COMMENT & ANALYSIS Thomas Malthus forever attached the word "dismal" to "economics". The argument of the 19th century sage that rising population would offset any tendency towards rising standards of living was as depressing as it has since proved incorrect. Malthus was not the first prophet to underestimate human ingenuity. He will not be the last.
Yet Malthus was right to believe that demography is always important. As this month's World Economic Outlook from the International Monetary Fund makes plain, demographic forces will drive the world economy in the decades ahead.* Three big things are now happening. First, fertility rates - the number of children produced by each woman - are falling rapidly almost everywhere. Second, life expectancy is also rising almost (though not quite) everywhere. Third, developing countries are well behind the advanced countries, with the poorest countries furthest behind of all.
As a result of these changes, annual world population growth fell from 1.8 per cent in 1950 to 1.2 per cent in 2000 and is forecast by the United Nations to reach just 0.3 per cent by 2050. The proportion of the world's population under 15 fell from 34 per cent in 1950 to 30 per cent in 2000, but is now forecast to reach 20 per cent by 2050. Average life expectancy jumped from 47 in 1950 to 65 in 2000 and is forecast to reach 74 by 2050. Consequently, the proportion of people over 65 rose from 5 per cent in 1950 to 7 per cent in 2000, and is forecast to reach 16 per cent by 2050. Finally, the countries we call "least developed" contained only 8 per cent of the global population in 1950, while the advanced countries contained 32 per cent. By 2000, these proportions had shifted to 11 and 20 per cent, respectively. By 2050, they are forecast to reach 19 and 14 per cent.
All forecasts are uncertain. Those of demographers are no exception. One uncertainty is over fertility rates. The UN assumes that the fertility rate of developing countries will fall from just above three children per woman in 2000 to two by 2050. Meanwhile, the fertility rate in advanced countries is forecast to rise modestly in the advanced countries to 1.85 children per woman, from 1.7 in 2000. The assumption then is that fertility rates will converge globally, towards the replacement rate.
On longevity, the big assumption is that life expectancies will continue to rise. Life expectancies in developing countries are forecast to reach 74 by 2050, up from 64 in 2000. Even in Africa, life expectancy is forecast to reach 63 by 2050, up from just 48 in 2000 (itself a fall from 50 in 1990). In advanced countries, too, life expectancies are forecast to rise further, to 83 in 2050, from 77 in 2000.
Changes in fertility would not make much of a difference to the scenarios until some decades hence, since the labour force of the next few decades is already born. What could make a difference much sooner would be a catastrophic spread of disease. If HIV/Aids, for example, were to attain a similar prevalence in the rest of the developing world to that now in southern Africa, the consequences could be devastating: in Botswana, a fifth of children below 17 years of age are orphans, while life expectancy fell from 65 in the early 1990s to 40 in 2002. If anything remotely similar were to happen in China or India, the tragedy would be beyond the imagination. But that seems almost inconceivable.
Assume, then, that the forecasts are broadly correct. There are three powerful economic implications. First, the dependency ratio will hardly change at the global level, but its composition will be transformed. Throughout the past, societies contained a host of children and few old people. This picture is now being reversed. The longer run implications are likely to be quite large.
Second, the effort to reduce the numbers and proportion of the world's population that lives in desperate poverty is a "Red Queen's race": the world has to run fast to stay still, as Lewis Carroll described in Through the Looking Glass. What is dragging the world backwards is Malthusianism in reverse: the greater a country's poverty, the faster population grows.
Finally, when fertility rates decline, there is a period when the proportion of the population of working age rises and the dependency ratio falls. Subsequently, however, the proportion of the population of working age will fall (see charts). This gives a window of economic opportunity. For Europe and Japan, it is now closing. For much of the developing world, notably China, it is open, but will soon close.
The IMF's analysis focuses on the economic impact of this demographic transition. As the proportion of the population in middle years reaches its peak, it notes, so should the overall national savings rate. Similarly, the higher the share of the population of working age, the higher the rate of investment. Fiscal positions should also improve. The overall result of this phase of the transition is higher growth. Then, as the dependency ratio rises, these effects go into reverse.
Given where countries are now in the transition, the impact on growth over the next half-century should vary from significantly negative in Japan and western Europe to modestly negative in the US, emerging Asia and Latin America and to positive in the Middle East and Africa (see chart). Whether the latter will exploit their opportunity is another question.
The period when the dependency ratio starts to rise once again and growth rates to fall is tricky to manage. This is particularly true if politicians were too generous with their promises on pensions and other age-related expenditures when growth was relatively rapid.
If reform is postponed too long, change may be hard to achieve in democracies. In the course of the next half century, the proportion of voters aged 50 and over will exceed half of the electorate in most of today's advanced countries (see chart). I have long believed that parents should be given votes on behalf of each of their minor children. This may now be an essential reform if the old are not to strangle their societies. It will not happen, alas.
Yet whatever the difficulties of the demographic transition, let us not forget the most important point. The challenges posed by ageing societies with declining populations are the result of huge successes: growing prosperity, women's increasing control over their reproduction and rising longevity. Malthus was wrong. Let us delight in that simple fact.
*www.imf.org
