The Long, Good Life Demographics and Economic Well-Being - MARCH 2020 Summers on secular stagnation P.17 - International Monetary Fund
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MARCH 2020
Summers on secular
stagnation P.17
Japan’s
shrinkonomics P.20
Older but not
poorer P.30
The Long, Good Life
Demographics and Economic Well-Being
Contents
Demographics
are not set
in stone,
nor are their
implications
for individual
and collective
26 well-being.
THE LONG, GOOD LIFE
4 Population 2020 20 Japan's Shrinkonomics
Demographics can be a potent driver of the pace Japan is the world’s policy laboratory for dealing
and process of economic development with an aging, shrinking population
David E. Bloom Gee Hee Hong and Todd Schneider
10 The Long, Good Life 24 Eastern Europe’s Exodus
Longer, more productive lives will mean big changes In Europe’s newest states, emigration compounds
to the old rules of aging the problem of aging populations
Andrew Scott Maria Petrakis
14 Reversing Demographic Decline 26 Immigrant Swan Song
Singapore’s experience in trying to raise its fertility Immigration can solve the demographic dilemma—
rate offers lessons for other countries but not without the right policies
Poh Lin Tan Giovanni Peri
17 Accepting the reality of 30 Getting Older but Not Poorer
secular stagnation As societies age worldwide, pensions and public
New approaches are needed to deal with policies must adapt
sluggish growth David Amaglobeli, Era Dabla-Norris, and
Lawrence H. Summers Vitor Gaspar
Subscribe at www.imfbookstore.org/f&d Read at www.imf.org/fandd Connect at facebook.com/FinanceandDevelopment
FINANCE & DEVELOPMENT
A Quarterly Publication of the International Monetary Fund
March 2020 | Volume 57 | Number 1
DEPARTMENTS
42 People in Economics
Retirement Behaviorist
Peter J. Walker profiles Wharton’s Olivia S.
Mitchell, a founder of modern pension research
46 Picture This
Coming of Age
35 By 2050, as birth rates continue to drop and people
live longer, the world’s population will change
Neil Ruiz, Luis Noe-Bustamante, and Nadya Saber
ALSO IN THIS ISSUE
48 In the Trenches
35 Youth Rising
Rebuilding Somalia
Three under thirty forge their own futures
Finance Minister Abdirahman Dualeh Beileh
Sahiba Chawdhary, Omar Chennafi, sees hope for his country’s economic development
and Jjumba Martin
50 Back to Basics
52 Access to Finance:
Why Aren’t Women Leaning In? How Can Interest Rates Be Negative?
Women are self-selecting out of the African Countries are starting to experiment with
credit market negative interest rates
Hanan Morsy Vikram Haksar and Emanuel Kopp
54 Where the Sun Shines 61 Book Reviews
Renewable energy sources, especially solar, are ideal Good Economics for Hard Times, Abhijit V. Banerjee
for meeting Africa’s electrical power needs and Esther Duflo
Gregor Schwerhoff and Mouhamadou Sy Capitalism, Alone: The Future of the System That
Rules the World, Branko Milanovic
58 60 Years of Uncertainty
Narrative Economics—How Stories Go Viral and
Our new index provides novel insights Drive Major Economic Events, Robert Shiller
into an amorphous concept
Hites Ahir, Nicholas Bloom, and Davide Furceri 64 Currency Notes
Natural Treasures
Samoa honors its environmental heritage in
colorful currency
58 Melinda Weir
42
March 2020 | FINANCE & DEVELOPMENT 1
EDITOR'S LETTER FINANCE & DEVELOPMENT
A Quarterly Publication of the
International Monetary Fund
EDITOR-IN-CHIEF:
Gita Bhatt
MANAGING EDITOR:
Maureen Burke
SENIOR EDITORS:
Jacqueline Deslauriers
Peter Walker
DIGITAL EDITOR:
Rahim Kanani
ONLINE EDITOR:
Lijun Li
Demographics PRODUCTION MANAGER:
Melinda Weir
and Destiny
COPY EDITORS:
Michael Harrup
Lucy Morales
ADVISORS TO THE EDITOR:
WHEN I VISIT my home country, India, I am always struck by how young
Bernardin Akitoby Thomas Helbling
it looks. From the big cities to the tiny villages, one can see the hopes Celine Allard Tommaso Mancini Griffoli
and aspirations of twenty-somethings, many in search of work. In Japan, Bas Bakker Gian Maria Milesi-Ferretti
demographic trends have been moving in the opposite direction. Homes Steven Barnett Christian Mumssen
Nicoletta Batini İnci Ötker
sit vacant, and villages are vanishing, as people have fewer children. In Helge Berger Catriona Purfield
response, the Japanese are embracing technology to fill the gaps through Paul Cashin Uma Ramakrishnan
innovations like robot chefs and automated medical services. Luis Cubeddu Abdelhak Senhadji
Alfredo Cuevas Alison Stuart
Changes in the size and structure of a nation’s population affect how we Rupa Duttagupta
work, age, and live. In many advanced and emerging market economies,
a shrinking pool of working-age people will have to support a growing © 2020 by the International Monetary Fund. All rights reserved.
For permission to reproduce any F&D content, submit a request
number of retirees. Other countries—in Africa and elsewhere—will need via online form (www.imf.org/external/terms.htm) or by e-mail
to generate a staggering number of new jobs just to keep pace with the to copyright@imf.org. Permission for commercial purposes also
youth joining the job market. available from the Copyright Clearance Center
(www.copyright.com) for a nominal fee.
Changing age dynamics have profound implications for growth, social
stability, and geopolitics. They influence how people save, spend, and invest, Opinions expressed in articles and other materials are those of
the authors; they do not necessarily reflect IMF policy.
with consequences for everything from marriage to retirement to migration.
