As IMF officials and Central Bankers gather in DC this past week, and six years after the financial crisis that swept Barack Obama into office, we are still debating if and when to intervene in countries and financial institutions in economic and fiscal crisis. At the center of the debate is the role the IMF, recently fought in Congress over the esoteric issues of shifting funds from crisis to general accounts, and other matters of voting and governance. But these details, as with much of discussion that will likely take place at the official gathering, miss the more profound question of how the IMF is to function in the 21st century to fulfill its core mission of "maintaining global economic stability." And it is this question which is at the heart of our most challenging structural economic issue that virtually all nations are facing now or in the next two decades: Namely, the impact on economic stability as a consequence of the growing imbalance between that demographic over 60 and those in traditional working life between the ages of 22 and 60.
Or, as the S&P warned in their seminal 2010 Global Aging Report, "No other force is likely to shape the future of national economic, health, finance public policy as the irreversible rate at which the world's population is aging"
Surely the principal job of the IMF should be how to use its funds and influence to keep people working into our 60s, 70s and even 80s as a hedge against economic instability -- even crisis -- that will inevitably ensue if the imbalance of retirees to workers is allowed to stand. Christine LaGarde's recent comments to students in Beijing urging the Chinese government to "put fundamental reform" before "short-term stimulus meant to buck up faltering growth" does get to this point. According to Lagarde: "Better to invest in long-term durable capital such as education" -- and other initiatives that will secure economic futures. Now, given our 21st century demographic construction, that durable capital must include human resources well beyond traditional retirement age.
Yet, none of this is even part of the on the ground conversation and decisions on whether and under what conditions to apply IMF Funds. Instead, the IMF is left to its 20th century role of propping up failing economies with only ineffectual framework conditions -- a country must reduce its debt, for example -- that have virtually no impact on the underlying structural issues at the center of most unstable economic circumstances today. Take Japan, for example, where it is impossible to consider a coincidence that their two decades of economic malaise is not profoundly connected to their completely disproportionately large 60+ population. Japan's longevity set against its stunningly low birth rate for the better part of the last 30 years has conspired to bring it to a wholly untenable and fiscally unsustainable place, where by 2020 they will have about 40% of their population over 60. An IMF role for Japan's kind of demography would only have impact if the funds were to go specifically to keep the over 60 population working and active.
But this is equally true for recent cases from Greece and other emerging markets. In each, the source of their financial problems that result in the IMF stepping in with funds is not the debt itself but the mismatch between 20th century benefits -- usually in the form of retirement or health -- and the reduced proportion of people working to support those benefits.
When the IMF was founded in 1945, the world looked very different than it does today. One of the most profound differences is the structural demographic shift from "young to old," where by as soon as 2020 there will be a billion of us over 60, soaring to two billion by mid-century. Yet it is the low birth rate, where even India's birth rate is currently hovering at 2-3 births per mother, just above the "replacement rate," having dropped from 5-6 births per mother around the time that the IMF was founded. In those early days, when the basic underlying social and demographic structures were in balance, the infusion of IMF funds into tottering financial situations provided that outside equilibrium. Today, the underlying conditions are themselves flawed due to the misalignment between basic policies and the demographic changes of our 21st century.
Simply pushing money around the Fund, or changes in governance to accommodate the shift in economic power accumulated among the emerging markets, will only amount to more of the same failed efforts at the superficial approach to debt. Rather, perhaps we use the occasion to more seriously rethink the role for the IMF in the 21st century when economic growth will depend on how we organize ourselves to account for the huge global proportion of our population, which for the first time in history is "old." That would have been an interesting agenda item for the ministers and central bankers meeting in DC.