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Monday, May 7, 2007

Ageing, Opportunity or Challenge?

The world bank has a short article on ageing in Hungary, entitled Hungary’s Aging Population – A Challenge as Well as an Opportunity. Actually I think the World Bank highlight the problems reasonably well, but at the same time they may underestimate the difficulties involved in looking for solutions. In the short term I still feel that facilitating inward migration is very important, but first, of course, Hungary needs to stabilise the current economic issues she has.

Points of note in the article are:

In the first 25 years of this century, Hungary is slated to lose 8 percent of its population. The proportion of the population over 65 years of age will increase by 40 percent by 2025, so that more than one in every five Hungarians will be over 65. If this dramatic aging is not managed effectively, it could knock Hungary off the path of converging with Western European economies and it could jeopardize plans to meet the requirements for joining the Euro zone.

Indeed, the demographic transition in the former Eastern bloc has not hit the headlines as much as the political and economic upheaval since the late 1980s but still is a transition that may be just as far-reaching.

This “third transition” is the rapidly aging of the 400 million people who live in these former socialist countries. All 27 of these countries will have a significantly higher share of people over the age of 65 in 2025 than they had at the turn of the century. During the next two decades, they are projected to see their total population shrink by almost 24 million people, with Russia alone standing to lose 17 million and Ukraine another 12 million. These projections are dramatic but what really makes the situation unique is that Hungary and its neighbors to the east must deal with the impacts of aging in a much more challenging environment than its neighbors to the west. No other rapidly aging countries in the world are still in the process of developing mature economic and political institutions. And it is unique precisely because – as in Hungary – the process of demographic transition is accelerating even though the process of economic transition is far from complete.

The overlapping of the demographic transition with the incomplete economic transition thus has the prospect of altering the socio-economic fabric of Hungary and its neighbors. They run the risk of ballooning public expenditures, as historically large pension obligations mount with aging populations, and as institution-based elder care systems demand more and more public resources. These societies also face a growth challenge, as the working age population shrinks and aging individuals potentially save less.

There are two straightforward policy solutions – even discounting immigration, which may be an important factor, but socio-politically challenging. The first is increasing the participation rate of those who are of working-age population today. ......... But a second route is even more powerful – improving the productivity of those who are in the workforce. To do this, Hungary will need to commit to a range of farsighted reforms – in improving education, including adult education and lifelong learning, and in ensuring that the investment climate will encourage the creation of new innovative firms and improvement in the productivity of existing enterprises.