Subscriber services, changes of address, and
This issue brings together leading thinkers in their fields to explore the advertising inquiries:
many facets of population trends and consider what they mean for our future. IMF Publication Services
David Bloom focuses on the main drivers of demographic transitions, Finance & Development
PO Box 92780
including life expectancy, fertility, and migration. Vitor Gaspar and Washington, DC 20090, USA
coauthors look at the fiscal sustainability of health and pension financing. Telephone: (202) 623-7430
Other contributors highlight novel approaches, the role of incentives, Fax: (202) 623-7201
E-mail: publications@imf.org
and tried-and-tested policy solutions, such as using technology to boost
productivity, raising the retirement age, opening up to immigration, and Postmaster: send changes of address to Finance & Development,
International Monetary Fund, PO Box 92780, Washington, DC
increasing women and older workers’ labor force participation. 20090, USA.
Demographics can shape a country’s destiny. But policy choices matter, The English e dition is printed at Dartmouth Printing Company,
from encouraging technological innovation and institutional reform to Hanover, NH.
investing in people, both young and old. With wise policies, more of us Finance & Development is
will enjoy the long, good life. published quarterly by the
International Monetary Fund, 700
19th Street NW, Washington, DC
GITA BHATT, editor-in-chief 20431, in English, Arabic, Chinese,
French, Russian, and Spanish.
MARCH 2020
Summers on secular
stagnation P.17
English edition ISSN 0145-1707
Japan’s
shrinkonomics P.20
Older but not
poorer P.30
ON THE COVER
The Long, Good Life
Demographics and Economic Well-Being
Our March 2020 issue focuses on demographic shifts taking place globally and how the
right policies can help people live longer, happier, and more productive lives. Illustrator
C1-34_IMF_MAR20_FOB_P5.indd 1 2/13/20 12:15 PM
Davide Bonazzi’s cover is a whimsical depiction of the path to a long, good life.
2 FINANCE & DEVELOPMENT | March 2020
IMF ECONOMIC REVIEW
IMF Economic Review, the official research
journal of the IMF, is a leading journal
in the field of international economics.
The journal has influenced academia,
the broader research community, and
policymakers worldwide. It provides a
rigorous analytical forum for discussing
some of the most important policy
questions of our time.
For more information visit
www.palgrave.com/us/journal/41308
“The IMF Economic Review is still the best place to go for analysis of international
economic issues that is both rigorous and policy relevant.”
— Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science,
University of California, Berkeley
I N T E R N A T I O N A L M O N E T A R Y F U N D
4 FINANCE & DEVELOPMENT | March 2020
ION
T
2
P0
ULA
0
PO e an
d
2
p a c
o f the
r i ver ment
d p
o tent evelo
p d
b e a omic m
s c an econ . Bloo
c f
ra phi cess o David E
og o
D em pr
March 2020 | FINANCE & DEVELOPMENT 5
D
emography is destiny” is an oft-cited Countries the United Nations classifies as less
“ phrase that suggests the size, growth, and
structure of a nation’s population deter-
mines its long-term social, economic, and
developed encompassed 68 percent of world popula-
tion in 1950; today they represent 84 percent. That
share will continue to rise, because virtually all of the
political fabric. The phrase highlights the role of nearly 2 billion net additions to world population
demographics in shaping many complex challenges projected over the next three decades will occur
and opportunities societies face, including several in less developed regions. This is a major concern,
pertinent to economic growth and development. because less developed regions tend to be more
Nevertheless, it is an overstatement to say that fragile—politically, socially, economically, and eco-
demography determines all, as it downplays the logically—than their more developed counterparts.
fact that both demographic trajectories and their With 1.44 billion people, China currently has the
development implications are responsive to economic largest national population in the world, followed
incentives; to policy and institutional reforms; and to by India, with 1.38 billion. But by the end of this
changes in technology, cultural norms, and behavior. decade, India will be the most populous country,
The world is undergoing a major demographic with a projected 1.50 billion people, compared
upheaval with three key components: population with China’s peak population of 1.46 billion.
growth, changes in fertility and mortality, and Between 2020 and 2050, Nigeria (projected to
associated changes in population age structure. overtake the United States to become the world’s
third-most-populous nation) and Pakistan—
Population growth already among the 10 most populous—will surge
It took more than 50,000 years for world population forward. Asia will continue to be home to a domi-
to reach 1 billion people. Since 1960, we have added nant but declining share of the world’s population
successive billions every one to two decades. The (60 percent today and 54 percent in 2050).
world population was 3 billion in 1960; it reached 6 Finally, notwithstanding continued global pop-
billion around 2000, and the United Nations proj- ulation growth, in 61 countries and territories that
ects it will surpass 9 billion by 2037. The population are currently home to 29 percent of the world’s
growth rate has been slowing, however, from peak people, population growth in 2020–50 is projected
annual rates in excess of 2 percent in the late 1960s, to be negative, with the sharpest decline (−23 per-
to about 1 percent currently, to half that by 2050. cent) projected for Bulgaria (see “Eastern Europe's
Although global income per capita more than Exodus” in this issue of F&D).
doubled, life expectancy increased by 16 years, and
primary school enrollment became nearly universal Mortality, fertility, and migration
among children during 1960–2000, rapid popula- Population size and growth reflect the underly-
tion growth poses myriad challenges that are both ing forces of mortality, fertility, and international
privately and publicly daunting. These challenges migration. These forces vary considerably across
include the need for more food, clothing, hous- countries and can help account for key differences
ing, education, and infrastructure; the absorption in economic activity and performance, such as
of sizable numbers into productive employment; physical capital, labor, and human capital accu-
and more strenuous environmental protection. mulation; economic well-being and growth; and
Although the explosive nature of global population poverty and inequality.
growth is abating in relative terms, decade-on- These forces generally respond to economic shocks;
decade increases remain sizable and are taking place they may also respond to political developments such
from ever more populated starting points. as the beginning and ending of wars and governance
Earlier concerns about a global population explo- crises. In many developing economies, population
sion have, to some extent, yielded to concerns about growth has been associated with a phenomenon
rapid population growth in particular countries and known as the “demographic transition”—the move-
regions (see “Coming of Age” in this issue of F&D). ment from high to low death rates followed by a
Indeed, the overall slowdown in the rate of world corresponding movement in birth rates.
