OUR OLDER WORLD LONG LIVES, OLD COUNTRIES, SMALL FAMILIES, AND A CHANCE FOR A BETTER WORLD
Ted C. Fishman Fellow, National Chamber Foundation Author, Shock of Gray
Ted C. Fishman Ted C. Fishman is a veteran journalist, essayist, and former member and trader of the Chicago Mercantile Exchange. Fishman also serves as a fellow at the National Chamber Foundation. Fishman’s latest book, Shock of Gray: The Aging of the World’s Population and How it Pits Young Against Old, Child Against Parent, Worker Against Boss, Company Against Rival, and Nation Against Nation (Scribner Books, October 2010), looks at how the aging of the world is propelling globalization, redefining nearly every important relationship we have and changing life for everyone young and old. Shock of Gray is rich in stories drawn from North America, Europe, and East and Southeast Asia. It offers a clear-eyed view and analysis on where the older world is heading and what it means for all of us. In Fishman’s previous book, the international best-seller China, Inc.: How the Rise of the Next Superpower Challenges America and the World, he describes the effects of China’s recent emergence as a world power on the lives and businesses of people across the globe. As a speaker, Fishman addresses audiences around the world. He is a graduate of Princeton University and lives in Chicago.
Additional writing and research: With special thanks: Research Management: Hilary Crow Gary Litman Rich Cooper Michael Hendrix Vice President, Vice President, Europe and Eurasia Affairs Research and Emerging Issues U.S. Chamber of Commerce National Chamber Foundation
The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.
The National Chamber Foundation, a nonprofit affiliate of the U.S. Chamber of Commerce, is dedicated to identifying and fostering public debate on emerging critical issues. It provides business and government leaders with insight and resources to address tomorrow’s challenges.
“U.S. CHAMBER” and “U.S. CHAMBER OF COMMERCE” are registered trademarks of the Chamber of Commerce of the United States of America. © National Chamber Foundation, 2012
The aging of the world is an unprecedented transformation that results from thousands of years of striving for better, healthier, and longer lives. We are in the first minute of a giant change. If we navigate well, we can make the most of the greatest treasures humankind has ever sought: longer, more robust lives and the wherewithal to make the most of them. In the long term, the prospects of extended life and more mature communities may promote the prosperity of G-8 countries by leveraging their ability to create the world’s best educated workers. G-8 nations can have workforces that contribute to productive and creative enterprises (and governments) longer and with better skills than ever, all while their citizens enjoy a good work-life balance that in itself promotes longer life, health, and creativity. We can, and must, get it right.
An Accelerated Change The world’s population is growing older. The number of older people is growing faster than the number of young people. The rate of aging varies from place to place, and a handful of limited geographic regions are bucking the trend. However, global aging is not a slow trend unfolding at a glacial pace. Compared with most of the big demographic shifts in human history, global
Global aging propels, and is propelled by, the speed of modernity, in which the globalization of capital, labor, technology, information, and the emancipation of women quicken demographic change. Yet in a multifold dynamic, the resulting changes in the ways we live, in turn, accelerate the ways we remake our communities, firms, and economies.
Global Aging: Personal and Communal Overall, and overwhelmingly, people are living longer than at any time in history. Heartier diets, the conquests of infectious disease, the spread of effective public health, and literacy have been good medicine for the world. In the United States, Western Europe, and Japan, life spans have been stretching about two years longer in every decade for more than a century. Spanish women today live on average to about 84 years old.1 A child born today in France has a one-in-two chance of living to 100.2 Median Age and Elder Share Is Up Having citizens who live longer lives is not enough to push up the average age of a group. To determine whether populations are aging overall, demographers look at two related data sets: median ages and elder shares. The world today is evenly divided between those under the age of 28 and those over it.3 By midcentury, the median age will have risen to nearly 40.4 In Europe and in much of industrialized East Asia, median ages will likely exceed 50.5 If the elder share, or proportion,
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Global aging is a huge, complex change that touches all of us from womb to tomb, in every corner of the globe. This brief covers some of the challenges. It also offers a short reflection on opportunities facing our aging world that are driven by the G-8, but which extend beyond and help drive a growing segment of the world’s population to better health, longer lives, and prosperity.
aging is a flash flood that is fundamentally changing the way the world lives and does business.
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Our Older World
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of people over 60 (or sometimes over 65) is growing, the population is aging. By that yardstick, the world is quickly becoming older. Pick any age cohort above the median age of 28, and you’ll find its share of the global population rising faster than that of any segment below the median. Elder shares are expanding unevenly. Looking over a century, from 1960 to 2060, at the 27 countries in the EU, for example, the proportion of citizens over 65 will have just doubled in the youngest (i.e., Ireland) but grown sixfold in the most rapidly aging (i.e., Germany). By 2018, 65 year olds will outnumber those under 5. In 2050, developed countries are on track to have half as many people under 15 as they do over 60.6 This has never happened before.
Demographic Rebalancing Unsurprisingly, these changes rebalance the world’s economy and influence the global flow of money, labor, and goods. In the world’s oldest countries, for instance, the supply of active labor is rapidly shrinking and, relatedly, the collective needs of people who have retired out of the workforce are growing. In countries undergoing the early stages of growing older, workingage populations are abundant today but are aging quickly and tilting the generational balance of their populations more and more toward older groups. Looking at Aging the G-8 For good reason, the high-income countries that make up the G-8 engage in the most robust, developed public discussions of population aging.
