America Dodges the Global Demographic BulletMore than two centuries ago, the English scholar Thomas Malthus did some calculations and decided that the population was growing so fast that people would soon be starving en masse. He wrote, "The power of population is indefinitely greater than the power in the earth to produce subsistence for man." He was right about the growing population.
What he failed to see was that people were clever enough to invent new technologies that would feed the world. Another trend that he could not see at that time ? and probably no one could ? was that as the standard of living rose, fertility rates would decline.
In 1775, when Malthus was a teenager, women in England had nearly 6 children, on average. But in 1875, when Malthus was already dead, the birth rate had fallen to 3.35. Today, it is less than 2.1
Germany followed a similar pattern. In 1850, the birth rate was 5 children per woman. Today, its a scant 1.4. In Italy, the rate went from 5 children in 1850 to 1.3 today.
For a time, the fact that the average lifespan was increasing in developed countries masked the true effects of declining fertility. The population kept expanding. But as the trends converged and leveled off, it became obvious by the 1970s that numerous nations were seeing their birth rates fall below the level where a population could grow or even remain stable.
Today, women in Japan, Singapore, Austria, Canada, Poland, South Korea, and 53 other countries do not bear enough children to keep those nations populated. In some countries, the rate has fallen to one child per woman per lifetime. Of course, since every child is actually replacing two parents in the next generation, its easy to see how quickly a countrys population can plummet.
One of the big changes that set this trend in motion was the Industrial Revolution, a switch from an agrarian economy to an urban, mechanized economy. On rural farms, the family benefited from having lots of children, who grew up to help produce more crops, needed no schooling, and could take care of the parents as they got old. With the Industrial Revolution, people moved to cities and worked in factories. Children were costly and became a burden rather than a benefit.
For people living in the developed world during the Information Age, this equation has become overwhelming. In the United States and Europe, for example, it costs up to $300,000 to raise a child and get him or her through high school ? and then comes college, which can cost even more. So, with half the population of the world living in cities far from the realities of the farm, birth rates are in freefall.
Furthermore, rising participation rates for women in the workforce create a big opportunity cost on top of the out-of-pocket costs. Rather than staying at home to raise children, many women need to work as part of a two-income household. That reduces the number of years during which they might realistically have children, and therefore decreases the overall number of births.
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This is going on in many developing nations as well. Mexico had a birth rate of almost 7 children per woman just a few decades ago. Its now 2.3. Egypt went from 7 children to 2.7, and India is down from 6 to 2.7.
Japan is one of the most striking examples. Its population is expected to fall by 21 percent in the next 40 years. South Korea spent the last four decades increasing its population, but its now poised to drop by 10 percent in the next few decades. Europes population will peak within the next decade, and then drop by as much as 16 percent. Germany, Poland, and Russia will all be down by double-digit figures.
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As a result, earlier projections of world population rising from the present 6.7 billion people to a peak of 12 billion have now been revised downward, to a peak as low as 7.9 billion. In other words, world population growth may be just about stagnant.
This, of course, quite naturally produces an aging population with implications that weve discussed in Trends many times.2 The fewer the number of babies born and the longer the average lifespan, the higher the average age. It is expected that 40 percent of the population of Japan, for example, will be made up of people older than 65 by 2050. Germany has already reached 20 percent over 65 and will exceed one-third by mid-century.
The same trend can be seen in developing nations, such as China, where people over 65 make up eight percent of the population today, but will make up almost 25 percent at mid-century. Mexicos elderly population will go from 7 to 22 percent.
On an intuitive level, it would seem that having a smaller population would increase the standard of living, simply because there would be more to go around. Thats what economists thought in the time of Malthus and all the way up until the 1960s. But what is intuitively correct often turns out to be totally wrong in practice. In this case, a larger population increases productivity, as businesses exploit economies of scale and labor specialization develops.
Moreover, research shows that, all other things being equal, human creativity increases with population. That creativity is the real resource when it comes to sustaining a standard of living. Its not just about numbers: As it turns out, its especially important to have a youthful population, because the young are apt to be the entrepreneurs and inventors who move civilization to its next phase.
The argument against overpopulation has always been based on the concept of scarce resources. This ignores the fact that people have always created new resources in greater amounts than their predecessors. Japan stands as a case in point of what happens when a country stops producing enough new people to replace its current population. It has been in a permanent recession since 1990. Japan was once the poster child for productivity. But now, its productivity has fallen to 70 percent of that of the United States, and below the average rate among OECD countries.
