The global recession – and its impact on industries and job losses – was just the start. The next stage is sluggish growth, big government and low productivity. An ageing population is the slow-burning fuse. Welcome to the new normal.
As World Bank official Robert Holzmann recently told the European Commission: “The impact of the financial crisis pales compared to demographic problems.”
In a report last year, the International Monetary Fund said that, in the longer term, the costs of the financial crisis would be about 10 per cent of the costs incurred by age-related spending.
If anything, the global financial crisis has made things worse by reducing, and in some cases destroying, people’s retirement income. Investment and Financial Services Association research has found that the savings gap – the difference between savings and the amount needed in retirement – has increased dramatically from $452 billion in 2004 to $695 billion by June 2008. Say goodbye to retirement.
Nobody can stop people getting older. Industries, managers and political leaders will need to be smarter and more creative. Employers will need to lead by example.
Kevin Rudd’s charge into a 2010 election year with his plan to increase national productivity will create difficult policy choices.
These might include reducing help for declining industries, overhauling the tax system – Treasury head Ken Henry has flagged tax breaks for older Australians to stay in the workforce as the government prepares to release his blueprint for tax reform – and making industries and workplaces more productive. Rudd will also need a series of micro-economic reforms that will cross state lines, something his government has struggled to achieve, even with a majority of Labor state governments. Real productivity changes will require hard decisions.
So far, the Rudd government has shown little appetite for the politically unpopular, but an ageing population might leave it little choice. Spending on healthcare will increase relentlessly, but people will have to expect less from hospitals and clinics, unless they pay more. As they are living longer and in good health, they will also need to accept that they might have to work until they drop. Taxes might also go up.
Ahead of the release of the third intergenerational report, Rudd said the proportion of Australians aged 65 and over would rise from 14% to 23% by 2050 – almost one in four Australians. It’s a worldwide trend. A United Nations report, World Population Ageing, says the population of older people is growing at a rate of 2.6 per cent a year, more than double the rate for the rest of humanity.
Within this group, the fastest growing segment is among those aged 80 and over.
By far the best way to put a lid on pensions is to encourage people to keep working. It generates more tax revenue and reduces the amount governments spend on pensions.
But can employers be encouraged to take on, or keep, older workers? Only a few companies, like Britain’s do-it-yourself chain, B&Q, and American retailer Wal Mart, are good at this. Without a good choice of jobs, many older workers will have to turn themselves into consultants.
Carer’s leave and more flexible work practices might become issues. If more people are living to their 90s, some even beyond, there will be more strokes, dementia, heart attacks, fractures, cancers and various other conditions.
Expect more people to take time out from work to care for an ageing parent, sibling or partner. Companies will either provide more carer’s leave or let people work four days a week, or perhaps start at noon, allowing them to look after a parent who requires care.
At the same time, the ageing population will create a skills shortage as older workers leave and fewer replace them.
Over the next 10 years, we may see corporations setting up subsidiary companies to hire their older workers as contractors, keeping them off the books but holding on to their skills. Another possible trend was foreshadowed in an article last year in the Harvard Business Review, by Rainer Strack of the Boston Consulting Group. He advised managers to undertake an audit of how the ageing of their workforce would affect their productivity and capacity to provide services, and then develop strategies.
The problem is, many businesses are not doing this. Many are spending money training younger people to take over from older workers, only to lose them as they move to other jobs as the recovery picks up. In a skills-constrained market, hiring talent from outside is expensive.
Many companies have not realised that it would be more productive to develop strategies to retain older workers in the organisation.
Another issue is innovation. An older society might be more risk averse and less innovative, slowing down economic growth. In his book The Great Depression Ahead, economic forecaster, Harry Dent, who predicted the Japanese recession in the 1990s and this global crisis, writes: “We will not see technological progress as strong in the second half of this century due to slowing demographics, since young people are the key drivers, unless we see an emerging world baby boom, which will be more likely in the 2080s and 2090s and would impact innovation trends in the early 2100s.”
Perhaps the right government and company policies might defuse these time bombs. But there are no guarantees.
An ageing population is historically unprecedented. Eternal youth is a beguiling thought but, as Dorian Gray discovered, you should be careful what you wish for.
This article first appeared in Business Day