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Aging in West Makes Reform EssentialBy: Reginald Dale WASHINGTON For most people, global aging does not suggest a disaster scenario on a par with global warming or some new, incurable plague. But the inexorable aging of populations resulting from low birth rates and longer lifespans, especially in industrial countries, is causing increasing alarm among economists trying to interpret the future. . Among the more worrying forecasts are threats to international stability as the West ages and weakens while young populations explode in Third World trouble spots; disruption of global markets and trade flows, and the rupture of the North Atlantic alliance as defense budgets are emasculated by increasing demands for pension and welfare payments. . Hordes of gray-haired retirees could ultimately do more damage to globalization than the youthful activists who these days often try to disturb international economic meetings. . The people making the dire predictions are not crackpots but experts basing their conclusions on work done by such pillars of the international establishment as the International Monetary Fund, the World Bank, the European Commission and the Organization for Economic Cooperation and Development. . All these august bodies have been working with the Center for Strategic and International Studies in Washington to evaluate the scale of the aging problem in a series of working papers published this month. . Responding to what the World Bank, as far back as 1994, called an "old age crisis" will be "the most daunting social challenge of the new century," according to Paul Hewitt of the Center for Strategic and International Studies. Most government estimates of the impact of aging seem excessively rosy and have generally not led to appropriate action. . The studies depict a future in which "labor shortages, falling savings rates, declining asset values and shrinking defense capabilities could combine to create a new era of social insecurity the world over," Mr. Hewitt says. They point to the decline of Japan and Europe as world powers and serious problems for the United States in maintaining its current overwhelming military superiority. . Some of the figures cited are truly shocking. Japan, which is aging the fastest, could lose between one-quarter and one-third of its population by 2050. According to some projections, Germany will lose 17.5 million people, equivalent to all of Eastern Germany, over the next half-century, while Italy's population will fall by 28 percent. Britain and France are expected to see modest declines. . The United States will see big increases in the numbers of elderly, as baby boomers start to leave the work force. A first taste of potential future labor shortages will come as half of all U.S. federal employees become eligible for retirement in the next five years. . If radical reforms are not undertaken, especially in pension and retirement policies, most industrial countries will face labor shortages, rising taxes, declining pension and welfare payments, shortages of savings and investment funds, budget squeezes, mounting levels of public and private debt, and falling real estate and equity prices, according to the center's working papers. . Hopes of countering these trends through higher productivity may be dashed by declining innovation in less dynamic societies that contain fewer young people. . The news is not all bad. Unemployment in Europe will fall, perhaps to zero in 15 years, and elderly people are getting healthier and more active. . With projections up to 50 years ahead, there can be no single doomsday scenario, particularly since economists are divided on such basic questions as whether savings rates will fall or rise, a key factor in assessing investment and productivity levels. . But there is broad agreement that aging will have a significant negative impact on economic growth and living standards, according to Robert Stowe England of the Center for Strategic and International Studies. . It is no good looking to increased immigration as a panacea. To maintain today's ratio of active workers to retirees solely through immigration would require far more immigrants than would be politically acceptable, either in Europe or in the United States, according to Mr. Hewitt. . Immigration can help. But people will also have to spend longer contributing to pensions and less time withdrawing them. Early-retirement incentives will have to be reversed and pension plans reformed and tightened. . As widespread protests against pension reforms are currently demonstrating in France, it will not be easy. But if necessary reforms are postponed too long, the disaster scenarios will only become more likely.
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