Abundance and Aging

Table of contents:

Abundance, yes, and while Capital has not merely pointed to it but released it like a sorcerer’s apprentice, it now appears that it has lost its “magic touch” and may not be able to keep the show going on for much longer. Anyway, in the midst of plenty, it cannot even assure sufficiency within its own metropolises, while the food waste it engages in underlines this fact. In America, the Second Harvest Network claims to have fed 25 million Americans in 2006. The Society of St. Andrew quotes a U.S. Department of Agriculture estimate that 96 billion pounds of food are wasted each year, while 35 million Americans (out of a total of some 302 million) are living in poverty.

But what we now face is a long-term drama that should be deeply thought-provoking – the aging population. The problem should not be left to the system, which is well aware of it and is now in the process of adjusting itself to it¹. It spells great changes.

Until some years ago, many (at least some) of us accepted the “conventional catastrophe” (promoted by the Club of Rome) that population was exploding² and that this would lead to massive shortages (á la Malthus). Some of us later corrected our thinking on this –world population had clearly grown rapidly until the mid 1960s, but its growth had slowed since then, and it was forecast to fall absolutely before the middle of the 21st century. It should be noted that all this information has been publicly available, and yet the “population time-bomb” people carried on stirring their “conventional catastrophe” pot, stimulating popular opinion among the respectable, the employed, the privileged and even the poor to support cataclysmic military “solutions” to world hunger –always “elsewhere”.

What many of us had not grasped (or seen the significance of) was that as population growth falls, its age structure changes, which has tremendous importance, because of what is known as the dependency ratio. What has been happening since the 1960s is that the number of elderly people (over 65) has been growing faster and faster, while the number of young people (under 15) has been growing more and more slowly. Science and social improvements –notwithstanding the fact that these have occurred under Capital’s exploitative sway –have allowed people to live longer and healthier lives, while changes in social organization, among other things, have favored smaller families.

The atomized (as opposed to extended) family and the individualized highly mobile worker have suited Capital’s needs, especially in the industrially-developed countries, and above all in the United States (a country of immigrants) have surely played some part in reducing fertility rates. The welfare state has played its part in reducing the extended family, replacing some of the support it gave to its members, and pushing society into the hands of state bureaucracies. The growth of cities into mega-cities, promoting the concentration of population favored by the capitalist system, has helped to push up property values, leading to vertical living in multi-storey housing –alongside the fall in real wages since the 1970s –has been another factor limiting family size.

Europe is a most dramatic instance of the aging phenomenon: in 1995 the number of elderly people, for the first time in history, overtook the number of young people there and since 2005, the total European population has been in decline³. Meanwhile, Japan, it was reported in 2003, “is the most rapidly aging nation in the world. By 2005, one-fifth of the population will be aged 65 years or over⁴.”

A consequence of this has been that the aging of the world’s population combined with retirement rates (which gravitate around 55-65) and increasing longevity (more years living on a pension) has put the old “Paygo” pension funds (with defined benefits) under attack⁵, as the working-age population shrinks in relation to the dependent part (even as the number of workers goes on rising). Nevertheless, if this means that not enough is being produced, it may also have something to do with the distribution of output and income biased towards Capital and profit –and if there is a crisis, this has everything to do with maintaining things as they are, maintaining the status quo.

Meanwhile, since about the end of the 1960s, a polarization and impoverishment process took place in the United States (and around the world), in which not only were workers’ real wages pushed down, but the dispersion of income between workers grew, reflecting educational differentials especially. Two factors appear to have affected this: inflation (which drove wages down absolutely) and productivity (which favored profits and reducing labor’s share of growth).

In the United States, the first of these factors (inflation) was particularly evident from the 1960s through the 1970s, the second (productiovity) gaining ground during the 1990s, a decade in which America began to overtake other industrial countries in terms of productivity growth, especially in information technology⁶.

Inflation, by pushing up prices faster than wage-rates over the long run, also pushed up profits faster than wages. Estimates using Bureau of Economic Analysis data show that real wages in the United States fell from the early 1970s through 1993, after which they pushed back up until 2000, though this has not offset the earlier decline⁷.

