Archive for July, 2012

[Population Aging to 2030, Day 2, Essay 1 of 2]

China stands on the threshold of a stunning demographic transformation with profound implications for its future prosperity and stability.  For the past three decades, China’s unusually favorable demographics, with a rapidly declining dependency burden and a rapidly rising share of the population in the working years, have helped to propel its spectacular rise in living standards.  Beginning around 2015, however, the demographic climate will change abruptly.  The elderly share of the population, now just 8 percent, will double to 16 percent by 2030, and then triple to 24 percent by 2050—making China an older country than the United States.  Along the way, China’s working-age population will also peak and begin to decline.

The most direct and certain impact of the demographic transformation will be a growing old-age dependency burden.  As China ages, a rising share of total economic resources will have to be transferred from working-age adults to nonworking elders.  In 2010, there were 7.8 Chinese working-age adults available to support each elder.  That ratio is due to fall to 3.8 by 2030 and to 2.4 by 2050, which means that the average burden that must be shouldered by each worker will more than triple.  Much of this burden falls on families today.  But in a rapidly aging and developing China, a larger share is bound to show up in public budgets and higher tax rates.

Figure 1. Proportion of seniors in China and the US, 1950 to 2050.

Even as the old-age dependency burden grows, economic growth will slow.  Over the three decades of the reform era, China’s working-age population has expanded at 2.0 percent per year.  By the 2030s, it will be contracting by 0.7 percent per year.  Contrary to common wisdom, the scope for internal migration to offset slower growth in the working-age population is limited.  Until recently, China was able to boost GDP growth by shifting millions of underemployed workers each year from the non-market rural sector into full-time, low-skilled manufacturing jobs that are integrated with the global economy.  But as China’s industries move up the global value-added scale, a serious mismatch is emerging between the skills of its remaining surplus rural labor and the demands of the jobs being created in the growth sectors of its economy.

Slower economic growth in turn has the potential to trigger social and political crisis.  The incredible speed of China’s development is already straining the economic and social fabric. Urbanization is weakening the extended family while industrialization is degrading the environment.   Worker mobility and turnover are rising and the income gap between the rich and poor is widening.  Social services are spotty and civic authority is strained.  Such stresses, bearable in a youthful society in which incomes are rising rapidly, may become less tolerable in an aging society in which economic growth is slowing.

Figure 2. Average Annual Change in Chinese Working-Age Population Size, by Decade

The rapid aging of China’s population could act as a multiplier on the stresses of rapid modernization.  While today’s developed countries became affluent societies before they became aging societies, China’s age wave will be arriving in a society that is still in the midst of development—and that has not yet had time to put in place the social protections of a modern welfare state.  Less than one-third of China’s workforce is now earning a formal retirement benefit of any kind, public or private.  Despite China’s lofty national savings rate, only a small minority of workers are accumulating sufficient financial assets to support themselves in retirement. The majority may have to fall back on the most traditional form of old-age insurance: children.  But many will have only one child, and among these many will not have a son, who in Confucian culture bears the responsibility of caring for aged parents.  Imagine, in China’s cities, tens of millions of today’s midlife adults maturing by the year 2020 or 2030 into tens of millions of indigent elders who lack pensions, lack access to health care, and lack adequate family support. Or imagine, in China’s countryside, entire towns of demographically stranded elders. Meanwhile, China’s yawning gender imbalance and the enormous bachelor surplus to which it is giving rise will threaten to become another source of social unrest.

China has been “peacefully rising” while its demographics have leaned with economic growth.  But by the 2020s, when China’s age wave arrives in full force, demographic trends may be weakening the twin pillars of the current regime’s legitimacy—rapidly rising living standards and social stability.  It is hard to gauge how great the risk of social and political crisis is, but the Chinese government, with its new mantra of “balanced development” and its increasing alarm about the dangers of the rural-urban income gap, the shredded social safety net, and environmental degradation, appears to be taking it seriously.  Throughout China’s long history, periods of strong central authority and empire building have alternated with periods of social and political chaos.  China’s premature aging may usher in the next turn of the cycle—or, as the regime attempts to avert this outcome, a new authoritarian clampdown.

As it happens, the 2020s is also the decade in which China is expected to displace the United States as the world’s largest economy.  “Power transition” theories of global conflict suggest that this moment could be fraught with danger.  The fact that it coincides with the arrival of China’s potentially destabilizing age wave may make it even more perilous.

Richard Jackson is a senior fellow at the Washington-based Center for Strategic and International Studies, where he directs the Global Aging Initiative.

The Sun Has Yet to Set on China

[Population Aging to 2030, Day 2, Essay 2 of 2]

Recent news of China’s economic slowdown has many American defense analysts predicting the end of the Chinese challenge to US dominance in world affairs. These predictions are based, in part, on China’s rapid population aging and signs of internal political fissures, both of which call into question China’s ability to continue to rise.

