A special report on ageing populations June 27th 2009

AAGE.inddGE.indd 1 116/6/096/6/09 15:51:2215:51:22 The Economist June 27th 2009 A special report on ageing populations 1

A slow•burning fuse Also in this section Su er the little children Most of the rich world is short of babies. Page 3

A world of Methuselahs The bene†ts, and the costs, of living longer. Page 4

The silver dollar There is money to be made in the grey market, but it takes thought. Page 6

Scrimp and save Pensions will have to become far less generous. Page 7

Work till you drop Retirement has got out of hand. Page 9 Age is creeping up on the world, and any moment now it will begin to China’s predicament show. The consequences will be scary, says Barbara Beck Getting old before getting rich. Page 11 TOP thinking for a moment about deep next page). To put it another way, in the rich Srecession, trillion•dollar rescue pack• world one person in three will be a pen• Into the unknown ages and mounting job losses. Instead, sioner; nearly one in ten will be over 80. The world has never seen population ageing contemplate the prospect of slow growth This is a slow•moving but relentless de• before. Can it cope? Page 13 and low productivity, rising public spend• velopment that in time will have vast eco• ing and labour shortages. These are the nomic, social and political consequences. problems of ageing populations, and if As yet, only a few countries with already• they sound comparatively mild, think old populations are starting to notice the again. When the IMF earlier this month e ects. But labour forces are now begin• calculated the impact of the recent †nan• ning to shrink and numbers of pensioners cial crisis, it found that the costs will in• are starting to rise. By about 2020 ageing deed be huge: the †scal balances of the will be plain for all to see. And there is no G20 advanced countries are likely to dete• escape: barring huge natural or man•made riorate by eight percentage points of GDP disasters, demographic changes are much in 2008•09. But the IMF also noted that in more certain than other long•term predic• the longer term these costs will be dwarfed tions (for example, of climate change). Ev• by age•related spending. Looking ahead to ery one of the 2 billion people who will be the period between now and 2050, it pre• over 60 in 2050 has already been born. dicted that Œfor advanced countries, the †s• Acknowledgments cal burden of the crisis [will be] about 10% The reasons why Many people helped with the preparation of this report. In of the ageing•related costs (see chart 1 on What is making the world so much older? addition to those mentioned in the text, particular thanks go to Andrew Biggs, David Bloom, Gary Burtless, Mariko the next page). The other 90% will be extra There are two long•term causes and a tem• Fujiwara, Chiemi Hayashi, Ludwig Kanzler, Je rey spending on pensions, health and long• porary blip that will continue to show up Kingston, Laurence Kotliko , John Llewellyn, Lu Jiehua, term care. in the †gures for the next few decades. The George Magnus, Atsushi Seike, Machiko Osawa, Haruo Shimada, Richard Suzman, David Wise and a wealth of The rich world’s population is ageing †rst of the big causes is that people every• experts at the OECD. fast, and the poor world is only a few de• where are living far longer than they used cades behind. According to the UN’s latest to. This trend started with the industrial A list of sources is at biennial population forecast, the median revolution and has been slowly gathering Economist.com/specialreports age for all countries is due to rise from 29 pace. In 1900 average life expectancy at now to 38 by 2050. At present just under birth for the world as a whole was only An audio interview with the author is at 11% of the world’s 6.9 billion people are around 30 years, and in rich countries un• Economist.com/audiovideo over 60. Taking the UN’s central forecast, der 50. The †gures now are 67 and 78 re• by 2050 that share will have risen to 22% spectively, and still rising. For all the talk More articles about ageing are at (of a population of over 9 billion), and in about the coming old•age crisis, that is Economist.com/ageing the developed countries to 33% (see chart 2, surely something to be grateful for‹espe• 1 2 A special report on ageing populations The Economist June 27th 2009

Germany, Italy and Spain, for instance, to every pensioner‹already one of the What crisis? 1 now have tiny families and are therefore lowest ratios anywhere‹the number will Net present value of impact on fiscal deficit of ageing fast, whereas France, Britain and halve by 2050. True, there will be fewer recent crisis and age-related spending to 2050 most of the Nordic countries have more young people to maintain, but children % of GDP children to keep them younger. In eastern cost less than old people and the overall 0 250 500 750 Europe, and particularly in Russia, birth burden will be much heavier than it is rates are low and life expectancy has also now. The OECD has estimated that over Spain taken a knock. America, thanks to a resil• the next three decades the age•related de• United States ient birth rate and high immigration, will cline in the labour force could cut growth G20 still be fairly youthful by mid•century. in its member countries by a third com• Britain Most developing countries do not have pared with the previous three decades. to worry about ageing‹yet. Although birth Ageing will a ect †nancial markets too. Germany rates have dropped, populations are still According to Franco Modigliani’s and Rich• France young and will remain so for a few de• ard Brumberg’s life•cycle theory of sav• Italy cades yet, even though HIV/AIDS has ings, put forward in the early 1950s, people Crisis Japan Aging killed o many active adults. But in the try to smooth out their consumption over longer term the same factors as in the rich the course of their lives, spending more in Source: IMF world‹fewer births, longer lives‹will their youth and old age and saving more in cause poorer countries to age too. And their middle years; so as populations age, 2 cially since older people these days also even before that happens, the absolute savings in the economy as a whole will be seem to remain healthy, †t and active for numbers of older people there will swell run down and assets sold o . This has led much longer. alarmingly, simply because these coun• to fears of an Œasset meltdown as every• A second, and bigger, cause of the age• tries are so populous. They already have one sells at the same time. But a number of ing of societies is that people everywhere 490m over•60s, and that total is due to academic studies have so far failed to †nd are having far fewer children, so the youn• more than triple by 2050. Since most poor much evidence of this. Older people in ger age groups are much too small to coun• countries have little or nothing in the way America, for instance, do save less than terbalance the growing number of older of a state•funded welfare net, those num• those in their middle years, but as a group people. This trend emerged later than the bers will he hard to manage. not much less. one for longer lives, †rst in developed Alone among developing countries, James Poterba, an economics professor countries and now in poor countries too. China is already ageing fast. This is mainly at MIT, says America has three kinds of re• In the early 1970s women across the world because for the past 30 years it has been tirement households: the least well•o , were still, on average, having 4.3 children keeping a tight lid on population growth. perhaps a quarter of the total, who will each. The current global average is 2.6, and This did not quite amount to a Œone•child maintain something close to their previ• in rich countries only 1.6. The UN predicts policy, as it is often called (the average ous standard of living on Social Security that by 2050 the global †gure will have number of children per woman was closer and Medicare, even with few savings; the dropped to just two, so by mid•century the to two), but it was highly e ective in stabi• richest 10•15%, who hold signi†cant assets world’s population will begin to level out. lising numbers. The population will peak and may not need to draw them down; The numbers in some developed countries at about 1.46 billion in 2030 and then de• and the large majority in between, who have already started shrinking. Depending cline gently. Although China has seen stu• will have to rely on their own, often inade• on your point of view, that may or may not pendous economic growth in recent years, quate, savings in retirement. be a good thing, but, as this special report it is still some way o being rich, so it will For the public †nances, an ageing popu• will argue, it will certainly turn the world have trouble absorbing the cost of this rap• lation is a huge headache. In countries into a di erent place. id ageing. This special report will take a where public pensions make up the bulk The temporary blip that has magni†ed closer look at what it is doing about the of retirement income, these will either the e ects of lower fertility and greater problem, but will otherwise con†ne itself swallow up a much larger share of the 1 longevity is the baby•boom that arrived in mainly to the developed world. most rich countries after the second world war. The timing varied slightly from place Fewer hands make heavy work A greying world 2 to place, but in America‹where the e ect Macroeconomic theory suggests that the Population aged 60 and over, % of total was strongest‹it covered roughly the 20 economies of ageing populations are like• 416 35 years from 1945, a period when nearly 80m ly to grow more slowly than those of youn• Developed countries Americans were born. The †rst of them are ger ones. As more people retire, and fewer 30 269 now coming up to retirement. For the next younger ones take their place, the labour 25 1,592 20 years those baby•boomers will be force will shrink, so output growth will Number, m 20 swelling the ranks of pensioners, which drop unless productivity increases faster. will lead to a rapid drop in the working Since the remaining workers will be older, 95 15 490 Developing population all over the rich world. they may actually be less productive. 10 countries As always, the averages mask consider• In most rich countries the ratio of peo• 5 able diversity. In the richer parts of Asia the ple of working age to those of retirement 110 FORECAST populations of Japan, South Korea and Tai• age will deteriorate dramatically over the 0 wan are already old and will rapidly get next few decades. In Japan, for instance, 1950 70 90 2010 30 50 Source: “World Population Prospects”, United Nations, 2009 even older. Europe is split several ways: which currently has about three workers The Economist June 27th 2009 A special report on ageing populations 3

