The Challenge of Global Aging Richard Jackson Center for Strategic and International Studies

1. The Challenge of Global Aging Richard Jackson Center for Strategic and International Studies National Press FoundationMay 22, 2011

2. Part I The Demographic Transformation

3. 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 Source: UN (2011)

4. Behind the Global Age Wave: Falling Fertility

5. Behind the Global Age Wave: Rising Life Expectancy

6. Part II The Broad Economic, Social, and Geopolitical Implications

7. Fiscal Burden

8. 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.

9. Fiscal Burden 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%

10. Economic Growth • 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.

11. 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. 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

12. Geopolitics The Developed World:A shrinking share of global population

13. Geopolitics The Developed World:A shrinking share of global GDP

14. Geopolitics 12 Largest Countries Ranked by Population China India US Russian Federation Japan Indonesia Germany Brazil UK Italy Bangladesh France China India US Indonesia Brazil Pakistan Bangladesh Nigeria Russian Federation Japan Mexico Philippines Germany (16) France (21) UK (22) Italy (23) India China US Pakistan Nigeria Indonesia Bangladesh Brazil Ethiopia Philippines Dem. Rep. Congo Egypt 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.

15. 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.

16. Part III Aging and Health

17. The Age-Related Health-Care Multiplier The elderly consume more per capita in health-care 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 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 • 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)

18. The Age-Related Health-Care Multiplier The older the elderly are the more health care they consume.

19. The Age-Related Health-Care Multiplier The oldest elderly age brackets will be the fastest growing of all.

20. 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.

21. Other Drivers: The changing shape of the family.

22. 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.

23. The Good News: Rates of elderly disability are declining. Source: Manton, Gu & Vicki (2006)

24. The Bad News:Rates of elderly morbidity are flat or rising. Source: NHIS (various years)

25. 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