Transcript Challenge of Global Aging - National Press Foundation

The Challenge of Global Aging
Richard Jackson
Center for Strategic and International Studies
National Press Foundation
May 22, 2011
Part I
The Demographic
Transformation
The world is on the cusp of a stunning
demographic transformation.
Elderly (Aged 65 and Over), as a Percent of the Population in 2010 and 2050
4.9%
India
2010
13.5%
Mexico
6.3%
Brazil
7.0%
2050
16.9%
13.1%
Australia
13.4%
16.6%
24.4%
Italy
18.2%
25.2%
S.Korea
16.8%
France
10%
20%
30%
14.1%
26.0%
20.4%
33.7%
17.0%
35.1%
20.4%
35.4%
11.1%
36.1%
22.7%
Japan
25.3%
0%
25.6%
Spain
23.5%
Sweden
12.8%
Russia
Germany
21.3%
UK
25.4%
Canada
20.8%
US
8.2%
China
40%
50%
38.7%
0%
10%
20%
30%
40%
50%
Source: UN (2011)
Behind the Global Age Wave:
Falling Fertility
Total Fertility Rate
G-7 Countries
Major Emerging Markets
1960-65
1980-85
2005-10
1960-65
1980-85
2005-10
Canada
3.7
1.6
1.7
Brazil
6.2
3.8
1.9
France
2.8
1.9
2.0
China
5.6
2.6
1.6
Germany
2.5
1.5
1.4
India
5.8
4.5
2.7
Italy
2.5
1.5
1.4
Indonesia
5.6
4.1
2.2
Japan
2.0
1.8
1.3
Mexico
6.8
4.3
2.4
UK
2.8
1.8
1.8
Russia
2.6
2.0
1.4
US
3.3
1.8
2.1
S. Korea
5.6
2.2
1.3
Source: UN (2011)
Behind the Global Age Wave:
Rising Life Expectancy
Life Expectancy at Birth
G-7 Countries
Major Emerging Markets
1950-55
1980-85
2005-10
1950-55
1980-85
2005-10
Canada
69.0
75.8
80.5
Brazil
50.9
63.4
72.2
France
67.3
74.8
81.0
China
44.6
67.7
72.7
Germany
67.5
73.8
79.8
India
37.9
56.2
64.2
Italy
66.3
74.8
81.4
Indonesia
38.8
58.8
67.9
Japan
62.2
76.9
82.7
Mexico
50.7
67.7
76.2
UK
69.3
74.1
79.6
Russia
64.5
67.4
67.7
US
68.6
74.3
78.0
S. Korea
47.9
67.4
80.0
Source: UN (2011)
Part II
The Broad Economic, Social,
and Geopolitical Implications
Fiscal Burden
CSIS “Current Deal” Projection:
Government Old-Age Benefits, as a Percent of GDP, 2007–2050
Public Pensions
2007
2030
2050
Health Benefits
2007
2030
2050
Total
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.
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)
Fiscal Burden
Projected Growth in Major U.S. Entitlement Programs* versus Current
Discretionary Spending and Individual Income Taxes, as a Percent of GDP
20%
16%
12%
18.1%
Growth
2010-40:
7.8%
10.3%
8%
7.6%
7.8%
2000-2010 Average
2000-2010 Average
4%
0%
2010
2040
Major Entitlement Programs*
Discretionary
Spending
Individual
Income Taxes
* CBO “Alternative Fiscal Scenario.” Includes Social Security, Medicaid, Medicare, Exchange Subsidies, and CHIP outlays.
Source: CBO (2010)
9
Economic Growth
 The slowdown in workforce
growth in the developed world
will translate into slower growth
in GDP.
Average Annual Growth Rate in the Working-Age
Population (Aged 20-64), by Decade
1980s 1990s 2000s 2010s 2020s 2030s 2040s
 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 “beggarthy-neighbor” protectionism.
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)
Social Mood
 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.
