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Trilateral Commission Asia Pacific Group, Tokyo Regional Meeting, Session 7: Impact of Demographic Changes Urbanization, Aging and Employment

Speech by Yasuhisa Shiozaki Member, House of Representatives, Japan
November 26, 2017
Tokyo, Japan

Distinguished guests, Ladies and Gentlemen,

I am very honored to have a chance to talk on the impact of demographic changes based on our experience in Japan, and on the policy responses in my tenure as the minister of Health, Labour and Welfare.

Japan is facing four demographic challenges; aging society, low birthrate, decreasing population, and down trend in the labor force. Experiencing these demographic challenges simultaneously is nowhere witnessed in other parts of the world. In addition, progressing longevity in Japan is increasing life span of individuals from 80 years to 100.

When we talk about these demographic transformation, we tend to picture pessimistic scenarios. For example, the changes may lead to;
- Depressed economic growth caused by decline in the labor force
- Fiscal pressure due to swelling public spending on pension benefits, and health care, and long-term care
- Consequences on people's lives of unsustainable social security system resulting from labor shortage in health care and long-term care accompanied by fiscal stringency

These pessimistic scenarios are, however, based on the assumption that existing social structure will be maintained at a status quo.

During the high-economic growth period, Japan was able to overcome the "middle income trap" supported by the "demographic dividend (bonus)" from the increase in the working population. And vice versa, we then experienced the burst of the bubble economy in the early 90's followed by long economic stagnation, due, to certain extent, to the "demographic onus" when we started to face a decrease in the working population.

This means that if Japan were to continue to prosper with growth, we will have to implement full-scale structural reforms in every corner of the social and economic system to overcome the further challenges of demography.

Although implementation of such drastic structural reforms poses a great challenge to our country, I am confident that by understanding the real issues we are facing, and by having a clear view on what should be done, and by steadily and passionately implementing the required structural reforms, we will be able to achieve a sustainable growth, keeping social vigor and disprove the pessimistic scenarios.

So now, let me introduce some of our policy initiatives under the Abe administration, that are designed to overcome the problems derived from the demographic challenges. During my tenure of almost three years as Minister of Health, Labour and Welfare, I devoted myself to designing and implementing the reforms with the same spirit in mind.

Specific measures which I led at the Ministry are represented in three pillars. The first pillar is to improve the nation's health, the second is to increase the number of economically productive population, and the third pillar is to improve the overall productivity of Japanese economy.

The first pillar is to improve nation's health. By reducing the difference between the biological life expectancy and the healthy life-years, we will be able to enjoy our healthy longevity and ensure the sustainability of social security system for the future. The same concept was also depicted by Prof. Lynda Gratton of London Business School as a "100-year life-span".
I believe that the keys to achieve this is by incentivizing increase of healthy years for individuals and payers in our current social security services.

One of the levers to this challenging question is the maximum use of information and communication technology (ICT) in health. If we were able to connect smoothly the personal and big data on health checks, medical claims and long-term care bills, individuals and payers should be possible to detect disease signs and provide health interventions as early as possible and to prevent the disease from progressing. Patients may also choose the healthiest life-style base upon their personal health records.

The question is, how do we achieve this in our country. Up until now, the Ministry of Health, Labour and Welfare has been developing discrete and fragmented separate data systems in each of health checks, medical care and long-term care without coordination mechanism that could allow the supply of different types of care in a consolidated manner.

As a consequence, quarter billion health check data, 16 billion medical claim data, and half a billion long-term care bills were being separately stored with sluggish output speed for very limited users due to security and public interest reasons.

Therefore, I have started a ministry-wide health care ICT initiative for more speed and utility and mapped out a concrete blueprint of this "Data Health Reform" plan.

In the blueprint of the reform, we specified recommendations such as
- Establishing an integrated data platform for individual's health check, medical care and long-term care for personal health management
- Drastically reforming "review board" for medical claims enhancing utilization of computer-based assessment from 60 to 90%, which will be coupled with evolving technology of Artificial Intelligence
with the aim to full-fledged implementation in 2020.

In addition, since payers of health and long-term care insurance, including the prefectural governments in Japan had not played an active role in promoting preventive health care and efforts to prevent diseases from progressing severity. We have increased incentives to encourage further health promotion activities as well as providing them an environment to facilitate utilization of health big data, and will provide prefectural governments with more authority in terms of mandate, budget, information and human resources to act as "local health headquarters".

What all these reform initiatives imply is that the government is not solely cutting social security budgets to solve the problems of fiscal deficit, but rather, we are extending the role of the government to enhance nation's "healthy life expectancy", containing the rise of the fiscal cost of social security as low as possible through full utilization of advanced ICT technologies. Then, in turn, the healthy population should be able to, as active members in society, continue to work longer with fulfillment in life, and support reduce the fiscal burden of the country. What we are aiming for is to become the "Most Healthy Nation" through digitalization.

The second pillar is the effort to increase the labor force. In order to increase the number of people who pay taxes and premiums, the government needs to take two diverse approaches; 1) Invite new workforce to the current basket of working population and 2) increase the future workforce.