Median Age Estimates and Projections (Age and Years)
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4
1980
1990
2000
2010
2020
2050
Australia
29.4
32.2
35.4
38
40
43.4
Canada
29.2
32.9
36.9
40
42.1
45.3
France
32.5
34.7
37.9
40
41.9
44.7
Germany
36.4
37.7
39.9
44.2
47.3
49.4
Greece
34.2
36.1
38.3
41.9
45.2
50.1
Italy
34
37.4
40.2
43.8
47.5
50.4
Japan
34
37.4
41.3
44.6
48.5
54.9
U.K.
34.3
35.8
37.7
41.1
41.1
43.4
U.S.
30.1
32.8
35.3
37.5
37.5
41.1
Source: Judith L. MacBride, Canada’s Talent Race: It’s More Than Time to Get Creative.
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Share of Population Over Age 60 50%
38%
25%
13%
0%
Brazil
China Indonesia
Italy
Japan
Mexico
U.S.
S. Korea
2005 2050 Projection
Source: U.N. Population Division, via George Magnus, The Age of Aging, p. 45.
Demographic aging is widely expected to retard economic growth, consumption, and savings rates.
A study by demographer David Canning and others titled Implications of Population Aging for Economic Growth attempted to measure the effect of the coming demographic change in countries that are part of the Organisation for Economic Co-operation and Development (OECD) by looking at how a similar change might have affected growth in the past.11 The study looked at 45 years of economic growth beginning in 1960 and ending in 2005, during which the economies averaged a growth rate of 2.8%. Its finding: Growth rates would have been just 2.1%—a whopping 25% lower, compounded! Whether demographic aging will, in fact, slow growth depends on if countries and citizens embrace reforms to accommodate the change. Proactive changes in labor
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In 2008, The Berlin Institute noted that the median age in Western Europe is climbing by two days every week, a pace it will maintain until at least 2025.7 A 2009 World Bank study said that population growth in Europe and Japan is already negative.8 Japan looks destined to lose 30% of its population by 2060; by then, citizens over 65 will make up 40% of the nation.9 Its workforce has also been shrinking since 2008 at an ever-increasing rate. That can be reversed if workers stay on the job longer and women enter the workforce in bigger numbers. Indeed, such measures can ameliorate nearly all the labor shortage and much of the age-related budgetary shortfalls expected in the G-8 over the coming decades.10
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practices as well as reforms in social safety nets, personal and public savings practices, and public spending may avert the negative impact of population aging.
adults, but now they increasingly consist of older people. Today, the ratio of workers to older dependent people is shrinking quickly. In Western Europe, there are around 3.5 workers per older person, but by 2030, the ratio will be less than 2.5-to-1.12
If Europe’s and Japan’s labor forces do not expand with new categories of workers, these economies will strain ever more from the shrinking of their working populations and the growth of their dependent populations. In previous years, the populations of G-8 countries were made up mostly of children and young
An Aging World Is for Now a Growing World While most of Europe and much of East Asia ( Japan, South Korea, and Taiwan) are already experiencing—or
G-8 Fertility Rate 2.1
2.1
2.1
1.9
1.6
1.6
1.6
1.4
1.1
1.4
1.4
1.4
0.5
84
82
81
81
80
80
79
ia
78
70
66
60
ia ss Ru
U
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EU
.
. .K U
m er
Birthrate for G-8 (per 1,000 population)
15 12
an y
e an c
G
C
Fr
an
ad a
ly Ita
Ja
pa
n
50
13.83
9
12.29
12.29
11.05
10.28
6
9.18
8.3
7.31
3
Source: CIA Factbook.
Ja pa n
an y m er
Ita
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C
an
ad
a
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. .K U
Ru
Fr
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.
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0
U .S
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ss
G
Ru
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Ja
Ita
pa
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G-8 Life Expectancy
90 80
EU
a
. .K U
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U
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.
0
Mexican women, on average, have 2.4 children, one-third as many as they gave birth to in 1960.14 In addition, the large out-migration of Mexicans in the prime of their working lives further tilts the age balance in the country and helps the United States stay younger demographically than it would be without inward immigration. The median age in Mexico will likely rise from around 28 today to 43 by 2050.15 That’s four years older than the 2050 median for the United States, and around seven years younger than in the world’s oldest places, such as Japan or Southern Europe. That will make Mexico, like much of the “younger” world, converge with the “older” world in decades to come. Along the way, look for momentous changes in the way the world lives, works, and invests in the future.
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are on the cusp of—shrinking populations, the world’s population will still grow even as it ages. The revised best estimates from the United Nations’ Population Division in 2011 found that the world head count will go from roughly 7 billion today to 10 billion by 2083.13 Ninety percent of the growth in population will occur outside of today’s high-income countries. And most of that will occur in the booming cities of the developing world. (Small changes in fertility yield big changes in population. Raise the fertility estimate up by half a child and the world grows to 16 billion people by late in the century. Alternatively, lower the estimate of fertility by half a child and the forecasted world population shrinks to around 6 billion.) For example, in Mexico, life expectancy at birth, now near 75, has more than doubled since 1950. Today,
Percentage of Retired Population (Age 65+) EU World
High Income Low Income
OECD Least Developed
Middle Income Heavily Indebted & Poor
15%
National Chamber Foundation
% of working population
20%
10%
5%
7 0% 1960 Source: OECD.
