Friday, October 24, 2014


The Americans learnt to hate Saddam Hussein so that they could have a reason to take over Iraq. But all industrial countries have a problem for which there is no domestic solution, namely the burden of caducity. This column was published in Business Standard of 15 April 2003.


Most auto-rickshaw drivers in Delhi are young – in their teens or twenties. Apparently, many passengers do not pay, and the drivers have to be tough enough not to be intimidated. So I was surprised that the driver of a rickshaw I took recently was gray-haired. Not only old but sick: he had dark shadows around his eyes, and seemed to be about to drop off to sleep. I asked him whether he was drinking or sick. He said he had a gallstone. I told him that he was obviously in pain, and should have an operation soon. He said that he could only afford to go to a government hospital, and that it was very difficult to have an operation in one. I thought that his life may be short and painful.
It was not very different in the Roman empire 2000 years ago. The average longevity then was 35. It was most unusual for someone to live beyond 50. There were some occupations where age did not matter; that of Caesar was one. But in most, it was unusual for anyone to be working over 50. Those that had accumulated wealth and reputation by then could become wise men, and join the senate or write history. The rest lived on someone’s mercy.
Things are different in advanced countries today. The British Queen writes a letter to every centenarian on his birthday congratulating him or her and wishing her or him an even longer life. But she no longer signs it personally; instead, the signature “Elizabeth R” is electronically reproduced. The day is not far when the number of letters the Queen has to dispatch will exceed a thousand on an average day.
Today, the average age to which people live in advanced countries is more than twice what it was in imperial Rome; but the retirement age has advanced only from 50 to 60 or 65. So the number of idle people has risen enormously. An idle mind is a devil’s workshop; but so is an idle body. It is amazing in how many ways a geriatric body can malfunction. The result is a huge rise in resources required by the old and the sick. Provision for the old commonly takes 10-20 per cent of the income of advanced countries; medical care takes another 8-15 per cent – and a good deal of it is care of the old.
The Romans did not believe in looking after the old. Those that were rich enough hired servants or bought slaves to look after themselves; the rest died of improvidence if they were foolish enough to live into old age. But advanced countries no longer allow that. All of them provide for state pensions that support old people reasonably well. It is another matter if the old fall sick; in that case, the quality of care a state gives them varies considerably from country to country. But in no state are they likely to die because they are not able to look after themselves; they will be looked after to the end.
As the number of old people rises in all countries, the state-financed retirement-to-grave welfare systems are beginning to fail. Old people are worried. In Holland, the Old People’s Party brought down the government when it tried to limit their benefits. Elsewhere they have not gathered the strength and the numbers to influence politics. But they will; it is only a matter of time.
State pensions and medical care are one alternative; the other two are that private employers fund their employees’ pensions and that old people live on their savings. Employers, like governments, are feeling the pinch, and are cutting the cost. They do it in two ways: they are changing over from pensions that depend on the employee’s last salary to those that are determined by his accumulated contribution; and they are cutting down their own contribution to pensions and encouraging employees to contribute more. So the net effect of penny pinching, whether it is by governments or employers, is the same: that people have to save more for old age.
When people retire, they stop doing anything productive, but continue to consume; in whatever way old people are cared for or care for themselves, their consumption must come out of other people’s production. Savings are not accumulated consumption; they are only accumulated claims to consumption. The extent to which consumption goods can be stored and used later is limited; most of old people’s consumption must come out of surplus production by the young. The very survival of the old implies transfer of goods and services to them from the young. And the burden of that transfer is increasing as the proportion of the old increases at the expense of the young.
The young could bear that burden without reducing their own consumption if their production were going up. Rise in productivity, brought about by innovation, has been the hallmark of industrial countries for over two centuries: so much so, that economists take persistent technological change as what distinguishes advanced countries from “developing” countries.
But productivity in Japan has not increased for over a decade now. It has been crawling at snail’s pace in Germany. Its growth has slowed down in the entire industrial world. The only exception was the United States, which saw a tremendous burst of productivity increase in the 1980s and 1990s. But the bubble burst in 2000. Now productivity is crawling in the US as well – and there is muted fear that the Japanese disease may hit the US.
If productivity ceases to increase, inter-generational transfers will become a zero-sum game: the growing number of old people can be fed only by reducing the consumption of the young. It will not matter even if state pensions and medical care decline and are replaced by private savings; that will only change the distribution of benefits amongst the old. However the old are supported, their growing numbers will mean a declining standard of living for the young.
Is there no way both the young and the old can live better? There is: they should acquire slaves. Arabs in their years of prosperity brought invariably younger brides from India, Germans from Thailand, Americans from Russia. Soon after the “liberation” of Russia, there used to be organized tours to introduce single Americans to attractive Russian women. But sooner or later, the imported slaves exploit the laws of their host countries and become free. Even sooner they cease to be willing slaves.

A better way would be for a country to acquire colonies. Colonies are no more willing servitors than concubines. But their exploitation can be efficiently organized; and they can be subjected to different laws from their conquering countries. Maybe realization of this is behind the subjugation of Iraq. Oil will soon get cheaper for its conquerors.