, the Japan Family Planning Association was established in 1954,
and the organization focused on the sales of contraceptive devices andmedications, the development and dissemination of educational materials, andthe cultivation of instructors in related fields. In the same manner, thegovernments of the countries of Asia led efforts to disseminate family planning,
and these efforts were supported by developed countries and internationalorganizations. However, because decisions on whether or not to have children
are made based on the values of individuals and families, the government’s
population control measures could only be indirect.
China is famous for the mandatory population control measure it
implemented, the one-child policy.
I would like to provide some background on this one-child policy here as it
has caused significant changes to China’s demography and in addition to theeconomy of China, it also has a strong impact on the future economic
development of Asia.
China’s one-child policy was a national policy aimed at population control
under the slogans of late marriage, late birth, and low numbers of children.
With the promulgation of the Marriage Law of the People’s Republic of China
in September 1982, the legal marriage age was raised (23 to males and 20 tofemales), the implementation of family planning became mandatory, andcertificates were issued to couples pledging to have just one child. Couples thatreceived these certificates were eligible for a generous variety of benefits,
including the provision of scholarships for their children, prioritized day-care
centers entry, prioritized school entry, assistance with day-care and school fees,
coverage of medical care costs, prioritized job placement, prioritized allotmentof housing and land, and additional or increased pensions. Meanwhile, couples
not abiding by this one-child policy were subject to harsh penalties that
included the levying of costs for excessive births, the levying of social raisingcosts, salary cuts, and the suspension of pay raise and promotions at theworkplace (Wakabayashi 2005).
As the background for China’s launch of the one-child policy, it is necessary
to understand the abnormal conditions brought about by the increase in themortality rate and decline in the birthrate as a result of the Great Leap Forward
campaign from 1958 to 1961. Due to excessive collections of harvests fromfarmers and non-efficient transport of agricultural goods during the Great Leap
Forward campaign, 16 to 20 million people suffered abnormal deaths. This can
be clearly seen in China’s demographic trends, which are shown in Figure 1-6.
As a rule of thumb, birthrates increase for compensating immediately after
significant increases in mortality rates. The same developments apply for
China. The total fertility rate grew from 3.3 in 1961 to 6.0 in 1962, and nearly
doubled to 7.5 by 1963. As a result, the population growth rate during the1970s exceeded 2%. Just at this time, the rapid increase in the populations of17

developing countries around the world was being viewed as a problem, andthere is no doubt that this also led to a heightened sense of crisis within the
Chinese government. This is one key factor that triggered the Chinese
government to implement the one-child policy.

However, looking at actual birthrate trends, the birthrate began to rapidly
decline in the 1970s. When the Marriage Law of the People’s Republic ofChina mentioned above was established in 1982, the total fertility rate hadalready declined to 2.9. In other words, while there tends to be the strong
impression that the one-child policy caused the birthrate to decline in China,
the policy can be more accurately understood as a factor that acted toaccelerate the decline in the birthrate. Although some regulations towardhaving second children were eased for farming communities in the mid-1980s,
taking into account the future aging societies, this was not sufficient to slow
the decline in the birthrate. The total fertility rate for 2005 to 2010 of 1.6
already falls significantly short of the replacement level.
While some have the view that the birthrate could increase if this one-childpolicy were abolished, when considering the rapid decline in birthrates in other
Asian countries that did not implement any mandatory population control
measures like the one-child policy as will be explained in further detail below,
it is not believed that the birthrate in China can be increased easily even if the
one-child policy is abolished.
18

Utilities and disutilities of having children
Besides governmental population control measures, what other factors arebehind the overall decline in birthrates throughout East Asia?
Based on past experience in developed countries, we know that there is astrong correlation between declines in birthrates and increases in income levels.
Declines in birthrates accompanying increases in income levels have also been
confirmed in developing countries. Various analyses have suggested thaturbanization, increased educational opportunities for women, and heightened
participation of women in society have also affected declines in birthrates. At
the International Conference on Population and Development held in Cairo in1994, it was stressed that rapid increases in the populations of developing
countries could be avoided by adopting a stance of focusing on a human-rights
approach through the protection of women’s health and rights rather than
population control measures such as family planning.
Looking at society overall, while increases in income levels and theaccompanying changes in social structure are factors that contribute to declines
in birthrates, it is believed that specific birthrate levels are determined by thesense of values parents have toward having children. Libenstein’s model is amodel which considers these differences of whether or not to have children
from the perspective of utility and disutility.
In reference to this model, let’s consider the background behind thedeclining birthrates in East Asia.
According to this model, the three utilities and the two disutilities of having
children determine the number of children. To tell the conclusion first, in East
Asia, these utilities are rapidly declining while the disutilities are rapidly
increasing.
The first utility of having children is the sense of fulfillment toward that
actual act of having children. There is no doubt that the joy of having children
is something that is irreplaceable in every society. Assume that parents have an
image of an ideal family, consisting of perhaps two or three children. However,
if infant mortality rates are high as they are in developing countries, it isnecessary to increase birthrates in order to secure the number of children thatare desired. Furthermore, even if mortality rates in a society begin to decline, ittakes a considerable amount of time for parents to realize these changes. Thisis believed to be one factor that explains why the decline in the mortality ratein the second phase of the demographic transition did not lead to a decline in
the birthrate. However, once people may recognize that the mortality rate is on
the decline, it is possible to reduce the number of children that are given birthcompared to the number of children that are desired.
The second utility is the utility that can be gained through child labor orincome. Children serve as important breadwinners in developing countries.
19

The key crop in East Asia is rice, and large numbers of people are required forrice planting and harvesting. However, with the transformation of the industrial
structure from one based on agriculture to one based on industry as a result of
economic development, and with the mechanization of farming, the value ofthe child labor force has declined. In South Korea and Taiwan, birthrates fell
dramatically when employment rapidly shifted from agriculture to industry. It
is believed that this decline in utility of children as a labor source contributed
to a decline in the number of expected births.
The third utility consists of an income security effect in which children carefor their parents in their old age. Many people’s image of a typical East Asia
family consists of a large family in which grandparents, parents, and children
all live together. The custom of children taking care of parents in these big
families has been ingrained into society. However, with economic development,
young people began to leave their hometowns and live in urban areas. If it
becomes standard practice for children to live apart, children cannot
realistically be expected to care for their parents in the future. Moreover, thedevelopment of social security programs such as pensions and medical
insurance is believed to be one factor contributing to decreases in expectations
toward children’s care.
Next we will look at the disutilities of having children.
The first disutility is the direct increase in the financial burden brought about
by children, such as the costs associated with raising children. In order to raisechildren, expenditures are required for clothing, food, housing and education.
While income shortages can be mitigated in farming communities througheffort made through regional cooperation, life in urban areas must be done
through expenditures provided for by the income of the parents. Furthermore,as income begins to have a correlation with one’s educational history witheconomic development, educational expenditures for each child become larger
and larger. This increase in direct costs related to children is believed to work
as a factor that limits the number of children.
The second disutility is the increase in opportunity costs as parents sacrifice
employment and income opportunities in order to spend time raising theirchildren. With economic development, the school attendance rate of women
improves, as well as the labor force participation rate of women. As
opportunities for women to acquire income outside of agriculture expand in
farming communities also, there are incentives for them to limit the number ofchildren they have and work toward increasing actual income. As a result,people began to get married at a later age and the number of people remaining
single rose, and these developments also contributed to a decrease in birthrates
throughout society.
While which of these factors had the most effect on the birthrate varies bycountry, birthrates in each East Asian country rapidly declined in the period of20

economic growth following the 1980s (Figure 1-7).

Comparing the birthrate for 1980 to 1985 with that for 2005 to 2010, it
dropped from 20‰ to 10‰ in South Korea, from 24‰ to 12‰ in Thailand,
and from 22‰ to 13‰ in China, respectively. During the same period, it also
dropped from 36‰ to 26‰ in the Philippines. Because birth is believed to be
the will of god within Islamic societies, the promulgation of family planningwas said to have been difficult due to strong religious restrictions. Nonetheless,even in Indonesia, where Muslims account for the majority, the birthrate fell
from 32‰ to 21‰. The birthrate also fell from 30‰ to 18‰ in Malaysia,
despite its national policy of increasing the population. This suggests that in
East Asia, along with rising incomes, there have been big changes in thefunctions of the utilities and disutilities of having children.
Due to these declines in birthrates, the population growth rates for South
Korea, Taiwan, Thailand, and China for 2010 were less than 1%.
The population pyramid for the third phase of the demographic transition
resembles a bell shape with a narrow base in which the population of young
people is higher than children (Figure 1-8). The vitality of urban areas in China
and the ASEAN countries is supported by this population pyramid. These highnumbers of young people represent a demographic bulge formed as a result of
the rapid decline in birthrates (hereafter, this demographic bulge is referred toas “the baby-boom generation” in this book). A characteristic of demographic
trends in East Asia is that a shift was made from the high-birth middle death21phase to the middle birth middle death phase at a point earlier than indeveloped countries and at a faster pace. As a result, the population structuresof these counties contain a large number of people within the baby boom
generation.
Figure 1-8 Population Pyramid of Korea in 1990

(1,000 People)

Male

Female(Age)(1,000 People)

100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
3,000

2,000

1,000

0

0

1,000

2,000

3,000

Source: UN, World Population Prospects: The 2012 Revision

From a low-birth, low-death phase to a declining birthrate phase
The fourth and final phase of the demographic transition is the low-birth,
low-death phase in which the mortality rate and the birthrate reach a balance at
low levels and the population stabilizes. Focusing on the achievement of stable
population levels, if the total fertility rate reaching the replacement level of 2.1
is considered to be the transition point to the fourth phase of the demographictransition, Japan entered this phase in the mid-1970s, the NIEs entered thephase at the beginning of the 1980s, and China and Thailand entered the phaseduring the 1990s. The other Asian countries will enter the fourth phase within
the next 20 years.
The rapid decline in birthrates in East Asia was first affected by theexogenously-generated decline in mortality rates and was accelerated by22changes to social structures that were triggered by subsequent economic
development.
In fourth phase of the demographic transition model, it was assumed thatbirthrates and mortality rates remain stable at low levels and the population
growth rate stabilizes at a low level. However, in reality, birthrates have fallen
below mortality rates. While Japan’s total fertility rate for 2010 was 1.39, thisrate was even lower for the countries of South Korea (1.22), Taiwan (0.90),
Singapore (1.15), and Hong Kong (1.13). Thailand’s rate was 1.6, and it ishighly likely that the rate for China has fallen below 1.3. Furthermore, thisdownward trend is ongoing. This trend clearly differs from the fourth phase of
the demographic transition model, and should instead be understood as an“ultra-low-birth, low-death” fifth phase (a declining birthrate phase) or as aform of the secondary demographic transition seen in developed countries.
While research is expected to analyze the causes behind these declining
birthrates occurring throughout Asia in the future, let’s examine someinteresting points gleamed from analysis of similar phenomena occurring inJapan and Europe and consider what is currently occurring in Asia.
Firstly, there are the changes in family types. While it was previously
mentioned that there has been a shift from large families to nuclear families,
the custom of parents and children living together is also becoming less andless common. In South Korea, households consisting of married couples only
increased from 9.3% in 1990 to 14.8% in 2000 and 24.3% in 2010. In Thailand,
the average number of people in a household decreased from 4.4 in 1990 to 3.8
in 2000 and 3.1 in 2010. Meanwhile, the ratio of single households rapidly
increased from 5.1% in 1990 to 9.4% in 2000 and 18.4% in 2010. It is believedthat this type of reduction in family sizes is one factor that has contributed to
the reduction in the number of children.
Secondly, there are the changes in perceptions toward marriage itself.
Women are getting married later and later as they pursue higher education
more frequently and have more opportunities for employment. In terms of theaverage age of first marriage for women, in Japan it increased from 24.7 in
1970 to 27.7 in 1995 and 29.7 in 2010. In South Korea, this age increased from
23.3 in 1970 to 26.1 in 1995 and 28.8 in 2005, while in Singapore it increased
from 24.2 in 1970 to 27.0 in 1990 and 27.9 in 2010. While this age remained
relatively low in China and the ASEAN 4, it has increased gradually, risingfrom 22.4 in 1982 to 24.7 in 2010 in China and rising from 22.0 in 1970 to
23.7 in 2010 in Thailand. Considering that natural fertility peaks in the early
20s, it should come as no surprise that the total fertility rate would decline as
the average age of first marriage becomes in the late 20s.
Thirdly, there is the expanding cost of raising children. Educational costs
have seemingly been increasing at an especially accelerated pace recently.
Along with economic development and widening income disparities, salary23

levels differ greatly in urban areas depending on whether one’s workplace is aforeign-owned enterprise, local enterprise, or state-owned enterprise. In
addition, corporate employment criteria prioritize university graduates overhigh school graduates, and candidates that have studied overseas in the US or
Europe over those with only a domestic university academic record,emphasizing on academic background. The reality is that graduates that havereceived MBAs overseas and are employed at multinational companies receive
exceptional salaries.
Meanwhile, in addition to urban areas, it is highly likely that rural areas will
also become engulfed in this academic society. Parents hope that their children
are able to find secure jobs in urban areas as income disparities between ruraland urban areas become wider. As a junior high school record is required overan elementary school record, a high school record is required over a junior highschool record, and a university record is required over a high school record inorder to find better jobs, parents have to hold back on the number of children
they have so that they are able to allocate their limited incomes to education. In
Thailand, total fertility rates are low even in rural areas, and it was confirmedin the 2010 population census that only 2 of the 77 provinces including
Bangkok had total fertility rates above the replacement level.
Fourthly, there are the changes in lifestyles that have been brought about
with the penetration of the media. While this relates to all of the above points,
it is possible to experience through medias what is going on domestically andin countries overseas in real-time. Consumption trends sought by middle andhigh income earners in urban areas are taking place simultaneously around theworld because these trends are spread throughout the world at the same timethrough the Internet. Even in rural areas where there is no Internet, people havean understanding of the consumption trends in life in urban areas through the
television. The penetration of the media functions to promote thetransformation of urban lifestyles into developed country lifestyles and theurbanization of rural lifestyles.
How will birthrates change in the future?
Next, let’s look at how birthrates will change in Asia in the future.
The UN has prepared various birthrate change scenarios to estimate thefuture population. For example, the prospects in the 2006 and 2008 revisions
were prepared based on a total of five scenarios, consisting of the three core
scenarios of the total fertility rate converging by 2050 to 1.85 (medium variant),
to 2.35 (high variant), and to 1.35 (low variant), as well as a constant-fertility
variant in which the birthrate stays at the current level and a constant
growth-rate variant in which the population growth rate stays at the current
level.
Meanwhile, after the prospects in the 2010 revision, major changes were24

made to the methods for making population estimates and estimating futurebirthrates.
The most frequently used one is medium variant, and was prepared based ona scenario in which the total fertility rate converges to approximately 2 by 2100.
Additional scenarios include a high variant in which the total fertility rate
converges to approximately 2.5, a low variant in which the total fertility rate
converges to approximately 1.5, as well as an estimate in which the average
total fertility rate does not change from 2005 to 2010, an estimate in which themortality rate stays fixed during this period, and an estimate that excludes theeffects of population movements.
Let’s consider the medium variant in more detail here.
Looking at the medium variant, the total fertility rate for East Asia overall
will be less than the developed countries average from 2010 to 2015. In otherwords, the region most sharply impacted by declining birthrates is East Asia,
not the developed countries. Looking at individual countries, total fertility rates
in East Asia can be classified into two trends. One trend is representative by
the group consisting of Japan, the NIEs, China, Thailand, Vietnam, andMyanmar where total fertility rates are currently below the replacement level.
The scenario for this group anticipates the total fertility rate to increase in the
future. Meanwhile, for Malaysia, Indonesia, the Philippines, Cambodia, andLaos, a scenario in which the total fertility rate continues to decline until themid-21st century has been adopted.
In comparison to the population estimates prepared by governments andinstitutions in each country, the UN outlook for the group consisting of Japan,
the NIEs, China, Thailand, etc. is optimistic. Let’s confirm the future
population estimates for Japan in relation to this point.
Figure 1-9 compares the birthrates in the medium variant and low variant in
the UN’s population estimates with the medium variant used in the Population
Projections for Japan released in January 2012 by the National Institute ofPopulation and Social Security Research (NIPSSR). According to this medium
variant, the total fertility rate will remain at roughly 1.39 from 2010 to 2014,
gradually drop to 1.33 by 2024, and increase to 1.34 by 2030 and 1.35 by 2060.
These birthrate forecasts are close to the low variant of the UN’s future
population estimates.
The same trend applies for Thailand. According to the medium variant used
for Thailand’s population estimates (2000-2030) released by the National
Economic and Social Development Board (NESDB) in October 2007, the total
fertility rate is expected to drop from 1.81 for 2000 to 2005 to 1.35 for 2025 to2030. These changes will impact the total population estimates as well as aging
rate estimates that are to be explained in further detail later.

25

3. The acceleration of population aging in Asia
The era of the elderly population explosion
Supported by factors such as improvements in eating habits, progress incommunicable disease control and sanitation standards, the development of
medical facilities and services, the development of improved means of cargotransport, the enhancement of medical and health systems, and the penetrationof the concept of sanitation, life expectancy at birth has grown dramatically inthe countries of East Asia, and this trend is expected to continue in the future.
The life expectancy at birth increased from 52 in 1950 to 1955 to 73 in 2005
to 2010 in Thailand, from 38 to 70 during the same period in Indonesia, andfrom 45 to 74 during the same period in China. This trend will continue in the
future and the UN’s population prospects have estimated that the life
expectancy at birth increases to 77 from 2025 to 2030 and 81 from 2045 to
2050 in Thailand, to 74 and 77 respectively during these periods in Indonesia
and to 77 and 80 during these periods in China. It goes without saying that the
declines in the infant mortality rate and the small child mortality rate indeveloping nations have made significant contributions to this increase in life
expectancy at birth. However in East Asia, the contribution made by the
decline in the elderly mortality rate has also been significant.
As a result of these factors, the elderly population of East Asia has grown26

rapidly. While the elderly population was only 36 million in 1950, it
increased to 77 million in 1980 and 185 million in 2010. The elderly
population is expected to increase further to 367 million by 2030 and 532
million by 2050. The average annual growth rate for the elderly populationfrom 2010 to 2030 will be 3.5%, which will put to an end the population
explosion in East Asia and usher in a new era of the elderly population
explosion.
The transition from an aging society to an aged society
The population of Asia will age more rapidly in the future as a result of thedecline in the birthrate and the increase in life expectancy at birth.
Next, we will calculate the speed of population aging.
The time it takes (“the doubling period”) for the aging rate to exceed 7% (anaging society) and the time it takes for the aging rate to exceed 14% (an aged
society) is generally used as a benchmark to indicate the speed of population
aging.
Compared to a period of 115 years in France, 85 years in Sweden, 40 years
in Germany, and 47 years in the UK, this doubling period is only 25 years inJapan. This figure is frequently used to express just how unprecedentedly
rapidly the population of Japan is aging compared to the rest of the world.
However, the populations of most of the countries in Asia are expected toage at a speed equivalent to or exceeding Japan. The speed of population aging
in Asia is displayed in Table 1-1.
Table1-1 Doubling Period of Population Aging(Year)
7%

14%

Doubling
Period

Japan

1970

1995

25

Korea

1999

2018

19

Taiwan

1994

2017

23

Hong Kong

1984

2013

29

Singapore

1999

2021

22

China

2001

2027

26

Thailand

2002

2022

20

Malaysia

2021

2045

24

Indonesia

2023

2045

22

Philippines

2035

2070

35

Vietnam

2016

2033

17

Source: UN, World Population Prospects: The 2012 Revision27

In particular, a transition from an aging society to an aged society will bemade in South Korea in 17 years, and in Singapore in 20 years. Population
aging is occurring at the same speed as in Japan in Taiwan, China, andThailand. While the aging rate is still low in other countries, because declines
in birthrates are significant, the speed of population aging is nearly on par withthe speed in Japan. This is the result of the medium variant, and if birthrates
continue to decline below it, the increase in the speed of population aging
should come as no surprise.
East Asia’s transformation into a global aging region
The global aging rate will increase from 7.7% in 2010 to 10.3% in 2025 and15.6% in 2050. While the aging rate is generally high in developed countries, it
is also expected to increase in developing countries, from 5.8% in 2010 to
8.3% in 2025 and 14.0% in 2050. Looking at the state of aging in developing
countries from the changes in elderly population, the elderly population is
expected to grow from 331 million in 2010 to 567 million in 2025 and 1,153
million in 2050. The average annual growth rate from 2010 to 2025 will be
3.7%.
Looking at changes by region, the increase in the aging rate is particularlyhigh in East Asia.
The aging rate in East Asia exceeded the global average of 7.7% in 2010,
reaching 8.5%. It will then rapidly climb to 15.4% in 2030 and 22.5% in 2050.
While East Asia’s proportion of the global population will decline from 31.3%
in 2010 to 24.8% in 2030, its proportion of the elderly population will increase
from 34.834.5% to 35.7%. In other words, going forward East Asia will be thearea of the world where the population ages the most rapidly, as well as theregion with the highest number of elderly residents in the world.
As was stated at the beginning of this chapter, it is appropriate for Japan andother developed nations to adopt the stance of mitigating the negative effects ofaging societies with decreasing populations by incorporating the vitality of theEast Asian countries. As economic globalization becomes a reality, theformulation and implementation of a policy which does not hold fast tonational borders will be more and more necessary in the future.
However, as has been described up until now, declining birthrates and aging
populations are no longer issues that are unique to developed countries, andthey are instead issues common to East Asia. The decline in birthrates in East
Asia has been particularly rapid, and it is presumed that this will cause a rapidtransformation into aged societies in the future. Accordingly, scenarios forsustainable growth in Japan and the rest of East Asia must be consistent withthe changes to these types of demographic structures in China and countries ofSoutheast Asia. In other words, to maintain sustainable growth in East Asia, in
addition to the single stance of incorporating the vitality of China and28

Southeast Asia, efforts will be required to support and provide cooperation in
response to the increasingly aging populations of China and Southeast Asia.
This point will be covered in further detail in Chapter 5.

