EUROPEAN PAPERS ON THE NEW WELFARE

The Graying of the Great Powers – Demography and Geopolitics in the 21st Century

2.5 The Threat of Ethnic and Religious Conflict Will Continue To Be a Growing Security Challenge Both in the Developing and Developed Worlds

Over the last 20 years, ethnic conflict in the developing countries has been on the rise. The causes include widening population growth differentials between higher- and lower-fertility ethnic groups; the reemergence of ethnic loyalties suppressed during the Cold War; the rise of electoral democracies that enable ethnic groups to vie against each other at the ballot box; and globalization, which may also provoke ethnic resentment by enriching some groups at the expense of others. Meanwhile, in many developed countries, ethnic tensions are being inflamed by the rapid growth of immigrant minorities as a share of the population. All of these trends can be expected to continue in the decades to come. Religious conflict is also likely to intensify due to the following fact: Fully nine-tenths of the world’s population growth between now and 2050 is projected to occur in exactly those regions — sub-Saharan Africa, the Arab world, non-Arab Muslim Asia, and South Asia — where religious conflict (between and among Muslims, Christians, Jews, and Hindus) is already a serious problem. Within those regions, moreover, the disproportionate fertility of devout families will ensure that younger generations will be, if anything, more committed to their faiths.
Implications: In a rapidly modernizing world, the appeal of ethnic and religious loyalty will remain powerful. The developed world needs to demonstrate that it respects this loyalty while at the same time defending pluralism and taking a hard line against aggressors who harness zealotry for destructive ends. It will help greatly if the developed countries are able to demonstrate, within their own borders, that the assimilation of ethnic and religious minorities really does work. Given its track record of relative success, the United States will need to take the lead in this effort.

2.6 Throughout the World, the 2020s Will Likely Emerge As a Decade of Maximum Geopolitical Danger

In the developed world, the 2020s is the decade in which global aging will hit the hardest. Workforces will practically stop growing everywhere except the United States — and will begin to shrink rapidly in much of Western Europe and Japan — with potentially serious economic consequences. The ratio of elderly to working-age adults will surge, with especially large jumps in countries (like the United States) that had large postwar baby booms. Some governments may experience a fiscal crisis. Meanwhile, in the developing world, new demographic stresses will appear. Many Muslim-majority countries (both Arab and non-Arab) along with some Latin American countries will experience a temporary resurgence in the number of young people in the 2020s. This youth echo boom (a 30-percent jump in the number of 15-to-24 year-olds in Iran over just 10 years) may rock regimes. The countries of the Russian sphere and Eastern Europe will enter their decade of fastest workforce decline, even as China, by 2025, finally surpasses the United States in total GDP (in purchasing power parity dollars). Yet China will face its own aging challenge by the 2020s, when its last large generation, born in the 1960s, begins to retire.
Implications: Security planners must keep in mind that demographic change is nonlinear. The 2020s promise to be a decade in which breaking population trends come to play an important role in world affairs. According to ‘power transition’ theories of global conflict, China’s expected displacement of the United States as the world’s largest economy during the 2020s could be particularly significant. By 2025, China’s economy will also be four times larger than Japan’s and three times larger than India’s. At the same time, however, China will be grappling with a sudden rise in its old-age dependency burden and a sudden decline in its workforce. The net outcome is uncertain.

2.7 The Aging Developed Countries Will Face Chronic Shortages of Young-adult Manpower — Posing Challenges Both for Their Economies and Their Security Forces

As the developed world ages, domestic youth shortages will create powerful economic incentives to encourage immigration and trade and to expand all types of offshoring. Political opposition from aging workforces and older electorates is certain. With the number of service-age youth flat or declining in most countries (especially in the rural subcultures that have traditionally supplied recruits), militaries will be hard-pressed to maintain force levels — especially if smaller families are less willing to put their children at risk in war. Militaries will need to resort to creative expedients. They will outsource all non-vital functions. They will try substituting high-tech capital, such as robotics and unmanned craft, for labor. They may offer citizenship for service, directly hire overseas combatants (in effect, mercenaries), or enter ‘service alliances’ with friendly developing countries.
Implications: Many developed countries will be tempted to abandon military forces altogether, especially forces capable of large-scale combat, which will render them permanent free riders on their allies. Countries retaining major forces, the United States foremost among them, will need to carefully weigh the potential benefits of labor-intensive security missions (such as occupation, nation building, and counterinsurgency) against the high costs. Informal burden-sharing may give way to a more formal assessment of global levies — or to alliance-shattering declarations of neutrality.

