Over the past year, the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) has engaged in leading-edge research on demographic change in East Asia. Karen Eggleston, director of the Asia Health Policy Program at Shorenstein APARC, discusses the recent book Aging Asia: The Economic and Social Implications of Rapid Demographic Change in China, Japan, and South Korea, and the workshop on the economic, social, and political/security implications of demographic change in East Asia, held January 20-21 at Shorenstein APARC.

Across Northeast Asia, countries are facing the issue of an aging population, which causes socio-economic challenges that have policy implications. You explore this phenomenon in your forthcoming book Aging Asia: The Economic and Social Implications of Rapid Demographic Change in China, Japan, and South Korea. When did aging begin to become an issue and what are some of the greatest factors that you address in the book?

Aging started at different times in the countries of East Asia. The country with the oldest life expectancy in the world and the oldest age structure of its population is Japan. It had a very short baby boom after the war and has had a steep decline in fertility. Mortality has also been falling around the world, and so this creates a change in the population. Japan is already at the fourth stage of demographic transition. South Korea is rapidly moving towards that and already has one of the lowest fertility rates in the world. Of course, neither of them have policies to reduce fertility; in fact, they are trying to encourage it. China, on the other hand, has long been trying to control fertility and is not as extreme in terms of the population age structure, but it is rapidly changing. China will be older in median age than the United States soon—this is not a trivial factor when you think in terms of the absolute size of the Chinese population.

One of the things that we wanted to study in this project is the premise that the demographic transition is a "problem." It is true that you need to think about and have policy responses to it. But it can also be seen as a sign of success, and as an opportunity. We wanted to reframe the issue and think about evidence on both sides. There is some research highlighted in the book, for example, that looks at the impact of population aging on economic growth, which is one of the first things that comes to many people's minds. For example, if you have a lot of elderly people, they are not in the work force and they need to be supported. It is true that this can be bad for economic growth, but there also are policy and individual responses that may moderate the effects. Our research is trying to highlight several different aspects of aging, including the question of opportunity. For example, there is more investment in individual children now and elderly persons' savings have actually contributed to economic growth. In some aspects, this has been a sign of resiliency for Japan where there are a lot of transfers to the working-age population.

Ronald Lee at the University of California, Berkeley and Andrew Mason at the East-West Center at the University of Hawai'i, who is participating in the January workshop, have been working on the concept of a "second demographic dividend." They find that as countries have an older age structure, there are more people that are saving. In the widely accepted "first demographic dividend," there are more people in the working-age part of the population—more people employed and more people contributing to the GDP. You get a boom contributing to growth. We know that this contributed to Japan and South Korea's earlier growth, and to China's in the 80s and part of the 90s, but only one or two percent of GDP. The question then is whether it is a problem that with aging you are losing that first demographic dividend. A second demographic dividend might arise because people who are preparing for a longer retirement life are saving more, and those savings are then invested in the economy and the investment drives economic growth.

Is there any correlation to demographic issues faced by the United States?

Interestingly, the aging issue is more pronounced in East Asia than in the United States for several reasons. We have a higher fertility rate than in Japan and South Korea, and many other countries in Europe as well. We also historically are much more open to immigration than most other countries, and this has led to a certain vitality in the population mix that has slowed the impact of demographic change. That said, of course, there are issues with having a lot of baby boomers. Sometimes, depending on the specific question or the specific area of policy, you find other factors that are much more important than aging. For example, the growth of healthcare spending has been in the news a lot lately. Although obviously there is an impact from having more elderly people, there are much bigger issues, such as what we are spending per person per age group and the growth of that spending. Just aging per se is not as big of an issue as people might think.

In late January, you will be holding the workshop Comparative Policy Responses to Demographic Change in East Asia: Defining a Research Agenda. What are the major issues you will explore in the conference? Who will be involved? Finally, what is the publication or research project that you will launch from this?

We had an Aging Asia conference in February 2009, co-sponsored with the Global Aging Program at the Stanford Center on Longevity. The outcome of this is the forthcoming volume, co-edited with Shripad Tuljapurkar of the Department of Biology at Stanford University. We started with a basic survey of the region and thought about the basic trends-demographic, social, and economic-and built upon that to figure out where the gaps are in the literature and where the interesting research questions are. That is where the January 2011 workshop comes in as the next step. We are bringing in some of the same and some different people to focus on three specific themes: economics, society, and politics/security. The upcoming event again focuses on East Asia and there will be a public component, but it is a smaller event and its main goal is to dig deeper into these themes to figure out an interesting research agenda on the policy responses to demographic transition.