29

Chapter 2: The demographic dividend that has supported economic
growth in East Asia

1. What brought the East Asian miracle to life?
Is economic growth the cause or the result?
While sudden declines in birthrates will serve to accelerate population aging
in the future, a sudden decline in birthrates has also served as the impetus forgenerating high growth in East Asia. A declining birthrate, i.e., lower fertility,
does not necessarily immediately lead to population aging. There is a time lagfor it. With the increase of the population contributing to production activities
during this time lag, societies become more vibrant and economies experiencea tailwind.
In fact, East Asia has enjoyed significant economic growth since the 1970s
when birthrates declined drastically.
The average annual growth rate of 4.2% for East Asia during the 40-year
period from 1970 to 2010 has exceeded the global average of 3.1%. The rate
for East Asia excluding Japan is even higher, at 7.6%. During this process the
NIEs became high-income countries. Looking at per capita income levels
converted at the purchasing power parity rate that indicates actual living
standards, the NIEs do not differ much from Japan. For example, compared toincome levels of USD 34.241 for Japan in 2010, income levels were higher for
Singapore (USD 56,709), Hong Kong (USD 46,463), and Taiwan (USD
35,595) during that year. Income levels in South Korea were USD 29,717,
coming close to the levels in Japan. This wave of economic development inEast Asia spread from the NIEs to the ASEAN 4 and China, and is currently
spreading to Vietnam and Myanmar.
Growth in East Asia has gained much attention around the world due to thefact that a high growth rate has been maintained for a long period of time and it
has been accompanied by a relatively fair distribution of income. For thisreason the World Bank has labeled Japan, the NIEs, Thailand, Indonesia, andMalaysia as the High Performing Asian Economies (HPAEs), and it has
conducted an analysis on the factors that generated this high growth, inparticular the role of governments. As a result, a report entitled The East Asian
Miracle: Economic Growth and Public Policy was released in 1993.
This report presented the view that the high level of growth in East Asia wasby no means a miracle, but was rather achieved as a result of the adoption ofrational economic measures by governments, selective market intervention by
governments which encouraged the expansion of trade and industrialization,and the existence of systems and organizations in individual countries thatserved to promote economic development and industrialization (the principle30

of selection based on the existence and capabilities of officials established at anarm’s-length from politics, organizations operated jointly by governments andthe private sector such as the Industrial Structure Council in Japan). It was alandmark report in that it concretely stated that the government had a role incomplementing the functions of the market, which went against the view of
neo-classical economics that market deregulation is essential for growth.
Although after experiencing the currency crisis from the second half of the
1990s, several East Asian countries were forced to conduct a fundamental
review of the economic policies they had pursued up until that time, this report
is still important from the perspective of its comprehensive coverage of theprocess in these East Asian countries catching up with the developed countries
since the 1970s and it is on its way to becoming a classic. In particular, therecognition of the role of governments conducting selective market
intervention that goes beyond the role of simply making adjustments in
response to market failures has become a benchmark based on which toevaluate the governmental policies of other developing countries.
In this chapter, we will examine the high level of growth in East Asia fromthe perspective of demographic changes.
Up until now demographic changes in Asia, for example the declining
birthrate, have been viewed as the result of economic development. However,this viewpoint can also be reversed and the impact of demographic changes on
Asia’s high growth can be examined. Understanding the population-based
aspects of high growth is also useful to consider the impact of population aging
on the economy.
First, let’s look at the impact of demographic changes on economic
development from the perspectives of population size and population structure.
Next, we will introduce the concept of the demographic dividend that hasreceived much attention as of late, and consider how population structures havesupported Asia’s high growth in terms of labor inputs, savings rates, andproductivity, respectively. Then we will look at how these concepts can beapplied to the specific cases of Japan, South Korea and Taiwan, and China andThailand.
Population size and economic growth
The impact of the population on economic growth can be consideredseparately for the impact of population size and the impact of population
structure. In Japan, the former is called a society with a decreasing population,and the latter a society with lower fertility and population aging.
In terms of population size and economic growth, there has been a long-heldbelief that population size in and of itself demonstrates the strength of acountry. For example, under the mercantile system that dominated Western
Europe from the 16th century to the 18th century, childbirth and immigration31

were encouraged based on the concept that people equal power. In East Asia,
China with its population of over 1 billion people has always been considered
to be a great power, and in the mid-1980s Malaysia implemented a national
policy aimed at increasing its population to 70 million (at the time, Malaysia
had a population of 15 million).
Furthermore, some believe that, as espoused by Adam Smith, economies ofscale, the development of the division of labor, and adoption of the principle ofcompetition are required for economic growth and a population must be of atleast a certain size in order to achieve this. Based on this perspective, for thecountry of Laos with a small population of only 5 million, population control
measures were not aggressively implemented despite its high population
growth rate.
However, with the current globalization of the economy, it is not believedthat population size will necessarily serve as a factor that encourages orcontrols economic growth. In fact, Singapore and Hong Kong have achieved
economic growth by securing an important position in the international
division of labor.
Focusing on changes in population size, there is also the pessimistic viewthat population increases serve as an impediment to economic development.
Famous examples of this are An Essay on the Principle of Population byThomas Robert Malthus and The Limits to Growth of the Club of Rome thatespoused the view that population increases cause resources to become
depleted. In addition, in Population Growth and Economic Development in
Low-Income Countries: A Case Study of India’s Prospects by Ansley J. Coaleand Edgar M. Hoover, a book on population increases in developing countries,
it is pointed out that if countries like India don’t curb their birthrates economic
development will be difficult.
Furthermore, in the renowned work Asian Drama: An Inquiry into the
Poverty of Nations by Karl Gunnar Myrdal, a case for the necessity of birthcontrol is made by claiming that there is a vicious circle of population growthand poverty in South Asia.
In development economics, the process of population growth impeding
economic development is presented as the low level-equilibrium trap model.
According to this model, because increases in production and income cannot
keep up with population growth, income levels in these countries are forced to
become stuck at a low equilibrium level. In recognition of this, governments ofdeveloping countries have launched family planning initiatives that have been
supported by international organizations. This was a factor that led to China’s
decision to adopt the one-child policy.
In contrast, in developed countries, there is a pessimistic view toward
decreasing populations. This is because decreasing populations cause a decline
in the labor force and savings, in turn contracting the scale of economies. In
32

Japan, countermeasures to low fertility have been enacted in response to thenegative effects of the falling population.
On the other hand, there are also some more optimistic views towardchanges in population levels. Julian L. Simon has stressed that the increased
pressure of population growth serves to propel technological progress. In fact,
amid fears in the 1970s that sudden population growth could lead to foodshortages on a global scale, the green revolution, consisting of the developmentof chemical fertilizers and high-yielding varieties of crops, enabled crop yields
that exceeded population growth. Crop yields in East Asia nearly doubled from1970 to 1990, increasing from 490 million tons to 873 million tons.
Meanwhile, there is also the optimistic view that while contractions in thescales of economies due to the decline in the labor force that results fromfalling populations cannot be avoided, it is possible to increase per capita
income levels by improving the productivity in each of society, companies, andindividuals.
These optimistic views are based on the assumption of the ingenuity of thehuman race, that people have the capability of developing new technologies
when faced with problems to overcome. From this perspective, rather than
optimism toward population changes, perhaps it is better to consider it as aneutral view that improvements in productivity through technologicalinnovation contribute to economic growth. In terms of other research on theimpact of population size and changes on economic growth, while there havebeen attempts to ascertain the optimal population size and optimal population
growth rate, a shared view has not been achieved.
Population structure and economic growth
It is also possible to look at the relationship between the population andeconomic growth from the perspective of changes in the population structure.
This is one of the focus points of this book.
In general, the population structure can be divided into the following three
categories from the perspective of how each age sector of the population
involves in economic activity.
The first category is the age sector from age 15 to 64, called the working-age
population. This age sector serves as the driving force behind economic growth.
The second category is the child population, from age 0 to 14, and the third
category is the elderly population, from age 65 and above.
In addition, the child population and elderly population combined can also
be referred to as the dependent population, and in contrast to this theworking-age population can be referred to as the independent population. The
elderly population divided by the working-age population (or the working
population) can serve as a benchmark that expresses how many members of theworking generation support one elderly person. Moreover, the dependent33

population divided by the working-age population is sometimes used as thedependent population ratio.
These three categories do not always necessarily reflect reality. For example,
in countries where higher education is pursued, people do not conducteconomic activities until they exceed age 20, and in this case it is not
appropriate to include people aged 15 to 19 in the working-age population in
the advanced countries. In addition, in many cases there are people over age 65
that are fully capable of conducting economic activities. Elderly people canalso be defined further as the young elderly (age 65 to 74) and the old elderly(age 75 or above). While these perspectives are important when discussing theimpact of the population structure on economic growth in detail, here we will
begin with a focus on the three categories of the child population, theworking-age population, and the elderly population based on theabovementioned definitions.
Compared to the population size approach, this perspective of population
structure is superior for understanding where issues may exist. For example, if
the low level-equilibrium trap that was mentioned above in which the
population growth of developing countries impedes economic growth isviewed from the perspective of age structure it is possible to more clearly see
the causes for this trap.
Figure 2-1 Population Pyramid of Least Developed Countries in 2000

(1,000 People)

Male

(Age)

(1,000 People)

100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4

3.4%

53.8%

42.8%
60,000Female40,00020,00000Source: UN, World Population Prospects: The 2012 Revision34

20,00040,00060,000In the population pyramid of the least developed countries as defined by the
UN in Figure 2-1, you can see with a glance that the child population is
overwhelmingly large. In societies where the child population accounts forover 40% of the total population, most income is used for the cost of raisingchildren, not leaving much room for savings. In societies that don’t manage tosave, investment also becomes stuck at low levels, creating a vicious circle inwhich low investments can only yield low levels of income. This is referred toas “the vicious circle of poverty,” which was pointed out by development
economist Ragnar Nurkse (Figure 2-2).
Figure 2-2 Vicious Circle of Poverty

Low Savings

Low Income

LowInvestment

LowProductivity

Source: Author

Of course, savings and investment are not the only things required for
economic growth. The importance of the productivity of human capital as asource of growth applies for both developing and developed countries.
However, in societies like these where saving is difficult, it should come as no
surprise that the establishment of educational systems that would contribute toproductivity improvements is also difficult.
While most East Asian countries have now escaped from this low
level-equilibrium trap, there are still many countries around the world that
suffer from the burden of high child populations. As of 2000, the childpopulation accounts for over 40% of the total population in 66 of the world’s
192 countries. Approximately 70% of these countries are in Africa. Per capita
GDP in these countries is less than USD 1,000, and the annual average real
growth rate (from 1990 to 2000) is extremely low, at 0.15%. Because the35higher the population growth rate is, the lower the per capita economic growthrate becomes, population control will continue to be an issue for thesecountries.
In the population aging issue that is being debated in developed countries,
focuses are put on no other than the impact the population structure has on theeconomy. As the ratio of the elderly population to the population overallbecomes higher and the ratio of the working-age population becomes lower,
this forces the amount of labor inputs down. In addition, as the elderly
population ratio rises, this causes an increased burden in terms of pension andmedical care costs for the elderly, and functions to force the domestic savings
rate down. Although in many cases there are hopes that countermeasures to low
fertility will mitigate the burdens of population aging, even if there are
significant improvements in birthrates now, it will take 15 years for thesenewborns to become members of the working-age population. During thisprocess, as the dependent population composed of the child population andelderly population continues to increase, society will have to withstand thisincreased burden for some period of time. It should be noted that developed
countries may be in a vicious circle of stagnation, similar to the vicious circleof poverty, in which declining savings suppress production.
In this manner, the population structure approach provides insights that are
not provided by the population size approach. In Japan, although a term “asociety with a falling population” is sometimes referred to in the same context
as “a society with lower fertility and population aging,” the expression “asociety with lower fertility and population aging” that shows the changes in
population structure more clearly articulates the issues faced by economic
society.
Between developing countries where the child population ratio is high anddeveloped countries where the elderly population ratio is high, there are somesocieties with a high working-age population ratio. While the population
structure of these developing countries and developed countries has a negative
effect on economic development, there is a positive effect on economic
development for societies with a high working-age population ratio. Thisapplies to developing countries that have successfully brought birthrates down,
particularly the East Asian countries. Figure 2-3 displays South Korea’s
population pyramid in 2000. As you can see, the working-age population that
includes the baby boom generation accounts for an overwhelming highproportion of the total population, at 71.7%. The manner in which a highworking-age population ratio serves to boost economic growth is referred to as“the demographic dividend,” and this is a concept that has gained muchattention since 2000.

36

Figure 2-3 Population Pyramid of Korea in 2000

(1,000 People)

Female

(Age)

Male

(1,000 People)

100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4

6.3%

71.7%

21.0%
3,000

2,000

1,000

0

0

1,000

2,000

3,000

Source: UN, World Population Prospects: The 2012 Revision

2. What is the demographic dividend?
Economic growth as a dividend
The word demographic dividend was first used in the paper “Population and
the Asian Economic Miracle” (1997) by Andrew Mason. This paper presents
the outcome of a project on population policy and economic growth. Mason
focused on the fact that the increase in the ratio of the population that generates
income increases per capita income, and stated that declines in birthrates bringabout a demographic dividend through a rapid increase in the working-age
population. He favorably regarded that the reason that Asia has been able tobenefit from this demographic dividend is the result of the family planning
initiatives implemented by national governments, and these population control
measures have boosted economic development.
The following year in 1998, the United Nations Population Fund describedthe demographic dividend as follows in The State of World Population Report
1998:
Lower birth rates in today’s developing countries offer the possibility of ademographic bonus in the next 15-20 years, as a “bulge” of young people
comes into the workforce while fewer children are born. If jobs can befound for them, the “workforce bulge” can be the basis for more37

investment, greater labour productivity and rapid economic development.
This will generate revenues for social investments like health, educationand social security, to meet the needs of both old and young and secure
the basis for future development.” (p.4)
While the workforce bulge that is referred to here does not in and of itself
lead to labor productivity improvement, the concept of a demographic dividend
consisting of declines in birthrates encouraging economic growth spreadthroughout the world as a new perspective for looking at developing countries.
The concept of a demographic dividend was further developed into a theory
afterwards by David E. Bloom. In the paper “Demographic Transitions andEconomic Miracles in Emerging Asia” released in 1998, a quantitative analysis
on Asia’s economic growth from 1960 to 1990 using population variables was
conducted and the groundbreaking view that one-third of that growth could be
accounted for by the demographic dividend (they referred to it as“demographic gifts” at that time) was presented. It is important to know thatthe paper noted that the demographic dividend would not inevitably bringabout benefits and the benefits of the demographic dividend enjoyed in the
East Asian countries were the result of the establishment of social, economic,
and political systems that allowed the latent power generated by demographic
changes to be manifested, and that these measures were suitable for thechanges in population structures. In other words, only countries that implement
policies suitable for changes in population structures are able to receive thebenefits of economic development as demographic dividend.
Increase in labor inputs from the baby boom generation
Next we will look at the process through which the effects of thedemographic dividend are realized.
Here the concept of growth accounting, which models long-term growth,will be used.
In growth accounting, the size of an economy (Q) can be described by threeelements: labor inputs (L), capital stock such as machinery and equipment (K),and total factor productivity (T).
The formula is displayed in Figure 2-4. With declines in birthrates, there arepositive effects on each of these elements.
Next we will look at the effect of the demographic dividend on labor input,
capital stock, and technology levels, in that order. At the same time we willconsider how these elements have been related to the East Asia miracle.
It should first be noted that even if birthrates decline, labor inputs continue
to increase for a period of time.

38

Figure 2-4 The Growth Accounting and Demographic Dividend

Q = f (L, K, T)

Increase of Labor Input Increase of Capital Stock

Improvement of the
Productivity of the Human
CapitalSpread of Primary
Rise in Domestic Savings
Education and Improvement
Rateof Environmental Sanitation

Increase of Working-Age
Population

Rise in Working-Age
Population Ratio

Decrease of Child
Population

Source: Author

While declines in the birthrate will eventually lead to a decrease in theworking-age population, the working-age population will continue to increasein the time being because the growing portion of the working-age population
will exceed the declining portion. In other words, until the working-age
population begins to decline, the applicable country will be able to increase its
labor inputs. It is absolutely when the baby boom generation joins theworking-age population that the labor force growth rate peaks.
Put precisely, while labor inputs are expressed by a product of the number oflabor force and working hours, over the long term labor inputs are strongly
affected by labor force trends. Furthermore, while all members of the
population do not necessarily engage in labor when they reach the working-age,over the long term changes in the ratio of the labor force to the working-age
population (the labor force participation rate) within a single country are small,and there are almost no differences between changes in the working-age
population and in the labor force. In other words, as a general rule, we may
conclude that the higher the working-age population growth rate is, the higher
the increase in labor inputs.
For Japan, 1960 to 1965 was the period with the highest working-age
population growth rate, when the annual rate was 2.2%. This was a period of39

high economic growth, and growth was further accelerated through theabsorption of the rapidly increasing labor force. During this time there were
population movements from rural areas to urban areas and from agriculture toindustry. There was a particularly strong tendency for members of the baby
boom generation to move from rural areas to the cities after graduating fromjunior high school or senior high school. While the percentage of new
graduates across Japan that found employment in primary industry was 50% in
1950, this percentage fell to 10% in 1960 and 5% in 1965. In Japan, theabsorption of the increase in the working-age population can be understood tohave accelerated industrialization (Minami 2002).
Figure 2-5 displays the ratio of the working-age population for Northeast
Asia, Southeast Asia, South Asia, and Africa. It displays the rapid increase in
the working-age population ratio in East Asia being followed by a similar
increase in Southeast Asia and South Asia. In the case of Africa, while theworking-age population ratio is on the rise, this trend remains weak. Thissuggests that there are differences in the growth potential of Asia’s andAfrica’s population structure. In addition, the figure displays that the East
Asia’s working-age population will peak in the near future and then begin to
fall.

40

Of course, increases in the working-age population do not always
necessarily lead to increases in labor inputs. Factors such as the developmentof the labor market, the stage of the industrial structure’s development, andgovernmental policies also have a strong impact. Ultimately, the key to growthis whether or not the increasing labor force can be absorbed and whether or not
the fruits of the growth can be evenly distributed to laborers.
The rise in the domestic savings rate encouraging investment
Second, we will examine the increase in capital stock that is brought about
by increases in savings.
Capital stock is the accumulation of investments (capital accumulation) suchas machinery, plants, harbors, power, railways, roads, etc., that will contributeto production. The higher capital accumulation is, the more that economic
growth potential is increased. This type of capital accumulation is formed by
the investments that are conducted every year.
Funds are necessary for investments. For developing countries, it isextremely important where and how these funds are procured. With the current
advance of economic globalization, it is possible to procure the required funds
from overseas. However, in developing countries where systems for
accepting foreign capital have not been developed and there are limited
businesses that are attractive to foreign investors, in general, domestic savings
serve as the main source of funds. Changes in domestic savings determine thesize of investments (Feldstein and Horioka 1980).
The process through which declines in birthrates cause the domestic savings
rate to rise is believed to function as described below.
First, because the increase of the working-age population ratio increases theratio of the population with income, this causes the amount of savings forsociety as a whole to increase. In addition, because declines in birthrate
reduces the burden that child raising costs caused on family budgets, this leads
to an increase of savings by families. Furthermore, due to an abundant labor
force and low wage levels, many companies are able to accumulate internal
reserves (corporate savings). Moreover, because households and companies
can begin to get by on their own, the government can shift expenditures fromspending that supports peoples’ livelihoods to infrastructure investments. In
this manner increases in the domestic savings rate lead to increased investment
which encourages growth in capital stock.
The World Bank noted the following in The East Asian Miracle:
Between 1960 and 1990, both savings and investment increased markedly
in the HPAEs, out stripping the performance of other developing regions.
Savings rates in the developing HPAEs were lower than in Latin America
in 1965, but by 1990 they exceeded Latin America’s savings rates byalmost 20 percent points Investment levels were double the average for41

Latin America and East Asia in 1965; by 1990 East Asia’s investment
rates were nearly double the average for Latin America and substantiallyexceeded the rates for the South Asia and Sub-Saharan Africa. The
HPAEs are the only group of developing economies in which savings
exceeds investment, making them exporters of capital. (p.41)
Figure 2-6 displays the domestic savings rates in Japan, South Korea, China,
Indonesia, and India. Although the savings rate in Japan was already high in
1960, it can also be seen that savings rapidly grew in South Korea andIndonesia from the 1970s. This is consistent with the increase in theworking-age population ratio in both countries. Similarly, China has followed
an upward trend since the 1980s. In this manner all the countries displayed
have high savings rates (the developing country average is approximately 20%).
There is no doubt that these high domestic savings rates served as the sourcefor healthy investment and the driving force for high growth.

However, for increasing domestic savings to be effectively allocated to
production activities, an efficient financial system is required. The
development of banks and other financial institutions is essential, as well as thelegal frameworks that support their businesses and maintenance of stable
macroeconomics.

42

Productivity improvements through the spread in primary education
Thirdly, we will look at the process through which declining birthrates
increase technology levels (productivity).
Because this is technology as broadly defined, the expression as total factor
productivity is often used. In his essay “The Myth of Asia’s Miracle,” which is
mentioned in the Introduction of this book, Krugman pointed out that growth in
the total factor productivity, or the degree of technological progress, was low
in Asia.
Total factor productivity consists of not just production technologies, butalso includes a wide variety of factors such as educational systems for humanresources development; efficient corporate management; harbors, power, roads,
waterworks and other forms of infrastructure; and the development of laws andsystems.
Although technology is something that belongs to companies and society as
a whole, and not just individuals, let’s look at education as an element which
improves the productivity of individuals.
In the World Bank’s The East Asian Miracle, it is pointed out that one of thefactors that allowed for high growth to be achieved in Asia was the spread ofprimary education which was enabled in part by rapid changes in demographic
trends.
“Declining fertility and rapid economic growth meant that, even when
education investment as a share of GDP remained constant, more resourceswere available per child.”
Of course, the full-fledged efforts of governments in the spread of primaryeducation and secondary education should be mentioned. However, it is highly
likely that the decrease in the child population as a result of declining birthrates
facilitated the spread of education.
Table 2-1 displays the school enrollment ratio of the East Asian countries. In
the NIEs, a school enrollment ratio of 100% was achieved before 1970 forprimary education, and a school enrollment ratio of nearly 100% was achieved
for secondary education from 1980 to 2000. In the ASEAN 4, a primaryeducation enrollment ratio of nearly 100% was achieved from 1970 to 1980,
and the secondary education enrollment ratio surged from 1990 onward.
In the same manner as for education, because per capita health and sanitation
expenditures increase as birthrates decline, the improvement in the health oflaborers is also believed to have contributed to productivity improvements.
This full development of basic education and the presence of healthy laborers
created an Asia renowned for “its abundant and diligent labor force,” whichbegan to gain the attention of Japanese companies and other foreign companies
as an attractive market to enter. In addition the transfer of the production
technologies and management techniques of developed countries through themarket entry of foreign companies also contributed to productivity
43

improvements.
Table 2-1 School Enrollment (% Gross)(Uni t: %)Pri ma ry
1971
Ja pa n

1980

1990

2000

102.9

110.5

105.3

101.5

South Korea

105.7

105.2

106.0

101.7

Ta i wa nHong Kong

114.7

105.7

103.0

..

Si nga pore

101.2

106.1

102.3

..

..

103.7

120.3

..

Tha i l a nd

77.3

97.4

98.1

92.7

Ma l a ys i a

83.4

92.0

93.6

98.9

Indones i a

72.7

99.7

113.6

108.8

Phi l i ppi nes

..

109.9

109.3

112.5

NIEs

Chi naASEAN4

Seconda ry
1970
Ja pa n

1980

1990

2000

86.5

92.5

95.6

101.8

South Korea

39.7

76.8

92.6

98.9

Ta i wa nHong Kong

35.8

64.1

79.6

..

Si nga pore

46.0

59.9

68.1

..

Chi na

24.3

45.9

48.7

..

