Wednesday, September 15, 2010

Young Or Old: There's No Sure Formula For Gold

Today, propelled by Deng's 'one child' policy of the 1970s, China is growing old very fast. Two forces are at work. One is making people live longer, creating more old people in the population; but at the same time, the one-child norm is reducing the number of young people in the country. China's demographic tailwind could rapidly become a headwind. The growth of China's labour force could end by 2030, beginning a decline of the kind seen in today's slower western economies. The demographic bonus could vanish.

Such a rapid ageing is usually seen in mature, urbanized, industrialized economies that have grown over centuries. By the time these countries had grown old, they had also grown rich, like the US and Japan. BRICs estimates suggest that by 2030, China's best case would be a per capita income of $22,000 against the US's $61,000, Japan's $60,000 and Germany's $51,000.

But all is not lost yet; there are interesting counter-cyclical trends which could blunt China's population deficit. For one, the quality of China's workforce could be superior, as parents lavish all their love, affection and resources on a single child. The 'education quotient' per child is also likely to be much higher than earlier averages, as the 'one child' generation goes through China's high quality schools and colleges.

So on a 'quality adjusted labour supply' basis, China may not face shortages of the kind that a pure mathematical model may throw up. To cap it all, China is looking to ease its one-child norm, which could swivel the current dynamic in a positive direction. In July 2009, Shanghai became the first city to launch an aggressive campaign to encourage more births. But the initial response, especially from urban areas, has been lukewarm. Finally, there are many economic sectors that actually benefit from an ageing population. Insurance, pharmaceuticals, biotech, health foods, pension and wealth-enhancing financial services, vacation homes, nursing homes-there are many businesses that will grow as relatively wealthy Chinese grow old!

Since half a billion of its people are under twenty-five, India still has a few decades to go before an ageing crisis hits the country. By 2020, the US could be short of 17 million people of working age, China 10 million, Japan 9 million and Russia 6 million, but India will have a surplus of 47 million people in the working age. If India can harness this population dividend by giving better health and education to its people, it could become the job exchange of the world. But if it fails to do that, India could become a job graveyard.

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