Into the Twilight

An aging population can pose many challenges to both families and developing nations. In China where the dominance of traditional filial pieties have dictated social norms, manly elders fear having no warrant for filial support after retirement due to changing norms. At this juncture, a brilliant trend-spotter, Starcastle offers a promising alternative. Starcastle is a Shanghai-based joint venture company between a large Chinese conglomerate, Fosun Group, and an American hedge-fund giant, Fortress Investment Group, that caters to hospitable senior living communities for retired elders. A stereotypical life of quiet retirement is unheard of at Starcastle. Instead, classy, up-to-date activities like tai chi, calligraphy, dances, social media messaging, and gaming in open-air cafés invigorate the facility and the lives of its residents.

The vibrant scenes playing out in this “castle” reflect a prominent trend in China’s social service market. Attracted by the country’s aging population, major U.S. firms including Emeritus Corp., Life Care Services LLC, and John C. Erikson have broken into the Chinese market in a tight consultation with Chinese firms, developers, and government officials. Small-scale government sponsorship like tax incentives and direct financial support for private nursing institutions dates back to as early as the 1950s. The number of institutions established, however, was not even close to being enough to care for the country’s elderly population, and poor infrastructure, service quality, and prices never appealed to the Chinese people. Reflecting on its past failure to build up the senior services market, the Chinese government made some effort itself to increase participation by allocating a huge block of land in Beijing for senior housing, overtly relying on the private sector in developing senior care.

Source: The Economist

Services for the aging population in China do in fact need a serious overhaul. In 2000, China’s 60-year-and-older population reached approximately 10% of the total population. Chinese government officials project that one third of China’s population will be over retirement age by 2050. Many blame the demographic fallout on the 1979 One-Child Policy, which dramatically shifted population balance. Increasing life expectancy has also contributed to the problem. In 1980, life expectancy for both sexes was 64 years. In 2001, it rose to 78.1 years. When these numbers are tied together with the average retirement age – 55 for female and 60 for male – it turns out that the elderly have a significant portion of their lives left after retirement.

 

The developing senior care sector is also in response to another noteworthy demographic trend – the rise of the urban middle class. The increase in China’s middle class population has been extraordinary. By 2022, more than 45% of the population is expected to be categorized as middle income earners. Right now, the mass middle class accounts for more than half of that number, but many expect the upper middle class, who can pay a premium for quality products and discretionary services, to become the new mainstream. Senior care does not come cheap. Starcastle primarily targets wealthy business owners in Shanghai who are capable of paying high costs for independent-living apartments, nurse care, housekeeping, and healthy meals. Rising labor and service costs, prices for land-use rights, and costs involved in the overall process inevitably drive the industry to target the rich for profitability. Senior care communities are attainable only for the powerful middle class, at least for now.

Of course, current efforts by foreign firms and domestic developers are not enough to entirely fend off the burden of caring for the aging population. There is still a large chunk of the population, mostly in rural areas, who cannot take part in this upmarket industry. China’s remarkable economic growth may also stall, dragging down middle-class ambitions with it. Chinese government’s ambiguous guidelines on its censorship and regulations on private, especially foreign, firms may put a halt to the deluge of development efforts in elderly care, as well.

In most developed countries, social benefit programs along with the long-lived culture of planning for post-retirement have been a cornerstone for caring for the elderly. China’s unique social, economic, and cultural environments  requires a new or revised development model that suits China’s characteristics. Amidst many uncertainties, one thing seems to be clear though; greater government participation and subsidies beyond allowing foreigners to participate is needed, so that all can comfortably live out the twilight of their lives.

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Should We Be Having More Babies?

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According to the CDC, the U.S. fertility rate fell to another record low in 2012 with 63 births per 1,000 women. In 2007, the rate was 69.3.

During a quick scan of the shelves of one of D.C.’s remaining bookstores, journalist Jonathan V. Last’s new book entitled “What To Expect When No One’s Expecting” caught my eye. The book forecasts an impending American demographic disaster by bluntly declaring that people are having too few babies. This prompted a hasty reaction from me: “But everyone says our population is growing out of control! Aren’t 3.95 million babies named Jacob and Sophia enough!?”  America’s total fertility rate, an estimation of the number of births a woman is expected to have during her lifetime based on current age-specific fertility rates, is 1.88 according to the latest figures from the CDC, a record low. This prophet of population doom argues that even this statistic is misleading because most of our fertility has been “outsourced” as we rely heavily on immigrants to prop up the fertility rate. Not including immigrants in the population profile reveals that America has a fertility rate of 1.5.

At first glance, any devout environmentalist would be thrilled with these shrinking population trends since human total environmental impact is exceeding the sustainable carrying capacity of Earth’s ecosystems. This is reflected by the I= PAT equation with I—the human impact placed upon any ecosystem—being the product of three variables: population (P),  per capita level of affluence (A), and technology (T) or more accurately described as the environmental destructiveness of production techniques. It does not take a environmental economist to realize that a lower global population, and hence a lower P value, will result in less of an impact on our ecosystems.

