Tuesday, September 9, 2014

A Ticking Time Bomb

I was at EPF’s International Seminar yesterday, and one of the presenters showcased this video:

I don't know about you, but this worries me a lot. It’s the flipside of the demographic dividend – the end-game, if you like, of development. There are so many ramifications – growth rates must drop off and many developing economies will lose dynamism, savings will increase (and long term interest rates fall), healthcare expenditures will dramatically increase, while asset prices – I don’t know what will happen to asset prices.

Many advanced economies – notably Japan – are already there, and Europe is going down the same road. In ASEAN, Thailand is most at risk, while Singapore (especially if they are truly closing off immigration) is getting there.

If you think Malaysia will miss this particular trend, going by current fertility and death rates as well as increases in expected lifespan, we’ll hit aged nation status by 2022 and 2030 at the latest. Malaysia is currently in the sweetspot for the demographic dividend, with larger cohorts of the young coming into the workforce. Combined with higher survival rates, this boosts labour force growth rates and the proportion of the population of working age.

But at some stage, when those born within the last decade begin to retire, we’ll hit a growth wall where  higher investment and labour productivity won’t be enough to compensate for a decreasing labour force. The aged will outnumber the young, and society will be very, very different. I’ll never see that day, but my daughter and her children will. So, I suspect, will more than a few readers of this blog.

There’s still time to prepare though. We need for example a better social safety net; an expansion of healthcare, particularly of specialisations in geriatric care like orthopaedics or cardiovascular care; changes to architecture and infrastructure to be more elderly friendly (less stairs and more ramps please). Seeing what my parents are going through right now (my Dad just had another knee replaced), makes me more aware of the physical challenges faced by the elderly, and they will be the fastest growing portion of the population for decades to come.

With any luck, there’ll be an announcement on some remedies at the tabling of the 2015 government budget. Stay tuned.

24 comments:

  1. Well, Singapore (whatever one may think about it) has recognised the ageing problem and is actively facing up to it.

    Ageing societies (like Japan, certain European countries, Singapore etc) have to "reinvigorate" their populations with selective infusions of foreign talent.

    But note the word "talent". Not any Ahmad, Ah Chong and Muthu.

    There's a reason why the US continues to rank in the world competitiveness rankings (as the latest WEF survey proves) in spite of s****y public finances. It's because the US continues to be a magnet to Latin Americans, East Asians and Eastern Europeans as well as being able to attract the cream of Asian graduates from it's top colleges to live and work there after graduation.

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    1. @bee farseer

      What I'm hearing from my Singapore contacts is that there is a real crackdown on foreign hiring, across the board. Work passes are not being renewed, and foreign institutions are being required to periodically report their headcounts to the government.

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    2. Well, yes......but the Singapore government has a delicate balancing act - keeping the "grassroots" happy while assuring foreign investors that Singapore welcomes foreign talent and remains open for business.

      Which is why the ongoing economic restructuring in the city-state and the drive for increased productivity is crucially important for it's long-term future.

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    3. And I think that's bad, the crackdown... As per my free competition arguments... Hisham, what do you think?

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  2. For those who care to check the figures, the time when the 60+ is expected to outnumber the 0-14 age group is between 2040-2045. In fact, the peak of our working age population is 2015 at about 65%. Dependency ratios are of course constrained by assumptions of dependency at certain ages, but the key here is to look at our labour force participation rates.

    Compression of morbidity can keep our elderly healthy, but our society need to find a way to help them stay active and productive. Retirement ages, imho, is really outdated.

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    1. @anon 5.27

      Thanks, I didn't bother checking the figures myself. The standard that was being mentioned the other day for an "aged" society was 10% of the population above the age of 60.

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    2. At the moment about 10% of the population is 60+ (2010 Census), more like 1 out of 10 Malaysians. Of course, different rates among the ethnic groups.

      I think a majority of the future cohorts of older persons will be wealthier than their children, logically saying.

