Global Policy Forum

Serdar Sayan *

Anti-globalization campaigners gripe that the rich are getting richer. That's true in many ways. But rich countries are also getting older. This "graying" of the world's richest nations will profoundly affect not only these societies, but poorer countries as well.

According to the U.N., the world's population now stands at 6.3 billion and will reach 9.3 billion by mid-century. People aged 60 or more are projected to increase from 629 million now to nearly 2 billion by 2050. Furthermore, the elderly population itself is aging. The 80-plus age group makes up the fastest-growing segment of the population; its share of the over-60 population will increase from 12 percent to 19 percent by 2050. This "graying of the world" is a natural result of falling fertility rates and rising life expectancy. While the decline in fertility is global, its speed varies across countries. Rich countries in Europe, North America and East Asia have a sharply higher share of the elderly than developing countries. Fertility reductions in the richer parts of the world have already brought population growth rates close to zero. Furthermore, due to improved access to quality health care and better living conditions, life spans in rich countries are now much longer than in the developing world. People aged 60 or more represent almost 20 percent of the population in rich countries today, whereas in the world as a whole this ratio is not expected to be reached before 2050. By that point, this age group in industrial countries will claim one-third of the total population. It will take another century for the rest of the world to catch up.

One result of all this is that the relative number of working-age individuals between 15-64 who pay the taxes to support pensioners is declining much faster in the industrial world than in developing countries, where populations remain young and grow rapidly. Rich economies are already challenged by this decline, and so are scrambling to meet the insatiable demands of public pension and health care systems, which causes their fiscal balances to deteriorate.

The effects of population aging will become even more obvious and widespread in the decades ahead, as domestic labor supply in rich countries shrinks even further. Moreover, because the elderly tend to spend more and save less, rich countries will also face changes in the ratio of savings to consumption in their national income, as well as in the composition of what is purchased. These demographically induced developments will not only affect investment and growth patterns of industrial economies, but the allocation of resources as well. In a globalized world, what happens in rich countries has an impact on developing economies. Yet, there is little discussion of the opportunities and challenges this presents.

Nowadays, most talk focuses on migration as a means of letting overpopulated developing countries fill the labor shortages of developed countries with graying populations. Japan's population, for example, is projected to decline by 17.9 million by 2050, while the share of its 60+ population will climb to 42 percent, and the share of its 80+ population will exceed 10 percent. The number of working-age Japanese will thus fall sharply, bringing the ratio of workers to retirees to about one. Estimates suggest that Japan would need 10 million immigrants per year until 2050 just to maintain the ratio of workers to pensioners that it had in 1995! Will developed countries really allow for migration on such a scale? Or will they instead increase their imports of manufactured products and food, thus creating jobs in developing countries that might help absorb their surplus labor? Even if rich countries choose increased imports, the growing volume of trade will merely expand an existing channel for routing the effects of an aging population onto developing countries. Trade serves as such a channel because nations with aging populations are economically powerful and so are capable of setting the terms on which they trade with poorer countries. Developing countries that trade intensively with advanced economies must adopt their relative prices and allocate their resources accordingly. But these relative prices will increasingly reflect the changed demands of the aging citizenry of industrial nations.

International capital flows will also magnify such demographic spillover effects, as capital is traded at the interest rates determined in large industrial economies. These rates will increasingly be influenced by the changing age composition within advanced countries.Because the old save less, lower aggregate savings in rich countries will crimp the relative abundance of capital available to poorer economies.

The powerful combination of globalization and aging will make developing economies ever more susceptible to changes in the terms of trade, interest rates, and exchange rates in rich countries. All developing countries should monitor these demographic developments closely, even if they have yet to experience population aging themselves. Young nations such as Mexico and Turkey should be particularly careful, due to their strong economic ties with NAFTA and the EU, where the gradual aging of populations is well under way.

Serdar Sayan is vice-chairman and director of Graduate Studies, Department of Economics, Bilkent University, Ankara, Turkey. - Ed.

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