Confronting an Aging World

History is littered with the wreckage of great powers that failed to adapt to revolutionary change. Ancient China sealed itself off from foreign influence and was rudely awakened centuries later by the power of a Europe whose technological capabilities had been sharpened by international competition. Much of the developing world is still playing "catch-up" from staying with agriculture-based economies too long while other nations were industrializing during the nineteenth century. In our own time, the Soviet Union dissolved largely because its ideology required total government control of political and economic activity, leaving it unable to compete with free markets and free electorates.

As we enter a new millennium, revolutionary change is all around us. Information technology, spurred by increasing access to high-speed computing, has fostered rapid commercial innovation. The United States currently enjoys the luxury of being on the cutting edge of this revolution. But with respect to another, equally drastic reshaping of human society--population aging throughout the developed world--the United States is at risk of joining its allies in a dire position. The stakes are too great for these nations to permit themselves to be in a position from which extrication will be exceedingly difficult.

Many empires and nations have been victims of their own achievements. Paradoxically, when great nations erect great structures, they often experience a competitive disadvantage. Defending "what is" becomes a greater preoccupation than preparing for "what is to come." Historic powers thus become saddled with ossified structures that do not encumber younger, more adaptable societies.

We see much evidence of this in the developed world's response to population aging. Much attention is focused on the past successes of national elderly-care programs without sufficient regard for the future. Nations consult the architects of these programs, who frequently are emotionally invested more in defending their own creations than in equipping their nations to withstand fundamental change.

The impact of these trends on the balance of power is sobering. The Organization for Economic Cooperation and Development (OECD) projects that the combined share of global gross domestic product (GDP) produced by the United States, Japan, and the European Union will decline by roughly 40 percent from its current proportion by the middle of this century. The principal reason for this decline is unrelated to any fundamental economic failure other than the drag on national productivity resulting from increases in elderly-dependency ratios. National productivity growth is the product of per capita output growth times workforce growth. Countries with a declining proportion of their population in the workforce, and with spiraling spending commitments to retirees, inevitably must experience sluggish growth unless per capita productivity accelerates markedly.

Referring to global population aging as a "problem" misrepresents the situation. The longer, healthier lives of their populations is good news for the developed world as is permanently sustainable levels of population growth. What is truly an "opportunity" will become a "problem" if the developed world does not adapt its structures to new realities. Ways must be found to tap the productivity, knowledge, and desire for work of the growing senior populations of these nations. Means must also be developed to provide pension and health care commitments that do not grow more rapidly than underlying economies.

Pioneering work by Pete Peterson (including his article "The Global Aging Crisis," in the January/February 1999 issue of Foreign Affairs) and others vividly demonstrates the scope of global-population-aging trends. What is inadequately spelled out are the ramifications of these trends in so many other areas of government concern.

The United States, relative to its allies, is more favorably situated to grapple with the challenges of population aging. Its fiscal position is good, and it still has enough time to prepare, to provide advance funding for its elderly-care programs, and to lessen the magnitude of its unfunded liabilities without causing undue hardships for any generation of workers or retirees. It also has the world's most sophisticated financial systems and markets...