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    3. Damn, I need to pay more attention to the demographic data. Thanks again.

      Yes, increased financial resources would be one if the implications, which is why I mentioned lower long term interest rates (higher incomes and savings).

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  3. 1 out of 5 Malaysia are elderly GREAT!. Malaysia will be the enxt Myanmar in line. 72 years old in Myanmar still working in a bank. Sigh

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    1. @anon

      Actually, sounds a lot like Singapore, Taiwan and Japan too.

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    2. Yup, my Dad finished marking exam scripts from his hospital bed for his part time teaching job a week or so before he passed away at 73...

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    3. @The Slug

      My dad's 77 this year, and knee notwithstanding, still going strong. Should be back at work teaching within a month or so

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  4. A whole lot of bull about an inconsequential issue. And at one time everyone except the house cat was praising how Japan was aging gracefully and in style. In fact, it has not gone to the dogs despite being in the 'old trap' for close to two decades and being "doomed" by every soothsayer and charlatan.

    The pains of an aging societies are grossly over exaggerated even bordering on hysterical "alarmism". people grow old and die every day, so what?

    The real problem is not about societies aging as the effects of agings can be easily mitigated by innovation , productivity gains and new spheres of economic growth taking root. Infusion of talent is the lazy man's solution, by the way.

    The real issue is inequality and everyone knows that except the over-wealthy fat cats. Or could they be cottoning on it to? :

    http://www.forbes.com/sites/eriksherman/2014/09/09/business-leaders-worry-about-income-inequality-and-revolution/

    Its just a matter of time before what the Banes of this world relish most, makes it nightmarish appearance.

    So in the while, enjoy the good times in its death throes.

    Warrior 231

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    1. Trust me warrior, there are a lot of gold in silver and the capitalists are already working overtime to cash in on the demographic alarm, real or false.

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    2. @warrior

      You do realise that inequality has a pretty large age component?

      Also, it's pretty easy to age gracefully and stylishly when most of the hard work was done 30-50 years ago.

      Hate to do this to you, but you're sounding like a certain lame duck MB. We all know how that particular bit of foresight turned out.

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    3. You banged the ail right on its head, Mr anon, 2.51pm. Couldnt have said it myself more succintly. This alarmism about ageig societies is akin to that that preceded Maya 2012, Y2K and much of the current global warming bull. In a way, alarmism is good as it spawns new industries, innovations etc ergo jobs, wealh, progress but like all things illusory alarmism is just a tool for capitalists to make money at the expense of people's concern. No society grew old and died out suddenly in history...but history is littered with nations states, empires collapsing like a house of cards on the account of inequality. Te harvard guys know that all too well as does Zeti Akhtar Aziz of Bank Negara. Just wish more people are as attuned as they are.

      @hishamh granted that inequality has an age component, age alone is not the be and end of it all. Inequality is an "accumulative" process, an accretion over several generations,a byproduct of historical as well socio-cultural flaws. To attribute an age component is to simplify a complex problem and i guess you would know that bettter than most, inlcludig me.

      As for the lame duck MB, well he turned out quite well. The closest thing we had to a technocrat than the parotting idiotic polly, his ex-party chieftains and many others of the same or different ilk undoubtedly are. Here is a man who was well aware of fiscal rectitude and prudent housekeeping when all around us tax and spend libtards are screaming for more of the same while delivering increasingly smaller socio-economic returns on their hooha .

      So we may grant him some slack over the water, shalt we for after all, before we let every visionary leader who had not been once blindsided by mistaken foresight cast the first stone.

      Warrior 231

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    4. Warrior,

      Of course age is not the only component of inequality. So is gender, so is race, so is education, so is access to credit, so is inheritance and so on and on and on. A holistic approach to the problem of inequality would requires a comprehensive policy solution set.