We decided to focus again on East Asia, which is the research focus of a lot of our Shorenstein APARC faculty. Masahiko Aoki and Michael Armacost are going to chair sessions, and Gi-Wook Shin is going to kick it all off and talk about the social aspects of demographic change. Andrew Walder will be participating in that session as well. Thomas Fingar will be covering the political and security implications. All Shorenstein APARC faculty have been invited to participate and think about how this issue of demographic change—and particularly policy responses—might be related to their own areas of research. 

An illustration that I like to give when people ask about how demographic change is related to other things is from Andrew Walder when he was talking about China's transition in the 1980s. He received a question about whether or not there had been an impact from the One Child policy. He said that obviously there are many different impacts, but the one thing that he noted was that students in China now, especially if they are only children, are under a lot of career pressure. This has changed the space or the freedom for self-exploration. Why does this have broader implications? Young people see access to political power as one key for their careers and this changes their views about joining the Communist Party, which has big implications for China's political future. This is just one illustration of how we are trying to explore the broader implications of demographic change.

Finally, what is the outcome that you would most hope to achieve through Aging Asia and the upcoming demographic change workshop?

I think that the biggest hope would be to develop a much better understanding of what is going on with demographic change: what are the processes and how is society changing? What are the individual challenges that families are facing and what are they are doing about it? What is the broader social or even global perspective on how this is going to shape our future world? For me, I think about the world that my children are going to grow up in.

Through our research, I hope that we will impact not only the understanding of what has driven past developments, but create policy recommendations for each of the societies that were are examining—including our own—on the opportunities and the challenges related to changes in population. That hopefully will be useful as these different societies think about how to respond.

Our research on the economic, the social, and political/security aspects of demographic change is intended to be tangible for individuals and families as well as for broader national policy.

The Freeman Spogli Institute for International Studies (FSI) at Stanford University has awarded six seed grants in the first round of funding from the Global Underdevelopment Action Fund. The grants are intended to jumpstart early-stage multidisciplinary research projects that tackle persistent problems of global underdevelopment. The Action Fund, which is supported by expendable gifts from FSI donors, matching funds from the Office of the President, and FSI, grew out of the Institute's spring 2010 conference on Technology, Governance, and Global Development, which featured keynote speaker Bill Gates, together with leaders from business, government, and nonprofit organizations, the media, and the academic community, to examine novel integrative approaches to poverty alleviation and human development around the world. The Action Fund projects range across disciplines, focusing primarily on problems in developing and transitioning societies. The majority of the projects have a health dimension, reflecting the degree to which poor health outcomes mirror a country's development status.

"Stanford is uniquely placed among American universities to bring cutting edge research to bear on practical problems of development.  No other institution has lower barriers to multidisciplinary work.  The Action Fund award recipients are drawn from many different parts of the university but united in their concern for promoting development," said Stephen D. Krasner,  the Graham H. Stuart Professor of International Relations, Senior Associate Dean of the Social Sciences at H&S, and deputy director of FSI.

Six multidisciplinary research teams led by Stanford faculty from across the university will receive a total of $236,000 in seed grants. The projects were selected by a faculty committee chaired by Stephen Krasner, with a focus on early-stage, multidisciplinary, policy-relevant research. All, projects are required to have a training component for Stanford undergraduate or graduate students.

The award-winning projects and their principal investigators are:

• Explaining and Improving U.S. Global Health Financing
  Eran Bendavid, assistant professor of medicine and affiliate in FSI’s Center for Health Policy. Co-investigator: Rajaie Batniji, postdoctoral fellow, Department of Medicine. With a sharp divergence between justifications for global health funding and the countries and diseases to which funding is disbursed, this study will conduct a quantitative analysis of the determinants of U.S. financing for the 171 countries receiving development assistance for health in 2009. The project seeks to identify the key drivers for U.S. global health financing by country and facilitate research on how to make global health financing work better. 
• Peasants into Democrats: Evaluating the Impact of Information on Local Governance in Mali
  James D. Fearon, professor of political science. Co-investigator and trainee: Jessica Gottlieb, PhD student in political science. Recent research suggests that enhancing voter information holds promise for increasing government accountability in new democracies. This project will undertake a field experiment in Mali, a model of an underperforming new democracy, to test the theory that information that sufficiently raises citizen voter expectations of government performance can have an important effect on governance. It will examine the impact of an intervention that provides citizens with a civics course on voter and government behavior.
  
