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The challenge of global aging, like a massive iceberg, looms ahead in the future of the largest and most affluent economies of the world. Visible above the waterline are the unprecedented growth in the number of elderly and the unprecedented decline in the number of youth over the next several decades. Lurking beneath the waves, and not yet widely understood, are the wrenching economic and social costs that will accompany this demographic transformation-costs that threaten to bankrupt even the greatest of powers, the United States included, unless they take action in time. Those who are most aware of the implications of this extraordinary demographic shift will best be able to prepare themselves for it, and even profit from the many opportunities it will leave in its wake.
The list of great hazards in the next century is long and generally familiar. It includes proliferation of nuclear, chemical, and biological weapons; high-tech terrorism; deadly superviruses; extreme climate change; the financial, economic, and political aftershocks of globalization; and the ethnic and military explosions waiting to be detonated by today's unsteady new democracies. Yet there is a less-understood challenge-the graying of the developed world's population-that may actually do more to reshape our collective future than any of the above.
This demographic shift cannot be avoided. It is inevitable. The timing and magnitude of the coming transformation is virtually locked in. The elderly of the first half of the next century have already been born and can be counted-and the retirement benefit systems on which they will depend are already in place.The future costs can therefore be projected with a fair degree of certainty. Unlike global warming, for example, there can be little theoretical debate over whether global aging will manifest itself-or when. And unlike other challenges, such as financial support for new democracies, the cost of global aging will be far beyond our means-even the collective means of all the world's wealthy nations. How we confront global aging will have direct economic implications-measurable, over the next century, in the quadrillions of dollars-that will likely dwarf the other challenges. Indeed, it will greatly influence how the other challenges ultimately play out.
Societies in the developed world-by which I mean primarily the countries of North America, Western Europe, Japan, and Australia-are aging for three major reasons:
Medical advances, along with increased affluence and improvement in public health, nutrition, and safety, are raising average life expectancy dramatically.
A huge outsized baby boom generation in the United States and several other countries is now making its way through middle age.
Fertility rates have fallen, and in Japan and a number of European countries are now running far beneath the "replacement rate" necessary to replace today's population. The impact of so few young people entering tomorrow's tax-paying workforce, while so many are entering benefit-receiving elderhood, is of profound consequence.
As a result, I believe that global aging will become the transcendent political and economic issue of the twenty-first century. I will argue that-like it or not, and there's every reason to believe we won't like it-renegotiating the established social contract in response to global aging will soon dominate and daunt the public policy agendas of all the developed countries.
By the 2030s, these countries will be much older than they are today. Some of them may exceed a median age of 55, twenty years older than the oldest median age (35) of any country on earth as recently as 1970. Over half of the adult population of today's developed countries and perhaps two-thirds of their voters will be near or beyond today's eligibility age for publicly financed retirement. So we have to ask: When that time comes, who will be doing the work, paying the taxes, saving for the future, and raising the next generation? Can even the wealthiest of nations afford to pay for such a vast number of senior citizens living a third or more of their adult lives in what are now commonly thought of as the retirement years? Or will many of those future elderly have to do without the retirement benefits they are now promised? And what happens then?
This is not the first time I have spoken out on demographic trends and the clash between popular expectations and fiscal realities. In 1982, I began writing on the long-term challenges facing the U.S. Social Security system-a concern that is now, at last, moving onto the center stage of national discussion where it should have been long ago. After studying the early Reagan budgets, I spoke out against the danger of ballooning federal budget deficits, and began organizing national bipartisan efforts to control and reduce them. In the 1980s, five former Secretaries of Treasury and I founded the Bi-Partisan Budget Appeal, made up of 500 former public officials and business CEOs. In 1992, with Senators Warren Rudman and Paul Tsongas, I cofounded The Concord Coalition. This organization was devoted originally to balancing the budget. With the short-term budget outlook improving, it is now focusing on the long-term impact of ballooning spending on federal entitlement programs, which threatens to unbalance the budget again early in the next century, and on the great advantage of acting to reform them sooner rather than later. (It was in that context that the White House asked The Concord Coalition in 1998 to cohost a series of televised national conferences on the future of Social Security with an unlikely bedfellow, the American Association of Retired Persons.)
In 1996, I presented my views about the aging of America and the impending crisis in U.S. retirement programs in my book, Will America Grow Up Before It Grows Old? So, one might ask, why write another book on what sounds like the same subject? The answer is, it's not the same subject. My last book focused on America's own domestic problem. But while writing that book, I became aware that, imposing as the challenge of an aging society is in the United States, it is even more serious in Japan and much of Europe. In most of the other developed countries, populations are aging faster, birthrates are lower, the influx of younger immigrants from developing countries is smaller, public pension benefits for senior citizens are more generous, and private pension systems are weaker. Most of the other leading economies therefore face far worse fiscal fundamentals than we do. Even some major developing countries-China, for example-face serious aging challenges in the next century.
Given the instant and sometimes painful interactions within global capital markets and the likelihood of varying national responses to the coming fiscal challenge, I can easily envision that sometime in the next decade or two demographic aging will trigger unprecedented financial pressures, both on fragile regional economic arrangements such as the European Economic and Monetary Union and on the world economy as a whole. The economic and political outcome could make today's Asian or Russian crisis look like child's play.
Demographic aging is, at bottom, a global challenge that cries out for a global solution. That is why I have written this book.
From the Trade Paperback edition.