Governments everywhere are dealing with one common challenge: what to do with their ageing populations.
The 2015 Intergenerational Report clearly highlighted the population changes taking place in Australia. It noted that Australia could expect the number of people aged 65 and over to double in the next 40 years. Not only can we expect to live longer, we will also be more active.
Of course, that’s a good thing. Who wouldn’t want to live longer?
However, along with the growth numbers will come an increasing strain on the budget.
All of us expect the level of government services to increase over time — especially when it comes to health. The demand on health and other related services will only increase as the population continues to age.
How do governments pay for it? Do they just raise taxes and hope that it covers the bill? Or do they borrow more and add it to the ever-growing debt pile?
Maybe they cut it out of another part of the budget; if so, from where? Taking money from one group and handing it to another is always going to leave someone upset.
Perhaps the easiest thing to do is just bury their heads in the sand. Leave it for someone else to deal with.
One certainty is that Australia is not alone in this. It’s a challenge that all developed countries will have to face in the future.
One country that knows all about it is Japan. Although Australia’s population is ageing, it is also growing. However, Japan faces a double hit. Not only is its population getting older, it’s shrinking too.
In April last year, the Japan Times quoted research showing just how big the drop in population might be. Research done by Japan’s National Institute of Population and Social Security showed that its population could shrink by up to a third by 2065.
That is a massive change. For a country that traces its ‘modern’ history back thousands of years, this will all come in a blink.
With a current population of 127 million, that means it could shrink to less than 90 million in the next 40–50 years.
Unlike Australia, Japan has precious few natural resources. Since it emerged as a trading nation, it’s had to import nearly all the commodities it needs.
It also means that it has had to rely on its ingenuity for the economy to develop.
Part of that has been the story of its manufacturing prowess. Throughout the second half of the previous century, Japan became the manufacturer to the world.
At first, this was because its products were cheap. However, over decades its manufacturing industry steadily developed a strong reputation for design and quality.
After all, it had to. With a rising yen, Japan could not have competed on price alone.
However, behind the quality of its manufacturing lay another key strength: engineering skills. Japan proudly sees itself as nation of engineers. Whether that’s improving the liquid crystal in your laptop screen, or refining the gearbox in your car.
One common criticism is that we don’t ‘value-add’ enough in Australia. That is, we rely too much on exporting raw commodities.
However, even when a country like Japan turns these commodities into more valuable products, there is still a major limitation: you can only sell a product once.
To fund its ageing population, Japan is again seeking to innovate. But it is doing it in a different way.
Income through intellectual property
Japan is not just aiming to make and sell more goods. It is also looking at another way to generate income from its engineering skills. And it all has to do with intellectual property (IP). These are the patents and designs owned by some of the largest Japanese corporations. IP they have spent billions to develop.
Earlier this week, Bloomberg wrote that the revenue generated from IP in Japan had jumped 74% over the last five years. It also noted that this places Japan second in IP exports — only behind the US.
By licensing their IP to others, it enables companies to generate multiple streams of income from their engineering skills.
And other countries are jumping in too — China included. Among China’s current five-year plan is the goal to double the number of patents it develops.
As technology grows exponentially, the number of new patents will only continue to grow.
The good news is that there is a company on the ASX capturing this trend. It is the go-to company as the IP specialist in our region. And it pays a handy dividend to boot.
Earlier this week, I released details of this stock to subscribers of Total Income. Of course, to find out which stock it is, you will need to join the service.
If you’d like to find out about this company, and other income stocks, please click here.
All the best,
Editor, Total Income