Tha i l a nd

17.4

28.8

30.1

81.9

Ma l a ys i a

34.2

47.7

56.3

70.3

Indones i a
Phi l i ppi nes

16.1
45.8

29.0
64.2

44.0
73.2

57.0
77.3

NIEs

ASEAN4

Source: Worl d Ba nk, World Development Indicators, ADB Key Indicators

Furthermore, it is believed that the diversification of investments brought
about by increases in the domestic savings rate also served to improve
technology levels. This is because the investments that accompanied economic
44

development went not only to construction, facilities, and machinery, but also
to research and development.
However, in order to maximize the effect of the demographic dividend,
simply the development of primary and secondary education is not sufficient.
As international competition gets more intense every year, government policies
need to shift to the development of higher education and university education
curricula sufficient for maintaining growth and to the encouragement ofcorporate research and development.
How long will the demographic dividend continue?
For the East Asian countries that have benefited from the demographic
dividend, how long will these benefits continue?
In considering the sustainability of growth in East Asia that serves as thetheme of this book, we have to answer the question of when the benefits of thedemographic dividend have begun and until when these benefits will last.
The demographic dividend is a new framework, and there are no confirmed
views regarding its duration.
For example, there are various points that could be considered as the start ofthe demographic dividend, such as when the working-age population ratio
exceeds a certain level (for example 60%) or when the working-age population
ratio begins to rise.
Here, for the sake of convenience, putting importance on the concept ofdemographic dividend paying attention to the working-age population ratio,with the start of demographic dividend being when that ratio starts to increase
and the end of the demographic dividend being when that ratio starts todecrease. Based on this definition, the period of the demographic dividend for
the East Asian countries is displayed in Table 2-2.
Japan’s demographic dividend started in the early 1930s, the earliest start
among the countries listed. The start was between 1960 and 1975 for the othercountries. One of the reasons that the demographic dividend started at nearly
the same time for these countries despite the differences in income levels isthat it was during this period that many Asian countries started implementing
population control measures such as family planning initiatives.
On the other hand, the end of the demographic dividend in 1992 for Japan
was also the earliest end among these countries. The demographic dividend
will end for the NIEs, China and Thailand sometime between 2010 and 2014.
For Malaysia and Indonesia, the demographic dividend will end during the2020s. This period depends on the speed of the decline in birthrates. The Asian
countries excluding Japan are still within the demographic dividend period.
However, it must be remembered that even for these countries the working-age
population ratio will peak in the not too distant future.
45

Table 2-2 The Period of Demographic Dividend
The Period (Year)Per Capita GDP

Start

End

1930-35

1992

42,863

South Korea

1966

2013

20,540

Taiwan1963

2014

18,573

Hong Kong

1961

2010

31,787Singapore

1964

2012

43,862

China

1965

2010

4,423

Thailand

1968

2013

4,992

Malaysia

1964

2019

8,737

Indonesia

1971

2025

2,981

Philippines

1964

2052

2,123

Japan

2010

NIEs

ASEAN4

Source: UN, World Population Prospects: 2012 Revision

The impact of population aging on the economy is under debate in the NIEs.
However, in terms of per capita GDP, these countries are on the same level as
developed countries, and in this sense they can be considered as already having
been transformed into developed countries as a result of the demographic
dividend. However, the per capita GDP of China and Thailand, which willend this demographic dividend at almost the same time as the NIEs, remains
far below those of the NIEs. In ASEAN countries excluding Malaysia, it ishighly likely that the demographic dividend period will end while income
levels are still low.
3. How have countries in Asia been able to enjoy the benefits of thedemographic dividend?
Changes in the benefits of the demographic dividend
The demographic dividend period presents developing countries with a good
opportunity to catch up with developed countries, and also serves as a time toprepare for the transformation into aged societies in the future. This means thatdeveloping countries need to sufficiently absorb these benefits and build theeconomic and social foundation required for achieving plentiful aged societies.
However, the benefits of the demographic dividend can only be enjoyed if
systems and national policies are sufficient for supporting demographic trends.
As mentioned above, the high level of growth in East Asia has beensignificantly affected by the impact of changes in population structures, and the46

benefits of the demographic dividend vary by country accordingly.
What kind of governmental policies are needed in order to enjoy the benefitsof the demographic dividend?
The benefits of the demographic dividend change over time. Roughly, there
are two types of benefit (Figure 2-7).

The first benefit is the increase in labor inputs that accompanies the increasein the working-age population during the first half of the demographic dividend
period. However, at this time the domestic savings rate and educational levels
are still low. Meanwhile, in the second half of the demographic dividend
period, while the working-age population growth rate will begin to decline, thedomestic savings rate and educational levels will both increase. This meansthat in order to enjoy the benefits of the demographic dividend, theimplementation of governmental policies that support demographic trends thatchange over time is necessary.
The industrial structures that are suitable for these two types of demographic
dividend benefits are as follows. During the first half of the demographic
dividend period, governmental policy and industrial development sufficient for
absorbing the increase in the working-age population are the keys to growth.
This means that governmental policies for the development of labor-intensive
industries such as textiles, garments, and food processing are called for during
this period and that growth of these industries can be expected at the same time.
47

However, because domestic savings rates are still low, how to secure funds toencourage the development of these industries is also important.
Meanwhile, because the domestic savings rate rises and may reach highlevels during the second half of the demographic dividend period, thedevelopment of capital-intensive industries such as steel and petrochemicals
through governmental policies that effectively use these savings are called for.
For this purpose, the development of financial institutions and systems that
effectively distribute domestic savings is essential.
In addition, relentless efforts throughout this period to improve technologies
at the government, business, and individual level will increase the benefits ofthe demographic dividend. Governments should be called on to increase
educational levels throughout the country as income levels increase, focusing
efforts from primary education to secondary education, and then to higher
education. Businesses should be called on to conduct research anddevelopment aimed at unique technological innovation. The higher technology
levels are, the more that growth can be expected in high-tech industries such as
automobiles and electronics during the second half of the demographic
dividend period. The development of knowledge-intensive industries, theprovision of industry as a service, and the provision of higher added value inindustry can serve as the base for maintaining sustainable growth in aged
societies after the demographic dividend period. These policies can be referred
to as “demographic trend-friendly policies.”
Furthermore, in order to improve the effectiveness of governmental policies,
it is necessary to look at the conditions in each country (the initial conditions)when the demographic dividend period starts. These initial conditions include
per capita income levels, the industrial composition ratio, the employment
structure, the educational systems, the sanitation environment, andinfrastructure development such as ports, power, and roads. The better these
initial conditions are, the better that the benefits of the demographic dividend
will be.
Meanwhile, for countries that start the demographic dividend period whilestill at a low level of development, some form of governmental policies are
required to compensate for the insufficiencies in these initial conditions.
Next, we will look back at the economic development of Japan, South Korea,
Taiwan, China, and Thailand from this perspective.
Japan: the period of high growth supported by the baby boom generation
Japan’s demographic dividend started in the early 1930s, the earliest start in
Asia. Because Japan began to respond to industrialization and modernization at
an early phase during the Meiji Era (1868 to 1912), by 1935 industrial
production already accounted for a high 32.4% of the GDP. However,following this almost all capital stock was devastated as a result of WW2, and48

the percent of the GDP accounted for by industrial production fell to 12.6% in
1955.
The actual benefits of the demographic dividend were realized through highlevels of growth and industrial reconstruction after the war.
While the rapid economic reconstruction since 1955 is referred to as highgrowth, this growth has been driven by the baby boom generation. The baby
boom generation is the generation that was born from 1947 to 1949, and during
this three-year period the total fertility rate exceeded 4.0. This baby boom
generation reached the working-age between 1960 and 1965, and during thisperiod the working-age population growth rate was an annual average of 2.2%.
With the entry of the baby boom generation in the labor market, population
movements from rural areas to urban areas and movement of the labor force
from agriculture to industry were seen.
With the absorption of this abundant labor force, Japan’s industrial ratio
recovered from 17.1% in 1960 to 25.2% in 1970. If construction, transportation,communication, and public utilities are added to this, the ratio increased from
37.0% to 47.5%. During this 10-year period the real growth rate was a high
9.3%.
However, one of the things that differentiate Japan from other Asian
countries is that because the development of labor-intensive industries was
already underway during the Taisho Era (1912 to 1926), when the baby boom
generation entered the working population the focus of industry was alreadyshifting to capital-intensive industries. In addition, because Japan’s domestic
savings rate accounted for a high 30% of GDP, this supported the financing ofa priority production system in which the allocation of resources wasprioritized for the heavy industries sector, including steel, coal, fertilizer, andshipbuilding. Also, the high educational levels of the baby boom generation
were a positive factor. For the baby boom generation, the high school entrance
rate was 60% and the university entrance rate exceeded 20%. Supported by thishigh savings rate and high educational levels, Japan succeeded in thedevelopment of capital-intensive industries with high technology levels.
Afterwards, the economic growth rate fell significantly from the high levelsof the 1960s to 3.3% in the 1970s. Although some of the main factors causing
this were changes in the international environment such as the oil shock (1972
and 1979), from the perspective of the demographic dividend it can be said thatJapan experienced a break. The second-generation baby boomers were born
during this era, during which the juvenile population ratio rose and theworking-age population ratio fell, representing a demographic change uniqueto Japan. In terms of the domestic savings rate, it was lower during this 10-year
period when compared with the 10-year periods that preceded and followed it(Figure 2-8).
49

The working-age population ratio began to increase again on entering the
1980s. As technology level improvements caused the industrial structure to
become more high-tech during this period, the focus of industry began to shift
from the manufacturing sector to the service sector. The manufacturing sector
ratio dropped from 45.0% in 1970 to 39.2% in 1990, and the working
population ratio for the sector also fell from 27.0% to 24.1%. Meanwhile theservice sector ratio grew from 50.0% to 58.3% and the working population
ratio of the sector grew drastically from 56.8% to 69.5%. The domestic savings
rate that had declined in the 1970s increased from 29.9% in 1983 to 34.0% in
1992. As financial assets increased to unprecedented high price levels, this was
accompanied by skyrocketing stock and real estate prices, which brought Japan
into a bubble economy. Per capita GDP in Japan overtook the US during thelate 1980s, as Japan became an economic superpower. In this point, doubts
remain as to whether Japan sufficiently took advantage of the increase in thedomestic savings rate during the second half of the demographic dividend
period. Incidentally, the growth rate during the 1980s was low, at 3.5%.
Japan’s working-age population ratio peaked in 1993, bringing thedemographic dividend period to an end. During the 1990s, the economic
growth rate remained low, at an annual average of 1.1%. The 10-year period
following the collapse of the bubble economy is often referred to as the lost
decade, and it is also the period during which the demographic dividend lost its
effect, as the domestic savings rate fell from 33.7% in 1990 to 27.4% in 200050

accompanying the decline in the working-age population since 1996.
Meanwhile, the increase in costs for medical service and pensions that support
the elderly since the mid-1990s has become an even hotter issue.

South Korea and Taiwan: the deployment of demographic trend-friendly
policies
The demographic dividend started in 1965 in South Korea and in 1963 in
Taiwan. Looking at the industrial structure of both these countries at this point,
the industrial sector accounted for 20% of the GDP and 10% to 20% of theworking population ratio, and the industrial structure was actually weighted
toward agriculture. The agricultural sector accounted for over 30% of the GDP
and over 40% of the working population. In addition, up until the early 1960s
total fertility rates were high, at around 6. This means that these countries
suffered from the typical developing country problem of surplus labor in rural
areas.
Following WW2, the focal point of the economic development strategy ofboth countries was how to start up domestic industrialization. This
governmental policy that was adopted was called import-substitution
industrialization. This was a policy of controlling import of foreign-madeproducts through high tariff rates, quantity limits, and exchange rate policy in51

order to promote the domestic production of industrial products for thedomestic market. As a result, the industrial ratio for South Korea increased
from 13.8% in 1960 to 29.5% in 1970, and for Taiwan this ratio increased from
21.6% in 1955 to 28.6% in 1965. However, the ratio of the working populationaccounted for by the industrial sector was low for both South Korea (14.3% in1970) and Taiwan (20.9% in 1970).
Support from overseas funding played a significant role in the developmentof import-substitution industrialization. Looking at the domestic savings rates
for South Korea and Taiwan during that period, they have not reached 20% of
the GDP for South Korea up until 1970 and until 1965 in the case of Taiwan.
However, because both South Korea and Taiwan received a huge amount ofaid from the US and large quantities of yen loans from Japan, this reduced theburden of public-sector spending such as for infrastructure development andenabled these countries to overcome the disadvantageous initial condition of
having low domestic savings rates during the first half of the demographic
dividend.
Once the baby boom generation entered the labor market, the issues of
unemployment became an economic and social problem for South Korea andTaiwan. In addition to the failure of import-substitution industrialization toprovide sufficient employment opportunities, because it was necessary tocorrect the deterioration in the balance of international payments, both shiftedto a policy of export-oriented industrialization aimed at selling industrial
products in markets overseas. This contributed to the absorption of the surplus
labor force as a result.
In order to promote exports in South Korea, the government implemented apolicy of having exporters compete and preferentially providing low-interest
financing to those with the best performance. This is called contest-based
competition. Furthermore, while South Korea had kept the doors closed forforeign companies in the past, it allowed the entry of foreign companies under
the condition of them being exporters. With this policy shift, many foreigncompanies, especially Japanese companies, entered South Korean market one
after another. Their aim was to use the cheap labor force in South Korea for the
production of labor-intensive products. Needless to say, it was the baby boom
generation that composed this labor force.
Exports grew rapidly, especially labor-intensive products such as textiles,
apparel, and footwear. Over the 10-year period from 1970 to 1980 South
Korea’s exports grew extraordinarily by nearly 20 times, growing from USD
1.2 billion to USD 20.4 billion. Leveraging this increase in exports, South
Korea achieved high levels of growth from 1970 to 1980, with an averageannual growth rate of 7.3%. This was referred to as the Miracle on the Han
River.
52

This export-oriented industrialization policy played a significant role inincreasing domestic employment. According to one estimate, the ratio of
manufacturing jobs to total jobs for 1975 and 1980 was very high, at 72% and68%, respectively (Watanabe 1985).
In Taiwan, the Act Governing Establishment and Management of Export
Processing Zones was promulgated in 1965, based upon which the Kaohsiung
Export Processing Zone was established in 1966. Export processing zones are
areas for which Taiwan has permitted the entry of foreign companies under thecondition that all products produced will be exported. Companies in thesezones were provided with tax privilege, assistance with recruiting laborers, andprovision of infrastructure facilities. Following this, export processing zones,
have become an important part of industrialization strategies for developing
countries. Thanks to these efforts, exports (mainly textiles, apparel, andfootwear) surged from USD 450 million in 1965 to 5,390 million in 1976. In
addition, the annual growth rate from 1965 to 1975 exceeded 10%.
In 1979, the OECD (Organization for Economic Co-operation andDevelopment) applied the newly industrialized countries (NICs) label to South
Korea and Taiwan, along with Singapore, Brazil, Mexico, Spain, and Portugal.
Afterwards in the 1980s when several Latin American countries underwent a
debt crisis in the process of import-substitution industrialization, the NICs in
Asia maintained high levels of growth through export-oriented industrialization53

policies. This success was recognized, and the idea that the outward-looking
policies of strengthening exports adopted by the NICs could be used as ameans for developing countries to catch up with developed countries became aprevailing view. In 1988, the name for the NICs was changed to NIEs (newly
industrializing economies), and from that point this terms has mainly been used
for South Korea, Taiwan, Hong Kong, and Singapore.

The lesson learned from South Korea’s and Taiwan’s economic
development is that developing countries in the first half of the demographic
dividend period have an environment suitable for the growth of labor-intensive
industries and policies that take advantage of this environment should be
implemented. However, because domestic savings alone are not sufficient for
expanding the industrial sector so that it can absorb young labor forces, theinvestment of foreign funds plays an important role. In addition, thedevelopment of and entry to overseas markets is useful to compensate for small
domestic markets, and attracting foreign companies is also a useful means toencourage technology transfer and secure market access. Of course, the factthat the governments of both South Korea and Taiwan made efforts for the
spread of primary education, adopted policies that encouraged the businessactivities of exporters, and prioritized the development of infrastructure cannot
be dismissed. In any case, both South Korea and Taiwan are good examples ofcountries that benefited from the demographic dividend by overcoming
54

disadvantages in initial conditions through the implementation of uniquepolicies.

Meanwhile, the second half of the demographic dividend period is a period
during which increases in the domestic savings rate can be expected, and itturns out that both South Korea and Taiwan were successful in achieving
significant increases, as the domestic savings rate grew from 20.2% in 1975 to
38.8% in 1988 in South Korea and from 25.6% in 1970 to 38.5% in 1987 in
Taiwan. These domestic savings served as the source of funding as heavy
industries were developed in South Korea and Taiwan.
In South Korea, the Heavy and Chemical Industry Development Plan was
launched from 1973, establishing the six fields of steel, shipbuilding, electronicequipment, machinery, nonferrous metals, and petrochemicals as strategic
industries. The government established the National Investment Fund (NIF) in
1974 and developed a long-term financing system for heavy and chemicalindustries. As a result, the ratio of industrial added value accounted for byheavy and chemical industries increased from 51.4% in 1982 to 73.1% in 1996.
From the mid-1980s, the Ten Strategic Industries Development Plan that
included high-tech industries such as automobiles, semiconductors, andcomputers was launched. Continued high levels of growth was maintained
from 1975 to 1990, with an average annual growth rate of 8.1%, against a55

background of the development in capital-intensive industries.

In Taiwan also, the development of heavy and chemical industries was
focused on in the sixth four-year plan for 1973, and at the same time the Ten
National Projects of Economic Construction program was launched, consistingof investment in seven infrastructure construction projects and three industries(oil, steel, and shipbuilding) to support the heavy and chemical industries. This
policy was sometimes positioned as a secondary import-substitution
industrialization policy, and efforts in fields such as shipbuilding ended in
failure. In Taiwan it was actually Small and Medium Enterprises (SMEs) in themachinery and electronics industries that led capital-intensive industry.
Nonetheless, the ratio of Taiwan’s economy accounted for by heavy andchemical industries increased from 51.8% in 1982 to 72.1% in 1996. Taiwan
also maintained high growth from 1975 to 1990, with an annual average
growth rate of 8.8%.
In the late 1980s, as the Korean won and Taiwan dollar appreciated against
the US dollar and domestic wage level increased rapidly, the competitivenessof labor-intensive industries swiftly fell. In response to this South Korean andTaiwanese companies accelerated the transfer of production bases to Southeast
56

Asia and China in search of a cheap labor force. This coupled with the increasein domestic savings in both countries transformed them from investment
recipient countries to investing countries. In terms of the amount of inflows
and outflows of foreign direct investment in the balance of international
payments, outflows exceeded inflows for South Korea from 1990 and from1988 for Taiwan.
Entering the 1990s, the core of the industrial structure shifted frommanufacture to service. In South Korea, service sector grew from accounting
for 47.4% of the GDP in 1990 to 51.6% of the GDP in 2000, and fromaccounting for 54.5% of the working population to 69.0% of that during thesame time period. Similarly, in Taiwan, service sector grew from accountingfor 54.6% of the GDP in 1990 to 65.4% of the GDP in 2000, and fromaccounting for 46.4% of the working population to 55.0% of that during thesame time period (Figure 2-11 and 2-13). The annual average growth rate from1990 to 2000 was 6.1% for South Korea and 6.3% for Taiwan.
Looking at changes in the working population, during the first half of thedemographic dividend period, a shift was seen from agriculture to industry, andduring the second half the conversion continued with a shift from industry toservice, and in this manner there were two conversions in the employment
structure during the demographic dividend period.
In this way, by implementing demographic dividend-friendly policies South
Korea and Taiwan have currently achieved income levels on par with those inJapan. While there will be a focus on whether South Korea and Taiwan canmaintain this momentum going forward and catch up with or even overtake
Japan, the demographic dividend for both these countries is expected to end
around 2015 and the effects of population aging will gradually appear as they
have in Japan. South Korea and Taiwan both already have an aging rate thatexceeds 10% and the annual average growth rate for 2000 to 2010 has
decelerated to 4.6% for South Korea and 4.1% for Taiwan. In both South
Korea and Taiwan debate is ongoing as to how to avoid the burden of
population aging and maintain sustainable growth.
China and the ASEAN 4: Missing out on the benefits of the first half of thedemographic dividend
The demographic dividend for China and the ASEAN 4 began between thelate 1960s and early 1970s. The initial conditions for these countries were more
severe compared to South Korea and Taiwan. For example, agriculture
accounted for at least 40% of the GDP and at least 70% of the working
population for each of these countries. Traditional society was dominant inrural areas and these countries were still on the eve of industrialization. As
stated above, birthrate levels were high, and resultant overpopulation was seen
as a factor impeding economic growth. The total fertility rate at the start of the57

demographic dividend period exceeded 4 for many of these countries, andnationwide primary education had yet to be adopted. The infrastructure such as
power, ports, and roads required for supporting industrialization had not yet
been developed and public finances to compensate for this were insufficient,resulting in a vicious cycle of poverty.

In an attempt to overcome these disadvantageous initial conditionsindustrialization was pursued in China under socialism and under authoritariandevelopment regimes led by the military in the ASEAN countries.
In the end, these forms of industrialization were not sufficient for fullyreceiving the benefits of the demographic dividend.
Let’s look at the case of China. It is believed that the demographic dividend
started in the late 1960s in China. During that period, China was under aplanned economy in which all production activities were managed by thegovernment. Many experts point out that this rigid economic system served toreduce incentives for producers, and this dynamics is reflected in the annual
average growth rate of only 3.9% from 1965 to 1978.
Full-fledged economic development in China started with the Reform andOpening Up policy based on a resolution made by the Third Plenary Session of
the 11th Central Committee of the Communist Party of China in December
1978. At that point ten years had already passed since the start of the58

demographic dividend. Economic development in China was indeed dramatic
following this Reform and Opening Up policy, and the annual average growthrate for 1980 to 1995 was high, at 8.7%, despite a period of political and social
turmoil that included the Tiananmen Square incident. The annual average
growth rate for the industrial sector during the same time period wasparticularly high, at 12.1%, and this served as a growth driver. As a result, theindustrial sector grew to account for 40% of the GDP.
However this industrialization was not driven by labor-intensive industries
under the guidance of the private sector as in South Korea and Taiwan.
Because the Reform and Opening Up policy consisted of gradually adopting
free-market principles while maintaining a planned economy system,
industrialization continued to be led by state-owned companies and heavy
industries, and these stated-owned entities and heavy industries wereprioritized in terms of investments from public finance and loans from banks.
Meanwhile, while the scope of private sector production activities was
gradually expanded under the Reform and Opening Up policy, overall there
were many constraints and private sector companies had no room to growlabor-intensive industry. For example, up until 1988 private sector companies
could only have up to eight employees. Under these constraints it was
impossible for private sector companies to enter labor-intensive industries. In
fact, although the industrial sector did grow rapidly, because the sector was
focused on capital-intensive industry, the percentage of the working populationaccounted for by industry only grew from 18.2% in 1980 to 23.0% in 1995.
Of course, it is not as if labor-intensive industries did not grow at all during
this time. It was actually foreign companies that gave attention to businesses
which utilized China’s abundant young labor force. Measures to attract foreign
investment in China started off with the establishment of special economic
zones in Guangdong and Fujian in 1980, and these efforts were expanded in
the coastal regions and inland areas up until 1990. The reason why thegovernment adopted policies that fully opened up the economy after initialcaution toward the entry of foreign companies is that it realized that thedevelopment of labor-intensive industries could contribute to economic growthand improvements in the trade balance. However, due to the fact that China has
a massive population, foreign companies only played a limited role inabsorbing China’s working population.
Although industrialization was accelerated under the planned economy
system, the industrial sector was not able to absorb the over 10 million newlaborers entering the working population every year that had emerged in thefirst half of the demographic dividend period. While the agricultural sector’s
percentage of the GDP dropped to 20% by 1995, the agricultural sector stillaccounted for over 50% of the working population. This means that while
China was expanding its industrial sector, many young people were still left
59

behind in the rural areas. China’s unique family registration system (thatseparated agricultural and non-agricultural areas) also served to inhibit the
movement of the labor force. In addition, it is believed that the slight decline in
the agricultural population was not absorbed by the industrial sector, but by thelow productive service industry (the informal sector).