population growth masks significant shifts in the For most of human history, the average person
distribution of world population by development lived about 30 years. But between 1950 and 2020,
status and geographic region. life expectancy increased from 46 to 73 years, and
6 FINANCE & DEVELOPMENT | March 2020
DEMOGRAPHICS
In the coming decades, demographics will be more
favorable to economic well-being in the less developed
regions than in the more developed regions.
it is projected to increase by another four years by population growth in the short and medium term,
2050. Moreover, by 2050, life expectancy is pro- because low fertility per woman is more than offset
jected to exceed 80 years in at least 91 countries by the number of women having children. This
and territories that will then be home to 39 percent feature of population dynamics is known as pop-
of the world's population. Increased longevity is a ulation momentum and helps explain (along with
colossal human achievement that reflects improve- migration) why the populations of 69 countries and
ments in survival prospects throughout the life territories are currently growing even though their
cycle, but especially among infants and children. fertility rates are below 2.1.
Cross-country convergence in life expectancy con- Cross-country migration is also relevant to pop-
tinues to be strong. For example, the life expec- ulation growth. The effects are quite important
tancy gap between Africa and North America was in some countries, such as Guyana, Samoa, and
32 years in 1950 and 24 years in 2000; it is 16 Tonga, where net emigration in the past 30 years
years today. Historic and anticipated reductions has been appreciable. Bahrain, Qatar, and the
in cross-country health disparities reflect gains United Arab Emirates have had the highest rates
in income and nutrition among low- and middle- of net immigration. Among the world’s 10 pop-
income countries, the diffusion of innovations ulation super powers, migrants have the largest
in health technologies and institutions, and the relative presence in the United States (15 percent
distribution of international aid. in 2019). For most countries, though, international
In the 1950s and 1960s, the average woman migration has not been a dominant demographic
had roughly five children over the course of her force, because more than 96 percent of the world’s
childbearing years. Today, the average woman has population currently live in their countries of birth
somewhat fewer than 2.5 children. This presumably (see “Immigrant Swan Song” in this issue of F&D).
reflects the growing cost of child-rearing (including
opportunity cost, as reflected mainly in women’s Age structure dynamics
wages), increased access to effective contraception, The age structure of a population reflects mainly
and perhaps also growing income insecurity. its fertility and mortality history. In high-mortal-
The social and economic implications of this ity populations, improved survival tends to occur
fertility decline are hard to overstate. Among disproportionately among children. This effectively
other things, lower fertility has helped relieve creates a baby boom. Eventually, the boom ends
many women of the burden of childbearing and when fertility abates in response to perceptions
child-rearing. It has also contributed to the empow- of improved child survival and as desired fertility
erment of women in their households, communi- declines with economic development. But as the
ties, and societies and has allowed them to partici- relatively large baby-boom cohorts proceed through
pate more actively in paid labor markets. All these adolescence and into their adult years, the population
factors reinforce the preference for low fertility. share at the peak ages for work and saving swells.
Between 1970 and 2020, the fertility rate declined This enhances the productive capacity of the econ-
in every country in the world. Fertility tended to omy on a per capita basis and opens a window of
decrease more in countries with high initial fertility, opportunity for rapid income growth and poverty
another facet of demographic convergence. Among reduction. Events of the past decade, ranging from
geographic regions, Africa and Europe are currently the Arab uprisings to more recent mass protests in
homes to the highest (4.3) and lowest (1.6) fertility Chile and Sudan, also show that countries that fail to
rates, respectively. generate sufficient jobs for large cohorts of young adults
If the population’s age structure is sufficiently are prone to social, political, and economic instability.
weighted toward those in prime childbearing years, The “demographic dividend” refers to the pro-
even a fertility rate of 2.1 can translate into positive cess through which a changing age structure can
March 2020 | FINANCE & DEVELOPMENT 7
spur economic growth. It depends, of course, high-savings part of the life cycle need policies to
on several complex factors, including the nature realize the potential benefits of favorable demograph-
and pace of demographic change, the operation ics. Such policies include support for the operation
of labor and capital markets, macroeconomic of competitive labor and capital markets, equipping
management and trade policies, governance, and workers with human capital, building infrastruc-
human capital accumulation. Nonetheless, the ture, sound macroeconomic management, carefully
demographic dividend model can account for designed trade policies, and good governance. Such
much variation in past economic performance policies are always desirable, but a large working-age
among different countries and regions (e.g., East population share raises the stakes.
Asia vs. Latin America vs. sub-Saharan Africa) In some countries, making investments in these
and helps identify more- and less-promising various sets of policies could be challenging, as per
country settings for future economic growth. capita income is currently lower in real terms than
For example, from 2020 to 2030, Nepal, Jordan, it was in some of today’s advanced economies when
Bhutan, and Eswatini are projected to experience they were at a comparable demographic stage.
the largest gains among countries in the ratios of
their working-age to non-working-age populations. Global graying
The dependency ratio—the inverse of the work- Population aging is the dominant demographic
ing age to non-working-age ratio—measures the trend of the twenty-first century—a reflection of
economic pressure working-age individuals face increasing longevity, declining fertility, and the
to support, in addition to themselves, those who progression of large cohorts to older ages. Never
are not of working age. In 1990, the ratio in more before have such large numbers of people reached
developed regions was appreciably lower than in ages 65+ (the conventional old-age threshold). We
less developed regions (0.68 versus 1.04). expect to add 1 billion older individuals in the next
But by 2020, as a result of different patterns of three to four decades, atop the more than 700 mil-
fertility decline and population aging, the ratio had lion older people we have today. Among the older
increased to 0.70 in more developed regions and population, the group aged 85+ is growing especially
decreased to 0.75 in less developed regions. And by fast and is projected to surpass half a billion in the
2050, the dependency ratio is projected to be greater next 80 years. This trend is significant because the
in more developed regions (0.89) than in those that needs and capacities of the 85+ crowd tend to differ
are less developed (0.77). This switch suggests that significantly from those of 65-to-84-year-olds.
in the coming decades, demographics will be more Although every country in the world will experi-
favorable to economic well-being in less developed ence population aging, differences in the progres-
regions than in more developed regions. This will sion of this phenomenon will be considerable. Japan
be especially true in Africa, the only region in which is currently the world leader, with 28 percent of its
this ratio is projected to decline by 2050. population 65 and over, triple the world average.