Such celebrations are premature. For many reasons, China’s economic power could match or even surpass US power in 20 years. Domestic political and demographic trends in China suggest continued growth, while domestic political and demographic trends in the US are concerning.

Seriously considering this contrarian view of demographic trends in China and the US is important because, as many political scientists have shown, the possibility of war becomes more probable when a rising power sees the decline of the dominant power and acts to surpass it. If Chinese leaders see the following picture of demographic and political trends, they will perceive that the US is in decline while their own power is rapidly rising. The outcome could result in a more aggressive Chinese posture.

The Dragon Still Has Fire

Just as it is possible to see the picture of a declining China that many defense analysts have clung to, we can also easily amass evidence to support the argument that China’s trajectory is positive. Long-term demographic trends in China suggest significant opportunities for growing the country’s economy, even if at a slower pace than the last decade.

First, despite the rapid pace of China’s population aging, the leadership has made few entitlement promises to the elderly and health coverage is sparse, meaning that the direct costs of aging are low.

Second, there will be fewer youth entering the labor market each year as the population ages. Even if China’s economic slowdown is inevitable and the supply of jobs is lower, the demand for them will be lower as well.

Third, the concern over so-called “excess males” in the Chinese population may be overblown. Differential growth in the male population could help China increase its national security through mobilizing surplus males for the state’s economic benefit. China has already recruited young men into large-scale public works projects both in its urban centers and its more remote regions. China has also been sending young men abroad to harvest natural resources on other continents for China’s benefit.

Finally, the Chinese political system allows leaders to focus on long-term planning, unlike the US system, which encourages policies that are politically expedient and take into account the never-ending election cycle.

Signs of US Decline

There are serious signs that the United States is actually the country in decline. Health care costs are sky high in the US, when compared with its peers, and particularly when compared with China. The role of interest groups in US policy making means that narrow interests—such as drug companies or organizations focused on protecting entitlements for seniors—have undue political influence. The US political system is sclerotic and polarized, and the country suffers from high national and personal debt.

Demographically, total life expectancy in urban China is only one year less than in the United States and healthy life expectancy (HALE)—the number of years a newborn can expect to live in “full health” (an adjustment of the life expectancy estimate)—is declining in the US. It is possible that Chinese could soon work longer than Americans.

Additionally, while it is true that replacement-level fertility in the US and continued immigration would prevent the country from aging as rapidly as Europe and Japan—and perhaps even China—the generational gap between old and young Americans bodes poorly for the future of US supremacy. Specifically, young Americans today face a host of serious challenges that will affect their long term economic prospects and, when aggregated, mean that the US in 2030 may be worse off than today.

First, the US has the highest rate of child poverty in the developed world.

Second, trends in education, particularly among minorities, are particularly worrisome considering that minorities will make up an increasing portion of the adult population over the next 20 years. Minorities accounted for 92 percent of the nation’s population growth in the decade that ended in 2010, but blacks and Latinos lag far behind whites in earning a college degree. For those that do manage to get an education, student debt is astronomical, while many recent graduates struggle to find employment. How will this generation take care of retired baby boomers when their own needs are so great?

Third, home wealth has been an important safety net for elderly Americans for generations. The current generation of young Americans differs from previous generations because many can’t afford their own homes. Their needs in old age will be greater than today’s elderly and their demands on state higher. As a result, it is entirely possible that today’s youth will be the first generation in a long time that will not be better off than their parents.

Bucking the Trends

Despite the preceding evidence, there is still reason to give credence to discussions about China’s demise and continued US supremacy. Chinese leaders are right to be worried about the divide in living standards between rural and urban inhabitants. There is also much uncertainty as to what today’s Chinese youth will want as adults. How might they be shaped by their greater educational opportunities, and in what ways will this translate to political demands?  Will they push China to adopt a more democratic political system where power is less centralized and interest groups gain influence?

The United States of America still has several aces as well. American creativity and ingenuity have historically played an important role in economic growth. The sheer size of the US economy and the country’s ability to recover from crises may also be important.

There are ample opportunities for the US to cement its place as the world’s most powerful state by turning more attention to domestic matters, specifically strengthening education—particularly for minorities—and balancing entitlement commitments with other national priorities, like defense. But rest assured, the Chinese will be working on their own domestic issues, as well.

Jennifer Dabbs Sciubba is Assistant Professor in the Department of International Relations at Rhodes College, Memphis, Tennessee, USA. 

[Population Aging to 2030, Day 1, Essay 1 of 2]

This GT2030 blog, focused on population aging, begins with this introductory essay aimed at familiarizing readers with some of the demographic and geographic particulars of this phenomenon, and with several key demographic terms. The term most in need of definition is, of course, population aging. Strictly speaking, aging is any shift in the population’s age structure (the distribution of individuals, by age) that produces an increase in the median age (the age of the individual for whom one-half of the population is younger). Generally, advances in a population’s median age are associated with increases in the proportion of seniors (aged 65 years and older), and declines in the proportion of children (younger than 15). Sustained population aging leads to a relatively older workforce, slowed workforce growth and slowed growth among school-age children.