Of course, the rapid increase in the working-age population might havecontributed to the development of the agricultural sector. This is because theannual average growth rate for primary industry from 1978 to 1985 was high,at 7.2%. While this was the result of an agricultural reform program that was
typified by a contract system and increases in the government’s purchase prices,
this growth was likely effected by the existence of young labor force in rural
areas that carried out the program.
China’s domestic savings rate exceeded 40% entering the 1990s. During thesecond half of the 1990s, in addition to Japanese companies and NIEs
companies, US and European companies began to focus on China’s production
capacity and market, leading to the Chinese investment boom. In terms of thebalance of international payments, there have been over USD 30 billion of fundinflows to China every year since 1994. China has been called “the world’s
60

factory” since the beginning of the 21st century. Currently, high-tech industries
such as automobiles and computers are growing remarkably. The growth ratefrom 1995 to 2010 was approximately 10%, with no sign of slowing. In 2010
China overtook Japan in terms of nominal GDP.
The impact of China’s economy on Asia’s economy is getting stronger every
year. However, China’s working-age population ratio is expected to peakaround 2015 and in theory the demographic dividend will come to an end.
Does this mean the current high levels of growth will rapidly lose speed? We
will look at this point again in the next chapter.
In considering the ASEAN countries, we will look at Thailand which hasgone through changes in its population structure as dramatic as those in China.
It is believed that Thailand’s demographic dividend started in the late 1960s.
While the capital Bangkok had developed as a trade port for the export andtransit of agricultural products, overall Thailand was a country of agriculture
and farmers, with nearly 80% of the working population engaged inagriculture.

While Thailand was governed by a military regime for a long period of timesince the Sarit administration that was inaugurated in 1959, the government
was focused on nation-building centered around economic development. In
1959 the National Economic Development Board (NEDB) was established andalthough it launched the First National Economic Development Plan in 1961,61

industrialization did not proceed as planned. The domestic savings rate waslow, accounting for just a little more than 20% of the GDP, and althoughpublic spending on education and health was prioritized, investment funds forinfrastructure development such as power, ports, and roads were limited. In
1972, the Industrial Promotion Act was established and governmental policies
similar to those adopted in export processing zones in Taiwan were introduced,
providing preferential tax and finance treatment for export production.
However, the effects of this act were limited. This was because the lack ofinfrastructure served as an impediment for the entry of foreign companies(Suehiro 1993, 2008).
It is true that exports of textiles and apparel that took advantage ofThailand’s cheap labor force increased from the 1970s onward. However, thisdiffered from the situation in South Korea and Taiwan in that these exports did
not have a strong linkage with domestic industrial development. It is believedthat this was because there were funding limitations as a result of factors suchas underdeveloped infrastructure and the low savings rate.
During the first half of the demographic dividend period from 1965 to 1985,
Thailand had an annual average growth rate of 4.4%, which was lower
compared to the rate in South Korea and Taiwan. Nonetheless, Thailand was
successful in maintaining a reasonably high growth level for a developing
country. The factors behind this include the fact that farmers in Thailand werequick to diversify agricultural products in response to the demand ofinternational markets, the industry of processing agricultural products(agro-industry) arose, and local capitalists began to develop centering on
agricultural exports.
Entering the 1980s, Thailand emerged with a growth strategy aimed at
becoming a NAIC (newly agro-industrialization country) throughindustrialization focused on the food processing industry. However, looking at
the figures for 1985 after approximately 20 years had passed since the start ofthe demographic dividend, while the industrial sector had grown to account for
31.8% of the GDP, it only accounted for a low 8.0% of the working population.
The industrial sector was not strong enough to sufficiently absorb the labor
force. As a result, in the same manner as in China, many young people stayedin rural areas and continued with agriculture in Thailand.
What changed this situation were the changes in the international economy
following the Plaza Accord in 1985. The Plaza Accord was a meeting held by
the finance ministers and central bank governors of developed countries at the
Plaza Hotel in New York. At this meeting governments agreed to policy
coordination to correct the high US dollar in order to reduce the US trade
deficit. The yen depreciated against the US dollar as a result, with the yen
dropping from 260 yen to the US dollar in 1985 to 80 yen level to the US
dollar at one time in 1992. In response to the increase in production costs
62brought about by rapid yen appreciation, Japanese companies accelerated theshift of production bases to Thailand and other countries in Southeast Asia.
Because as mentioned above wages had risen and currencies had appreciated in
the NIEs, this also served to accelerate investment in Southeast Asia.
The amount of foreign direct investment approved by the Thai Board of
Investment (BOI) in 1988 exceeded the cumulative amount over the previous
20 years. The amount of foreign direct investment inflows in the balance ofinternational payments grew from past levels of around USD 0.2 billion peryear to over USD 10 billion per year from 1988 onward. With the entry of
foreign companies in the markets, exports grew from USD 15.9 billion in 1988
to USD 58.7 billion in 1995. The items exported included not only
labor-intensive products such as textiles, garments, and processed foods, butdiversified to include consumer electronics, integrated circuits, and computer
parts. Industrial product grew to account for 54.9% of exports in 1988 to
73.1% in 1995. During this period a high annual average growth rate of 9.5%
was achieved.
Thanks to this high level of economic growth, the domestic savings rategrew from 25.5% in 1985 to 35.4% in 1995. Regardless of the increasing
domestic savings rate, because the central bank eased capital restrictions andthere were massive inflows of capital from overseas, excess funds were used
for the acquisition of real estate and stocks, causing land prices and stock
prices to skyrocket. The economic growth in Thailand from 1992 onward has
been called a bubble economy. In 1997, spectators rushed to sell off the Thaibaht, and as a result the Thai economy suffered from an unprecedented
economic recession, with negative growth of 10% in 1998.
There had been almost no change in the employment structure since theperiod of high growth following the 1980s. While industry grew to 40% of the
GDP in 2000, industry only accounted for less than 15% of the working
population. Meanwhile, while the agricultural sector only composed a little
over 10% of the GDP, agriculture accounted for nearly 50% of the working
population (Figure 2-17).
While the political systems and economic policies of China and Thailand
differ significantly, a commonality is that both countries were unable toincorporate the increase in the young labor force during the first half of thedemographic dividend period in their industrial sectors. High levels of growthin both countries didn’t start until the middle of the demographic dividend
period, and labor-intensive industries and capital-intensive industries grew at
the same time. In addition, the fact that growth was largely propelled by theentry of foreign companies is another common point. Only the urban areas
benefited from the East Asian miracle that was triggered by Japan and the NIEs,
while the rural areas with over half the population did not sufficiently benefit
from growth.
63

Although China and Thailand were covered here, the characteristics of thedevelopments of the two are believed to be nearly the same for Malaysia,
Indonesia, and the Philippines in terms of the demographic dividend starting
while income levels were still low. Of course the effect of the demographic
dividend differs by country. For example, in Malaysia a focus was put on
developing labor-intensive industries in parallel with a Bumiputra policy thatprioritized the employment of Malays, as well as the establishment of acompulsory central provident fund (CPF) in order to secure investment capital,
which contributed to enjoying the benefits of the demographic dividend.
Leveraging the entry of foreign countries, Malaysia established a position as
the electronic equipment production based of Southeast Asia. Per capital GDP
reached USD 10,000 in 2012, close to the levels in high-income countries.
Nonetheless, large disparities between urban and rural areas remain, reflecting
the fact that the benefits of the demographic dividend have not been received
nationwide.
Meanwhile, while the Philippines had high educational levels at the start ofthe demographic dividend period, the growth rate between 1970 and 1990 was
only 1.1% due to the negative impression foreign companies had toward
investing in the Philippines resulting from the prioritized industrialization of64

capital-intensive industries and long-term political instability. For these reasons
it is possible that the Philippines has not benefited from the demographic
dividend. Incidentally, the Philippines was not included in the HPAEs, or High
Performing Asian Economies mentioned in the World Bank’s The East Asian
Miracle.
Looking at sustainable development of Asia overall, in consideration of themature economies of Japan and the NIEs where the demographic dividend has
ended, the new rising strength of China, the ASEAN 4, Vietnam, and Myanmar
will be necessary to complement this maturity. In the next chapter we will lookat the future as we consider how changes in the population structure will affect
East Asia’s economy.

65

Chapter 3: The impact awaiting after the coming of the demographic
dividend
1. Transition from the demographic dividend to the demographic onus
In the previous chapter, we learned that the high levels of growth in East
Asia that were called the East Asian miracle were made possible due in part tothe tailwinds of the demographic dividend. At the same time, it was mentionedthat the demographic dividend would soon come to an end for some countries.
For example, Japan’s demographic dividend already came to an end in theearly 1990s, and the demographic dividend will end in the middle of the 2010s
for China, Thailand, and NIEs such as South Korea and Taiwan. Under thesecircumstances, will it be possible to maintain economic growth in East Asia in
the future?
The end of the demographic dividend also signifies the start of population
aging. If the demographic divided can be considered to serve as a tailwind for
economic growth, population aging could be considered as a headwind. The
effects of the headwind caused by population aging are displayed in Figure 3-1
below.
Figure 3-1 Impacts of Population Aging on Economic Growth

Decrease of Labor Force
Restraint of the Potential
Growth Ability
Decline of Domestic Savings Rate
Population Aging

Increase in Medical Expense

Pressure of the Budget ofGovernment and Household

Increase in Pension Burden
Source: AuthorFirst, as the population ages, this causes the working-age population to
decrease, which in turn causes the labor force to decrease and the domestic
savings rate to decline. This means that of the three main elements supporting
economic growth, labor inputs, capital stock, and productivity, labor inputs andcapital stock become scarcer. Meanwhile, as people get older medical costs
grow due to increased morbidity and income security (old-age pension)
becomes necessary to support their lives because their income tends to decline.
It is believed that this burden of supporting the lives of the elderly causespressure on the budgets of the government and households, which serves as a
restraint on economic growth. This contrasting mechanism to the demographic
66

dividend (also referred to the demographic bonus) is called the demographic
onus.
How will the economy of East Asia change as the population ages? Whatneeds to be done to maintain sustainable growth? We will look at thesequestions in this chapter.
When considering the sustainable growth of the East Asian region, the roleof the emerging economies such as China and the ASEAN 4 is becoming more
and more important every year. The importance of their role is also clear when
considering the recent moves by Japan and South Korea to respond to concernsof slowing growth brought about by population aging by deepening
relationships with China and other ASEAN countries and attempting toincorporate their vitality. In particular, as the Chinese economy has maintained
a high level of economic growth, at 9%, there are still no signs of thedemographic dividend coming to an end soon. It also seems that the ASEAN 4
have fully recovered from the currency crisis and economic crisis and are now
moving forward on a solid growth path.
However, as indicated by the UN’s population prospects, population aging
will rapidly advance in China and the ASEAN region as well in the future.
Why have China and the ASEAN 4 been able to maintain such high growth
despite the fact that the demographic dividend is nearing the end? How long
will these high levels of growth continue? Perhaps we should consider thesequestions by modifying or expanding the demographic dividend framework.
As part of this, we will present the new perspective of the urban demographic
dividend that creates movements of labor from rural to urban areas.
Furthermore, we will point out how important improving the productivity ofthe baby boom generation is for sustainable growth as it approaches middle age
or older.
2. Changes in growth elements caused by population aging
The declining labor force
Let’s look at how labor inputs are decreased with the advance of population
aging.
In Japan, the working-age population has been on the decline since 1996.
According to the UN’s population prospects, the working-age population is
expected to decrease by 12.3 million from 2000 to 2020. The growth rate of theworking-age population in South Korea, Taiwan, and China has already fallen
below 1%, and this population is expected to decrease from the mid-2010s.
While this population is expected to continue to grow in the ASEAN 4
countries over the near term, the growth rate has already begun to decline(Figure 3-2). Working-age populations decline rapidly, particularly when thebaby boom generation transforms into the elderly generation.
67

As we have seen up until now, the economic growth rate is more strongly
affected by the labor force growth rate than the actual scale of the labor force.
Declines in the working-age population growth rate constrain growth throughthe accompanying declines in labor input increases. The relationship between
the labor force and growth rate is easy to understand if the labor force isthought of as the number of employees and the economic growth rate isthought of as expansion in the scale of factory production. Assume that there
are no increases in machinery inputs or improvements in productivity. The
scale of production is limited if manpower cannot be secured. This means that
if the expected amount of manpower cannot be secured, the expansion of thescale of factory production cannot be achieved. This in turn means thatdeclines in the working-age population growth rate make it difficult to secure
the manpower needed to support growth.
Meanwhile, the demographic dividend framework assumes that therelationship between the working-age population and the labor force isconstant. In other words, the concept is that if the working-age population
increases, the labor force will increase in the same manner, and conversely, if
the working-age population decreases, the labor force will decrease in the samemanner. The rate of change in the working-age population has been used as a
substitute for the rate of change in the labor force.
However, strictly speaking, changes in the working-age population and thelabor force are not uniform. For example, as educational levels become higher,
68the high school and university enrollment ratio tends to increase, which causes
the labor force participation rate for people age 15 to 24 to decline. Oppositely,
if women who were engaged in housework up until that point become
employed or if more of the elderly become employed, the labor force
participation rate to the working-age population increases as well.
As an example, let’s look at the relationship between the working-age
population and labor force for Japan and Taiwan.
Figure 3-3 displays the ratio of labor force to the working-age population forJapan and Taiwan, and as you can see this ratio has been stable for both. Thisis the reason that it has been possible to use changes in the working-age
population as a substitute for changes in the labor force within the
demographic dividend framework. This ratio differs by county. As seen in the
figure, while the ratio of the labor force to the working-age population has
ranged between 70% and 80% for Japan, the same ratio has ranged from 65%
to 75% for Taiwan. It is believed that these variations can be accounted for bydifferences in the employment environment, lifestyles, and culture in these twocountries.

69However, when looking at these trends in more detail, you can see that theratio of the labor force to the working-age population has fallen from the 1960s
to the 1970s. This was due to the decline in the labor force participation rate
among the younger population as the enrollment rate increased for high schools
and universities. In contrast, the ratio of the labor force to the working-age
population has increased slightly since 1990. This is believed to have beencaused by the increase in the labor force participation rate by women and theelderly.
For example, in the case of Japan the ratio of the labor force to theworking-age population for women increased from 58.8% in 1990 to 68.9% in
2010. Similarly, this ratio increased from 47.7% to 54.6% during the same
period in Taiwan. In addition, the number of elderly employees in Japan grewfrom 3.6 million in 1990 to 6.3 million in 2010.
Promoting the employment of women and the elderly serves as both animportant population aging countermeasure and means to actually prolong thedemographic dividend from the viewpoint of maintaining labor inputs.
Particularly for the case of Japan, when considering that the pursuit of higher
education by women and increases in the employment rate for women arefactors that lead to lower fertility, the creation of workplaces that allow for abalance between women’s employment and child raising would be an effective
initiative for both maintaining labor inputs and mitigating lower fertility.
However, we cannot afford to have overly-high expectations toward theeffects of these measures. This is because the number of retirees has
significantly exceeded this increase in the number of female and elderly
employees. Despite the increase in the working population among women andthe elderly in Japan, the labor force began to decline in 1999. Compared to thepeak labor force levels in 1998, there were 2.4 million less people in the labor
force in 2012.
It is important to consider this point when foreseeing the economic growthof East Asia and the economy of South Korea and Taiwan. Furthermore,because the baby boom generation accounts for a high ratio of the population
structure in other East Asian countries in a manner similar to Japan, it should
be noted that the labor force in these countries will decline when thisgeneration leaves the labor market by aging. In addition, it is overly optimistic
to expect only the promotion of employment of women and the elderly to be
sufficient for compensating fully this decline.
Another means for compensating labor shortages is the acceptance of
foreign workers. In Japan, which has not been very enthusiastic toward theacceptance of foreign workers in the past, debate is underway about relaxing
the regulations concerning the acceptance of foreign workers as a means ofhandling the labor shortages triggered by population aging. The foreign labor
force in Japan grew from 730,000 in 2000 to 830,000 in 2010.
70

The decline in the domestic savings rate from the life-cycle perspective
Next we will look at the impact caused by population aging on the domestic
savings rate.
As indicated by the demographic dividend framework, while increases in theworking-age population ratio serve to increase the domestic savings rate,
population aging serves to decrease the domestic savings rate.
Let’s reconsider this using the life-cycle hypothesis model.
The life-cycle hypothesis model claims that individual consumption andallocation of saving are determined based on lifetime income, with peoplesaving for old age while they are employed and using these savings after they
have retired. The life-cycle hypothesis model is displayed in Figure 3-4. Age isdisplayed on the horizontal axis and income and consumption levels are
displayed on the vertical axis. You can see consumption moves on a curved
line mostly parallel with age, while income is a highly-arching curved line. The
gaps between these two lines indicate income shortages and income surpluses
at each time, and from this perspective life can be classified into the following
three stages.
Figure 3-4 Life-Cycle Hypothesis Model
Income,Consumption

IncomeSavings

Consumption

Age

During the first stage from birth to adolescence, consumption exceeds
income. People start consumption activities soon after they are born. In orderto maintain life, expenditures are required for food and clothing, and once acertain age is reached educational expenditures become necessary. However,
because one does not gain income until becoming employed, there is an71

income shortage between income and consumption up until the age ofapproximately 20 following birth. This shortage is usually compensated for byfamily and relatives. In addition, in some cases governments and companies
compensate for a portion of this shortage through measures such as compulsory
education systems and child allowances. In the case of developing countries,
assistance from overseas plays an important role.
The second stage is the period from adolescence until retirement during
which income exceeds consumption. When adolescence is reached andemployment is gained, the past income shortage is rapidly resolved and atsome point income starts to exceed consumption. A portion of this income
surplus is allocated to the cost of raising children, and the remainder is saved
for the future. Saving levels are affected by factors such as income levels, theconsumption propensity (the level of expenditures used on consumption), thenumber of children, and social security programs.
The third stage is old age after retirement. Income levels decline with age,
and income rapidly declines once a certain age is exceeded. Although there areindividual differences, income begins to fall below consumption with age,causing an income shortage between income and consumption to occur once
again, and this shortage increases over time. In general, this shortage is coveredfor by the savings that one has accumulated while being employed, with further
shortages being covered by one’s family and social security services (such as
medical insurance, old-age pensions, and long-term care insurance).
If this individual life-cycle hypothesis model is built up and steadily
expanded to the country level, it should be possible to confirm that increases in
the aging rate cause the domestic savings rate to decline. However, the speedof the decline in the domestic savings rate accompanying population aging
differs depending on the conditions. For example, while the life-cycle
hypothesis model assumes that individuals will use up all of their savings
during old age, there is also an inheritance model (called the dynasty model)that assumes that the elderly do not use up all of their savings and instead leave
a portion of their wealth to the next generation (descendants).
Compared to the life-cycle hypothesis model, the speed of the decline in thedomestic savings is slower under the dynasty model. However, it should be
noted that both models assume that it is possible to accumulate sufficientsavings for old age during one’s period of employment. However, not everyone
is necessarily able to do this. For developing countries in particular, there are
not many people with savings sufficient to support themselves during their oldage. In cases like these, some of the income of the working-age populationmust be allocated to the living expenses of the elderly, and for this reason the
speed of the decline in the domestic savings rate accelerates for developing
countries.
The ability to save is already weakening in Japan. Japan’s domestic savings
72

rate decreased from 33.3% in 1990 to 20.6% in 2010 (Figure 3-5). Broken
down further, the household savings rate decreased from 16% in 1990 to 7% in2003 and to only a mere 2% in 2010. While the ratio of the working-age
population that generates savings is still on the rise in South Korea and Taiwan,
the domestic savings rate is on the decline.

