World War Still Haunts Putin as Population Decline Taxes Economy
(Bloomberg) -- Not far from Vladimir Putin’s boyhood home, one of the world’s largest mass graves holds the remains of a half-million victims of the Nazi siege of Leningrad during World War II, including an elder brother Russia’s president never got the chance to know.
As the country’s longest-serving leader since Josef Stalin heads into what may be his last term, history’s bloodiest conflict continues to haunt him.
The Soviet death toll was so devastating—almost 27 million by official count, 60 times more than America or Britain—it triggered what demographers call a “wave” of population troughs and crests that will continue to undulate for generations, amplified by the upheavals that followed the collapse of communism in 1991.
“Putin can count on the people—he coasted to re-election last month—but there’ll be fewer people to count at the end of his term,” says Scott Johnson, a Russia specialist at Bloomberg Economics in London.
After hovering near 144 million for a decade, Russia’s population is once again shrinking, threatening Putin’s economic goals for the next six years. Even the recent addition of 2.3 million Crimeans won’t be enough to offset an expected 28 percent plunge in the number of women of prime childbearing age by 2032.
Without a surprise surge in births or a larger influx of immigrants from predominantly Muslim Central Asia, the United Nations forecasts the population tumbling to as low as 119 million by 2050.
For Putin, 65, Russian demography is once again an existential issue.
“Preserving the nation of Russia and the wellbeing of our citizens is the essence of everything,” he said in his state of the nation address last month as a chart detailing the statistical “war echoes” loomed on a screen overhead. “Falling behind is the main threat. That’s our enemy.”
Born on the cusp of the first post-war baby boom, Putin pulled Russia out of the “demographic pit” he inherited from the 1990s, when economic and emotional depression drained six years off the average man’s life. He’s overseen a gain in longevity, from 65 years to almost 73, that few nations can match, yet that’s done little to alter the generational imbalances that led to last year’s 11 percent plunge in births.
While fertility rates are falling worldwide and several former communist states in Europe are facing larger population declines, no major country shares Russia’s vast discrepancy in the size of its age groups. Census data show there are about 70 percent more Russians in the oldest bracket of workers, 55 to 59, for example, than in the youngest, 15 to 19. By comparison, the gap is about 30 percent in Japan and less than 10 percent in both the U.S and the U.K.
This gulf is starving employers of younger employees and complicating the government’s efforts to improve efficiencies in everything from health care and education to policing and public transport.
“Many companies want to hire millennials, but there just aren’t enough of them out there,” says Luc Jones, commercial director of the Antal International recruitment agency in Moscow. “The employment situation in Russia is going to get a hell of a lot worse before it gets better.”
In his speech to parliament, Putin laid out a number of demographic and economic goals for his fourth term, such as halving the number of people living in poverty while propelling Russia into the top five economies. But it’s not clear how he plans to achieve his aims.
The mortality rate for working-age men still languishes at levels seen in much poorer countries, a result mainly of preventable diseases and workplace accidents. And longer lives entail ever-higher pension costs that Russia, which is limping out of the longest recession in two decades, is already struggling to meet.
Without bold initiatives, the country may go from being one of the least indebted major economies to one of just six where age-related expenses push net debt past 250 percent of gross domestic product over the next three decades, according to S&P Global Ratings. The new monthly stipend for first-time parents may encourage procreation, but little can alter the current contraction in the workforce.
“Right now is the worst, most difficult period,” says Valery Elizarov, who runs the demographics department at Moscow State University. “A large generation is leaving just as a small one is entering, so we’re shedding a million workers a year.”
The central bank says relatively low retirement ages—55 for women and 60 for men—are among the “structural issues” capping economic growth at 2 percent a year. Putin may not have a choice but to raise those levels to meet his goals, a politically fraught move that a key adviser, former Finance Minister Alexei Kudrin, has been calling “urgent” for eight years.
Fewer workers mean fewer consumers and, ultimately, a smaller market. The population drop alone is enough to knock as much as 1 percentage point off GDP growth in each of the coming years, according to Renaissance Capital. Johnson of Bloomberg Economics is more conservative, putting the cumulative drag on GDP over the course of this Putin term at 2.5 percent.
Lilia Ovcharova, head of social policy studies at the Higher School of Economics, says there’s no way Putin can achieve the “decisive breakthrough” he’s calling for without deep reforms across the vast apparatus of state because there are no “quick fixes” left.
At the top of her list are instilling a “culture of continuous learning” to improve job mobility, opening up the borders to attract more skilled workers and conditioning kids to cope with a new economic reality.
“If birthrates are low, then we have to invest in the abilities of every child and not only the talented ones,” Ovcharova says. “Tutors and psychologists should work on that task with kids who are not successful in school.”
©2018 Bloomberg L.P.