1970
1980
1990
2000
2010
50 40 30 20 10 . .S U
ia ss Ru
ce Fr
an
. .K U
a C
an
ad
ly Ita
n pa Ja
er
m
an y
0 G
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G-8 Median Retirement Age
Women Men Total Source: CIA Factbook.
Oldest and Youngest Countries median age
Among the Challenges Longer Work Lives for Individuals: Some Made More Valuable by Population Aging, Some Made Less
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Global aging exerts pressure on individuals at work. Some large categories of workers struggle to hold jobs that migrate to younger locales. Managers and owners must weigh how to keep older, experienced workers at their posts. Older workforces can stay highly productive where workplaces and technology adapt to older workers’ abilities and needs. For example, to keep its aging workforce highly productive, BMW shifted the position of cars on its assembly lines from horizontal to vertical. By standing the cars upright, the company aimed to help older workers who had difficulty operating under the cars when the cars were
5 oldest countries: Monaco 48.9 Japan 44.6 Italy 44.3 Germany 43.7 Jersey 43.4 5 youngest countries: Uganda 15 Niger 15.2 Mali 16.2 Yemen 16.4 Congo 16.5 Source: CIA Factbook.
flat on the assembly line. The move not only helped older workers but made the assemblies as a whole more productive.
Workforce participation rates for older workers are highest where workers feel they are under-pensioned. South Korea and Japan have the highest participation rates in the OECD, but the ratio of older working persons is climbing in other industrialized countries.17 Workers in the United Kingdom now leave work, on average, one year later than they did in 2004.18 A higher proportion of Americans (46.3%) are working closer to or past retirement age than ever before.19 Because the baby boomer cohort is so large, employment patterns among older workers can have anomalous patterns. Though the unemployment rate for Americans over 55, for example, is near its all-time highs, older workers have also been hired in large numbers since the beginning of the economic recession in December 2007. Over four tough years, during which total payroll in the United States
Older workers without high-value skills often must stay in the workforce beyond when they planned to retire; often they remain at work at reduced wages. In Japan, 50% of men past the traditional retirement age of 60 continue to work, earning contract wages that equal around half of what their jobs formerly brought them as salaried employees.16 For those that need, or want, the money, the work is welcome; for the companies that need the workers, it is a bargain.
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Managers must also consider whether to acquire younger workers in emerging markets. To take the most recent and well-known example, electronics assembly is now dominated by factories in low-cost countries and has proven exceptionally nimble at shifting locales when costs associated with aging, better educated workforces begin to percolate.
Official Versus Effective Retirement Ages 75
Men
68.75
Early retirement
Delayed retirement
62.5 56.25
ga l U .K . Ja pa n M ex ic o Tu rk ey Ko re a
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Po
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Fr a
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a
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C
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bo ur g Au st ria Be lg iu m G er m an y
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Effective
Official
75
Women
68.75 62.5 56.25
9
Lu
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Ko
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M
Tu r
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. .K
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U
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Sp
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C
ga
nd
Ita
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Ire
la H
xe
m
bo ur g Au st ria Be lg iu m G er m an y
50
Source: OECD.
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dropped by 4.2 million, employment for workers over 55 climbed by 3.9 million.20 Cognizant of their potential for long life and fearful that their pensions will leave them short, people feel compelled to keep earning longer, even if it means accepting lower wages and leaner benefits. There are some compelling benefits to working longer. Many able, older people prefer work, and work keeps them healthier and more socially engaged. Flexible work allows them to have the work-life balance they want. (Professionals fare far better in late-life work, and economies shifting toward service sectors make longer work lives more attractive.) Global aging feeds the trend toward contingent labor, including hourly, part-time, and contract
work, as well as self-employment by necessity. For the first time, more than half of the global workforce consists of contingent labor. When older workers fill contingent positions, younger workers may have to compete for jobs against low-wage older workers who have years of experience. In a seeming contradiction, an aging world creates a shortage of labor and puts pressure on the wages and benefits of some new job entrants but puts a premium on others. And, in another twist, as older workers stay in the workforce—or enter it (as many women workers do)—they can stir economic activity that drives employment for younger workers, while the abundance of willing older workers may be depressing overall wages for lower-skilled young people.21
Share of Children, by Number of Parents in Household, United States 100%
75%
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10
50%
25%
0% 1960
1970
1980
1 Parent 2 Married Parents 2 Cohabitating Parents
Source: The Decline of Marriage and Rise of New Families, Pew Research Center.
1990
2000
2008
Companies whose identities, markets, and political supports are deeply rooted in home countries marked by aging and stagnant markets must measure how to relocate their capital, research, labor, and even geopolitical grounding toward younger, growing markets that boast larger, more youthful, and lower cost workforces. Vexing Choices for Institutional Investors Similarly, public and private pension plans must decide whether they best serve their beneficiaries by keeping money tied up in markets close to home or by diversifying into the very markets that challenge their countries’ workers at home.
