The Challenge of Global AgingThe Challenge of Global Aging

Richard JacksonRichard Jackson

Center for Strategic and International StudiesCenter for Strategic and International Studies

National Press FoundationNational Press FoundationMay 22, 2011May 22, 2011

Part IPart I

The Demographic The Demographic

TransformationTransformation

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

Source: UN (2011)

The world is on the cusp of a stunning demographic transformation.

Behind the Global Age Wave:Falling Fertility

Total Fertility RateTotal Fertility Rate

  G-7 CountriesG-7 Countries Major Emerging MarketsMajor Emerging Markets

1960-651960-65 1980-851980-85 2005-102005-10 1960-651960-65 1980-851980-85 2005-102005-10

CanadaCanada 3.7 1.6 1.7 Brazil 6.2 3.8 1.9

FranceFrance 2.8 1.9 2.0 China 5.6 2.6 1.6

GermanyGermany 2.5 1.5 1.4 India 5.8 4.5 2.7

ItalyItaly 2.5 1.5 1.4 Indonesia 5.6 4.1 2.2

JapanJapan 2.0 1.8 1.3 Mexico 6.8 4.3 2.4

UKUK 2.8 1.8 1.8 Russia 2.6 2.0 1.4

USUS 3.3 1.8 2.1 S. Korea 5.6 2.2 1.3

Source: UN (2011)Source: UN (2011)

Behind the Global Age Wave:Rising Life Expectancy

Life Expectancy at BirthLife Expectancy at Birth

  G-7 CountriesG-7 Countries Major Emerging MarketsMajor Emerging Markets

1950-551950-55 1980-851980-85 2005-102005-10 1950-551950-55 1980-851980-85 2005-102005-10

CanadaCanada 69.0 75.8 80.5 Brazil 50.9 63.4 72.2

FranceFrance 67.3 74.8 81.0 China 44.6 67.7 72.7

GermanyGermany 67.5 73.8 79.8 India 37.9 56.2 64.2

ItalyItaly 66.3 74.8 81.4 Indonesia 38.8 58.8 67.9

JapanJapan 62.2 76.9 82.7 Mexico 50.7 67.7 76.2

UKUK 69.3 74.1 79.6 Russia 64.5 67.4 67.7

USUS 68.6 74.3 78.0 S. Korea 47.9 67.4 80.0

Source: UN (2011)Source: UN (2011)

Part IIPart II

The Broad Economic, Social, The Broad Economic, Social,

and Geopolitical Implicationsand Geopolitical Implications

CSIS “Current Deal” Projection:Government Old-Age Benefits, as a Percent of GDP, 2007–2050

 Public Pensions Health Benefits Total

2007 2030 2050 2007 2030 2050 2007 2030 2050

Canada 3.9% 7.0% 8.4% 3.6% 6.1% 8.9% 7.5% 13.1% 17.3%

France 11.2% 17.8% 19.6% 4.5% 7.8% 10.2% 15.6% 25.6% 29.8%

Germany 10.0% 17.0% 20.4% 4.1% 6.3% 8.5% 14.1% 23.3% 28.9%

Italy 12.3% 18.9% 24.6% 3.4% 5.5% 7.5% 15.7% 24.4% 32.1%

Japan 9.1% 13.9% 19.3% 4.0% 6.0% 8.0% 13.2% 19.9% 27.3%

UK 5.8% 7.9% 8.5% 4.0% 6.3% 8.8% 9.8% 14.2% 17.3%

United States 4.1% 6.6% 7.0% 4.2% 8.0% 10.2% 8.3% 14.6% 17.2%

Developed World 8.8% 13.7% 16.6% 3.8% 6.3% 8.6% 11.2% 17.9% 22.5%

Note: Old-age benefits are benefits to persons aged 60 and over. Pension projections assume retirement ages remain unchanged and benefits continue to replace the same share of wages they do today.Source: The Global Aging Preparedness Index (CSIS, 2010)

Fiscal Burden

Few countries will be able to raise taxes enough to cover more than a fraction of the age wave’s cost.