      But each particular component has its own set of issues and characteristics, each its own set of stakeholders and vested interests. That's why I write about it piecemeal - one day on education, another on gender, another still on ageing, because with each topic, I'm talking to a different audience.

      But, behind all this there is a consistent set of policies, goals and outcomes in mind. Care to join the grand conspiracy?

      As for our soon to be ex-MB, as much as I admire him for independence of mind, I have to say you have NO idea what you're talking about.

      It's not just the water issue (and leaving aside such minor details like rubbish collection and unfilled potholes), it's also about squeezing every Selangor citizen through restricting the supply of land and making the cost of housing in the Klang Valley so high. This is fiscal rectitude Singapore style.

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    5. "fiscal rectitude Singapore style"?

      I don't know whether this is a tongue-in-the-cheek" comment or a reflection of Singapore's "triple A" credit ratings.

      Be that as it may, what about comparing the track record of the "soon to be ex-MB" of Selangor with the other MBs and CMs in Malaysia?

      I don't know whether there are any KPIs for monitoring and assessing the performance of these political appointees (when was the last time a Malaysian MB or CM was selected and appointed purely on merit, party affiliations be damned?)

      If the "soon to be ex-MB" of Selangor made a mess of things during his time in office, I would venture to say that the "Chief Executives" of the other states didn't do very much better.

      Maybe it's the "cult of mediocrity" writ large, or the "laziness syndrome" as opined by Tun Dr Mahathir!

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    6. @bee farseer

      My comment on Singapore is reflective of the fact that the Singapore government practices a form of financial repression on its own citizens via the CPF scheme.

      As for TS Khalid, I don't see any other MB hiking the cost of land conversion premiums 300%. There's a few other measures as well, such as reducing plot ratios and arbitrary interpretation of federal guidelines on zoning, which together effectively constitute a tax on housing development.

      The impact is very clear in the numbers. Growth in the number of housing units fell from an average 8%-9% before 2008 to under 2.5% under Khalid. Selangor used to build more housing units than the national average - now its below. In absolute terms, Selangor is adding half to two-thirds less housing units than it used to.

      The impact is obvious - house prices had to go up, and it wasn't just because of lower interest rates. Effectively, Selangor's fiscal success has come through squeezing home buyers, while at the same time benefiting existing home owners through higher valuations (i.e. increased wealth inequality).

      It's one thing to pursue fiscal prudence, it's quite another to do it by surreptitious taxing of your own citizens.

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  5. Warrior,

    Inequity is the immediate problem while society aging is the near to medium future problem.

    But like anything, all things will bring both opportunities and mis-fortune, depending on the person perspective/circumstances. (glass half full or half empty).

    Zuo De

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  6. Ahhh ... in equality not Inequity, my apology.

    Zuo De

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    1. Zuo De

      Ageing is (for now) irreversible.

      So, Malaysians are going to get older.

      The question is whether fertility rates and births are sufficient to "replenish" the stock, let alone increase it.

      Let's not even talk about the increased social costs in caring for ageing Malaysians.

      Can or will their families step up to this responsibility or dump it on the state?

      And who will do the heavy lifting and caring - nurses, nursing aides, physiotherapists, domestic helpers etc - that an ageing population needs?

      More "cheap" foreign labour?

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    2. Bee farseer,

      Yes these are the questions that needed to be answer. As I said, some will either see it as the glass half full while others will see it as half empty.

      The half full folks will come up with solutions to profit from it. The others will blame the Government for not doing enough.

      As for me, I think all of us should spent time to find solution to ensure the current government health care system is maintain with improvement so that as we aged, the affordability is still there. Not like in some countries, it is better to die.

      How then to maintain the affordability. I proposed that health insurance for all working citizen along the line of SOCSO is implemented. This will help relieve the burden on the Government subsidy.

      Just my 2 sens worth.

      Zuo De

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    3. @bee farseer,

      DOS population projections are available here:

      http://pqi.stats.gov.my/searchBI.php

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