Tuesday, November 15, 2005

Nicholas Eberstadt on aging in the developing world

Nicholas Eberstadt, the demographer par excellence at the American Enterprise Institute, has this piece in today's Wall Street Journal on the consequences of a demography of aging among populations of much of the developing world, and particularly India and China. Here is the article, from the WSJ, Tuesday, November 15, 2005, reposted at AEI's website.


Old Age Tsunami

By Nicholas Eberstadt

Posted: Tuesday, November 15, 2005

Wall Street Journal
Publication Date: November 15, 2005

Over the past decade, an ocean of ink has been spilled over the problem of population aging in the world's richest societies (Western Europe, Japan and North America). Low-income regions have attracted relatively little attention: Yet over the coming decades a parallel, dramatic "graying" of much of the Third World also lies in store, and it promises to be a far uglier affair than the "aging crisis" facing affluent societies. The burdens of aging simply cannot be borne as easily by the poor; low-income societies and governments have far fewer options, and the options available are considerably less attractive.

For some poor countries, the social and economic consequences could be harsh indeed: Graying could emerge as a factor directly constraining long-term growth and development. In fact, rapid and pronounced population aging may represent one of the most least appreciated long-term risks facing many of today's developing economies.Population aging is driven mainly by low birth rates rather than by long life spans--and since fertility levels in poor regions continue to drop, the momentum for Third World population aging continues to build. Not, to be sure, in sub-Saharan Africa, where the median age is likely to remain a mere 20 years some two decades from now. And certainly not in those parts of the Arab/Islamic expanse where total fertility-rate levels still apparently exceed five births per woman per lifetime (viz., Yemen, Oman, Afghanistan). But in much of East Asia, South Asia, Eastern Europe and Latin America, sub-replacement fertility is already the norm.

China: Of all the impending Third World aging tsunamis, the most massive is set to strike China. Between 2005 and 2025, about two- thirds of China's total population growth will occur in the 65-plus ages--a cohort likely to double in size to roughly 200 million people. By then, China's median age may be higher than America's. Notwithstanding the recent decades of rapid growth, China is still a poor society, with per-capita income not much more than a tenth of the present U.S. level.How will China support its burgeoning elderly population? Not through the country's existing state pension system: That patchwork, covering less than a fifth of the total Chinese workforce, already has unfunded liabilities exceeding China's current GDP.

Since the government pension system is clearly unsustainable, China's social security system in the future will mainly be the family unit. But the government's continuing antinatal population drive makes the family an ever-frailer construct for old-age support. Where in the early 1990s the average 60-year-old Chinese woman had five children, her counterpart in 2025 will have had fewer than two. No less important, China's retirees face a growing "son deficit." In Chinese tradition it is sons, rather than daughters, upon whom the first duty to care for aged parents falls. By 2025, a third or more of Chinese women approaching retirement age will likely have no living sons.

Paradoxically, despite all China's material progress, the nation's elderly will face a continuing, and quite possibly a growing, need to support themselves through their own labor. But as China's elderly workers tend to be disproportionately unschooled, farm-bound and less well-trained than the general labor force, they are, perversely, the ones who must rely most upon their muscles to earn a living.On the current trajectory, the graying of China thus threatens many tens of millions of future senior citizens with a penurious and uncertain livelihood in an increasingly successful emerging economy. The looming fault lines for "impoverished aging" promise to magnify yet further the social inequalities with which China is already struggling.

Russia: The demographic outlook for this country may seem to read like a tale that is ordinarily European: While total population falls, median age rises well above the 40-year mark by 2025, with close to 20% of the population 65 or older. But Russia is far poorer than Western Europe today.Russia's particular vulnerabilities pivot less on the size of nation's elderly population than on the exceptional frailties of the workforce that must support it. Russia has suffered an extraordinary long-term deterioration of public health: Life expectancy is lower today than 40 years ago, and Russia's mortality upswing is concentrated in the "working ages." For Russians between 30 and 60, for example, death rates have shot up by over 45% since 1970. Demographers have low expectations for future progress in health--the U.S. Census Bureau, for instance, projects that Russia's male life expectancy will remain lower than India's through 2025, and beyond.

Per-capita income in Russia is now barely one fourth of the European Union. Looking forward, it is difficult to see how Russia can hope to achieve an Irish standard of living if its labor force still faces an Indian (or worse) schedule of survival. Population aging in the context of poor or even declining health poses special challenges. The aging of Russia's workforce (median age for the 15-64 group will rise about three-and-a-half years between now and 2025) means that the health situation for Russian manpower could be less favorable in the future.

The specter of a swelling population of pensioners dependent for support on an unhealthy and diminishing population of low-income workers conjures up grim political choices. Should Russian resources be channeled to capital accumulation, or to consumption for the unproductive elderly? Given Russia's population structure, that question will be impossible to finesse.

India: The overall population profile will remain relatively youthful, with a median age projected at just over 30 in 2025. But this is an arithmetic expression averaging diverse components of a vast nation. Closer examination reveals two demographically distinct Indias: a North that stays remarkably young over the next 20 years, and a South already graying rapidly due to low fertility.It may surprise some readers to learn that sub-replacement fertility already prevails in most of India's huge urban centers--New Delhi, Mumbai (Bombay), Kolkata (Calcutta), Chennai (Madras) among them. Even more surprising, sub-replacement fertility prevails today throughout much of rural India, especially in the rural South. There, graying now proceeds apace. By 2025, South India's population structure will be aging unmistakably. In places like Kerala, Tamil Nadu and Karnataka, median age will be approaching a level comparable to Europe's in the late 1980s--and around 9% of population will be 65 or older (Japan's level in 1980).

A generation before Western Europe's median age reached 35 or Japan's 65-plus set accounted for 9% of national population, however, their average per-capita GDPs were $6,000-$8,000. By contrast, the exchange-rate-based GDP per capita in Kerala and Tamil Nadu today stands at under $500 per year. Even if India, like the Japan of an earlier day, could grow its GDP per capita at an annual rate of 5.5% over the coming generation, significant parts of India would be reaching the threshold of the "aged society" on income levels almost an order of magnitude lower than Japan and Western Europe in the mid-1980s.

Since 1991, India has averaged a highly respectable 4% GDP per- capita growth rate and has become a presence in the global IT economy through enclaves in places such as Bangalore. But Bangalore--like the rest of the Indian South--is part of what may soon be known as Old India: While its labor force is relatively skilled, it is also older, and absolute supplies of available manpower will peak and begin to shrink. Other parts of India, by contrast, will have abundant and growing supplies of labor, but a disproportionate share of that manpower will be entirely unschooled or barely literate. Educated and aging, or untutored and fertile: This looks to be the contradiction--and the constraint--for India's development in the decades immediately ahead.

The coming conjunction of an aging population in the world's developed economies and in important parts of the developing world naturally raises the question of potential global impact. Global capital markets may be efficient in allocating investment to promising countries, corporations and projects, but the availability of capital affects its cost, and thus the profitability or attractiveness of undertakings world-wide. By the same token, economic slowdowns in one major region would be expected to have spillover impacts on growth in other regions in an environment of liberalized global trade.

Will the aging of the Third World have unanticipated spillover effects for the world economy? The answer is not yet clear--but it is none too early to begin asking the question.

(Nicholas Eberstadt is the Henry Wendt scholar in Political Economy at AEI. This essay draws on his chapter in the World Economic Forum's forthcoming Global Competitiveness Report for 2005-2006.)

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