Category:

Science and Technology

Domain:

Economics

Keywords:

Socio-economic policy - population, megacities, growth, capitalism, demographics, urbanisation, welfare economics, fertility

Outlook:

Demographic changes from urbanisation, dropping fertility rates, and aging of the population may precipitate a re-examination of welfare economics.

Summary Analysis:

Rapid urbanisation in the developing world, associated with a dramatic drop in fertility rates, has compressed change that occurred over centuries in the West into a few decades. The birth-rate in the developed world is on the decline as well, and the population is aging. In the next 20 to 50 years, these demographic changes will result in imbalances between working-age populations and senior citizens. Current UN estimates indicate that by 2050 there will be 35 million fewer children on Earth and 1.2 billion more elderly.

Difficult policy choices will be inevitable in the face of multiple challenges:

• A shrinking labour force as human capital is consumed faster than it is replaced
• High health care costs faced by a growing elderly population

Numerous strategies have been employed in countries in Europe and elsewhere that are already experiencing these challenges. In Italy, generous support systems and subsidies (up to €1000 per child) encourage women to have more children. In Japan, national initiatives to dramatically increase productivity are being used to avoid the need for foreign immigration.

Implications:

• Growing ineffectiveness of policy solutions based on traditional welfare economics
• Increasing need for a reformulation of many economic theories to find way forward
• Search by policymakers for new/alternate theoretical bases for market interventions

Early Indicators:

• Decline in the number of Italian women of child-bearing age to half of what it was in the 1960s, to a point where even a significant and rapid increase in fertility would not be able to stop a decrease in overall population
• Decline in Brazil’s birthrate, which has fallen by half since 1975 and is now below replacement
• Revision of UN population projection data in 2004 due to falling Third World fertility rates
• Expectation that China’s working-age population will fall by 50 million by mid-century, a trend exacerbated by gender-selective abortion practices

What to Watch:

• Increased pressure for guest worker programs and other labor-importation schemes.
• Economic growth slows to a crawl.
• Major public and private investments are made in productivity technologies.

Parallels/Precedents:

Enablers/drivers:

• Improvements in medical technology, nutrition, and public health

Leaders:

• Japan
• Continental Europe

Institutions:

• International Institute on Ageing, Malta [link]
• AARP, US [link]
• International Federation on Ageing, Canada [link]
• China Population Information and Research Centre [link]
• Centre for Economic Research on Ageing, UK [link]
• Centre for Policy on Ageing, UK [link]
• Population Reference Bureau
• RAND Corporation [link]

Figures:

Sources:

• World Population Prospects: The 2004 Revision. UN Department of Economic and Social Affairs, Population Division. 24 February 2005. [link]
• Holzmann, R. and Stiglitz, J. "New Ideas about Social Security." 2001. World Bank
• “Research on Population Decline and Total National Capital: Towards A Nation Founded on Human Capital.” National Institute for Research Advancement (Japan) Policy Research (2004) 17, no. 10.
• Cheng K. "Economic Implications of China's Demographics in the 21st Century." International Monetary Fund. 2003 [link]
• Brugiavini, A. et al "The Survey on Health, Ageing and Wealth." Centre for Studies in Economics and Finance, University of Salerno, Italy [link]
• "Winning the Generation Game." Prime Minister's Strategy Unit, UK [link]
• "The 2005 OASDI Trustees Report." Social Security Online. 23 Mar 2005. [link]
• Longman, Phillip. “The Depopulation Problem.” Long Now Foundation Seminar. August 2004. [link]

At A Glance:

When:

21–50 years +

Where:

Global

How Fast:

Years

Likelihood:

Medium-High

Impact:

Medium

Controversy:

Low

Related Outlooks: