Gary Duncan: Economic View
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There were two summits taking place in Europe at the end of last week.
In Brussels, European Union leaders occupied themselves with yet another bout of their interminable haggling over political architecture. Yet, as the national leaders battled over how Europe should be governed, an ultimately more crucial discussion of issues that will shape the fate of the continent was taking place several hundred miles away.
Had any of the national leaders been present at the sixth Munich Economic Summit, they would have had little doubt that the discussion there – of the swift and certain ageing of Europe’s population – was of more fundamental importance than their Brussels scrap.
The demographic tides rising across the developed world, and which will before long engulf the entire European continent, are now fairly well recognised.
Most of us understand that Europe is turning grey; that more and more of us will soon join legions of the elderly, even as the numbers of those of working age left to support the old dwindle.
But if this problem has become pretty well-known, the startling size of it is sometimes forgotten. So, too, is its urgency.
The Munich summit, organised by the CESIfo Group, the leading think-tank based at the Bavarian capital’s university, and by the BMW Foundation Herbert Quandt, offered a compelling reminder of the extent of the demographic shift, and of its pervasive repercussions.
The basic numbers leave little doubt over how high the stakes really are. By 2050, ever-lengthening lifespans and slumping birthrates mean that Europe’s population of working age will drop by 38 million. At the same time, numbers aged 65 and over will rise by 40 million. That will swell the EU’s pensioner population to more than 100 million. The number of workers for every individual of 65-plus will fall from more than three to fewer than two.
It is hard not to react with the same sort of gloom that grips us individually when we contemplate eventual decrepitude. Is Europe, too, doomed to senescence?
A more hopeful scenario that energised the academic, political and business leaders in Munich was set out by Klaus Kleinfeld, outgoing chief executive of Siemens. His vision was one in which the challenges of an ageing continent were turned into opportunities; in which innovations in healthcare and social reform allowed Europe to age with grace and happiness, while remaining dynamic.
But can such an optimistic future conceivably be possible? A key cause for optimism is medical progress. Fortunately, we are in the midst of an era of rapid and accelerating advancement and innovation in pharmacology and biotechnology. New pharmaceutical compounds and gene-based therapies hold out the promise of mitigating, if not ending, the worst aspects of ageing. Older people are already healthier than ever before; they will almost certainly become much more so.
A healthier elderly population is also one that can be active for longer and make a continuing contribution to economic growth. Thus, the second element of making an ageing Europe work is just that – extending working lives.
For politicians, it will be hard to sell later retirement to a generation that has watched parents put their feet up for good at 50. But, together with significantly more saving before retirement, this is inescapable. To make this possible, so, too, are fundamental changes to the jobs market, workplace culture, and attitudes to older people.
As the burgeoning ranks of the old in turn sends the cost of state pensions ballooning, cuts in the generosity of these, as well as of other benefits, will also be unavoidable. Thus, the sooner politicians steel themselves to communicate this hard truth, the faster and better electorates will come to understand the changes that lie before us.
There are two further, and critical, political challenges that leaders must confront. The first concerns immigration, the second productivity.
Since Europe is about to run out of able workers, but will have its ever-older army of the old to support, a clear implication is that politicians must confront hostility to immigration, which must be part of the solution. It can, however, be only a part since the numbers of migrants required to stabilise the labour force is too large to be feasible, either politically or practically. EU figures suggest that a net 1.6 million immigrants a year would be needed Europe-wide. In Britain, this would mean a more than doubling of the population by mid-century.
This leads us to the issue of productivity and economic reform.
Since national growth potential is determined by two principal factors, the working population and its productivity, or output per person, a declining pool of labour threatens to undercut growth and living standards. That threat will be exacerbated, too, by the effect of increased saving of existing workers on consumption and investment.
Enhancing productivity to offset a shrinking workforce is, therefore, vital. But it is no secret that the EU’s so-called Lisbon agenda, launched with a fanfare in Portugal at the turn of the decade, and supposed to make Europe the world’s most dynamic economy, has run into the sand as leaders have shrunk from essential structural reform. This lack of will was evident again last week as the Brussels summit scrapped a treaty commitment to “free and undistorted competition”. Yet this cannot continue. Radical and determined reform is now urgently required, and failure will come at the highest of costs. An ageing Europe is one with no time to waste.
There is, it should now be obvious, no simple or easy solution to Europe’s looming demographic transition.
However, with fortune and fortitude, it also seems clear that a Europe with one foot in the grave is not – after all – quite dead yet.
And, as Maurice Chevalier observed: “Old age is not so bad when you consider the alternative.”
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Things would be much easier if governments, particularly ours stopped wasting huge amounts of public taxes on foreign adventures as well as numerous domestic 'initiatives' which are usualy only an excuse for politicians to strut around the political stage. Numerous failed I.T.systems and a huge public workforce are usualy the only end result and it is one of the reasons British people are so heavily taxed and engulfed with layers and layers of regulations. Buy to let investments have been popular because of failures to reglulate pensions, hence soaring house prices. Those who make no provision for retirement are not penalised at all, but handed benefits without question. Pension saving must be made compulsory and families must be financialy encouraged to produce children. Ministers must be made accountable for waste and failure and we should no longer go on crusades abroad which have the only effect of allowing our politicians to strut a larger stage. THERE - IT'S EASY ISNT IT
Newton, Liverpool, England
How can the upcoming generation be expected to fund the retirement of the selfish baby boomers? They're already priced out of home ownership thanks to boomer greed., and contributing to their very own pension is becoming an increasingly expensive luxury. Children too are a luxury to most middle income couples - house prices have once again put paid to the dream of affording offspring. The boomers will one day reap what they sow when there is no one around to rent their BTL and fund their retirement.
PT, Tynemouth, UK
A demographic inversion will only be avoided if the population keeps growing. This is not sustainable. Just let it happen. In 30 or 40 years the worst of it will be over and the population can stabilise at a lower level - much better for everyone.
malcolm, london,
If we bring in more immigrants to add to the labour force, will we still have the jobs available when India & China can undercut our EU labour rates & businesses transfer their activities.
It is good to note the reported advances in medicine, but will it do us any good, can the NHS afford these new drugs, & if the government grants more funds will it not be wasted yet again with more doing less.
With regard to pensions, if the funds were invested outside the EU then perhaps our pensioners would then be supported by foreign workers, though I am not sure what the effect the of contributions going abroad would be.
Tony Silver, Virrat, Finland
Many of us OAPs have contributed and contiue to contribute taxes. I have paid income tax every year since 1954 and contiue to work.
However, Gordon Brown does not encourage work and supports wasters. If I expand my small business and earn another £100 I pay £15 VAT. Then for every £2 I lose £1 from my age allowance giving me a marginal rate of 33%. Hence, another £25 of income tax.. A 60:40 split on my work is no incentive.
Barry Crossland, Elland, West Yorks.
"Thus, the second element of making an ageing Europe work is just that â extending working lives."
Social attitudes will have to change first. Everyone wants to employ people aged 21 for peanuts but who have multiple degrees and 5 years practical experience.
Sociaety will have to go way beyond age discrimination laws and into changing attitudes.
Neil Murphy, cromer,
Isn't it a bit strange for the EU to refuse to have Turkey as a member, but then say "Oh, by the way, we need you to come anyway, but as immigrants".
Are we setting up the Turks to do the hard work, but have no vote?
jon livesey, Sunnyvale, CA/US
People who say the answer is to encourage people to have larger families / ease immigration rules forget that this is no solution - any pension model that relies on constant population growth is bound to implode as these babies / immigrants will themselves require someone to pay for *their* retirement benefits as they age, and even the most stubborn overpopulation-denialist can see that no country can afford limitless population growth. These short-term fixes only make the problem worse, and to propose them is irresponsible and intellectually lazy.
K Kuhlemann, London,
why should young people be obliged to support a selfish older generation who chose "things" over a large family and the support group that generally comes with one? this is a classic case of reaping what you didn't sow. it is sad though that europe thanks to one generation will discontinue the look it maintained for centuries.
Mark, Toronto, Canada
"At the same time, numbers aged 65 and over will rise by 40 million. That will swell the EUâs pensioner population to more than 100 million."
No it won't. It will swell the EU's over-65 population to more than 100 million. By that time (i.e. 2050), normal retirement age will have increased from 65 to well beyond 70.
If people are living healthier for longer, we don't need to retire at 65. The French had an interesting idea a few years back: to set the retirement age in such a way that the average person worked for twice as many years as he was expected to be a pensioner. So if life expectancy increases by 3 years, then increase the retirement age to maintain the balance.
And if companies have difficulty recruiting younger people (because there aren't as many of them), they won't need to let the older ones go as much.
All other things being equal, of course, which they aren't...
Tim, London, UK
The current generation of baby boomers should not expect an ever decreasing number of younger people to support them in retirement. The baby boom generation, as a group, made a conscious decision to reduce the number of their offspring compared with previous generations. And the unprecedented availability of contraceptives made this all the easier during their reproductive years. But certainly they have created their own problem and it's unreasonable to expect younger people to help them out of this mess. If they need to work longer to maintain an income, then so be it. They can't have it both ways. As a matter of policy, younger couples should be strongly encouraged to have larger families. That will also mean that women who want more flexible working hours should be accomodated and employers need to come up with solutions and options for that.