• Effects of “Best Buy Health and Nutrition Toolkit” for Improving Educational Outcomes in Rural China
  Scott Rozelle, FSI Senior Fellow. Co-investigator and trainee: Paul H. Wise, professor of pediatrics, FSI senior fellow, and Patricia Foo, MD/PhD student, economics. Studies show high levels of anemia, nearsightedness, intestinal worms, and poor health and sanitation among children in China’s rural boarding schools. This project will measure initial health and nutrition levels of students in a randomized control setting, and deploy a set of affordable and sustainable interventions in treatment schools that includes multivitamins, eyeglasses, deworming medication, and nutrition and sanitation training. The project will then assess what works and what does not by comparing improvements in academic performance in treatment and control groups. The results of this experiment are intended to inform education and nutrition policy in China at the central and provincial levels.
  
• Controlling Drug-Resistant Tuberculosis: A Cooperative Agenda for China and North Korea
  Gary K. Schoolnik, professor of medicine and microbiology and immunology, and FSI senior fellow. Co-investigator: Sharon Perry, senior research scientist, Department of Medicine and FSI/CISAC. Rates of tuberculosis, a disease that thrives on poverty, malnutrition, and interrupted medical care, are now among the highest in the world in the Democratic People’s Republic of Korea (DPRK, North Korea), elevating the risk of an epidemic of drug-resistant strains and a spread into China. This project represents a unique historical opportunity to examine the relationship between food security, malnutrition, and the epidemiology of tuberculosis in a present-day famine.

  
• Political Causes of Russia’s Public Health Crisis
  Kathryn Stoner, FSI senior fellow. Co-investigator: Rajaie Batniji, postdoctoral fellow, Department of Medicine. In spite of the economic advances and increases in GDP since the collapse of communism, Russia suffers from a range of dismal public health outcomes reminiscent of a much poorer country. This study seeks to understand what role political factors play in the country’s high adult mortality rate and declining life expectancy by mining World Bank and World Health Organization data and examining how Russians access healthcare services and information

  
• Factors Affecting Adoption and Ongoing Use of Improved Biomass Stoves in Karnataka and Maharashtra, India
  Frank Wolak, professor of economics and FSI senior fellow. Co-investigator: Mark C. Thurber, research scholar, FSI/Program on Energy and Sustainable Development. Burning of biomass in traditional stoves is associated with a host of ills among an estimated 2.5 billion people around the world, even though cleaner and more efficient technologies exist that could mitigate the problems. This study will examine what factors affect cooking mode choice and utilization, with the objective of developing an econometric model that is useful for efforts that encourage the adoption of improved biomass stoves. The project also seeks to offer insights on poorly understood processes of technology adoption among poor populations and to understand the magnitude of health, development, and environmental benefits that might be achievable.

In 1998, in the twilight of the 20th century, the resignation of Indonesia's autocratic president Suharto ushered in a new political era. Corresponding changes occurred in Indonesia's economic, social, and cultural landscape. That transformation challenged and transformed the thinking of many Indonesians. One of them was Dr. Dino Patti Djalal, who recently became his country's ambassador to the United States. "I entered the twenty-first century with a new mindset," said Djalal to an overflow audience at the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) on November 18, 2010.

As the son of a renowned Indonesian diplomat, Djalal spent much of his youth and early adulthood abroad. He attended high school in the United States and college in Canada, and went on to earn his doctorate from the London School of Economics and Political Science. Djalal's diverse professional talents and experience encompass writing, politics, and film production. Passionate about inspiring and empowering young Indonesians, Djalal founded Modernisator, a youth leadership movement in Indonesia. Before becoming ambassador to the United States in September 2010, he served on the staff of Indonesian President Susilo Bambang Yudhoyono as a spokesperson and special adviser on foreign affairs.

Djalal's speech at Shorenstein APARC featured his top eight personal beliefs about the 21st century. His remarks were a mixture of optimism and wonder tempered by caution. This new century in Djalal's eyes promises great progress and opportunity, in contrast to the 20th century, which he called "probably the bloodiest century ever in human history." Looking forward, he spoke of an "explosion of creativity," the growth of emerging and developing economies, and major advances in technology. The power to eradicate poverty and to achieve world harmony is within our grasp, he argued, provided countries are willing to be open to new ideas and to embrace progress and change.

