Sincronía

Spring 2011

Aging in Asia

Jason L. Powell

University of Central Lancashire

Asia has the fastest increase in the aging population in the world. Du and Tu (2000) suggest that China in particular has been identified as having four ‘unique characteristics’ of populational aging: firstly, the issue of ‘unprecedented speed’ with the proportion of aging population is growing faster than Japan, the country previously recognized as having the fastest rate, and much faster than nations in Western Europe; secondly, the ‘early arrival of an aging population’ before modernization has fully taken place has welfare implications. ‘It is certain that China will face a severely aged population before it has sufficient time and resources to establish an adequate social security and service system for the elderly’ (Du and Tu, 2000, 79); thirdly, Du and Tu suggest ‘fluctuations in the total dependency ratio’. They claim the Chinese government estimates are that the country will reach a higher ‘dependent burden’ earlier in the twenty-first century than was previously forecast; and fourthly, Du and Tu refer to the ‘strong influence of the government’s fertility policy and its implementation on the aging process’. Here they explicitly refer to the Single Child Family Policy (SCFP)in China which means fewer children being born, but with more elderly people a conflict arises between the objectives to limit population increase and yet maintain a balanced age structure.

The combination of such factors means that the increased aging population is giving rise to serious concerns among Chinese policy makers.

Kim and Lee (2007) claim the growing elderly population is beginning to exert pressure on the East Asian countries economies. Three decades ago, major industrialized countries have begun to grapple with the similar problem. With increasing drop in fertility rates, more East Asian economies such as Japan, Hong Kong, South Korea, Singapore and Taiwan are expected to turn into “super-aging societies” by 2025 (Kim and Lee 2007). However, the magnitude of the future impact depends on the (in)ability of individual economies to resolve the demographic changes problem through increased privatisation, pension reforms, a migration on more productive countries and extension of retirement age. Like western countries, Asia will ultimately have to tackle issues related to pension reform and the provision of long term health care services (Cook and Powell, 2007).

For Japan, the basic statistical reality of its demographic profile is escalating. Already, 17 of every 100 of its people are over 65, and this ratio will near 30 in 15 years. From 2005 to 2012, Japan's workforce is projected to shrink by around 1% each year - a pace that will accelerate after that. Economists fear that, besides blowing an even bigger hole in Japan's underfunded pension system (Cook and Powell, 2007), the decline of workers and young families will make it harder for Japan to generate new wealth.

The future challenge of providing for the elderly is especially urgent in the world's two biggest nations - India and China. Only 11% of Indians have pensions, and they tend to be civil servants and the affluent. With a young population and relatively big families, many of the elderly population still count on their children for support. This is not the case in China. By 2030, there will be only two working-age people to support every retiree. Yet only 20% of workers have government- or company-funded pensions or medical coverage (Chen and Powell 2011). However, as a counterbalance to such a gloomy perspective, ‘Chindia’ (China and India taken together) is currently accumulating vast wealth as a result of global change, wealth that could potentially be redirected for the support of their elderly populations. But why has global aging been an unstoppable force to restrain the potential and exponential growth of such economies to fullest potential which could be way beyond the projected 9% growth for China.

The Consequences of Global Aging to Asia[d1]

While global aging represents a triumph of medical, social, and economic advances, it also presents tremendous challenges for many regions of the world and Asia is no different. Population aging strains social insurance and pension systems and challenges existing models of social support traditionally given by family structures (Bengston and Lowenstein 2004). It affects economic growth, trade, migration, disease patterns and prevalence, and fundamental assumptions about growing older. Global aging will have dramatic effects on local, regional, and global economies. Chris Phillipson (1998) has argued that the rise of globalization exerts unequal and highly stratified effects on the lives of older people in different nation states (Phillipson 1998; Estes 2001). In the developed world, the magnitude and absolute size of expenditure on programs for older people has made these the first to be targeted with financial cuts. In less developed countries, older people (women especially) have been amongst those most affected by the privatization of health care, and the burden of debt repayments to the World Bank and the IMF (Estes 2001). Additionally, globalization as a process that stimulates population movement and migration may also produce changes that disrupt the lives of older people (Phillipson, 1998). And one must not forget either that they may comprise up to one-third of refugees in conflict and emergency situations - a figure which was estimated at over 53 million older people worldwide in 2000 (Estes 2001).

Changes in the age structures of societies also have consequences for total levels of labor force participation in society, because the likelihood that an individual will be in the labor force varies systematically by age (Phillipson, 1998). Labor itself is viewed as less mobile than capital, although migration could offset partially the effects of population aging. Currently, 22 percent of physicians and 12 percent of nurses in the United States are foreign born, representing primarily African countries, the Caribbean, and Southeast Asia (OECD 2007). The foreign-born workforce also is growing in most OECD countries. Over the next 10 years, the European experience will be particularly instructive in terms of the interplay of aging and migration (OECD 2007). It is also because the future is already dawning that global trends impact on state power. In South Korea and Japan, which have strong cultural aversions to immigration, small factories, construction companies, and health clinics are relying more on ‘temporary’ workers from the Philippines, Bangladesh, and Vietnam (OECD 2007). In China, state industries are struggling over how to lay off unneeded middle-age workers when there is no social safety net to support them (Cook and Powell, 2007). What really has pushed aging to the top of the global agenda, though, is increasing fiscal gaps (in part, due to the “global credit crunch”) in the U.S., Europe, Japan, and elsewhere that could worsen as populations reach retirement age. While U.S. Social Security is projected to remain solvent until at least 2042, the picture is more acute in Europe. Unlike the U.S., where most citizens also have private savings plans, in much of Europe up to 90% of workers rely almost entirely on public pensions (Walker and Naeghele 2000). Austria guarantees 93% of pay at retirement, for example, and Spain offers 94.7%. Concurrently, global population aging is projected to lead to lower proportions of the population in the labor force in highly industrialized nations, threatening both productivity and the ability to support an aging population (Krug, 2002). It is possible for the elements of production—labor and capital—to flow across national boundaries and mitigate the impact of population aging (Phillipson 1998). Studies predict that, in the near term, capital accumulation will flow from Europe and North America to emerging markets in Asia and Latin America , where the population is younger and supplies of capital relatively low. In another 20 years, when the “baby boom” generation in the West has mostly retired, the consequence is that capital will likely flow in the opposite direction (May and Powell, 2007).

