Israel, Where the Baby Boom Lives On

by Patrick Cox
January 4, 2018

There are many factors that contribute to the West’s general economic malaise. The biggest and most intractable though is aging demographics. The cost of care for the elderly (especially health care) takes up an increasingly larger percentage of resources as the population ages.

Social Security, Medicare, and Medicaid have grown to make up about half of the US federal budget. This is the only part of the federal budget, other than debt service, that is growing in proportion to the total.

At the same time, the number of people paying into the system is falling due to sub-replacement birthrates. There appears to be no viable political solution to this quandary.

It is difficult if not impossible to solve this problem by increasing taxes or cutting spending. Higher taxes take resources from the private sector, which slows economic growth in the long run. On the other hand, spending cuts prompt political outrage. As a result, the US and many other countries are engaging in deficit spending to fund rising age-related costs. But that resultant debt must be serviced, which reduces current and future spending. The result, once again, is political outrage.

While I’m doubtful that a political solution exists, I’m confident that there is an answer. It comes from biotech.

The cost of aging can be significantly reduced by emerging medical technologies. The balance between the old and the young can be restored by treating aging itself. Since most people are forced to retire for health reasons, people will choose to be productive longer as healthspans are extended.

The stakes are enormous. The West is headed for a financial cliff caused by aging. There is one notable exception, however.

Here’s Why Israel Is Known As the Startup Nation

Israel has its share of problems, but population aging isn’t one of them. This is a remarkably young and vibrant country. It is also a country focused on health and health care. I’ve read that Israel has more doctors per capita than any other nation. If it’s not true, I’d be surprised.

I’m in Tel Aviv, Israel, at the moment. The reason is that I was invited to visit the world-renowned Weizmann Institute of Science. I was willing to travel halfway around the world to get additional sources of information about Israeli biotechnology.

For the most part, biotechnology is a North American game. Europe and Asia have some great scientists, but the leading research centers are concentrated on the coasts of the US. Nature has ranked the most important scientific groups based on their overall impact on the process of science. The Weizmann Institute is the only organization outside the New World that consistently ranks among the top.

In my lifetime, Israel has shifted from an agricultural to a tech economy. Orange groves have been replaced by research groups for many of the world’s most important companies. It is symbolically appropriate that the Weizmann Institute is named for the country’s first president, Dr. Chaim Weizmann, a biologist himself. It says something about the values of a country that its first president was a scientist.

Though its population is less than 9 million, Israel is a powerhouse of science and technology today. Called the “startup nation,” Israel lags behind only the US and China in numbers of newly established companies. Similarly, it ranks number three in hosting the largest NASDAQ-listed companies.

So I’m not here for tourism. If there’s a gene allele for enjoying exotic faraway locations, I don’t have it. Travel interferes with my workouts, and I hate airports. Nevertheless, I will travel to meet the right people, and there are people here I want to know.

Israel has important scientists, but the country’s demographics are also important. Its fertility rate of more than 3 children per woman makes it the single most notable exception to the rule of the demographic transition.

That rule is simple. Birthrates fall as populations live longer and grow wealthier. The US, Canada, Europe, and Scandinavia all have birthrates below 2.1 children per woman, which is below replacement rate. So the developed world is depopulating. Japan and Singapore are now shrinking by half per generation.

Israel, on the other hand, is growing by half per generation. This holds across Israeli society, regardless of ethnicity, religious conviction, or lack thereof. You can see it in the baby carriages on the sidewalks of Jerusalem and the teeming nightclubs of Tel Aviv.

As a result, the percentage of young workers to older retirees is high in Israel. The burden of the aged is borne by a growing number of younger workers, so capital is available for other uses, including research, innovation, and startups.

In fact, Israel’s economy has outperformed most of the world for the last five years. GDP growth last year was 4% despite serious over-regulation. Israel has the talent, energy, and desire to play a key role in the war on aging.

Already, I’ve met people working on the bleeding edge of quantum computing, computational biology, and synthetic biology. In this column, I’m not going to go into any detail on any of these fields. But I promise that I’ll have much more to report from Israel in the future.

One breakthrough that I do want to tell you about involves a company that appears to have the ability to cure most forms of blindness. But I’ll save that for another time.

— Israel, Where the Baby Boom Lives On originally appeared at Mauldin Economics.