(%)
40

Figure 3-5 Gross Domestic Savings(% of GDP)

35

Korea

30
25

Taiwan

20

Japan

15
1990

1995

2000

2005

2010
(Year)

Source: ADB, Economic Key Indicators

Of course, domestic savings are not the only source for investment. With theongoing globalization of the economy, it is possible to effectively mobilize
funds from overseas by implementing positive measures to attract foreign
investment and strengthening the development of infrastructure in financial
markets. From this perspective, the role of domestic savings in economic
growth has become smaller than before. In fact, it was the ability to effectively
draw in foreign capital that allowed high levels of growth to be achieved in
East Asia. However, from a long-term perspective, there is no change in thefact that it is important to secure domestic savings sufficient for covering
domestic investment in order to achieve sustainable economic development.
The required improvements in total factor productivity
In order to sustain growth as labor inputs decrease and the domestic savings
rate declines, the thing that can be done inevitably is to improve the othergrowth factor, namely total factor productivity. Total factor productivity
consists of not only corporate technological and development capabilities and73management efficiency, but also a wide range of factors such as enhancementof human capital through education, improvements to capital efficiency
through the introduction of foreign capital and the development of financial
systems, the development of regulations and systems, the efficient operation of
government agencies, and the formation of production clusters.
Sustainable growth will be difficult if this total factor productivity cannot be
improved. This was the essence of Krugman’s “The Myth of Asia’s Miracle.”
While Krugman’s essay has been considered by some to have predicted thecurrency and economic crisis that occurred afterwards in East Asia, it actually
pointed out that growth in the East Asian region would have to undergo
adjustments if it no longer becomes possible to actually expect expansion inlabor inputs and capital stock. Although we cannot be sure whether or not
Krugman had forecast the current state of population aging in East Asia at thattime, the countries of East Asia must provide a response to Krugman’s warning
during the process of population aging.
The improvement of productivity through measures such as the promotion of
R&D (Research and Development) and joint development of cutting-edge
technologies by industry and academia has already been adopted as a national
strategy in Japan, South Korea, and Taiwan. After the currency and economiccrisis, the necessity of improving productivity has been widely recognized inother Asian countries as well.
When it was determined that East Asia had escaped from the economic crisis
in 2003, the World Bank released Innovative East Asia: The Future of Growth,which pointed out that the key to sustainable economic growth in the region
was the improvement of productivity. The book stressed that in addition to theimprovement of primary and secondary education and development strategies
such as the promotion of exports as suggested by The East Asian Miracle,
productivity improvement measures such as technological innovation throughfurther improvements in educational levels and the promotion of R&D, theformation of production clusters utilizing global supply chains, and theapplication of information and communication technology should also be
focused on. This means that developing countries must not only havetraditional development strategies, but they must also have strategies forstrengthening international competitiveness.
Furthermore, in the World Bank’s An East Asian Renaissance: Ideas for
Economic Growth that was released in 2007, it was pointed out that if
middle-income countries such as China and the ASEAN countries do notchange their growth paths that have been dependent on labor-intensive
industries and resource industries up until now they would become stuck in the
middle income trap as growth will slow before becoming high-income
countries. In 2011 the Asian Development Bank released Asia 2050: Realizing
the Asian Century, which was a report stating that being able to avoid the74middle income trap would be the key to ensuring this century as the Asian
century. All of these works stressed the importance of physical and humaninfrastructure for supporting innovation.
It should also be mentioned that the improvement of productivity will not
only contribute to the achievement of sustainable growth, but it is also an
important measure for establishing a stable economic base for supporting aged
societies.
3. Barriers to high growth in China and the ASEAN 4
The aging rate in China and Thailand is already above 7%, and thesecountries are already becoming aging societies. In addition, the working-age
population ratio for China and Thailand is expected to peak by 2020. However,China and Thailand have maintained relatively high levels of growth, serving
as the drivers of growth in East Asia. In order to better understand therelationship between the high levels of growth and demographic trends in thesecountries, the demographic dividend concept has to be slightly modified.
Surplus labor force and urbanization
The concept of the demographic dividend assumes full employment inwhich working-age population and labor force movements match. It was
already mentioned that this assumption is reasonable in the case of Japan andTaiwan. However, in developing countries where there are high numbers of
unemployed people in both urban and rural areas, and full employment has notbeen achieved at all because an increase in the working-age population will notnecessarily lead to an increase in the labor force. Even if a country has apopulation structure capable of benefiting from the demographic dividend, thebenefits of the demographic dividend cannot be fully enjoyed if employment is
not secured.
Meanwhile, if the economy of a developing country is on the growth path, in
addition to the increase in the working-age population, it will also be possible
to achieve dramatic increases in labor inputs if the labor market is able toabsorb the surplus labor. The higher the ability to absorb this surplus labor, themore the growth rate of the country will rise. This is one of the factors thathave allowed China to maintain high growth despite being in the second half ofthe demographic dividend period.
The movement of migrants and manpower from rural to urban areas has
especially served to increase actual labor inputs. Migrant workers from rural
areas are called mingong in Chinese. According to the Reporting on the
Problems of Chinese Farmer-Turned Workers released in April 2006, thenumber of these migrant workers living in urban areas reached 120 million asof 2004. 31% of these workers are employed in the manufacturing sector and
23% are employed in the construction sector. Furthermore, in terms of age
75

groups, an overwhelmingly high percentage (45%) is aged 16 to 25, 23% areaged 31 to 40, and 16% are aged 26 to 30. Young laborers below age 40
account for 84% of migrant workers in China. These migrant workers have
served as the labor inputs for the world’s factory that China represents. In the
ASEAN 4 countries where the majority of the population lives in rural areas asimilar thing is happening, although on a different scale.
The areas that are actually benefiting the most from the demographic
dividend are the urban areas that have accepted large numbers of young people
from rural areas. When considering the future of East Asia, it is important toremember that even as population aging advances in country level, thecontinual absorption of the young labor force from rural areas will allow urban
areas to maintain growth. Meanwhile, the outflow of the young populationfrom rural areas as people leave to seek work results in a high child population
and a high elderly population, which serves to impede growth of rural areas.
Although the shift of populations from rural areas to urban areas in developing
nations transfers the benefits of the demographic dividend from rural areas tourban areas and these urban areas drive the economic growth of these countries,
these changes also lead to greater income disparities.
To get a hands-on sense of these trends, let’s compare the population
pyramids of Bangkok, Thailand’s largest city, and the Northeast of Thailand,
which has undergone drastic population outflows (Figure 3-6). The figures
display the ratio accounted for by each age group compared to the total
population in the respective regions. The population pyramid for Bangkok is
particularly wide for the 20 to 35 age group, with just this age groupaccounting for 35% of the total. The aging rate is 6.3%. Meanwhile, in terms of
the population pyramid for the Northeast which sends this labor force to
Bangkok, there are not many people in the 20 to 35 age group (only 18.9% of
the total) in contrast to Bangkok. The aging rate is high, at 9.4%.
It is believed that urbanization will continue to advance rapidly in East Asia
in the future. According to the UN’s prospects, China’s urban population ratio(urbanization rate) increased from 26.4% in 1990 to 49.2% in 2010, and it isexpected to reach 68.7% in 2030. The urbanization rate has increased similarly
in Thailand, from 29.4% in 1990 to 35.6% in 2010, and it is expected to reach
43.7% in 2030.
4. The difficulty of improving the productivity of the baby boom
generation
The conversion from agriculture to industry and productivity
Next, let’s look at productivity in China and the ASEAN 4.

76

Figure 3-6 Thailand's Population Pyramid in 2010
Bangkok
(Age)

Male

Female

100
90
80

70
60
50
40
30
20

10
0
4

(%)

3

2

1

0

0

1

2

3

(%)

4

Northeast
(Age)

Male

Female

100
90

80
70
60
50
40
30
20
10

0
4

(%)

3

2

1

0

0

Source: The 2010 Population and Housing Census, Thailand

77

1

2

3

(%)

4

It is not easy to measure total factor productivity. In the study of economics,
total factor productivity is only understood as the portion of the economic
growth rate that cannot be accounted for by the growth rate in labor inputs andcapital stock (and for this reason it is also referred to as a residual). This meansthat it is difficult to individually and specifically assess total factor productivity.
Furthermore, the only thing deriving from this is general productivity on anational level from the perspective of the relationship between input volume
and production volume within the overall economy.
For example, in some cases productivity may increase dramatically from thetransfer of labor and capital among sectors with a differing level ofproductivity. One of the representative examples of this is the conversion of theindustrial structure from the one based on agriculture to the one based on
industry.
Accordingly, the absorption of excess labor from rural areas by the industrial
sector in China and the ASEAN 4 will lead to not only an increase in actuallabor inputs, but also contribute to improvements in labor productivity. As
pointed out before, while the industrial sector accounts for the majority of the
GDP in China and the ASEAN 4, in terms of the working population, theagricultural sector accounts for a higher percentage.
The added value per one employee in the industrial sector in these countries
is 5 to 10 times that of the agricultural sector, and this gap does not look to begetting any smaller. In contrast, the difference is only 2 to 4 times in Japan,
South Korea, and Taiwan where there has already been much labor movement
between industries. Moreover, in addition to the GDP ratio, the agricultural
sector has also become only marginal in terms of the working population ratio
as well. In China and ASEAN 4, if it can be concluded that labor movements
between industries have been delayed in consideration of the pronounced gap
in added value, the governments of these countries need to ascertain the causes
and make improvements accordingly.
One of the causes for this disparity is the fact that most of the production
technologies that have been introduced in the industrial sector have been
dependent on capital such as equipment and machinery rather than labor. As
for the cause in the case of China, as it was previously mentioned state-ownedbanks prioritized loans toward state-owned companies, and most of thecompanies were in the heavy industrial sector that utilized capital more thanmanpower. It can be said that this type of financial system impeded theconversion from agriculture to industry through this disproportionate allocationof funds. In addition, to control the rapid increase of the urban population in
China, a family registration system was adopted that separated agricultural andnon-agricultural registrations, and this served an important role in limiting the
movement of people.
The growth of SMEs is essential for expanding employment in the industrial
78

sector, and measures must be implemented to address the shortages of funds
and human resources that SMEs suffer from. In addition, factors that inhibit thebusiness activities of SMEs should be removed. In China and ASEAN 4, there
are several cases of SMEs lacking funds due to loans to state-owned companies
and major companies being prioritized. In this sense, the development offinancial systems is indispensable for enjoying the benefits of the demographic
dividend.
Aging of the baby boom generation
Population aging not only causes the elderly population ratio to increase, butalso has the effect via causing the working population structure to age.
For the sake of convenience, let’s classify age 15 to 29 as the young labor
force, age 30 to 54 as the middle-age labor force, and age 55 to 64 as theelderly labor force. Based on this classification, in China the young labor force
ratio will drop from 34.8% in 2010 to 25.5% in 2030. Meanwhile, themiddle-age labor force ratio will increase slightly from 51.7% to 51.9%, andthe elderly labor force ratio will nearly double from 13.6% to 22.6% (Figure3-7). The situation is similar in Thailand, where during the same time period
the young labor force ratio will drop from 32.4% to 27.1%, the middle-age
labor force ratio will decline from 54.1% to 52.6%, and the elderly labor force
ratio will increase from 13.5% to 20.3%.

79

So what is the relationship between the population by age group andproductivity? In the White Paper on International Economy and Trade, 2006,
the productivity by age group in the manufacturing sector is estimated.
According to these estimates, productivity peaks after around 20 years of labor.
At this point productivity is approximately 40% higher than the first year oflabor. If it is assumed that most workers reach age 40 after around 20 years oflabor, although productivity tends to decline after this age, when reachingretirement at age 60 after around 40 years of labor, productivity will have
dropped only about 20% from the peak. It is believed that this is because theseworkers can utilize their experience, know-how, techniques, and personal
networks.
The median value of the working-age population in China and Thailand will
exceed age 40 within the next 10 years. However, has the baby boom
generation of China and the ASEAN 4 that has already exceeded age 40
accumulated experience, knowledge, and techniques like in Japan? If not,productivity growth during middle-age or older will be low, and as the
population ages productivity will decline significantly.
Table 3-1 displays the ratio of the population employed in agriculture by age
group for Japan (1980), China (2010), and Thailand (2010). Although there is
the shared trend of the ratio being lower the younger the age group, the ratios
are still high overall for China and Thailand, indicating that many people arestill employed in agriculture in these countries. As indicated in the Reportingon the Problems of Chinese Farmer-Turned Workers that was mentioned
above, the movement of labor has been concentrated on people age 40 or
below, and the middle-age or older population continues to be engaged inagriculture. It will not be easy for this population in the middle-age or older toswitch to a more productive industry in the future.
Next, let’s look at the educational levels which serve as the foundation for
productivity improvements. Similar to the previous table, Table 3-2 displays
the last level of education completed by age group for Japan, China, andThailand. There is a trend of pursuing higher education the lower the age group.
While 18% of the age 25 to 29 population of Japan in 1980 were university or
graduate school graduates, China and Thailand were rapidly gaining on thisfigure as of 2010, at 9.5% and 21.2%, respectively.
However for the group in the middle-age or older, many people haveeducational background below primary school as their last level of education
completed, reflecting the significant education gap between generations.
While the educational level alone is not a determining factor for productivity
improvements, there may be a fear that the fact that the group in the
middle-age or older have primary education’s background as their last level of
education completed and have continued to be employed in agriculture, as is80the situation in China and Thailand can only serve as an impediment to themaintenance of the productivity of these countries in the future.
Table 3-1 Employment in Agriculture (% of Total)

(%)
Age

Japan

China

Thailand

1980

2010

2010

25-29

5.4

34.1

28.0

30-34

6.9

35.2

33.4

35-39

10.6

39.7

39.9

40-44

14.7

45.9

45.8

45-49

18.9

50.1

48.0

50-54

22.0

60.2

51.4

55-59

25.5

72.3

59.3

60-64

29.9

84.5

68.5

65-69

34.8

89.0

73.7

Source: Japan: 1980 Population Census of Japan , China: Tabulation on the2010 Population Census of the People's Republic of China , Thailand: The 2000
Population and Housing Census

Table 3-2 Educational Background
(%)
Japan
1980
Age
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69

Above
University
17.7
14.4
11.2
9.0
7.8
5.1
3.5
2.5
2.4

China
2010
Below
Primary
SchoolThailand
2010

Above
University

9.3
13.9
19.5
25.5
26.4
37.7
52.8
63.8
67.7

9.5
6.5
4.2
3.1
2.6
1.4
1.0
0.9
1.4

Below
Primary
School
19.8
32.8
48.8
59.1
65.0
71.2
79.1
82.2
84.2

Above
University
21.2
18.2
13.7
10.8
10.4
10.0
7.6
5.6
4.3

Source: Japan: 1980 Population Census of Japan , China: Tabulation on the 2010
Population Census of the People's Republic of China , Thailand: The 2000 Population andHousing Census

81

Although Japan, South Korea, and Taiwan are promoting the employment of
the elderly as a countermeasure to the decline in labor inputs, under current
conditions it will be difficult to seek this in the group in the middle-age orolder in Thailand and China that is employed in agriculture. More than that, it
is difficult to become reemployed in a field that requires new technologies.
The labor environment for the elderly in China and Thailand is harsher inurban areas. Looking at the employment rate by age in China in 2010 (Figure3-8), the employment rate drops suddenly after exceeding age 50 for both men
and women. The employment rate for men age 55 to 59 is 55.6%, and thisdrops to 18.9% for age 60 to 64.

The reason that the elderly are defined as being age 65 or above is that ingeneral it can be assumed that age 65 can serve as the retirement age after
which opportunities for income will decrease. Even if people who are able tofind opportunities for gaining income even over age 65 are included in theelderly population on the basis of age, there is no effective difference from theworking-age population. However, conversely, like people in China if they areincluded in the working-age population on the basis of age and have lost
employment opportunities despite being 50 years old, they effectively belong82to the elderly population. This means that if efforts such as occupational
training to improve the productivity of the group in the middle-age or older are
not implemented, population aging will effectively take place sooner.
It must be remembered that the reason that there are many employment andincome opportunities for the elderly in Japan, South Korea, and Taiwan is theresult of the efforts of the elderly in these countries to accumulate knowledge,
experience, and technique during the changes in their industrial structures. The
baby boom generation in China and Thailand is currently between the age of
35 and 50. It is necessary to conduct occupational training for this generation
before it is too late. If the productivity of the baby boom generation is
improved, it will reduce the burden of population aging in the future.
The governments of countries in East Asia have indeed made many efforts
to improve educational levels. As displayed in Table 3-3, the enrollment rate
for higher education including universities is on the rise in China and Thailand.
Comparing the census 2000 to the census 2010, the ratio of the 25 to 29 age
group that had university background or above as their last level of education
completed rose from 1.9% to 9.5% in China, and drastically rose from 4.5% to21.2% during the same period in Thailand. However, when considering
sustainable growth on the country level, policies need to be quickly
implemented to improve the productivity for the group in the middle-age orolder as well as young people.
As we have seen here, the manner in which the demographic dividend has
arisen in China and the ASEAN 4 differs from Japan, South Korea, and Taiwan.
In China and the ASEAN 4, urban areas have driven growth by absorbing theyoung labor force from rural areas while enjoying the benefits of thedemographic dividend. Although this trend is expected to continue in future as
well, the demographic dividend has not benefited rural areas much, and it ishighly likely that income disparities will expand further. When growth spreads
from urban areas to rural areas, if the capabilities of the group in the
middle-age or older that serve as the recipients of this growth are lacking, thebenefits could be reduced by half. In order to avoid this, in addition toeffectively using the current high levels of domestic savings, measures will
also be needed to improve the productivity of the group in the middle-age orolder that continue to stay in rural areas.
A future of the Asian economy that does not allow for over optimism
Let’s review what we have covered in this chapter.
While the economic growth of Japan and the NIEs will slow by the impact
of population aging, China and the ASEAN 4 are expected to be able tomaintain high levels of growth for the time being through the absorption by
urban areas of young laborers from rural areas. Accordingly, economic
relationships in the Asian region are expected to become stronger based on the83network of production and consumption formed by the residents of urban areasin the countries of Asia. It is likely that this trend will also expand acrossVietnam and Myanmar. However, from the perspective of sustainability, we
cannot deny that economies driven only by the urban areas and young people
will eventually reach their limits in mid-term.
Moreover, because the advance of population aging causes domestic savings
rates to decline, it will be difficult to maintain the high levels of growth thathave been enjoyed up until now. Although the countries and region of East
Asia are working to respond to population aging by increasing productivity
through the improvement of educational levels for young generation, if China
and the ASEAN 4 neglect to implement measures to improve the capabilitiesof the population in the middle-age or older left behind in rural areas, it could
impede the improvement of productivity on a national level.
Considering this, we cannot afford to have too much optimism toward thelevels of growth in the East Asian region overall.
Furthermore, while there has been a trickledown effect in East Asia up until
now in which the growth of urban areas spreads to rural areas, if urban areas
continue to absorb the young labor force of rural areas, this effect will likely
gradually fade. As was covered repeatedly in this chapter, in order for thedevelopment of urban areas to spread to rural areas, improving the capabilitiesof the population in the middle-age or older that will serve as the recipient of
this development is essential, and almost no initiatives have been implemented
to that end. The World Bank released a report entitled World Development
Report 2007, Development and the Next Generation in 2006. As reflected in
the title, the report pointed out the importance of investing in the young
generation. East Asia now calls for investments to be made to improve theproductivity of the population in the middle-age or older (especially the baby
boom generation) that will soon join the elderly generation.
In addition, while the current situation of growth in which only the urban
areas develop may be a characteristic of the age of globalization, we cannot
afford to give special treatment to only the urban areas. Urban areas are partsof nations and they are obligated to redistribute income to other regions
through tax and social security systems. The larger income disparities are andthe larger the burden caused by the elderly is, the more that urban areas will
have to transfer incomes to raise up rural economies and support the lives ofthe elderly. The role of the government is to make adjustments for this process.
The burden of social security accompanying population aging can also be
considered as a factor that affects the growth of urban areas. In the next chapter,
we will look at the burden of population aging from the perspective of social
security programs.

84

Chapter 4: Who will take care of East Asia’s elderly?
In this chapter we will focus on social security systems such as medical
systems and pension systems that support aged societies.
In all of the developed countries discussions are underway as to who shouldbear the burden of their aged societies. The word “burden” implies a weight tobe borne, and this may not be an appropriate connotation. Longevity is a formof happiness common to many people, and the development of a country into
an aged society can be understood as the achievement of this happiness.
However, in order for the elderly to be assured of being able to live a good lifein their old age, a considerable burden must be borne by society. Here the word
“burden” will be used to refer to costs necessary to achieve an ideal aged
society.
For both developed and developing countries, the burden of medical andpension expenses increase with population aging. Medical expenses increase
because the disease rate increases as people age, and old-age pensions are
required to support the lives of the elderly. In addition, new costs are incurred
if nursing care services become necessary. The level that this burden reaches
and how this burden is allocated among the government, companies, andindividuals differ depending on the form of the social security system.
For example, if the government provides a generous social security system,
the government’s burden (fiscal burden) will rapidly increase with the advanceof population aging. If the government relies too much on tax increases andcorporate welfare programs to cover this burden, it could result in a decline inpeople’s motivation to work and corporate investment appetite. Meanwhile, if
the government fails to develop a social security system, life will be difficult
for the elderly that live alone or for low-income households with elderly
people.
If the livelihoods of elderly people can be supported by their own savings orfamilies, population aging is not a problem. However, in actuality, even indeveloped countries with high income levels, there are few elderly people thatcan be supported with only their own savings and assistance of family, making
the transfer of income from the working generation essential. Beyond that, in
low-income developing countries, determining who will care for theincreasingly growing elderly generation is becoming more of an issue.
This is a pressing issue in East Asia due to the fast pace of population aging
there. The NIEs where income levels are already high face population aging
issues typified by developed countries, similar to the issues faced in Japan. The
large number of discussions share commonality with Japan, such as how toshare the burden of population aging among the generations. However, in the
low-income countries of China and the ASEAN 4, the actual domestic
financial resources to support this burden are scarce. As the social security
85systems to support aged societies underdeveloped, human resource are alsolacking in terms of both quantity and quality. Furthermore, because large
amounts of funds will need to be spent on items such as infrastructuredevelopment and education for the future economic growth of these companies,
if costs associated with population aging increase, it could have an impact on
the financing of economic development. However, if preparations for aged
societies are not in time, there is the danger of increasing elderly survival risk.
From this perspective, population aging in China and the ASEAN 4 should beconsidered as a new issue, “that of population aging in developing countries,”
in contrast to the issue of population aging in developed countries.
In this chapter, we will first look at the characteristics of the current state ofthe development of social security systems in East Asia. After that, we willtake a view of the factors that have caused the momentum toward establishingsocial security systems to grow in recent years. Furthermore, we will see how
medical and pension burdens will change and how if this burden is not covered,
population aging in developing countries could result in human security
problems in which population aging will be accompanied by poverty. Finally,
we will look at the development of the pension system in Thailand todemonstrate how difficult it is to establish universal social security systems
that support the entire population in developing countries.
1. Social security systems in East Asia
Growing momentum
Entering the 21st century, the momentum toward establishing social security
systems in East Asia has grown over time.
Until then, it was said that the development of social security systems had
fallen behind economic development in East Asia. In fact, South Korea’s
universal pension system was developed in 1999, and Taiwan’s in 2002, after
income levels had caught up with those of developed countries.
It has been pointed out that the background behind this has been the
inclination of the governments of these countries toward the system called“developmentalism.” Developmentalism consists of prioritizing the interest of
the state and its people as a whole rather than individuals, families, or regional
communities in order to attain the specific goals of the country, specifically bycentrally mobilizing and managing physical and human resources in order toenhance national strength by economic growth achieved throughindustrialization.
In other words, countries focused on enhancing national strength throughindustrialization and left the social security function solely up to families andthe mutual assistance function of local communities. Indeed, it was thepromotion of industrialization that led to the fulfillment of the social security
86

function through the expansion of employment. Furthermore, “the trickle-down
effect” of the fruits of economic development steadily reaching rural areas has
also been important. Meanwhile in East Asia, families and local communities
have been able to fulfill the social security function up until now, andtraditional societies that have been cultivated over many years as well as placesof worship such as temples, mosques, and churches have played an importantrole.
Incidentally, social security systems do not have a very long history even on
a global level. Social security systems were born in Europe during the second
half of the 18th century. Before that, the mutual assistance of families and local
communities played the actual social security function even in Europe.
However, with the increase of urban populations accompanying economic
development, the number of people working at companies has increased.
Meanwhile, because the role of mutual assistance that had been played by local
communities in the past began to subside, societies began to require analternative system, and this requirement was fulfilled by the state. This is the
background behind the birth of social security systems in Europe.
These dynamics also apply to East Asia, where the transformations in social
structures accompanying economic development have made significant
contributions to the recent growing momentum toward the development ofsocial security systems. As described in Chapter 1, the household structure in
East Asia is shifting from large families to nuclear families. In addition, as wascovered in Chapter 3, urban areas formed by rapid population movements fromrural areas are expanding without the luxury of being able to fulfill the mutual
assistance function like that fulfilled by rural communities in the past. Systems
to mitigate risks of unemployment and diseases being brought about bychanges in the industrial structure are also required.
Social security systems in the countries of East Asia
While the development of social security systems in East Asia has been
delayed, there are various systems in each country that reflect political systems,
economic structures, cultural and social factors, etc. For example, in China andVietnam, systems that covered a high percentage of the population werecreated through socialism (there were also independent medical insurance
systems in rural areas). Influenced by the UK, their former colonial master,Singapore and Malaysia have a mandatory pension fund. The characteristics ofthe systems in Thailand and Indonesia consist of the strong influence that has
been received by the International Labour Organization (ILO). In addition, ineach of these countries, government policy toward poverty has served as analternative for actual social security systems (Hiroi and Komamura edt. 2003).
While the social security systems of these countries are varied in this manner,
the social security systems of East Asia can be classified into the three87

following groups depending on the stage of economic and social development
and demographic conditions (Table 4-1).
Table 4-1 Social System in East Asia

