As I argued in my op-ed for the ABC the other day, population growth counts and positively influences productivity. According to the WSJ:
"Over the next 40 years, Japan and Europe will see working-age populations shrink by 30 million and 37 million, respectively, according to United Nations projections. Birth rates are low and so many of their people are already elderly.
Today, one in five Japanese and Europeans is over age 65. In 2050, it will be one in three.
China's working-age population will keep growing for 15 years or so, then turn down, the result of its one-child policy and the tendency of birth rates to fall as incomes rise. In 2050, the U.N. projects, China will have 100 million fewer workers than it does today. India's population, in contrast, will grow by 300 million working-age persons over the next 40 years.
The U.S. is in between, benefiting from a higher birth rate and younger populations than Europe and Japan and more immigration. It is projected to add 35 million working-age persons by 2050.
The demographics driving nations' wealth
Demography is not destiny. In 1300, China was bigger than Europe and had the world's most sophisticated technology. But China blew it. By 1850, its population was 65% larger than Europe's, but—thanks to the Industrial Revolution—Europeans were far richer.
Yet demography does matter. "We never pay enough attention to demography because it's so long term," says Dominique Strauss-Kahn, head of the International Monetary Fund. So turn for a moment from angst about the disappointing pace of the economic recovery and daunting government budget deficits, and look over the horizon.
Over the next 40 years, Japan and Europe will see working-age populations shrink by 30 million and 37 million, respectively, according to United Nations projections. Birth rates are low and so many of their people are already elderly.
China's working-age population will keep growing for 15 years or so, then turn down, the result of its one-child policy and the tendency of birth rates to fall as incomes rise. In 2050, the U.N. projects, China will have 100 million fewer workers than it does today. India's population, in contrast, will grow by 300 million working-age persons over the next 40 years.
The U.S. is in between, benefiting from a higher birth rate and younger populations than Europe and Japan and more immigration. It is projected to add 35 million working-age persons by 2050.
So what?
History, as interpreted by modern economists pondering the mysteries of growth, teaches that more people lead to more ideas. And unlike land or oil, ideas can be used by more than one person simultaneously. Before countries began sharing ideas, the biggest had the most rapid technological progress. Now, trade, travel and the Internet speed new ideas around the globe ever-more rapidly. So the benefits are dispersed. Belgium is rich not because it is big or has invented a lot, but because it has the wherewithal to employ technology invented by others, notes Michael Kremer of Harvard University. Zaire is bigger, but lacks the wherewithal.
"In the coming decades, because of the Internet, because of many other changes that have shrunk the world, it's almost impossible for an individual country to keep proprietary technology for itself," says Mr. Strauss-Kahn. For a time, relatively small countries like Britain and France were global heavyweights because of their technological prowess. That day is over, he predicts. "Power equals numbers," he reasons, and that leads him to anticipate the rising influence of China and India.
Rising populations—and growing numbers of meat-eating, oil-burning consumers—create tension between environmental costs and idea-generating benefits. Some worry about the costs; others see the benefits.
"China's population is roughly equal to that of the U.S., Europe and Japan combined," optimistic Stanford University economists Chad Jones and Paul Romer observed recently in an academic journal. "Over the next several decades, the continued economic development of China might plausibly double the number of researchers throughout the world pushing forward the technological frontier. What effect will this have on incomes in countries that share ideas with China in the long run?" Somewhere between a lot and really a lot, they say. In fact, they say that even if the U.S. had to bear all the costs of mitigating the added carbon emitted by a rapidly developing China, ideas generated by the Chinese would boost U.S. per capita income enough to more than compensate.
Despite the Internet, multinational companies and global financial markets, we are not—yet—one big world economy. Divergences in demographics have national consequences.
Today, one in five Japanese and Europeans is over age 65. In 2050, it will be one in three. Rapid productivity growth—the amount of stuff produced per hour of work—could make it easier for working-age populations to support the old folks, but productivity trends aren't promising. The Japanese and Europeans almost surely will have to work longer, take fewer vacations and probably pay more taxes. Aging also threatens the Japanese government's ability to keep borrowing so heavily. IMF economist Kiichi Tokuoka estimates that at least half of Japanese government borrowing is now financed, directly or indirectly, by Japanese households; unlike the U.S., Japan doesn't borrow heavily from abroad. Japanese savers will be selling bonds in retirement—and there aren't enough younger workers to save enough to pick up the slack.
For China, the challenge is to build social structures and retirement schemes to sustain a growing cadre of old folks that, unlike previous generations, won't be able to rely so much on its children for support. Today, 1.4% of Chinese are over age 80; in 2050, 7.2% will be, the U.N. projects.
India has more time to adjust since its working population is likely to keep growing. Its challenge is to harness the growing number of workers in their 30s and 40s and to nurture industry and services. If India dismantles archaic labor laws, brings more women into the work force and invests in training and education, demographics could add four percentage points a year to economic growth, Goldman Sachs economists estimate. But that's a big "if."
And the U.S.? For all today's gloom, it may be in the sweet spot. A growing population, an openness to ambitious immigrants and trade (if not disrupted by xenophobic politics) and strong productivity growth (if sustained) could lift living standards and bring faster growth, which would reduce big government budget deficits far easier for the U.S. than for slower growing Europe and Japan."