In Japan, labor force participation rate among women declines after marriage or birth; so-called the "M-shaped curve". In addition, about 100,000 workers quit their jobs annually to take care of their elderly family members.

For the elderly population in Japan, the average life expectancy is extending, and many voice their willingness to continue to work. Enhanced participation of elderly in workforce will allow individuals to earn additional income to supplement pensions. It will also allow elderlies to feel inclusion to the society and as a "reason d'etre" by leveraging skills and by working flexibly. And for the government, a tax revenue increase can be enjoyed.

In addition, people with handicaps and ailments are also proactively seeking working opportunities. It is important that we create a better working environment for all those who have the will to work and allow them to work flexibly according to their capabilities and their wish.

To address these challenges, the Abe administration launched an initiative last June called "The Japan's Plan for Dynamic Engagement of All Citizens." The administration has set a goal to create a society where all citizens, including women and men, the elderly and youths, those who failed, handicapped and with ailments, can play an active role disregard of place, whether be at home, in the workplace or in the community.

To achieve this ambitious goal, we are enhancing childcare and long-term care support to ensure the chance to give births and look after their family without the risks of having to leave their jobs. We believe that this can be a key lever to create a "virtuous cycle of growth and re-distribution" where fruits of economic growth are reinvested in social security of childcare and long-term care for further growth.

In addition, to ensure success while promoting new workers to join the workforce, we introduced the "Work Style Reform", which calls for a drastic change in Japan's corporate culture and workers' life styles. The government is urging companies to eliminate "long working hours" and offer "equal pay for equal work" to redress disparities between regular and non-regular employment to encourage a better and flexible work environment for all, regardless of age, gender, health status, handicap and nationality.

Lastly, I would like to discuss the third-pillar, "Improving productivity in the work place".

The Abe administration has set a goal for a real economic growth rate of 2% per annum. To achieve this goal with challenges in the demography, we cannot rely solely on increasing the size of labor force by bringing in more elderly and women. We will also need to promote foreign workers to participate in the Japan's labor market. Although, the national sentiment is rather uneasy with the increase in foreign workers, we have to have some ways to orderly increase foreign workers overtime. In the meantime, in order to maximize the value of current limited labor force, it is important that we promote innovation and improvement in labor productivity.

For this reason, the government has been introducing a series of policies such as "stewardship code" and "corporate governance code" to strengthen corporate governance which will eventually lead to better productivity. We also introduced a new perspective of improving the productivity to its employment-related subsidies and encouraged labor policy officials for closer collaboration with financial institutions that are well acquainted with the means for productivity improvement. It has also subsidized individuals or the companies to support career development and enhance skills, as well as raising the level of minimum wage.

And when we put productivity in the context of health and long-term care, "value for money" becomes important where public spending expansion is surely foreseen.

One of the measures I have suggested to improve productivity, while quality of services also to be improved, in this area is "task shifting" and "task sharing" among medical doctors and other health care professionals. In Japan, medical doctors have exclusive responsibility for diagnosis and treatment which makes them extensively busy and often times, at low productivity. It is essential that we improve productivity of medical services as a whole with better quality by allowing various health care professionals other than doctors play more active roles and award their contribution.

We also proceeded to make a change in how long-term care is provided. We are currently establishing a methodology to promote "self-reliance" of the elderly, with the support of scientific evidences. This is still in work-in-progress, and in the nearest future, long-term care data will be incorporated into Health and Medical Data Platform, for the first time in both Japan and the world, to allow for a comprehensive data analytics of health care and long-term care to provide services at best.

Another lever for improvement in efficacy of medical treatments is the innovative paradigm shift like cancer precision medicine with genomic analysis. However, Japan is known as having a lower ratio of investment for IT to total capital stock. Whereas in the US, math and IT specialists already account for a fairly large proportion amongst faculty members in medical schools. It is vitally important for Japan to promote further investment in IT and leverage cutting-edge innovation to achieve a drastic improvement in productivity and quality.

So far, I have discussed the challenges in the fields of health, labour and welfare which Japan must address. However, challenges also go beyond these fields. Productivity improvement is necessary in all fields of industry, and is the key to the revitalization of our economy under our challenging demography.

For example, it has long been said that household savings must be leveraged for economic growth; however, cash remains in the savings account, when many banks face excessive competition to find the borrowers under a shrinking population. On the other hand, life insurance companies and pension funds are shifting their portfolio for further active investment under our structural reforms. We must proceed and implement a similar reform in the financial sector to follow the same, in order to incentivize investment for further economic growth.

What I would like to highlight again is the very fact that the aging population and low birthrate are the biggest and the most important challenges for the economic growth and lives of people in Japan. And I want to emphasize that now is the time to turn these challenges to an opportunity to implement structural reforms.

Japan has been proceeding with some drastic structural reforms. And we will need to strengthen and expedite our efforts. We are committed to making a historical breakthrough by proceeding and strengthening our unprecedented challenges.
Lastly, the challenges are not only of Japan, but is also a challenge of all Asia Pacific countries and the world. We will continue with the reforms, and at the same time we are willing to share our experiences and we are also open for any feedback from the Asia Pacific and the global communities to advance further.

Thank you very much for your attention.


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