|5 TRENDS FOR THE FUTURE OF ECONOMIC GROWTH|
Aruba, November 27, 2015 - Growth in China is slowing, growth in Europe is near zero, and the world as a whole is now in recession in dollar terms. At the same time, income inequality is rising all over the world, and political instability is going up, too. Could a return to economic growth be the cure for these ills? And if so, how do we achieve it?
Peter De Keyzer, chief economist at BNP Paribas Fortis, examined the issue in his book “Growth Makes You Happy”. Taking a long-term perspective, he starts with a simple theory: wealth is determined by two factors, population growth and productivity growth. The latter depends on your ability to innovate. The former is a result of individual choices and the state of healthcare in a country. But which can get us back to healthy growth?
1. “Demography is destiny”
It’s simple: the more working age people a country has, the more likely it is to have economic growth and increasing wealth. As The Economist noted earlier this year, “people will borrow in their 20s and 30s, save a lot in their 40s and 50s and start running down their savings in their 60s”. The more working age (age 16-65) population you have, the more potential contributors to economic growth, both because of their productivity and their spending.
That helps explain why countries like Italy and Japan, whose populations are shrinking, have a harder time growing their economy than the U.S. or India, where the population is still growing. Of course, the choices politicians make, and a country’s ability to innovate, play a role as well. But to a large extent, the old adage remains true: “demography is destiny”. In principle, that’s good news for many emerging markets, which should continue to see a “natural” economic growth.
2. But growing populations also increase the chances for volatile young demographics
The previous insight does not constitute a call for unbridled population growth, though. When a country’s population grows too fast, it is likely to run into trouble: studies show that the higher the percentage of “fighting age” population (16 to 30 year-olds) in a country, the higher its chances for civil unrest, instability and war. The tipping point is when more than 60% of the population is younger than 30. In that case, the chance for civil war is a staggering one in two. It helps explain the difficult transition countries like Congo, Iran, Iraq, Pakistan and Palestine are going through.
3. For a healthy demographic transition, women hold the key
As De Keyzer writes in his book: “Studies show that lower birth rates are in fact the result of a consistent policy of ensuring the literacy and education of girls (that is, the future mothers). The literacy, education and emancipation of women are probably the best strategies for reducing child mortality in the first place, and the birth rate in the second. Women are thus the key to a lower birth rate and a successful demographic transition.”
Can this surprise anyone? When women are better educated, countries are more likely to see a balanced economic growth, because their demographic transition is more balanced, too. In such societies, the demographic pyramid is more likely to be one of “slow expansion” or “low stationary” rather than “fast expansion” (see below).