‘Changing demographics heart of economic future’

At Herzliya Conference, economic experts note changing conflicts hold the key to understanding where the economy is headed.

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March 14, 2013 03:20
3 minute read.
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Euro symbol near European flags 311. (photo credit: REUTERS/Francois Lenoir)

 
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The reverse of the oft-used cliche “the children are our future” is equally true, economic experts at the Herzliya Conference noted on Wednesday: lack of children are also our future.

Changing demographics and an “intergenerational conflict” hold the key to understanding where the world economy, and the politics around it, are headed, experts from Israel, China and the US pointed out.

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“This is a phenomenal issue that we have not even begun to think about,” says Andrew Sheng, chairman of Hong Kong Securities and Futures Commission.

The Arab Spring, for example, can be understood through a demographic lens.

Autocrats’ inability to produce jobs in keeping with a growing population led to large numbers of unemployed youth, rife for revolution.

“Within the Arab Spring, it really is a demographic story.”

In the next generation, there are four population groups, amounting to nearly a billion people, projected to cross class lines: first in China, then in India, followed by the Muslim population in Asia and then in Africa and Latin America.



“Asia is really benefiting from that demographic trend, but Japan in particular is suffering,” he says.

Former Bank of Israel governor Jacob Frenkel said in Japan, the population will remain stable in the next 20 years, but the vast majority will be over 80 years old.

“If you are in any cohort below 80, you have less and less friends around you.”

In Japan, huge resources will have to be devoted to caring for the elderly, just as the US must deal with the baby boomer generation retiring.

In China, the population will be larger and older, though the bulge there will be in the 50+ category. In India, on the other hand, the population will grow by over 300 million people, rising in all cohorts.

“In Asia, the key issue is population,” he said.

And then there’s Africa.

“If the population that is born makes it, and that’s a big challenge that comes from health problems, it will be larger than it is now by 545 million.

It will be the largest continent.

It will be the youngest continent, with huge implications,” says Frenkel.

If all goes well, labor will be abundant and bring growth.

Otherwise, political strife could permeate the continent.

Daniel J. Arbess, a partner at Perella Weinberg Partners, agrees that much political strife can be linked to demographic changes. Intergenerational conflict, he says, is behind not only the Arab Spring but also the Five Star Movement in Italy and the Occupy Wall Street protests in America.

“Disaffection, disillusionment and despair” among young people drive all three, says Arbess. In the United States, even the educated youth have low job prospects and higher credit standards, while sitting on piles of student debt they are unable to pay off. Inflating student loans might even be the next financial bubble to burst.

And, of course, the greatest intergenerational issue is debt, which this generation takes on but the next generation has to pay off. The debt, said Arbess, will impose unprecedented difficulties for the next generation in the US.

“When OECD countries owe 100% debt to GDP, the real question is: Who pays? And that’s the heart of the issue,” says Sheng.

But the demographic situation isn’t totally dire in the US, at least. Among the reasons Arbess is confident the US recovery will take hold is its demographic profile, which he calls the best in the developed world.

For China, on the other hand, sustaining an enormous population is an economic and environmental challenge.

Niu Tiehang, editor-inchief of the Globalization Journal, puts it in a historical perspective. Since China began opening up its economy three decades ago, it has catapulted to the world’s second largest economy with 10% average annual growth by building up its exports. To continue growing, however, it needs to change its growth engines from exports to consumption.

If the population of China starts to consume the way Americans do, however, it will be an environmentally unsustainable disaster, robbing the country of its natural resources.

China must find a third way as it moves from a manufacturing economy to a knowledge economy, he says. Their motto needs to shift from “made in China” to “created in China.”

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