1. The Challenge of Global Aging how demography will reshape the world of the 21 st century Richard Jackson CSIS Global Aging Initiative White House Conference on Aging July 20, 2005

2. The whole world is aging—and today’s developed countries are leading the way. Year 2005

3. Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario MenWomen Population in Thousands year 1950 median age 28.6 THIS IS WHERE WE WERE IN 1950 year 1950 median age 28.6 THIS IS WHERE WE WERE IN 1950

4. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1955 median age 29.0 year 1955 median age 29.0

5. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1960 median age 29.6 year 1960 median age 29.6

6. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1965 median age 29.8 year 1965 median age 29.8

7. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1970 median age 30.6 year 1970 median age 30.6

8. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1975 median age 30.9 year 1975 median age 30.9

9. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1980 median age 31.9 year 1980 median age 31.9

10. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1985 median age 33.1 year 1985 median age 33.1

11. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1990 median age 34.4 year 1990 median age 34.4

12. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 1995 median age 35.8 year 1995 median age 35.8

13. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2000 median age 37.3 year 2000 median age 37.3

14. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2005 median age 38.7 THIS IS WHERE WE ARE TODAY year 2005 median age 38.7 THIS IS WHERE WE ARE TODAY

15. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2010 median age 40.0 year 2010 median age 40.0

16. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2015 median age 41.2 year 2015 median age 41.2

17. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2020 median age 42.3 year 2020 median age 42.3

18. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2025 median age 43.4 year 2025 median age 43.4

19. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2030 median age 44.5 year 2030 median age 44.5

20. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2035 median age 45.4 year 2035 median age 45.4

21. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2040 median age 46.0 year 2040 median age 46.0

22. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2045 median age 46.3 year 2045 median age 46.3

23. MenWomen Population in Thousands Pyramid inversion in the developed world—1950 to 2050. More Developed Regions: UN Constant Fertility Scenario More Developed Regions: UN Constant Fertility Scenario year 2050 median age 46.4 THIS IS WHERE WE WILL BE IN 2050 year 2050 median age 46.4 THIS IS WHERE WE WILL BE IN 2050

24. Five Challenges

25. The fiscal challenge.  Declining support ratio of workers to retirees  Rising cost of pay-as-you-go retirement benefits  Large tax hikes, large benefit cuts, or exploding public debt  Growing political paralysis over unpopular budget choices

26. The number of workers available to support each pensioner will decline. two taxpayers for each retiree

27. Public retirement benefits will consume a much larger share of GDP.

28. Elders in most countries are highly dependent on government benefits. All 3rd Households Quintile US35% 54% Canada 42 % 62% Sweden57% 70% Netherlands54% 74% UK50% 75% France67% 78% Italy59% 83% Germany61% 84% Public Benefits as a Percent of After-Tax Elderly Income Source: CSIS (2002)

29. The labor challenge.  Shrinking workforces and labor shortages  Aging workers and aging union memberships  Pressure to increase immigration—and popular backlash  Growth in cross-border outsourcing

30. The growth challenge.  Long-term zero or negative GDP growth  Declining rates of savings and investment  Falling demand for infrastructure (highways, housing) and capital goods (offices, mills)  Shrinking consumer markets, overcapacity, and declining profits

31. The financial challenge.  Danger of “Great Depreciation” in financial markets when Boomers retire  Unsustainable government borrowing to fund pensions  Possible collapse of regional economic entities like the EMU  Capital-flow reversals: Emergence of developed debtors (Japan? Germany?) and developing creditors (China? Mexico?)

32. The geopolitical challenge.  Will youthful developing societies… ► feel demographic pressure to expand? ► translate faster economic growth into global leadership?  Will aging developed societies… ► find the resources to meet their security commitments? ► be willing to sacrifice for the sake of the future?

33. 1 2 3 4 5 6 7 8 9 10 11 12 If demography is destiny, global leadership may pass to the “Third” world. 1950 China Soviet Union India United States Japan Indonesia Germany Brazil United Kingdom Italy France Bangladesh 2000 China India United States Indonesia Brazil Russian Fed. Pakistan Bangladesh Japan Nigeria Mexico Germany 2050 India China United States Pakistan Indonesia Nigeria Bangladesh Brazil Congo Ethiopia Mexico Philippines 12 Largest Countries Ranked by Population Source: UN (2001)

34. The US Age Wave in Global Perspective

35. The United States enjoys considerable advantages.  The youngest population in the developed world  The developed world’s deepest capital markets and most flexible labor markets  A relatively inexpensive Social Security system  A well-developed private pension system

36. America’s age wave is comparatively small.

37. In many fast-aging countries, the working- age population will shrink dramatically.

38. Countries with slowly growing workforces may have slowly growing economies.

39. The United States must also overcome some real obstacles.  The world’s most expensive health-care system  Large gaps in private pension coverage  Unsustainable budget and current account deficits  An entrenched “entitlement ethos,” a powerful senior lobby, and growing political gridlock

40. Older voters will increasingly dominate the U.S. electorate.