A survey of ageing populations Into the unknown
The world has never seen population ageing before. Can it cope?
Jun 25th 2009 | economist/node/13888061
UNTIL the early 1990s nobody much thought about whole populations getting older. The UN had the foresight to convene a “world assembly on ageing” back in 1982, but that came and went. By 1994 the World Bank had noticed that something big was happening. In a report entitled “Averting the Old Age Crisis”, it argued that pension arrangements in most countries were unsustainable.
For the next ten years a succession of books, mainly by Americans, sounded the alarm. They had titles like “Young v Old”, “Gray Dawn” and “The Coming Generational Storm”, and their message was stark: health-care systems were heading for the rocks, pensioners were taking young people to the cleaners, and soon there would be intergenerational warfare.
Since then the debate has become less emotional, not least because a lot more is known about the subject. Books, conferences and research papers have proliferated. International organisations such as the OECD and the EU issue regular reports. Population ageing is on every agenda, from G8 economic conferences to NATO summits. The World Economic Forum plans to consider the future of pensions and health care at its prestigious Davos conference early next year. The media, including this newspaper, are giving the subject extensive coverage.
Whether all that attention has translated into sufficient action is another question. Governments in rich countries now accept that their pension and health-care promises will soon become unaffordable, and many of them have embarked on reforms, but so far only timidly. That is not surprising: politicians with an eye on the next election will hardly rush to introduce unpopular measures that may not bear fruit for years, perhaps decades.
The outline of the changes needed is clear. To avoid fiscal meltdown, public pensions and health-care provision will have to be reined back severely and taxes may have to go up. By far the most effective method to restrain pension spending is to give people the opportunity to work longer, because it increases tax revenues and reduces spending on pensions at the same time. It may even keep them alive longer. John Rother, the AARP’s head of policy and strategy, points to studies showing that other things being equal, people who remain at work have lower death rates than their retired peers.
Younger people today mostly accept that they will have to work for longer and that their pensions will be less generous. Employers still need to be persuaded that older workers are worth holding on to. That may be because they have had plenty of younger ones to choose from, partly thanks to the post-war baby-boom and partly because over the past few decades many more women have entered the labour force, increasing employers’ choice. But the reservoir of women able and willing to take up paid work is running low and the baby-boomers are going grey.
In many countries immigrants have been filling such gaps in the labour force as have already emerged (and remember that the real crunch is still around ten years off). Immigration in the developed world is the highest it has ever been, and it is making a useful difference. In still-fertile America it currently accounts for about 40% of total population growth, and in fast-ageing western Europe for about 90%.
On the face of it, it seems the perfect solution. Many developing countries have lots of young people in need of jobs; many rich countries need helping hands that will boost tax revenues and keep up economic growth. But over the next few decades labour forces in rich countries are set to shrink so much that inflows of immigrants would have to increase enormously to compensate: to at least twice their current size in western Europe’s most youthful countries, and three times in the older ones. Japan would need a large multiple of the few immigrants it has at present. Public opinion polls show that people in most rich countries already think that immigration is too high. Further big increases would be politically unfeasible.
To tackle the problem of ageing populations at its root, “old” countries would have to rejuvenate themselves by having more of their own children. A number of them have tried, some more successfully than others. But it is not a simple matter of offering financial incentives or providing more child care. Modern urban life in rich countries is not well adapted to large families. Women find it hard to combine family and career. They often compromise by having just one child.
And if fertility in ageing countries does not pick up? It will not be the end of the world, at least not for quite a while yet, but the world will slowly become a different place. Older societies may be less innovative and more risk-averse than younger ones. By 2025 at the latest, about half the voters in America and most of those in western European countries will be over 50—and older people turn out to vote in much greater number than younger ones. Academic studies have found no evidence so far that older voters have used their clout at the ballot box to push for policies that specifically benefit them, though if in future there are many more of them they might start doing so.
Nor is there any sign of the intergenerational warfare predicted in the 1990s. After all, older people themselves mostly have families. In a recent study of parents and grown-up children in 11 European countries, Karsten Hank of Mannheim University found that 85% of them lived within 25km of each other and the majority of them were in touch at least once a week.
Even so, the shift in the centre of gravity to older age groups is bound to have a profound effect on societies, not just economically and politically but in all sorts of other ways too. Richard Jackson and Neil Howe of America’s CSIS, in a thoughtful book called “The Graying of the Great Powers”, argue that, among other things, the ageing of the developed countries will have a number of serious security implications.
For example, the shortage of young adults is likely to make countries more reluctant to commit the few they have to military service. In the decades to 2050, America will find itself playing an ever-increasing role in the developed world’s defence effort. Because America’s population will still be growing when that of most other developed countries is shrinking, America will be the only developed country that still matters geopolitically.
Ask me in 2020
There is little that can be done to stop population ageing, so the world will have to live with it. But some of the consequences can be ameliorated. Many experts now believe that given the right policies, the effects, though momentous, need not be catastrophic. Most countries have recognised the need to do something and are beginning to act.
But even then there is no guarantee that their efforts will work. What is happening now is historically unprecedented. Ronald Lee, director of the Centre on the Economics and Demography of Ageing at the University of California, Berkeley, puts it succinctly: “We don’t really know what population ageing will be like, because nobody has done it yet.”