Smaller Families and Fewer Familial Supports
The single child and childless adult are commonplace, but the households they make will be far different
Countries, Cities, and Other Localities Must Fight to Stay Demographically Young Global aging challenges communities to develop the mix of social amenities and work opportunities needed to retain and engage young, talented workers so that they are available in the local labor pool. Strong, youthful demographics, in turn, help keep and attract businesses to the area. Many aging places, however, are overwhelmed by how swiftly their labor forces age. Global aging forces countries to manage their workforces and social services while their populations invert from being mostly young to mostly old. Pro-natal policies that offer workplace accommodations, cash grants, and tax incentives to parents willing to have second, third, or more children will tap public resources not now deployed. The high costs of keeping an aging population healthy and out of poverty challenges advanced welfare states, including the United States and other rich democracies, to keep their economic and political footing. Countries on the rise, such as China, India, and Indonesia, will
National Chamber Foundation
The advent of longer lives coincides with a dramatic downsizing of the immediate family. No big industrialized country has a birthrate much exceeding two children— some hover around one. In the United States, the fertility rate is at the historically low level of 1.9, but in some Eastern European countries and in Japan, fertility rates drift around 1.4, the lowest point since records began.22 (These countries must brace themselves for large drops in their populations.) In Sweden and France, home to Europe’s biggest new families, birthrates are near replacement rate but unlikely to go much higher soon.
from today’s already smaller families. Within a generation, it will be routine for a child to be born with no brothers or sisters, no cousins, and no uncles and aunts. Thus, global aging challenges families. When older people have fewer younger relatives to care for them and provide emotional and financial support, the physical and financial burdens for care fall to the few who remain. Also, much of the care once provided within a family will move to the public or commercial spheres. Expenses such as these can overwhelm families and governments.
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Global Aging Can Weaken the Links Firms Have to Their Historic Home Bases and Push Them Into New Markets
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amass new wealth and geopolitical clout by minimizing those costs.
taxes to pay for welfare expenses, etc.), that work primarily lands in younger, lower-income places.
An Older Population Is a More Diverse Population: Uniform Treatment of Older People Is Counterproductive
For example, in China, $2 trillion in foreign capital met 250 million young workers who moved off farms and out of rural hamlets to a newly built, newly urbanized agglomeration of cities. Since Chinese market reform began, incomes have climbed nearly tenfold. With few children of their own to care for, the new urban workers (and their parents and grandparents) could invest more in the education of each child. China now graduates nearly 7 million students from universities every year (compared with about 1.7 million in the United States).26
Any approach to navigating an older world must take into account the fact that the population grows more diverse as it ages. Up until age 60, people in a given age cohort tend to be mostly as healthy and cognitively fit as their cohorts.23 Twenty year olds are mostly as healthy and as sound of mind as other 20 year olds; likewise, for 50 year olds. Above age 60, the health and cognitive status of the population is far less uniform. About 70% of the population can, for example, work at near full capacity, but for others, physical setbacks have already begun to slowly limit their abilities.24 The older population—if defined as 60-plus or 65-plus—is a huge group that includes the relatively able group in their sixties and the far less able group over 85 (at which time a person has a 50-50 chance of being stricken with some form of dementia).25 Cookie-cutter solutions or regulatory demands that are insensitive to age-related diversity in the workplace will not suit an aging population, its employers, or its older citizens. Yet opportunity abounds.
The Boon of an Aging World Global aging also drives, and is driven by, trends that move hundreds of millions of the world’s poorest people into the ranks of the literate, the middle class, and the longer lived. When jobs move from highincome economies characterized by aging workforces and their attendant expenses (high-cost labor, higher
As of 2011, for the first time, the Chinese population and workforce are growing older.27 The Chinese now expect to export 85 million jobs to low-income countries, which will accelerate the cycle in the places they turn to and drive urbanization, education, and income up. What is more, as high-income countries learn to compete with those boasting lower cost labor, their own creativity, productivity, and sophistication will advance as a result. The aging of the world is inseparable from its prosperity and the rise everywhere of an ever-growing global middle class.
1.
United States. 2011. The CIA World Factbook 2012. New York: Skyhorse Pub.
2.
Oeppen, Jim, and James W. Vaupel. 2002. “Demography. Broken limits to life expectancy.” Science 296, no. 5570: 1029–31. http://www.ncbi.nlm.nih.gov/pubmed/12004104.
3.
United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2010 Revision, New York, 2011.
4.
Ibid.
5.
Ibid.
6.
United Nations. 2002. World population ageing, 1950–2050. New York: United Nations.
7.
Kröhnert, Steffen, Iris Hossmann, and Reiner Klingholz. 2008. Europe’s demographic future: growing regional imbalances. Berlin: Berlin Institute for Population and Development. 58.
8.
World Bank. 2009. World development indicators 2009. Washington, D.C.: World Bank.
9.
Fujita, Akiko. “Japan’s Population to Shrink Nearly a Third by 2060.” ABC News, January 30, 2012. http:// abcnews.go.com/blogs/headlines/2012/01/japans-population-to-shrink-nearly-a-third-by-2060. Börsch-Supan, Axel, and Alexander Ludwig. “Old Europe Ages: Reforms and Reform Backlashes.” In Demography and the economy, John B. Shoven, 169–208. Chicago: The University of Chicago Press, 2011.
11.
Bloom, David E., David Canning, and Günther Fink. 2011. “Implications of population aging for economic growth.” Cambridge, MA: National Bureau of Economic Research. http://papers.nber.org/ papers/w16705.
12.