It is interesting that the World Bank (1994) foresees growing ‘threats’ to international stability with the consequence of pitting different demographic-economic regions against one another (Phillipson, 1998). The United Nations (2002) view the relationship between aging populations and labor force participation with panic recognizes important policy challenges, including the need to reverse recent trends toward decreasing labor force participation of workers in late middle and old age despite mandatory retirement in certain western countries such as the UK (Powell, 2005). Social welfare provisions and private-sector pension policies influencing retirement income have a major impact on retirement timing. Hence, a major concern for organizations such as United Nations and World Bank centers on the number of such 'dependent' older people in all developing societies. Furthermore, nation states with extensive social programs targeted to the older population—principally health care and income support programs—find the costs of these programs escalating as the number of eligible recipients grows and the duration of eligibility lengthens due to global pressures (Bengtson and Lowenstein 2003). Further, few countries have fully funded programs; most countries fund these programs on a pay-as-you-go basis or finance them using general revenue streams. Governments may be limited in how much they can reshape social insurance programs by raising the age of eligibility, increasing contribution rates, and reducing benefits. Consequently, shortfalls may need to be financed using general revenues. Projections of government expenditures in the United States and other OECD countries show increases in the share of gross domestic product devoted to social entitlements for older populations. In some cases, this share more than doubles as a result of population aging (OECD 2007). Different countries’ age groups have different levels of pace of growth (Phillipson, 1998; Estes, Biggs and Phillipson, 2003).

[d2] The life-cycle theory of consumption is that family households accumulate wealth during working years to maintain consumption in retirement (Gilleard and Higgs 2001). The total of a country's individual life-cycle savings profiles determines whether households in that country are net savers or no savers at any point in time. A country with a high proportion of workers will tend to be dominated by savers, placing downward pressure on the rate of return to capital in that economy. Nation states with older populations will be tapping their savings and driving rates of return higher because of the scarcity of capital (Gilleard and Higgs 2001). This impacts on pensions. Most of Europe's state-funded pension systems encourage early retirement. Now, 85.5% of adults in France retire from employment by age 60, and only 1.3% engages in employment beyond aged 65. In Italy, 62% of adults retire from full-time work by the age of 55. That compares with 47% of people who earn wages or salaries until they are 65 in the U.S. and 55% in Japan (Estes 2001).

Individual and family resources are important too. These typically include public and private pensions, financial assets, and property. Pensions and elder-care costs will increase from 14% of capitalist nations' gross domestic product to 18% by 2050 (Walker and Naeghele 2000). The relative importance of these resources varies across countries. For example, a groundbreaking study revealed that only 3% of Spanish households with at least one member age 50 or older own stocks (shares), compared to 38 percent of Swedish households (Walker and Naeghele 2000). The largest component of household wealth in many countries is housing value. This value could fall if large numbers of older homeowners try to sell houses to smaller numbers of younger buyers. How successfully this transition is managed around the world could determine the rise and fall of nations and reshape the global economy in the era of the post-credit crunch. Two key vehicles of growth are increases in the labor force and productivity. If nation states cannot maintain the size of their labor forces by persuading older workers to retire later then the challenge will be to maintain growth levels. This will be a particular challenge in Europe, where productivity growth has averaged just 1.3% since 1995. By 2024, growth in household financial wealth in the U.S., Europe, and Japan will slow from a combined 4.5% annual reduction now to 1.3%. That will translate into $31 trillion less wealth than if the average age were to remain the same (Cook and Powell, 2007).

This also has an impact on older people, family and household. Indeed, older people's living arrangements reflect their need for family, community, or institutional support [d3] . Living arrangements also indicate sociocultural preferences—for example, some choose to live in nuclear households while others prefer extended families (Estes, Biggs and Phillipson, 2003). The number, and often the percentage, of older people living alone are rising in most countries. In some European countries, more than 40% of women age 65 and older lives alone (Walker and Naeghele 2000). Even in societies with strong traditions of older parents living with children, such as in Japan, traditional living arrangements are becoming less common. In the past, living alone in older age often was equated with social isolation or family abandonment (Phillipson 1998). However, research in many cultural settings illustrates that older people, even those living alone, prefer to be in their own homes and local communities (Gilleard and Higgs, 2001). This preference is reinforced by greater longevity, expanded social benefits, increased home ownership, elder-friendly housing, and an emphasis in many nations on community care (Estes, Biggs and Phillipson, 2003). As people live longer and have fewer children, family structures are also transformed (Bengtson and Lowenstein 2004). [d4] This has important implications in terms of providing care to older people. Most older people today have children, and many have grandchildren and siblings. However, in countries with very low birth rates, future generations will have few if any siblings. As a result of this trend and the global trend toward having fewer children, people will have less familial care and support as they age (Bengtson and Lowenstein 2004).

As a consequence of the global demographics of aging, the changing societies of the post millennia are being confronted with quite profound issues relating to illness and health care, access to housing and economic resources including pension provision in Asia. Asian policy makers have to work beyond the nation state and create partners with other nation states to thwart the power of global aging from impacting on its ability to meet the needs of its population.

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