2 budget or they will have to become a lot them as they become frailer. and that their pensions will be smaller. less generous, which will meet political re• What can be done? As the IMF puts it, Will the recession make it easier or sistance (and remember that older people Œthe †scal impact of the [†nancial] crisis re• harder to introduce the required reforms? are much more inclined to vote than youn• inforces the urgency of entitlement re• If people are feeling poorer, they may ger ones). Spending on health, which in form. People in rich countries will have to think that their government should do most rich countries has been going up re• be weaned o the expectation that pen• more for them, not less. Yet some say that if lentlessly anyway, is likely to grow even sions will become ever more generous and everything is in a state of upheaval already, faster as patients get older. And because of health care ever more all•encompassing. change becomes easier to bring about. a huge increase in the number of over•80s, Since they now live so much longer, and They cite a phrase currently much used in a lot more money, and careful thought, will mostly in good health, they will have to ac• the Obama White House: ŒNever waste a be needed to provide long•term care for cept that they must also work for longer good crisis. 7 Su er the little children

Most of the rich world is short of babies

N GERMANY a mother who neglects her oped countries, with a median age of 22. Ichildren is known as a Rabenmutter (ra• Hushabye baby 3 But because so few people were having ba• ven’s mother). Many older Germans slap Fertility rates bies, the median age has doubled since that label on women with small children then and is still rising fast. The population, who go out to work. Young women in Ger• 4.0 currently about 127m, has already started United States many, as elsewhere, are torn. They enjoy 3.5 to decline. It will drop below 100m by 2046 their jobs but †nd it hard to combine them and continue downwards rapidly there• Japan with having a family, for a host of practical 3.0 after, according to a white paper prepared reasons such as school hours and lack of for the Cabinet Oˆce‹unless the birth rate child care as well as public disapproval. 2.5 can be nudged up (or the Japanese can France Faced with that dilemma, some give up 2.0 overcome their dislike of immigration). work. Others give up having children. A special unit in the Cabinet Oˆce is Germany Britain About a quarter of the current generation 1.5 now working on measures to persuade of German women in their 40s have re• Italy young Japanese families to do their bit. It is mained childless. The country’s fertility 1.0 considering things like bigger family allow• rate (the number of children a woman can ances, more favourable tax treatment of expect to have in her lifetime) is now a 195055 60 65 70 75 80 85 90 95 2000 05 10 families and many more nursery places to Source: “World Population Prospects”, United Nations, 2009 rock•bottom 1.3‹the same as in Japan and shorten the long waiting lists. To put more Italy, where similar attitudes prevail (see steam behind such initiatives, the govern• chart 3). The chancellor, Angela Merkel, of populations around the world. ment in 2005 appointed a minister for gen• has acknowledged that her country needs In a few countries where fertility rates der equality and social a airs, Kuniko Ino• to be more child•friendly. are already very low, such as Japan and guchi. She has been a tireless campaigner This is not just because children are nice South Korea, they are still falling. But in for Japanese women, though her job soon to have. As almost everybody lives ever others the decline has been arrested and in fell victim to a change of government. longer, a reasonable supply of young peo• some, including America, Britain and Will these e orts bear fruit? Florian ple is needed to counterbalance‹and fund France, it has been reversed in the past de• Coulmas, director of the German Institute the pensions of‹a growing number of old• cade or two. That has encouraged govern• for Japanese Studies in Tokyo and author er folk. In fact, fertility rates have dropped ments in a number of rich countries to be• of a book on ŒPopulation Decline and Age• steeply in all OECD countries in the past lieve that, with the right policies, they too ing in Japan, is one of many who think few decades, from an average of 3.2 chil• could boost fertility to closer to replace• not. He reckons that the only way Japanese dren per woman in 1960 to 1.6 now. The ment levels and help moderate the social women can manage their diˆcult lives is rate needed to keep the population stable burden of ageing. But it will not be easy. by postponing marriage and having fewer, (assuming unchanged mortality rates and Encouraging women to have more ba• if any, children. Because of the country’s no net immigration) is 2.1. According to the bies used to be politically fraught. Radical culture of long working hours, husbands UN’s latest population estimates, fertility is feminists everywhere opposed the idea, with good jobs spend little time at home currently below replacement level in over and in Germany, Italy, Portugal and Spain it and expect their wives to cope with all do• 70 countries, which account for nearly half carried fascist baggage. But times have mestic tasks. No wonder that 70% of Japa• the world’s population. But even in the re• changed and now a number of countries nese women stop work when their †rst maining, poorer, half of the world, fertility are actively encouraging larger families. child arrives. If they return to it at all it is rates have come down spectacularly, from Japan has seen especially rapid greying. usually much later, and then mostly to 5.2 in 1970•75 to 2.6 now. This has been the Immediately after the second world war it badly paid and unchallenging part•time most important factor by far in the ageing was one of the world’s youngest devel• jobs. By then they may already be caught 1 4 A special report on ageing populations The Economist June 27th 2009

If governments anxious to rejuvenate their populations want her to do that, they can help in a number of ways. Extensive research in 16 OECD countries has shown that there is a strong correlation between high female employment rates and large government cash transfers to families, gen• erous replacement pay during parental leave, the availability of plenty of part• time work and lots of formal child care. Where all these things are present, fertility rates tend to go up. France and most of the Nordic countries have embraced such poli• cies and been rewarded with a rise in fertil• ity close to replacement level. It does not Just the one, thanks come cheap: the OECD reckons that they spend 3•4% of GDP on direct bene†ts to 2 up in another domestic bind: looking after the number of children they say they want families, far more than do Germany, Japan their husband’s old parents. shrinks too. Demographers talk about a and southern Europe. Japan is an extreme example, but many Œlow•fertility trap. The odd ones out are America and Brit• other rich countries have similar pro• Postponing marriage and childbirth is ain, which both have lots of women at blems. One reason why there are fewer ba• part of a bigger change in the lives of many work and fertility rates close to replace• bies is that women everywhere are marry• women in rich countries. Over the past ment level (with immigration making up ing and having children much later in life. few decades many more of them have the rest). Neither of them exactly spoils its Between 1970 and 2000 the mean age at been getting more highly educated and families with †nancial inducements or which women had their †rst child in a taking paid jobs. That changed their ideas state•provided child care, but their ‡exible range of OECD countries rose by more about what they wanted out of life. For a labour markets make it easy for women to than a year every decade, and many more while birth rates were lower in countries get back into work after childbirth, and women now have their families in their where lots of women worked outside the public opinion approves of working moth• 30s. The question is whether they have the home, but more recently that trend has ers. They also have high levels of teenage same number of children as before but lat• been reversed: higher fertility and higher pregnancy that help bump up the †gures. er, or whether they will have fewer overall. employment rates for women go together. Ms d’Addio says the very low fertility Anna Cristina d’Addio, an expert on That may not be as counter•intuitive as rates now seen in many OECD countries fertility policy at the OECD in Paris, thinks it seems. In a modern society children are are not inevitable, and governments they will probably have fewer children in an economic liability, not an asset. They should try to lessen the obstacles to child• total than if they had started earlier, even have to be fed, clothed, housed, looked bearing faced by individuals and families. though more of them now give birth in after, educated and entertained. As a rule But having children is a personal choice, their 40s. Surveys show that women gen• of thumb, economists reckon that a family and if people really do not want them erally start o wanting bigger families than with one child needs 30% more income there is nothing governments can do. The they end up with. If the children do not than a childless couple to maintain the UN expects fertility in developed countries start arriving until later in life, there is less same living standard. The obvious way to to recover somewhat by 2050, to 1.8 chil• time to reach that ideal number. And once keep the household †nancially a‡oat is for dren per woman, but many experts think people have got used to smaller families, the mother to go out to work. that forecast is too optimistic. 7 A world of Methuselahs