For countries that have yet to experience appre- By 2050, 29 countries and territories will have
ciable demographic transitions (like Chad, the larger elder shares than Japan has today. In fact,
Central African Republic, Somalia, and Sierra the Republic of Korea’s elder share will eventually
Leone), policies are appropriately oriented toward overtake Japan’s, reaching the historically unprec-
catalyzing those transitions. Such policies include edented level of 38.1 percent. Japan’s median age
investment that promotes infant and child survival, (48.4) is also currently the highest of any country
such as expanded vaccine coverage as well as wider and more than twice that of Africa (19.7). But by
access to well-provisioned and appropriately staffed 2050, Korea (median age 56.5 in 2050) is also
primary health care systems. expected to overtake Japan on that metric (54.7).
For populations that have experienced health and Three decades ago, the world was populated by
survival gains, countries could benefit from policies more than three times as many adolescents and
to enable a decline in fertility, such as promoting young adults (15- to 24-year-olds) as older people.
girls’ education and access to reproductive health Three decades from now, those age groups will be
and family planning services. roughly on par.
And countries with relatively sizable portions of By income group, the sharpest growth in the num-
the population concentrated in the high-work and bers of older people will occur in countries currently
8 FINANCE & DEVELOPMENT | March 2020DEMOGRAPHICS
Among the older population, the group aged 85+ is
growing especially fast and is projected to surpass
half a billion in the next 80 years.
classified as middle income. This is unsurprising, as reforms to promote the financial sustainability and
these countries make up 74 percent of the world intergenerational equity of health and pension financ-
population. What may be surprising is that the older- ing. Raising the legal age of retirement, which has
population share in middle-income countries is been relatively stable in nearly all countries for the
increasing at a much faster rate than in their low- and past several decades (see “Getting Older but Not
high-income counterparts. Moreover, in comparison Poorer” in this issue of F&D) would also ease the
with high-income countries, today’s middle-income burden. Pronatalist tax incentives are also a policy
countries are projected to have appreciably greater option for the long term, but their effect on fertility
real incomes when their older-population shares is thus far unproven.
reach comparably elevated levels. This contradicts Additional approaches include efforts to increase
the common claim that developing economies are health systems’ emphasis on early detection and
getting old before they get rich. on prevention of disease through, for example,
The challenge middle-income countries face is not better awareness of the benefits of physical activity
predominantly insufficient income to take care of their and subsidization of such activity. Relaxing the
older people. Rather, it is how well institutions and institutional and economic barriers to interna-
policies can promote economic and social security tional immigration from regions with relatively
among older people in a financially sustainable way. large working-age populations could alleviate
Population aging is sounding alarms worldwide. labor shortages.
Whether increased longevity is associated with Finally, technological innovations are likely to
more or less of a person’s life lived in frailty is ameliorate the effects of population aging. New drugs
among the most salient unresolved questions public to slow the process of aging and add healthy years
and private policymakers throughout the world face to people’s lives and the invention and deployment
(see “The Long, Good Life” in this issue of F&D). of assistive devices such as robots are two among
Economists continue to express concerns. These many such improvements. Institutional innova-
relate to downward pressure on economic growth tions like new models of home health care, public
due to labor and capital shortages and falling asset transportation systems, the design of urban layouts,
prices in the future as a growing and more aged and financial instruments are also on the horizon.
cohort of older people seeks to support itself by
liquidating investments. Another major issue has The bottom line
to do with fiscal stress. Government coffers will be Global, regional, and country demographic indi-
strained by rising pension liabilities and the cost cators have changed dramatically since the early
of health and long-term care associated with the 1950s and are poised for equally dramatic changes
expected growth in the incidence and prevalence in the coming decades. Population aging contin-
of chronic diseases such as cancer, among others. ues to displace population growth as the focal
These challenges will, however, be partially offset point of interest among global demographic phe-
by the increasing, but typically neglected, value nomena. Nonetheless, both phenomena and their
older people create through productive nonmarket underlying drivers have had, and will continue
activities like volunteer work and caregiving. to have, profound repercussions for myriad indi-
Without historical lessons from a world with such cators and determinants of economic well-being
large numbers of older people, there is even more and progress. Demographics are not, however, set
uncertainty about our collective future. However, in stone. Nor are their implications for individual
adopting a business-as-usual approach to the chal- and collective well-being.
lenges of population aging would be irresponsible.
Various responses could cushion the economic DAVID E. BLOOM is a professor of economics and demogra-
burden of population aging. These include policy phy at Harvard University’s T. H. Chan School of Public Health.
March 2020 | FINANCE & DEVELOPMENT 9THE LONG,
GOOD LIFE
Longer, more productive lives will mean big changes to the old rules of aging
Andrew Scott
10 FINANCE & DEVELOPMENT | March 2020T
he past 150 years have witnessed one
of the greatest of human achievements.
In 1870 average global life expectancy
was about 30 years; today it is 73 and
rising (Deaton 2015). Further, the proportion of life
lived free of frailty or illness has remained broadly
unchanged, so people spend most of these extra
years in good health.
The implications of this development for individ-
uals are profound. For instance, in 1960 the average
Chinese newborn had only a 27 percent chance of
making it to age 65; today that probability is 83
percent and rising. Around the world, on average,
people can now expect to live longer, healthier lives
than in previous generations.
