No plans to deal with aging?I coincidentally got into a conversation with a cab driver while taking a taxi the other day. I asked if he was relieved to hear the value of a private cab license is going up amid a rise in retirees. The response from the cab driver was an unexpected one. “What use would a cab license be? Drivers will become useless when automated car service becomes common,” he said. His short answer reflected the imminent changes that could radically shake up our lifestyle. One is the advent of the fourth industrial revolution and the demographic outcome from low births and an aging society.
What does the fourth industrial revolution mean? In August, American automaker Ford Motor said that it will start selling completely self-driving cars without wheels, accelerators or brakes in 2021. The augmented reality game Pokemon became a feverish hit. American police forces have begun to send in robots at dangerous crime scenes. Machines are beating human intelligence, as demonstrated in the recent feat by Google’s AlphaGo against human Go champion Lee Se-dol. Banking no longer requires visits to brick-and-mortar outlets and can be done over the phone. In a decade or so, physical cash may no longer be necessary.
Demographic woes from low birth rates and fast aging have already taken toll on the society. Korea’s birth rate is 1.24, sharing the bottom rank with Portugal. Elementary school students have declined 1.59 million, the size of a city population, in less than a decade. In 2040, one out of three Koreans could be 65 or older. According to demographic scholar Cho Yong-tae, at the current birth rate, new births would stop at around 300,000 in 2019. No other country in the world has seen the birth population halved in a just over a generation.
There is more fear than expectation toward the arrival of the new age. Innovations make lives safer, easier and less labor-consuming. But at the same time, machines could replace humans in many jobs. A report in this year’s World Economic Forum in Davos warned that more than 7.1 million human jobs could disappear due to automation over the next five years. Large companies and countries could lag and be mired in an irreversible slump if they fail to join the fourth industrial revolution wave on time. Demographic weakness from a thinning active and working population could seriously undermine economic growth and raise fiscal costs. Harry Dent in his book “The Demographic Cliff” has warned that Korea could face its demographic cliff in 2018. At that point, deflation could trigger a crash in stocks and real estate prices.
We have just two to three years to act against these looming dangers. The traditional industrial pillars of shipping, shipbuilding and steel should be replaced by innovative industries and the financial sector. Regulations must be fixed so that innovations and creativity, and new types of convergence businesses, are not hampered by regulatory barriers. They must be entirely removed or reduced to the minimum.
Instead of trying out hundreds of ideas to fight low birth rates and an aging society led by multiple public agencies, a new government agency should be formed to oversee and spearhead the campaign with resolve and consistency. There must be a command center to lead a comprehensive and farsighted policy incorporating welfare, women’s, medical care, education, employment and security affairs. Japan set a good example by establishing a cabinet minister in charge of upholding the 100 million population. It has made progress toward the goal of pushing the birth rate to 1.8 by raising it to 1.46.
In the game of Go, there is a winning strategy of examining your own possibilities thoroughly before attacking the enemy. Before we start the battle with the fourth industrial revolution and our aging society, we must tend to our biggest weakness — welfare. The government appropriated 130 trillion won ($117.5 billion) in welfare costs in next year’s budget, up 5.7 percent from this year and taking up a 32.4 percent share of the public expenditure plan. Welfare costs would increase by an average 5.3 percent annually until 2020.
People must tend to their futures in order to curb the sharp rise in social cost. Walter Riester, former German Minster of Labor and Social Affairs, in 2001 proposed a government-subsidized private pension plan and helped to significantly reduce fiscal costs. The United States also upped tax incentives for private pension plans and individual retirement accounts while reducing the government subsidies.
In the longer run, the government must come up with a way to save social welfare costs to use the fund to promote births and jobs through IT industries. It must draw up a long-term plan for the next two to three decades instead of being constrained to five-year presidential, four-year legislative or three-year corporate management terms.
Translation by the Korea JoongAng Daily staff. JoongAng Ilbo, Oct. 4, Page 29
*The author is the chairman of the Korea Life Insurance Association.