The bene†ts, and the costs, of living longer

T IS written in the Bible’s Book of Genesis but no one else has come close. with the industrial revolution, mainly be• Ithat Methuselah lived to be 969. He held In most of recorded history even the cause many more children survived into the record, but there seem to have been more familiar three score years and ten adulthood, thanks to better sanitation, plenty of other multicentenarians around was rare. Angus Maddison, an economic more control over epidemics, improved at the time, including Noah and old Adam historian, has estimated that life expectan• nutrition and higher living standards. himself. Their ages are not to be taken liter• cy during the †rst millennium AD aver• By the beginning of the 20th century ally. In another part of Genesis, man’s life• aged about 25 years (which in practice average life expectancy in America and the span is put at a mere 120 years. The person meant that lots of children died very better•o parts of Europe was close to 50, with the longest documented life in mod• young and many of the rest survived to and kept on rising. By mid•century the ern times, Jeanne Calment, reached 122, middle age). The big turnaround came gains from lower child mortality had 1 The Economist June 27th 2009 A special report on ageing populations 5

2 mainly run their course. The extra years the †gures have had to be revised soon af• And life expectancy can go down as were coming from higher survival rates terwards. Some experts now think there well as up. In much of eastern Europe it among older people. The UN thinks that may be no theoretical limit at all, pointing started dropping in the 1980s in response to life expectancy at birth worldwide will go to the huge rise in the number of centenari• the upheaval in the region, and despite a up from 68 years at present to 76 by 2050 ans in the past few decades. In America subsequent slight recovery it has still not and in rich countries from 77 to 83. (These they are the fastest•growing section of the regained the level of the 1960s. are averages for both sexes; women gener• population, with an increase from 3,700 in People almost everywhere could ex• ally live †ve or six years longer than men, 1940 to over 100,000 now. tend their life spans further just by doing a for reasons yet to be fathomed). Most ex• Why are people living ever longer? Rob• few sensible things, such as not smoking, perts now agree that there will be further ert Fogel at the University of Chicago, a No• drinking only in moderation, eating lots of rises, but disagree about their extent. bel prize•winner in economics, reckons fruit and vegetables and taking regular ex• that improved medical care and technol• ercise. Educated folk are better at keeping Things fall apart ogy are only part of the answer. Another to such rules, and as a group they live Some of them argue that the human life• part, he thinks, is something he has markedly longer than those with only ba• span is †nite because bodies, in e ect, dubbed Œtechnophysio evolution. Over sic schooling. Richer people, unfairly, also wear out; that most of the easy gains have the past few centuries humans have devel• live longer than less well•o ones, even in been made; and that the rate of increase is oped more resilient physiques because the developed world. bound to slow down because people now they gained unprecedented control over But all this is tinkering at the edges. die mostly of chronic diseases‹cancer, their environment and their living condi• Mankind’s dream has been to conquer heart problems, diabetes‹which are hard• tions. Western people’s average body size ageing altogether, and scientists are work• er to †x. They also point to newer health has increased by 50% over the past 250 ing on it. Spare•part surgery to replace threats, such as HIV/AIDS, SARS, bird ‡u years. Larger body size (but not obesity), worn•out bits of the anatomy is already and swine ‡u, as well as rising obesity in Mr Fogel’s research has shown, is associat• well•established and will get better with rich countries‹to say nothing of the pos• ed with better health and longer life. the use of stem•cell technology. For a more sibility of fresh pandemics, social and po• But modern life has its downsides too. general e ect, experiments on rodents litical unrest and natural disasters. Stress is often seen as a life•shortening fac• have shown that a severely restricted but Nearly 30 years ago James Fries at Stan• tor‹though perhaps the e ects are not as balanced diet can increase their lifespan ford University School of Medicine put a lethal as some people think, or else the Jap• by about 30%. But nobody knows whether ceiling of 85 years on the average potential anese, who are famous for working long this would work in humans, and even if it human life span. More recently a team led hours, would not have the highest life ex• did, there might be few takers. by Jay Olshansky at the University of Illi• pectancy in the world. The longer•term hope is to †nd a way of nois at Chicago said it would remain stuck Another hazard of a‰uence is getting switching o the ageing process by ma• there unless the ageing process itself can fat. Around 10•20% of the adult population nipulating the appropriate genes, which in be brought under control. Because infant in many rich countries, and over 30% in theory could make people near•immortal mortality in rich countries is already low, America, are now clinically obese. Over• (though they could still die of accidents they argued, further increases in overall weight people are at greater risk of cardio• and diseases). But if that were feasible, the life expectancy will require much larger re• vascular and respiratory diseases, cancer, consequences would need to be carefully ductions in mortality at older ages. In Mr type•II diabetes and other life•shortening thought through. In Jonathan Swift’s ŒGul• Olshansky’s view, none of the life•pro• ailments‹though it is not yet clear wheth• liver’s Travels, the hero meets a tribe of longing techniques available today‹be er the e ects are strong enough to cancel immortals, the Struldbruggs, who far from they lifestyle changes, medication, surgery the trend to greater longevity. being wise and serene turn out to be a mis• or genetic engineering‹will cut older peo• erable lot: ŒWhenever they see a funeral, ple’s mortality by enough to replicate the they lament and repine that others have gains in life expectancy achieved in the gone to a harbour of rest to which they 20th century. themselves never can hope to arrive. That may sound reasonable, but the ev• idence points the other way. Jim Oeppen at Hale and hearty Cambridge University and James Vaupel People in the rich world can now expect to at the Max Planck Institute for Demo• live, on average, more than a quarter of a graphic Research in Rostock have charted century longer than they did 100 years ago. life expectancy since 1840, joining up the Is that a blessing or a Struldbruggian curse? †gures for whatever country was holding Clearly it depends on whether they be• the longevity record at the time, and found come old and frail at the same age as before that the resulting trend line has been mov• and just limp on for much longer, or if the ing relentlessly upward by about three extra years are hale and hearty ones. months a year. They think that by 2050 av• Most of the evidence supports the more erage life expectancy in the best•perform• cheerful view. Research led by Kenneth ing country could easily reach the mid•90s. Manton at Duke University found that in Rises in life expectancy have been ha• recent years disability above the age of 65 bitually underestimated because it in America has been falling signi†cantly. In seemed unlikely that the improvement other rich countries the picture is more could go on for ever, and just as regularly Blessing or curse? mixed. When the OECD recently looked at 1 6 A special report on ageing populations The Economist June 27th 2009

2 12 member countries, it found clear signs of a rule of thumb, the bulk of spending on But even fairly †t older people need a recent decline in disability in elderly peo• an individual’s health care is concentrated more health care than younger ones, not ple in only †ve of them (including Ameri• in the last year or two of life, and particu• least because they often su er from chron• ca). But other studies produced more opti• larly in the †nal six months). This compres• ic diseases that are expensive to treat. In mistic results. sion has a variety of causes, including the the EU, one estimate puts health•care By and large, people do now seem to re• shift from manual to physically less de• spending on the elderly at about 30•40% of main in good shape for longer. Moreover, manding white•collar work, rising levels total health spending. So will the better the period of ill health that usually pre• of education and much•improved health health of an ageing population, good as it cedes the †nal goodbye has got shorter in care and medical technology, from keyhole has been for so many, impose una ord• the past few decades, which demogra• surgery to heart pacemakers. Eighty, it is able costs on public•health budgets? phers call Œcompression of morbidity (as said, is the new 65. Over the past few decades all OECD1