The new frontier of aging
While for individuals this is good news, at an aggre-
gate level there is concern over an aging society.
In 1965 there were 129 million people over 65 in
the world; today there are nearly 750 million, and
this figure is expected to reach 2.5 billion by 2100.
The number of centenarians is also rising—from
20,000 in 1965 to a projected 19 million by 2100.
The fear is that this phenomenon will weaken
economic growth as the number of people of professor Laura Carstensen, a “new map of life.”
working age declines and that governments’ fiscal Longer lives mean changes to when we are edu-
burden will worsen because of higher pension and cated or married, when we have children, how
health care costs. long we work, and how we spend not just old age,
The chart shows the changing size and structure but also youth and middle age (Gratton and Scott
of the global population. The vertical axis shows 2016). From this perspective the question is not
the world’s population broken down by age, the “How do we afford an aging society?” but “How
horizontal axis the split between men and women. do we restructure behavior to make the most of
Horizontally the chart shows a staggering increase longer lives?”
in the proportion of people over 65. From repre- Underpinning these changes is the fact that age
senting only 5 percent of the population in 1950 has become, to a degree, malleable. Nutrition,
to 9 percent today, this cohort is expected to reach education, behavior, public health, the environ-
23 percent by 2100. Supporting this population ment, and medical practice can influence the pace
shift will require profound changes in policies, at which we age. Across a variety of measures
institutions, and practice. (incidence of diseases, mortality rates, cognitive
ART: ISTOCK / NESELENA; ANASTASIIA BORIAGINA
Vertically, however, the chart tells a different story, function, physical strength) people are in effect
highlighting not aging, but longevity. From this per- not aging more but aging more slowly.
spective, children born today have much more time This malleability requires drawing a distinction
ahead of them than past generations. The likelihood between chronological age (how many years since
of living into old age has increased, as has the peak you were born) and biological age (how fit and
of the pyramid, changing what constitutes “old.” healthy you are). By defining “old” chronologi-
Longevity represents an extension of the dura- cally, the aging society narrative does not take into
tion of life and requires, in the words of Stanford account whether people are aging better and rules out
March 2020 | FINANCE & DEVELOPMENT 11structural changes in the course of life. As a result, Myth #4 Aging is a rich-country problem
it focuses only on the negatives of an aging society: Given the population’s young average age in many
more older people who require care and support. This low-income countries, it is often assumed that
omits the potential gains from a longevity agenda that aging is a rich-country problem. However, these
supports longer, healthier, and more productive lives. young populations will age in the years ahead.
Countries need to support 15-year-olds now to
Myths ensure that when they reach 65, in 2070, they are
There are then two forces at work: an aging society, aging as well as possible. Aging does not begin
reflecting a changing demographic structure, and a at 65, and governments should recognize this by
longevity effect, driven by improvements in how we putting in place policies to help the elderly, both
age. Viewing demographic change only through the in the future and today.
lens of an aging society risks missing the bigger story.
Policies for longevity
Myth #1 Aging is best measured chronologically The longevity agenda aims to address the whole
In the twentieth century our concepts of age solid- life course and help people seize the opportunities
ified around chronological measures as government longer lives present. The agenda covers all aspects
birth and death records became more reliable and of life, but employment, education, and health are
formed the basis of increasing regulation. The apo- central areas of focus and those in which govern-
theosis of this chronological measurement was the ments have a key role to play.
definition of old age as starting at 65, enshrined in Supporting older workers. Crucially important
the concept of an “old-age dependency ratio.” In is finding ways to help older workers remain pro-
contrast, age malleability requires distinguishing ductive. This topic covers more than just retirement
between chronological and biological measures of age, since withdrawal from the workforce starts at
age, which makes for a much smaller rise in the about age 50 and is often involuntary.
older population (Sanderson and Scherbov 2019). The importance of this topic is evident in
employment statistics. Between 2008 and 2018
Myth #2 All countries are aging people over 55 accounted for 79 percent of employ-
Over the past two decades the median age in France, ment growth across Organisation for Economic
the United Kingdom, and the United States has Co-operation and Development countries and
increased, but average mortality (as measured by pop- 103 percent in G7 countries. Further, the most
ulation deaths per thousand) has nonetheless declined. important driver of cross-country variations in
The lower the average mortality rate, the longer the employment of older workers is not changes in the
average citizen can expect to live. If we measure old size of the older population, but changes in their
age as years from birth, the citizens of these countries likelihood of working.
have been getting older, but if we think of old age as Policies to promote higher labor force partici-
proximity to death, these nations are now in a sense pation among older workers will depend on the
younger and possess a larger future. That does not generosity and availability of pension plans, the
seem unambiguously best described as an aging society. health and support available to workers, and the
industrial structure and types of jobs offered.
Myth #3 Japan is a harbinger The use of robotics and artificial intelligence
Japan has the highest life expectancy in the world should also help support employment among
and is often seen as leading the way in terms of an this group. Older workers tend to value flexible
aging society. Japan’s demographic transition has and part-time work arrangements highly, often
produced the largest increase in life expectancy and despite lower wages—something that Japan and
the deepest decline in fertility among the Group of Singapore have put to use.
Seven (G7) countries since 1950. As a consequence, Supporting older workers also requires tackling
the aging society effect is much more pronounced deep-seated corporate ageism that makes it hard for
in Japan than in its G7 peers. The balance of an older workers to get new jobs and more likely for
aging-society versus the benefits of longevity varies them to be fired. Governments need to be proactive
across countries and so, too, will the impact on in extending disability rights as well as enacting diver-
economic growth and required policies. sity legislation to support and protect older workers.