Okeke, Timothy C. “Moral Obligation and Social Rationality of Government: The Affordable Care Act.” Forum on Public Policy (2011): 1-26. http://forumonpublicpolicy.com/vol2011.no2/archivevol2011.no2/okeke.rev.pdf.
13.
United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2010 Revision, New York, 2011.
14.
Tuiran, Rodolfo, Virgilio Partida, Octavio Mojarro, and Elena Zúñiga. “Fertility in Mexico: Trends and Forecast.” Report of the United Nations Population Division (2004): 483–506. http://www.un.org/esa/ population/publications/completingfertility/RevisedTUIRAN-PARTIDApaper.PDF.
15.
Aguila, Emma, Claudia Diaz, Mary Manqing Fu, Arie Kapteyn and Ashley Pierson. “Living Longer in Mexico: Income Security and Health.” Santa Monica, CA: RAND Corporation, 2011. http://www.rand.org/pubs/ monographs/MG1179.
16.
Ministry of Internal Affairs and Communications (2007). The World Statistics, 2007 Edition. Tokyo: Office of Government Public Relations.
17.
Ibid.
National Chamber Foundation
10.
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End Notes
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18.
Keese, Mark. 2006. Ageing and Employment Policies. Paris: OECD.
19.
Copeland, Craig. “Labor-Force Participation Rates of the Population Age 55 and Older.” EBRI Notes 33, no. 2 (2012) http://ssrn.com/abstract=2007193.
20.
Davidson, Paul. “Older Workers Capture More New Jobs.” USA Today, April 4, 2012. http://www.usatoday. com/money/economy/employment/story/2012-04-04/older-workers-win-outsized-share-of-employment- gains/54004468/1.
21.
Ibid.
22.
World Development Indicators 2011. 2011. Washington, D.C.: World Bank.
23.
Hedden T, Gabrieli JD. “Insights into the ageing mind: a view from cognitive neuroscience.” Nature Reviews Neuroscience no. 5 (2004): 88, 92, 94. Case, Anne C., and Angus Deaton. “Broken Down by Work and Sex: How Our Health Declines.” NBER Working Paper No. 9821 (2003) http://www.nber.org/papers/w9821.pdf.
24.
U.S. Department of Labor, Bureau of Labor Statistics. International Comparisons of Annual Labor Force Statistics, Adjusted to U.S. Concepts, 10 Countries, 1970–2010. March 30, 2011. U.S. Department of Labor, Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey. March 2012.
25.
Ott, Alewijn, Monique M. B. Breteler, Frans van Harskamp, Theo Stijnen, and Albert Hofman. “Incidence and Risk of Dementia.” American Journal of Epidemiology 147, no. 6 (1998): 574–580. http://aje.oxfordjournals. org/content/147/6/574.full.pdf.
26.
Zhenguo, Zhu. “Chinese college grads to hit 6.8M in 2012.” People’s Daily Online, November 23, 2011. http://english.peopledaily.com.cn/202936/7653918.html. U.S. Department of Education, National Center for Education Statistics. Actual and projected numbers for bachelor’s degrees by degree-granting institutions, by sex of recipient: 1994–95 through 2019–20. February 2010. http://nces.ed.gov/programs/projections/ projections2019/tables/table_32.asp.
27.
Allianz. “Peak Labor: China Grows Old Before Growing Rich.” http://knowledge.allianz.com/demographics/ aging/?1545/china-grows-old-before-growing-rich.
Our Older World: National Chamber Foundation Scholars and Fellows A Reply to Ted Fishman Joel Kotkin
Author and Presidential Fellow, Chapman University
Mark J. Perry
Professor of Economics and Finance, University of Michigan–Flint and Scholar, American Enterprise Institute
John Raidt
Adviser to the Chairman, U.S. Chamber of Commerce and Senior Fellow, Atlantic Council
Bill Raisch
Executive Director, New York University’s International Center for Enterprise Preparedness (InterCEP)
Nick Schulz
Editor-in-Chief, The American and DeWitt Wallace Fellow, American Enterprise Institute
Bret Swanson
President, Entropy Economics, LLC Introduction by Richard “Rich” Cooper, Vice President, Research & Emerging Issues, National Chamber Foundation, U.S. Chamber of Commerce
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Dear Reader, Beginning in 2011, the National Chamber Foundation (NCF) initiated its Scholars and Fellows program, an effort to bring forward-thinking experts in diverse areas to help the U.S. Chamber of Commerce, its members, and other interested parties better understand the emerging issues impacting free enterprise. From innovation to manufacturing and from risk analysis to demographics, each of these notable individuals has expanded the horizon of NCF and its partners. As part of this year’s Scholars and Fellows program, Ted Fishman, NCF fellow and accomplished author, examined some demographic changes facing the world, in particular, the G-8 nations. Building on his own research and experiences, Fishman crafted Our Older World: Long Lives, Old Countries, Small Families, and a Chance for a Better World to provide his counsel to business and policy leaders in the G-8 countries on the impact of an aging population on their economies, societies, and governments. Some countries face a real set of costs. Others may reap surprising rewards from an experienced, more entrepreneurial population. If the aging dynamic in G-8 countries is a problem, it is a good one to have. It results from unprecedented prosperity and improvements in health. All the same, it is imperative that developed countries encourage longer working lives and engage their younger workers. This is a careful, but necessary balancing act. As the best-selling author of Shock of Gray: The Aging of the World’s Population and How it Pits Young Against Old, Child Against Parent, Worker Against Boss, Company Against Rival, and Nation Against Nation in addition to China, Inc.: How the Rise of the Next Superpower Challenges America and the World, Ted Fishman is well equipped to write on the effects of an aging population. Joining Fishman in his analysis of these rapidly changing conditions are the other members of NCF’s 2011 – 2012 class of scholars and fellows. As you read each of their replies to Fishman’s report, think of your own perspective. How much of what is written rings true? How prepared do you think your country and community are to address these conditions? These questions and answers are the makings of a vibrant debate that public and private sector leaders around the world are going to undertake soon.