There is money to be made in the The silver dollar grey market, but it takes thought

HEN Tokyo residents of a certain Wage want to go shopping, they head for Sugamo, in the north of the city. The main street, Jizo•dori, features a variety of shops selling food, sweets, medicaments, bits and bobs and, most notably, a huge choice of woolly underwear in bright red, a favourite colour with the elderly be• cause it is thought to be lucky and health• giving. The local McDonald’s has a sec• tion with seats designed for older people, and a karaoke bar o ers songs from the good old days. For spiritual refreshment, there is the four•centuries•old Kogan•ji Buddhist temple, where visitors buy in• cense and pray for a long life‹and a quick and easy exit. Jizo•dori has a long tradition, but busi• nesses everywhere now realise that in fu• ture there will be a lot more older folk with money to spend. In most rich coun• Jizo•dori’s temptations tries the baby•boomers born after the sec• ond world war were more numerous, bet• Volkswagen, for example, has developed spending power is now concentrated in ter educated and better paid than any a car called the Golf Plus that has higher older age groups, but it is not a simple mat• generation before them. When those seats and more space than the standard ter of moving Œfrom rocking horse to rock• boomers retire, they will want to do it in model. A number of consumer•goods ing chair. When companies try to cater style, plastic surgery and all. makers have started making smaller pack for older customers, they do not always What else might they spend their mon• sizes for older, smaller households. get it right. Attempts to Œseniorise ads, for ey on? The glossy magazine published by Japan, which has already had lots of example, have mostly drawn a poor re• America’s AARP, a powerful lobbying or• practice with older consumers, has devel• sponse because their targets think of ganisation for the over•50s that boasts oped some ingenious new products for themselves as younger than they really 40m members, is bursting with ads. If the grandparent generation. They include are. That refusal to settle for being Œold those advertisers have got their market a furry robot seal, sold as a pet substitute, will only get stronger as the baby•boom• right‹and they are paying big money for that has proved a hit with lonely old folk. ers start turning 65. the older eyeballs‹this group of custom• And makers of personal•care products re• But the hardest thing about selling to ers can be persuaded to buy a plethora of cently put on a Tokyo fashion show for in• older people is that they are such a hetero• products, from travel and †nancial ser• continence pads, featuring pink and frilly geneous group. Someone in his 70s may vices to mobile phones, medicines and varieties instead of the dull old white sort. be in frail health and living in an old folks’ comfy beds. This is a tricky market to tackle. Adver• home; or he may be running for president Some businesses are already adjusting tisers are often accused of trying too hard of the United States, as John McCain did their ranges to cater for the grey market. to sell to the young when much of the last year. There are many shades of grey. The Economist June 27th 2009 A special report on ageing populations 7

2 countries have seen their health spending Elliott Fisher, which has been compiling an grow considerably faster than their econo• atlas of regional variations in American And much more to come 4 mies. Ageing populations will add further medical practice and health•care spend• Health spending as % of GDP, 2006 momentum to that growth. Howard Oxley, ing, mainly for people on the Medicare Public Private OECD a health•care expert at the , reckons programme. It found that in 2006 Medi• 0 5 10 15 20 that increased spending on health and care spending varied more than threefold United long•term care for the elderly could across American hospital referral regions. States 77.8 amount to an extra three•and•a•half per• Again, higher spending does not seem to France 80.9 centage points of rich countries’ GDP by result in better care or greater patient satis• Germany 79.8 the middle of the century‹and a lot more faction. Because the system has encour• Canada 80.4 if spending on medical technology contin• aged the provision of lots of doctors, spe• Sweden 80.8 ues to go up at current rates. cialists, hospitals and expensive diagnostic Measured by spending on health care kit, all of them are kept busy without much Italy 80.9 as a share of GDP, America already tops regard to results. OECD 78.9 the list, shelling out the equivalent of more The trouble with health care in Ameri• Britain 79.1 than 15% of GDP (see chart 4). The Ameri• ca, says Muriel Gillick, a geriatrics expert at Spain Current life 81.1 can government’s health•care spending Harvard Medical School, is that people expectancy, Japan years 82.4 will be hugely a ected by ageing because want to believe that Œthere is always a †x. of Medicare, the state•funded health•care She argues that the way Medicare is organ• Sources: “Society at a Glance”, OECD, 2009; United Nations programme for the elderly and disabled, ised encourages too many interventions and Medicaid, the programme for the poor towards the end of life that may extend the is becoming increasingly important. (and often also old, because it covers long• patient’s lifespan only slightly, if at all, and In most developed countries only a term care). can cause unnecessary su ering. It would small minority of over•65s‹between 3% President Barack Obama is determined often be better, she thinks, not to try so and 6%‹live in institutions. Keeping old to reform his country’s health•care system hard to eke out a few more hours or weeks people in nursing homes or hospitals is ex• to improve coverage and, eventually, drive but to concentrate on quality of life. pensive, sta is hard to †nd, and in any down costs. More money does not always case most people would much rather be produce better results. People in America Take care looked after at home. Many countries are are less healthy and die sooner than in Brit• But long before they get to that point, grow• now providing grants to adapt homes, pay• ain, which proportionately spends little ing numbers of old people will become ing families for the care they provide and more than half as much on its health care. less able to look after themselves and need supplying helpers to give a hand with According to David Cutler, an economics more care. Across the OECD, spending on things like dressing and bathing. professor at Harvard who has advised the long•term care is already equivalent to With far more people reaching a great president on the reform, even doctors be• around 15% of total health spending and is age, a lot more such care will be needed in lieve that around 30% of money spent on rising fast. The great bulk of that care‹an future. How will it be paid for? A few far• health care in America is wasted. estimated 80%‹is still provided by family sighted countries‹including Germany, the Peter Orszag, head of the Oˆce of Man• and friends, the traditional source of sup• Netherlands, Luxembourg and Japan‹ agement and Budget, has recently been port for the elderly. But more women are have already introduced mandatory long• praising the work of a group of medical ex• going out to work, so fewer of them have term•care insurance schemes. Others may perts at Dartmouth Medical School, led by time to look after old folk and formal help have to follow. 7 Scrimp and save

Pensions will have to become far less generous

HE past few decades have been the ment ratio was lower, but they can cope. them leave even earlier. Tcushiest time ever to be a pensioner in a The oˆcial retirement age in most Being generous to pensioners was af• developed country. Not only has the world countries has stayed much the same even fordable in 1980, when in the rich world been getting ever richer (at least until very though people are living a lot longer, so there were only about 20 people of retire• recently), which rubbed o on pensioners pensioners have been getting more years ment age for every 100 people of working too; but as a group they have also become in which to enjoy themselves without the age. But that ratio has already risen to 25% much more comfortable relative to the rest pressures of work. In fact, many of them and by 2050 it will be around 45%, mean• of the population. In recent years manda• stopped working well before it was time ing that there will be only about two work• tory pensions across the OECD, net of tax• for their gold watch because they were of• ers for every pensioner. In some countries es and social•security contributions, aver• fered irresistible inducements to go early. things will be much worse: Japan is head• aged over 70% of previous net earnings for In Austria, for instance, the oˆcial retire• ing for a ratio of over 70%. Something has people on average pay and over 80% for ment age for men is 65 but the average actu• to be done. the low•paid. For the better•o the replace• al age is 59, which means that many of The most urgent need for reform will be1 8 A special report on ageing populations The Economist June 27th 2009