The loss of creativity isnt the only problem with an aging population. Older workers save more and spend less, which slows down the consumer economy. In the 1990s, as a result, Japan was growing at a mere one percent per year after two decades of four to five percent growth.
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Italy is another nation whose population growth tracks well with its economic growth. It had a Baby Boom between 1950 and 1970, and that generation brought with it years of prosperity starting in the mid-1970s, when the first Italian Boomers were in their 20s. The economy doubled and then doubled again between 1975 and 1990, surpassing the United Kingdom in 1987.
But when Italys Baby Boom ended around 1970, that wave followed the economy, dragging it down as the birth rate dropped by half in 20 years. The resulting labor shortage made the 1990s a sad time in Italy. Today, more than one-fifth of all Italians are living on a pension.
Other European countries are following suit, with Sweden now falling below the replacement level for births.
As described in the 2004 book, The Empty Cradle: How Falling Birthrates Threaten World Prosperity and What to Do About It,3 new efforts are underway to raise birth rates, such as policies to ease tax burdens and some very long parental leaves offered in European countries.
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But the United States appears to be one of the few nations bucking this trend, and that opens up a host of opportunities. As reported in The New York Times,4 as recently as 2007, the U.S. set a new record high for births, actually beating the previous record set half a century ago during the Baby Boom. Birth rates fluctuate with the economy, so the trend was slightly down from that peak in the last couple of years, but as the economy picks up, so will the birth rate, putting the U.S. in a good position going forward.
The U.S. birth rate has remained at about replacement level since a big drop occurred in the mid-1970s. Why? Its due to a combination of factors, including the fact that Americans are the most religious people in the developed world, and the fact that U.S. employers have made a greater commitment to achieving work-life balance than employers in most other nations.
Coupled with the relatively high number of young immigrants coming to the United States each year, Americas high birth rate relative to other affluent countries means the U.S. should be able to avoid the trend toward economic decline faced by the EU and much of the rest of the developed world.
Given this trend, we offer the following four forecasts for your consideration:
First, the United States will extend the boom in productivity, which began in the late 90s, through at least 2030. While other economies contract and suffer from an aging population, the number of Americans will grow by better than 30 percent between today and 2050, bringing 45 million new people into the workforce. Meanwhile, Europe will lose 100 million people and Japan will shrink by some 10 million. This will ensure a winning global position for the U.S. for the foreseeable future.
Second, this demographic wave will result in an economic boom in the United States as it serves the needs of other nations. Since World War II, population growth has contributed one-half to two-thirds of the momentum behind the growth of gross domestic product in all industrialized nations. This, combined with the productivity boom already mentioned, will lead to big profits for corporations, with attendant gains in the stock market. Alert investors will position themselves accordingly.
Third, look for a new wave of innovation and entrepreneurship in the U.S., especially after 2020. Among the nations with a high GDP per capita, America stands to have one of the most highly educated and youthful populations in the world in the coming years. Those are the ingredients for innovation and risk taking, the life blood of economic growth. A significant amount of this innovation may come in the form of companies in the U.S. that cater to the needs of aging but affluent populations elsewhere. Look for advances and new developments in the fields of health care, pharmaceuticals, and robotics that could serve the aging populations in Europe and Japan.
Fourth, the U.S. will have to exert fiscal discipline in order to make this happen. The vast debt that the nation has incurred, along with ill-advised entitlement programs, are not a recipe for making the most of our demographic windfall. High tax rates could slow the economy and lead to lower fertility rates. People need to feel economically secure to have families. Voters must take responsibility for keeping policy makers in place who are committed to doing the most good and the least damage.
References List :
1. City Journal, Winter 2010, "Our Vanishing Ultimate Resource," by Steven Malanga. ⓒ Copyright 2010 by The Manhattan Institute. All rights reserved. http://www.city-journal.org 2. Trends, September 2008, "A Fatal Misconception." ⓒ Copyright 2008 by Audio-Tech Business Book Summaries, Inc. All rights reserved. http://www.trends-magazine.com 3. The Empty Cradle: How Falling Birthrates Threaten World Prosperity and What to Do About It by Phillip Longman is published by Basic books, a Member of the Perseus Books Group. ⓒ Copyright 2004 by Phillip Longman. All rights reserved. 4. The New York Times, August 7, 2009, "07 U.S. Births Break Baby Boom Record," by Erik Eckholm. ⓒ Copyright 2009 by The New York Times Company. All rights reserved. http://www.nytimes.com
