BANGKOK, Thailand, Jul 25 (IPS) – Several countries in the Asia-Pacific region are ageing rapidly. This transition is not unique and is not limited to the region — it is a global megatrend. But this time it is different. Why? Because ageing is happening quite quickly.
While France and Sweden took 115 and 85 years respectively to evolve from an ageing society (with 7-14 percent of the population aged 60 or over) to a graying society (with 14-21 percent aged 60 or over), the same transition In China, Singapore, Thailand and Vietnam this is expected to take only 19-25 years.
Compared to other global megatrends shaping economies, such as digitalization or climate change, demographic shifts remain relatively predictable and inherently slower. This provides policymakers with a reassuring but misleading comfort. The impact of these shifts on economies is far from straightforward, and analysts struggle to fully understand and/or quantify them.
The economy is the people. That is why demographic shifts are one of the most influential factors shaping every aspect of an economy. Changing demographics means changing the essence and purpose of all economic activities.
As the goal changes, so do the needs. Changes in productivity, the share of the population in the labor market, the behavior and effectiveness of fiscal policy, and how monetary policy affects the economy – all these processes introduce great uncertainty into the planning of long-term economic and fiscal policy.
Why do analysts have trouble quantifying the economic impact of aging? The net change is a sum of several factors, often working in opposite directions. As people age, their productivity declines. On the other hand, this trend is offset by technological advances, although to a largely unknown extent, making the net impact difficult to predict.
Ageing societies also show a shift in consumption from durable goods (e.g. cars) to essential services (e.g. health care), which affects the composition of a country’s demand for goods and services and tax revenues. Ageing also changes labor force participation. Simply put, the share of working people is lower in ageing societies than in young societies.
Furthermore, the more developed a society is, the greater the temptation to retire from the workforce, as older people have the opportunity to retire from the workforce more quickly and enjoy the comforts of retirement. In contrast, in developing countries, older people must work until old age to avoid poverty. No stone is left unturned.
Why is all this problematic from a fiscal policy perspective?
First, policymakers want to know how much goods and services are being produced and will be produced so that they can plan how to redistribute them through taxes and fiscal expenditures. Simply put, policymakers need to know how to slice and redistribute the “economic pie” (GDP) – and predicting its size in the future is not easy.
Second, some fiscal expenditures increase and some decrease as societies age. Fiscal expenditures on pensions increase, as do health care and other forms of social protection. In contrast, expenditures on education decrease, as there is less demand for children to be educated.
Third, it is not easy to determine the exact magnitude and timing of these shifts.
However, governments do not have to remain passive spectators of demographic shifts, as they have several tools to mitigate the negative impact and stimulate positive processes. For example, early retirement places an excessive burden on the fiscal system. Retraining and upskilling of older people keeps them in the labor market, increases economic output, and reduces poverty among older people.
At the same time, governments can implement society-wide policies that support healthy and active aging. Using modern technologies and experience from other ancient countries, such as Japan, much can be done to keep people active into old age.
All these measures not only improve the quality of life and economic performance of older people, but also directly alleviate the financial burden on pension systems, as retirement is postponed.
Finally, all the challenges mentioned above and the policies needed to address them are closely linked. Therefore, policymakers should try to tackle a few problems at a time and look for synergies.
For example, greater investment in health care, education, social protection and environmental protection not only improves quality of life, but also enables people to stay in work longer.
A better environment improves people’s health, which supports economic activity and reduces the need for government spending on social protection and health care. In turn, saved social protection and health care spending can be used to support other development priorities.
This holistic approach should become the norm of public policy planning. Socio-economic policies should embrace the idea of synergies between their objectives, so that spending on one policy objective also supports other objectives.
For a deeper understanding of how demographic shifts are shaping Asia-Pacific’s economies, fiscal policies, and the overall development agenda, delve into the Asia and the Pacific Economic and Social Survey 2024prepared by the United Nations Economic and Social Commission for Asia and the Pacific.
Micha Podolski is an Associate Economic Affairs Officer
IPS UN Office
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© Inter Press Service (2024) — All rights reservedOriginal source: Inter Press Service
