1. The Challenge of Global Aging Richard Jackson Center for Strategic and International Studies National Press Foundation May 22, 2011

2. Part I The Demographic Transformation

3. Elderly (Aged 65 and Over), as a Percent of the Population in 2010 and 2050 Source: UN (2011) The world is on the cusp of a stunning demographic transformation.

4. Behind the Global Age Wave: Falling Fertility Total Fertility Rate G-7 Countries Major Emerging Markets 1960-651980-852005-101960-651980-852005-10 Canada 3.71.61.7 Brazil 6.23.81.9 France 2.81.92.0 China 5.62.61.6 Germany 2.51.51.4 India 5.84.52.7 Italy 2.51.51.4 Indonesia 5.64.12.2 Japan 2.01.81.3 Mexico 6.84.32.4 UK 2.81.8 Russia 2.62.01.4 US 3.31.82.1 S. Korea 5.62.21.3 Source: UN (2011)

5. Behind the Global Age Wave: Rising Life Expectancy Life Expectancy at Birth G-7 Countries Major Emerging Markets 1950-551980-852005-101950-551980-852005-10 Canada 69.075.880.5 Brazil 50.963.472.2 France 67.374.881.0 China 44.667.772.7 Germany 67.573.879.8 India 37.956.264.2 Italy 66.374.881.4 Indonesia 38.858.867.9 Japan 62.276.982.7 Mexico 50.767.776.2 UK 69.374.179.6 Russia 64.567.467.7 US 68.674.378.0 S. Korea 47.967.480.0 Source: UN (2011)

6. Part II The Broad Economic, Social, and Geopolitical Implications

7. CSIS “Current Deal” Projection: Government Old-Age Benefits, as a Percent of GDP, 2007–2050 Public PensionsHealth BenefitsTotal 200720302050200720302050200720302050 Canada 3.9%7.0%8.4% 3.6%6.1%8.9%7.5%13.1%17.3% France 11.2%17.8%19.6% 4.5%7.8%10.2%15.6%25.6%29.8% Germany 10.0%17.0%20.4% 4.1%6.3%8.5%14.1%23.3%28.9% Italy 12.3%18.9%24.6% 3.4%5.5%7.5%15.7%24.4%32.1% Japan 9.1%13.9%19.3% 4.0%6.0%8.0%13.2%19.9%27.3% UK 5.8%7.9%8.5% 4.0%6.3%8.8%9.8%14.2%17.3% United States 4.1%6.6%7.0% 4.2%8.0%10.2%8.3%14.6%17.2% Developed World 8.8%13.7%16.6% 3.8%6.3%8.6%11.2%17.9%22.5% Note: Old-age benefits are benefits to persons aged 60 and over. Pension projections assume retirement ages remain unchanged and benefits continue to replace the same share of wages they do today. Source: The Global Aging Preparedness Index (CSIS, 2010) Fiscal Burden

8.  Few countries will be able to raise taxes enough to cover more than a fraction of the age wave’s cost.  Most will have to cut benefits—but the required adjustments are large and are likely to meet growing political resistance from aging electorates.  The alternatives: cannibalize other public spending or let fiscal deficits grow. Fiscal Burden Public Benefits in 2007, as a Percent of Total Elderly Cash Income Average 3rd Quintile Canada31%47% France59%72% Germany47%76% Italy55%77% Japan39%61% UK42%69% US22%38% Note: The elderly are persons aged 60 and over. Source: The Global Aging Preparedness Index (CSIS, 2010)

9. Projected Growth in Major U.S. Entitlement Programs* versus Current Discretionary Spending and Individual Income Taxes, as a Percent of GDP Growth 2010-40: 7.8% 9 Fiscal Burden

10.  The slowdown in workforce growth in the developed world will translate into slower growth in GDP.  Japan and some faster-aging European countries face a future of secular stagnation.  Productivity and living standard growth may also slow as rates of saving and investment decline.  Aging workforces may be less flexible, less mobile, and less entrepreneurial—putting a further drag on economic growth.  Stagnant or contracting markets will increase the risk of “beggar- thy-neighbor” protectionism. Average Annual Growth Rate in the Working-Age Population (Aged 20-64), by Decade 1980s1990s2000s2010s2020s2030s2040s Canada1.7%1.1%1.2%0.5%0.0%0.2% 0.1% France1.0%0.4%0.6%-0.2%-0.1%-0.2% 0.0% Germany1.1%0.2%-0.2%-0.3%-1.2% -0.9% Italy0.9%0.2%0.3%-0.3%-0.6%-1.2% -0.9% Japan0.7%0.4%-0.4%-1.0%-0.7%-1.5% UK0.6%0.4%0.6%0.3%0.0%0.1% 0.3% US1.4%1.2%1.1%0.6%0.3%0.6% Source: UN (2009) Economic Growth

11.  As societies age, the overall social mood may become more risk averse and “small c” conservative.  Smaller families may find it more difficult to socialize the young—and care for the old.  Elder-dominated electorates may lock in current public spending commitments at the expense of new priorities.  Even as societies age, they will also become more diverse—challenging social cohesion in some countries. Social Mood Share of Population with Less than 20 Years of Life Remaining, by Country, 1950-2050 Source: CSIS calculations based on UN (2007) and Human Mortality Database, University of California, Berkeley and Max Planck Institute for Demographic Research

