DELAWARE: Global economic growth and development agenda is mainly focused on macroeconomic performance, international trade and foreign aid. One key aspect of growth and development – demography – has not gained much traction.
The developed world is facing a rapid increase in aging population, reverse urbanisation and slow labour force growth while the developing world is on the other side of the spectrum.
This demographic shift has constrained productivity growth in the global north and posed enormous challenges for the global south in the areas of education, employment, food and public health.
Mckinsey Global Institute’s report “Urban World: Meeting the Demographic Challenges” highlights the precarious situation of demographic shifts in Japan, the United States and western Europe.
Urban population in Japan grew at 0.9% annually from 1990 to 2015 and in next 10 years it was expected to grow at only 0.6%. In the US, the urban population growth for the comparable period is 1.3% and 1% respectively.
Western Europe’s urbanisation growth was 0.7% between 1990 and 2015 and it is projected to grow at rates of 0.5% and 0.4% in the time periods 2015-25 and the following decade respectively.
In 2012, an article about Japan’s demography challenge appeared in The New York Times with the following opening lines: “The first grade class at the elementary school in Nanmoku, about 85 miles from Tokyo, has just a single student this year. The local school system that five decades ago taught 1,250 elementary school children is now educating just 37.”
Similarly, an article in the Financial Times reported about Ottenstein village in north Germany. The story described the mayor’s initiative of offering free farms and property to attract families in the region who have kids so that they could maintain a minimum number to keep the neighbourhood school open.
Japan leads, others to follow suit
According to some estimates, one after the other, each developed country will follow the Japanese trend of aging demography and slow growth. The order is expected to follow this pattern: South Korea, Germany, other western European countries, the US and then the emerging economy of China.
Germany’s situation is peculiar in this group. The fertility rate in Germany is 1.4 children per woman whereas the EU average is 1.6 and it is 2 and 1.8 in France and the UK respectively.
One explanation to overcome the aging demography is that recent developments in robotics and internet of things will help to tackle shortage of labour force and support the aging population in developed world. But these explanations ignore the demand-side constraints of demography.
Harry Dent, the writer of Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019, discussed eloquently the demand-side challenges of demographic cliff.
New generation enters the workforce around the age of 20 and then they spend money on buying houses, cars, other household durables and children’s education. Finally, somewhere in late 40s or early 50s, the family consumption reaches its peak and the decline starts.
This lifecycle of consumption informs about a major slowdown in growth in the developed world in the next few decades.
Dent mentions that most of the housing investment occurs between the age of 20 and 41. There is speculation about what would happen to the large suburban houses as due to demographic shifts, young people are not raising large families and are increasingly moving to shared apartments in city centres.
This potential property crisis is just one possible dimension of demographic-driven challenges in the US.
One potential win-win solution is the movement of labour across international borders. If the developed world is so worried about global poverty, more labour force should be brought in from developing countries.
It appears that this time is not far because the developed world would need it for itself. Some consider it human capital flight from the developing countries, but it does bring benefits for labour-exporting countries.
However, the challenges are stereotyping of immigrants and their integration in the developed countries. These issues need in-depth dialogue.
World Bank President Jim Yong Kim remarked: “If countries with aging populations can create a path for refugees and migrants to participate in the economy, everyone benefits. Most of the evidence suggests that migrants will work hard and contribute more in taxes than they consume in social services.”
The developing countries need to understand and respond to these challenges on three fronts.
First, they will be facing export contraction from the global north in the wake of slow demand. The south-south trade is one option to address export contraction or exporting countries will have to readjust their product and service lines considering changing consumption patterns by the aging and young populations.
Secondly, the burgeoning youth within developing countries will have a profound effect on consumption patterns. The business community and policy-makers need to understand these changes to respond effectively.
Thirdly, developing countries will be facing tremendous increase in urbanisation. Asia and Africa will add 1.2 billion and 900 million people respectively to its cities through 2050.
These countries will have to focus on making cities conducive for entrepreneurship, sustainable living and education. The opportunity lies in attracting more people in cities, not blocking the mobility by imposing restrictions on high-rise buildings and introducing other inefficient zoning laws.
The writer is a public policy practitioner and researcher
Published in The Express Tribune, May 1st, 2017.