Social Security System

Income Level

Center ofIndustry
Structure

Demographic
Transition Phase

Universal BenefitsHigh

ServicePopulation aging

Unavailable to Farmers
and the Self-Employed

MiddleIndustry

Demographic dividend

Available to Government
Employees and Military
Personnel Only

Low

Agriculture

Population explosion

Group 1
(Japan, Korea, Taiwan, Hong
Kong and Singapore)
Group 2(China, Malaysia, Thailand,
Philippines and Indonesia)
Group 3
(Vietnam, Laos, Cambodia
and Myanmar)

Source: Prepared based on Hiroi and Komamura edt. 2004

Group 1 consists of Japan and the NIEs. Income levels are high and thefocus of industry structure is shifting from industry to service. These countries
have urban societies with high urban populations with the acceleration of
population aging and fertility lowering. Social security systems such as
medical insurance and pension systems cover the entire population to somedegree. Discussions are underway as to how to secure the financial resources
and rationalize benefit levels in response to the rapid advance of population
aging going forward. What is most interesting is the shift in the focus of
population policy in every country toward increasing birthrates (low fertility
countermeasures). Additionally in these countries, a new common problem isarising, that of the gap in social security benefits between regular employees
and non-regular employees in the private sector.
Group 2 consists of China and the ASEAN 4. Income levels are in the
middle and the industrial structure is focused on industry. Birthrates are
decreasing rapidly and it is highly likely that population aging will accelerate
in the future. Because their working-age population ratio is still high, many ofthese countries will continue to enjoy the benefits of the demographic dividend
for some period. While population movements from rural areas to urban areas
are becoming more intense as the years go by, rural populations are still high asthese countries are undergoing a period of transition from rural societies tourban societies. Although there are social security systems that apply for
employees of private sector companies and public sector employees such as
88

government employees, military personnel, and employees of state-run
companies, these systems are unavailable for farmers and the self-employed
who account for the majority of the working population. This means that forGroup 2, the establishment of universal health insurance and universal pension
plans for all citizens will be an issue going forward (making the transition toGroup 1). However, the obstacles for making this transition will be highbecause income levels are lower than Group 1 (the details are explained
afterwards).
Group 3 consists of Vietnam, Laos, Cambodia and Myanmar. Income levels
are low and industrialization is still in its early stages. In terms of
demographics, while there has been some decline in birthrates, they remainhigh as these countries are still in the high-birth, low-death phase andstruggling with population growth. These countries are mostly rural societies
with much of the population living in rural areas.
Social security coverage is limited to public sector employees such as
government employees, military personnel, and employees of state-run
companies. Although government policy toward poverty will be the focus ofsocial security systems over the near term, as industrialization and urbanization
advance in the future, the development of social security systems that cover thegradually increasing numbers of employees of private sector companies inurban areas will become an issue (making the transition to Group 2).
When we hear the phrase “social security system,” we may associate thiswith a system that provides people with the security of being able to live agood and stable life. However, for Group 2 and Group 3, the main purpose ofsuch systems is poverty relief or prevention. For example, medical insurance
systems are aimed at avoiding the risk of poverty caused by injuries or disease,and income security is a form of public assistance that prioritizes covering theliving expenses of those in poverty.
Due to the rapid speed of economic development and changes in social
structures in China and the ASEAN 4, there is a wide range of social security
system needs. For example, while medical services and public assistance are
required in rural areas as poverty countermeasures, forms of insurance such as
medical insurance and unemployment insurance also need to be established forthe purpose of protecting the growing number of laborers in urban areas. Goingforward, haste must be made to prepare for population aging through theestablishment of medical care for the elderly and old-age pensions.
The impact of democratization movements
In addition to changes in social structures, the development of social security
in East Asia has been supported internally by demands for welfare policies
through domestic democratization and externally by strengthened support frominternational organizations from a viewpoint of protecting the socially89disadvantaged.
In South Korea, under a developmentalist system, a long-running policy of“growth first and distribution afterwards” was adopted. Although the National
Welfare Pension Act was established in 1973, it was not put into action. It was
not until the late-1980s that a social security system was developed. In 1987,
labor disputes spread throughout the country, and a greater role by the state inwelfare provision was called for in democratization movements. Following theestablishment of the National Pension Act in 1986, the Employment Insurance
Act was established in 1993. However, initially national pensions were limited,as they were only mandatory for companies employing ten or more employees.
Afterwards, there was a period of social turmoil caused by high numbers ofpeople without jobs triggered by the economic crisis of 1997, and then South
Korea’s growth oriented policy began to be reconsidered. During theadministration of Kim Dae-Jung, the slogan of “productive welfare” wasadopted, stressing that economic development and social welfare were not in
conflict, but that rather their coexistence was essential for achieving abundant
lives for citizens. Efforts were made to promptly develop social security
systems based on this slogan. As a result, a universal pension plan for all urban
citizens was established in 1999.
In the same manners as in South Korea, the rise in democratization
movements in China and the ASEAN countries also led to increased
momentum for the establishment of social security systems.
Although high growth was maintained under China’s Reform and Opening
Up policy while allowing for income disparities, since 2000 the growth in theseincome disparities has developed into a political and social issue. While theReform and Opening Up policy was firmly maintained, the government wasalso imposed with the new role of assisting the socially disadvantaged. In thereport of the 5th session of the 9th National People’s Congress, which wasrevised in March 2002, the State Council mentioned the concept of the sociallydisadvantaged (disadvantaged groups), and at the 16th National People’s
Congress of the Chinese Communist Party held in November 2002, Jiang
Zemin, who served as General Secretary at that time stated that a social
security system serves as an important guarantee for the stability of society andthe long-term stability of the state.
In the constitution that was subsequently promulgated in March 2004, therole of the government in social security was clearly stated, with Article 14
stating that “a sound social security system is to be established that
corresponds to levels of economic development” and Article 33 stating that“the state is to respect and guarantee human rights.” Furthermore, at the 28th
General Assembly of the International Social Security Association (ISSA) held
in Beijing in 2004, the State Council Information Office released a white paperon social security entitled China’s Social Security and Its Policy for the first90

time. The Office also released a white paper entitled The Development ofChina’s Undertakings for the Aged in 2006. The expanding income disparities
between urban and rural areas began to be seen as the negative side of theReform and Opening Up policy. In October 2010 the Social Insurance Law
covering the social security system was established and an old-age pension
system for rural areas was introduced. Although a pension system covering all
citizens to some degree was established through these developments, it has not
spread yet and the coverage rate is low.
Political democratization movements have become more active in Thailand
following the military coup d’état in 1991 and Black May in 1992 (a popular
protest in Bangkok against the government and the subsequent bloody military
crackdown). While there were discussions on the participation of citizens inpolitics and preventing corruption among politicians, there were also increased
debates over respecting human dignity, including that of the sociallydisadvantaged. In the constitution of 1997 that was established as the result of
the democratization movement, Article 4 clearly states that “The humandignity, right, liberty and equality of the people shall be protected.” andChapter III entitled “Rights and Liberties of Thai People” (Article 26 to Article65) was greatly expanded. Of particular note in terms of the elderly is Article
54, which clearly stipulates that “The disabled or handicapped shall have theright to get access to, and to utilize of, welfare, public facilities and appropriate
aids from State.” Meanwhile Article 80 states the government is to provide aids
and welfare to the elderly, the indigent, the disabled or handicapped and thedestitute person for their better quality of life and ability to become self-reliant;obligating the government to draw out a policy and its implementation. With
this revision of the constitution, a pension fund for the employees of private
sector companies was established in 1999 and the Elderly Act was establishedin 2004 as a basic policy in response to population aging. The pension system
in Thailand will be described in details later.
The focus of international organizations on social protection
Efforts by international organizations such as the United Nations, the World
Bank, and the Asian Development Bank also supported the establishment ofsocial security systems in East Asia.
Welfare policy support by the United Nations and the World Bank began in
the 1970s based on the purpose of protecting workers in urban areas.
Afterwards, with the launch of economic reform support (structural adjustment
programs) focused on deregulation in developing countries, social policies tocomplement this appeared, referred to as social safety net programs.
The word “net” in this phrase comes from the nets that are installed atcircuses to protect trapeze performers in case they fall. These social safety net
programs consisted of temporary income replacement and medical support for91

people that become unemployed in the process of structural adjustment
programs (economic reform focused on deregulation) of internationalorganizations. These programs were positioned as social policies to provide
complementary economic support during the implementation of deregulation
measures. These programs were implemented in reflection of the increased
burden caused especially on the poorest segments of the population in societies
as a result of structural adjustment programs in response to the heavily
indebtedness of Latin American countries in the 1980s. During the 1990s whentransitions were made to a market economy in Russia and Eastern Europe andwhile supporting structural reform following the currency crisis in Asia, evenfurther attention was given to social policy (Teranishi edt. 2003).
After the United Nations set forth the elimination of poverty as one of theMillennium Development Goals (MDGs) entering the 21st century, the scopeof social support by international organizations for developing countries
expanded to cover all of the socially disadvantaged, including the poor, theelderly, the disabled, laborers, children, and women. Furthermore, there began
to be more of a focus on social risk management support that aimed to protect
vulnerable parties in advance.
From this point, social policies as social protection became the basic
framework in place of the social safety net. In 2001, the World Bank released
the Social Protection Sector Strategy: From Safety Net to Springboard and the
Asian Development Bank released the Social Protection Strategy. While thecontents of these strategies differ by international organization, they both focus
on social security development support aimed at protecting the social
disadvantaged including children, women, laborers, the disabled, and theelderly. In other words, we can see that social policy has transformed its policy
goals from social safety net programs in response to temporary risks to welfare
policy support that is more permanent.
In Japan, the Japan International Cooperation Agency (JICA) launched aresearch group on this perspective in 2003, and released Towards theEstablishment of Social Safety Nets (SSNs) in Developing Countries as a result.
Despite these programs being referred to as social safety net programs, theircontents cover the entire scope of social security systems in developing
countries, discussing as to what role Japan should play in developing countries
based on its own experiences.
In addition, the Second World Assembly on Aging held in 2002 in Madrid,
Spain also had quite an impact. In the Assembly, the Madrid International Planof Action on Aging 2002 was adopted, based on the pillars of (1) older persons
and development, (2) advancing health and well-being into old age, and (3)ensuring enabling and supportive environments. This reconfirmed the efforts ofparticipants around the world to work together to address the issue of
population aging. With this, it became recognized that population aging was92not an issue unique to developed world, but that rather the entire world,
including the developing countries, was faced with same problem as “global
aging.”
2. Issues in the establishment of social security systems
Increasing burdens caused by population aging
While there has been growing momentum toward the establishment of social
security systems, their establishment is not easy to achieve. If future population
aging is considered, indiscreet social security system design will result in a
rapid increase in fiscal burden in the future. In this regard, Japan’s experience
provides a valuable perspective when considering what form social security
should take in East Asia.
Considering that population aging will advance at the same speed or fasterthan it advanced in Japan in East Asia in the future, if generous medical andpension systems like those in Japan are established at an early phase, it willrapidly increase the fiscal burden in the future. As displayed in Figure 4-1,
social security benefit expenditures continue to rise in Japan, and this trend has
not been stopped. The total grew from JPY 11.8 trillion in 1975 to JPY 99.9
trillion in 2009, growing from accounting for 9.5% of national income in 1975
to 29.4% of that in 2009. While the ratio of elderly-related expenses to social
security benefit expenditures was high at 32.9% in 1975, this ratio grew to
68.7% in 2009.

93

The increase in social security benefit expenditures with population aging is
causing pressure on expenditures in other fields, such as education. In China
and the ASEAN countries where fiscal spending is still required for many
fields such as infrastructure development, education, and medicine, design ofsocial security systems that incorporate future population estimates isimportant from the perspective of not only the sustainability of social security
systems, but also securing other development funds.
Population aging increases both medical and pension (income security)burdens.
According to the statistics of the Ministry of Health, Labour and Welfare,Japan’s total medical expenses for fiscal 2012 were JPY 38 trillion. Of this,45% (JPY 17 trillion) of all medical expenses were spent on the elderly.
Looking at per capital medical expenses by age group, while costs were JPY
179,000 up to age 70, they increased to JPY 806,000 from age 70 and above,
and JPY 916,000 from age 75 and above.
Although this difference in medical expenses by age group differs dependingon factors such as the disease structure of each country, the current state of
medical service, and the state of medical insurance, for all countries medical
expenses for the elderly are higher than for other age groups.
The nature of medical service is known to change with economic and social
development. Table 4-2 displays the health transition which represents thechanges in the disease structure that accompany economic and social
development, and this is a useful framework in considering what form medical
insurance should take.
In the first phase of the disease structure, the main diseases are infectious
diseases such as typhoid, cholera, and smallpox. In terms of demographictransition, this stage represents a period of population explosion with a highchild population. The causes of infectious diseases are infectious pathogens
that are introduced through an unsanitary environment. To prevent them, rather
than the efforts of individuals, it is necessary for governments to takeinitiatives to improve sanitation levels through vaccinations and healthmaintenance. Governments should play a large role (fiscally) in this phase.
In the second phase of the disease structure, the focus of disease shifted from
infectious diseases to chronic diseases. In terms of demographic transition, thisstage represents the demographic dividend period with a high working-age
population. Disease such as strokes, malignant tumors (cancer), and heartdisease begin to account for the majority of deaths. These chronic diseases arealso known as “lifestyle-related diseases,” and these diseases are mostly
dependent on the health management of individuals. Accordingly, it is during
this phase that medical insurance is focused on prevention and treatment, andsome of this burden is borne by individuals. Compared to infectious diseases,
94

higher-level medical technologies are required for the treatment of chronic
diseases, and a longer period of time is required for treatment as well. For
developing countries that have moved into the second phase, infrastructuredevelopment of hospitals that provide medical services and fostering andsecuring of human resource such as doctors and health care technicians become
important. Although the government continues to play an important role as in
the first phase, the role of private sector medical institutions and insurancecompanies becomes more important.
Table 4-2 The Health Transition

Disease StructureFirst Phase
Infectious Diseases↓

Second Phase
Chronic Diseases↓

Third Phase
Senile Degenerative
Diseases

Medical Welfare System
Finance

ServicePublic Hygiene
Measures(Public Prosperity)

Primary Care, HealthCenter Improvement,
etc.

Health Insurance
System (Employees→
Extension to Farmers
and Self-Employed)

Hospital-Centered:
Medical Care andFacilities

Social Security Based on the Enterprise andthe Nuclear Family as a Unit
Integrated System of
Health Care andWelfare for the
Elderly

Center of Industry
Structure

Demographic
Transition

Agriculture

Population Explosion
PeriodLabor Intensive
Industry

Capital Intensive
Industry

Shift to Welfare andHome Care
Service

Demographic
Dividend Period

Population Aging
PeriodToward Social Security System Based on the
Individual as a Unit

Source: Hiroi and Komamura edt. 2003

In the third phase of the disease structure, the focus of disease shifts fromchronic diseases to medical care for senile degenerative diseases. In terms of
demographic transition, this stage represents the population aging period. As
was described above, medical expenses for the elderly lead to a rapid increaseof overall medical expenses. Comprehensive medical technologies that are
more advanced than those required for chronic diseases and include mental
care become necessary, and the duration of treatment becomes more prolonged.
In addition welfare consisting of nursing care which aims to support the life of
the patient rather than treating a disease becomes more important. Japan is in
the third phase, and the NIEs are in the process of moving into the third phase.
A long-term care insurance system was adopted by Japan in 2001, and in South
Korea and Taiwan discussions are underway as to how to approach nursing
care for the elderly.
95China and the ASEAN countries are in phase two. While the data aresomewhat old, the causes of death in Thailand in 2003 excluding AIDS were
mostly the same as in developed countries. Number one was malignant
neoplasm, number two was unexpected accidents, and number three was heartdisease. Considering the health transition framework, the type of medical
service that is required for China and the ASEAN 4 is the introduction of an
insurance system that covers all citizens (a universal medical insurance system)and the development and enhancement of the hospital infrastructure to support
this.
However, actual changes in the disease structure are not as unilateral andclear as suggested by the health transition argument. This is because there aredifferences in the disease structure among regions and income groups. For
example, response to infectious diseases is still essential in rural areas, there
may be more chronic diseases in urban areas amid rising incomes and changes
in lifestyles, and there could also be calls for medical care and welfare for theelderly on a nationwide level. The governments of developing countries not
only have to respond to all of the phases of disease structure, they must also
address infectious disease that have recently spread across wide areas, such asavian influenza in recent years. Considering this type of multi-layered disease
structure, it is apparent that there are issues in developing countries in terms oflimitations on the supply of facilities and human resources to provide themedical services needed.
A pension burden that already cannot be covered
Let’s consider the pension burden next.
In the same manner as for the medical burden, it is difficult to estimate theburden of pensions. When estimating the pension burden in developed
countries, normally the benefit levels in the current system are assumed and the
additional costs caused by population aging are calculated. However, because
pension systems have yet to be developed in China and the ASEAN 4 and will
have to be developed going forward, this makes it difficult to set the level ofbenefits to be used in assumptions.
Therefore, let’s make a simple estimate on how large the burden of
supporting the life of the elderly will become. Let’s assume the provision of aliving allowance of USD 5 per day for the elderly (age 65 or above).
Multiplying USD 5 per day by 365 days would result in USD 1,825 as theannual benefit amount per elderly person. As the World Bank’s guideline forpoverty is an income of less than USD 1 to USD 2 per day, this allowance
would put recipients above the poverty line. We can calculate the total
allowance for the elderly by multiplying this amount by the elderly population.
For example, because China’s elderly population for 2010 was 110 million, thetotal annual benefit amount would be USD 200.5 billion. This would be96

equivalent to 15% of China’s annual spending for that year. In other words, atthe current point in time it would be problematic to provide a living allowanceof USD 5 per day for the entire elderly population. Furthermore, going forward,
this amount will rapidly increase to USD 303.8 billion in 2020 and USD 579.0
billion in 2040.
Looking at the entire East Asian region, the required amount of USD 329.0
billion for 2010 is nearly equivalent to the nominal GDP of Thailand. This
amount will grow to USD 480.0 billion in 2020 and USD 888.0 billion in 2040,
which is equivalent to the total nominal GDP of Thailand and Indonesia in2010 (Figure 4-2).

In the breakdown of the burden of living expenses for the elderly, Japan and
the NIEs account for a small percentage, with the majority accounted for by
China and the ASEAN 4. This presents the important issue of who will takecare of the East Asia’s elderly.
The five pension system pillars of the World Bank
The reason that the burden of living expenses for the elderly in China andthe ASEAN 4 has yet to become apparent despite this growing burden has to
do with the fact that in these countries families play the role of looking afterand caring for elderly people. However, as has been pointed out many times in97this book, family structures are undergoing significant changes with theprogress of economic development in East Asia. As nuclear families become
more common, the number of elderly people that live alone without any otherfamily members is on the rise. Governments are being called upon to initiate
measures to protect these elderly people. However, governments should nothave to bear the entire burden (for example, through social security systems).
Fundamentally, these are costs that should be shared by individuals, families,
communities, and companies in addition to the government. How can thesecosts be shared?
Let’s look at the classifications used by the World Bank, which has been oneof the hardest working institutions in pension system reform for developing
countries. Based on its many years of experience, the World Bank hasclassified pensions (income security) into the five pillars displayed in Table 4-3.
Because Pillar 0 and Pillar 4 were added afterwards by the World Bank, let’s
start off by describing the initial three-pillar framework (Pillar 1 through Pillar
3).
Table 4-3

Multipillar Pension Taxonomy

Target Groups
Pillar

Lifetime
Poor

Informal
SectorMain Criteria
FormalSectorCharacteristics

Participation

Funding or Collateralx"Basic" or "Social Pension" at Least Social Assistance(Universal or Means Tested)

Universal
or Residual

1

X

Public Pension Plan, Publicly Managed (Defined Benefit or
Mandated
Notional Defined Contribution)

Budget or
General Revenues
Contributions,
Perhaps with Some
Financial Reserves

2

X

Occupational or Personal Pension Plans (Fully Funded
Defined Benefit or Fully Funded Contribution)

Mandated

Financial Assets

Voluntary

Financial Assets

0

X

X

3

x

X

X

Occupational or Personal Pension Plans (Partially or Fully
Funded Defined Benefit or Funded Defined Contribution)

4

X

X

X

Access to Informal Support (Family), Other Formal Social
Programs (Health Care), and Other Individual Financial and Voluntary
Nonfinancial Assets (Homeownership)

Financial andNonfinancial Assets

Note: The size and appearance of x reflect the importance of each pillar for each target groupin the following increasing order of importance: x, X, X
Source: Holzmann and Hinz 2005