Most will have to cut benefits—but the required adjustments are large and are likely to meet growing political resistance from aging electorates.

The alternatives: cannibalize other public spending or let fiscal deficits grow.

Fiscal Burden

Public Benefits in 2007, as a Percent of Total Elderly Cash Income

Average 3rd Quintile

Canada 31% 47%

France 59% 72%

Germany 47% 76%

Italy 55% 77%

Japan 39% 61%

UK 42% 69%

US 22% 38%

Note: The elderly are persons aged 60 and over.Source: The Global Aging Preparedness Index (CSIS, 2010)

Projected Growth in Major U.S. Entitlement Programs* versus Current Discretionary Spending and Individual Income Taxes, as a Percent of GDP

Growth 2010-40: 7.8%

99

Fiscal Burden

The slowdown in workforce growth in the developed world will translate into slower growth in GDP.

Japan and some faster-aging European countries face a future of secular stagnation.

Productivity and living standard growth may also slow as rates of saving and investment decline.

Aging workforces may be less flexible, less mobile, and less entrepreneurial—putting a further drag on economic growth.

Stagnant or contracting markets will increase the risk of “beggar-thy-neighbor” protectionism.

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

 1980s 1990s 2000s 2010s 2020s 2030s 2040s

Canada 1.7% 1.1% 1.2% 0.5% 0.0% 0.2% 0.1%

France 1.0% 0.4% 0.6% -0.2% -0.1% -0.2% 0.0%

Germany 1.1% 0.2% -0.2% -0.3% -1.2% -1.2% -0.9%

Italy 0.9% 0.2% 0.3% -0.3% -0.6% -1.2% -0.9%

Japan 0.7% 0.4% -0.4% -1.0% -0.7% -1.5% -1.5%

UK 0.6% 0.4% 0.6% 0.3% 0.0% 0.1% 0.3%

US 1.4% 1.2% 1.1% 0.6% 0.3% 0.6% 0.6%

Source: UN (2009)Source: UN (2009)

Economic Growth

As societies age, the overall social mood may become more risk averse and “small c” conservative.

Smaller families may find it more difficult to socialize the young—and care for the old.

Elder-dominated electorates may lock in current public spending commitments at the expense of new priorities.

Even as societies age, they will also become more diverse—challenging social cohesion in some countries.

Social Mood

Share of Population with Less than 20 Years of Life Remaining, by Country, 1950-2050

Source: CSIS calculations based on UN (2007) and Human Mortality Database, University of California, Berkeley and Max Planck Institute for Demographic Research

The Developed World:A shrinking share of global population

Geopolitics

The Developed World:A shrinking share of global GDP

Geopolitics

12 Largest Countries Ranked by PopulationRanking 1950 2010 2050

12345678

9101112

Source: UN (2009)Note: Rankings for developed countries that have fallen below 12 are in parentheses.

ChinaIndiaUSRussian FederationJapanIndonesiaGermanyBrazilUKItalyBangladeshFrance

ChinaIndiaUSIndonesiaBrazilPakistanBangladeshNigeriaRussian FederationJapanMexicoPhilippines

Germany (16)France (21)UK (22)Italy (23)

IndiaChinaUSPakistanNigeriaIndonesiaBangladeshBrazilEthiopiaPhilippinesDem. Rep. CongoEgypt

Russian Federation (16)Japan (19)UK (27)France (29)Germany (30)Italy (37)

Geopolitics

The United States is better positioned to confront the age wave than most developed countries.

The United States is now the youngest of the developed countries—and thanks to its relatively high fertility rate and substantial net immigration it is projected to remain the youngest.

America’s flexible labor markets, broad and deep capital markets, and entrepreneurial culture also constitute important advantages.

To be sure, the United States labors under some notable handicaps, including a low savings rate, an extraordinarily expensive health system, and a political culture that finds it difficult to make trade-offs.

But among today’s developed countries, it alone will have the demographic and economic resources to play a major geopolitical role.

