The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [52]
More Work, Less Leisure
One relatively easy way for governments to reduce the public sector bill is raising the pension age. Whether to save the public finances or to ensure an adequate private pension, people of working age now can expect to work longer than their parents did. In recent times a retirement period of a quarter of a century hasn’t been unusual; in the 1960s a decade was the norm. That’s probably what we need to return to, which with current life expectancies implies a retirement age of at least 70, up from 60 or 65 now. Early founders of the pension system never imagined that its financing would have to stretch to keeping people on the golf course for the whole final quarter of their lives. (Indeed, the United Kingdom’s postwar state pension system was set up with a retirement age older than life expectancy at birth at that time.)
Furthermore, in many countries more people of working age will have to work and pay taxes. The participation rate—the proportion of people of working age who actually work—varies widely between countries. In the flexible labor market “Anglo Saxon” economies, it is typically high, with around four-fifths of those who can work doing so. In some others, such as Italy or France, it is lower, around two-thirds—reduced by high rates of long-term or youth or ethnic minority unemployment, high levels of long-term disability, and less likelihood that mothers of young children will work. Participation in the job market depends on cultural norms, on what is socially acceptable, as well as financial necessity and incentives created by the tax and benefit system. Even so, the rate of participation can increase within the space of a decade or so, and that is needed now.
Productivity Improvements
One “easy” answer to the need to provide more resources for posterity is for people working now to do so more productively—produce more for the same effort, rather than having to consume less. Politically, this is certainly the easiest option. In reality, faster productivity growth is difficult to achieve. The impact of the new generation of information and communication technologies did boost productivity growth in the leading economies during the late 1990s and early 2000s—the estimated trend growth in the U.S. economy went up by a full percentage point to around 4 percent a year.19 However, if it took a technological revolution to achieve that increase, it would be foolish—although politically tempting—to assume the same again will be possible in the decades ahead. We can hope that higher productivity is part of the mix of solutions, but we shouldn’t count on it. Nor would it be enough. In a boom year in the high-productivity growth 1990s or 2000s, a typical Western government could reduce its government debt-GDP ratio by perhaps 2 percentage points just through economic growth. However, under current economic conditions, it would take decades, relying on faster productivity growth alone, to reduce debt ratios to sustainable levels.
Another way to get more output for the same effort is to invest savings overseas in economies that are growing faster, such as China and India. People saving more for their own retirement will be able to earn a higher rate of return if they invest the money in places where productivity is growing faster than at home. But this might prove more politically contentious than it seems now, at the tail end of a long period of increasing globalization of capital flows. There will be a temptation for governments to restrict the freedom of investors to put their money to work overseas if things look tough at home, and in particular if investing in national government debt is seen as a patriotic duty.
Migration
More migration can be expected from countries with growing populations to those with shrinking populations. The recession has more or less put a halt to a big surge in emigration from Africa to North America and Europe, but it is likely to resume. The movement of young people