Mon, Oct 02, 2017 - Page 7 News List

Dangers of demographic denial threaten emerging economies

By Adair Turner

Across emerging economies, the benefits of a “demographic dividend” have become a familiar refrain. Politicians and business leaders alike — be it in India, Nigeria, Pakistan or Tanzania — talk glowingly of how a fast-growing and youthful population will create huge investment opportunities and fuel rapid economic growth.

However, the reality is that in many emerging economies, rapid population growth poses a major threat to economic development and technological progress will make that threat even more severe.

For starters, the term “demographic dividend” is being seriously misused.

The term was originally used to describe a transition in which countries enjoyed both a one-off increase in the working age population and a significant fall in fertility.

That combination produces a high ratio of workers to dependents — both retirees and children — making it easier for high savings to support sufficient investment to drive rapid growth in capital stock.

Meanwhile, rapidly falling fertility ensures that the next generation inherits a large capital stock per capita, and small family size makes it easier to afford high private or public education spending per child, leading to rapid improvements in workforce skills.

South Korea, China and some other East Asian nations have benefited hugely from such a demographic dividend over the past 40 years.

However, without a rapid fall in fertility rates, there is no dividend.

If fertility remains high, a low ratio of retirees to workers is offset by a high child dependency ratio, making it difficult to support high-education spending per child.

If each new cohort of workers is much larger than the one before, growth in per capita capital stock — whether in infrastructure or plant and equipment — is held back.

Rapidly growing working-age populations also make it impossible to create jobs fast enough to prevent widespread underemployment.

SUB-SAHARAN AFRICA

This is the bind in which much of sub-Saharan Africa is still stuck. With moderate GDP growth rates — averaging 4.6 percent over the past decade — offset by 2.7 percent annual population growth, per capita income has been growing at less than 2 percent per year, versus the 7 percent rate that China achieves.

At this rate of progress, Africa will not attain today’s advanced-economy living standards until the mid-2100s.

Pakistan faces a slightly less severe — but still significant — challenge.

India’s demography varies by region: While fertility rates are at or below two in economically dynamic states such as Maharashtra and Gujarat, the big states of Bihar and Uttar Pradesh are still facing severe demographic headwinds.

It has been obvious for decades that high fertility can hold back per capita growth, and the costs of denying that possibility are about to rise, especially for developing nations.

There are only a few historic examples of successful catch-up from poverty to advanced-economy productivity and living standards, and in all cases — Japan in the 1950s to 1980s, South Korea in the 1960s to 1990s, China for the past four decades — rapid growth of export-oriented manufacture has played a central role.

THREAT OF TECHNOLOGY

Technological progress now threatens that route to prosperity.

Information technology will eventually enable automation of the vast majority of jobs.

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