Is Material Prosperity Possible with Demographic Change?

The panel was organized by the task force “Aging Population and its Economic Impact + Immigration,” in which Andreas Esche is Co-chair and Martina Lizarazo López is an expert. The discussion focused on the question what strategies the G20 countries must pursue to promote sustainable economic growth and stability in times of population aging.

 Andreas Esche pointed out that aging industrialized countries would, on the one hand, have to pursue adaptation strategies such as raising the age of retirement to reduce the burdens on social security systems and public finances. On the other hand, however, “proactive” action is required, such as increasing domestic investments in education (throughout the entire life course), qualitatively excellent and reliable care infrastructure for children and the elderly, integration polices, the digital infrastructure, etc. This could increase the level of employment, work productivity, total factor productivity and GDP growth in an aging society. At the same time, such investments could benefit all generations.

Furthermore, Andreas Esche also included international demographic trends: While aging societies such as Germany have a capital surplus today, they will have higher capital requirements in the future when they belong to the old societies. If more foreign direct investments from today’s aging industrialized nations, which in some cases have high current account surpluses, were to flow into demographically young emerging countries, the industrialized nations could increase their national income and their level of capital over the long term.

 Strategic investments targeting development, which are made by aging economies in the education and health system as well as in the infrastructure of less developed countries, could contribute to ensuring a broad basis for qualified and more productive workforces, among other benefits, in the future.

To make sure that the different demographic and economic stages of development in aging industrialized nations and in demographically young developing countries can lead to a “win-win situation” in demographic change, the political and legal framework conditions will have to be improved in the recipient countries. In addition, legal certainty as well as clearly defined and enforceable property rights will have to be established for investors. An expansion of the government risk hedging instruments could also trigger smaller and medium-sized companies to invest in less developed countries.

In order to achieve a sustainable impact in developing countries, it is necessary to coordinate infrastructure investments with economic and regional needs, to consider the conditions prevailing there and to promote local entrepreneurial activity. This also includes having foreign companies train domestic labor locally and thus facilitating an actual transfer of knowledge.

In the T20 policy brief Fostering Prosperity – Investment and Demographic Transition Andreas Esche, Martina Lizarazo López and Thieß Petersen discuss the subject in detail. Major policy recommendations in the policy brief were included in the T20 Japan Communiqué which was handed over to H.E. Kono Taro, the Japanese Foreign Minister and representative of the Japanese G20 Presidency during the T20 Summit.