2 in public pensions, which in most devel• able), but it still accounts for more than will be felt only by people who retire from oped countries are the biggest source of re• half the average pensioner’s income. 2017 onwards. A number of other coun• tirement income. They usually make up In the past few decades a number of tries are gradually reducing the replace• most if not all of the pensions of low and governments o ered various carrots to en• ment rate of their pensions, particularly medium earners. Most of these pensions courage people to start drawing their pen• for the better•o , though most of them work on the pay•as•you•go (PAYG) princi• sions before the oˆcial retirement age. have been careful not to squeeze the poor• ple, whereby today’s workers pay for to• They often claimed that this would free up est pensioners too hard. day’s pensioners, on the understanding jobs for younger people. Any economist that the next generation will do the same could have told them that this was a prime Good try, but it didn’t work for them when their time comes. example of the Œlump•of•labour fallacy Britain, unusually, found itself having to Now that labour forces are starting to (the idea that there is only a †xed number move the other way. Its state pension had contract and the number of pensioners is of jobs in an economy at any one time) and become impossible to live on, thanks to a rising, these schemes are rapidly becoming would not work. It didn’t, but the workers little•noticed decision by a Conservative unsustainable. One theoretical answer is were happy to go and their employers government in 1980 to link the rise in the to move to funded schemes, in which pen• were happy to lose them. Private de†ned• state pension to living costs instead of aver• sions are paid out of a big pot of accumu• bene†t †nal•salary schemes (explained age earnings. In 2006 a government•ap• lated savings. Such schemes are common below), where they existed, also encour• pointed commission chaired by Lord Tur• in the private sector, but a public PAYG aged early retirement because they did not ner recommended reinstating the link scheme is very hard to turn into a funded impose an actuarial penalty on people with earnings, which is due to happen in one because one generation of workers leaving before the due date. 2012. Britain’s solution to the problem of would have to pay both for themselves All this meant that the actual (Œe ec• una ordable public pensions‹to down• and their parents’ generation. tive) retirement age in many rich coun• size them and hope that the private sector tries, particularly in Europe, dropped well would †ll the gap‹had proved untenable. Unsustainable below the oˆcial one. By 2004 in the Now the debate about sustainable pen• Many rich countries already spend around OECD as a whole only 60% of people aged sion systems for the future is all about 8% of GDP on public pensions, and some‹ between 50 and 64 were working (com• spreading the load over several pillars. Germany, Italy, France‹a lot more. Richard pared with 76% for those aged 24 to 49). It There should be a basic state pension to Jackson at the Centre for Strategic and In• was the opposite of what was needed to meet basic needs in old age, perhaps with ternational Studies (CSIS), a think•tank in deal with rising life expectancy, so in recent an earnings•related element on top of it; a Washington, DC, calculates that if nothing years governments in many countries private occupational pillar, with employ• is done the cost of state pensions in devel• have started to dismantle some of the in• ers and employees both making contribu• oped countries will almost double, from centives to leave early, against †erce politi• tions; and a voluntary pillar, with private an average of 7.7% of GDP now to about 15% cal resistance. This has halted, and in some individuals saving for their retirement by 2050. In Japan and some Œold western cases reversed, the trend towards ever ear• through a variety of instruments. Govern• European countries it could rise to well lier retirement. ments are expected to do their bit not only above 20%. But that is only a beginning. Italy, which by providing the state•funded part, but In a Œno•change scenario public ex• had a particularly una ordable public also by o ering tax incentives for the sec• penditure on health would also rise steep• pension scheme, has not only raised the re• ond and third pillars. ly, so by 2050 the developed world would tirement age but also increased the num• To take the pressure o public pen• be spending nearly a quarter of its GDP on ber of contribution years needed to quali• sions, many governments have encour• these two items alone. To prevent in• fy for a pension and cut back on bene†ts aged private pension plans, which have ex• creases on that scale, about half the rich for the highest earners‹though the e ects panded rapidly in the past ten years. In countries have already introduced various half the members of the OECD private reforms over the past decade that have pensions are now either mandatory or made their pensions less generous. Many The comforts of old age 5 cover the vast majority of the workforce. more cutbacks are bound to follow. Net mandatory pension benefits In some countries, including America, The most obvious thing that needed re• As % of net median earnings, 2005 Australia, Denmark and Switzerland, priv• considering was the retirement age. When ate pensions now account for up to half of 0 20 40 60 80 100 120 America introduced its Social Security total retirement income. (public pension) scheme in 1935 to prevent Netherlands But even before the recent †nancial cri• poverty in old age, the retirement age was Spain sis it was clear that shifting more responsi• 65 and life expectancy at birth was 62. In Italy bility for retirement income to the workers 1983 a decision was made to raise the oˆ• Sweden themselves raises big problems. In coun• cial retirement age to 67, but in steps so tiny tries where public pensions are relatively Canada that the move will not be completed until small, such as America, Britain and Ire• 2027. Life expectancy at birth in America France land, people are simply not saving enough now averages about 78, so the promise of a Germany to maintain their living standards in retire• pension is worth a great deal more than it United States ment. McKinsey, a consultancy, recently was back in the 1930s. As it happens, Amer• Britain looked at the †nances of a large sample of ica’s public pension system is among the baby•boomers, due to start drawing their Japan rich world’s less generous (which means pensions soon, and found that about two• Source: “Pensions at a Glance”, OECD, 2007 that †nancing it should remain manage• thirds of them had failed to make enough 1 User: robertbanbury Jobname: SR9 Zone: EUNL ProofState: 19-06-2009----14:55 ART CART EDITORIAL READ BY: SPELL CHK:

The Economist June 27th 2009 A special report on ageing populations 9

2 nancial provision for their retirement to energy company that collapsed spectacu- maintain their previous standard of living, larly in 2001, found to their cost. Most peo- even though as a group they had always ple do not know enough about nance to earned well. That ts with the trend of a make informed investment decisions. steady decline in American personal sav- In America, which began to move away ing rates in the past 20 years. from dened-benet schemes two de- And even those who had been putting cades ago, dened-contribution plans al- money by for their old age may now be ready account for the great majority of having second thoughts. In America one private-sector pension schemes. Compa- of the main vehicles for occupational pen- nies in Britain started later but advanced sions are 401(k) plans, named after a sec- faster. Earlier this month two large British tion in the Internal Revenue Code that al- companies, BP and Barclays, announced lows employees to make tax-free they were closing their dened-benet payments into a dened-contribution There goes my 401(k) plan schemes, respectively, to new and existing plan. Employees can choose from various members. Dened-contribution plans are investment options, usually a range of mu- Dened-benet schemes worked ne not only riskier for the employee, but com- tual funds. Last year’s stockmarket crash as long as stockmarkets were rising, en- panies often contribute less to them and caused a huge drop in the value of most abling companies with such schemes to the resulting payouts are smaller. such plans. Many people who had take pension holidaysputting a freeze In future, a growing number of people planned to retire in the near future found on further contributions because their in- will have to manage on less generous and they had to carry on working. Suddenly vestments had done so well. But when more uncertain occupational pensions. prudence did not seem such a good idea. markets turned down, large holes opened The big exception are public-sector work- In countries where private occupa- up in companies’ pension funds that had ers, typically accounting for 10-20% of the tional pensions play a large part, such as to be lled from current operations. Life ex- total workforce in rich countries, who for America and Britain, they have become pectancy also proved longer than forecast. the most part continue to enjoy good de- less opulent and more uncertain. In recent Dened-contribution schemes avoid ned-benet pensions. But their privileges years there has been a big shift from de- such problems for the companies by hand- are now coming under re. ned-benet schemes (where the eventual ing all the risks to employees. It is the em- So if state pensions are having to be pension depends on a formula that takes ployees who have to worry about how reined back, private pensions are getting into account the level of pay and years of their pension investments will perform meaner, riskier and less predictable, and contributions) to dened-contribution and whether they will have enough to live money saved for retirement is threatened schemes (where a certain level of contribu- on when they retire. If their pension funds by nancial crises, what is the man in the tion is agreed on and the money invested, are invested in their own company (not street to do to make ends meet? The only with the eventual pay-out depending on recommended, but it happens), they could thing for it, say all the experts in unison, is the return on that investment). lose everything, as workers at Enron, an to carry on working. 7 Work till you drop