U.S. Chamber of Commerce
At NCF, we welcome hearing those insights and encourage you to visit NCF’s website (ncf.uschamber.com) or post on our Facebook wall and tell us your thoughts. Your voice matters in Our Older World.
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Richard “Rich” Cooper Vice President, Research & Emerging Issues National Chamber Foundation U.S. Chamber of Commerce Washington, D.C.
Cities and Aging Joel Kotkin
Author and Presidential Fellow, Chapman University
This poses a new issue for cities. They will have to focus less on “luring” new migrants and more on retaining people, particularly as they age or enter the middle class. Few cities focus on this at the moment.
A Reply to Ted Fishman
The new policy imperatives should be to preserve the qualities of single-family neighborhoods, rather than push for high-density development. This also means less of an emphasis on entertainment and arts districts and more on mundane things like schools, parks, and road maintenance. The cities that learn these lessons first will be the ones that will do best in the new demographic paradigm.
OUR OLDER WORLD
The aging population that Ted Fishman talks about presents some challenges to cities, particularly those that depend on migration to grow. Older people, with some exceptions, do not move to dense, urban places. They stay close to home, perhaps in a somewhat smaller place, or go further out into the country. As a result, in recent years cities in Europe and the United States have depended on the migration of younger people, particularly those originating from other countries. Yet as birthrates fall in the countries sending migrants, such as in Mexico, this pattern may slow considerably. Without this sizable immigration over the previous two decades, America’s major cities— including Los Angeles, Chicago, and New York—would have lost population. A decline in new children born in the country could also start impacting these cities, particularly as millennials enter their twenties and thirties.
National Chamber Foundation
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A New Generation of Manufacturing Mark J. Perry
OUR OLDER WORLD
Professor of Economics and Finance, University of Michigan– Flint and Scholar, American Enterprise Institute In his timely analysis of the pending changes in world demographics, Ted Fishman outlines a series of issues related to global aging that will have major impacts on the world economy, economic growth, consumption, labor markets, medical care, and public spending, to name just some of the issues that he raises. In examining how global aging will impact the future labor market in the United States and other G-8 countries, it is important to look at its specific relation to the manufacturing sector. Modern, technology-driven manufacturing is transforming the industrial sectors of America and most other G-8 countries. Previously, a majority of traditional manufacturing jobs entailed performing physically demanding, low-skilled manual tasks such as basic assembly-line production. Yet today’s industrial workplace is evolving toward a technology-driven factory floor that increasingly requires highly skilled, trained workers. As one industry insider describes the trend, “In the 1980s, U.S. manufacturing was 80% brawn and 20% brains” and today it’s “10% brawn and 90% brains.” This new trend, widely known as “advanced manufacturing,” leans heavily on computation and software, sensing, networking and automation, and emerging capabilities enabled by the physical and biological sciences, such as nanotechnology, chemistry, and biology.
U.S. Chamber of Commerce
Fortunately, the trend toward advanced manufacturing could actually dovetail quite nicely with an aging workforce in the G8 countries. With less emphasis on physically demanding manual labor and a greater reliance on the next generation of manufacturing, new technologies, including computer-aided design (CAD), computer-aided manufacturing (CAM) programs, and computer numerical control (CNC), are already facilitating precision manufacturing. As other new manufacturing technologies emerge, such as computationally engineered materials, 3-D printing, and direct-digital manufacturing, highly paid and technically trained workers will provide the labor for the factory floor of the 21st century.
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As well as transforming traditional production, advanced manufacturing is revolutionizing modern farming in similar ways. Tractors and harvesters and other farm equipment are now being designed with advanced technologies, including GPS systems, touch screen monitors, and geographic information systems (GIS) that enable “precision agriculture,” where a famer can customize seed type, pesticides, fertilizer, and water for variations in the physical properties of individual sections in each field. Tractors and harvesters can now be self-guided with a personal computer on a hands-free basis, without the need for the farmer to actually physically operate the equipment. For an aging population, these advances in agricultural technology could easily accommodate older farm workers by substituting advanced technologies for physically demanding manual farm labor.
Advanced manufacturing will also transform medical manufacturing with innovative products like a recently developed 3-D printer capable of creating customized drugs and medicine, which someday could even allow patients to print their own medicines at home. In addition to providing employment opportunities in advanced economies, advances in medical manufacturing could revolutionize access to health care in the developing world.
A Reply to Ted Fishman
Ted Fishman suggests that “proactive changes in labor practices … may avert the negative impact of population aging.” The timing of the new generation of advanced, technologically driven manufacturing is fortunate because it comes at a time of global and workforce aging and could be one example of a change in labor practices that could help minimize the negative impact of population and workforce aging. By substituting advanced technologies and sophisticated capital equipment for manual labor, the manufacturing sector of the future could easily and readily accommodate the global aging that Ted Fishman outlines.
