EurasiaNet Eurasia Insight - East: 'If Countries Don't Act Now, It's Going To Be Too Late'

EURASIA INSIGHT

EAST: ’IF COUNTRIES DON’T ACT NOW, IT’S GOING TO BE TOO LATE’
6/22/07
A EurasiaNet Partner Post from RFE/RL

Countries in Eastern Europe and the former Soviet Union are facing an economic crisis of unprecedented proportion because their populations are rapidly aging and shrinking at the same time.

The World Bank has issued a new report that warns that the entire region’s economic progress could come to a grinding halt by 2025, unless governments act quickly to institute reforms. RFE/RL correspondent Heather Maher interviewed Gordon Betcherman, one of the World Bank economists who authored the report, "From Red To Grey: �The Third Transition’ of Aging Populations In Eastern Europe and the Former Soviet Union."

RFE/RL: This report paints a very dismal picture indeed of the situation in many countries in Eastern Europe and the former Soviet Union, some of which are still struggling to complete the transition from a centrally-planned economy to a market-based system.

Gordon Betcherman: This demographic transition to an aging population is the third transition that these countries have been going through since the fall of the Berlin Wall. The first two, of course, were the political and economic transitions, from communism and planned economies to democracy and market economies. And what we’re really trying to highlight in this [report] is that now these countries are entering into this third transition, which is a demographic transition, and they’re having to face it before the first two transitions are really completed.

RFE/RL: Why now are there fewer babies being born and more people reaching very old age?

Betcherman: Well, some of this is a good story, of course, as societies become more advanced, they tend to have population slow downs and population aging. And in fact there are many countries in Western Europe that have the same demographic profile that we’re seeing in many of the countries in Eastern Europe and the former Soviet Union. As more and more countries move to urban societies and to higher levels of income, fertility rates drop and, because health conditions are better, people tend to live longer and those are the factors that, when they are combined, lead to population aging.

RFE/RL: This kind of demographic change must exert massive budget pressures on governments.

Betcherman: This raises enormous challenges for the countries we’re talking about. It is a difficult enough challenge for countries in Western Europe and the European Union to grapple with the expected pension increase and health care [cost] increases that are going to accompany aging populations.

But when you talk about countries in the former Soviet Union and the Central Asian republics - these are countries that are going to be dealing with these demographic pressures, first of all, with much lower levels of resources. Just to put it bluntly, a lot less money to throw at the problem than Western European countries. And second of all, we’re talking about pension and health-care systems that really aren’t functioning very well in the first place. So it’s a problem that is really getting overlaid on systems that themselves are not functioning that well.

RFE/RL: There’s a passage in the report that says, "No aging country anywhere is as poor as Georgia. With a per capita gross national income of just over $1,000, it is set to lose almost a fifth of its population over the next two decades." Why is Georgia in such bad shape compared to other countries?

Betcherman: Well, Georgia’s not a special case because of its demography. It has a similar profile to Ukraine [and] Russia. Georgia, over the next 20 years, is going to lose 17 percent of its population. Ukraine is going to lose 24 percent of its population. So these are countries that are really facing population shrinkage because of aging.

What makes Georgia unique is that it’s going to be dealing with this problem at a level of development that is far, far lower than Italy, or France, or Germany. This is a poor country, with a per capita GDP of about $1,000, which is more what we think [of as being the case in] African countries or South Asian countries, not the kind of Western countries we think about when we typically think about [the] aging [problem].

RFE/RL: So that’s the bad news, but there’s also good news in the report. You write that a country that’s growing older doesn’t have to grow slower -- meaning economically -- as long as governments react quickly to institute necessary reforms.

Betcherman: Yes, this is not a doomsday report, in the sense that we do believe that, although the potential consequences of these aging populations could be quite serious -- and will be quite serious -- if the countries do not respond aggressively to the challenges, if they do -- and really there are two sets of things they need to do -- we argue that it doesn’t need to be a catastrophe at all.