While various age-specific patterns of birth, death and migration can induce change in the median age, over the past century two demographic processes have contributed most powerfully to country-level population aging. First and foremost is declining fertility (fertility is usually measured by computing thetotal fertility rate (TFR), an immediate estimate of the number of children that women are bearing over their reproductive lifetime). The second most influential factor has been increasing longevity. Not all trends associated with modernization, however, contribute to aging. Declines in childhood mortality have served to slow aging’s pace or make it retreat, as have waves of youthful immigrants (until the immigrants themselves age) and occasional baby booms.

Is an advance in the median age bad news? That depends on “where you are” the broad diversity of age structures suggested by today’s lengthy spectrum of median ages—which in 2012 stretches from around 16 years (Niger, Uganda, Mali) to around 45 (Japan, Germany).  For states in the youthful phase of the age-structural transition (median age 25.0 years or less; see Figure 1), the near-term net economic, social, political outcomes of aging are overwhelmingly positive. Getting to the next next age-structural phase—the intermediate phase (>25.0 to 35.0)—is crucial; it is associated with very high support ratios (working-age adults per child), diminished risk of intra-state conflict, the accumulation of human capital, and higher savings (among “saver” societies). Moreover, there are growing indications that states might develop more quickly by sustaining their intermediate phase—which, for very-low-fertility states, has been rather fleeting (for example, China recently departed the intermediate phase after entering 25 years ago). In fact, states that have achieved near-universal secondary education and sustained a lengthy period of economic prosperity and liberal-democratic stability, including the US, have done so during their population’s presence within the so-called age-structural sweet spot: starting in the their intermediate phase and finishing during the first half of the mature phase (the mature phase ranges from >35.0 to 45.0 years).

This forthcoming essays in this blog are focused “beyond the sweet spot.” It is concerned with the challenges and possible outcomes of “advanced aging”—a condition never before encountered—that will evolve in the so-called post-mature phase (median age >45.0 years) of the age structural transition. Countries approaching the end of the mature phase, most in Europe and East Asia, are accumulating large proportions of seniors, most of whom are moving out of the workforce, drawing on pensions, drawing down personal savings and other accumulated assets, and accepting transfers from their children, other relatives, and other public and non-profit sources. As they age, seniors face an increasing risk of morbidity due to chronic illness and declining physical mobility, as well as an increasing risk of poverty.

While improvements in healthcare and nutrition promise to compress the late-in-life period of high morbidity and permit the extension of workforce participation, the projected declines in the number of working-age adults per retiree (the old-age support ratio) in European and East Asian states over the coming two decades is unprecedented. These projections suggest that those states heading for a post-mature future need to deftly manipulate a full range of social and fiscal policy levers in order to mediate, and adapt to, the cost burdens that are poised to descend upon their pension and healthcare systems. Simultaneously, most of these states will likely wrestle with the challenging and politically delicate task of encouraging the reestablishment of near-replacement-level TFR.

As of 2012, only Japan and German have attained the 45-year median-age mark—and just within the past year or two. Significantly, both countries face “negative momentum”; in other words, because of several decades of annual TFRs below 1.5 children per woman and steadily increasing life expectancies, these and other very-low-fertility states are projected to continue to age for the foreseeable future—until old-age mortality dissipates their populations’ currently broad bulges of seniors and middle agers, and fertility or migration significantly enlarges their childhood and young adult cohorts. In other words, advanced aging is not a momentary inconvenience.

By 2030, advanced aging will have spread widely through Europe (see figure 2: world maps, 2010 and 2030). Current projections by demographers at the US Census Bureau’s International Program Center (International Data Base, June 2011) suggest that the populations of 29 states (each over 1 million residents) will experience a median age over 45.0 years by 2030. Of these, the Census Bureau indicates that 26 will be located in Europe, and 3 in East Asia (Japan, Taiwan and South Korea). Despite China’s rapid pace of aging, US Census Bureau projections place its 2030 median age at 43 years, very close to the UN Population Division’s medium fertility-variant projection for China. The UN Population Division, using a somewhat different set of projection assumptions to produce its medium fertility variant, projects that by 2030 this post-mature group of countries (median age >45.0 years) will consist of 19 states: 14 European, 4 East Asian (including Singapore), and Cuba.

 

Richard Cincotta is Demographer-in-residence at the Stimson Center in Washington, DC, and a consultant on political demography for the Woodrow Wilson Center’s Environmental Change and Security Program. From 2006-09, he served as a long-range analyst for the National Intelligence Council.

[Population Aging to 2030, Day 1, Essay 2 of 2]

Populations in the rich world are aging fast.  Some scholars have argued that this will create a ‘geriatric peace,’ as the traditional great powers will no longer have the financial resources or manpower to contemplate large-scale wars.  Others have argued that population aging will particularly benefit the United States.  Because of immigration, it is claimed, the U.S. will enjoy a younger and faster growing population than either its fellow rich nations, or its main challenger, China.  As Europe and China both age rapidly, the younger U.S. will enjoy a further period of relative world dominance.

