PA Consulting: West should lower standard of living

13 September 2012 1 min. read
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People in Western countries should immediately accept a decrease of 10% to 15% in living standards. If not, the next generations in the West will be economically surpassed by India, China and the other emerging markets. This is evident from the impressive report "The continued economic decline of the West” by PA Consulting Group.

Unsustainable debts

In the report, the consultants conclude that the current level of public and private debt in Western economies is unsustainable. Furthermore, the financial problems will only increase strongly by major challenges in the present and future, such as the banking crisis, the demise of education, massive unemployment and maintaining the welfare state.

PA Consulting - Western Debts

The solution?

The solution for the West is well-known for many, but includes several hard and unpopular measures. PA Consulting Group summarizes four necessary actions:

PA Consulting - Actions for the West

Firstly, Western countries should rapidly increase the retirement age. Due to the quickly declining number of workers per retiree (from an average of 4 in 1995 to 2 in 2050), the welfare state can be preserved if people work longer. Secondly, retirees need to accept lower monthly entitlements to offset the huge income gap with the East. Thirdly, in particular low- and medium-skilled workers in OECD countries should accept lower wages to counter the large productivity advantage the 'East' has as a result of lower wages. And finally, the West should not hesitate but act immediately. Delaying these unpopular decisions will only prove more detrimental in the long-run.