Alex G, Detroit , USA
Immigrants grow old too so any immigration is only going to make things worse in the future so that is definately not the solution. If anything we need a harder line on immigration so that wages for residents are kept high encouring more people to be ecomonically active. We need to consider measures such as a much less generous benefits system, again to encourage more people to work.
paul campbel, swindon,
Why is the birthrate declining? We have been insulated from its effects by mass immigation. Remember, if there were no jobs here, there would be no immigration.
The answer is partly economic and partly cultural. Economic because children are expensive and cultural because, even though children are expensive, they are not that expensive if you are brought up to believe that having children is the right thing to do. Hence why the birthrate among immigrant populations in the UK far outstrips anything among the indiginous people.
We have a wrong attitude to sex - it is a private sport, rather than part of living in a community. Every time a working woman decides to follow her career rather than have more babies, every time a gay decides to live with his/her same-sex partner, society is poorer. It is unpopular (illegal?) to say so, but while we protect their rights, someone has to have an extra baby to compensate.
Unpalatable, but this is ultimately the moral issue that we must face.
Roberto, London, England
No it doesn't. With the present level of technology you need much less people to move the planet. Plus, we're killing it with the overconstructing for all the excess population. One should investigate who these people are who call for population accelaration. Big business and construction companies? Is there no end to their greed? Won't they be satisfied until the planet is one continuous parking yard? We are gobbling up the planet's green spaces.
Eugene, Heidelberg, germany
International Financial Buccaneers (those that get substantial commissions on arranging deals) with the freedom they get under our politicians are and will be making it nigh on impossible to meet the old aged challenge. European Pension Funds are now by-passing Stocks, Shares etc and investing directly in the mortgages of our young people. Securitisation etc has increased house prices by up to 3 times when the Irish CPI only increased by 30% over the last 10 years. The long term effect is that young people are paying State Pensions from taxation, and private Pensions from their exorbitant mortgage repayments. They will have fewer children; who will pay their pensions? This is happening throughout the whole of Europe. This is very dangerous for social harmoney. Greed etc will cause our system to impload on itself. Why in heaven's name do we not even contemplate making it easier for our chidren to have kids of their own. The liberal agenda just is not working anymore!
Scruples, Tourlestrane, Ireland
If the working population is indeed outstripped by the retired population, those working will clearly have to have strong, diverse skills and be adequately supported by further automation and mechanisation. The case for well thought out education and energy policies has therefore never been stronger. Gordon Brown and the government in power have their homework cut out. Will they manage?
Andrew Hamilton-Meikle, Taunton, Somerset
A healthier elderly population is also one that can be active for longer and make a continuing contribution to economic growth. Thus, the second element of making an ageing Europe work is just that â extending working lives.
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Yay!!! We can all work till we're a hundred - kill me now :(
phil, london, uk
'Experts' keep telling us that we need to save more for retirement and that we need more immigrants - a doubling of the UK population indeed !!
One of the main reasons I and millions of others find it so hard to save, is that we are all taxed to death,(half of the year spent at work just to pay taxes), either to support immigrants who don't work, or the home bred bone idle, who should be filling the jobs currently filled by those immigrants who do work.
There should be no immigration until there is a surplus of jobs and all able bodied people born in this country have one.
The reduction in social security payments reflected in lower taxes would then enable many millions to save for their own retirement and go a long way towards solving the problem.
tony, birmingham, uk
what about the obvious. why dont they stop taxing middle class families to the hilt and they might have more children? no immigration needed and problem solved.
chris, wirral,
"Significantly more saving before retirement" - An interesting concept when people cannot afford to save for retirement already. Are house prices going to have to halve? Well there's a lot of people's pensions gone already. Also, the comfortable retirement at 50 is part myth. Over 50% of those retirees are not on a comfortable living but benefits because they can't find work. Their previous works pensions will not be enough to feed the cat.
Judy , Liverpool, england
There's no way that growing the population to avoid the demographic shift can be sustained in the long or medium term. That would simply lead to shortages of resources, including food and water, along with ever increasing pollution.
We must therefore learn to live with an older population, the alternatives might look better in the short term, but eventually they will be far worse.
Jeff, Southampton, UK
And as the World descended into the oblivion of over population the slogan will be "it was the economy stupid!"
Fred, Dubai, Dubai
Less population is better for the world. Unfortunately only Europe is so wise to reduce the density.
Bigger pension expenses will be balanced by less costs for childcare, schools and jobless people.
Less people is better. Maybe not for shareholders, but for the planet and the individual. Less people means more freedom.
Maximilian Eberl, Speyer, Germany