I think it is wise to be skeptical of both propositions.  In regard to the geriatric peace, it does seem likely that rich nations will be less inclined to invest in their military capacity.  But this is a problem for the U.S., as it is America’s main alliance partners – Europe in NATO, and Japan and S. Korea in the Far East – that will be reducing their military spending.  This will be a problem, rather than benefit, for the U.S. if America continues to face its main military challenges from disorders in young and populous developing nations (e.g. Iraq, Afghanistan, Yemen, Libya, and Somalia).  ‘Boots on the ground’ will be harder to come by from America’s traditional allies in the future.

In addition, it should not be presumed that the U.S advantage in youth and population growth relative to Europe or China will be maintained.  Fertility among US-born Americans is only slightly higher than in Europe; and that advantage has been fueled by immigrants (mainly Hispanic).  Recently, teenage birth rates in America have fallen to an all-time low; this usually implies a long-term decline in fertility as youngsters are deferring child-bearing. Immigration also has been the main source of America’s relatively rapid population growth.   Yet according to a recent PEW research report, net migration to America from Mexico has fallen to zero since the onset of the recession.  In addition, fertility in Mexico is falling fast, and is now lower than that of Hispanics in America.  In coming decades it is likely both that the stream of migration from Latin America, and the fertility of immigrants and their descendants, will fall rapidly, sharply reducing the growth advantage of America.

Finally, it should be noted that America has two further aging challenges that are greater than that of Europe.  First, because the U.S. had a larger baby boom than Europe, it faces a much larger absolute gain in the percentage of elderly.  Where Europe faces an increase of 50% in its over-60 population by 2050, the U.S. faces an increase of 100%.  Europe will suffer from a decline in its under-60 population while the U.S. will retain some growth; hence Europe is more concerned about having enough workers to cover pension funding.  Yet the second factor is crucial – the United States spends a much larger portion of its GDP on health care, and those costs have been rising fast, relative to those in Europe.  As America experiences a huge surge in its elderly population, the difficulties of keeping a lid on health costs will increase; without a major reform, the costs of health care of the elderly in the US will pose as great or greater a limitation on state spending on defense as is found in Europe.  Just one example – the number of those aged over 80 will skyrocket in the U.S. and a significant portion of those (perhaps one-fifth) are likely to suffer from Alzheimer’s or other forms of dementia, requiring expensive nursing care.  The Alzheimer’s foundation estimated that his care alone could cost $1 trillion per year by 2050 if measures are not found to reduce the incidence or cost of Alzheimer’s in the senior population.

These considerations make clear that the U.S. cannot simply be smug about aging and presume it hands security advantages to America.  The number of those that will be 60 or older (perhaps 25% of the population and 33% of all adults by 2030) will be so large, absolutely and proportionately, that they will need to be viewed as a resource, not just an economically inactive and/or dependent group.

There are several ways to respond to America’s and the rich world’s aging in ways to enhance economic and military potential.

First, American should seek to broaden and intensify its military alliances with younger and more populous democratic states – India, Brazil, Mexico, Indonesia, as well as the existing NATO link to Turkey.  These “TIMBI” states all have growing labor forces and populations and will be capable of providing ‘boots on the ground’ for operations in other still younger and fast-growing states where military operations are likely to arise.   Whether through an expansion of NATO into a DATO alliance (Democratic alliance and treaty organization) that is committed to provide manpower to pro-democracy military actions, or through separate but parallel organizations, the U.S. needs to have close working partnerships with countries who will fill in the gaps left by the decline in military and fiscal resources of its traditional European and Far East allies.

Second, the use of healthy seniors in the civilian labor force must be encouraged and facilitated, through phased retirement and later full retirement ages.  This will reduce the dependency burden of resourcing retirement and health care for workers outside of the labor force, freeing government resources to sustain military spending where needed.

Third, the skills and experience of seniors should be valued and put to use.  Seniors, not just youngsters, should be preferred recruits for the Peace Corps, as the managerial and technical skills of senior Americans will be in great demand and of substantial value in helping developing countries train their own professional, technical, educational, legal, and managerial ranks.  America risks losing a huge repository of skills and experience when the baby boomers retire; some of this should be retained in the workplace in the US, but some should also be deployed on behalf of the US abroad.  Just as the Peace Corps built bridges and informal support for the U.S. around the world for an earlier generation, the same could be done through drawing on U.S. senior workers for a new wave of U.S. support for development initiatives.

Jack Goldstone is the Virginia E. and John T. Hazel, Jr. Professor of Public Policy in theSchool of Public Policy at George Mason University, Fairfax, VA, USA. 

Welcome to the National Intelligence Council’s Global Trends 2030 Blog“Population Aging to 2030”, due to be posted from July 30-Aug 3, 2012. Two thematic questions motivate this blog:

  • Will population aging, by 2030, contribute to undermine, rearrange or unravel the current international political and economic order? 
  • How will China’s rapid aging affect its position in that order by 2030?

