The main problem that is going to be addressed in this paper would be the continuous decline in the working class population in countries with developed economies such as that of the United States, the United Kingdom, and Japan, among others. This, in essence, is an international managerial problem as well because this, if left uncontrolled for far too long, can eventually lead to cracks in the economy and the social system as people know it . At the same time, this may also be considered as a problem that has demographical and therefore natural roots. In this case, however, something big is going to be at stake if the problem remains unsolved; a useful hint would be to suggest that it is far more important than profits and revenues. The answer is economic growth. One of the main growth engines that power an economy towards continuous expansion is a productive and capable workforce. Doing the math, the bigger the number of workforce is, the more productive an entire nation can become as it can convert its natural resources into tradable goods, possibly ones that are valued higher thanks to their profit margins, far better than any country that has a rapidly aging population.
There are numerous factors that may cause this phenomenon on population aging. One of the most commonly overlooked reasons is the significant rise in life expectancy . An increase in the overall life expectancy of citizens would basically mean that it would take a longer time for the people in a particular country to die. If the average life expectancy rate a few decades ago was forty years old, for example, that would translate to the fact that after forty (i.e. death assumption), people would not need any form of social assistance from the government whatsoever. In some cases, a low average life expectancy in a country may even be seen as an economic advantage because that would mean that that country would not have to shell out tremendous amounts of cash financing the health and well-being of aging people who are increasingly becoming sick. Governments spend billions of dollars in cash trying to solve the healthcare and social (usually pension related) woes of their elderly population. Retirement plans and benefits have continued to be one of the themes of government administrations despite the fact that overspending in these problems or departments do not really yield any tangible form of economic growth or expansion because this part of the country’s population are not working anymore and so fundamentally, they are not capable of generating any real economic output anymore. What they generate instead is consumption or demand for real products and services being offered in the economy.
For a developed economy which is at the same time dependent on the consumption and demand for the goods and services within its own economy (see the case of the U.S., the U.K., and Japan for a more concrete example), an aging population’s disadvantages may just be offset by its advantages. As mentioned earlier, there is one thing that this population group generates: demand for goods and services. In most cases, the aging population is composed of people who are ready for retirement. This means that they are already looking to buy a new home, car, spend more weekends going to resorts and other travel destinations. To summarize their economic destiny, they are destined to live a life of continuous spending their hard earned money and privilege to receive pension from the government or any private institution that they are affiliated with for the remainder of their lives for as long as they do not die. Now, this particular population group may not be capable of contributing to the economy in the output side but to say that they do not help and are a liability may be a fallacy because they still generate demand.
Contrary to common belief, a high level of demand for consumer products and services can lead to an increase in the aggregate demand for economic goods and services within an economy. That increase in demand would serve as the catalyst that would growth and expansion of businesses. Now, one important question that needs to be asked here is how? The answer lies on one word: opportunity. When corporations see an opportunity to grow and expand sustainably, it would be safe to assume that they would do anything in their power to grab that opportunity. This assumption can, in fact, be supported by one of the most important theory in economics which is the rational choice theory. This theory basically explains that it would only be safe to assume that individuals and groups of individuals would always make logical and prudent decisions that would yield the greatest satisfaction or benefit based on their self-interests. The rational choice theory is so important that it basically serves as the backbone of most mainstream economic theories and assumptions. So, assuming that this would indeed be the case for a country, the increase in aggregate demand that the aging of the population led to would basically force the country’s corporations and other businesses to grow in order to serve that demand because of the mere fact that that would be the rational and logical thing to do. Based on the fundamentals of macroeconomics, this is how an aging population leads to a significant increase in a country’s gross domestic product.
In an effort to avert the risks associated with capital plight and loss in investor confidence, the Chinese policy makers have staged one of the biggest and most challenging moves in the history of economics—to convert China from an export-driven economy to one that is based on consumption or demand similar to how the developed economies in the West have grown to be. According to an entry published in Bloomberg Business (2016), “if the government delivers on its promise to transform the economy by encouraging spending on the high street, China’s consumer base has the potential to surge over the next decade” .
Assuming China can indeed pull this great challenge off, it can easily become the largest consumer driven economy in the planet, three to four (or even more) times larger than that of the United States. As a result, Chinese firms that have relied heavily on exports in order to thrive and survive in the past twenty five years would not have to rely on the same growth engines (i.e. exports) anymore because they can simply ship their products in various locations in their home country because after all, there is already a surging level of demand for it.
