WORLD WATCH •

Vision for a Sustainable World

Population
AND ITS DISCONTENTS
One of 12 features in this special issue

Excerpted from the September/October 2004 WORLD WATCH magazine

© 2004 Worldwatch Institute

For more information related to the issues pre-

sented in this special issue, links, and interactives,
visit the Worldwatch special online feature on popu-
lation at www.worldwatch.org/features/population/.

The Economic Conundrum
of an Aging Population
I
n a large part of the world, old age is an incentive
to have many children. That may seem puzzling to
Europeans or Americans, for whom old age can be
a welcome escape from the burdens of buying kids’
clothes or paying for college tuition. Retired peo-
ple in affluent countries usually have savings or pensions,
as well as government-provided retirement income.
But in poor countries, where hundreds of millions of
people have no such income after they stop working,
adult male children are the equivalent of social security.
For this reason, there are strong cultural imperatives for
children to provide support for their elderly parents, in
preference (if a choice is necessary) to their own young.
The result is a combination of too many children and
too little care for those children—a potent formula for
yet another generation of poorly educated and impov-
erished young people, including more young men
whose frustrations make them prime prospects for mili-
tias and terrorists, and young women who have few
prospects other than to have more children. It’s a self-
perpetuating cycle, which ironically becomes harder
to break as life expectancies increase and the number
of old people in poor countries continues to increase.
Aging Populations Have Fewer Children, But…
The incentives for having fewer children in rich indus-
trialized countries are the mirror image of the reasons
for having large families in poor countries. In poor
countries, most people live on subsistence farms where
child labor is valuable. In rich countries, most people
live in cities where children are required by law to go
to school. Children are an expensive luxury for people
who live in cities and who have jobs outside the home.
They must be housed, fed, and schooled. They add
nothing to family income. If the mother has a job, she
must find (and pay for) a baby-sitter or nanny to look
after young children. Urban teenagers are often neg-
lected by working parents, and too many of them—lack-
ing adult guidance—engage in high-risk or costly
behavior, from profligate consumption of video games
or TV shows exhibiting extreme violence, to unsafe sex,
drug-taking, or even crime. If unemployed, children
may be an economic burden on parents into their thir-
Robert Ayres
The shift to a stable population will increase the “depend-
ency ratio” of old to young. While that may stem environ-
mental decline, it could bring economic hardship to the
countries that first achieve it. The only real chance of
escaping this dilemma is to eliminate the huge economic
inequities that now prevail in the world.
ties. In Italy, especially, unmarried children have become
notoriously inclined to continue to live with their aging
parents and enjoy mama’s cooking. For that reason,
among others, Italy now has one of the lowest birth
rates in the world. Some Italians would like to see that
trend reversed.
Last fall, The Economist magazine published a story,
“Work Longer, Have More Babies.” The illustration
showed a horrified young woman—presumably in
shock over the news that she is expected to stop hav-
ing fun and start reproducing, for the good of western
society. The underlying message, of course, was that as
the populations of rich countries get older, with smaller
percentages of them of child-bearing age—and as fewer
of them care to bear the expense of having kids in any
case—the populations of those countries will shrink
and their cultures will risk being overrun by others,
whose populations are rapidly expanding.
It is true that all of the industrialized countries,
including the United States, are aging. The number of
old people supported by social security, compared to the
number of younger employed people paying into the
retirement system, is growing. This “dependency
ratio”—the number of people over 65 as a percentage
of the number in the 20–24 age group—is a good
indicator of the fundamental demographic problem.
This ratio is now just over 20 percent for the United
States, about 27 percent for the Euro zone, and 28 per-
cent for Japan. However, by 2050, according to the
World Bank, the dependency ratio will be close to 46
percent for the United States, 60 percent for Europe,
and 70 percent for Japan.
The number of workers supporting each German
pensioner today, via the main government “pay-as-
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September/October 2004 WORLD•WATCH 45
 you-go” (PAYG) system, is about three. By 2030, if cur-
rent trends continue, the number of active workers
per pensioner will be only 1.5. If each of the active work-
ers earned 100 Euros before the transfer, he (or she)
would get to keep 60, and the retiree would also get
60 Euros (1.5 X 100 = 2.5 X 60 = 150). The other costs
of government would be taken (via taxation) out of the
60 Euros of income each person has. Costs of govern-
ment, net of pensions, are at least 25 percent of GDP
for industrialized countries, so taxes would take at least
15 Euros from each worker and retiree. The original
100 Euros is therefore down to 45, or less. From that,
the future worker must think about saving for his own
future retirement when the over-stressed PAYG system
collapses, as many people now expect.
A Demographic Dilemma
To an environmentalist, an aging population might
seem a good thing—proof that birthrates have fallen and
