Demographic Trends and Economic Prosperity
I am teaching a class on the philosophy of environmental science and policy, and the question that comes up again and again is how the earth will cope with the tremendous population increase that we are experiencing since 1900. This is an ethical, political, humanitarian, and environmental problem of historic proportions. Less population growth is good, but on the other hand, population growth fuels economic growth. A shrinking population not only causes economic contraction, but it also shifts the median age upward. This means that fewer and fewer young people have to support an increasing number of old people, to the point where the intergenerational contract cannot be sustained any more. So what is the right balance between population dynamics and economy? Looking at population trends 20 years into the future, which countries and regions are best positioned to prosper economically?
Over the next 20 years, the world as a whole won’t have the demographic ingredients to keep the global economy running at the pre-2008 speed (the time of the mortgage crisis in the US.) Surprisingly, the main reason for it is the lack of educated people with the necessary skills to sustain high growth rates.
The world’s population quadrupled between 1900 and 2000, increasing by 4 billion people, a growth rate and scale unprecedented in human history. The reason? It’s not that we were breeding like rabbits, but we stopped dying like flies: healthcare advances reduced mortality rates, and this is the major factor in the population increase, besides the Malthusian dynamic of exponential population growth if unlimited resources exist.
Now, however, the population explosion is slowing down (populations are declining in some countries, even amid continued healthcare advances) because of lower fertility rates. About half the world is below a “replacement-level” fertility rate, and that fraction is getting larger. This trend is particularly important as it applies to working-age populations. In the next 20 years, the working-age population, roughly defined as those between the ages of 15 and 64, will grow by about 800 million, half as fast as it grew in the previous 20 years. And almost half of that 800 million will come from the 49 countries of Sub-Saharan Africa—the poorest and least-educated region of the world.
According to a World Bank report, there will be about 10 billion people in the world by 2060: 5.2 billion in Asia, 2.8 billion in Africa, 1.3 billion in the Americas, 0.7 billion in Europe, and 0.1 billion in the rest of the world. 1 If you want to see how fast population grows, take a look at worldometers.info.
The demographic fundamentals of the emerging economic superpowers, particularly China, aren’t nearly as good as we commonly think. On October 28, 2015, China announced that it would end its decades-old “one-child” policy, an acknowledgement that the country’s aging population threatens its economic rise.
China is the world’s most populous country (1.36 billion people) with tremendous demographic challenges. It is the second-largest economy (GDP close to $14 trillion in 2015). Various data sources show that China’s working-age population will contract by about 100 million by 2035. Between the late 1970s, the start of the economic revolution led by Deng Xiaoping, and 2012, China’s working-age population grew about 2% a year. Today, that population is starting to decline, as the long-term effects of China’s one-child policy kick in.
China continues to have a population explosion — of old people. The number of its citizens age 65 or older is growing 4% a year, making China the most rapidly graying population in world history, rivaled today only by Japan. But Japan established a solid social security system well before the aging began; China is in the opposite position, which is much more difficult to manage.
Also, China’s demographics are shifting towards men, which is the outcome of sex-selective abortions. At the start of the one-child policy in the late 1970s, Chinese women gave birth to about 103 boys for every 100 girls. The ratio today is about 120:100, creating an enormous sub-culture of “un-marriagable,” socially alienated young men who tend to be poor, poorly educated, and slightly frustrated – demographics that also correlate to extreme right wing behavior.
Japan is the world’s fourth-largest economy, but the median population age is high at 46 years (in comparison: median age in China is 35 years.) It is among the oldest populations in the world, due mostly to low fertility rates (only about eight births per 1,000 people) and long life expectancies (84 years on average). It has a GDP of $4.7 Trillion in 2015, measured in purchasing power parity, or PPP.
Traditional Asian family values are rapidly disappearing in Japan: there is only a 50/50 chance for a young Japanese woman to marry and then stay married through age 50, similar to the situation in many Western countries. Also, Japan’s total population fell by a record amount in 2015, down 271,058 from the prior year to 126.2 million, and the pace of decline is expected to accelerate until 2060 and beyond. Prime Minister Shinzo Abe assembled an advisory panel of cabinet members and population experts with the goal of setting policies to stabilize the country’s population at 100 million people within 50 years, but even that goal is considered highly ambitious.
