World Leaders Ignore Demographics at Their Own Peril
By MICHAEL HODIN,
Posted: December 23, 2011
It’s only one month away from the end of January when world leaders meet in Davos, Switzerland for the annual World Economic Forum. The Swiss non-profit foundation annual event is committed to the lofty goal of "improving the state of the world." But in 2012, they're going to have their hands full dealing with the consequences of the Arab Spring – not to mention winter, Europe’s future and its ever heightening debt-crisis, China, and North Korea.
This year’s theme, “The Great Transformation: Shaping New Models,” recognizes that public institutions built during the last century need a serious structural overhaul in order to be relevant for a new time and age. This is especially true in the areas of retirement, work, health care and social welfare – all of which are affected by the world’s aging population.
Two reports on the topic underscore the profound impact on our social stability and economic growth over the next three decades. The Boston Consulting Group, a leading adviser on business strategy, has just released a study showing how aging populations will impact labor, capital, growth, and consumer needs.
Equally relevant, and one that ought to inform any discussion at Davos on the European debt issue, is The Economist Intelligence Unit’s "A New Vision for Old Age," a comprehensive survey and analysis on the economics of Europe's health policy.
By 2050, 8.4 percent of the EU 27's GDP will be spent on health care, and another 12.8 percent will go to the pension system. Together, these two costs will account for 20 percent of the entire GDP. With such an enormous segment of future GDP tied up in costs associated with aging populations, it’s no wonder the EU has designated 2012 as its year of “active and healthy aging.” Making and understanding the connections between Europe’s debt, its aging population, and Davos’s challenge for shaping new models is essential to find ways of driving economic growth.
As the world’s population reached the seven-billion mark, as noted by Secretary General Ban Ki Moon in the UN’s celebration of “Day of Seven Billion,” the more significant point is how old we are growing. In a recent article in the Washington Post, Joel Achenbach said, “On this crowded, hot, trampled planet, one of the most vexing trends is something countless numbers of us see when we look in the mirror: We’re going gray.”
If you’re one of the thousands planning to spend a few days in Davos, don’t be derailed by the issues of the moment. Instead, make sure to note the most compelling and profound issue of our era: the fundamental overhaul of our social and economic institutions so they can transform the impending train wreck of more old people than young on the planet.
Those pesky debt burdens in Europe, Japan or South Korea, the entitlement tangle in the U.S., and China’s slowing growth prospects will not go away through Central Bank coordination of monetary policies or currency fixes – or even more effective budget management, however much we welcome and applaud them. No, it will take the complete transformation of our old economic and social policies and frameworks into a newer, fresher, more relevant and more urgent dynamic.