Meanwhile, although productivity in the United States in the 1990s overtook the other OECD countries, wage growth declined:

The decline in U.S. unit labor costs during this period followed a decline in the hourly compensation growth rate by almost half, and a rise in the productivity growth rate by more than a third from the previous period. Japan and France were the only other countries to also achieve a decline in unit labor costs… All other competitors experienced only a deceleration in their unit labor cost increases. Although they were able to restrict hourly compensation growth to low levels, their productivity growth rates were lower still⁸.

It also seems worth bearing in mind that, despite Bill Clinton’s focus on high-tech development, America’s productivity focus has been skewed since the end of World War II towards armaments –to support its imperialist dominance. And the economic implications of militarization fly in the face of those believe the economy is dominated by scarcity. Its very existence reflects a pervasive worldwide abundance that has to be thrown away by the system, and militarization represents the political pinnacle of the waste-maker economy. The growth of militarization has had effects throughout the developed economies, particularly the American, Russian and British, effects that are multiplied internationally.

Reflecting growing abundance –but also this income polarization –the structure of the U.S. economy changed in several ways during the same period:

1) From one dominated by industry, especially manufacturing (the secondary sector) to one dominated by services (the tertiary sector). The concentration of resources in that sector has meant that a manufacturing workforce that has actually fallen by about a million people over the past 60 years is now producing for a population that has almost trebled⁹.

2) Economic openness has also increased, as trade and foreign investment have grown massively during the same period. Thus America now imports a far larger proportion of its manufactures than it did after World War II – for example, in 2004, more than half of U.S. manufactured goods were exported. And other countries, especially the so-called “emerging” ones, have become even more dominated by foreign trade and investment.

3) Growing fragmentation –the rise of the informal economy and criminality. Informality pushes people out of the State and out of the public (and private) pension systems, but informality also reduces State revenues and shifts profits out of the formal sector¹⁰.

The service sector is a very heterogeneous set of activities. These, including government operations, have grown up around the manufacturing sector. In particular, though, the growth of the financial sector points especially to income polarization, and has been the axis upon which the American economy has been reshaped –leading to its greater openness, i.e. reliance on foreign transactions (trade and investment, direct and especially indirect).

America’s financial system has attracted financial investment from all over the world because the country was able to guarantee high rates of return, which are in turn the result of productivity increases. However, its saving rates fell.

U.S. saving as a proportion of gross national income has fallen severely in recent years. The largest net saving rates¹¹ since 1929 were during World War II. Thus in 1941, they rose to 15%, and 16.2% in 1942, after which they fell back considerably, to reach 4% in 1945. Following World War II, they rose again, and by 1951 stood at 12.4%: During the 1960s the net saving rate averaged over 10% per annum, falling to 8.3% in 1970. It averaged¹² 8.7% in the 1970s, 5.7 in the 1980s, 4.5% in the 1990s and since the year 2000, 2.2%. And America has now come to depend on the savings of the rest of the world.

In the post-war period this sustained decline in U.S. saving rates coincides with the fall in workers’ real incomes and the social polarization process that began in the United States about 1973¹³. And after 1978, U.S. labor policies forced workers to accept wage concessions. As Harrison and Bluestone¹⁴ explain, the change stemmed from an intensification of competition from other countries which America experienced from the end of the 1960s –the worldwide growth of capitalism, in fact. The globalization movement has its origins in the pursuit by U.S. business of an improved international position. As already noted, the increased gains from productivity this gave rise to in the United States were skewed towards capital. Thus, the decline in labor’s share is directly linked to the globalization trend, i.e. as trade has grown, low earnings have been globalized to varying extents, including in the industrially-developed countries.

With productivity at the core of capitalist success, linked to financial globalization, its pursuit allowed America to prosper at the expense of the rest of the world. However, bearing in mind the fall in saving rates, the following statement by former Federal Reserve Chairman Alan Greenspan is of note:

…Maintaining even a lower rate of capital investment growth will likely require an increased rate of domestic saving because it is difficult to imagine that we can continue indefinitely to borrow saving from abroad at a rate equivalent to 5 percent of U.S. gross domestic product[15].