12 FINANCE & DEVELOPMENT | March 2020DEMOGRAPHICS
Supporting longer productive lives. Longer is a weak predictor of people’s needs and abilities
lives will require a greater focus on lifelong learning. and should establish more nuanced policies with
Currently education is front loaded in a three-stage different options depending on circumstances.
model of life consisting of “learn, earn, and retire.” Targeting longevity. There is a growing debate
However, longevity and technological change will around alternatives to GDP as a way of measuring
lead to a major increase in the need for adult edu- welfare. One potential alternative is healthy-life
cation, requiring key changes in education systems. expectancy. Given that improvements in healthy-
Longer careers will demand more flexibility for life expectancy depend not only on income and job
workers of all ages. Taking time out to retrain; security. but also on broader social purpose—as
for family support (both of children and of aged well as on environmental quality and inequality—
parents); and for reorientation, recuperation, and longevity usefully connects to a broad range of
repurposing as individuals ramp up and ramp down agendas. Longevity councils (like Japan’s Council
their work commitments will all be necessary in
a multistage life.
All’s well that ages well. As populations age,
the disease burden shifts toward noncommunicable By defining “old” chronologically,
diseases, such as heart disease, cancer, diabetes,
and dementia. In 2016 these diseases accounted
the aging society narrative does
for 71 percent of deaths globally, with 78 percent not take into account whether
occurring in low- and middle-income countries.
Noncommunicable diseases are expensively and people are aging better.
poorly managed through intervention, so to reduce
their impact, health care providers should consider
a major shift toward preventive health care. As with for Designing 100-Year Life) would help monitor
past health improvements, this will require public progress toward these targets and improve coor-
education aimed at changing people’s behavior dination across government departments.
when it comes to activity, diet, engagement, and How we are aging is changing, undermining
purpose. New monitoring and predictive technol- nineteenth-century French philosopher Auguste
ogies, such as artificial intelligence and big data, Comte’s assertion that “demography is destiny.”
will be needed as well. Individuals are living longer, healthier lives—and
The dominant cause of many noncommunicable that should be good news for people and the econ-
diseases is age itself. This suggests that efforts to omy. Designing policies to maximize the number
slow the aging process should play a more promi- of people of all ages who benefit from this longevity
nent role in treatments rather than targeting par- effect while seeking to boost productivity over a
ticular diseases, such as cancer (Ellison, Sinclair, longer life is the goal.
and Scott 2020). A growing research program
is focusing on understanding why we age and ANDREW SCOTT is professor of economics at the London
developing treatments that, if successful, could Business School and cofounder of The Longevity Forum. He is
lead to dramatic changes in the malleability of the author (along with Lynda Gratton) of the 2016 book The
age (Sinclair 2019). 100-Year Life: Living and Working in an Age of Longevity.
Supporting diversity. Age malleability means
that there is considerable diversity in how people References:
age. As many more millions live beyond 65, this Deaton, A. 2015. The Great Escape: Health, Wealth and the Origins of Inequality.
will become ever more apparent, causing problems Princeton, NJ: Princeton University Press.
for policies couched purely in terms of chrono- Ellison, M., D. Sinclair, and A. Scott. 2020. “All’s Well That Ages Well.” Oxford University/
logical age, such as raising the state pension age. Harvard Medical School/London Business School, unpublished.
Governments need policies that provide support Gratton, L., and A. Scott. 2016. The 100-Year Life: Living and Working in an Age of
for those who are unable to continue working Longevity. London: Bloomsbury Business.
while providing incentives to work for those who Sanderson, W. C., and S. Scherbov. 2019. Prospective Longevity: A New Vision of
can. As is done with with other age groups, poli- Population Aging. Cambridge, MA: Harvard University Press.
cymakers should recognize that chronological age Sinclair, D. 2019. Lifespan: Why We Age and Why We Don’t Have To. New York: Altria.
March 2020 | FINANCE & DEVELOPMENT 13Planet sculpture (2008) by Marc
Quinn in the sunset at the Gardens
by the Bay, with Singapore’s
skyline in the background.
Reversing
Demographic
Decline Singapore’s experience in trying to raise its
fertility rate offers lessons for other countries
Poh Lin Tan
14 FINANCE & DEVELOPMENT | March 2020G
lobally, fertility is on the decline. While a the probability that families will achieve it, because
total fertility rate below the replacement of either unforeseen changes in circumstances such
level of 2.1 is now the norm for advanced as divorce, health, or income shocks, or reduced
economies, the very lowest rates are found ability to conceive and carry a child to term.
in Japan, the Republic of Korea, Singapore, Taiwan The Singaporean policy approach aims to create
Province of China, and higher-income Chinese a more conducive environment for marriage and
cities, including Shanghai and Hong Kong SAR. As fertility for all groups—in particular to help married
a result, in the absence of immigration, this region women reconcile labor participation with mother-
is set to experience the most rapid population aging hood. However, few if any of the instruments are
and decline. designed specifically to allow women to become
In the case of Singapore, the government has mothers at peak childbearing ages, either to stem
grappled with the relentless downward trend in the decline among women in their 20s or to boost
fertility since the 1980s. After a public campaign fertility rates among women in their early 30s. As
and limited programs failed to produce results, a a result, the lack of age sensitivity represents a lost
package of pronatalist incentives was introduced in opportunity to cater to the most receptive group of
2001 and enhanced over the years. Currently, the prospective parents.
package includes paid maternity leave, childcare
subsidies, tax relief and rebates, one-time cash Lesson 2: Reproductive technologies are not a panacea
gifts, and grants for companies that implement One reason for older childbearing in advanced econ-
flexible work arrangements. Despite these efforts, omies is the public’s misplaced faith in reproductive
the fertility rate deteriorated from 1.41 in 2001 to technologies’ effectiveness. According to Judith
a precarious 1.16 in 2018. Daniluk and colleagues at the University of British
What can we learn from Singapore? Columbia, common fertility myths include the belief
that good health and in vitro fertilization (IVF) can
Lesson 1: Address the rising age at childbearing offset the effects of age-related infertility (Daniluk,
The mean age of childbearing has increased by Koert, and Cheung 2012). Few people are aware that
approximately one year a decade among Organisation IVF poses health risks to women or that delayed
for Economic Co-operation and Development childbearing can lead to more complications during
countries, according to calculations by Oxford pregnancy or birth and more birth defects. Men
University’s Melinda Mills and colleagues (Mills and women thus tend to underestimate the risks
and others 2011). In Singapore, changes in the associated with delaying marriage and childbearing.