Pillar 1 is characterized by public pension plans using the pay-as-you-go
method mainly financed by taxes (transfer of income from the working
generation serves as the source of pension funds). This method is characterized
by its susceptibility to the impact of changes in population structures and thesudden increase in the burden (tax burden) on the working generation with theadvance of population aging.
Pillar 2 consists of a mandated funding method in which subscribers receive
benefits based on their contributions and savings made while employed.
Generally, the financial sources of pension funds are the contributions jointly98made by companies (employers) and employees. For this method, whilechanges in the population structure do not have much of an impact, pensions
are susceptible to the impact of economic fluctuations, such as rising prices andwages. For example, if prices increase, this causes the value of accumulated
funds to decrease and the actual benefit levels to decline. This funding method
can be classified into the defined benefit method in which benefits are
determined in advance, and the defined contribution method, in which benefits
are determine based on the management results of contributions.
Pillar 3 consists of the voluntary contribution method. The subscriber
volunteers to make contributions or save during their period of employment
and they receive benefits based on this. In many cases, contributions aremanaged through investments in risk assets whose value fluctuates, such as
stocks and bonds.
With the movement from Pillar 1 to 2 and then to 3, the role of thegovernment decreases while the responsibility of individuals increases. Hiroi
1999 used the concept of public assistance, shared assistance, andself-assistance as the classifications for welfare states. Based on this concept,
we may view in such a way that Pillar 1 is a form of public assistance associety as a whole supports the lives of the elderly, Pillar 2 is a form of sharedassistance as the source of pension funds are the shared contributions of
employers and employees, and Pillar 3 is a form of self-assistance as it is basedon the principle of self-responsibility.
These three pillars are provided based on the experiences of the World Bank
presented in the book Averting the Old Age Crisis: Policies to Protect the Old
and Promote Growth (published in 1994). The book suggests that actual
initiatives should not consist of selecting one of these three pillars, but rather
adopting a multi-pillar model based on the country’s environment.
However, after the subsequent developments and criticism, the World Bank
added the following two pillars as means for securing income for the elderly in
Old Age Income Support in the 21st Century (published in 2005).
One of these, Pillar 0, is public assistance. This is the viewpoint that income
replacement needs to be prioritized for elderly persons for whom living
independently is particularly difficult. In addition, Pillar 4 was added,
consisting of support from families and communities. This refers to support for
the lives of elderly people through various means in addition to financial
support. The concept is that in developing countries where traditional forms of
mutual assistance can be assumed to survive, these forms of assistance should
be utilized.
The effect of each pillar for each target group is displayed at the right side of
the table. Looking at this, we can see that the World Bank expects the newly
added Pillar 0 and Pillar 4 to have an effect on the lifetime poor and theinformal sector. The strengthened initiatives of international organizations to99eliminate poverty through the establishment of Millennium Development
Goals (MDGs) have had a major impact.
The political aspects of pension system reform
As previously mentioned, pension systems evolve by first covering public
sector employees such as government employees, military personnel, andemployees of state-run companies; they are then expanded to include theemployees of private sector companies; and in the end they evolve into
universal pension plans that include farmers and the self-employed.
As the scope of pensions expands after going through these phases,
adjustments need to be made for the reciprocal relationships between the
differing pension systems. In general, there are generous pension systems
supported by taxes for public sector employees such as government employees,
military personnel, and employees of state-run companies. While public sector
funds receive governmental support at times, for the most part these funds are
independently funded. Then for farmers and the self-employed, because theirincome levels may be low and unstable, a pay-as-you-go method with muchsupport from the government has to be adopted. In this case, making
adjustments with the generous pension system for government employees
becomes an issue.
However, it is no easy task for the government to reduce the pension benefitsof government employees. Assuming the generous benefit levels forgovernment employees, there is no doubt that the fiscal burden will increase
rapidly with population aging if a universal pension system is established.
Conversely, if a generous pension system is maintained, this could very wellresult in the postponement of the establishment of a universal pension systemthat would lead to a fiscal burden.
In addition to the fiscal viewpoint of whether burdens are sustainable inpension reform, there are also very political dynamics at work. China and theASEAN 4 will likely struggle with these political dynamics as they go throughthe stage of attempting to design universal pension systems.
In 2006, China’s National People’s Congress (the national diet) stated that it
would make no distinction between urban and rural areas. This displayed
China’s intention of implementing policy to correct income disparities. It is
possible that the establishment of pensions systems was used as a politicalnegotiation tool to avoid the political risks brought about by income disparities,
and that this brings about the economic risk of the fiscal burden increasing.
Population aging and human security
Although population aging causes a considerable fiscal burden, this does notmean that the establishment of social security systems can be postponed
indefinitely. Postponing the establishment of social security systems in100

developing countries results in the risk of putting the lives of the elderly indanger. Let’s look at the concept of human security in relation to this.
It is likely that some readers have not come across the phrase “humansecurity.” In this book, we would like to use the definition of the phrase as
described by former Prime Minister Keizo Obuchi in the First Intellectual
Dialogue on Building Asia’s Tomorrow: “an idea of giving comprehensive
consideration to all threats to human survival, life, and dignity andstrengthening initiatives in response to these threats” in 1998.
Let’s use the life cycle hypothesis model (Figure 4-3) once again to describe
the relationship between population aging and human security. To facilitate
understanding, let’s use the life cycle hypothesis model to compare a country
undergoing a population explosion and a country with an aged society.
Differences between income and consumption indicate income shortages andsurpluses. Income shortages increase for the young population during a
population explosion, and for the elderly population in an aged society. For
countries undergoing population explosions, domestic savings rates are low,
and the balance of international payments can deteriorate as funds fromoverseas are used to compensate for this. If the shortage for the young
population cannot be compensated for and especially if basic consumption isdifficult, this can put the life of the young population at risk. As this threatens
the survival of young people, the international community provides support
from the perspective of human security.
Figure 4-3 Life Cycle Hypothesis Model and Human Security
Population Explosion Period
Income/Consumption
Young Dependent
Population

Working-Age
Population

Elderly Dependent
Population

IncomeConsumption

Age/Population

101

Population Aging Period
Income/Consumption

Young Dependent
Population

Working-Age
Population

Elderly Dependent
Population

IncomeConsumption

Age/Population
Source: AuthorLet’s look at these dynamics from the perspective of population aging in adeveloping country. Although the number of elderly people will increase going
forward, this does not mean that the majority of elderly people in developing
countries have accumulated sufficient savings while employed. Accordingly,
the gap between the income and consumption of the elderly can only becompensated for by transfers of income from the working generation throughsystems such as social security and tax. However, in some cases the income
levels of the working population may not be sufficient for compensating for thefund shortages of the elderly.
Let’s look at the working-age population ratio and the elderly population
ratio from this perspective. While there were 9 people to support one elderly
person in China in 2005, there will only be 6 people in 2020 and 4 people in
2030. In this case, issues similar to those faced in population explosions arise.
This means that the lives of elderly people having difficulties with basic
consumption are put at risk. It is important to think of assisting these elderly
people as a human security problem.
Of course, the response of society toward young people and elderly people
differs. Many elderly people are capable of generating income through theirown efforts or maintaining their lives by participating in society. In that sense,
it is not really appropriate to consider all elderly people as being sociallydisadvantaged. For this reason, the concept of promoting the independence of102

elderly people through their own participation in society based on the concept
of “active aging” has gained much attention as of late. However, it cannot bedenied that in any case opportunities for employment and social participation
tend to decline with age, along with the capabilities to engage in theparticipation. From this perspective, as of late it has become common toclassify elderly people into two groups: young elderly (age 65 to 74) and theold elderly (age 75 or above). When considering population aging issues andhuman security in developing countries, it is essential to look at both trends.
The burden for the old elderly is much heavier than for the young elderly.
While population aging has advanced in East Asia, it is not too serious yet. For
example in China, although the population aging rate for 2010 was 8.4%, over
60% of this is the young elderly. While the ratio of the young elderly (age 65 to75) population will increase by 2030 as the baby boom generation becomes theelderly generation, during this same twenty-year period the old elderly
population will increase by more than 50 million. Subsequently, the ratio of theold elderly will become higher and by around 2045 the number of the oldelderly will surpass the young elderly.
Table 4-4 Composition Change of Aging Population in China(Thousand People, %)
2000

2005

2010

2020

2030

2040

2050

Population Aged65+

87,965

101,132

113,545

167,692

235,084

316,726

331,314

(6.9)

(7.7)

(8.4)

(11.7)(16.2)(22.1)(23.9)

Population Aged
65-74

58,891

65,90970,807

114,740

148,288

193,725

164,494

(4.6)

(5.0)

(5.2)

(8.0)

(10.2)(13.5)(11.9)

Population Aged75+

29,07335,22342,73852,952

86,796

123,001

166,820

(2.3)

(2.7)

(3.1)

(3.7)

(6.0)

(8.6)

(12.0)

Note Upper: Number, Lower: Ratio
Source: UN, World Population Prospects: The 2012 Revision

To avoid human security problems that threaten the survival of elderly
people, it is essential for the governments of developing countries toimplement population aging countermeasures from now and for theinternational community to provide adequate support in advance. This point
will be covered in further detail in Chapter 5.
3. The difficulties facing developing countries
The pension system in Thailand
To understand how difficult it is for developing countries to establish
universal social security systems, let’s look at Thailand as an example of a103

country that has recently actively implemented pension system reform.
Thailand’s pension system was launched in 1951 as a lump-sum retirement
payment and pension system for the retirement of government and military
employees. The same system was established for local government employees
in 1957. Government and military employees covered by this system were notrequired to make any contributions, and it was a generous system that provided
a lump-sum retirement payment at the time of retirement along with a pension
equivalent to the monthly salary of the final month in service. It was a
pay-as-you-go method plan fully funded by the government, equivalent to
Pillar 1 in the World Bank’s classification system that was previously
mentioned.
There was no way to expand this generous pension system to include otheradministration officials and employees of state-run companies. In fact, in order
to secure funds for pensions for people working in this part of the public sector,
a fund jointly contributed to by the government that also served as theemployer was established for administration officials and employees ofstate-run companies. This was a fund with optional subscription, referred to asa provident fund, and equivalent to Pillar 3 in the World Bank’s classification
system. Afterwards, the establishment of such funds was allowed for theprivate sector as well.
Entering the 1990s, the fiscal burden of the pension system for government
employees began to be seen as a problem. In 1996, a government employee
pension fund jointly contributed to by government employees and thegovernment was established, and benefits started to be provided from this fund.
This fund used a mandated funding method, equivalent to Pillar 2 in the WorldBank’s classification system. However, as the amount of 2% of the final
monthly salary multiplied by the number of years in service was supplied fromthe national treasury, it was not possible to move away from the pay-as-you-go
method for the pension benefits for government employees. This is a good
example of the previously-mentioned difficulties faced by government whenreconsidering the pension systems of government employees.
While the government support of pension system outside the public sector
was discussed many times since the 1940s, the establishment of such systems
was always postponed. However, during the economic boom following thePlaza Accord in 1985, population movements from rural to urban areas became
more active and employment at private sector companies increased rapidly. As
a result, discussions on the establishment of social security systems outside thepublic sector rapidly became more concrete.
The Social Insurance Act covering employees at private sector companies
was established in 1990. A system was started for employees of businesses
with 20 or more employees in which a social security fund was accumulated
through payments of 1.5% of the employee’s salary made respectively by104

employers, employees, and the government. With this, benefits were provided
for medical care, disabilities, deaths, and births. However, due to the
opposition from both of business groups and labor unions, the establishment of
old-age pensions was not achieved.
Afterwards, with the increasing momentum of the democratization
movement and the protection of the socially disadvantaged stipulated in the
1977 Constitution, full-fledged discussions toward the adoption of pension
systems for the private sector were commenced. This movement was also
supported by the direct impact that the currency and economic crisis had on the
lives of low income earners. Then with the launch of the old-age pension
system in 2001, employers and employees had to make respective
contributions of 2% of the employee’s salary (later raised to 3%), while thegovernment was obliged to make a contribution of 1%.
The pension system for the private sector is called the old age pension fund,and the benefit level consists of 15% of the average salary during the 60
months immediately preceding retirement. The funding period must be at least
15 years, with 1.5% added to benefit levels for every year beyond thismandatory 15-year funding period. The pay-as-you-go method with
contributions by the government is used for this fund, equivalent to Pillar 1 in
the World Bank’s classification system.
However, even if the funding period is 25 years, the maximum monthly
benefit that can be received is 25% of the average salary during the 6 years
immediately prior to retirement. This level is low compared to thepreviously-mentioned level for government employees, and this is not
sufficient for securing the lives of the elderly during their old age. In responseto this, the government established a provident fund like that mentioned above
to compensate for this shortage. This fund is funded by contributions of 3% to
15% of the salaries of employees, with an equal amount contributed by
employers and the employees themselves. These funds were based on defined
contribution method with benefits determined by asset management results,
and also based on the voluntary contribution method in which theirestablishment was left up to the decision of management. This is equivalent to
Pillar 3 in the World Bank’s classification system. While the adoption ofprovident funds was at first limited to major companies, these funds were
subsequently expanded to medium-sized companies. The number ofsubscribers grew from 1.03 million people at 405 companies in 1999 to 1.41
million people at 5,670 companies in 2003 and 2.44 million people at 12,323
companies in 2012.
The universal pension system that never came to life in Thailand
The movement toward establishing a social security system covering all
citizen gained momentum under the administration of former Prime Minister
105

Thaksin Shinawatra, whose Thai Rak Thai Party won an overwhelming victoryin the legislative election of 2001. In 2002 the Thaksin administration launcheda system covering 40 million citizens who had previously not been covered byhealth insurance that provided medical service of an average THB 1,500 perperson under the condition of paying THB 30 per first hospital visit. Thissystem has been referred to as “the 30 baht health care.” Although strictly
speaking it is not an insurance system, in a sense Thailand has successfully
achieved a medical insurance scheme that covers all citizens faster than Chinaor the ASEAN 4.
Of course, there have been increasing expectations toward the introductionof a universal pension system. In 2001 the Thaksin administration developed asystem of providing THB 300 (approximately JPY 900) to low-income elderly
people. This system covers elderly people recognized as not having sufficient
income (400,000 people), and is equivalent to Pillar 0 in the World Bank’sclassification system.
The scope of old age pension fund entry was expanded to all registrated
private sector businesses in 2002. As the system was expanded to theself-employed in 2003, farmers in 2006, and people in the fishing and forest
industries in 2007, this should have marked the completion of a universal
pension system. However, there continued to be hitched in achieving auniversal pension system.
The reason that the Thaksin administration became reluctant to establish auniversal pension system could be the result of a simulation that incorporated
demographic transitions. According to a simulation conducted by aninternational organization cooperating with pension system reform in Thailand,
the current fund, the old age pension fund, would go bankrupt by around 2045.
While the international organization suggested that the pension system bereviewed and commercialized, the most that could be done was increasing theratio of contributions from 3% of salaries to 4% in 2004. Currently, in
preparation for the start of benefit payments from 2014, review of thefoundations of the system overall is being started, as matters such as increasing
reserves, lowering benefit levels, and increasing the annuitization age are being
reconsidered. It is not possible to include the self-employed and farmers in thissystem.
Table 4-5 displays the division of the formal sector and informal sector in
Thailand’s working population covered by the social security system. The
formal sector is composed of government employees, administration officials,
and the employers and employees of registered private sector companies, while
the informal sector is composed of the self-employed and farmers outside of
the formal sector. According to this division, Thailand’s social security system
only covers approximately 40% of the entire working population.
106

Table 4-5 Formal Sector and Informal Sector in Thailand (2009)(People, %)Labor Force
Formal Sector (b)Cover Ratio(b)/(a)Informal Sector

Age

Total (a)

Total

Male

Female

Total

Male

15-19

1,364,060

483,203

301,009

182,194

880,857

581,159

Female299,698

35.4

20-24

3,564,839

1,616,861

877,909738,952

1,947,9781,192,151

755,827

45.4

25-29

4,540,360

2,443,871

1,244,285

1,199,586

2,096,489

1,251,469

845,020

53.8

30-34

4,820,145

2,338,550

1,209,118

1,129,432

2,481,595

1,345,235

1,136,360

48.5

35-39

5,006,159

2,079,127

1,068,905

1,010,222

2,927,032

1,500,988

1,426,044

41.5

40-49

9,574,452

3,206,695

1,765,950

1,440,745

6,367,757

3,195,540

3,172,217

33.5

50-59

6,428,490

1,610,004

943,100

666,904

4,818,486

2,511,371

2,307,115

25.0

60-

3,073,022

275,433

180,588

94,8452,797,589

1,618,492

1,179,097

9.0

Total

38,371,527

14,053,744

7,590,864

6,462,880

24,317,783

13,196,405

11,121,378

36.6

Source: National Statistical Office, Thailand, 2010 Thailand Statistical Yearbook

As previously mentioned, one of the main issues for the social security
systems of middle income countries like Thailand and China is incorporating
the informal sector that includes the self-employed and farmers. However,income levels for members of the informal sector are generally low, meaningthat it will be difficult to call upon this sector to provide the funding required
for existing social security systems. In other words, it would be difficult toprovide social security to all citizens simply by expanding existing systems indeveloping countries.
While there are suggestions by international organizations stating that the
self-employed and farmers should use voluntary provident funds and mutual
funds for retirees to prepare for their own old age, most self-employed andfarmers do not have income sufficient for making such contributions.
Thai government has considered the establishment of a separate social
security system for people whom existing systems don’t apply to. In the courseof these studies, there have been proposals for the establishment of pension
funds in the communities where people live. In fact, some communities inThailand have started one baht per day activities to support traditional forms of
mutual assistance. Meanwhile, for people working in urban areas without any
clear communities like those found in rural areas, efforts have been made togroup these people by occupation such as taxi drivers or street vendors, andestablish the same type of fund for each group. In addition, it is being
considered whether these groups should be able to enter the national pension
fund system if their funds fulfill certain conditions.
In order to ensure sustainability for the social security systems in Japan and
the NIEs in the face of population aging and to achieve universal social
107

security systems in China and the ASEAN countries, sooner or later tax reform
will be essential for securing the financial resources required.
While tax systems originally serve the function of redistributing income
from the rich to the poor, this function is fulfilled by social security systems
also.
In regions and countries like China and Thailand there are large income
disparities and the introduction of pension system could result in transfers ofincome from rich areas to poor areas. However, it should be noted that thisenvironment differs completely from that in Japan when its universal pension
system was introduced. Let’s compare the disparities in regional income levels
when the universal pension system was introduced in Japan in 1960 with thosein Thailand in 2009 (Figure 4-4 and Figure 4-5). Looking at per capita GDP by
prefecture for Japan in 1960, there was a gap of 3.2 times between thefirst-ranking Tokyo and the bottom-ranking Kagoshima prefecture (Figure 4-4).
On the other hand, there was a gap of 27.2 times between the first-ranking
Rayong prefecture and bottom-ranking Sisaket prefecture in terms of per capita
GDP by province for Thailand in 2009 (Figure 4-5).

108

Generally speaking, it is better for the financial resources for social security
systems to be secured in small quantities over a broad area. However incountries such as China and the ASEAN countries where there are large
income disparities, the establishment and maintenance of universal pension
systems will be often largely dependent on transfers of income from large
metropolitan areas to the regions and rural areas.
In fact, it may be necessary to increase corporate and personal income tax
rates and implement tax reforms such as the introduction of fixed asset taxes
and inheritance taxes. However, such tax reforms could be in direct opposition
to national development strategies. Recently, development strategy in East
Asian countries has increasingly been focused on strengthening thecompetitiveness of metropolitan areas, and strengthening the competitivenessof Shanghai and Beijing in China, and attracting foreign investment to the areaaround Bangkok in Thailand and the area around Jakarta in Indonesia play anessential role. From this viewpoint, it would be preferable to keep the corporate
tax rate low in order to attract foreign investment. Furthermore, keeping
personal income taxes low would facilitate the securing of high-quality humancapital. Moreover, raising consumption tax would be difficult from theperspective of stimulating domestic demand. In this era of free trade, it is also
not possible to rely on tariffs as a source of funding.
In order to establish universal social security systems and secure theirfunding under these conditions, it is necessary to create a mutual understanding
among the citizens of regional and rural areas who serve as the beneficiaries
109and urban citizens and companies who bear the costs. If discussions like these
are avoided and priority is only given to benefits, it will not only cause thefiscal burden to expand out of control, but also serve as a factor that createsmajor uncertainty toward the future of society. As of 2010, social security
expenditures account for less than 20% of annual expenditures in Thailand,
meaning that government should still have some public funds that it could use
for this purpose. However, the lesson presented by Thailand is that for
countries that undergo population aging before becoming high income
countries, the establishment of social security systems that include rural areas
will likely be difficult. Does this mean the creation of a welfare state fordeveloping countries is only a dream?
The advance of population aging will probably result in more uncertainties
for the economies of East Asia and the future of these societies. What can we
do to avoid this? How should it be approached? Let’s look at these questions in
the final chapter.

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Chapter 5: Community welfare and the East Asian Community
1. From welfare states to welfare communities
Communities hold the key
Governments must play a leading role in resolving the population aging
issue.
However, none of the governments of developed countries have discovered afundamental solution for resolving the population aging issue. In fact, the rapid
increase in the fiscal burden brought about by population aging has resulted ina sense of crisis among welfare states, and in fact welfare systems themselves
are currently undergoing review. The situation is particularly serious fordeveloping countries whose populations age while income levels are still low.
As seen in the example of Thailand, the actual achievement of a welfare statein which the government plays an active role in welfare service is extremely
difficult for developing countries.
Accordingly, in this chapter we will review social welfare from theperspective of two types of regional communities beyond the framework of thestate.
The first type of communities is the regional communities that elderly
people live in. In fact, the role of providing nursing care for the elderly has
shifted from the state to regions.
The second type of communities we will look at is the regional communities
formed of various countries for the purpose of working together to effectively
resolve the population aging issue as a problem common to the countries ofEast Asia.
In other words, let’s consider response to population aging from theperspective of two communities: local community organizations and thecross-border community of East Asia.
From this perspective, we will look at the global trend of transition fromwelfare states to welfare communities. We will then also look at what is being
expected of local community organizations in terms of the provision of social
welfare. Next, we will summarize the experiences of community welfare in
Japan to provide a perspective on how to best support developing countries. In
addition, we will overview the current state of economic integration in East
Asia and see how the cooperation of each country in the region is essential for
maintaining sustainable prosperity in the region and establishing plentiful aged
societies, which will definitely contribute to the formation of an East Asian
community.
Transition to welfare communities
During the 20th century the role of the governments of developed countries111

in social welfare “from the cradle to the grave” was emphasized. However, as
the fiscal burden of many countries that had focused on social welfare rapidly
increased around the end of the 20th century, there began to be talked aimed atrethinking the idea of the welfare state itself. In this process it became
recognized that truly universal welfare states do not exist and that it would be
more realistic for independent welfare systems to be established throughcombinations of the state, markets, and families in each country. In addition,
as populations age, more attention has been focused on the supplementary role
played by civil society and local community organizations.
The transition from welfare states to welfare communities is a common
global trend. Developing countries also are undergoing this very phase. There
are many factors limiting the development of social security systems indeveloping countries and individuals have a low capacity for covering theirliving expenses when they reach old age. Therefore, in developing countries,
welfare states cannot be achieved and these countries have to work towardachieving welfare societies.
As means of addressing this reality, there has been much focus on the role ofcommunities in social welfare in developing countries as well. For example, asa result of China’s Reform and Opening Up policy, some people’s communes
and state-owned companies that had provided social welfare services weredissolved and some people were no longer able to receive social welfare
services from the state. To supplement this, there began to be more attention
put on the presence of communities as mutual assistance organizations
composed of people in resident areas. From 1987 onward as discussions weremade about region-based social welfare service systems, there began to be
more of a focus on the role of the shèqū (the Chinese word for community) in
the provision of a wide variety of services, consisting of not only social welfare
for the elderly but also the provision of housing, medical and health care, themaintenance of public order, social welfare for the disabled, and traffic safety.
In 2000 China’s Ministry of Civil Affairs released a policy socializing social
welfare (the provision of social welfare service by communities), which
encouraged the participation of commercial organizations in social welfare incommunities and cooperation with NPOs (non-profit organizations)participated in by residents.
In Thailand, the Ministry of Social Development and Human Security was
newly established in 2002, which as its name suggests became involved inefforts to create communities that integrate community development and social
welfare service. As a model of this, the National Economic and Social
Development Board (NESDB) presented its “livable village and livablecommunity” in 2003 and established and implemented a unique policy called
the “Family Development Plan (2004 to 2014)” aimed at restoring familybonds. The establishment of community-based pension funds that was112considered in Chapter 4 can be viewed as part of community-based social
welfare services.
At the same time, international organizations have increasingly focused oncommunities as the receivers of their support. For example, the World Bank’s
Social Protection Sector Strategy stresses the importance of the use of informal
traditional communities in the strengthening of social welfare in developing
countries, specifically emphasizing the strengthening of support through social
capital as a means of community development. What social capital refers tohere are frameworks such as trust, norms, and networks that enable social
efficiency to be improved through the coordinated action of people (Putnam etal. 1994). Specific forms of support include the activities of regional
governments and NPOs, community-based organizations, and private sector
companies aimed at protecting the rights and developing the capacities ofcitizens and achieving sustainable community development.
However, the traditional communities in developing countries are not quite
as stable as we may imagine them to be. The fact is that there have been calls
for the development of social security systems precisely because the mutual
assistance function of traditional communities has got weaker. In addition,
there are doubts concerning what can be done to stop the collapse of thesecommunities or revive them, and whether there are actually any kinds ofcommunities capable of covering the socially disadvantaged in urban areas.
Meanwhile, in developed countries, voluntary participation-based
communities are expected to play a new role in welfare communities. However,many points remain unclear, such as what elements are required for theformation of new communities and whether it is possible to cover all of thesocially disadvantaged nationwide. Furthermore, many issues will need to be
faced going forward, such as whether communities can provide a sufficientquantity and quality of social welfare service for the elderly and whether
governments will be able to develop support systems to ensure that these
activities are effective. In addition, the future direction that the promotion ofcooperation and coordination between traditional communities with newcommunities such as NGOs will take remains unclear. As the way things
currently stand, both international organizations and national governments areundergoing a process of trial and error.
2. Lessons learned from community welfare activities in Japan
History of community welfare in Japan
Reviewing and strengthening the role of the community in this manner areimportant from the perspective of considering new means for Japan to provide
support for population aging countermeasures in East Asia. The reason for thisis that for many years Japan has been involved in regional-based community
113

