As International Monetary Fund officials and central bankers gather in D.C. this week for their annual meeting, we’re still debating if we should intervene in countries and financial institutions that face economic and fiscal crisis.
At the center of this debate is the role of the IMF, which was recently fought over in Congress and connected to the issue of shifting funds from crisis to general accounts and other matters of voting and governance.
These precise, super-fine details miss the larger point of how the IMF should function in this century in order to fulfill its core mission of “maintaining global economic stability.” The question is key to the most challenging structural economic issue facing virtually all countries over the next two decades: How will we deal with the imbalance between the demographic over age 60, which is growing far more than those in the traditional working ages of 22 to 60?
As S&P warned in its own seminal 2010 Global Aging Report, “No other force is likely to shape the future of national economic, health, finance public policy as the irreversible rate at which the world’s population is aging.”
The principal job of the IMF should be using its funds and influence to keep people working into their 60s, 70s and even 80s as a hedge against economic instability – even crisis – that will inevitably ensue if the imbalance of retirees to workers is allowed to stand. IMF Managing Director Christine LaGarde’s recent comments to students in Beijing urging the Chinese government to “put fundamental reform” before “short-term stimulus” gets to this point. “Better to invest in long-term durable capital such as education,” Lagarde said, as well as other initiatives that will secure economic futures.
Today, given our changing demographics, that durable capital must include human resources well beyond traditional retirement age.
Yet none of this is even part of the on-the-ground conversations and decisions on whether and under what conditions to apply IMF funds. Instead, the IMF is left to its 20th century role of propping up failing economies with ineffectual framework conditions. For example, a country must reduce its debt but there is have virtually no impact on the underlying structural issues at the center of most unstable economic circumstances today.
Take Japan, for example. It can’t be a coincidence that the country’s two decades of economic malaise aren’t connected to its completely out-of-whack demographic of those over and under 60. Japan’s longevity set against its stunningly low birth rate for the better part of the last 30 years has conspired to bring it to an untenable and fiscally unsustainable place. By 2020, about 40 percent of its people will be over 60. An IMF role for Japan’s demographic situation would only have impact if the funds were to go specifically to keep the over-60 population working and active.
This is equally true in recent cases from Greece to the emerging markets. The source of their serious financial problems is not the debt itself but the mismatch between benefits based on the last century – usually in the form of retirement or health – and the reduced proportion of people working to support those benefits.
When the IMF was founded in 1945, the world looked very different than it does today. By as soon as 2020 there will be a billion of us over age 60 and that number will soar to two billion by mid-century. Low birth rates are also a serious factor. Today there’s a misalignment between basic policies and the demographic changes we’re experiencing.
Simply pushing money around, or making changes in governance to accommodate the shift in economic power accumulated among the emerging markets, will only amount to more failed efforts. Instead, we should use the occasion to rethink more seriously the role of the IMF in a century in which economic growth will depend on how we organize ourselves to account for the huge global proportion of our population, which for the first time in history is “old.”
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