Retirement has got out of hand

OW much golden leisure can you ex- body imagined that the rest would stretch tra years are doubly valuable. Hpect at the end of your working life? to almost a quarter-century. Some coun- Moreoverthough it seems an outlan- The OECD has calculated for how many tries have already raised their ocial re- dish thought in the middle of a deep reces- years people in its member countries are tirement age; others are debating whether sion and rising unemploymentageing now likely to be drawing their pensions, it still makes sense to have a specic retire- populations are likely to cause labour starting not from their ocial but their ac- ment age at all. One widely touted idea is shortages. In some countries and some tual retirement age. It found that men to phase in retirement over a number of sectors these are showing up already. In could look forward to between 14 and 24 years. It does not seem like a good idea for Germany, where the labour force is due to years in retirement and women between people to be working at full tilt one day start shrinking from next year, a study by 21 and 28 (see chart 6, next page). In many and twiddling their thumbs the next. the Institute for the German Economy in countries that was half as long again as in From an economic point of view, get- Cologne identied a shortage of about 1970, and in some of them twice as long. ting people to work for a few more years 70,000 engineers in 2007, a rise of nearly And the gures are probably an underesti- would solve many of the problems associ- half on the year before. The obvious place mate because they are based on life expec- ated with ageing populations. By carrying to look to ll such gaps is among well-qual- tancy as it is now, not as it will be in future. on, those workers will not only save the ied older people, and indeed the institute Retirement has been overdone. The public purse money by not drawing a pen- found that companies had stepped up original idea was that people should enjoy sion but will also continue to pay taxes and their recruitment of engineers over 50. a bit of a rest after a life at work, but no- social-security contributions, so those ex- Many countries already have laws to 1 User: robertbanbury Jobname: SR10 Zone: EUNL ProofState: 19-06-2009----14:55 ART CART EDITORIAL READ BY: SPELL CHK:

10 A special report on ageing populations The Economist June 27th 2009

ers remain just as eective as they get older because they are invariably oered less Far horizons 6 (see below), at some point they end up be- training than younger ones. The argument Years in retirement*, 2002-07 ing too expensive for what they oer. is that they will be leaving soon and are MEN WOMEN But employers are also doubtful that not worth investing in. But younger em- 30 20 10 0 10 20 30 older workers can still hack it. Vegard Skir- ployees might leave too. France bekk of the International Institute for Ap- All these reservations are linked to old- Italy plied Systems Analysis near Vienna has re- er workers’ individual capabilities. But viewed a large number of studies about Axel Boersch-Supan at the Mannheim Re- Spain the relationship between age and individ- search Institute for the Economics of Age- Canada ual productivity and found a fairly broad ing and his team have argued that what Germany consensus that productivity in many jobs matters in a modern economy is the pro- Britain declines substantially in mid-working life. ductivity of teams of workers, not individ- Sweden Now that so-called 3D jobsthe dirty, uals. The best solution may be to employ a OECD average dangerous and demanding sort in, say, mixture of vigorous young and experi- United States mining or steelmakinghave become enced older workers. Japan thinner on the ground, it may not matter so Older workers’ knowledge and experi- Source: “Society at a *Life expectancy from much if workers become physically less ence can easily be lost to the company Glance”, OECD, 2009 actual date of retirement vigorous; besides, older people are in bet- when they retire. In a recent article in the ter general health these days. But there is Harvard Business Review based on his 2 prevent discrimination on age grounds. plenty of evidence that by the time people work with RWE, a German energy com- America led the way with its Age Discrim- are 50, some of their cognitive abilities pany, Rainer Strack of the Boston Consult- ination in Employment act in 1967, de- have also started to decline. In particular, a ing Group advises managers to conduct an signed to make sure that the over-40s quality called uid intelligenceinclud- audit of how the ageing of their workforce (greybeards of their day) were given the ing numerical skills and the ability to ad- will aect them in years to come and de- same job chances as younger people. just rapidly to new situationsbegins to go velop a strategy to make sure they main- Among other things, it prohibited refer- downhill in middle age. Very brainy peo- tain the right skills mix. ence to age in job advertisements. The act ple generally do their most innovative has since been amended a couple of times work before they are 40. Nobel prizes are Show me the colour of your carrot and now rules out mandatory retirement usually awarded for achievements fairly But even if employers were happy to keep on age grounds for most jobs. That seems early in life. By contrast, crystallised intel- or recruit older workers, how enthusiastic to have helped keep older workers in jobs. ligencegeneral knowledge, experience, would those workers be to carry on? That The European Union in 2000 issued a verbal abilitycontinues at much the would depend on the circumstances. In directive that obliges member countries to same level almost indenitely. the past few decades, when pensions in ban discrimination in employment on a Employers think that older people may most rich countries were reasonably gen- number of grounds, including age. France nd it harder to pick up new skills, particu- erous and early retirement was positively imposes a tax called the Delalande contri- larly in IT, which have become indispens- encouraged, only the most workaholic (or bution (now being phased out) on employ- able for many jobs. But that may be partly improvident) continued working. But now1 ers who sack older workers. Although this can be quite heftyup to a year’s payit does not appear to have saved many jobs. Rather, it has discouraged employers from hiring older workers. Various countries have concocted an al- phabet soup of initiatives and pilot pro- jects to get older people into work and keep them there, with mixed results. Advo- cacy groups for older people such as Amer- ica’s powerful AARP, and a growing num- ber of similar organisations that are springing up in other rich countries, have helped to raise awareness of the issue. But survey after survey nds that where em- ployers have a choice, they prefer to hire younger workers. Are they right? On the face of it, there are plenty of rea- sons to plump for youth. In most countries, pay goes up as workers become more ex- perienced and productive, and then de- clines again towards the end of their ca- reers. But in some placesfor example, France, Germany and Spainpay just keeps rising. So even assuming that work- It all depends what you mean by work The Economist June 27th 2009 A special report on ageing populations 11

2 that money is getting tighter and early•re• Most other rich countries have not tirement deals are o , the balance may Unbearable 7 been good at making use of older people well have shifted. Dependency ratio, population aged 65 willing and able to work. The names of a Most of America’s baby•boomers now and over as % of population aged 20-64 few companies that have consistently re• say that retirement is not for them, partly Japan Germany Sweden cruited sta past retirement age‹mostly Italy OECD United because they fear they may not be able to States retailers such as Britain’s B&Q and Ameri• a ord it and partly because they actually France Britain ca’s Wal•Mart‹pop up time and again, but 75 like work. In Europe too there has been a the list never seems to get much longer. In change of heart from the retirement•mind• 60 the absence of a good choice of jobs, some ed 1980s and 1990s. In a recent FT/Harris newly retired people manufacture their poll 45•60% of respondents in the big Euro• 45 own, turning themselves into self•em• pean countries favoured working longer ployed consultants to do much the same for a bigger pension (except in Germany, 30 thing as before, though perhaps at a less where only about a quarter wanted to car• 15 punishing pace. ry on). But many older people would like a FORECAST It is worth bearing in mind that if many less onerous workload than they had at 0 more older people were to stay on in the their peak, perhaps working part•time. 198085 90 95 2000 05 10 15 20 25 30 35 40 45 50 formal economy, some of the things they Source: “Society at a Glance”, OECD, 2009 Japan, where it is customary to work now do outside it and without monetary well beyond the oˆcial retirement age, has reward would fall by the wayside. Many found ways to allow people to step into pany’s human•resources department, but newly retired folk sign up for voluntary less demanding roles. For example, at the often in a di erent division, sometimes work, and many more get drafted into fam• head oˆce in Tokyo of Hitachi, a giant glo• part•time and always minus their former ily duties, looking after grandchildren or bal electronics company, over two•thirds job title and seniority. The company pays frail old parents. Such unpaid work does of those who reach the company retire• the employee about 80% of his previous not show up in the GDP †gures. If the peo• ment age of 60 apply to be rehired. The salary, which includes his public pension ple who do it held down regular jobs, company can usually †nd jobs for them, and a government subsidy, so it gets him at much of those things would have to be explains Takane Miwa from the com• a bargain price. paid for‹or would not get done at all. 7 China’s predicament