Studies¹⁶ show that aging will lead to falling world economic growth after 2010 with even greater falls after 2025. Aging is expected to affect European and Japanese economic growth even more than the United States. The OECD nations’ share of the world economy is falling (from 46% in 1995 to less than 30% in 2050), while fast-aging China’s share is expected to remain unchanged¹⁷. Meanwhile, slow-aging India and Latin America are expected to enjoy growing shares of the world economy¹⁸.

However, according to America’s Economic Policy Institute¹⁹, workers today are twice as productive as workers in 1950. It mentions that the number of workers supporting each retiree in 1950 was 16, while today it is 3.3 workers per retiree. The EPI assumes that because Social Security weathered a shift from 18 workers²⁰ to each retiree in 1950 to 4:1 in 1965, the current situation is easily manageable. This misses the point that even by 1965 average longevity in America was much lower than it is today. According to official U.S. data, average life expectancy at birth in 1965 was about 70 years, while today it is about 78 years²¹. Moreover, even if each worker today produces on average twice as much as in 1950 how could this be sufficient to cover a rise in the number of retirees by more than five times over the same period²²?

The EPI document then goes on to argue that because the dependency ratio for children is falling, this will offset the rise in the elderly dependency ratio, leaving the total dependency ratio unchanged and therefore manageable. But this ignores the fact that a fall in the growth of the child population means that the future growth of the working-age population will be even lower in the future.

What might all this presage?

America’s budget deficit goes on growing²³, but while it throws money into a massive worldwide military adventure, the State will not permit a deficit to accrue with the public pension funds –it will not go on subsidizing the workers²⁴. However²⁵, if taxes are increased to pay for higher pensions this could have adverse effects on labor supply and company activity, says Charles Bean of the Bank of England. It sounds as if he is he suggesting that such action might lead to an economic depression.

Mr. Bean notes that in Britain the move away from benefit-determined pension schemes and falling equity prices have led to closures of company pension funds and shifted longevity risk from employers to employees, which in turn has increased real estate investment, to provide rentals for retirement –thus putting further pressure on home prices, another of the several effects of the demographic aging process.

Capital has been preparing for a little while for this demographic change, seeking out any opportunities for scarcity that it may provide. It has recognized the actuarial deficit (i.e. growing future deficit) in its public accounts and is preparing fiscal reforms to maintain things as they were –as far as it can. We have mentioned the effects of the aging process on the pension systems, but it would be short-sighted to believe that the demographic aging process has only one effect or that this is the main or sole problem facing America and the world. It is generally agreed that public and private pensions are only one part of a much greater problem. Indeed, worse still for the future of America’s State finances is the growth of Medicare and Medicaid financing, which would add severely to the public pension actuarial deficit:

Social Security reform is part of a broader fiscal and economic challenge… the combined Social Security or Old-Age and Survivors Insurance and Disability Insurance (OASDI) program, together with the rapidly growing health programs, will dominate the federal government’s future fiscal outlook… Medicare presents a much greater, more complex, and more urgent fiscal challenge than does Social Security. Medicare growth rates reflect not only a burgeoning beneficiary population, but also the escalation of health care costs at rates well exceeding general rates of inflation. Taken together, Social Security, Medicare, and Medicaid represent an unsustainable burden on future generations. Under the 2004 Trustees’ intermediate estimates and the Congressional Budget Office’s (CBO) long-term Medicaid estimates, spending for Social Security, Medicare, and Medicaid combined will grow to 15.6 percent of GDP in 2030 from today’s 8.5 percent[26].

Capital is seeking all ways of expanding its work force –and reducing its costs –by lengthening the working lives of the people, not simply because it is competing with itself, but to survive under changing conditions. Retirement, if it still exists for most people, will be at a more advanced age, the working life will start earlier –for example, child labor is growing significantly around the world. Countries or regions with a “demographic bonus” (e.g. Latin America) will “export” more labor to the powerful industrial States –as immigrants come under increasing constraint²⁷, via laws, national restrictions and racism, etc. In this way, as bursts of new workers appear on the market, wages and salaries will be forced down under the perception of an increasing supply, and this is added to the fact that immigrant labor comes from developing countries where currencies, held down artificially by globalization, impel lower wages and salaries. And it is interesting, in this context, to note that although real wages in the United States fell from the early 1970s, household incomes increased because more women joined the work force and went out to work.

