20 June 2024, NIICE Commentary 9273
Aradhana Banerjee
The global population is ageing at an unprecedented rate, a demographic shift transforming economies and reshaping geopolitical landscapes. By 2050, one in six people globally will be over 65. This shift is particularly pronounced in developed countries like Japan, Italy and Germany where the median age is steadily rising. This article will explore the economic and geopolitical challenges posed by ageing populations and what it means for countries like India, Bangladesh, China, etc with a large youth population.
Demographic Trends
To begin with, it is imperative to understand the demographic trends that underpin the ageing phenomenon. Declining fertility rates and increasing life expectancy are the primary drivers of this trend.
1. Declining Fertility rates
Over the last few decades, fertility rates have been falling globally, especially in developed countries. Historically, many countries had a fertility rate well above the replacement rate of 2.1 children per woman, ensuring a stable or growing population. However, various social and economic factors have contributed to a decline in these rates. Increased access to education, particularly for women, greater participation of women in the workforce, and widespread access to contraception and family planning means have empowered individuals to make more informed choices regarding starting a family. Urbanisation has also played a significant role as the cost of raising a child has become exorbitantly high in urban areas as opposed to rural areas. For instance, Japan’s fertility rate has dropped to 1.374 births per woman in 2024, which is significantly below the replacement level which has led to a shrinking and ageing population.
2. Increased Life Expectancy
At the same time, advancements in healthcare, nutrition and overall living conditions have led to a significant increase in the life span of individuals. People are living longer due to better medical treatments, advanced healthcare infrastructure and heightened awareness of healthy lifestyles. Global life expectancy has risen from an average of 52.6 years in 1960 to over 73.3 years today. In many developed countries, life expectancy exceeds 80 years. While this is a testament to human progress, it also means that a larger proportion of the population is reaching old age.
Socio-Economic Implications
A large ageing population would imply a higher dependency ratio with fewer working-age individuals supporting more retirees, creating economic and social challenges.
One of the immediate economic concerns is the shrinking workforce. As populations age, labour force participation rates decline, leading to labour shortages in critical industries. This scenario can hinder economic growth and productivity. Mitigating this challenge requires policies encouraging higher labour force participation among older individuals and underrepresented groups, such as women. For instance, in Japan, the government has implemented policies to encourage older workers to remain in the workforce by raising the retirement age and promoting flexible work arrangements that cater to older employees’ needs. Companies like Toyota and Hitachi have introduced programs to retain older workers by offering part-time work and less physically demanding roles.
In addition to targeting older workers, increasing female labour force participation can also be fruitful. Germany has implemented policies to support working mothers by providing access to affordable childcare and offering parental leave benefits. The country also promotes flexible working hours and telecommuting options, making it easier for women to balance work and family responsibilities. As a result, Germany has seen a gradual increase in female labour force participation, which helps offset the decline in the working-age population.
Another pressing issue is the burden that an ageing population places on the healthcare systems and pension schemes. Older individuals typically require more medical care, driving up healthcare expenditures. In countries like the USA, the lack of access to affordable healthcare for older citizens has become a contentious issue in recent times. Healthcare spending is projected to increase significantly in the coming years, placing a burden on public finances. Additionally, funding pensions becomes more challenging as the number of retirees grows. Governments may need to increase taxes or reduce benefits to maintain the sustainability of pension systems.
The economic implications of an ageing population extend further. An older population tends to save more and spend less, particularly on durable goods and investments, which can dampen economic dynamism. Furthermore, an ageing workforce may impact innovation and productivity since younger workers are often more adept at adopting new technologies and driving entrepreneurial activities.
The economic burden of supporting an ageing population is keenly felt by the youth, as they are forced to bear the increased burden of taxation and reduced benefits. This underscores the need for inclusive and resilient policy-making to preserve social cohesion and balance the needs of all segments of society.
Global Geopolitical Shifts
The demographic trends in major powers like Japan and many European countries are leading to a relative decline in their economic and geopolitical influence. In contrast, countries with younger populations, such as India, are poised to gain a comparative advantage.
India, with its large youth population, is set to become a significant global player. Approximately 65% of India’s population is under the age of 35, providing a robust labour force and a dynamic market for goods and services. This demographic dividend offers India an economic advantage over ageing populations in developed countries. India’s young workforce can drive innovation and economic growth. The country is already a hub for technology and service industries, which are crucial for modern economies. Moreover, India’s large domestic market attracts foreign investment, further boosting its economic prospects. As developed countries face labour shortages, India’s surplus labour can meet global demands, enhancing its geopolitical influence.
For instance, India’s rapid economic growth and its increasing integration into global supply chains have bolstered its status as a key player in the international arena. The country’s emphasis on technological education and its burgeoning startup ecosystem have positioned it as a leader in innovation. Moreover, India’s proactive foreign policy, including strategic partnerships with countries like the United States, Japan, and Australia, highlights its growing geopolitical clout.
While China has been a dominant force in the global economy, its demographic trends are shifting. China’s working-age population peaked in 2015, and the country is now facing the challenges of an ageing population. This could slow its economic growth and impact its geopolitical strategy. In contrast, India’s younger population positions it as a potential counterbalance to China’s influence in Asia and beyond. For example, China’s “One Belt, One Road” initiative has faced challenges, partly due to demographic constraints that limit its long-term sustainability. Meanwhile, India’s active participation in forums like the Quad (Quadrilateral Security Dialogue) showcases its strategic importance in maintaining regional stability and countering China’s dominance. India’s demographic advantage also extends to its potential as a global leader in innovation. With a large number of young entrepreneurs and a growing emphasis on education and technology, India is well-placed to drive future technological advancements. This could enhance its economic competitiveness and geopolitical standing.
Other emerging economies, particularly those with younger populations, are also poised to play significant roles in the shifting global landscape. Southeast Asian countries like Indonesia and Vietnam are leveraging their young populations to attract foreign investment and expand their manufacturing capabilities. These countries are emerging as key players in regional and global supply chains, further diversifying the economic landscape.
In conclusion, the global ageing population presents significant economic and geopolitical challenges for some and opportunities for others. The rising influence of countries with younger populations, particularly India, underscores the shifting balance of global power. By understanding and addressing the implications of ageing demographics, nations can navigate the complexities of an ageing world and harness opportunities for innovation and growth.
Aradhana Banerjee is a 3rd year Undergraduate student, pursuing a degree in Economics from the Presidency University, Kolkata, India.