Part IIIPart III

Aging and HealthAging and Health

Canada 4.9

France 3.0

Germany 2.7

Italy 3.2

Japan 4.9

Netherlands 3.9

Spain 3.2

Sweden 2.8

UK 3.4

US 3.7

Ratio of Per Capita Health-Care Spending on the Elderly to Spending on the Nonelderly in Most Recent Year Available*

The elderly consume more per capita in health-care services than the nonelderly.

The Age-Related Health-Care Multiplier

•Data refer to public health-care spending, except for the United States, where they refer to total personal health-care spending. Source: OECD (2002); and Centers for Medicare & Medicaid Services (2007)

The older the elderly are the more health care they consume.

The Age-Related Health-Care Multiplier

The oldest elderly age brackets will be the fastest growing of all.

The Age-Related Health-Care Multiplier

Other Drivers: “Excess Cost Growth”

Per capita health-care costs for everyone are rising faster than per capita GDP.

Behind excess cost growth: new technologies create new demand for medical services.

Behind excess cost growth: “Good health” is a subjective standard that rises over time.

Behind excess cost growth: As people become more knowledgeable about treatment options, limits are harder to set.

Average Number of Surviving Children of the Elderly: 2007, 2040, and Change from 2007 to 2040

    2007 2040 Change       2007 2040 Change

1 Sweden 2.1 2.0 -0.2   9 US 2.9 1.9 -1.0

2 Japan 2.0 1.5 -0.5   10 Australia 3.0 2.0 -1.0

3 UK 2.4 1.9 -0.6   11 Spain 2.7 1.4 -1.2

4 France 2.5 1.9 -0.6   12 Canada 3.2 1.7 -1.5

5 Germany 2.1 1.4 -0.7   13 China 3.5 2.0 -1.6

6 Russia 2.2 1.5 -0.7   14 Brazil 3.8 2.1 -1.7

7 India 3.5 2.6 -0.9   15 Korea 3.6 1.8 -1.8

8 Italy 2.3 1.4 -0.9   16 Mexico 5.0 2.6 -2.5

Note: The elderly are persons aged 60 and over. Source: The Global Aging Preparedness Index (CSIS, 2010).

Other Drivers: The changing shape of the family.

Two Models of Aging and Health

The “compression of morbidity” modelpredicts that health spans will rise along with life spans.

The “failure of success” model predicts that rising life spans will mean a rising

incidence of chronic morbidity among the elderly.

The Good News: Rates of elderly disability are declining.

Percent of U.S Elderly with a Disability or in an Institution

With a Disability 1982 1989 1999 2005

Age 65-74 14.2 11.9 10.7 8.9

Age 75-85 30.7 29.9 23.4 21.9

Age 85+ 62.1 61.4 55.6 49.7

In an Institution 1982 1989 1999 2005

Age 65-74 2 1.9 1.4 0.9

Age 75-85 8.1 7.0 4.3 4.1

Age 85+ 27.2 26.1 19.5 15.6

Source: Manton, Gu & Vicki (2006)

Percent of U.S. Elderly with Selected Medical Conditions1998-2000 2004-2006 2007-2009

Heart Disease       Age 65-74 17.6 18.6 17.4       Age 75-84 22.2 24.8 24.6       Age 85+ 24.0 28.6 27.2 Stroke       Age 65-74 6.5 6.9 6.3       Age 75-84 10.1 11.0 11.2       Age 85+ 10.4 15.1 13.8 Cancer       Age 65-74 17.0 18.3 20.5       Age 75-84 21.8 25 25.9       Age 85+ 21.4 25 27.7 Diabetes       Age 65-74 14.5 18.4 19.9       Age 75-84 13.4 17.6 19.0       Age 85+ 9.3 12.6 13.7

Source: NHIS (various years)

The Bad News:Rates of elderly morbidity are flat or rising.

We live in an era defined by many challenges, We live in an era defined by many challenges, from global warming to global terrorism.from global warming to global terrorism.

None is as certain as global aging.None is as certain as global aging.

And none is likely to have such a large and And none is likely to have such a large and enduring effect on the shape of national enduring effect on the shape of national economies and the world order.economies and the world order.

CSIS.ORG GAPINDEX.CSIS.ORGCSIS.ORG GAPINDEX.CSIS.ORG