welfare service and in this process it has accumulated abundant experiences
and learned many lessons.
Let’s take a quick look at the history of community welfare in Japan.
In Japan, the depopulation of rural areas and overcrowding of urban areas
advanced alongside with economic development, putting at risk of collapse thetraditional communities in both rural and urban areas. In response to this and in
conjunction with the revision of the Local Autonomy Law in 1969, theCommunity Issues Sub-committee of the Quality Life Policy Council released
Community: Restoration of Humanity in Life Habitats, while the Ministry ofHome Affairs announced its Model Community Policy in 1971. Furthermore, areport entitled Formation of Community and Social Welfare released by theCentral Social Welfare Council in 1973 also provided an opportunity to review
the social welfare function of communities (Takegawa edt. 2005).
Entering the 1980s, the Social Welfare Council began to systematize
existing social welfare activities and formulate community welfare plans.
Meanwhile, the rapid progress of population aging served as a driving force
that made community welfare initiatives even more urgent. For example, in
1989 the Gold Plan (Ten-Year Strategy to Promote Health Care and Welfare
for the Elderly) emphasized the importance of at-home nursing care, while areport entitled The Future of Social Welfare released in the same year by theSocial Welfare Third Discussion Assembly Planning Subcommittee stressed
the importance of municipalities as a main actor as well as community welfare
consisting of at-home social welfare and nurturing of public sector services.
With the revision of the Social Welfare Services Act in 1990, the active
participation of local communities was institutionalized, and in 1993, theformulation of elderly health and social welfare plans at the municipal andprefectural level became mandatory. With this, in 1994 the Gold Plan wasrevised as the New Gold Plan (New Ten-Year Strategy to Promote Health Careand Welfare for the Elderly), while the Long-term Care Insurance Law wasestablished in 1997, stipulating that local communities play the role of the main
supporter in social welfare.
Furthermore, the Social Welfare Services Act was revised as the Social
Welfare Act for the purpose of encouraging community welfare with regional
residents and groups addressing social welfare based on the community unit.
For Community Welfare Plans, the Act stipulated the policy that both
Municipal Welfare Plans and Prefectural Plans for Supporting Community
Welfare should be prepared. This was for the purpose of integrating social
welfare activities that had been implemented by individual communities up
until then while encouraging the participation of local residents. It is also
noteworthy that strengthening the foundations of local communities throughcommunity welfare was positioned as a means not only to revitalize social
welfare activities but also to support the prosperity of local economies.
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With the establishment of Social Welfare Act, the Guidelines for the
Formulation of Municipal Welfare Plans and Prefectural Plans for Supporting
Community Welfare were released by the Social Security Council Social
Welfare Sectional Meeting in January 2002, based on the following fourpillars: 1. the necessity of the participation of local residents, 2. the creation ofsocieties for mutual coexistence, 3. the joint participation of women and men,and 4. the creation of a social welfare culture. Following this, the Social
Support Bureau Chief of the Ministry of Health, Labour and Welfare addressed
the Notice on the Formulation of Municipal Welfare Plans to prefectural
governors, and now activities are full-fledged in local communities.
Division of roles between the nation and local communities
In this manner, Japan has accumulated abundant experiences and learned
many lessons on community welfare, and this could provide many important
clues as to how to support population aging countermeasures in developing
countries.
For example, the following points are important in terms of the division ofroles between the nation and local communities.
While there has been much decentralizing of social welfare, the central
government still plays a significant role in the creation of a base (including
infrastructure development) for revitalizing community welfare. In addition to
infrastructure development, the government plays an important role inintangible elements such as regulations concerning urban and facility design
for aged societies. Such regulations include the Law for Buildings Accessible
to and Usable by the Elderly and Physically Disabled Persons (widely known
as “the Heartful [heart-warming] Building Act”) of 1994 and the Law for
Promoting Easily Accessible Public Transportation Infrastructure for the Agedand the Disabled (also known as “the Transportation Accessibility
Improvement Law”) of 2000, in which the accumulation of knowledge andtechnologies relating to the universal community building including design forpassenger facilities, vehicles, and secondary roads and design standards thattake into consideration handrails in residences and the elimination of steps andbumps is reflected. By supporting the transfer of knowledge and technologies
for the development of communities that give consideration to the elderly inthis manner, it should be possible to improve the efficiency and durability of
infrastructure development in developing countries.
In addition, because community welfare initiatives were implemented froman early phase, the division of roles between prefectures and municipalities has
become considerably clear. The Social Welfare Act stipulates the roles ofprefectures and municipalities as follows. Municipalities are to be the principal
activity unit for community welfare and are to prepare plans from theperspectives of 1. the appropriate utilization of welfare services, 2. the sound115

development of services aimed at social welfare, and 3. the facilitation ofresidents’ participation in activities. In contrast to this, prefectures are to play aback-up role for supporting municipal activities through initiatives such as thedispatching of appropriate personnel. In terms of specific activities, there has
been an increase in cases of promoting activities for divisions such as
elementary school districts. These activities reflect the long history ofcommunity welfare and the high level of awareness among residents in Japan.
It may not be possible to introduce to developing countries as is these typesof relationships between prefectures and municipalities. While thedecentralization of power has advanced in developing countries recently, inmany cases personnel is dispatched by central governments due to the lack ofhuman resources in local communities. For this reason coordination is in fact
principally conducted with central governments even though it is community
welfare support. However, when considering that municipalities are theprincipal activity unit for community welfare, social welfare support should bedesigned so that local partners are shifted down from the central government
level to the prefectural level, and then to the municipal level. At the same time,
it is necessary to conduct human resource development at the local government
level to encourage this shift and to conduct educational activities to promote
the participation of residents.
In addition to the public administrative level, perhaps it is also necessary forgrassroots organizations to make efforts to provide concrete support. In thisevent, as the same manner as the plans of the Social Security Council Social
Welfare Sectional Meeting are emphasized, it will be important to discoverlocal leaders and create positive personnel cooperative relationships with local
residents. Furthermore, community activities based on elementary school units
that are achieving results in Japan could also be used by developing countries
as a reference point and they should try to utilize new local community
organizations as well as temples, churches, and rural communities.
Coordination between social welfare supporters and the participation of
local residents
Next, let’s look at coordination between community welfare supporters.
In accordance with the guidelines released by the Social Security Council
Social Welfare Sectional Meeting in 2002, in addition to community residents,
other supporters of social welfare could include the following: (1) groups
requiring assistance, (2) residents’ and regional associations, organizations
based on territorial bonding, (3) corporations and shopping arcades, (4) welfarecommissioners, childcare commissioners, and social welfare commissioners,(5) volunteers and volunteer organizations, (6) specified non-profit juridical
persons (NPO corporation), home service organizations participated in byresidents, (7) agricultural cooperatives, consumer affairs cooperatives, (8)116social welfare corporations, regional social welfare councils, (9) social welfare
employees (including private sector employees), and (10)socialwelfare-related private sector businesses. It is important to incorporate avariety of supporters so that service based on actual conditions can beprovided.
It is not as if supporters were diversified from the beginning in Japan. This
diversification occurred as the result of traditional communities breaking down
and new communities supplementing them. However, the Social Welfare
Council that developed these supporters and coordinated between them playeda major role. The Social Welfare Council is a non-profit organization that wasestablished based on the Social Welfare Services Act in 1951. The Council
became institutionalized nationwide with operations supported by fund raisingand grants. Activities such as micro-community welfare activities based onelementary school districts have improved the awareness of residents and theCouncil’s network has served as the basis for the development of new
supporters.
In developing countries, it cannot be expected that a large number of
supporters will be involved in community welfare. However, the experiencesof the Social Welfare Council in Japan of small-scale activities and forming
networks nationwide can be useful in developing countries that are in need of
new supporters. Furthermore, cooperation with overseas NGOs that haverecently expanded the scope of their activities would also be meaningful indeveloping countries. Possible forms of support for developing countries could
include nurturing these types of supporters and encouraging the formation oforganizations that promote coordination between supporters.
In addition, it is no exaggeration to say that the effectiveness andsustainability of community welfare is determined by the level of direct
participation by residents. In Japan, various mechanisms have been used toencourage the participation of residents in each phase of community welfare
planning, including design, implementation, and evaluation. For example, there
have been many efforts to create plans through the joint participation ofadministration and residents, with residents identifying community issues
during the design phase and independently establishing a vision for these plans.
Moreover, the implementation plans consist of not only public administrative
level policy, but also incorporate activities that facilitate the participation ofcommunity residents, including activities that foster a sense of solidarity indaily life such as saying hello and greeting activities and joint neighborhoodcleaning activities, interactive food services in which participants dine together
with the elderly, and interchange activities through casual hobbies such as
cooking and music. There are many reports that these activities have helped to
improve the minds and bodies of the elderly. Activities such as holding events
focused on community cultural assets and the issuing of small community
117

magazines can also be useful means of increasing the feeling of solidarity
between community residents. Because there is a lack of supporters indeveloping countries, it will be necessary to promote participation even moreso than in developed countries. In this case, promoting community welfare
activities as an extension of daily life as previously described could be
effective.
In the plan evaluation process, in addition to objective evaluations conductedby public administrations, there is an increasing tendency to also incorporate
independent evaluations based on the first-hand experiences of residents. In
some cases community residents create their own indices, quantify
achievement goals, and conduct evaluations. It is likely that the creation ofindices through resident participation serves to increase the awareness ofresidents, strengthen administrative governance, and contribute to thesustainability of community welfare activities.
Effective country-level activities to encourage and support this type ofresident participation could include the organization of various community
activities, the release of information on these activities, and the construction offrameworks for sharing experiences. In Japan, the Community Welfare andVolunteer Information Network website managed by the Community Welfare
Promotion Committee, Japan National Council of Social Welfare introduces
various specific activities. An environment that allows community residents toaccess case studies for other communities provides an opportunity for
improving both the quantity and quality of social welfare work that isparticipated in by residents.
3. Toward the formation of ideal East Asian Community
Cooperative frameworks in the East Asian region
Finally, let’s consider an international cooperative system in order tomaintain sustainable growth in East Asia and achieve stable and prosperous
aged societies.
Deepening economic relationships in East Asia have developed into regional
cooperation. For example, there have been increased levels of mutual
dependence in trade. The total exports of the East Asian countries covered inthis book increased from USD 695.9 billion in 1990 to USD 4,687.0 billion in
2011, with trade within the East Asian region increasing from USD 290.9
billion to USD 2,268.1 billion during that period, or from 41.8% to 48.4% of
all trade. Measures such as the Chiang Mai Initiative, a multilateral currency
swap arrangement among the ASEAN countries, Japan, South Korea, andChina, were conducted for the purpose of stabilizing these mutual
dependencies. The East Asian countries now share a common destiny
economically.
118

In addition, as real economic integration advances, there has been an
acceleration in institution building to encourage this integration. Since 2000,
ASEAN has taken the initiative in advancing regional integration. ASEAN
proposed AFTA (ASEAN Free Trade Area) in 1992 with the goal of
intra-regional trade liberalization. Although there were initially suspicions
toward whether these goals would be met, the elimination of tariffs within theregion was nearly achieved by January 2010. During that period, Vietnam,
Cambodia, Myanmar, and Laos became members of ASEAN. The ASEAN
countries now aim for the achievement of the ASEAN Community by 2015,
composed of three elements: a security community, an economic community,
and a socio-cultural community.
ASEAN’s solidarity has encouraged moves toward broader regional
integration including the other countries of East Asia. While Japan had beenreluctant to participate in regional economic integration until around 2000, eversince former Prime Minister Koizumi announced the East Asia Community
concept in Singapore in 2002, Japan has actively cooperated in initiatives
aimed at achieving regional integration in East Asia. The Comprehensive
Economic Partnership between ASEAN and Japan came into effect in 2008.
China has also shown strong interest in regional integration like this. China
proposed the creation of an ASEAN–China Free Trade Agreement at theASEAN Summit in 2000. Subsequently the Comprehensive Economic
Co-operation between ASEAN and China agreement was signed at theASEAN Summit in 2002 and a free trade agreement came into effect from July
2005. Moreover, the Comprehensive Economic Co-operation between ASEAN
and Korea was signed with South Korea in 2004 and this free trade agreement
came into effect from June 2007. In addition to eliminating tariffs, these free
trade agreements also incorporated clauses that deregulated the movement ofpeople, provided for the protection of intellectual property rights, etc. ASEAN
has regularly held East Asia Summits participated in by Japan, South Korea,
and China, and in December 2012 a wide-spanning Regional Comprehensive
Economic Partnership (RCEP) that includes the ASEAN nations as well asJapan, South Korea, China, India, Australia, and New Zealand was proposed.
Challenges in the formation of an East Asian community
However, the achievement of an East Asian community should not berushed while emphasizing deepening economic mutual dependencies such as
the expanding trade and investment in the East Asian region that have got ahead start. As we watch the unraveling of the EU community, it should be
remembered that the barriers to be overcome are even higher in East Asia
compared to the EU.
This is because there are significant differences in the stages of development
and income levels within the East Asian region. Japan and Singapore, with a119per capita GDP of over USD 30,000, coexist with Myanmar and Cambodia,
where per capita GDP is less than USD 1,000. Furthermore, East Asia is
composed of many diverse cultures. People have diverse senses of values, asevidenced by a diversity of religions that includes Buddhism, Catholicism,
Islam, and Hinduism. In addition, there are countries with different politicalsystems. A socialist regime is still maintained in China, Vietnam and Laos.
While there are security frameworks in the EU such as NATO (North Atlantic
Treaty Organization) and OSCE (Organization for Security and Cooperation in
Europe) that cover the region, there are no equivalents in Asia.
From this perspective, the important thing to do now is create relationshipsof trust for the mutual respect of each other’s culture and society so that acommunity can be formed. It is likely that time will be required for these
relationships of trust to mature. In consideration of the various differing factors
in East Asia, it is not very realistic to call for common institutions and laws.
Hurrying to create a community under these circumstances could lead to
discord and ruin the efforts that have been made.
When limiting the scope to economic integration, integration can be divided
into the four stages (Table 5-1); the creation of a free trade area, a customs
union, a single market, and an economic and monetary union (Balassa 1962).
In the case of East Asia, preparations for the first stage (a free trade area) havejust been commenced. Over the near term, it will be essential to deepen actual
relationships such as economic relationships. When facing various challenges
accompanying economic integration within this process, by establishingcooperative systems and accumulating them, the base for the establishment of acommunity can be formed. The economic cooperation following the currency
and economic crisis that was previously mentioned is a good example of thisform of cooperation.
Table 5-1 The Stages of Economic Integration
Contents
1

Free Trade Area

Elimination of Tariffs among Member Countries

2

Customs Union

Application of Common Tariffs among Non-Member
Countries

3

Single Market

Elimination of Non-Tariff Barriers among Member
Countries

4

Economic andMonetary Union

Implementation of Common Economic Policy by Member
Countries under A Uniform Organization (Such as Single
Currency)

Source: Balassa 1962

120

Regions should work together to prevent outbreaks of infectious diseases
such as avian influenza that are a shared threat to economic prosperity as wellas other issues such as terrorism. Also, cooperation should be discussed for the
purpose of mitigating future risks, such as energy issues, environmental issues,and food supply issues.
Furthermore, the issue of population aging that was examined in this bookshould also be considered. The reason for this is that it is believed thatcooperative frameworks in response to the issues of population aging will
promote economic integration in East Asia in the manner described below, as
well as contribute to foundation-building for the creation of a community.
The effect of the demographic dividend in East Asia will wane from around2015. In addition, while the domestic movement of working-age populations
encourages growth in urban areas, it is also a factor that accelerates the
depopulation of rural areas and causes regional income disparities to expand.
The deepening of economic relationships in the East Asian region that iscurrently ongoing is a form of cooperation between urban areas, with rural
areas being left behind. However, on a country level the prosperity of urban
areas is indivisible from the growth of rural areas, as urban areas are forced tosupport the growth of rural areas by the transfer of income through measures
such as social security systems. There is no doubt that the gap between urban
areas and rural areas will have an even larger effect on the sustainable growthof East Asia going forward. The increasingly serious population aging issue inrural areas is not unrelated to the maintenance of sustainable growth in East
Asia as a whole.
Furthermore, expanding our horizons to the rural areas of other countries isan essential step in order to take regional economic cooperation to the nextlevel, that of a community. This is because a community consists of a society
in which interests are shared among the people who live within a region and inwhich it is obligatory to watch over all the members. Of course, rural areas areincluded in the scope of discussion on an East Asian community. We cannot
afford to take the overly optimistic view that economic development in urban
areas will eventually expand to rural areas, spreading the fruits of growtheverywhere.
As pointed out in this book, if aggressive action is not taken, population
aging will advance in rural areas, which could make self-sustained activities
difficult. It is unworkable to discuss a community that does not incorporate theelderly that live in other countries. For this reason, how the countries of East
Asia interpret and handle the problem of population aging within the region
will be a litmus test for how effectively a true community can be formed in thisregion.
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Social welfare network in Asia
Population aging advances regardless of the progress that is being made ineconomic integration and community building. It also advances regardless ofthe delays in government initiatives. Meanwhile, regions where the elderly live
must depend on their own efforts even more. Considering this, there will likely
be even more attention paid to the types of social welfare based on resident
areas and community welfare that were examined in this chapter.
Japanese aid organizations have begun to give consideration to the
population aging issue in developing countries. The Japan International
Cooperation Agency (JICA) has provided elderly social welfare administrative
support for Chile since 2004, rural pension system design support for China
since 2006, and intellectual aid for community welfare for Thailand since 2007.
Countries should summarize the experiences and lessons they have learned inrelation to community welfare in their own countries and discuss which
experiences can be shared.
Because the form that community welfare should take varies according toconditions such as the region’s population size, the age structure, types ofoccupations, the infrastructure development level, and traditional cooperative
frameworks, it is not possible to prepare a common manual for all communities.
While activity policy can be indicated for public administrative level initiatives,
it is residents that play the central role in coordinating these initiatives andforming plentiful aged societies.
The time has come to approach social welfare as an issue of the Asian region
and to form an Asian social welfare network for the purpose of mutual
cooperation and strengthened partnerships between governments, NGOs, andNPOs (Hiroi and Komamura edt. 2003). Residents that are busy in their
day-to-day lives have limited time for coordination and have accumulated little
know-how on the issues. What these people really need is not philosophy andframeworks prepared at the public administrative level, but knowledge andexperience that will allow them to respond to the issues that are occurring rightbefore their eyes. For this reason examples of initiatives in each region may be
useful for other regions. For example a case study from a village in Okinawa,
Japan may be a useful reference point for a village in Chiang Mai Province,
Thailand, while a case study from a village in Shandong Province, China may
be appropriate for community welfare for a village in Aomori Prefecture, Japan.
Bidirectional exchanges of information on community welfare both within andacross country borders would be useful. Fortunately, with the advance of
globalization it is now possible to instantly share surprising volumes of
information using the Internet. In addition, the experiences of NGOs and NPOs
active globally also provide a treasury of information. One policy that local
government should be called on to implement is the development of
infrastructure for exchanging information that can be accessed by community
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residents.
Recently, relationships between East Asian counties have transformed froma donor country and support receiving country dynamic to a partnership-based
dynamic. Initiatives aimed at creating sustainable local communities capable ofwithstanding rapid population aging can truly be said to be forward-looking
cooperative frameworks based on partnerships. In addition, the transition fromwelfare state to welfare society is an issue that is shared by developed countries
and developing countries. This means that the establishment of welfare
societies could be viewed as an issue that developed countries and developing
countries may share their wisdom in addressing. Initiatives in response topopulation aging in East Asia that is becoming an aged society as a result of
rapid fertility lowering not only aim to maintain regional growth, but are also
forms of cooperation that will contribute to supporting the aged society in theirrespective countries.
It is hoped that Japan, where population aging has reached the mostadvanced stage in East Asia, will share its experience and knowledge on
community welfare with other countries while establishing a forum that
promotes the exchange of information in order to absorb the knowledge andexperience of other countries. This form of mutual exchange of experience andknowledge matches with the basic spirit of the East Asian community ofthinking together and progressing together.

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126

Keiichiro Oizumi
Senior Economist
Economics Department
The Japan Research Institute, Limited
Keiichiro Oizumi is an economist, lecturer and award-winning author. He
began his career as an economist at the Sakura Research Institute, Limited(now the research division has been consolidated to the Japan ResearchInstitute, Limited) in 1990. His areas of expertise include demographic change
and economic growth in Asia, and socioeconomic issues surrounding theurbanization of Asia. Oizumi particularly focuses his research on economies of
ASEAN countries. In 2007 he published a book, The Ageing Asia (老いてゆくアジア) and won the Award for the Promotion of Studies on Developing
Countries, the award bestowed by IDE-JETRO, Institute of Developing
Countries Japan External Trade Organization for outstanding publications on
economic and other issues concerning developing countries. As one of theleading experts on Asian economies, Oizumi serves as a member of the task
force set up within Japan International Cooperation Agency, or JICA, an
independent governmental agency. He is also a member of Japan Association
for Asian Studies and the Japanese Society for Thai Studies. Oizumi received
his Master’s degree in Agricultural Science and Ph.D. degree in Area Studies
from Kyoto University.

This book was originally published by Chuokoron-Shinsha in September 2007. With theconsent of the author and the publishing company, OLICD Center translated into English in
October 2013. The book has been updated by the author for this English edition.

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