Give back in the form of services

  • Business
  • Saturday, 09 Jun 2012

OSCAR Wilde used to say that the tragedy of old age is not that one is old, but that one is young. I belong to the baby boomer generation, born from 1946 to 1965 that helped to create an era of incredible economic prosperity and technology, and also responsible for the biggest financial bubble, as well as consumers of planetary resources at a rate that will leave future generations poorer.

Many of us feel that before we go to the other side, we must do something to give back to society what we were able to enjoy.

In the US alone, there are 75 million baby boomers, or nearly one quarter of the population, of which roughly half are reaching retirement age. In Japan, three employed persons support one retiree, but in ten years, it will be two to one.

Rethinking growth

Harvard Professor Arthur Kleinman, one of the authorities on public health, estimates that China may reach that situation by 2050. There are currently 3.2 million nursing home beds in China, but the number of people who may need such beds are reaching 12 million.

As Asian societies become more prosperous, it is time to rethink the push for growth and to consider a better quality of life. Increasingly, there is awareness that only three things matter more to most people reasonable income/job, social equality and sustainable environment.

Asia is still able to deliver these because there is still growth to generate resources to deal with social inclusivity and the environment. It is much tougher in European countries that are facing financial crises.

Focus on services

Population aging should not be seen as a cost, but as an opportunity. One of the primary goals in global rebalancing is to shift Asian production out of excessive reliance on manufacturing and exports to domestic consumption and services. Services account for only 43% of China's GDP, 56% in India, but over 75% for US, Europe and Japan.

The China Twelfth Five Year Plan intends to raise the level of services to 47% of GDP by 2015, and if the Chinese GDP reaches around US$11 trillion, the value of the services sector would be nearly US$5.2 trillion, an increase of US$2 trillion from current levels.

Almost all policymakers in Asia want to increase the size of the services sector, but very little is known about knowledge and value generation in the services sector, because it is much more difficult to measure statistically.

There are broadly three types of services production services related to manufacturing, business services and consumer services. The service sector is a major employer. In the United States, professional and other services went from roughly the same number of workers in 1960 as manufacturing to five times as many by 2007.

But, since Asians have invested so much in the manufacturing sector there is a tendency to want to go up the value chain, without appreciating that the most advanced manufacturers and companies have already re-engineered themselves into “servitization of products” business models. They sell the hardware cheaply (like printers) and make more money servicing the hardware, like selling ink cartridges and service warranties. IBM earns more from services than selling computers. Once iPhones and iPads are sold, money from downloading apps just keep on rolling in.

Services in emerging markets are mostly concentrated in distribution, education, health, tourism and financial services. Services tend to be domestic-oriented, but increasingly, services such as IT, can be outsourced and produced offshore.

Health and medicare, for example, have become major foreign exchange earners for Malaysia, Singapore and Thailand. World medical tourism is estimated at US$15bil business, mainly because in advanced countries, medicare is getting too expensive, while in many emerging markets, the quality of medicare is often poor, causing those who can afford it to go abroad for treatment.

Currently, most emerging markets in Asia, like China and India, spend up to 6% of GDP on health services, but advanced countries spend over 10% of GDP with the leader being the US at 15% of GDP. If China were to increase spending to 8% of GDP by 2015, the size of the market would increase to US$880bil, or just under three times GDP of Hong Kong.

Medical care

Professor Kleinman makes the relevant point that medical services can be a tremendous employment generator. For example, it is estimated that 10 million caregivers are required to look after the ageing population in China, whereas there are only 300,000 people working in this field, with only 100,000 professionally qualified.

There is no question that there will be tremendous demand for medicare services in Asia as the population ages. Most Asian economies have less than two doctors and hospital beds per 1,000 people, whereas the number of hospital beds in Japan (with the most aged population) can be as high as 14 per 1,000.

Most people would agree that medicare costs in the advanced countries can be excessive. In the US, 40% of the lifetime medicare costs are incurred in the last two years before death. The good news is that technology and process innovation can bring better health care quality at lower costs. Doctors using iPads can diagnose problems off-site, provided the patients have all their medical history and tests digitised. Indian hospitals are able to conduct innovative cataract and heart surgery at a fraction of the costs in advanced countries.

Asian economies can upgrade their medicare by leapfrogging the technology and delivery organisations, but it will take strong political will.

It is clear that we can no longer rely solely on the government to provide medicare. As the population ages, it is the family and charity services that will provide the volunteer services to take care of the elderly. Hospitals, home care and financial support will have to be redesigned to facilitate this relationship so that society rebonds the family, rather than more and more older people living and ageing in loneliness.

Taking care of the old is no longer other people's problem. As Professor Kleinman says, it is Asia's next big challenge and this generation's responsibility.

Andrew Sheng is President of the Fung Global Institute.

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