As the World Ages

Most people would regard U.N. data indicating that population numbers in developing nations could start peaking in 50 years as good news. After all, that would make it easier to figure out how to ensure everyone gets proper medical care and food. What's more, the demographic makeup of most developing nations is expected to be ideal for high economic growth over the next few decades. The vast bulk of their populations will be of prime working age (15 to 64), like the U.S.'s was as the baby-boom generation matured.

Longer-term, however, the demographic shift will pose an unusual challenge for developing nations, warns Joseph Chamie, director of the U.N. Population Div., which recently released the data. These governments will be faced with providing retirement benefits and health care to rapidly aging populations, while the countries are still economically backward. Brazil, China, Indonesia, and Thailand are prominent examples.

What's behind the shift? Thanks to greater availability of contraception and better health care, fertility and mortality rates are plunging at unprecedented speeds in developing nations. According to the Population Div.'s new forecast, many such countries will see fertility rates -- the number of children the average woman bears -- dip to around 1.85 by 2050. That's below the "replacement" rate (when enough children are born to more than replace the people who die) of around 2.1. Also, average life spans are lengthening at an unprecedented rate.

Chamie recently spoke with BusinessWeek Senior International News Editor Pete Engardio about the implications of the global age shift. Edited excerpts of their conversation follow:

Q: Why is it such a big deal that fertility rates will be 1.85 rather than 2.1 five decades from now?

A: It is a small numerical change with enormous implications -- economically, socially, and politically. It means a break from traditional thinking about the future.

Global population growth will reach equilibrium, a steady state. This means India will have 85 million people fewer 50 years from now than previously estimated. That is the size of Germany. Project out another 100 years, and the difference is 600 million people.

Q: What does your research say about how quickly the world is aging?

A: Aging is the big story. Average life expectancy in 1900 was just 30. Now it is more than 60. Today, the average age in the world is 27. By 2025 it will be 32. By 2050, it will be 36. That transition means there will be more and more elderly people.

Right now, 10% of the world population is 60 or above. That will go to 21% in 2050. For the first time, there will start to be more people over 60 than age 15 or under.

That is a historic change. We can go back thousands of years, and there always were more children than elderly. Some 8 to 10 countries, including Spain and Japan, already have gone through this age transition.

Q: What will be some of the economic impacts of global aging?

A: It has always been assumed that the market keeps growing. But in Europe, labor forces and demand already are shrinking, which means a decreasing market. People take less risk with stocks and other investments. They are less mobile, so that affects the travel and tourism industries. There are fewer consumers, because older people already bought the major things they need.

Take a country like Italy. Two decades ago, Italy had 1 million births a year. Today, it has 500,000. You have a big contraction in the population. What happens to real estate? What happens to the construction industry? What happens to maternity wards?

Aging also affects industries. The baby boom created the need for bigger houses, for lunch boxes, for Jell-O. All the markets were geared toward children. Now, companies are thinking of [the needs of] the elderly.

Instead of Toys 'R' Us, we will have the Elderly 'R' Us. Bathtubs will change because people won't be able to get into them. Ford, GM, and Toyota will have to change their car designs. I grew up with a Mustang that had bucket it's too hard to get into them. So are SUVs.

Q: What will be the impact on labor markets?

A: This is the big issue facing both developed and developing countries. How can countries attract labor when births are going down? In Korea, there now are 9 people of working age for every person above 65. By 2050, that will go down to 2. Mongolia will go from 17 now to 4. Japan will go from 4 now to just 1.

The point is, you have a transformation of the percentage of the population that is of working age.

Q: Why is population aging different for developing nations than for developed ones?

A: It took France 114 years for people 65 and above to go from 7% of the population to 14%. It took the U.S. 69 years. But it took Japan just 25 years, and it will take Indonesia 22.

Developing nations don't have the same amount of time to adjust. That shift is creating pressures on governments to respond quickly. Many developing nations don't have the institutions and the financial wherewithal to deal with this.

It also will affect investments in their economies. Are you going to invest in Argentina, Indonesia, or Egypt? No way. You will invest in the U.S. or Germany. There will be trillions and trillions of dollars at play here.

The ailments that the elderly have -- cancer, Alzheimer's, dementia -- are costly. Many people will live off their pensions while their children don't have jobs. If you have a pay-as-you-go pension system, as most of these countries have now, what happens if their economies collapse?

Q: Realistically, it's hard to see many poor nations accumulating wealth fast enough to provide adequately for retirees. What will happen to these people?

A: They will do what they always did historically. They will go back to the family. The problem, though, is that families are getting smaller. There is a possibility that some countries, due to a shortage of health care, won't be able to sustain their improvements in mortality.

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