De­mo­graph­ics and de­vel­op­ment

Financial Mirror (Cyprus) - - FRONT PAGE -

Achiev­ing the am­bi­tious Sus­tain­able De­vel­op­ment Goals – which aim to end poverty, boost shared pros­per­ity, and pro­mote sus­tain­abil­ity, be­tween now and 2030 – will re­quire over­com­ing some ma­jor ob­sta­cles, rang­ing from se­cur­ing enough fi­nanc­ing to ad­dress­ing cli­mate change to man­ag­ing macroe­co­nomic shocks. But there is one po­ten­tial ob­sta­cle that could turn out to be a bless­ing in dis­guise: the di­verse de­mo­graphic shifts that will take place in the com­ing years.

By the time the SDG agenda reaches its end date, there will be an es­ti­mated 8.5 bil­lion peo­ple world­wide. Twenty years later – just 34 years from now – there will be nearly ten bil­lion, or nearly 2.5 bil­lion more peo­ple than there are on Earth to­day. What will such a world look like? Where will those ad­di­tional peo­ple live? How will they make their liv­ing? Will they bol­ster or weigh down na­tional economies?

For clues, we can look 35 years in the past, to the early 1980s. US Pres­i­dent Ron­ald Rea­gan, Chi­nese leader Deng Xiaop­ing, Bri­tish Prime Min­is­ter Mar­garet Thatcher, French Pres­i­dent François Mit­ter­rand, and Soviet Pres­i­dent Mikhail Gor­bachev dom­i­nated the world’s head­lines. Per­sonal com­puter sales were minis­cule. And chil­dren com­peted over Ru­bik’s cubes, rather than aug­mented-re­al­ity Poké­mon.

At that time, the world’s pop­u­la­tion was about 4.5 bil­lion, 42% of whom – al­most two bil­lion – lived in ex­treme poverty. Ex­ces­sive pop­u­la­tion growth, it was feared, would out­pace agri­cul­tural pro­duc­tion and cre­ate yet more poverty.

Yet the Malthu­sian pre­dic­tions were wrong. Although the world pop­u­la­tion has surged to 7.5 bil­lion, only about 750 mil­lion peo­ple – just 10% of the to­tal pop­u­la­tion – live in ex­treme poverty to­day. China and In­dia, in par­tic­u­lar, lifted hun­dreds of mil­lions out of poverty in re­cent decades, in­creas­ing their citizens’ in­comes and im­prov­ing their health.

China and In­dia achieved this partly by strength­en­ing in­sti­tu­tions and pur­su­ing poli­cies that sup­ported strong, rel­a­tively in­clu­sive growth. China, for its part, also took ad­van­tage of a “de­mo­graphic div­i­dend”: fer­til­ity rates fell, and the labour force grew faster than the de­pen­dent pop­u­la­tion, free­ing up re­sources to in­vest in peo­ple and cap­i­tal. This pro­duced higher growth and liv­ing stan­dards.

Such a div­i­dend can run for decades. And, for China, it has, though it is now reach­ing its con­clu­sion. For In­dia and other de­vel­op­ing coun­tries, how­ever, the de­mo­graphic div­i­dend is just start­ing to be felt. In fact, fully 90% of global poverty is con­cen­trated in coun­tries with grow­ing workingage pop­u­la­tions, cre­at­ing an im­por­tant op­por­tu­nity for rapid poverty re­duc­tion in the com­ing decades.

For ex­am­ple, in Sub-Sa­ha­ran Africa, which is cur­rently plagued with high lev­els of ex­treme poverty, chil­dren un­der 15 years of age ac­count for 43% of the to­tal pop­u­la­tion. When th­ese chil­dren are old enough to en­ter the labour force, the pro­por­tion of in­come-earn­ers in the econ­omy could be in­creased sub­stan­tially, boost­ing av­er­age per capita in­comes.

But not all coun­tries are set to ben­e­fit from a “youth bulge.” Be­tween now and 2030, sev­eral mid­dle-in­come coun­tries will ex­pe­ri­ence a de­cline in the share of the work­ing-age pop­u­la­tion. Among other things, this re­flects the ten­dency, sup­ported by em­pir­i­cal ev­i­dence, for higher in­comes to im­pel house­holds to de­lay hav­ing chil­dren.

Even here, how­ever, the de­mo­graphic news is not all bad – and not just be­cause the shift from higher to lower fer­til­ity typ­i­cally cor­re­lates with a shift from lower to higher life ex­pectancy. His­tory sug­gests that there is a sec­ond type of de­mo­graphic div­i­dend – one that ac­tu­ally lasts longer and is more durable than the first – which emerges when the ac­cu­mu­lated savings of an ag­ing pop­u­la­tion pro­duce a surge in in­vest­ment. Many wealth­ier coun­tries have fol­lowed this path.

But reap­ing a de­mo­graphic div­i­dend takes work. As the World Bank Group’s 2015/2016 Global Mon­i­tor­ing Re­port em­pha­sised, coun­tries’ pol­icy re­sponses make all the dif­fer­ence in how de­mo­graphic trends af­fect the well­be­ing of the pop­u­la­tion. With the wrong ap­proach, a surg­ing youth pop­u­la­tion can be desta­bil­is­ing, and a rapidly ag­ing pop­u­la­tion can be­come a bur­den on eco­nomic growth and pub­lic bud­gets.

For coun­tries with a grow­ing work­ing-age pop­u­la­tion, the key chal­lenge is to gen­er­ate a large num­ber of pro­duc­tive jobs. For those with an ag­ing pop­u­la­tion, it is to im­prove pro­duc­tiv­ity and adapt so­cial-wel­fare sys­tems. In both cases, in­vest­ment in hu­man cap­i­tal and an en­abling en­vi­ron­ment for busi­nesses to boost em­ploy­ment are es­sen­tial.

Fur­ther­more, coun­tries should take ad­van­tage of dif­fer­ences in their de­mo­graphic sit­u­a­tions with ap­pro­pri­ate poli­cies on cross-bor­der cap­i­tal flows, mi­gra­tion, and trade. More cap­i­tal should flow to coun­tries with younger pop­u­la­tions – with their grow­ing man­u­fac­tur­ing bases and con­sumer mar­kets – to sup­port in­vest­ment and em­ploy­ment growth; and more labour should flow to coun­tries with ag­ing pop­u­la­tions, to fill gaps in the work­force.

For all of th­ese poli­cies to work, coun­tries need to im­prove the ef­fec­tive­ness and cred­i­bil­ity of their civic and govern­ment in­sti­tu­tions. Mit­i­gat­ing un­cer­tainty, in or­der to avoid fu­elling in­sta­bil­ity, is also es­sen­tial.

The last 35 years prove that a larger pop­u­la­tion does not have to be poorer. While the in­creas­ing con­cen­tra­tion of the poor in frag­ile and con­flict-af­fected coun­tries will com­pound the chal­lenge of poverty re­duc­tion over the next few decades, this is no ex­cuse for not en­sur­ing con­tin­ued progress. We have the re­sources and knowledge to achieve far greater pros­per­ity, eq­uity, and sus­tain­abil­ity. The real chal­lenge will be to use them ef­fec­tively.

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