Economists, social scientists and business people espouse all sorts of theories for why some countries grow faster than others or have different social characteristics. As is the nature of such theories, some are right and some are wrong, and every so often new theories come along to replace the former ones. The new ideas have a bit more credibility, fit some extra data points, and can build on past theories, but, lo and behold, some time later, are shown to suffer yet more flaws.
That is what I love about those disciplines. You can rarely be sure, you always have to use a combination of axiom, empirical evidence and outright guesswork, yet there is something valuable about the effort and a realisation that progress is possible.
Yet it is amazing how often such theories ignore the most obvious factors. The most obvious factor of all is demographics, and this alone typically explains a large proportion of variation. Perhaps it is not exciting enough. More likely, experts can’t really claim much based on demographics. It is far more gratifying (and even financially rewarding) to explain the success of a company based on some revolutionary management practice than the basic fact that more people of the right age are around to buy the product or staff the firm. Yet, more often than not, it is as simple as that.
Once again, The Economist bucks the trend and finds the simple yet compelling analysis. Most recently, it has argued that India will outpace China over the next thirty years, and demographics are a large part of the reason. Whereas over the last thirty years China has benefited from rapid growth in the working age population, this trend will reverse from now on, due to the one child policy. Combine this with the rapid increase in longevity in China, and the working age population as a share of the total will soon start to decrease quickly. This always presages slower growth.
India, on the other hand, has so far a lower life expectancy, yet looks forward to an expansion in working age population. Add in the factor that this group is increasingly better educated and English-speaking, and you can see how the growth engine is primed. If India can do something to further reduce illiteracy, as seems likely, the engine can move into turbo charge.
The Economist argues that many developing economies have this potential of a golden generation. Life expectancy has increased enough so that the working population can grow quickly, yet not so much that these workers have to support too many retirees. Technology and education advances simply multiply the benefits, as can the participation of women in the workforce. Many South-East Asian nations benefited in the 80’s and 90’s, with Japan and South Korea ahead of the curve and China behind (so benefiting now). Brazil has some of the same features, and there is at last cause for optimism over Africa, especially if Aids deaths can be kept in check. At the other end of the scale, Europe and Japan are stuck with ever-declining ratios of workers to non workers, and consequently limited in their growth potential.
So while we are arguing about big or small states, or democracy versus dictatorship, or even waffle like Latin or Chinese work ethics, something much more basic is driving the speed of development. That is not to say these other factors are irrelevant. Not all African countries will see a golden generation benefit to the same extent, with the political climate, notably corruption and education, being important in sorting the winners from the losers, as well as Aids prevalence and the extent (if exploited wisely) of natural resources.
Something similar applies in the USA, long lauded as the innovative engine of the world. While some of this is cultural and stems from policy, the biggest factor behind the US growth rate may well have been the stream of immigrants, most of them from Latin America.
This last example does call into question what are good and less good measures for development and growth. Total GDP I find a misleading metric for many things, though of course politicians like to use it as a relative indicator of their power. If USA GDP grows at 10% while the population also grows 10%, the average American is no richer. GDP per head may be more meaningful, and it is interesting how league tables change when you use that – even Europe is still doing OK by that metric. You could even use GDP per working age population, not as an indicator or prosperity but as one to assess good governance.
Such basics have a far wider application than league tables of prosperity or predictors of national growth rates. We should use them also when deciding where to work, or who to invest in. Companies targeting older consumers have a lot going for them in Europe or Japan. Companies able to tap into a growing educated Indian workforce will enjoy a following wind in the next decades. Of course, they still need good managers and good products. In the case of India, it would help even more if the government could fix the roads.
Even the second order demographic effects are probably more significant than any other factor. Regional differences in age profiles will drive rates of development. In India now, the explosion of educated, hungry entrepreneurs under thirty five has reputedly acted as a force to break down some cultural norms, for example respect for hierarchy in business. This has led to accelerated innovation, but also some breakdown in systems, for example management practices and pay structures. An exciting experiment indeed.
And one under-explored question relates to gender imbalances. For different reasons, the generations of people currently under thirty have an overabundance of males in both India and China. Historically, this has been a precursor for war, as young men need things to amuse themselves, and fighting is second only to young women in the popularity stakes. Even if war can be averted, there will be other results of the disparities, and some thought and research could help guess what they might be.
If you want to win, start with the basics. And things don’t come more basic than demographics.
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