age composition of women giving birth have been As part of the package of pronatalist incentives,
especially dramatic. Women ages 20–24 are now as the Singaporean government subsidizes up to 75
likely to give birth as women ages 40–44 and far less percent of assisted reproductive technology treat-
likely than women ages 35–39. Moreover, unlike in ment costs for qualifying married couples and
a number of European countries, the steep decline allows them to tap into their medical accounts
in fertility among women in their 20s has not been under the national savings program to pay for
offset by higher birth rates among women in their the procedures. Singapore’s fertility experience
30s. Instead of merely being delayed, these missing suggests that access to IVF and other reproductive
babies have vanished permanently. technologies is not sufficient to ensure that older
The rising age at childbearing is the lowest-hang- women have enough babies to compensate for
ing fruit from a policy perspective. It is far easier fertility decline among younger women. Japan,
to help couples who are already married and desire another excellent example, has the world’s highest
at least two children to achieve their fertility goals percentage of babies born through IVF (about 5
than to attempt to match singles in the marriage percent), as well as one of the lowest fertility rates.
PHOTO: DREAMSTIME.COM / ANDREI IANCU
market or persuade couples who do not want more
children to change their minds. While the two- Lesson 3: Household production cannot be fully outsourced
child-family ideal continues to hold in Singapore, the Singapore’s low fertility also demonstrates the lim-
phenomenon of higher ages at parenthood reduces itations of formal sector provision of childcare
March 2020 | FINANCE & DEVELOPMENT 15and housework. Peter McDonald at the Australian each child. Couples who might otherwise want
National University argues that even though women children voice concern over the ethics of a stressful
have more educational and labor market oppor- childhood and upbringing or worry that they would
tunities than ever, gender inequality at home, lack the energy or ability to help their children
which places the burden of caring for children compete effectively.
and household chores on women, results in very Singapore’s human capital success story, which
high opportunity costs of childbearing and hence has propelled it to the top of international rankings,
very low fertility (McDonald 2006). thus comes at a cost to its people’s willingness and
Singapore provides insight into this issue because ability to build families. The inability to raise the
of the unusually robust range of options its formal fertility rate is hence not so much a testimony to
sector provides. The government is heavily involved ineffective pronatalist policies as to the overwhelm-
in the provision of low-cost and high-quality formal ing success of an economic and social system that
childcare. Working mothers receive childcare sub- heavily rewards achievement and penalizes lack of
sidies of S$300 a month for formal childcare; ambition. Tackling the fertility rate may therefore
lower-income families receive more. Moreover, require confronting some of the weaknesses of the
unlike in most other advanced economies, families underlying system, which means not only address-
can (and many do) hire relatively low-cost domes- ing demographic challenges, but also potentially
tic workers from neighboring Southeast Asian helping build social cohesion or healthy cultural
countries such as Indonesia and the Philippines. attitudes toward risk taking.
Hence, it is relatively easy for women to outsource At the end of this year’s Forbes Global CEO
childcare and housework in Singapore. Conference, Singaporean Prime Minister Lee Hsien
Singapore’s low fertility rates suggest that formal Loong noted that with help from immigration, a
sector provision cannot substitute for parents’ fertility of rate of 1.3–1.4 may be enough to meet
spending quality time with children. While access the country’s needs (Yong 2019). As long as there is
to excellent childcare options and domestic workers tension between human capital and fertility, raising
may help, institutional support—parental leave birth rates in Singapore to replacement levels will take
and flexible work arrangements that allow families more than just policy updates and patches. However,
to spend more time together— is needed as well. a mix of age-sensitive policies and enhancements of
pronatalist incentives may push fertility to a more
Lesson 4: Acknowledge human capital’s true cost modest target of 1.4. Singapore has little time to lose:
It is no coincidence that Japan, Singapore, and other as the population ages, fewer and fewer couples will
very low fertility countries also tend to score very be of childbearing age, and a higher fertility rate will
well in human capital rankings, from Program for deliver less bang for the buck. It’s now or never.
International Student Assessment tests to the new
World Bank Human Capital Index. Economists POH LIN TAN is an assistant professor at the National
have long noted a trade-off between quantity and University of Singapore’s Lee Kuan Yew School of Public Policy.
“quality” of children (in terms of resources devoted
per child). My coauthors and I argue (Tan, Morgan, References:
and Zagheni 2016) that the East Asian institutional Daniluk, J. C., E. Koert, and A. Cheung. 2012. “Childless Women’s Knowledge of Fertility and
emphasis on early life achievements increases returns Assisted Human Reproduction: Identifying the Gaps.” Fertility and Sterility 9 7 (2): 420–26.
from investing in children’s human capital, which McDonald, Peter. 2006. “Low Fertility and the State: The Efficacy of Policy.” Population and
means more children, more expense. Development Review 32 (3): 485–510.
The other side of the coin is the serious con- Mills, Melinda, Ronald R. Rindfuss, Peter McDonald, and Egbert te Velde. 2011. “Why Do
sequences of being less successful than others, People Postpone Parenthood? Reasons and Social Policy Incentives.” Human Reproduction
17 (6): 848–60.
both for parents and their children. Local surveys
suggest that a large proportion of singles wish to Tan, Poh Lin, S. Philip Morgan, and Emilio Zagheni. 2016. “Examining the Link between
Education Costs and Lowest-Low Fertility.” Population Research and Policy Review 35 (5):
be married someday but choose to pursue educa- 327–50.
tional or career success over dating. The major-
Yong, Nicholas. 2019. “We Must Make Enough of Our Own Babies to Secure Singapore’s
ity of married couples have children, but most Future: Lee Hsien Loong.”Yahoo News Singapore, October 17. https://sg.news.yahoo.
stop at one or two, owing to high education- com/we-must-make-enough-of-our-own-babies-to-secure-our-future-lee-hsien-
related expenses and the desire to invest more in loong-083432783.html.