To produce this blog, a set of political demographers, economic demographers, political scientists and historians, all of whom have been engaged in population-related research, have been asked to submit brief essays on issues that are germane to these questions. Over the next week, sets of these essays will be posted on the GT2030 blog, grouped by themes:

Richard Cincotta & Jonathan Potton

The Stimson Center, Washington, DC

Welcome to the National Intelligence Council’s Global Trends 2030 Blog“Population Aging to 2030”, due to be posted from July 30-Aug 3, 2012. Two thematic questions motivate this blog:

  • Will population aging, by 2030, contribute to undermine, rearrange or unravel the current international political and economic order? 
  • How will China’s rapid aging affect its position in that order by 2030?

To produce this blog, a set of political demographers, economic demographers, political scientists and historians, all of whom have been engaged in population-related research, have been asked to submit brief essays on issues that are germane to these questions. Over the next week, sets of these essays will be posted on the GT2030 blog, grouped by themes:

Richard Cincotta & Jonathan Potton

The Stimson Center, Washington, DC

by Ryan Streeter

We Americans have a habit of carving the nation into two groups to reflect concerns about inequality or social justice. We have long talked about the “have’s and have not’s.” John Edwards’ ill-fated presidential bid was predicated on “two Americas.” More recently, we have learned that America consists of the 1 percent and the 99 percent. And so on. These bifurcations are typically based on some type of material conception of justice – such as income and wealth levels.

The most important bifurcation related to the questions of American decline, however, is none of the above. Rather, it is this: children whose parents are married and educated vs. children whose parents aren’t. To virtually all social scientists’ surprise, going to college and getting a good job has made people less likely to divorce and more likely to raise children in a married household. Put crudely, those who could most afford to be single parents are choosing not to be.

Conversely, single parenting has skyrocketed among the uneducated. In the 1960s, whether you were in the upper 20 percent of the income distribution or the lower 30 percent, the odds of your having a child as a single parent were miniscule. Today, among the upper 20 percent, the unmarried childbearing rate has stayed in the single digits, but it has exploded to nearly 50 percent among the lower 30 percent. This, we’re finding out, has serious economic and social consequences.

Over the next 30 to 50 years the married-educated group will be chiefly responsible for most of America’s productivity, earnings, and as a result, revenues to the Treasury. Over the same period, the unmarried-uneducated group will be a drag on productivity and a net consumer of public services. Already, for the first time ever, the CBO reports that America’s middle income quintile consumes more in government benefits than it pays in taxes, a radical shift from just 30 years ago. This will worsen quickly in the coming decades. There are, of course, children whose parents are educated but unmarried or married but not educated, and they fall socioeconomically on all indicators somewhere between the two primary groups. But keeping our focus on the two primary groups is most important right now, as their dynamics will define the growing divide in America.

There are at least three reasons why these trends matter a great deal.

The first has to do with entrepreneurship, which we now know from a number of detailed studies creates virtually all net new jobs each year.  Since the 1980s, we’ve seen a long-run, secular decline in the number of startups as a share of the economy. This in turn means that net new jobs are in large part falling each year because of a decline in entrepreneurialism (larger existing companies usually don’t create any net new jobs, since any job gains are always cancelled out by mergers, acquisitions, layoffs, and business closures). If we hope to restore healthy job growth in America, to put it simply, we need more entrepreneurs.

And this brings us back to our married-educated vs. unmarried-uneducated problem. As our economy today grows more prejudiced toward higher-level skills and talent, entrepreneurship will increasingly be unavailable to those on the lower rungs of the American ladder. Entrepreneurs have traditionally relied on personal resources, credit-worthiness, and family connections, which are all related, to get started. We know from Kauffman Foundation survey data that most entrepreneurs come from middle class or lower middle class backgrounds where education was nevertheless a priority. The social capital that a young person acquires because her parents are educated and leading professional lives converts more easily to financial capital in today’s talent-driven marketplace. Those growing up in single-parent households with less-educated parents are unlikely to join the upwardly mobile entrepreneurial class or the jobs they create.

This gets worse because of what Tyler Cowen has called “the great stagnation.” Not only are they unlikely to start a business, they won’t find as many good jobs in companies that others have started. Unlike the days of old, when an innovation resulted in hundreds of thousands of lower-skilled jobs, such as the invention of the light bulb and the creation of G.E. and related companies, today’s greatest innovations don’t result in the same levels or kind of job growth. Google will never match G.E.’s employee count. This hits lower-skilled, less socially adept individuals especially hard. There are fewer places for them to go in the economy, which is a big reason why their wages have stagnated.

The second reason these trends matter is related to the first. America’s growing unmarried-uneducated camp will create a larger pool of unproductive workers. In 2007 America’s employment-to-population ratio – that is, the percentage of working-age adults who are in the labor force – dropped below Europe’s. This rather stunning data point was driven largely by the fact that men toward the lower end of the socioeconomic spectrum had been dropping out of the full-time labor force for awhile.