2.8 An Aging Developed World May Struggle to Remain Culturally Attractive and Politically Relevant to Younger Societies

Today’s liberal and democratic global order owes its durability not only to the developed countries’ capacity to defend it against aggressors, but more importantly to the positive global reputation of the developed countries themselves. Their mores and institutions embody this order. This is sometimes called the ‘soft power’ of liberal democracy, and it has widespread support both as a way of life and as a force in global affairs. All of this may change if, as the developed countries age, they are no longer regarded as progressive advocates for the future of all peoples, but rather as mere elder defenders of their own privileged hegemony. Illiberal neo-authoritarian regimes may then be able to win popularity as better advocates for rising generations. Ominously, history affords few (if any) examples of an aging civilization in demographic decline that has managed to preserve its global reputation and influence.
Implications: The consequences of the coming demographic transformation cannot be calibrated in mere population, productivity, or GDP numbers. The most important consequences may lie in the realm of culture and perception. By making full assimilation of immigrants work at home and by building mutually beneficial relationships with younger allies abroad, the developed countries may yet keep their ideals fresh in the eyes of the world. If, on the other hand, the twenty-first century comes to be seen by the developing countries as a struggle between the old, complacent, demographically declining ‘them’ and the young, aspiring, demographically ascendant ‘us’, the challenge facing the developed world will be much more difficult.

3. A Framework for Policy Action

Meeting the geopolitical challenges posed by global aging will require strategic policy responses on four broad fronts: (1) Demographic Policy, or responses that slow demographic aging itself, and thus alter the fundamental constraints on the geopolitical stature of the developed countries; (2) Economic Policy, or responses that maximize economic performance, and thus mitigate the negative impact of any given degree of aging; (3) Diplomacy and Strategic Alliances, or responses that adjust foreign-policy orientation to meet the new geopolitical threats and opportunities arising from global demographic change; and (4) Defense Posture and Military Strategy, or responses that adapt force structures and mission capabilities to the new demographic realities.

3.1 Demographic Policy

• Help women balance jobs and children. Policies that help women (and men) balance jobs and children are the lynchpin of any effective pronatal strategy. Countries with low fertility rates and low rates of female labor-force participation may need to reform labor-market rules that limit part-time work options, implement parental leave policies, and provide for affordable daycare. More broadly, all countries will need to move toward more flexible career patterns that allow parents to move in and out of employment to accommodate the cycles of family life.
• Reward families for having children. Although the evidence that direct pronatal benefits raise fertility is mixed, they may be effective with the right incentive structure. One approach that has been used successfully by France is to increase the per capita amount of cash payments (or tax breaks) along with the number of children that families have. Another promising approach discussed by some developed countries (but not yet enacted by any) is to build pronatal incentives into social insurance systems by reducing payroll tax rates (or increasing benefit payouts) for families with children.
• Improve the economic prospects of young families. In the end, no pronatal strategy will succeed unless governments also pursue broader reforms that improve the economic prospects of young families. One large impediment to family formation in the developed countries is the rising burden of intergenerational transfers from young to old. Two-tier labor markets are another. Reforms in both of these areas will be crucial.
• Leverage immigration more effectively. Higher immigration rates can substitute to some extent for higher fertility rates. The faster that immigrants can be assimilated into the mainstream of society, the higher the immigration rate can be without triggering social and political backlash. Developed countries without a tradition of assimilating immigrants will need to study best practices around the world, especially in the United States, Canada, and Australia.

3.2 Economic Policy

• Reduce the projected cost of old-age benefits. Any overall strategy to minimize the adverse economic impact of demographic aging must begin by reducing the rising cost of pay-as-you-go old-age benefit programs. There are many possible approaches. For pensions, governments can raise eligibility ages, means test benefits, or introduce ‘demographic stabilizers’ that directly index benefits to changes in the old-age dependency ratio. For health benefits, they can control costs by implementing a ‘global budget cap’ for health spending and by researching and mandating best-practice standards.
• Increase funded retirement savings. As governments scale back pay-as-you-go benefits, they will need to ensure that funded private pension savings fills the gap. Experience teaches that mandatory systems are far more effective at increasing savings and ensuring income adequacy than voluntary systems.
• Encourage longer work lives. Along with reducing fiscal burdens, aging societies need to increase workforce growth. Encouraging longer work lives will be crucial. The developed countries will need to raise eligibility ages for public pensions, revise policies (like seniority pay scales) that make older workers costly to hire or retain, encourage lifelong learning, and develop ‘flexible retirement’ arrangements of all kinds.
• Enable more young people to work. While more older workers will help, younger workers have their own indispensible qualities. Governments, especially in Europe, will need to overhaul two-tier labor markets that lock in high levels of youth unemployment. Meanwhile, countries with low female labor-force participation must make it easier for women to balance jobs and children. With the right mix of policies, countries can have both more working women and more babies.
• Maximize the advantages of trade. Trade allows aging societies to benefit from labor in younger and faster-growing societies without the social costs of immigration. As technology increases the tradable share of the service economy, the potential for trade to raise living standards will grow. Yet so too will resistance to offshoring on the part of aging workforces and electorates. Governments will need to pay special attention to developing policies that mitigate the adjustment costs.
• Raise national savings. Only adequate national savings can ensure adequate investment without the dangers of large and chronic current account deficits. Governments in aging societies will have to implement a comprehensive pro-savings agenda that includes everything from tax reform to entitlement reform.

