As all eyes focus on federal budget battles, let’s not glide too smoothly past America’s latest jobs report from this past Friday: It’s a blunt indicator of the structural economic challenges that are still with us since the Great Recession.
America’s jobs challenge and Europe’s slogging fiscal crisis are both, at their core, about the underlying demographic changes in our societies. There is still a profound mismatch between the economic and social programs of the 20th century and this century’s new and evolving demographics. We’re living longer and working longer – yet we stubbornly cling to “old” notions of what retirement means.
That’s got to change.
There are clues to understanding all of this in the recent and seminal 2013 S&P Global Aging Report. The ratings agency Standard and Poor’s released the newest installment of its Global Aging report, which highlights the inconsistencies between systems built for the last century and today’s economic and demographic needs. Can we really have a well-functioning economy in which our growing percentages of aging populations are presumed to be dependent?
The 2013 edition, “Rising to the Challenge,” has some unexpected good news about the progress that Europe and other nations are making in regard to fiscal sustainability and population aging.
Standard and Poor’s has been writing about the fiscal and economic implications of population aging for over a decade. Its analysis has been insightful and incisive, if not wholly optimistic. In 2010’s “Global Aging: An Irreversible Truth,” S&P wrote: “In our view, population aging will lead to profound changes in economic growth prospects for countries around the world, alongside heightened budgetary pressures from greater age-related spending needs. In the absence of appropriate budgetary adjustment, additional reforms to pension and health-care systems, or structural measures to improve sovereigns’ growth potential, our projections show the future fiscal burden will increase significantly across the board.”
The 2010 report also said that the second decade of the 21st century was a “window of opportunity” to prepare for population aging.
Three years later, the world gets its report card. Despite some setbacks and intransigent policies, the 2013 S&P report sees progress: “If kept in place, the comprehensive structural changes and budget consolidation many sovereigns have put in place in recent years should improve their prospects for maintaining sustainability of long-term public finances, although additional policy action will be required to fully contain the budgetary implications of future increases in age-related spending.”
Here are three top takeaways from the report:
Number one: Population aging not need be a recipe for disaster, as many so often suggest. S&P’s sober financial analysis finds that smart, proactive, goal-oriented steps can be taken in order to turn aging into a financial and economic opportunity. The countries that make the hard decisions today will prosper tomorrow. This is equally true for companies: Those that figure out how to treat their aging workforce as valuable assets, and accommodate their commercial goals to the realities of an aging society, will win today’s competitiveness race.
Number two: Major – and politically unpopular – reform is needed to fix our cherished public benefits systems, namely Social Security and in the U.S. or the NHS in the U.K. Around the world, individual nations need to restructure age-related spending to remain financially solvent. It will be difficult and disliked in the short term, but the long-term payoff will be a better, more sustainable system for all. A “business as usual” approach will only lead to higher deficit and interest payments – and government spending at around 50 percent of GDP, which can’t possibly be sustainable.
Number three: While the challenges of population aging are global, solutions must be local. This has already been recognized to some extent, but the S&P report adds greater nuance.
Its research and analysis shows that different countries must recognize their “red light” issues. For some, it is pensions. For others, it is health care. Each country must deal with political pressures against fiscally necessary but socially unpopular reforms. Even with ideas that resonate globally – the age-friendly cities initiative; the age-friendly workplace movement; the new thinking about health conditions such as aging vision and aging skin during a longer,more active life; the global fund for Alzheimer’s research; and the re-imagination of work and “retirement” – all of these will have local implementation for the most part.
While many private businesses are now seizing the opportunities brought about by population aging, movement from the public sector has been less forthcoming. The S&P report offers encouraging news. The trick now is to ensure that the report card is not just a celebration of what we’ve accomplished to date – but a reminder of work still to be done.