OUR OLDER WORLD
As one study reported, “Innovations in advanced manufacturing and advanced software technology have the potential to converge to produce the greatest change in production systems and business models since the industrial era began.” Interestingly, this profound change in production couldn’t be happening at a better time demographically, since the new generation of production can easily accommodate an aging population. In contrast to past generations of workers who often had to retire at an early age because of the physically demanding nature of factory work, the advanced manufacturing environment of the future could accommodate workers at much older ages, since the technology-driven factory floor of the future will be much closer to an office job than a traditional factory job.
National Chamber Foundation
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The Societal Impact of Aging John Raidt
OUR OLDER WORLD
Adviser to the Chairman, U.S. Chamber of Commerce and Senior Fellow, Atlantic Council Ted Fishman’s thought-provoking treatise on the aging of the world should be required for every policymaker, CEO, entrepreneur, sociologist, and citizen who wants to glimpse the demographic-driven challenges and opportunities of the near future. His rich analysis raises profound issues and questions that society must address proactively. One of the issues that leaps to mind is how trends in the G-8 community square with the youth bulge in the Middle East and Africa. If needy youth from these regions are to reap the opportunities from aging societies in the developed nations that will need them, then we have much work to do in reducing cultural antagonisms and division. Accordingly, we should add priests, imams, and rabbis to the distribution list of Ted’s report. His findings also highlight the need for much better thinking and the development of best practices in the arts and sciences for educating and retraining older people. Put more colloquially, we had better become more proficient at teaching “old dogs” new tricks. Moreover, the trends place even greater importance on personal savings and improving economic and financial literacy. If one of the legacies of the 2008 financial crisis is to discourage people from saving and investing, then perhaps the worst consequences of the meltdown have yet to be felt.
U.S. Chamber of Commerce
Finally, the ability to prolong life produced by advances in health care will present vast new challenges for society—among them defining the ethics, policies, programs, and practices necessary to ensure that people can live and die with dignity. The first step in finding good answers to make the future better is organizing the right questions. Ted’s piece helps us do that superbly.
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The Business Response to Aging Bill Raisch
Executive Director, New York University’s International Center for Enterprise Preparedness (InterCEP)
Businesses would do well to cut through the haze and start with a focus on their • core objectives, • core operations (both internal and external), and • core markets (customers as well as wider market and regulatory environments). Leading thought and best practices in international risk management are “objectives focused.” Firms are called to start with their core objectives when assessing and addressing future risk and uncertainty. Businesses can use this risk management construct to examine how an aging world might impact the achievement of their core objectives. How might a business’ mission, core business proposition/primary value to customers, and return to key stakeholders be impacted? If appropriate, how should these be revised?
Businesses would do well to leverage newly developing strategic risk management principles and tools to provide a structure for analysis and strategy development to address the challenges of aging. Strategies including enterprise risk management, which looks to support an enterprisewide perspective on risks confronting the organization, should be engaged and applied to examine the potential impacts of global
National Chamber Foundation
Additionally, businesses must look at their core markets. How will customer needs, geographical distribution, and financial resources be impacted by this shift? How will economic and political norms change with a consumer market and electorate that are dramatically more aged? What will be the role of more internally focused nation states vis-à-vis more globally focused corporations?
A Reply to Ted Fishman
To assess impact, businesses should look at how their current core operations support the achievement of their core objectives. They should look at how those operations may be impacted by an aging world and its disruptive ramifications. This focus should examine potential impacts on all key resources necessary to produce the goods and/or services of the firm including labor, internal and external processes, technology, raw materials, equipment, and distribution. Internal operations as well as outsourced activities and the wider supply chain should be considered.
OUR OLDER WORLD
The accelerating progression of global aging presents significant uncertainty and risk for the business enterprise, both internally and externally. The potential scenarios and their many and interdependent ramifications can easily become overwhelming. The question is begged: What is business to do?
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U.S. Chamber of Commerce
OUR OLDER WORLD
aging. Other disciplines, including business continuity planning, should be integrated to provide insights into the core operations of the firm and how they might be affected by the age wave. Wider corporate efforts must also be engaged, including strategic planning and marketing efforts, in order to incorporate global aging into their assumptions. Finally, both the board and senior management must have this impending sea change firmly on their radar and review it regularly.
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The Surprising Demographic Bonus Nick Schulz
Editor-in-Chief, The American and DeWitt Wallace Fellow, American Enterprise Institute
For decades, the discussion around demographic change has been framed in a negative manner. (Ted Fishman is a refreshing exception to this generalization.) Two generations ago, demographers said that the world faced a crisis. They were worried that there would be too many people on the planet. We saw the rise of “Zero Population Growth” and, even more radically, “Negative Population Growth” movements. Today, there is still a demographic crisis, we are told, but the concern is reversed. Wealthy countries are not at risk of having too many people, but too few. There’s a birth dearth, a baby bust, a grandchild gap, and empty nests as far as the eye can see. Countries are now going so far as to implement pro-natalist policies to encourage higher birthrates. What the discussion around demographics needs is a reframing toward the tremendous opportunities lurking just under the surface of our demographic realities.
At the same time that this health boom is occurring, however, the population of economically active citizens is shrinking. This is where there’s an opportunity for real change in the G-8. There are (at least) two ways to stabilize or enlarge the pool of economically active and productive people.
