The Competitive Edge -- When It Comes To The Economy, Population Matters

Aug. 10, 2007
Based on demographic trends, Asia's population could grow to become the most productive in the world.

Thomas Malthus was one of the fathers of modern economics. His most notable contribution to the science was linking population growth to overall economic performance. Although Malthus was spectacularly wrong in his analysis -- famously predicting that population growth would outpace the economy's ability to support it -- the link between population and the global economy is indisputable.

The conventional wisdom today is that a country's long-term potential growth is roughly equal to population plus productivity growth. The United States, for instance, is expected to grow about 3% per year, as population expands at 1% and productivity at 2%. A look at current population trends around the world yields some important insight into future growth patterns.

A combination of lower birth rates and astounding agricultural and manufacturing productivity gains since World War II has confounded contemporary "Malthusian" alarmists such as Paul Ehrlich, who famously predicted widespread global famine at the close of the 20th Century. Instead, we are enjoying the greatest coordinated global boom of modern times, and rising standards of living in most parts of the globe.

One reason for this is that fertility rates have plummeted. In Mexico and India, for instance, rates have fallen, respectively, from 6.7 and 6 children per woman in 1950 to 2.2 and 3.1 today. Of course, fertility in the most advanced nations (in terms of wealth) such as in Europe and Japan is now below the replacement rate of 2.1 children per woman. The spread of wealth, education and urban living contributes to lower fertility almost everywhere.

Here are a few of the more surprising scenarios (all based on United Nations' projections):

  • By 2030, Europe's population will be about 3.3% lower than today. This decline is one major explanation of the lower average economic growth rates in Europe in the last 10 years. By 2030, Europe's population will be only 13% that of Asia and barely twice that of the U.S.
  • The U.S. population, due to a higher fertility rate than other advanced economies and much higher rates of immigration, will continue to grow at a rate only slightly lower than the world average between now and 2030.
  • Japan's population, characterized by both low fertility and long-standing hostility to immigration, will decline by 7.5% by 2030.
  • Russia is a demographic disaster, due to declining longevity, low fertility and outward migration. Its population fell by 3.2% between 1990 and 2005 and is expected to decline another 14% by 2030, by which time its population will be about one-third that of the U.S.
  • India will overtake China as the world's most populous nation by 2030, when it will have 1.5 billion souls, while China will have 1.45 billion. Population growth in each is slowing dramatically. China's fertility rate is about 1.8, well below that of India.
  • Latin America's population growth will approximate the world average through 2030, and total population will reach about twice that of the U.S. by that date.
  • Africa's population growth is the most rapid, despite the ravages of AIDS, general poor health and poverty. It will grow 64% by 2030.

Other data are also revealing, especially age-related statistics which generally show rapidly aging populations in the developed world and in China. Aging populations are less productive and more burdensome on national budgets. Younger populations in parts of South Asia, Latin America and Africa offer at least the hypothetical promise of faster growth if political stability occurs and good economic policies are followed. History suggests this is more likely in Asia than Africa.

If population is this important, strategic planners should be looking especially closely at Asia. While the traditional powers of Europe, the English-speaking nations and Japan are still the wealthiest and biggest consumers, the weight of numbers will certainly make this the "Asian Century."

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.

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