And the two things they need to do are: implement a set of policies to try to ensure that they continue to grow strongly in an economic sense over the next two decades while [their societies] are aging; and the second thing they need to do is get their pension and health-care systems on a much more sustainable footing so that the economics of these systems are much sounder, to meet the challenges of the population aging.

RFE/RL: What is an example of a specific reform that would keep a country’s �economic engine’ running, even as its working-age population shrinks?

Betcherman: Let me just raise three quick points.

One is, even though their working-age population is shrinking, their labor force doesn’t have to shrink as much because a lot of these countries have very low labor force participation. So if they can get more of their working-age population actually into the labor market, that will help compensate for some of the losses you might expect because of demographics.

The second point is that productivity growth is absolutely critical. In fact, that’s the single most important thing in this whole puzzle for these countries. They need to continue to implement the sorts of reforms that all these transition countries know they need to implement to develop a much more business-friendly, economic environment, better investment climate -- the sorts of things that we all know are essential for growth. So the second thing is continuing with the reform agenda that followed from the end of the communist era.

And the third thing is education and lifelong learning. Education is going to be critical for maintaining productivity and growth, and especially as the sheer numbers of people who will be active in the labor market might shrink, it’s important that they have a greater level of knowledge and skills than they do now, so they can support a fast-growing economy even if there are fewer of them.

RFE/RL: Which country, or countries, is in the best position to confront these looming problems?

Betcherman: In the region, we really think of three different categories of countries. One group is the Eastern European countries, many of them are the new members of the European Union -- these countries are aging very rapidly but of the whole region of former Soviet bloc countries, they’re in the best shape to deal with the challenges -- and here I’m talking about Hungary, Poland, the Czech Republics, Baltics, and so on -- because they have made more reforms. At the other end of the extreme, in Central Asia, in fact you have a number of countries that are not aging. The "stans" in Central Asia are still very young countries and they’re not facing the same demographic challenge as other countries in the region. Their challenge really is, as young countries, to continue with the political and economic transitions that were started in 1989, 1990 and haven’t moved very far along.

In a way, the most challenging set of countries are the countries in between, and here I mean Russia, Ukraine, countries like Armenia, Moldova. These are countries that are aging rapidly and they have not moved as far along in the political and economic transition as Eastern Europe, so they face sort of a double challenge of [confronting] an aging population, but without a very strong foundation in terms of good economic and social institutions and pension and health care.

RFE/RL: The report makes some specific suggestions about the care of elderly people.

Betcherman: Long-term care presents a special problem and it’s not really clear that anyone has the right answers in terms of how to deal with growing numbers of elderly, dependent people who need care. Certainly for countries in the former Soviet Union -- they do not have the resources to care for all these people in high-costs hospitals and long-term care institutions.

So we believe that the answer for these countries is going to be two things. One, setting up strong, informal, long-term care networks: let a lot of the long-term care happen within families, within neighborhoods, with support from the state, in terms of financial support and other kinds of support.

But probably the most important thing for these countries is that they work to promote good health among today’s prime age population. So that when today’s 30- and 40-year-olds move into the elderly age category, they enter it in relatively good health. Because one thing that we have learned from this research is that long-term care and health-care costs for older people [are] much, much higher when these people themselves move into old age [already in bad health], and many of the countries of the former Soviet Union unfortunately have seen a deterioration of the general health level of their prime age population.

RFE/RL: Finally, are you optimistic that this report is going to make a difference? That government officials will read it and realize the urgency of the problems they’re facing, and begin to implement some of the World Bank’s suggestions?

Betcherman: Yes, we’re hoping that this kind of report brings to the fore a number of challenges that I think everyone, in the back of their minds knows are coming up, but if you really try to put all of the challenges and evidence right out there in front, we hope it will mobilize people to action. Because a lot of these solutions need to be triggered now, even though the actual problem won’t get to its worst point until 10 or 20 years from now. If countries don’t start acting now, it’s going to be too late.

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