The second is to encourage inward migration, particularly of skilled immigrants. This may be easier to do in some G-8 countries (e.g., the United States, which already has a diverse population and a history of sizable
National Chamber Foundation
The first is to leverage the health asset by encouraging older, healthy workers to stay active in the workforce for longer periods of time. There are many obstacles to this today. Labor market, tax, and pension policies in G-8 countries often encourage older citizens to prefer leisure over production. This is an area where further policy research could be done to determine ways of altering the mix of incentives in order to reverse this dynamic.
A Reply to Ted Fishman
To the extent that the G-8—in particular, Japan and the most rapidly aging parts of Europe—have a demographic crisis, they can go a long way toward alleviating it by unlocking the value of health. As Ted notes, the G-8 is aging, but it is aging healthier. This is an unprecedented asset. Residents of G-8 nations are the healthiest and longest lived people in human history.
OUR OLDER WORLD
Ted has put together an important and insightful paper. The trends he describes will significantly affect all G-8 nations to varying degrees. Here are a few additional thoughts that draw on the work of demographers Nick Eberstadt, Ben Wattenberg, and several others:
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U.S. Chamber of Commerce
OUR OLDER WORLD
immigration waves) than in others (e.g., Japan, which has a more homogenous population). Yet while birthrates in G-8 nations are below replacement levels, they are above replacement rates in many rapidly growing countries; these countries can provide talent and human capital for the G-8. This, too, could be an active area of research, comparing immigration policies across the G-8 to see what policies work, what don’t, and what the obstacles are to receiving more skilled immigrants.
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The goal should be to encourage, whenever possible and appropriate, individuals to be net producers as opposed to being net consumers in the economy—to produce more in income annually than they consume. The task for businesses and policymakers is to help shift laws and norms with respect to elderly workers and immigrant workers to expand the pool of the economically active—to make it more practical and desirable to be a net producer.
The Knowledge Economy in an Old World Bret Swanson
President, Entropy Economics, LLC
This is not the whole story, however. If generation A has not self-funded its retirement, the smaller generation B is stuck with an enormous bill. This bill could be worsened by other shortsighted government policies that discourage growth and innovation. Debt and stagnation result. Using the blunt instrument of centralized politics to set “retirement contributions” (payroll taxes) and “retirement income” (in the United States, this means Social Security and Medicare payments) is a sure way to get in demographic trouble. Some members of the G-8 are now paying the price, and the United States is following not too far behind.
Fewer children means fewer minds, fewer ideas, less cross-fertilization, and fewer chances for game-changing innovations. These are the sources of economic growth, which is the key to rising living standards across generations. Fewer children, at some level, signals a loss of faith in the future, which, I would argue, is an important foundation of cultural and economic health.
National Chamber Foundation
As Ted Fishman notes, “When older people have fewer young relatives to care for them and provide emotional and financial support, the physical and financial burdens for care fall to the few who remain. Also, much of the care once provided within a family will move to the public or commercial spheres. Expenses such as these can overwhelm families and governments.” All of which further discourages fertility.
A Reply to Ted Fishman
Countering the virtuous cycle of low fertility, knowledge-economy urbanization is, possibly, a vicious cycle of familial, cultural, and economic breakdown. Centralized welfare programs may exacerbate low fertility beyond the natural rate. Children require very large investments of time and money. In the past, children, though expensive to raise (albeit less expensive than today), could help provide for their parents in their old-age. Today though it might be said that the more parents put into their children in terms of expensive education and time, the more those children will be taxed later to pay for the retirements of, not their parents, but other people. Large taxes on members of generation B reduce their ability to provide for not only their parents (generation A) but also prospective children of their own (generation C). Having children used to be an indirect form of saving. Yet what if children are all expense with little possibility of “return on investment”? The economic burden of children is thus inflated and may tip the scales against fertility in many cases.
OUR OLDER WORLD
To many, an aging society signals prosperity in a world of urbanization and the knowledge economy. The fertility of generation A, which has moved to the city to pursue high-value jobs, declines. Generation A devotes more time to productive work and intensely concentrates its remaining time and resources to build the human capital of the (fewer) members of generation B. White- or gray-collar work and modern medicine mean that generation A lives longer. We see this apparently virtuous cycle all over the world.
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U.S. Chamber of Commerce
OUR OLDER WORLD
This cycle may have already played out in some of the G-8 nations, and recovery—financially and culturally—will be difficult. The United States’ higher fertility and immigration rates help ameliorate and delay some of these problems. Delay is all, however. Low fertility among certain subpopulations and the coming Medicare bomb are beginning to drive the type of anti-growth, anti-future policies that have brought some G-8 nations to the brink.
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Fishman makes a very important point. Uniform treatment of diverse populations is counterproductive. A government-set “retirement age,” for example, is not helpful. Policies that treat people and families as autonomous and unique would help solve the generational imbalances created by politics. We may not need to subsidize children, but we should not penalize fertility as we do today. It goes beyond the generational Medicare ledger. It is a matter of whether America still believes in the future.
Thanks to our scholars and fellows for their contributions to this publication as well as to the overall thought leadership of the National Chamber Foundation.
National Chamber Foundation U.S. Chamber of Commerce 1615 H Street, NW Washington, DC 20062 Phone: 202-463-5525 www.uschamber.com