Meanwhile, how will people respond? Clearly, a narrowing work force and its corollary, the unfolding scenario of a growing dependency ratio, points to increasing pay demands²⁸. Impelling this on will be workers realizing today that unless they are able to earn more now, their retirement will be undermined by the growing dependence.

But there is more to it than that. To begin with, retirement pensions are in no way universal, even where state pensions exist. The coverage of pensions in the developing countries can be very low indeed –even in America, only about 50% of the work force is covered by private pensions. In places like Bolivia, it falls to 10%. The question therefore arises: is this problematic leading –surely, in a fragmentary way –to the end of the Welfare State concept, built up around the world from about the mid-19th century and driven on by two World Wars in the 20th century? Clearly, Capital wants to retain the powers inherent in “social spending”, but if the possibilities to continue doing so are increasingly restricted, would it renounce its role there openly, leaving human survival ever more to “market forces”?

Might the tightness of the problem lead to a reversion towards larger families among certain sectors of the population, if not all? Certainly, though, the failure of the Rockefeller-sponsored family planning movement in the 1960s gave way to the rise of a worldwide Catholicism committed to the opposite tendency, suggesting that Capital and its Opus Dei had already surmised what the problem would be in years to come.

And what role might Islam play in this regard? Britain’s racists would have been heartened to hear talk that Muslim families are outstripping that country’s more autochthonous population in fertility rates, and that Mohammed is now becoming one of the commonest names to give a boy there.

The conflict growing out of this polarizing situation is not being referred to very much by the actuaries, politicians, bankers and other financial-minded experts. Given the wish to limit State spending at the expense of the elderly generations (and the workers generally), and increase tax rates to cover growing social security and health spending, Capital has perceived that the opposition this is likely to give rise to will require an escalation of brute force. A document produced by Britain’s Ministry of Defense suggests preparations are being made for repressive measures on an even more extensive scale than we are already seeing today, precisely in response to the problems foreseen for the system in the aging process.

The middle classes could become a revolutionary class, taking the role envisaged for the proletariat by Marx. The globalization of labour markets and reducing levels of national welfare provision and employment could reduce peoples’ attachment to particular states. The growing gap between themselves and a small number of highly visible super-rich individuals might fuel disillusion with meritocracy, while the growing urban under-classes are likely to pose an increasing threat to social order and stability, as the burden of acquired debt and the failure of pension provision begins to bite. Faced by these twin challenges, the world’s middle-classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest²⁹.

And in addition to its actuarial deficit, there are other types of deficit:

1) A current account/trade deficit –America’s problem is the result of that country becoming the financial pole of the world, while globalization creates imbalances everywhere;

2) A budget deficit –blowing up in America partly due to its increased militarization in pursuit of imperialist ambitions;

3) An actuarial deficit –a universal problem directly affecting States all around the world. Apart from the future social expenditure deficits, other sorts of actuarial deficits exist³⁰.

We have already noted that the budget deficit currently represents 2-3% of U.S. GDP, while the trade deficit stood at US$850-875 billion in 2006³¹. If America’s leading creditor countries withdraw their investments, the U.S. economy collapses –but so also might the world economy –therefore, they don’t withdraw their investments. Nevertheless, if alternatives exist, the importance of the United States as a haven for financial investment will drop away. Presumably, this would undermine its own growth, independent of the effects of productivity, making it increasingly impossible to support its social spending programs.

The growth of economic powerhouses –particularly in Asia –is perceived as a threat to America’s supremacy. But its supremacy is threatened by many forces closer to home –and we don’t mean the mega-themes of terrorism and environmental collapse being pushed today by the Bushite Republicans and the Goreite Democrats.

Different potential crises threaten world economic stability, starting with US economic stability (or perhaps with other countries –however, we seem to have left the 1990s experience behind when the financial crises appeared well beyond U.S. borders). Although related, and all these crises have something to do with Capital’s social polarization process, each has its own separate dynamic, threatening the world system in different ways and over different time-spans.