Robert J. Samuelson on the impact of North American/Western European Population Changes on World Economy

 

 

The following piece appeared in THE WASHINGTON POST. It has interesting public policy and business implications.

 

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The Specter of Global Aging

 

 

By Robert J. Samuelson

Wednesday, February 28, 2001; Page A25

 

 

The art of prophecy is very difficult -- especially with respect to the future.

 

-- Mark Twain

 

 

Some things we can glimpse, and one of them is global aging. It is a specter that stalks most advanced societies. During the next half-century, most wealthy societies -- the United States is a conspicuous exception will lose population; all will have older populations. This is a collective change that will profoundly influence the world economy, the future of democracy and relations between nations with declining populations (generally richer countries) and those with expanding populations (generally poorer countries).

 

"By 2014, Europe's entire population will be shrinking, as will Japan's", says Paul Hewitt of the Center for Strategic and International Studies in Washington. "After 2010, the working-age populations decline by a little less than 1 percent a year. That will cause most of the rich world to grow much more slowly economically." Hewitt also foresees a global scarcity of savings and investment. Government budget deficits may rise to pay for increasing pension and health benefits, draining funds from private investment. Private pension funds and retirement accounts will sell stocks and bonds, also depleting savings.

 

Just how large these effects might be is anyone's guess. But the driving forces behind aging and population decline -- low birthrates and longer life expectancy -- seem fairly fixed. The table below, based on U.S. Census Bureau projections, shows what may lie ahead. The first column estimates total population change between 2000 and 2050 for six rich countries. The second and third columns provide estimates for the traditional working-age population (20-64) and those over 65.

 

Population Change, 2000-2050

 

(Percent Change)

 

 

Total Pop. Working-Age Over 65

 

France -18% -26% +60%

 

Germany -30 -43 +53

 

Italy -32 -47 +41

 

Japan -20 -36 +51

 

United Kingdom - 9 -15 +61

 

United States +43 +29 +127

 

 

Only the United States -- with higher birthrates and immigration escapes population decline. But even in the United States, there are fewer potential workers for each potential retiree. As long as retirees are supported by taxpayers, through Social Security and health insurance, the economic burden on workers will rise. In most countries, the shifts would be stark and possibly unworkable. Germany's working-age population is projected to drop from 51 million in 2000 to 29 million in 2050; meanwhile, the 65-and-over population rises from 14 million to 21 million.

 

Although these precise predictions may prove wrong, the central truth is that "the natural growth of population in the more developed countries has essentially ceased," writes population expert Nicholas Eberstadt in the current issue of Foreign Policy magazine. In Germany and Japan, the fertility rate is 1.4, meaning that women on average have slightly more than one child each. At 2.1, the United States is roughly at the replacement rate. Americans may have succeeded better in mixing family and work. Or immigrants may have more children than other Americans. Regardless, all rich nations will feel the pressures of aging -- or declining -- populations. And there's a perverse possibility that more old people will further reduce the number of young people. If taxes on workers increase to cover higher retirement benefits, families' willingness to have children may diminish, because it would be harder to pay for them.

 

Immigration is one possible safety valve. But for Europe and Japan, the increases needed to avert population declines would be huge. For Europe, including Russia, a doubling of present immigration levels to 1.8 million annually would be required, writes Eberstadt. Japan -- with little immigration now -- would have to accept 350,000 newcomers a year. By 2050, a sixth of its population would be of immigrant stock. In Europe, the comparable share would be about 20 percent. Given the social tensions caused by massive immigration, these increases would be difficult.

 

As Hewitt notes, richer countries could also prepare for their aging by investing in poorer countries. Trade could substitute for immigration. Investments from wealthier countries would enable developing nations to build up their industries. As people retire in the rich world, they could use some of the dividends and interest from their investments to buy imports from poorer countries. Both developed and developing countries would benefit. But this bargain assumes, Hewitt says, that "globalization" works smoothly -- an iffy assumption.

 

To predict the future is (as Twain said) always iffy. But few rich countries are anticipating it. They should be tempering the vicious circle of higher retirement spending, heavier taxes on workers and fewer children. This means gradually raising retirement ages and scaling back benefits, especially for wealthier retirees. It isn't happening. In the United States, it has (so far) been impossible to make basic changes in Social Security and Medicare. In France, Germany and Italy, the average retirement age is 59, says Hewitt. Democracies have trouble facing the future when powerful constituents in the present have so little stake in it.

 

 

 

2001 The Washington Post Company