How the United States can benefit from a graying global population

How the United States can benefit from a graying global population

The United States is getting older.  However, the rest of the world is getting older faster.  The “Great Powers” that have dominated history over the past few centuries are quickly becoming smaller and older.  The United States has a demographic trend which will allow it to maintain superiority over other countries over the coming decades.

I recently read an article on the Pacific Standard which argues that global ageing can actually work in the favor of the United States and ensure that its economic and military dominance can continue well into the middle of the century.  The United States is getting older, but at a slower rate than many of the “near peer” competitors around the world.  

Germany

France

China

Demographics are a danger to countries such as Japan and Russia which are seeing the greatest decrease in population, with Japan declining almost 20M and Russia 40M by 2050.  In 2006, Russian President Vladimir Putin was quoted as saying that demographics are “Russia’s most acute problem today.”  In a previous blog I explored the effects that an ageing population will have on Japan as well as the costs to society and the economy.  Germany and France are following similar trends with a modest decrease in populations coupled with an over 65 age group of almost 30%

	Population in 2013	Population in 2050		% of population over 65
Country
Russia	143,300,000	104,258,000		27.96%
Germany	81,726,000	70,805,000		28.75%
France	65,436,552	61,832,000		29%
Japan	127,520,000	109,220,000		35.10%
China	1,347,350,000	1,462,058,000		24.10%
United States	315,157,540	397,063,000		21.5%

The population pyramids above give a good visual representation of population trends going into the future.  Most countries have already had their “youth bulge” which gave a demographic dividend in the form of young people entering the workforce.  These youth bulges match times when countries go through an economic boom due to the influx of human capital into their populations.  We saw this in Japan when its economy grew after the Second World War, and can see the after effects with the current stagnant economic growth.  The United States maintains a healthy base of young people who will enter the workforce in the next few decades relative to its older population.

Japan

Population changes can be attributed to fertility rates and immigration policies.  All industrialized countries are experiencing lower fertility rates, but only the United States has a healthy immigration policy to maintain its population.  Japan, Russia, and Europe have been extremely resistant to immigration and we can see the rise of right wing parties in Europe which will further prevent new immigrants from joining their populations.   Developed countries around the world would need to radically increase immigration policies or fertility rates in order to reverse the trends we are predicting for 2050.

However, it is probably China which will see the most dramatic ageing of its population.  Many people have often wondered if China will become old before it becomes rich. 

“...China’s current independence ratio of 38 is unprecedentedly low. This represents the number of dependents, children, and people over 65, per 100 working adults. This implies that there are nearly twice as many working age people as the rest of the entire population combined. This historically low dependency ratio has been extremely beneficial for China’s unprecedented period of economic growth. This dramatic shift was brought about largely in part due to China’s one-child policy. As a result China is currently aging at an unprecedented rate. China will be older than the United States by 2020 and by Europe by 2030. Combined with the sex-selective abortions widely practiced as a result of the one-child policy– China will have 96.5 million men in their 20s in 2025 but only 80.3 million young women – China’s future demography holds many challenges for the Communist party….”  (Wikipedia)

Already there have been reports of labor shortages in China to meet demand for workers and that wage inflation has begun to affect the Chinese workforce.  These would erode the traditional competitive advantage of China for the past 30 years which has been a low cost of labor.

Russia

United States

Experts believe that the ageing of the Chinese population can lead to a 1% decrease in GDP growth per year until the 2020’s.  It should also be stressed that China is relatively poor compared to other developed countries, with a GDP per capita of $5,417 vs. $48,328 in the United States, so it is indeed possible that China will not be able to catch up fast enough to match the affluence of the US.  China has also not saved enough for the future, with an estimated 80% of households having less than one year of income saved for the future. 

The costs for ageing populations will be in the form of increased health costs and increased taxes.  Health costs for seniors can run between 3 to 5 times that of the younger population.  Increases in taxes would act as an economic drag on growth and investment.

The military advantage that the United States enjoys against the rest of the world can be expected to increase as time goes by.  At present, the Pentagon spends $664.84 billion per year (though there are probably going to be cutbacks during and after 2013).  This represents more than the next 19 largest spending nations combined.  The age advantage of the United States is an asset because more of the defense budget can be spent on weapons procurement, technology, rather than personnel and pensions.  The US spends 1.15 more on personnel than weapons purchases, compared to about 2.5 times more in France, Japan, and Russia.  The militaries of these countries would also need to compete with the civilian economy to get skilled labor which could also put stress on economic growth.

There is no doubt that the United States is experiencing great challenges today.  The economy is still lurching forward after the economic crisis of 2013 and budget cuts can have a great effect on American society.  However, there is no power which looks like it is on track to challenge the economic and military supremacy that the US has today.