"Tokyo-Cambridge Gazette: Politico-Economic Commentaries" No.12 (September 26, 2014)

　Japan has long struggled for change in the directions of the rapid aging of its population and the deplorable declining of its birth rate in the doldrums of deflationary pressures. To date, unfortunately, every policy measure has not yielded any successful outcomes. The attention of social security experts is now riveted exclusively to how to tinker the long-term care insurance (LTCI) system. What is missing in the current policy debate is the recognition that the well-being of the elderly will be deteriorated significantly even if the LTCI is completely fixed. Therefore, Japan is now expected to seek a challenge-driven innovative growth path which will concurrently effectuate solutions for population aging and low fertility as well as its burgeoning fiscal deficit. This short essay tries to shed light on the aging problem by highlighting a novel perspective based on directed technological change (DTC) models. The DTC models provide a possibility of restructuring an economy through innovative technologies that would bring about substantial social security cost reduction. In order to reap the maximum benefits of the DTC, however, a broader institutional design should be laid out. The essay tries to gain a comprehensive picture in which (1) the silver market's size effect, (2) selective R&D support to encourage new entrants, and (3) building global networks will play a critical role in innovation in elderly care activities...