There has been plenty of bad economic news of late. Europe's slogging fiscal crisis took an ugly turn with the Cyprus debacle, and the U.S.'s recent jobs report was yet another kick to the gut. Worse, both "news" items provide further evidence that the so-called Great Recession was not an accident but the consequence of deep structural changes to the socio-economics of twenty-first century life.
The unseemliness of Cypriot balance sheets and American jobs reports is simply the outcome of the mismatch between yesterday's systems and today's demography.
Yet for all the humbug and melancholy, the ratings agency Standard & Poor's has some unexpected good news in their new report, "Global Aging 2013: Rising to the Challenge." Contrary to what your Twitter feed may suggest, a number of nations are making notable progress in reforming fiscal and economic policies to account for population aging. The S&P report may not be "trending" on Reddit, but it very much deserves careful consideration.
Standard and Poor's has been writing about the fiscal and economic implications of population aging for over a decade. To date, their analysis has been insightful and incisive -- if not, for good reason, wholly optimistic. In 2010's "Global Aging: An Irreversible Truth," S&P wrote: "In our view, population aging will lead to profound changes in economic growth prospects for countries around the world, alongside heightened budgetary pressures from greater age-related spending needs. In the absence of appropriate budgetary adjustment, additional reforms to pension and health-care systems, or structural measures to improve sovereigns' growth potential, our projections show the future fiscal burden will increase significantly across the board."
The 2010 report also stated that the second decade of the 21st century was a "window of opportunity" to prepare for population aging.
Three years later, the world gets its report card. And despite some phenomenal setbacks and intransigent policies (à la the recent fiasco in Cyprus and the U.S.'s stalled "recovery"), the 2013 S&P report sees progress: "We believe that, if kept in place, the comprehensive structural changes and budget consolidation many sovereigns have put in place in recent years should improve their prospects for maintaining sustainability of long-term public finances, although additional policy action will be required to fully contain the budgetary implications of future increases in age-related spending."
The long report is very much worth reading (and studying), but, at a high level, there are three insights worth noting.
First, population aging not need be a recipe for disaster, as many so often suggest. S&P's very sober financial analysis finds that smart, proactive, goal-oriented steps can be taken in order to turn aging into a financial and economic opportunity. The countries that are making the hard decisions today are going to be the ones to prosper tomorrow. This is equally true for companies. Those who win the competitiveness race of the 21st century will have treated their aging workforce as valuable assets and re-imagined their organization's commercial goals to align to the realities of an aging society.
Second, major and politically unpopular reform is needed to our most cherished public benefits systems like Social Security and Medicare in the U.S. or the NHS in the UK. All around the world, individual nations are going to need to restructure their age-related spending to remain financially solvent. And those just emerging -- China, Brazil, Turkey, India, Mexico- - will have to do it differently. For everyone, developing, emerging or developed, the road ahead will be different from our 20th century, and often both difficult and disliked in the short-term. The longer-term payoff for all will be better, more sustainable systems. A "business as usual" approach will lead to higher deficit and interest payments leading to government spending at around 50% of GDP or higher - not exactly sustainable.
Third, the challenges of population aging are global, but the solutions must be local. To some extent, this has already been recognized, but the S&P report adds greater nuance. The research and analysis shows that different countries must recognize what their "red light" issue is. Whether it is pensions, healthcare, or both -- each country must deal with its own political pressures against fiscally necessary but socially unpopular reforms. Even when ideas resonate globally -- such as Age-Friendly Cities, Age-friendly Workplaces, a global fund for Alzheimer's, healthy skin and cancer prevention to increase lifespans and decrease spending -- these will still mostly demand local implementation strategies. And, the challenges of those who will be old before they become wealthy will be different from those who are developed and old already.
The S&P report is noteworthy because, despite evidence that the private sector is strategically preparing for population aging, news from the public sector has been less forthcoming. The S&P report ends the silence. Now, the trick is to ensure that the report card is not a celebration of what we've achieved but a reminder of the work still to be done.