This was well underway before the recession and wasn’t because of economic factors so much as another trend, which social scientist Charles Murray has aptly called “goofing off.” In the 1960s educated and uneducated men had virtually the same amount of leisure time. Then, between 1985 and 2005, leisure time among men without a high school degree increased by 8 hours per week, while dropping among men with a college degree by six hours. Time-use data show that the increased leisure time among uneducated men was spent mainly watching TV and sleeping, not in civic activities, job searches, or other active pursuits. This reflects a trend in lower-middle class America toward greater unproductivity, which in turn acts like a hostile type of compound interest over time: the more unproductive you are now, the harder it is to make up for the lost time vocationally later, leading to even costlier unproductivity. The uneducated-unmarried class in America will increasingly be net “takers” from the public purse. That the population of children in unmarried-uneducated homes is growing is a real problem for the future of America’s labor force.

Third, the net effect of the foregoing two trends suggests that America’s coming entitlement crisis will be more severe than we think, especially if meaningful reforms are put off for much longer. Because of the kinds of stagnation that Cowen has identified, we don’t see any significant wage boosters for lower-skilled workers on the near horizon. Since Medicare and Social Security are paid out of the payroll taxes on the earnings of current workers, the future looks especially grim when we consider how the earnings of the growing unmarried-uneducated class stack up against the needs of a swelling aging population.  We can’t simply rely on the payroll taxes of the top 20 percent to foot the bills.

Improving our policies to recruit more entrepreneurial, job-creating immigrants will help offset the downward pull of the unmarried-uneducated portion of the U.S. population, but it will only be a cultural revolution of sorts among the latter that will set America aright again.

Ryan Streeter is a Distinguished Fellow at the Sagamore Institute, holds adjunct positions at Indiana University and the Hudson Institute, and is a Non-resident Fellow at the German Marshall Fund. His writings and work can be found at www.RyanStreeter.com.

by Catherine Weaver

Robert Keohane, in a recent Foreign Affairs review article, warns that pundits pondering US decline inevitably draw the wrong conclusions when they neglect the broader institutional context in which US power, for better or worse, is firmly substantiated. He is absolutely right.  One of the key lessons instilled in any student of international relations of the 20th century is that hegemonic power is often embedded in and exercised through international organizations. These multilateral organizations lock in systems of global governance that preserve the influence of their creator states even when their relative power wanes. One need only look briefly at the history of venerable postwar international institutions to observe how these organizations have served US interests in the world over the past several decades.

Yet for the US today, facing an inevitable decline in relative material power, engagement in multilateral institutions represents both an opportunity and constraint. On the one hand, the US lock on disproportionate authority in IOs such as the UN, World Bank and IMF, secured through veto powers and weighted voting rights granted when these institutions were created nearly 70 years ago, means that the US will continue to punch above its weight well into the future. Such large, long-standing organizations rarely die. And bureaucratic mandates, norms, and operating rules are also notoriously sticky, tending more towards incremental adaptation than revolution. Thus, even as the balance of power in the world shifts towards emerging economies, such as the BRICS, the dominant rules and principles that guide international security, trade, finance and development, as embedded in multilateral institutions, will continue to reflect the ideals of the powers that created them – in this case, the US. It is therefore firmly in the US interest to exploit any opportunity to maintain its institutionalized power by continuing to support and exert leadership in these multilateral organizations, even when doing so entails the inherent costs of hegemonic responsibility and strategic constraint.

Therein also lies the key constraint. As Celeste Ward Gventer argued in her recent post,  “decline will come, but its timing may depend on choices that will either enhance or weaken the U.S. position.” While her point was an incisive critique of America’s misguided foreign policy of nation-building, one might offer the same statement in the context of US engagement in global governance. The US ability to sustain its power in the world via multilateral institutions is inherently a function of its willingness and ability to help sustain the relevance, legitimacy and effectiveness of these institutions so that these institutions, in turn, can exercise authority and influence in the world.

Yet sustaining the relevance and legitimacy of multilateral institutions, in the zero-sum game of multilateral representation and governance, may in veritably require status quo powers, including the US, to cede power and influence within these institutions to rising powers. The alternative to this inclusive multilateralism, which binds rising powers into existing institutions, is the proliferation of competing venues of global governance that ultimately diffuse power and undermine the authority and leverage of those institutions in which US enjoys a preponderance of influence. We have already seen ample evidence of such governance diffusion, in the form of a shocking proliferation of new preferential trade agreements in the wake of stalled WTO talks, the increased lending power of regional development banks and the threat of a new BRICS development bank, and efforts to create new regional monetary funds (such as the Chiang Mai initiative). While such counterbalancing in global governance has thus far been relatively weak due to elusive collective action among rising powers, a pattern is emerging.