3.3 Diplomacy and Strategic Alliances

• Expand the developed-world club. The future security of today’s developed countries will increasingly depend on their success at building enduring strategic alliances with younger and faster-growing developing countries that share their liberal democratic values. The only way to keep the developed world’s relative demographic, economic, and geopolitical stature from declining is to expand the membership of the developed-world club itself.
• Prepare for a larger U.S. role. As the population and economy of the United States grow relative to the rest of the developed world, so too will its role in security alliances. Leaders in the United States, Europe, and Japan need to acknowledge and prepare for this reality, while seeking ways to strengthen multilateralism.
• Invest in development assistance. Over the next few decades, much of the developing world will be subject to enormous stresses from rapid demographic, economic, and social change. To help prevent chronic problems from erupting into acute security threats, the developed countries need to devise long-term and cost-effective strategies of development aid and state-building assistance. A large investment could yield large payoffs, but it may not be affordable unless the developed countries manage to control the rising cost of old-age benefits.
• Remain vigilant to the threat of neo-authoritarianism. As the demographic transition progresses and the stresses of development increase, the appeal of the neo-authoritarian model is likely to grow in many parts of the world. The developed countries must remain vigilant to the threat and devise strategies to steer at-risk countries in the direction of liberal democracy.
• Preserve and enhance soft power. The developed countries now exercise enormous soft power throughout the world. To preserve and enhance it, they must make sure that they remain champions of the young and the aspiring — both at home and abroad. If domestically they persist in tilting the economy toward the old, and if internationally they are unwilling to commit substantial resources to helping young nations, the global appeal of their values and ideals will diminish.

3.4 Defense Posture and Military Strategy

• Prepare for growing casualty aversion. Defense planners must realize that youth will be considered a treasured asset in aging societies. Developing communication strategies to persuade the public that putting scarce youth at risk is necessary must become an integral part of the planning process for military actions.
• Substitute military technology for manpower. Developed-country militaries are already doing a lot of this, and they will need to do even more in the future. Substituting technology for manpower, however, is a strategy with limitations. Manpower will always be needed — for occupation and pacification, for nation building, and, in the event it happens, for large-sale conventional war.
• Substitute nonnative for native manpower. As recruitment pools shrink, the developed countries will need to substitute nonnative for native manpower. The challenge will be to minimize the risks associated with this strategy. The worst approach is to hire freelance mercenaries (whether foreign or domestic). The best may be to offer immigrants citizenship in return for service — perhaps, as Max Boot and Michael O’Hanlon suggest, even recruiting potential immigrants abroad.5
• Create ‘service alliances’ with loyal developing countries. Another way to substitute nonnative for native manpower is to create service alliances with developing-country allies that are willing to supply troops in exchange for aid or technology. Developed-country militaries would need to train and equip the troops to developed-country standards.
• Adapt weapons, training, and force structure. Demographic trends will influence both the types of locales in which militaries will be called on to fight and the types of missions they will be called on to execute. Warfare will be increasingly urban; nation building will be as important as battlefield victory; and expertise in ‘exotic’ languages and familiarity with foreign cultures will be essential. Weapons, training, and force structure must be adapted accordingly. It may make sense to develop a special nation-building force—or what Thomas Barnett calls a SysAdmin Force.6
In the decades to come, the world will witness a sweeping demographic transformation never before seen in history. The rapid aging of today’s developed countries threatens to undermine their ability to maintain national and global security — even as demographic trends in the developing world will give rise to serious new threats. Meeting the challenge will require discipline, leadership, and a wide-ranging and long-term agenda.
To the extent that it can, the developed world should try to modify the demographic outcome through family-formation and immigration policies that are consistent with its deeply held liberal democratic values. As the transformation unfolds, it will need to take special care to enhance and preserve the performance of its economies — by making sure that they remain flexible, open to new innovations, and generate enough savings to ensure a future of rising living standards for younger generations. In its dealings with the rest of the world, the developed world will need to be forward-looking and open to the membership of new societies that share its basic values — as well as vigilant about countries that may respond to rapid demographic change in authoritarian ways. As always, the security and authority of the developed world will depend on its ability to defend itself. This will require creative solutions if it is to protect its scarce youth from needless risks, while filling a broader range of likely missions. Here too, part of the solution will be to build relationships with younger societies that are potential allies.
Well into the twenty-first century, the United States will be fated by demography to be a leader. It will not only have to continue shouldering the level of global responsibility of recent decades, but in all likelihood will have to assume even greater responsibility. In a world of graying great powers, the United States will be even more indispensible.

5 Max Boot and Michael O’Hanlon, “A Military Path to Citizenship,” The Washington Post, October 19, 2006.
6 Thomas P. M. Barnett, Blueprint for Action: A Future Worth Creating (New York: Berkley Books, 2005).


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