But an interesting deaggregation of what appears to be out-of-control growth reveals cross-country disparities and cultural differences in fertility rates: Japan has a total fertility rate of 1.3 compared to Mali’s total fertility rate of 6.25. Overall, 99% of the world’s current population growth is in developing countries while the fertility rate in each of the G-8 countries is below 2.1 children per women, the rate needed for a given generation to replace itself.  But environmentalists probably still significantly discount falling fertility rates. It is the absolute number that counts and even assuming that fertility levels will continue to decline, the world population is still expected to reach a staggering 9.6 billion in 2050 and 10.9 billion in 2100, according to the U.N’s medium-variant projection.

Last retorts that a shrinking population that is disproportionately old has dire economic, political, and cultural consequences. According to the U.N., “whereas the number of persons aged 60 or over is expected to more than triple by 2100, that of persons aged 80 or over is projected to increase almost seven-fold by 2100.” Last laments that a global population reduction results in a decrease of human ingenuity: “Low-fertility societies don’t innovate because their incentives for consumption tilt overwhelmingly toward health care.” Negative socio-economic externalities abound like a smaller taxpayer base and labor force and the limited availability of military-age manpower to serve in our armed forces. In 1950, there were 16 covered workers for each Social Security beneficiary. Today, there are a little less than three.

But simultaneously, what can the rationale be of the coerced low fertility rates of the Chinese? Surely the Chinese cannot be dooming themselves to a demographically poor future. And is America really subjecting itself to prolonged economic stagnation via a population implosion? A competing argument can be made that a low fertility rate can actually improve living standards. Until  recently, there were few examples of developing countries with both declining fertility and rising incomes. This has changed as some countries have undergone a Goldilocks generation” of fertility—a generation with a not too high but not too low fertility rate—with the result being fewer dependent youngsters, fewer dependent grandparents, and a bulge of working adults that increase economic output. Also, women comparatively do not have to spend more time raising children and can invest more in the education of the children that they do have and add to the productivity and quality of the labor force.

Because there are fewer dependent children and old people, households are able to save more, and there is more capital and resources that can be accumulated per capita.  Economist Klaus Prettner reproduces these findings in a dynamic consumer optimization model that incorporates endogenous fertility and health investments to show that a fertility decline induces higher education and health investments that are able to compensate for declining fertility under certain circumstances. Even as absolute population levels fall, the “effective labor supply” will actually increase, proving that it’s too simplistic to reduce a country’s economic growth and productivity to a simple population numbers game.

Even as absolute population levels fall, the “effective labor supply” will actually increase, proving that it’s too simplistic to reduce a country’s economic growth and productivity to a simple population numbers game.

Consequently, questions loom about such a key determinant of our environmental and economic future. It is clear that countries concern themselves with two questions: Do we have enough people to support an ageing society? Can we take advantage of the right population numbers to spur economic growth? Viewing these questions through an environmental lens, can we find reassurance in declining fertility amidst competing claims about its effects? Are claims about the global population explosion hyperbolized? Only one thing is for certain. Motivation to stabilize population can be undermined by excessive worry that smaller numbers of young people will be supporting larger numbers of the elderly. The prevailing patterns of behavior and resource allocation can be changed in ways that reduce pensioner/worker ratios and make population stabilization more politically viable. Even if falling fertility can raise living standards—especially the living standards of poor, resource-disadvantaged people—it cannot be an excuse for inaction in the realms of smarter governance and tempered lifestyle patterns in respect to environmental crises and economic stagnation.

UPDATE: The Chinese government announced late last week that they would begin to relax its “one-child policy”. The policy was introduced in the late 1970s to combat rapid population growth but has now resulted in an increasingly aging population and extreme gender imbalance. The change will allow couples the option of having two children if just one of the parents is an only child. Previously, both parents had to be only children.

Global Preparedness for Graying Population

Picture Courtesy of CSIS
Picture Courtesy of CSIS
GAP Index Country Rankings, Note: Countries are ranked from best to worst
GAP Index Country Rankings, Note: Countries are ranked from best to worst

Will countries grow “older” before they get “richer”? Population aging has become a global phenomenon. According to the U.N. Department of Economic and Social Affairs (DESA), since World War II, global life expectancy has risen from about45 to 65. In wealthy countries, life expectancy has risen from mid 60s to high 70s, and in a few countries, including Italy and Japan, it has reached 80. Similarly, United Nations Population Division (UNPD), population projections show that the world median age will rise from 26.4 in 2000 to 36.8 in 2050. While it is good news that the longevity is on the rise due to various achievements in science, public health, and socioeconomic development, can the world handle its growing elderly population? Continue reading