For the first time in history, there are more people over the age of 65 than under 5. Pensioners outnumber children in a growing number of countries, including much of Europe and Japan. By 2030 there will be over 1 billion people over the age of 65 and more than 200 million over the age of 80, with the number of elderly people doubling over 20 years. Improvements in public health and medicine account for increased longevity, a long-term trend of about two years per postwar decade – notwithstanding the recent reversals,. which are primarily due to the COVID-19 pandemic and inequalities in healthcare. More surprising, in my opinion, is how quickly fertility is falling. More than half the countries in the world are now below the level of fertility required to keep the population the same from generation to generation.
In a single generation, societies as different as Iran and Ireland, for example, have seen their birth rates plummet in a way that cannot be explained by cultural and religious beliefs. Nor do income levels explain the difference. the United States and countries as diverse as Italy, South Korea, Japan, Hungary, Poland, Russia, China and Brazil are all recording record lows in fertility, and even India is now below replacement level. In fact, over half of projected population growth in the coming 30 years will be in just eight countries. Yes, you read that right!
The collapse in fertility coupled with increased longevity leads to a rapid aging of societies. The working age population of the 38 member countries of the OECD. Is projected to decline by around a quarter over the coming 30 years without higher levels of migration. Therefore, migration in my opinion, will play a key role in the economic success of nations and governments in the upcoming decades. As a rapidly growing elderly population rely on the taxes, pension contributions and services provided by fewer and fewer workers, economies will sooner than later come under increasing strain. With average life expectancy after retirement approaching 20 years in the developed world and real adjusted returns barely positive, much higher levels of savings are required to fund pensions. More savings obviously means less consumption, dampening demand for everything other than services for the elderly.
A key challenge in my opinion is to direct a growing share of the savings into long term investment, as the collapse in corporate and public investment means that as societies have aged, so too have their stock of infrastructure, health, education and other systems, with this contributing to the slowdown in productivity.
The declining size of the workforce will also mean that the revenue of governments through payroll taxes will shrink at a time skyrocketing government debt levels and most probably higher invest rate levels. That’s in my opinion deeply concerning. The growing share of a declining workforce that need to be devoted to elderly care acts as a further drag on productivity and growth, since case work is necessarily not open to many gains in efficiency. The widening gap between the improvements in life expectancy and the much slower progress in addressing for example, dementia, among other degenerative brain diseases, is in my opinion, compounding the pressures on families, care systems, and private and public finances. We will most probably all end up in a rat race.
Aging also exacerbates income and wealth inequalities. With these disparities being widened by the pandemic, the gap in life expectancy exceeds 10 years between the poorest and richest communities in the US and most of Europe. And there is a staggering 32-year gap in average life expectancy between rich countries like Japan and some of the poorest countries, such as Sierra Leone.
Across Africa, the median age is below 20, half that of Europe and much of East Asia. Asia’s growth benefited from labor-intensive manufacturing, back office processing and call centers. The automation of these processes is in my opinion removing the middle rungs of the development ladder, with potentially dire consequences for the 100 million young Africans who will be entering the labor market over the next 10 years.
Demography is of course not destiny, but it does need to inform public policy and individual decisions and awareness. It means greater attention must be paid to improving people’s health, extending working lives, accepting and integrating more migrants, increasing productivity and growing savings.
The shift from consumption to savings, in my opinion can increase the potential for a circular economy and reducing carbon emissions. It might also over time reduce interest rates and inflation, allowing for higher levels of investment in clean infrastructure, health, housing and education, which are the bedrock of sustained growth. But this process needs to be managed! If we finally stop kicking the demographic time bomb down the road, it will be possible to achieve stable and sustainable societies that provide a better life for future generations as well as our own.
It is quite likely that we are already witnessing the first results of demography change: a systematic and structural lack of people of working age, with more and more shortages to come – for example, nurses, cleaning stuff, airport staff and those working in restaurants.
In the ensuing war over talent, we should not expect inflation to lie down soon at the same time as we try to re-shore the vast quantities of work we’ve outsourced to China in the past two decades. China, facing exactly the same problem, has already decided to give priority to local consumption over exports. Has anyone in the EU, or the UK, even started to do the math on the personnel resources that will be necessary? And in case they did, do they have the guts to tell their populations?
Trust me, a great awakening is coming: the labor pool dried out already some time ago. And we only need to look at Japan to see what is in store for us.
The solution in my opinion is so simple: organize and structure a qualified, long-term and properly managed increase in immigration – from Africa of course, where else?!