Getting old before getting rich

HE Beijing Ren Ai Geracomium is set in the Confucian tradition of respect for age tology at Beijing’s Renmin University. For Ta drab, dusty village just outside the and experience; under a law passed in 1996 the past three decades China has been op• Chinese capital. Grouped round a pleasant it is also a legal obligation. Elderly people erating a strict population•control policy, garden, this old people’s home for about have been known to sue their families for so there are now far fewer young people 80 residents, aged from 50 to 96, is unusual maintenance if they fail to comply. around to take care of the elderly. This state in several respects. Its private owner is a At present, institutional care is the last of a airs is usually referred to by the nifty Christian, and the home has a small chapel resort for those who have no family or formula Œ4•2•1, meaning that the typical where the handful of Christian residents, who need so much help that their relatives only child today will have two parents and along with other people of that faith living cannot cope. Many of the residents at Ren four grandparents to look after‹a bit of an in the area, gather for Sunday services. The Ai, for example, have serious physical or exaggeration, but not that far o . home is run as a commercial enterprise, mental problems, and the home has two It has also become harder for families to but Hu Wenru, its deputy director, says full•time doctors on the sta . The place is live together because people move around that since it opened three years ago it has clean and seems well•run, but it is spartan: a lot more than they used to. An estimated been only gradually building up business some of the rooms sleep six people, with 150m migrant workers have left their rural and is not yet making a pro†t. Still, the one basic bathroom between them. Even homes for jobs in the big cities, though owner is already preparing to launch a sec• so, the fees are much higher than most or• many of them might return home eventu• ond one with 300 beds in the next village, dinary people can a ord, averaging 1,300 ally. Most importantly, because of the low so he must be con†dent of success. yuan ($190) a month for the reasonably †t birth rate and rising life expectancy, the The main thing that makes Ren Ai un• but with extra charges for those who want number of over•60s is expected to go up usual is that it exists at all. Old people’s a single room or need lots of nursing. Some very rapidly, from about 166m now to homes are a rarity in China, catering for of the residents are subsidised by the gov• 342m in only 20 years’ time. All this means, only about 1% of the over•65s, far less than ernment, which seems happy to let private says Mr Du, that many more older folk will in most Western countries. The vast major• initiative ‡ourish. be living in institutions. ity of older Chinese live with their fam• There will be a lot more need for institu• China is still a relatively young country, ilies. Care for the old within the family is tional care for elderly people in future, says with a median age of around 30. But, not only a cultural expectation, based on Du Peng, director of the Institute of Geron• uniquely among developing countries, it is1 12 A special report on ageing populations The Economist June 27th 2009

2 ageing extraordinarily fast, so by 2050 its median age will have risen to about 45. Over the next few decades the ratio of el• derly dependants to people of working age will rise steeply, from 10% now to 40% by 2050. From about 2030 the country will have more elderly dependants than chil• dren (see chart 8), whereas in most other developing countries the opposite will re• main true for the next few decades. Chi• na’s pattern of ageing is very similar to that in Japan, Hong Kong, Singapore, South Ko• rea and Taiwan. The di erence is that in China this is happening at a time when the country is still relatively poor. The man who lays claim to having in• vented the phrase Œgetting old before get• Plenty of life after work ting rich, in the early 1980s, is Wu Cang• ping, an academic at the Population and the pension promises left over from the old for a comprehensive reform to build a Development Research Centre at Renmin system, but the iron rice bowl has gone. Œsafe, e ective, convenient and a ordable University. At that time population ageing That has left a huge gap in urban workers’ health•care system by 2020. Over the next was receiving little attention, and he want• social•security provision. Workers in rural three years it intends to spend 850 billion ed to shock the government into preparing areas, who still make up about half the to• yuan. By 2011 more than 90% of the popu• for it. Since then China has become a lot tal labour force, never had much coverage lation is meant to be covered by the sys• richer (with an income per person of about of any kind anyway. tem. In rural areas that †gure has already $6,000 at ppp)‹though not nearly as rich Since then the government has been reached, but the scheme usually cov• as most developed countries when they launched a series of initiatives to put a ers only in•patient treatment and the reim• were starting to age. Some Chinese demog• new welfare system in place. The main bursement rate remains very low. raphers are now arguing that the phrase concerns are health care and pensions. The pensions system too is in ‡ux. In should be amended to Œgetting old while Since the demise of the old system, health• the early 1990s the government an• getting rich. insurance coverage has been patchy and in nounced a three•pillar scheme along the rural areas mostly non•existent. Health in• lines of those in many developed coun• In search of a new rice bowl surance is generally not portable, so if peo• tries: a basic pay•as•you go pension to Whether poor, rich or somewhere in•be• ple move from one part of the country to which both employers and employees tween, China will certainly need to spend another they may lose their coverage. But make mandatory contributions; funded some money to provide a basic social safe• even if covered, people have to make large individual accounts, also with contribu• ty net for its people, not just the old but co•payments, which for the elderly and tions from employers and workers; and in• everyone. Until about 20 years ago the vast those with serious health problems can be dividuals’ private savings. This is a work in majority of urban workers were covered crippling. A survey carried out in 2000 by progress. Reforms are being announced by a system known as the Œiron rice bowl. the China Research Centre on Ageing, a Œalmost annually, says Wang Yanzhong, People who worked for the state, in state• think•tank, found that more than half the who heads the Centre of Labour and So• owned companies or in state•approved over•60s’ medical expenses came out of cial Security Studies at the Chinese Acad• collectives, enjoyed cradle•to•grave bene• their own pockets and a big chunk of the emy of Social Sciences (CASS). †ts ranging from housing, education and rest was paid for by their families. So far only about a third of the popula• health care to a generous pension scheme, In April the government set out its plan tion is covered by any kind of pension with an oˆcial retirement age of 55 for scheme. The funded individual accounts men and 50 for women for manual work• envisaged under the government’s plans ers (but †ve years more for white•collar All uphill from here 8 have been set up, but so far there is little workers) and a replacement rate of about China’s dependency ratio Elderly money in them. Because of restrictions on 80% of †nal salary. Most people retired As % of population aged 15-64 Children investment abroad and a dearth of high• about †ve years before the oˆcial age. yielding instruments at home, such mon• 100 It was too good to last, and it didn’t. In FORECAST ey as has accumulated has been invested the early 1990s huge number of state• 80 mainly in the domestic banking system, owned enterprises were shut down and where it earns a rate of return far too low to jobs in those that survived were savagely 60 meet the government’s pension promises. cut. Many state †rms passed into private Jonathan Anderson, a China specialist hands and new private companies grew 40 at UBS, calculates that under the current up alongside them. Whereas civil servants 20 pension system the government could face and employees in state•owned †rms used unfunded liabilities of up to 6% of GDP an• to make up nearly 80% of all urban work• 0 nually a few decades hence. But it could ers, their share is now down to 20%. The 19505560 65 70 75 80 85 90 95 200 050 10 15 20 25 30 35 40 45 50 head them o by a variety of means: rais• government is committed to honouring Source: “World Population Prospects”, United Nations, 2009 ing contributions or increasing coverage to 1 The Economist June 27th 2009 A special report on ageing populations 13

