How Global Aging Will Transform the Economy and Society of the 21 st - - PowerPoint PPT Presentation

How Global Aging Will Transform the Economy and Society of the 21st Century

Richard Jackson President Global Aging Institute

Keynote 2

39% 38% 35% 34% 32% 30% 26% 26% 25% 23% 11% 20% 21% 14% 9% 14% 17% 8% 0% 10% 20% 30% 40% 50%

Japan

• S. Korea

Italy Germany Poland Thailand Canada France China

2010 2050

25% 25% 23% 22% 22% 21% 20% 16% 13% 17% 9% 7% 13% 13% 13% 6% 5% 5% 0% 10% 20% 30% 40% 50%

UK Chile Brazil Russia Australia US Mexico Indonesia India

Elderly (65 & Over), as a Percent of the Population, 2010 and 2050

The world stands on the threshold of a stunning demographic transformation called global aging.

Source: UN Population Division (2013)

Developed World Outlook

A Future of Rising Fiscal Burdens

 Graying means paying more for pensions, more for health care, and more for long-term care for the elderly.  Few countries will be able to raise taxes enough to cover more than a fraction of the age wave’s total fiscal cost.  Most countries will have to cut old-age benefits—but the required reductions are large and are likely to meet with growing resistance from aging electorates.  The alternatives: Let old-age benefits crowd out other government spending and/or run widening budget deficits.

9% 9% 11% 14% 15% 19% 17% 20% 15% 18% 20% 21% 26% 29% 31% 37% 0% 10% 20% 30% 40%

Australia Canada US UK Japan France Germany Italy

2010 Current Deal 2040

*Projections assume that program eligibility ages and benefit levels remain unchanged in the future.

Source: The Global Aging Preparedness Index, Second Edition (CSIS, 2013)

“Current Deal” Projection: Total Government Benefits to Persons Aged 60 & Over, as a Percent of GDP, 2010 and 2040*

Average Annual Growth Rate in the Working-Age Population (20-64), by Decade

Australia 1980s 1990s 2000s 2010s 2020s 2030s 2040s 2.0% 1.4% 1.7% 0.8% 0.6% 0.8% 0.7% Canada 1.9% 1.2% 1.4%

• 0.1%
• 0.1%

0.4% 0.2% France 1.1% 0.4% 0.8% 0.0% 0.0% 0.0% 0.3% Germany 1.2% 0.2%

• 0.3%
• 0.3%
• 1.1%
• 1.1%
• 0.9%

Italy 0.9% 0.2% 0.4%

• 0.2%
• 0.6%
• 1.1%
• 0.8%

Japan 0.8% 0.4%

• 0.4%
• 0.9%
• 0.7%
• 1.3%
• 1.3%

UK 0.7% 0.4% 0.6% 0.2% 0.0% 0.1% 0.2% US 1.4% 1.3% 1.1% 0.4% 0.1% 0.5% 0.5%

Source: UN Population Division (2013)

 Slowly growing or contracting working-age populations will translate into slower GDP

• growth. Japan and some European countries

may face a future of “secular stagnation.”  Higher rates of labor-force participation, especially at older ages, could partially offset the demographic drag on potential GDP.  Productivity growth, however, is more likely to fall than to rise as societies age, both because savings and investment are likely to decline and because aging workforces may be less flexible, less mobile, and less entrepreneurial.  As domestic markets stagnate, the danger of “beggar-thy-neighbor” protectionism will grow.

A Future of Slower Economic Growth

34% 26% 24% 38% 24% 16% 28% 50% 59% 0% 20% 40% 60% 80% 100% 2009 2030 2050

Emerging Markets Other G-7 US GDP by Country or Country Group, as a Percent of G-20 Total, 2009-2050

Source: Carnegie Endowment for International Peace (2010)

2009 2050 Canada 3% 2% France 6% 3% Germany 7% 3% Italy 4% 2% Japan 12% 4% UK 6% 3% US 34% 24%

A Future of Relative Economic Decline —and Diminished Geopolitical Stature

 Australia and the United States are now the youngest of the major developed countries— and, thanks to their relatively high fertility rates and substantial net immigration, they will remain the youngest for the foreseeable future.

37 37 41 45 40 40 48 56 30 40 50 60 US Australia Europe Japan 2010 2050

Median Age, 2010 and 2050

13% 15% 18% 23% 21% 22% 30% 39% 0% 10% 20% 30% 40% 50% US Australia Europe Japan 2010 2050

Elderly (65 & Over), as a Percent of the Population, 2010 and 2050

34% 18%

• 15%
• 36%
• 50%
• 30%
• 10%

10% 30% Australia US Europe Japan

Cumulative Percentage Change in the Working-Age Population (20-64), 2010 to 2050

Source: UN Population Division (2013)

A Widening Generation Gap and Growth Gap within the Developed World

Developing World Outlook

 As life expectancy rises and fertility rates fall, the slowdown in population growth and upward shift in age structures may push the developing world toward greater peaceand prosperity.  The social argument: Fading youth bulges and rising median ages will foster social and political stability.  The economic argument: Declining dependency burdens and growing working-age populations create a “demographic dividend” and open up a window of opportunity for development.