12. The Developed World: A shrinking share of global population Geopolitics

13. The Developed World: A shrinking share of global GDP Geopolitics

14. 12 Largest Countries Ranked by Population Ranking 195020102050 1 2 3 4 5 6 7 8 9 10 11 12 Source: UN (2009) Note: Rankings for developed countries that have fallen below 12 are in parentheses. China India US Russian Federation Japan Indonesia Germany Brazil UK Italy Bangladesh France China India US Indonesia Brazil Pakistan Bangladesh Nigeria Russian Federation Japan Mexico Philippines Germany (16) France (21) UK (22) Italy (23) India China US Pakistan Nigeria Indonesia Bangladesh Brazil Ethiopia Philippines Dem. Rep. Congo Egypt Russian Federation (16) Japan (19) UK (27) France (29) Germany (30) Italy (37) Geopolitics

15. The United States is better positioned to confront the age wave than most developed countries.  The United States is now the youngest of the developed countries—and thanks to its relatively high fertility rate and substantial net immigration it is projected to remain the youngest.  America’s flexible labor markets, broad and deep capital markets, and entrepreneurial culture also constitute important advantages.  To be sure, the United States labors under some notable handicaps, including a low savings rate, an extraordinarily expensive health system, and a political culture that finds it difficult to make trade-offs.  But among today’s developed countries, it alone will have the demographic and economic resources to play a major geopolitical role.

16. Part III Aging and Health

17. Canada4.9 France3.0 Germany2.7 Italy3.2 Japan4.9 Netherlands3.9 Spain3.2 Sweden2.8 UK3.4 US3.7 Ratio of Per Capita Health-Care Spending on the Elderly to Spending on the Nonelderly in Most Recent Year Available* The elderly consume more per capita in health- care services than the nonelderly. The Age-Related Health-Care Multiplier Data refer to public health-care spending, except for the United States, where they refer to total personal health-care spending. Source: OECD (2002); and Centers for Medicare & Medicaid Services (2007)

18. The older the elderly are the more health care they consume. The Age-Related Health-Care Multiplier

19. The oldest elderly age brackets will be the fastest growing of all. The Age-Related Health-Care Multiplier

20. Other Drivers: “Excess Cost Growth”  Per capita health-care costs for everyone are rising faster than per capita GDP.  Behind excess cost growth: new technologies create new demand for medical services.  Behind excess cost growth: “Good health” is a subjective standard that rises over time.  Behind excess cost growth: As people become more knowledgeable about treatment options, limits are harder to set.

21. Average Number of Surviving Children of the Elderly: 2007, 2040, and Change from 2007 to 2040 20072040Change 20072040Change 1 Sweden2.12.0-0.2 9 US2.91.9 2 Japan2.01.5-0.5 10 Australia3.02.0 3 UK2.41.9-0.6 11 Spain2.71.4-1.2 4 France2.51.9-0.6 12 Canada3.21.7-1.5 5 Germany2.11.4-0.7 13 China3.52.0-1.6 6 Russia2.21.5-0.7 14 Brazil3.82.1-1.7 7 India3.52.6-0.9 15 Korea3.61.8-1.8 8 Italy2.31.4-0.9 16 Mexico5.02.6-2.5 Note: The elderly are persons aged 60 and over. Source: The Global Aging Preparedness Index (CSIS, 2010). Other Drivers: The changing shape of the family.

22. Two Models of Aging and Health  The “compression of morbidity” model predicts that health spans will rise along with life spans.  The “failure of success” model predicts that rising life spans will mean a rising incidence of chronic morbidity among the elderly.

23. The Good News: Rates of elderly disability are declining. Percent of U.S Elderly with a Disability or in an Institution With a Disability1982198919992005 Age 65-7414.211.910.78.9 Age 75-8530.729.923.421.9 Age 85+62.161.455.649.7 In an Institution1982198919992005 Age 65-7421.91.40.9 Age 75-858.17.04.34.1 Age 85+27.226.119.515.6 Source: Manton, Gu & Vicki (2006)

24. Percent of U.S. Elderly with Selected Medical Conditions 1998-20002004-20062007-2009 Heart Disease Age 65-7417.618.617.4 Age 75-8422.224.824.6 Age 85+24.028.627.2 Stroke Age 65-746.56.96.3 Age 75-8410.111.011.2 Age 85+10.415.113.8 Cancer Age 65-7417.018.320.5 Age 75-8421.82525.9 Age 85+21.42527.7 Diabetes Age 65-7414.518.419.9 Age 75-8413.417.619.0 Age 85+9.312.613.7 Source: NHIS (various years) The Bad News: Rates of elderly morbidity are flat or rising.

25. We live in an era defined by many challenges, from global warming to global terrorism. None is as certain as global aging. And none is likely to have such a large and enduring effect on the shape of national economies and the world order. CSIS.ORG GAPINDEX.CSIS.ORG