The future is old

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The future is old

MUNICH - The aging of our societies is one of the greatest success stories of the 20th century. More than three decades have been added to the lives of hundreds of millions of people over the last hundred years. This is an accomplishment well worth celebrating, but we must also bear in mind that with increased longevity come significant long-term economic consequences - and that many societies are aging at a record speed.

Last year, the OECD warned that the world was aging at an unprecedented rate and that this could help slow global annual economic growth from an average 3.6 percent this decade to about 2.4 percent from 2050 to 2060. OECD countries in particular will be hit by a double demographic shock. Not only will their societies be rapidly aging, diminishing income gaps between rich countries and emerging economies are likely to slow immigration flows, shrinking the workforce by 20 percent in the eurozone and 15 percent in the United States.

Demographic researchers divide countries into four categories, according to the share of the over-65 population: young (less than 7 percent aged 65 or over), aging (7 to 13 percent), aged (14 to 20 percent) and super-aged (more than 21 percent). Today, just three countries - Germany (21 percent), Italy (22 percent) and Japan (26 percent) - qualify as super-aged societies. In the next five years, they are expected to be joined by Bulgaria, Finland, Greece and Portugal. In the following decade, Europe will continue to age, with another 17 countries, including Austria, France, Sweden and the United Kingdom, expected to become super-aged, along with Canada, Cuba and South Korea.

During this period, the challenges of rapid societal aging will confront mainly the developed world. But by 2040, some 55 countries will be struggling to manage an older population, with the United States, China, Singapore, Thailand and Puerto Rico joining the ranks of the super-aged.

What makes the phenomenon even more remarkable is the speed at which these transitions are taking place. When France went from being a young country to an aging one in 1850, slavery was still legal in the United States, the light bulb had yet to be invented and Germany had yet to become a unified country. It took another 130 years, for the country to become an aged society in 1980. France is expected to become super-aged in 2023.

For many years, Japan was considered to have the most rapidly aging population on Earth. It went from having the youngest population among G-7 countries in the early 1960s to being the world’s oldest country in 2008. But if current projections hold true, several countries will accomplish a similar transformation a decade faster.

Indeed, today the world’s most rapidly aging country is South Korea, which became an aging society in 1999, is expected to become aged in 2017 and will be super-aged in 2027. In other words, South Korea will undergo in less than three decades a transformation that will have taken France nearly 175 years. And while South Korea may be getting old the fastest, it leads a closely bunched group of countries that includes Bangladesh, Singapore, Thailand, and Vietnam.

Iran, still categorized as young, is another contender for the title of fastest-aging country. Aging is a product of rising life expectancies and falling fertility rates. The speed of decline in fertility rates has been dramatic around the world; in Iran, it has been nothing less than astonishing, dropping from seven children per woman in 1984 to 1.9 in 2006. This will certainly have long-term consequences as the working-age population declines and the elderly population soars. Iran is expected to stay young until after 2020 but could then become super-aged less than 30 years later.

And yet, whatever the adverse economic impact of aging, it is important to consider the alternative. Countries such as Sierra Leone, Lesotho, Central African Republic and Zimbabwe have among the lowest life expectancies on the planet. They face many challenges - famine, corruption, conflict, lack of access to clean water and education, AIDS and Ebola - but rapid societal aging is not one of them. A rapidly aging population may be a problem, but overall, it is a pretty good problem to have.

Copyright: Project Syndicate, 2015.

*The author is head of international pensions at Allianz Asset Management.

by Brigitte Miksa

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