that overall population will stabilize or decline. But a
small aging population like that of Italy, in a world of
huge younger populations like those of China or Brazil,
may not be sustainable. First, there’s that pressure from
those who don’t want their traditional culture (of Italy,
or Spain, or France) to be overrun, and who want to
encourage their young families to have more children.
But even if that weren’t a factor, there’d be the economic
pressure on a country with a high dependency ratio to
alleviate the imbalance, by delaying retirements or
reducing retirement benefits. There’s also the kind of
pressure created by the Bush administration in the
United States, to allow active workers to divert part of
their social security taxes into privately controlled sav-
ings or investment accounts. It’s a tempting idea because
share prices have increased in value faster than govern-
ment bonds (in which social security funds are invested),
but it would take money away from the PAYG funds
available to support current retirees, thus imposing
either a very large near-term tax burden or additional
government debt to make up the difference.
All things considered, an aging population of non-
workers will necessitate an increased tax burden or
increased public sector debt, or both. In the past, a few
countries have lived with taxes in the 50-percent range,
especially in wartime, but not happily. However, this is
no longer plausible. In a globalized world with no
restrictions on capital flows, where nations compete for
investment and where multinational firms can—and
do—move money around at the touch of a button, high
taxes are a major barrier to investment. In the world
of 2030, the United States will be somewhat better off
than Europe or Japan, thanks to its lower dependency
ratio. On the other hand, China and India will have
much lower dependency ratios than the United States,
in addition to having lower wages. Even if they had to
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46 WORLD•WATCH September/October 2004
pay much higher wages, as they must do eventually,
those countries would, and will, continue to absorb
most of the capital available for investment, including
whatever savings the workers of the (formerly) rich
countries can manage to divert from current needs.
When environmentalists began to worry about pop-
ulation in the 1970s, the idea that having a declining
population could spell trouble for a country might
have seemed unimaginable. After all, wasn’t that the ulti-
mate goal? But in a globalized economy, a declining
national population means a nation with a high per-
centage of elderly, non-working people will compete
against nations of young, productive (often low-wage)
people—and lose. The change of perspective since the
1970s can be attributed to three factors.
• First, retirement ages have gotten younger, putting
greater burdens on the social security system. Accord-
ing to the European Commission, the average age of
retirement in Western Europe was 65 in 1960, but is
60 today. Civil servants and some unionized workers,
such as truck drivers, are able to retire considerably ear-
lier. In the United States, the average age of retirement
was 66 in 1960, but is down to under 63 today. More-
over, when firms “downsize,” which happens with
alarming frequency these days, they often do so by
offering early retirement schemes to older workers
without replacing them with younger ones. This cuts
payroll costs and shifts some or all of the burden to the
government. Employees who were previously paying
into the social security system are suddenly withdraw-
ing funds from the system.
• Meanwhile, birth rates in the industrialized coun-
tries have declined, just as environmentalists hoped they
would—but with some unforeseen consequences. In
1950, the average overall birth rate in the European
union was still above replacement (2 children per
woman), at 2.7. Today it is 1.5 and falling. Similar
rates are now observed in Japan, China, and Russia. In
the United States, the birth rate is just above 2, in
part because many of the country’s Latino immigrants
still prefer large families. If current trends continue, the
working-age population of Europe will fall by 18 per-
cent (40 million people) by 2050, while the corre-
sponding U.S. group will increase by a similar amount.
In that period the average age of the German popula-
tion will increase to 54, while the average American will
still be only 35. This discrepancy is very disturbing to
most European economists, and politicians, who are
concerned about economic competition with the
United States, not to mention China and India.
• Finally, life expectancies have been increasing since
the beginning of the 18th century, and especially fast
since the early 19th century. When Thomas Malthus
warned of explosive population growth, in 1798, the
average life expectancy was probably no more than 35.
When Otto von Bismarck intro-
duced the first state pension in Ger-
many in 1889, the average life
expectancy was 48, whereas the
retirement age was set at 70. No
wonder the German PAYG system
was fiscally sound when it was intro-
duced. There were a lot of active
workers and very few retirees. The
ratio was probably more than 100 to
1. Now, of course, the life expectancy
of Europeans, Japanese, and Amer-
icans alike is around 77 (slightly
more for women, slightly less for
men) and still rising.
An older population requires
more health and other services, and
produces less wealth, than a younger
population. At least that is the con-
ventional wisdom. What is certain is
that existing pension plans and social
security programs are in deep trou-
ble, even in the United States, and
more so in Europe and Japan.