2 bring more money into the system; in• the skills needed in a modern economy. loosened immediately the birth rate might creasing the retirement age; securing better But given the low birth rate over the not tick up by very much. In the big cities returns on the accumulated funds; or re• past 30 years, the supply of young workers many people are already leading the sort ducing future pay•outs. is not, in fact, endless. Cai Fang, director of of lives that have brought down fertility in By far the most e ective way, though, the Institute of Population and Labour Eco• richer countries. would be to raise the retirement age. In ear• nomics at CASS, points out that there is al• China’s government is well aware of ly spring the government hinted that it was ready a shortage of young migrant work• the problems of an ageing population, and considering such a move, but Chen Chuan• ers; it started in the coastal areas in 2004 Œis doing all the right things but not always shu, vice•director of the government’s and has now spread everywhere. The fast enough, says Vanessa Wang, an Asia high•powered National Committee on worldwide economic downturn has tem• specialist and actuary with Mercer, a con• Ageing, says there are Œdiverse views on porarily eased the pressure, but employers sultancy. So far the government’s main pri• the matter. In principle it seems a good in China’s coastal boom belt continue to ority has been to keep up the prodigious idea. Average life expectancy at birth, at 74, complain of shortages (although 20m peo• economic growth rates of recent years, but is now 25 years higher than it was 50 years ple are said to have lost their jobs since the the prime minister, Wen Jiabao, has said ago, yet the retirement age has remained at downturn hit late last year). that the government is attaching growing the same low level. Unless it goes up, any So there is now an economic, as well as importance to social welfare. comprehensive pension system that China a human•rights, case for relaxing the coun• Of the 4 trillion yuan economic•stimu• might eventually introduce will be hid• try’s Œone•child policy. Many Chinese ac• lus package announced last November, eously expensive. ademics think it can be only a matter of a 300 billion has now been reallocated from In practice, though, both workers and few years, but the government seems in no infrastructure projects to welfare schemes. employers are strongly opposed to a hurry. ŒFamily planning, as it likes to call Critics say China could a ord to do much change. Workers have got used to the idea the policy, is seen as a success, easing pres• better. Its public †nances are in good of retiring in their 50s and planned their sures on the environment and resources of shape, with its public debt at less than 20% lives accordingly. Employers have had the all kinds. There is no explicit population of GDP and its †scal balance improving luxury of being able to pick from a seem• target, but the latest forecasts suggest that rapidly. Saving, at over 40% of GDP, is high ingly inexhaustible supply of vigorous numbers will keep growing from about 1.3 by international standards. Given the pros• people in their 20s and 30s. Workers in billion now to a peak of around 1.46 billion pect of 440m pensioners by 2050, perhaps their 40s are already considered old, and by 2030 and then start declining gently. it should invest more in creating its much• many of those in their 50s may indeed lack In fact, even if the restrictions were advertised Œharmonious society. 7 Into the unknown

The world has never seen population ageing before. Can it cope?

NTIL the early 1990s nobody much the OECD and the EU issue regular reports. may have to go up. By far the most e ective Uthought about whole populations get• Population ageing is on every agenda, method to restrain pension spending is to ting older. The UN had the foresight to con• from G8 economic conferences to NATO give people the opportunity to work lon• vene a Œworld assembly on ageing back in summits. The World Economic Forum ger, because it increases tax revenues and 1982, but that came and went. By 1994 the plans to consider the future of pensions reduces spending on pensions at the same World Bank had noticed that something and health care at its prestigious Davos time. It may even keep them alive longer. big was happening. In a report entitled conference early next year. The media, in• John Rother, the AARP’s head of policy ŒAverting the Old Age Crisis, it argued cluding this newspaper, are giving the sub• and strategy, points to studies showing that pension arrangements in most coun• ject extensive coverage. that other things being equal, people who tries were unsustainable. Whether all that attention has translat• remain at work have lower death rates For the next ten years a succession of ed into suˆcient action is another ques• than their retired peers. books, mainly by Americans, sounded the tion. Governments in rich countries now Younger people today mostly accept alarm. They had titles like ŒYoung v Old, accept that their pension and health•care that they will have to work for longer and ŒGray Dawn and ŒThe Coming Genera• promises will soon become una ordable, that their pensions will be less generous. tional Storm, and their message was stark: and many of them have embarked on re• Employers still need to be persuaded that health•care systems were heading for the forms, but so far only timidly. That is not older workers are worth holding on to. rocks, pensioners were taking young peo• surprising: politicians with an eye on the That may be because they have had plenty ple to the cleaners, and soon there would next election will hardly rush to introduce of younger ones to choose from, partly be intergenerational warfare. unpopular measures that may not bear thanks to the post•war baby•boom and Since then the debate has become less fruit for years, perhaps decades. partly because over the past few decades emotional, not least because a lot more is The outline of the changes needed is many more women have entered the la• known about the subject. Books, confer• clear. To avoid †scal meltdown, public bour force, increasing employers’ choice. ences and research papers have prolifer• pensions and health•care provision will But the reservoir of women able and will• ated. International organisations such as have to be reined back severely and taxes ing to take up paid work is running low 1 14 A special report on ageing populations The Economist June 27th 2009

Even so, the shift in the centre of gravity to older age groups is bound to have a pro• found e ect on societies, not just economi• cally and politically but in all sorts of other ways too. Richard Jackson and Neil Howe of America’s CSIS, in a thoughtful book called ŒThe 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 re• luctant to commit the few they have to mil• itary service. In the decades to 2050, Amer• ica will †nd itself playing an ever•in• creasing role in the developed world’s When the music stops much later defence e ort. Because America’s popula• tion will still be growing when that of 2 and the baby•boomers are going grey. the world will slowly become a di erent most other developed countries is shrink• In many countries immigrants have place. Older societies may be less innova• ing, America will be the only developed been †lling such gaps in the labour force as tive and more risk•averse than younger country that still matters geopolitically. have already emerged (and remember that ones. By 2025 at the latest, about half the the real crunch is still around ten years o ). voters in America and most of those in Ask me in 2020 Immigration in the developed world is the western European countries will be over There is little that can be done to stop pop• highest it has ever been, and it is making a 50‹and older people turn out to vote in ulation ageing, so the world will have to useful di erence. In still•fertile America it much greater number than younger ones. live with it. But some of the consequences currently accounts for about 40% of total Academic studies have found no evidence can be ameliorated. Many experts now be• population growth, and in fast•ageing so far that older voters have used their lieve that given the right policies, the ef• western Europe for about 90%. clout at the ballot box to push for policies fects, though momentous, need not be cat• On the face of it, it seems the perfect sol• that speci†cally bene†t them, though if in astrophic. Most countries have recognised ution. Many developing countries have future there are many more of them they the need to do something and are begin• lots of young people in need of jobs; many might start doing so. ning to act. rich countries need helping hands that will Nor is there any sign of the intergenera• But even then there is no guarantee that boost tax revenues and keep up economic tional warfare predicted in the 1990s. After their e orts will work. What is happening growth. But over the next few decades la• all, older people themselves mostly have now is historically unprecedented. Ronald bour forces in rich countries are set to families. In a recent study of parents and Lee, director of the Centre on the Econom• shrink so much that in‡ows of immigrants grown•up children in 11 European coun• ics and Demography of Ageing at the Uni• would have to increase enormously to tries, Karsten Hank of Mannheim Univer• versity of California, Berkeley, puts it suc• compensate: to at least twice their current sity found that 85% of them lived within cinctly: ŒWe don’t really know what size in western Europe’s most youthful 25km of each other and the majority of population ageing will be like, because no• countries, and three times in the older them were in touch at least once a week. body has done it yet. 7 ones. Japan would need a large multiple of the few immigrants it has at present. Public O er to readers opinion polls show that people in most Future special reports Reprints of this special report are available at a Countries and regions rich countries already think that immigra• price of £3.50 plus postage and packing. Texas July 11th tion is too high. Further big increases A minimum order of †ve copies is required. The Arab world July 25th would be politically unfeasible. September 12th Corporate o er Indonesia To tackle the problem of ageing popula• Customisation options on corporate orders of 100 China and America October 24th tions at its root, Œold countries would or more are available. Please contact us to discuss have to rejuvenate themselves by having your requirements. Business, †nance, economics and ideas June 27th more of their own children. A number of Telecoms September 26th Send all orders to: them have tried, some more successfully The world economy October 3rd than others. But it is not a simple matter of The Rights and Syndication Department o ering †nancial incentives or providing 26 Red Lion Square WC1R 4HQ more child care. Modern urban life in rich London Tel +44 (0)20 7576 8148 countries is not well adapted to large fam• Fax +44 (0)20 7576 8492 ilies. Women †nd it hard to combine fam• e•mail: [email protected] ily and career. They often compromise by having just one child. For more information and to order special reports Previous special reports and a list of And if fertility in ageing countries does and reprints online, please visit our website forthcoming ones can be found online not pick up? It will not be the end of the Economist.com/rights Economist.com/specialreports world, at least not for quite a while yet, but