Getting Rich Before Getting Old: The Secret to Productivity

The demographic shift we are experiencing has many impacts on our lives, both present and future. One of the most important is the demographic dividend. We are at a unique moment. The demographic dividend occurs when, due to declining fertility, the proportion of children decreases, while the proportion of older adults is not yet growing very rapidly, leaving the working-age population at its relative peak.

It is the golden opportunity because it is possible to generate surpluses between what we produce and consume to sustain a high level of investment in our economy, both in physical capital and human capital. If we take advantage of the dividend, we can enter a path of sustained growth essential to closing the gap with more developed countries.

In Argentina, this dividend began around 1990 and is estimated to disappear in the next twenty to thirty years. Today we have fewer than seven people in inactive age groups for every ten of working age, well below the 9 at the beginning of this century and the 11 there will be in a few decades. If we do not use this breathing room to increase investment and productivity, aging will turn from a success into an unbearable economic burden.

The recipe is clear but difficult: increase labor productivity, which in Argentina has stagnated for decades. Productivity depends on physical capital (infrastructure, energy, corporate equipment) and human capital (primarily education). Today, every young Argentine finishes their training with skills equivalent to barely 8.7 effective years of learning, far from the 13.9 of the most successful countries, such as Singapore. With fewer students in classrooms due to low birth rates, the State has a historic opportunity to stop worrying about expanding the system and concentrate on improving quality and outcomes.

We also need to increase investment, so that these better-prepared workers have the necessary tools to produce more. Argentina has had savings and investment rates well below those of high-income countries and even the Latin American average for decades, which implies less productivity and less wealth.

Furthermore, the labor market must adapt. An older workforce may be less innovative, but it is also more experienced. The secret to sustaining well-being is not having more workers, but having the ones we have produce more goods and services per person. To paraphrase an American consultant, in the discussion on aging and economic prospects, "It's the productivity, stupid!". We need to generate a virtuous circle where higher per capita wealth allows for increased investment and, at the same time, funds future health and pension systems.

The clock is ticking and our future depends on how productive we know how to be today. Just like individuals, societies need to get rich before they get old. We must understand that demographics have given us a temporary advantage that will not be repeated: it is now or never.