In the end, this leaves us with a rather unsettling and paradoxical conclusion with respect to US decline: to sustain power in and through global governance, the US must in fact learn to let go of power. This is especially true in instances of accommodating rising powers in existing institutions (such as the aforementioned Bretton Woods Institutions), forums (e.g., Financial Stability Forum) and clubs (e.g. G20).  Many such steps have already been taken, for example, in recent governance reforms at the IMFand World Bank, which granted more formal votes and informal influence to the BRICS (especially China). Yet even here, the modest concession of power (which in the case of the IMF and World entailed no real loss of formal voting power by the US) risks being seen as empty gestures (or worse, insults) when the end result is a balance of power within the institution that looks more like 1982 than 2012. The same lesson can be taken from recent leadership selection processes at the World Bank and IMF, which reaffirmed the seventy year old gentlemen’s agreement to let the US chose the President of the Bank and Europe dictate who runs the Fund. The clear lack of effort to allow for a more open and meritocratic process reaffirmed many critics’ beliefs that the US and its Western allies have no intent of upholding their espoused democratic ideals in these institutions. This is even a view held by many within the institutions, as evident in the recently leaked, scathing resignation letter of a senior IMF economist.

This ultimately leads me to believe that one key way the US can stem the decline of its power is to rethink its strategic engagement in global governance. And this means supporting international institutions not only in material terms, through the sustained provision of critical resources. It also means that US must support these key institutions of global governance on principled terms, truly abiding by the core values embedded in the mandates of these organizations even when it means forsaking short-term self-interest. The legitimacy the US accrues by working through multilateral institutions (as opposed to going it alone) is only good insofar as these institutions are themselves perceived as legitimate governors.

Dr. Catherine (Kate) Weaver is Associate Professor at the LBJ School of Public Affairs and Distinguished Scholar at the Robert S. Strauss Center for International Security & Law at the University of Texas at Austin.

by William Inboden

Lamenting American decline is as American as, to borrow a phrase, baseball and apple pie.  As the Yale historian Harry Stout has shown, even before the United States was a nation, as early as the 17thcentury Puritan ministers in New England regularly warned their flocks against the dangers of “declension” from their spiritual commitments and their calling to forge a new society.  Such jeremiads a century before the founding of the American nation seem to have been subsequently hardwired into our national DNA.   More recently, as Celeste Ward Gventer and Joseph Joffe have pointed out, the US has, almost like clockwork, every decade undergone hand-wringing over our looming decline – anxieties that, not coincidentally, occurred alongside America’s ascent to global superpower status.  So the 1950s brought Sputnik and worries of the lost American edge in science and technology; the 1960s had the “missile gap” and descent into the Vietnam quagmire; the 1970s witnessed the oil embargo, recession and inflation, and declining global influence; the 1980s saw the rise of Japan as the dynamic economic competitor, and so on.  Every decade, it seems, Americans fret that our nation is in decline.

But just because decline has been successfully warded off in the past does not mean that American hegemony is destined to continue into the future.  While I hope that an appreciation of our history of declinist worries brings some perspective, it should not bring complacency.

Looking back over this week’s posts, a few themes stand out (besides the, ahem, high volume of quality contributions from the fine students and scholars at the University of Texas-Austin):

First, the evolving and expanding nature of power.  As Frank Gavin discussed, in bygone eras national power was a pretty straightforward combination of military strength, economic might, population, and geography.  Yet just glancing through the range of issues that our contributors touched on this past week – including demographic trends, family structures, education policy, participation in multilateral institutions, entrepreneurship and innovation, governance, fiscal policy, even culture and cuisine– shows how much more multifaceted and expansive the very concept of national power has become in the 21stcentury. This brings new challenges as efforts to maintain American supremacy need to account for a growing number of variables, but new opportunities as well for the United States to show global leadership.

Second, the patterns and lessons of history.  History is inescapable when considering our present circumstance.  Jeremi Suri brought some insightful lessons and perspective from an erstwhile empire that is little appreciated today: once-great Austria-Hungary. Celeste Ward Gventer found in history a cautionary tale that American power can get precipitously sapped by nation-building adventures abroad.  Former NIC Chairman Bob Hutchings took a different gloss on history as he recounted past efforts by the NIC to evaluate America’s evolving global role, and suggested ways that this type of institutional and intellectual history could shape future predictions.

Third, the need for wise policy and political will.  The various Global Trends reports make very sophisticated efforts to project what the world will look like two decades into the future.  Yet as Mat Burrows and his very capable team who produce the reports will readily admit, one of the biggest variables in these projections is the human factor – specifically what policy decisions will leaders make, and will citizens collectively generate the political will to change course and make tough decisions?  Many of our contributors came back to this fundamental fact: for the United States, decline is a choice. And as I discussed here, much of the disposition of American decline rests not on the problems our nation faces, but on whether we will be resigned to acquiesce to these problems, or resolved to overcome them.

William Inboden is a Distinguished Scholar at the Strauss Center for International Security and Law and Assistant Professor at the LBJ School of Public Affairs at the University of Texas-Austin, and a non-Resident Fellow with the German Marshall Fund.