The Promise of the “Demographic Dividend”

Working-Age Population (20-64), as a Percent of the Total Population, 1975–2050

1975 1990 2010 2030 2050 East Asia 47% 55% 64% 63% 56% Eastern Europe 58% 60% 65% 59% 55% Greater Middle East 42% 44% 53% 58% 58% Latin America 44% 49% 56% 59% 58% South Asia 45% 48% 55% 60% 60% Sub-Saharan Africa 42% 41% 44% 48% 53%

Source: UN Population Division (2013)

Median Age, 1975–2050

1975 1990 2010 2030 2050 East Asia

20.4 24.9 34.7 42.7 48.3 Eastern Europe 31.0 33.5 38.5 44.0 46.9 Greater Middle East 18.3 19.1 23.7 29.8 35.1 Latin America 19.3 21.9 27.4 34.2 40.8 South Asia 19.1 21.1 25.9 32.0 37.6 Sub-Saharan Africa 17.6 17.2 18.1 20.3 23.8

Source: UN Population Division (2013)

0% 5% 10% 15% 20% 25% 30% 1970 1980 1990 2000 2010 2020 2030 2040 2050 China US

 In some regions of the developing world, including sub-Saharan Africa and parts of the Greater Middle East, the demographic transition has stalled in its early stages.  In others, especially East Asia and Eastern Europe, the demographic transition is proceeding at a breathtaking pace, leaving countries at risk of growing old before they grow rich.

Caveat One: Averages Can Be Deceiving

• 7%
• 20%
• 15%
• 32%
• 40%
• 30%
• 20%
• 10%

0% 2010-2030 2010-2050 Total Population Working-Age (20-64)

Percentage Change in the Russian Population, 2010-2050

26% 36% 35% 21% 30% 33% 0% 10% 20% 30% 40%

Developing-World Average High-Fertility Greater Middle East* Sub-Saharan Africa

2030 2010

Youth Bulge (15-24) as a Percent of the Adult Population, 2010 and 2030

2010 2030 Source: UN Population Division (2011 and 2013)

*Includes Afghanistan, Iraq, Mauritania, Palestine, Sudan, Somalia, and Yemen

Elderly (65 & Over), as a Percent

• f the Population, 1970-2050

 The demographic dividend opens up a window of opportunity, but does not guarantee economic success.  Leveraging the demographic dividend requires sound macro management, the rule of law, policies that promote export- led growth, and massive investments in infrastructure and human capital.  Only East Asia has been fully successful at leveraging its demographic dividend. Although economic growth has begun to accelerate in many other emerging markets, none are on track to replicate East Asia’s economic performance.

6.8% 3.1%

• 1.4%
• 0.8%
• 0.9%

0.8% 7.4% 4.2% 4.1% 2.5% 2.0% 1.9%

• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% East Asia South Asia Eastern Europe Greater Middle East Sub-Saharan Africa Latin America

1975-95 1995-2011

1975-95 1995-2011 1975-2011 Brazil China India Russia Average Annual Growth Rate in Real GDP Per Capita 1.1% 1.8% 1.4% 7.8% 9.1% 8.4% 2.5% 5.3% 3.8%

• 0.8% 4.0% 1.3%

Source: World Development Indicators (World Bank, 2012); Angus Maddison, Historical Statistics of the World Economy: 1-2008 A.D. (Groningen Growth and Development Center, February 2010); and UN Population Division (2011).

Caveat Two: Missed Economic Opportunities

 Societies are subject to tremendous stresses as they move from the traditional to the modern. When plotted against development, most of the stresses describe an inverted-U—meaning they become most dangerous midway through the demographic transition and the development process.  These stresses include:

• Contact with the global marketplace and

culture

• Urbanization
• Environmental degradation
• Growing income inequality
• Growing ethnic competition
• Religious extremism

Level of Stress & Risk of Violence Stage of Demographic Transition & Development

The "Inverted U" Relationship

Caveat Three: Journeys Can Be More Dangerous Than Destinations

Conclusion



Global aging is as close as social science comes to a certain prediction about the future.



From rising fiscal burdens to slowing economic growth, many of the consequences are also highly certain.



Yet there are also critical questions about global aging where the answers remain unclear:



Will health spans rise along with life spans?



Is global aging pushing the world toward a future of capital surpluses or capital shortages?



Will aging societies become more risk averse, have shorter time horizons, and be less willing to undertake investments in future-oriented agendas?



Global aging is a global problem requiring global

• solutions. The greatest danger is that aging

societies may retreat from globalization.

Final Thoughts

10% 15% 20% 25% 30% 35% 1950 1970 1990 2010 2030 2050

Japan Italy Germany UK Canada France US

Source: Author’s calculations based on UN Population Division (2007) and Human Mortality Database (UC Berkeley and Max Planck Institute for Demographic Research)

Share of the Population with Less Than 20 Years

• f Life Remaining, by Country, 1950-2050

GLOBAL AGING INSTITUTE

www.GlobalAgingInstitute.org