What Would an Aging

Society Be Like?
Imagine a society ruled by the old.
College professors, army generals,
CEOs, doctors, judges, and legisla-
tors would hang on to their jobs
REUTERS © 1996
into their seventies or eighties, or
even longer. Promotion in big corporations, civil serv-
ice, colleges and universities, and the military officer
corps would slow almost to a halt, as vacancies due to
retirement become rare. Even poorly paid jobs like
teaching children in primary or secondary schools, or
nursing, or processing forms in government agencies,
would most likely require advanced degrees. Comput-
ers already do much of the work formerly done by
clerks and middle managers. Computers are learning to
talk to each other. The need for human interfaces will
continue to decline.
Highly skilled construction, repair, and mainte-
nance jobs, such as heavy machine operation, auto
repair, plumbing, masonry, plastering, plumbing, elec-
trical work, and electronics repair, would continue to
be important and well-paid. However, many such jobs
tend to be passed on from father to son. Union mem-
bership would be essentially closed to outsiders. With-
out an expanding economy to absorb them, young
people on the lower rungs of the education ladder
would be chronically unemployed—or forced to take
jobs that most people are unwilling to do, such as col-
Elderly workers, among 7,000 rallying in Kiev, Ukraine, to
protest salary payment delays and rights violations.
lecting and separating trash or cleaning fish.
It is unlikely that there would be enough such jobs
for all. But unemployment, especially among the young,
is socially destabilizing. Moreover, it discriminates against
ethnic minorities of all kinds. It is not at all unlikely that
half or more of the present U.S. prison population—dis-
proportionately black and Hispanic, and the largest in
the industrialized world—would never have got into
trouble with the law if there had been enough decent
job opportunities for the less privileged.
Of course there is nothing new about this situation.
It has been with us for a long time. The children of
the rich are less likely to steal or commit crimes for
money, since they don’t need to. If they are caught
driving while drunk, or accused of date rape, they
will be defended by high-priced lawyers or released on
a convenient technicality to avert the expense of a trial
without an assured outcome, or worse, the loss of a
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September/October 2004 WORLD•WATCH 47

