05/08/2014 05:04 pm ET Updated Jul 08, 2014

Sheep, Goats and Re-starting Emerging Markets' Growth

The "emerging markets" have become shrouded behind a huge question mark. As corporate earnings season underscores, Morgan Stanley expects recent good performance to turn south, noting that emerging markets have made little "improvement in fundamentals."

In Forbes, Financial commentator Gary Shilling sees two herds forming: "Investors who thought emerging markets were the bee's knees have suffered agonizing reappraisals...For investors, it's important to separate well-managed emerging economies, the Sheep, from the poorly run economies, the Goats."

What do Goats and Sheep mean for this year's earnings season?

A lot. Because Shilling is right that smart reforms are going to separate the good from the bad in the emerging markets. But Shilling also misses the most fundamental issue driving this separation. The Sheep will thrive because their aging populations will drive sustainable economic growth, while the Goats will stumble because they will fail to prepare for the aging transformation that is well underway.

So how will the Sheep separate from the Goats? How can emerging markets turn their aging populations from an economic liability to a driver of growth? There are four insights for business leaders, investors, and policymakers to consider.

Spending on health is not a cost, but an investment. Health is the foundation for ongoing social and economic participation of older adults. Just as public and private institutions invest in education as the foundation of a "life course" of contribution, so too should they invest in health.

As lives extend -- most dramatically in the developing world -- health becomes increasingly important, especially non-communicable diseases like diabetes, skin cancers, Alzheimer's and cardiovascular disease, the latter already consuming $860 billion annually.

The "miracle of longevity" gives us much to celebrate, but nations from China and Mexico to Turkey, Thailand and Brazil need to improve prevention and wellness initiatives, including reimbursement, early detection and diagnosis, wellness incentives, etc. Emerging nations need also to ensure strong intellectual property to encourage innovation in medicine, devices and technology.

Age-friendly businesses and incentives for entrepreneurship. With both workforces and consumers aging at dramatic pace, business must re-think how they operate. With the increasing importance of the "knowledge economy" in emerging markets, older adults can become vital economic contributors. To capture this opportunity, business leaders and policymakers should align.

Some potential levers include: tax credits for organizations that employ older workers; cross-generational training programs; developing working environments that meet older workers' needs; microfinancing for "silver entrepreneurs," and many more.

Getting this right turns a double-edge sword -- more people dependent, fewer people contributing -- into a new economic resource.

Moving caregiving into the home. The 20th-century model of institutional caregiving is not fit for 21st century needs and budgets. Two trends are shaping the future of caregiving: personalized, home-based care, and more independent care enabled by new technologies. Emerging markets can reduce costs and create new market opportunities by getting at the forefront of these trends.

Getting this right is especially important for emerging markets. The aging processes that took place over centuries in G7 nations will come about in the developing world in a matter of decades. The quip that China, the most rapidly aging nation on the planet is on track to become old before they become wealthy need not be. Emerging markets in particular do not have the time -- or luxury -- for inefficient transitions. Reinventing caregiving is a major business and policy opportunity.

Age-friendly environments. As emerging markets urbanize, they should ensure that their urbanization is "age-friendly." Age-friendly environments create new opportunities for older adults to remain active and engaged by creating safe, walkable environments; good public transportation; accessible healthcare; opportunities for work and education. And lots of social engagement which is a key to healthy and acting aging.

The dots between urbanization, economic growth, and age-friendly development have yet to be connected -- and business and policymakers can lead this effort.

The fate of emerging markets - despite what your favorite pundit may say - is yet to written. Western Europe and Japan show what can happen if new ideas, policies, and business visions are not created to harness the capabilities of aging populations. Economic growth has slowed in these traditional economic powerhouses, and now emerging markets can prepare by learning from those mistakes.

Robert Zoellick, former president of the World Bank, stated that "the tide of growth" in developing economies has started to recede. And he's right. But the tides can be turned if the leadership and elites in emerging markets re-imagine their aging populations as drivers of economic growth.