16 FINANCE & DEVELOPMENT | March 2020POINT OF VIEW
Accepting the Reality of
Secular Stagnation
New approaches are needed to deal with sluggish growth,
low interest rates, and an absence of inflation
Lawrence H. Summers
recovery, and below-target inflation during a decade
of recovery, or the sustainability of high levels of
government debt with very low real interest rates.
Understanding these developments and crafting
policies that respond effectively will likely require
that economists develop what might be called a
“new old Keynesian economics” based on Alvin
Hansen’s Depression-era idea of secular stagnation.
This article summarizes the case for new approaches
to macroeconomics by highlighting important
structural changes in the economy of the industrial
world, explains the secular stagnation view, and
draws some policy implications.
The investment dearth
Barring a change in current trends, the industrial
world’s working-age population will decline over the
next generation, and China’s working-age popula-
tion will decline as well. At the same time, trends
toward increased labor force participation of women
PHOTO: RALPH ALSWANG
have played out with, for example, more women than
men now working in the United States.
These demographic developments eliminate the
demand for new capital goods to equip and house
a growing workforce. This trend is reinforced by
A FUNDAMENTAL DIFFERENCE between natural science the observation that the amount of saving required
theories and social science theories is that natural sci- to purchase a given amount of capital goods has
ence theories, if valid, hold for all times and places. In declined sharply as the relative price of equipment,
contrast, the relevance of economic theories depends especially in the information technology (IT) space,
on context. Malthus’s theory of food availability was has sharply declined. A $500 iPhone today has
valid for the millennia before he formulated it, but more computing power than a Cray supercomputer
not after the industrial revolution. Keynes’s ideas did a generation ago. In addition to capital goods’
were much more valid during the Great Depression having lower prices, the downward trend in their
than during the inflationary 1970s. prices encourages delaying investment.
I am increasingly convinced that current mac- Moreover the IT revolution has been associated
roeconomic theories, with their premise that mon- with a broader demassification of the economy.
etary policy can determine the rate of inflation, E-commerce has reduced the demand for shopping
may be unsuited to current economic reality and so malls, and the cloud has reduced the demand for
provide misguided policy prescriptions. They failed office space by eliminating the need for filing cabi-
to anticipate Japan’s deflationary slowdown that nets, allowing offices to be personalized with a flick
began in 1990, or the global financial crisis, slow of the switch, down to family photos on the walls.
March 2020 | FINANCE & DEVELOPMENT 17POINT OF VIEW
I am increasingly convinced that current macroeconomic theories,
with their premise that monetary policy can determine the rate of
inflation, may be unsuited to current economic reality.
Fracking for oil and natural gas requires far less Secular stagnation
capital than traditional drilling techniques, and With a somewhat different list of factors in mind,
IT makes targeting of exploration much easier, the Harvard economist Alvin Hansen labeled the
further reducing investment demand. failure of private investment to fully absorb private
Technology now permits sharing of everything savings “secular stagnation” because of the threat
from apartments (Airbnb) to planes (NetJets) and that it would mean insufficient demand.
dresses (Rent the Runway) to cars (Uber) in ways There are a number of things we would expect
that would not have been imaginable a decade ago. to see if secular stagnation has been taking hold
Rising generations look to live in sparsely furnished in recent years. First, a high supply of savings and
apartments rather than large homes. a low level of demand should mean low interest
Many argue that monopoly power has rates. Indeed, real rates by almost any measure have
increased—at least in the United States—tending been trending downward over the last 20 years,
to discourage new investment. And increasingly even as budget deficits have increased. This is what
promiscuous distribution of the veto power has we have seen with real-term interest rates negative
slowed public infrastructure investment, which in the industrial world despite major run-ups in
on a net basis is running in the United States at government debt.
less than half of previous levels. Second, one would expect that difficulties in
The upshot of all these developments is that absorbing savings would lead to reduced growth
investment demand has been substantially reduced, and difficulty in achieving target inflation. This
regardless of interest rate levels. is what has been observed. At present markets do
not expect any country in the industrial world to
The savings glut hit a 2 percent inflation target. Despite unprece-
At the same time that investment demand has fallen dentedly low interest rates and deficits at record
off, a number of factors have combined to increase levels after more than a decade of recovery, growth
saving. A larger amount of income is accruing to has been tepid. Notably—contrary to the views of
higher-income people who have a greater propensity those who explained low rates after the recession
to save. Increased corporate profitability, coupled by pointing to “headwinds”—central banks have
with lower interest rates, means more corporate found it impossible to raise rates and still count
retained earnings. on the momentum of recovery.
Increases in uncertainty associated with growing Third, disappointing growth has coincided
doubts about government’s ability to meet pension with inflation’s surprising again and again on the
obligations and more risk of future tax increases also downside. Economists teach beginning students
raise saving. Similarly, reductions in expected future that reduced quantity and reduced price suggest
income growth increase the need for future saving. a decline in demand. If, as many suggest, the
Strengthened financial regulation and its legacy dominant reason for stagnation is disappointing
mean households find it more difficult to borrow productivity performance, we would expect to see
and spend, leading to an increase in aggregate prices rise rather than fall. Absent extraordinary
saving. This can happen either because of con- policy settings, deflation might be setting in.
sumer protection—as when, for example, higher Fourth, a period of slow growth and deflation
down payment requirements reduce mortgage has also been a period of asset price inflation.
borrowing—or because of regulatory burdens on US stock markets have risen fourfold since the
financial intermediaries, through, for example, crisis, and real housing prices are almost back
higher capital requirements. to previous peak levels. This is as one would
So structural changes in the economy have oper- expect with secular stagnation, as abundant sav-
ated both to raise saving and to reduce investment. ings pushed into existing assets, increasing, for
18 FINANCE & DEVELOPMENT | March 2020You can also read