 wealthy campaign contributor. When the rich commit
financial crimes that cause vast losses for customers or
shareholders, they can afford to hire even more expen-
sive lawyers skilled in the black arts of confusion,
obstruction, obfuscation, and delay. Very few mil-
lionaire malefactors are convicted, still fewer pun-
ished. In the future, as the rich get richer—and older
people become more demographically dominant—
this sort of inequity will almost surely get worse before
it gets better.
One way it’s likely to get worse is in access to med-
Longer lives, longer hours: elderly Chinese search job ads.
Aging populations will sooner or later pose challenges, and
opportunities, for every nation.
ical services. The rich can afford services that the poor
can only dream of. No matter what the Christian
and/or Islamic fundamentalists and their moral police
think, and no matter whether it is legal in the United
States and other major Christian or Islamic countries,
cloning of stem cells from human embryos for thera-
peutic purposes is on the way. Clinics will soon—prob-
ably within a decade—be available in China, Russia, the
Ukraine, Armenia, or other countries, where custom-
grown livers, kidneys, hearts, lungs, or even legs and
arms can be had for a suitably high price. The tech-
nology is already well along in development. Demand
will surely follow. The more effective the gene thera-
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48 WORLD•WATCH September/October 2004
pies and stem cell technologies become, the longer
their lucky recipients will live—and block the promo-
tion prospects for younger people.
Given these trends, there is growing risk that the
aging society of a mature industrial nation will be an
increasingly inequitable society, ruled by the rich (and
the old) for their own benefit and perpetuation in
power. It will be controlled by means of hired guardians
who will perform the same duties as today’s police and
military, but with added civil powers. Having high
unemployment or underemployment, and no real
power, the rest of our urban
society will inevitably revert to
a form of existence analogous
to that of the Romans who
were kept satisfied and enter-
tained by bread and circuses.
Its bread will be junk food and
its circuses will be our 200 TV
channels and omnipresent
movieplexes, as well as our
sports stadiums and NASCAR
race tracks. But just as Rome
was overrun, this self-indul-
gent senior culture (more toys
for 65-year-old boys, with
fewer actual children) could
well be overrun by needier and
more aggressive outsiders.
In a society thus domi-
nated by the old, the young
are doubly disadvantaged—by
their subordinate positions in
the major institutions of soci-
ety and by their reduced capac-
ity to pay the costs of social
China Photo/REUTERS © 2002
security. But the real killer is
the fact that these overburdened young Europeans,
Americans, or Japanese will be competing with nations
that have both cheaper wages and lower dependency
ratios—countries that will not only get the lion’s share
of investment but also will have to spend less of it on
supporting their elders. To a policymaker in Brussels,
Washington, or Tokyo, the advent of stable population
will look worrisome indeed—unless the inequities
between the enviable “old” and hungry or resentful
“young” countries are bridged.
Supporting the Old Without Lots More Young?
The standard economist’s formula for dealing with
overpopulation is economic growth. The reasoning
behind this formula is uncomfortable for environmen-
talists, but there is an inescapable logic: people with
higher incomes, in countries that have social security for
the elderly, want and need fewer babies; they do not
need children to provide security. So, there’s an enor-
mous dilemma. Economic growth drives consump-
tion, and waste, which is the reason population is a
problem in the first place. But economic growth is
also what’s necessary to raise incomes to the point
where population stabilizes.
It’s here where the politics of economic develop-
ment and the population stabilization that can follow
become complicated. Environmentalists are not alone
in their uneasiness about the full-throttle economic
growth that increases incomes but also increases con-
sumption of nonrenewable resources, degrades the
environment, and may undermine social stability. They
find some of their concerns echoed by their most fanat-
ical adversaries—fundamental Islamists who regard
Western modernization as decadent, but who have
notoriously suppressed women’s empowerment. The
discomfort is made all the more excruciating by the fact
that the anti-capitalist Muslims have become de facto
bedfellows with some of their ideological enemies, the
pro-capitalist Christian conservatives, in their mutual
hatred of the “sexual revolution” of the past quarter-
century. Experts on population virtually all agree that
female empowerment, starting with education, is a
necessary condition for reducing birthrates.
What’s needed, to raise incomes and empower
women while also mitigating concerns about profli-
gate consumption, is an engine to drive economic
growth without the kind of consumption that depends
on the exploitation of remaining stocks of natural
resources. How would this engine differ from the one
that now drives global GDP yet leaves hundreds of mil-
lions of people in poverty and dependence on chil-
dren—and vulnerable to social unrest?
To begin with, it would probably be a more “dema-
terialized” economy, in which economic productivity
is not so rigidly tied to the extraction of ever more oil,
minerals, wood, and other physical resources from the
Earth as it is now. Aside from the costs of the ecolog-
ical disruption and pollution that such industries
impose, past experience shows that logging, mining,
and drilling concessions tend to benefit mainly the
very few (and often very corrupt) who have the power
to make such deals. The natural wealth has never been
widely distributed beyond this elite group. Govern-
ments in countries like Nigeria or Indonesia, which still
have important natural resource stocks of oil or tim-
ber, also have vast populations of poor people for
whom having children is a source of income. For this
reason alone, it is essential that the global community
address the inequity problem—and the closely related
problem of corruption—far more quickly and seri-
ously than it has. The rich Western countries have a big
stake in the equitable development of the rest of the
world, because equitable growth is the only effective
tool for ameliorating international terrorism and its
close cousin, uncontrollable immigration.
In the short run, though, controlled immigration is
probably one of the most promising answers to the
conundrum raised at the beginning of this article—the
lack of enough new young workers (because of declin-
ing birthrates) to replace the retiring workers. Immi-
grants are demonstrably hardworking and willing to do
the jobs our own pampered children scorn. Immi-
grants (being predominantly young adults) even tend
to pay more in taxes than they get back in social serv-
ices. They are a bargain, economically speaking. They
also have fewer children than their age group in their
home countries, as well as contributing enormously to
the economic development of their home countries
by sending back significant amounts of their earnings
to parents or siblings.
That’s only a short-term, partial solution, however.
In the larger picture, the rich countries need to provide
far more development aid, and to provide it with much
tighter—and smarter—strings, to prevent misuse.
Investment by the private sector can and will be the
dominant source of capital, but that investment should
not be going into exploitation of increasingly scarce nat-
ural resources. International lending agencies should
stop encouraging this sort of investment, and in fact they
should create barriers to discourage or prevent it. By the
same token, international development agencies should
concentrate much greater efforts on education and on
creating the institutions needed to assure the rule of law.
As long as there are large economic disparities
between nations, there will be unstoppable pressures
both to have more children in the poor countries and
to endure uncontrolled immigration of the poor into
richer countries. When incomes are more equitable
worldwide, the problem of smaller working populations
supporting their elders will continue to be a problem
as birthrates decline, but with all nations then sharing
common constraints, the present incentives to have
more babies and/or migrate to richer countries will dis-
appear. Instead of being shackled by the destabilizing
effects of poor people having large families to produce
free labor and/or illegally migrating into rich countries
in search of jobs, all governments can then focus on
finding ways to build economic productivity through
an increasingly non-extractive economy, enough to
allow people everywhere to support their elders while
living comfortably in their home countries.
Robert Ayres is professor emeritus of management
and environment at the European business school
INSEAD and King Gustav XVIth professor of
environmental science in Sweden.
References and readings for each article are available at
www.worldwatch.org/pubs/mag/.
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September/October 2004 WORLD•WATCH 49