A special report on ageing populations June 27th 2009 AAGE.inddGE.indd 1 116/6/096/6/09 115:51:225:51:22 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 benets, 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 for 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 forespe• 1 2 A special report on ageing populations The Economist June 27th 2009 Germany, Italy and Spain, for instance, to every pensioneralready one of the What crisis? 1 now have tiny families and are therefore lowest ratios anywherethe 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 ageingyet. 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 worldfewer births, longer liveswill 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 asset 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 one•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 signicant 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.