Meantime, Japan’s working-age population has been declining since the late 1990s and is on track to shrink by more than a third by 2035. That decline is a function not only of low birthrates, but also its lack of immigration. Immigration is the factor that stabilizes the working-age populations of most Western countries.
Western Europe’s population is aging rapidly as well, mostly for the same reasons as in Japan – low birthrates and long life expectancies – but immigration has propped up the workforces in many EU countries. This is the main reason why the German government was very smart to openly welcome the refugees from Syria and the Middle East.
Europe’s health explosion and increased productivity has led to more vacations and better retirement packages. Governments have adopted policies that encourage older Europeans to leave the workforce early, but this puts further strain on government coffers. An extreme example for retiring-age mismanagement is Greece, even though rampant corruption and tax evasion has also contributed to its fiscal mess.
There are tremendous opportunities in Western European countries if their aging, healthy, and well-educated people decide to work and earn longer. Moving in that direction would require a new social consensus in each country, not government mandates.
Russia has a population of 142 million in 2015, and a GDP of $3.7 trillion (PPP). Its economy is only the six-largest in the world, after China, the US, India, Japan, and Germany. Russia is a demographic disaster, especially among men. The reasons are mostly health-related. The life expectancy for males in Russia is about 64 years, putting it among the lowest 50 countries. (in comparison, for Russian women it is 76 years.) This is due to high levels of alcohol consumption and smoking among the men. A 15-year old Russian man has a life expectancy three years shorter than his counterpart in Haiti.
The Russian Government has made major miscalculations in recent years, resulting in international economic sanctions. The economy shrank by 3.5 percent in 2015, and is expected to decline further. This is also caused by the low price of oil, which is a major source of revenue for the Russian economy. There is also an innovation catastrophe. Russia’s share of international patent applications is just two-tenths of 1%, despite its having 2% of the world population and 5% of the world’s college graduates. While Russia underperforms when it comes to technical innovation, Japan, Taiwan, South Korea, and Israel are noteworthy for their superior innovation.
If poor health is Russia’s main demographic problem, lack of education is the main challenge for India, the world’s second-most-populous country (1.25 billion people) and third-largest economy (GDP of $8 trillion, PPP). India’s economy is twice as large as the Russian economy. It also grows by more than 7% for the last five years, and is now on the same level as the Chinese rate. However, almost a third of India’s working-age population never went to school and are assumed to be illiterate. This demographic should improve to almost a fifth by 2035.
The demographic fundamentals of the US and Canada are very positive through 2035—perhaps the best in the world. The US is the world’s third-most-populous country (321.4 million people) and the largest economy (GDP of $18.1 trillion). It is projected to have modest population and working-age population growth over the next 20 years. Its population will age more slowly than in other OECD countries. The US still has a positive replacement-level fertility rate, augmented by continued immigration, including an influx of highly educated immigrants at a rate above the OECD average.
African-Americans and non-Latino whites pull the average US life expectancy (79 years) below the average level in Western Europe (81 years), though the country’s growing Latino-American and Asian-American populations are very healthy. In fact, if Latino-Americans were the country’s only ethnic group, the US would be the healthiest nation on earth.
The demographics of the so-called NAFTA zone—US, Canada, and Mexico—compare favorably to those of the EU. Mexico has a bad reputation because of its drug wars and political scandals, but its citizens in their early 20’s have a higher level of education than their counterparts in Germany (perhaps in part because of Germany’s extensive apprenticeship trade programs).
Immigration in the US and Canada is a very positive experience for those countries, but one threatened by public opinion and rejection. Immigration has always been an explosive political issue in the US, dating back to the German and Irish immigration waves of the middle half of the 1800s. Nevertheless, these countries have profited immensely from immigrants, and so will Germany in the years to come.
- http://www.worldbank.org/en/region/afr/publication/africas-demographic-transition. ↩