The last century, Djalal noted, saw the fall and fragmentation of empires and the birth of many new states. Looking ahead, he did not foresee great changes in the world's geopolitical map. He hoped that world leaders would not promote a further proliferation of new countries, which would increase rivalry and instability. Instead the goal should be unification, as in the case of the Korean Peninsula. He spoke optimistically of the trend whereby existing countries such as Indonesia manage to "proliferise," or acquire new and greater global relevance, and advocated a "geopolitics of cooperation" among larger and smaller countries, as in the Group of 20.

Djalal stressed the need for rapid innovation and ongoing social, economic, and educational change. A nation that wants to succeed in the 21st century must be open and adaptable. Analysts once thought that major changes could only unfold over several generations, but now, Djalal argued, dramatic change can occur in the span of a single generation. In addition to developing open and progressive political thinking, said Djalal, good governance is essential if the world is to enjoy stability and prosperity in this century. Having a democratic government does not automatically ensure good governance, he argued. Political leaders must strive to build strong, accountable institutions that emphasize positive outcomes in key sectors such as health, education, and entrepreneurship.

Addressing the younger generation, Djalal said, "skill is your best currency" in the present century. Individuals, empowered by education and technology, are now free to make their way in the world based on their own talents. He recalled that in an earlier era in Indonesia, as in many other parts of the world, access to information was limited by social status, wealth, and gender. More than any other factor, according to Djalal, technology is the "most important driver of change." It is the small, innovative technologies such as cell phones and online banking that will most change the world, provided we learn "how to adopt it without destroying the human soul."

Globalization is here to stay, Djalal argued, so it is crucial to "embrace it intelligently." Indonesia is a large country. But rather than rely on superior physical size, Indonesia and other large countries must climb the global ranks on less tangible dimensions such as education, including the skill sets needed to develop their economies. While being open to engaging with the rest of the world, he added, countries must also cultivate a strong sense of national identity.

Djalal closed on a high and provocative note, suggesting that the free, innovative, and global nature of the current century provides the means for young people today to become "potentially the best generation of all previous generations." How then should we proceed, as individuals and as countries, to realize that bright future? Djalal left that question hanging in the air for his audience to consider and to answer.

While Shanghai and Hong Kong are often viewed as the financial centers of China, Beijing, the capital, is in reality where all financial decisions are made-decisions that affect the country's banking system and overall financial structure, which has implications on a global level. Carl Walter, a managing director of JPMorgan China, spoke at a Stanford China Program seminar on November 1 about the frequent changes in China's banking system since 1949 and the cost of these reforms within and outside of China.

China's banking system is currently controlled by the Ministry of Finance (MOF), which has competed at several points with the People's Bank of China (PBOC) for influence within the state bureacracy. During the Cultural Revolution period, MOF first moved to the fore of China's banking system, merging together the until-then separate PBOC and Bank of China (BOC) and eliminating all other banks. With China's "Open Door" economic reforms of 1978, the banks were again separated, with PBOC having oversight for three commercial banks and MOF for two, including BOC. In 1994, authority for all commercial banks, such as BOC and the Agricultural Bank of China (ABC), moved to PBOC and MOF took control of three newly established policy banks, such as China Development Bank and the Agricultural Development Bank. Premier Zhu Rongji drove these and all other banking reforms until 2003.

Major bank restructuring has taken place since 1998, the big four banks were re-capitalized, problem loans spun off into four "bad" banks and the international accounting system adopted in preparation for international share offering on both domestic and international markets. All four banks successfully raised capital internationally and domestically over the past five years. Two large sovereign wealth fund-like entities came into being-Huijin, controlled by PBOC, and China Investment Corporation (CIC), operated under MOF- that were used to hold the Chinese state ownership of these banks.  The year that it was established in 2007, CIC acquired Huijin and MOF thereby indirectly gained control of all of the banks under PBOC.

The greatly increased level of bank capital achieved through restructuring and recapitalization was eroded, however, due to the enormous growth of loans in 2009 so that China now is faced with raising virtually the same amount of capital again, stated Walter. Everyone is paying the price, including international and domestic equity investors, who are being diluted, and China's own government, which to avoid dilution, must buy new shares at high market prices. The values of these shares, moreover, may be inflated due to the techniques used earlier to remove bad loans from their balance sheets. This has left banks exposed to these now worthless portfolios. To that extent, international accounting firms and market regulators put their reputations on the line when they support capital raising by the banks internationally. In short, the politics and economics of China's bank reforms and the struggles to control the banks have been internationalized.

Walter suggested that China is trapped with a banking system that is suited to the country's political system, but not to its economy. His forthcoming book, Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise, co-authored with Fraser J.T. Howie, examines this issue and the recent history of China's financial system in depth.