The Fiscal Politics of Decline

by Terrence L. Chapman and Patrick J. McDonald

The current policy conflict over whether automatic cuts to the defense budget, negotiated as a commitment mechanism to ensure the fulfillment of the budget accord from last summer, should be implemented in January of 2012 illustrates some of the short term to medium term national security challenges associated with an era of budget deficits and increasing public pressure for fiscal restraint.    These cuts would reduce troop levels by approximately ten percent in both the Army and the Marines and entail sizable reductions in capital equipment, namely ships and planes, for both the Navy and the Air Force.  Secretary of Defense Leon Panetta has publicly described these cuts as “disastrous.”  The Chairman of the Joint Chiefs, Martin Dempsey, has warned that they risk hollowing out America’s forces, reducing the military advantage the United States possesses over other countries, while pushing the United States to be “less visible globally.”  Our research on the fiscal politics of power transitions and military conflict suggests that this internal fiscal struggle in the United States possesses much larger long term implications that bear directly on the possibility and consequences of American military decline.  In particular, we see the post-9/11 bipartisan support for tax cuts (except on upper incomes however defined) as a bipartisan choice for decline.

Our research examines how international order depends on the internal fiscal bargains within countries.  These bargains set the terms of revenue that can be extracted from society in order to fund military expansion, which in turn shapes the bargaining leverage of the state, and the structure or division of the larger international political status quo.  The spoils of international bargaining—like preferential trade ties, military basing rights in other countries, multiple alliance options, or the capacity to support/install democratic partners in other countries, benefit American citizens, but may do so unequally.  Key to the internal bargain is the degree to which those who foot the burden of increased defense spending are “vested,” or have a stake in, the international outcomes that that spending affects.  Also important is the ease with which those who fund public outlays can replace leaders who “overtax,” which influences the amounts governments can raise from society.

Decline is a relative phenomenon.  It involves a shift in the relative distribution of military power across countries.  These shifts can have two main consequences: they can reduce bargaining leverage of the declining state; and, as Martin Dempsey has suggested, possibly increase the risk of military conflict when countries seek to renegotiate the global status quo to reflect new and changing power relationships.

Domestic fiscal strength is a key determinant of international political strength.  As Leon Panetta said in his June testimony to Congress, there is no free lunch.  Governments generally have four means to meet revenue needs:  raise taxes, borrow, draw on publicly owned assets, or simply expropriate these assets from society (often by inflating away debt burdens or simply defaulting on debt as Germany did in the interwar period).  A politically independent Federal Reserve, a politically strong financial sector, a strong national skepticism of public ownership, and the presence of institutions that protect the rule of law have effectively taken the latter two revenue-raising strategies off the table.  The former two, tax power and borrowing, carry several tradeoffs.    Taxation reduces immediate consumption, on the other hand, but may be a more sustainable source of long-term strength, provided that citizens paying taxes are sufficiently “vested” in international outcomes, which may be reflected in the degree to which increases in U.S. power are redistributed through economic channels to fund economic growth at home.  Borrowing to finance tax cuts, wars, and greater government spending (as the U.S. has been able to do in roughly the last decade), avoids short-term sacrifice but invites a long-term problem of snowballing debt that delays tough fiscal decisions and makes fiscal power dependent on the borrowing costs for the state.  Most importantly, as the Greek crisis has clearly demonstrated, the capacity to borrow is intimately tied to a government’s political capacity and willingness to tax.

What is unique about the current American situation?  First, in the aftermath of the Soviet collapse and 9/11, the reach of American political and military influence has dramatically increased.  American troops now deployed around the world.  As a consequence, American forces are now part of the military and political status quo wherever they are deployed.  The withdrawal or diminution of these forces, in such places as Afghanistan, Pakistan, or the Horn of Africa, will generate political change as local groups whose influence had been limited by American forces press their concomitant growth in military power to their political advantage.  Second, the United States has built this position of influence without fiscal buy-in on the part of its electorate, instead drawing on foreign capital.  This raises serious concerns about the sustainability of America’s current global military position if the global community of lenders rapidly reassesses, as it been apt to do, the safety of U.S. debt.

The situation today bears some similarity to the 1920’s, when the United States self-imposed a temporary decline from a theretofore zenith of global power achieved at the end of World War I.  Among other things, the U.S. aggravated the reparations struggle and helped to undermine the nascent political order in Europe by opting for tax cuts rather than war debt relief for Britain and France.  Quite simply, the military power and global influence of the United States rest critically on its fiscal power at home.  If there is no such thing as free lunch, the American taxpayer will, at some point, need to increase its stake in the current international political status quo in order to preserve it.  Given current federal tax levels, we worry that bipartisan support for delay in fiscal stabilization through taxation makes decline, and its attendant negative political consequences for international stability and American influence, more
likely.

Terrence Chapman and Patrick McDonald are both Associate Professors of Government and Distinguished Scholars at the Strauss Center for International Security and Law at the University of Texas-Austin