Another interesting case to look at here would be the case of Japan. Japan, a country which used to be one of Asia’s economic miracles because it managed to become the world’s third biggest economy despite the fact that it has been decisively defeated during the Second World War; this is because it practically shares the same story, that of an aging population . That is, China, if it becomes unsuccessful in shifting its economic growth engines, would basically look and behave like Japan’s economy today, which in reality is in a continuously deteriorating state for the past decades.
Japan is the best example of a country that has failed to manage the consequences of an aging population, which is the main problem that the author of this paper is trying to discuss. According to Scissors (2009), Japan’s current state of economy can be traced back to its failure to move its economy away from structural reliance on favorable exports and trade surpluses . Basically, it was in the same situation as China some twenty years ago; the difference, however, is that the country failed to shift its gears and embrace the idea of being a consumer driven economy, which again is being raised in this paper as a major consequence of an aging population.
But how exactly; the answer would be because they have no choice. When people age, they start to lose their effectiveness when it comes to providing economic output. There will come a time when all that they would generate would be zero economic output and lots of consumer demand. When an aging population size that is as large as that of Japan’s consumer demand gets pooled, that could translate to a huge boost in consumption. So, if a country remains reliant on exports even though it should have already shifted into one that is reliant on consumer demand, it would still face the risk of an economic downturn if international demand for its products slow down due to economic headwinds such as what happened during the 2008 Financial Crisis which saw Japan losing more than 12 percent of its Gross Domestic Product.
So, to finalize the qualitative part of the answer to this question, which one is it? Does an aging population really mean a good thing for a country (considering the fact that there is an option to shift an export driven economy into a consumer driven one is available after all) or is it simply a bad thing, a problem? The fact of the matter is that there are still a lot of ongoing debates among economists and policy makers about this.
So in order to answer this systematically, the author of this paper created a five point questionnaire that a group of randomly selected participants answered. The custom-made questionnaire was aimed at determining their overall perception about an aging population (i.e. positive or negative). A total of 50 randomly selected economists were selected to participate in the study. After gathering their responses, their answers were analyzed and calculated.
The table below summarizes the questions, responses, and findings that the author of this paper obtained after interviewing 50 randomly selected economists about the positivity or negativity of their perception on the problem which is an aging population.
The six graphs show the analysis and graphical interpretation of the responses of the economists reviewed in this paper. Basically, they are just a graphical representation of what the numbers say about the effects of an aging population.
The questions used were negatively implied against an aging population. This means that when someone answers a yes to any one of the questions that confirms the negativity of his or her perception. The table above shows that some 71% of the total responses to the questions were negative or against an aging population; 29% on the other hand thought that overall, an aging population should be good for the country. Based on the results, it can be concluded that an aging population, despite the clear benefits that it can bring to a country (e.g. increased consumption and a higher level of economic independence as the country becomes able to stand on its own and provide the needs of its citizens without relying on export). It is worth noting, however, that the fact that a significant chunk of the hits gathered support the idea that an aging population should be treated as a net positive for the economy show that the matter is still up for a debate. However, in the case of this study, the author of this paper would have to agree that an aging population is indeed bad for an economy as it basically forces a country to shift its gears even if it means facing an insurmountable level of risk, which is basically what is currently happening to China. The government knows that the risks are painfully high that they would fail in their shift towards a consumer driven economy; yet, because of an aging population, they are basically left with no choice but to concede to the uncontrollable demographic changes.
References
Bloom, D., Canning, D., & Fink, G. (2011). Implications of Population Aging for Economic Growth. the National Bureau of Economic Reseaerch.
Curran, E. (2016). How China can create the $67 Trillion Consumer Economy. Bloomberg Business, http://www.bloomberg.com/news/articles/2015-07-23/how-china-can-create-the-68-trillion-consumer.
Jones, R. (n.d.). The Economic Implications of Japan's Aging Population. Asian Survey, 958-969.
National Institute of Aging. (2016). Global Health and Aging. NIH.
Scissors, D. (2009). Two Lost Decades? Why Japan's Economy is still Stumbling and How the US can Stay Upright. Heritage.