35%
Share of Population with Less than 20 Years of Life
Remaining, by Country, 1950-2050
30%
Japan
Italy
25%
Germany
UK
20%
Canada
France
15%
US
10%
1950
1970
1990
2010
2030
2050
Source: CSIS calculations based on UN (2007) and Human Mortality Database,
University of California, Berkeley and Max Planck Institute for Demographic Research
Geopolitics
The Developed World:
A shrinking share of global population
25%
Developed World Population by Region,
as a Share of World Total, 1950-2050
Population as a Share of World Total
1950 2005
US
6.2% 4.6%
Western Europe
9.6% 5.0%
Japan
3.3% 2 .0%
Other English-Speaking 3.1% 1.9%
Countries
20%
2050
4.1%
3.1%
1.0%
1.4%
15%
Japan
10%
Other English-Speaking Countries
Western Europe
US
5%
0%
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Source: The Graying of the Great Powers (CSIS, 2008)
Geopolitics
The Developed World:
A shrinking share of global GDP
70%
Developed World GDP (in 2005 PPP Dollars),
as a Percent of World Total, 1950-2050
GDP as a Share of World Total
1950
2005
2050
US
29.1% 22.3% 16.9%
Western Europe
22.7% 17.4% 7.1%
Japan
3.2% 6.9% 2.5%
Other English-Speaking 9.2% 7.0% 4.5%
Countries
60%
50%
40%
30%
20%
10%
0%
1950
Japan
Other English-Speaking Countries
Western Europe
US
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Source: The Graying of the Great Powers (CSIS, 2008)
Geopolitics
12 Largest Countries Ranked by Population
Ranking 1950
1
2
3
4
5
6
7
8
9
10
11
12
China
India
US
Russian Federation
Japan
Indonesia
Germany
Brazil
UK
Italy
Bangladesh
France
2010
2050
China
India
US
Indonesia
Brazil
Pakistan
Bangladesh
Nigeria
Russian Federation
Japan
Mexico
Philippines
India
China
US
Pakistan
Nigeria
Indonesia
Bangladesh
Brazil
Ethiopia
Philippines
Dem. Rep. Congo
Egypt
Germany (16)
France (21)
UK (22)
Italy (23)
Russian Federation (16)
Japan (19)
UK (27)
France (29)
Germany (30)
Italy (37)
Source: UN (2009)
Note: Rankings for developed countries that have fallen below 12 are in parentheses.
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.
60%
U.S. Population and GDP (in 2005 PPP Dollars),
as a Share of Developed World Total, 1950-2050
50%
40%
30%


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.
GDP
20%
Population
10%
0%
1950
1970
1990
2010
2030
Source: The Graying of the Great Powers (CSIS, 2008)
2050
Part III
Aging and Health
The Age-Related Health-Care Multiplier
The elderly consume more per capita in healthcare services than the nonelderly.
Ratio of Per Capita Health-Care Spending on the Elderly to
Spending on the Nonelderly in Most Recent Year Available*
Canada
4.9
France
Germany
Italy
Japan
Netherlands
Spain
Sweden
UK
US
3.0
2.7
3.2
4.9
3.9
3.2
2.8
3.4
3.7
•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 Age-Related Health-Care Multiplier
The older the elderly are the more health care
they consume.
35
Ratio of Per Capita U.S. Personal Health-Care
Spending on the Elderly to Spending on the
Nonelderly in 2004, by Elderly Age Group
31.8
30
Age 65 & Over
25
Age 65-74
20
Age 75-84
15
Age 85 & Over
10
5
10.4
9.9
2.7
2.3
3.1
3.5
3.7
0
Acute Care
Source: Centers for Medicare & Medicaid Services (2007)
Long-Term Care
The Age-Related Health-Care Multiplier
The oldest elderly age brackets will be
the fastest growing of all.
600%
Cumulative Percentage Change in the Elderly
Population by Age Group, 2010–2050
526%
500%
Age 65-74
400%
Age 75-84
Age 85 & Over
300%
300%
225%
200%
114%
100%
124%
78%
0%
US
Source: UN (2011)
China
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.
Other Drivers: The changing shape of the family.
Average Number of Surviving Children of the Elderly: 2007, 2040, and Change
from 2007 to 2040
2007
2040
Change
2007
1
Sweden
2.1
2.0
-0.2
9
2
Japan
2.0
1.5
-0.5
3
UK
2.4
1.9
4
France
2.5
5
Germany
6
Change
2.9
1.9
-1.0
10 Australia
3.0
2.0
-1.0
-0.6
11 Spain
2.7
1.4
-1.2
1.9
-0.6
12 Canada
3.2
1.7
-1.5
2.1
1.4
-0.7
13 China
3.5
2.0
-1.6
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).
US
2040
Two Models of Aging and Health
 The “compression of morbidity” model
predicts 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)
The Bad News:
Rates of elderly morbidity are flat or rising.
Percent of U.S. Elderly with Selected Medical Conditions
1998-2000
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)
We live in an era defined by many challenges,
from global warming to global terrorism.
None is as certain as global aging.
And none is likely to have such a large and
enduring effect on the shape of national
economies and the world order.
CSIS.ORG
GAPINDEX.CSIS.ORG