Driving To Our Demographic Destiny

Backstage

When speaking of large populations we think of China and India almost instinctually, since they rank first and second in the world respectively. At first view, these massively populated countries have some of the highest ranking Gross Domestic Products ($8.748 trillion and $3.57 trillion USD respectively). This appears to imply some relation between their size and their economies.

Around the world, thoughts considering India’s important position as an emerging market continue to brew, and China’s status as the next possible superpower is an issue sitting on the tip of our tongues. But like spectators watching a play, we are oblivious to the ropes and pulleys behind the curtains making the stage come alive.

[pullquote]The evidence is abundant: Governments are important for the economy.[/pullquote]

From backstage, the magnitude of China’s and India’s GDPs, which rank third and fifth in the world, seem like mere props. By taking a look at the standard of living for both of these countries, we can see that, despite large annual GDPs, the average income per capita in these countries rank quite low: both of their respective Incomes Per Capita are lower than Ecuador’s, where the population ranks 66th and the GDP ranks 65th, eking out just over 100 million dollars in 2009—a minuscule fraction compared to China’s or India’s GDP.

The unemployment levels in China and India are both higher than in Canada, a country with a GDP just over 1 trillion dollars. To see it from yet a different point of view, Luxembourg’s population size ranks 170th in the world (with just over 400,000 people), its GDP was only about 40 billion dollars in 2009, yet the income per capita levels ranked third in the world, higher even than Canada’s (over $79,000 USD); their unemployment levels were also lower.

Large GDPs are general indicators of the magnitude of the economy, which to a degree are influenced by the population size. Asserting the quality of the economy, however, is a bit more intricate than that. Remember, the people are gasoline; to know their condition, we must examine the engine that moves them: the government.

Examining the Engine

By looking at factors that developed nations have in common, we can apply them in developing a framework for what a healthy economy’s demographics should look like. Although population size may affect the size of the work-force, there are other demographic data far more influential of the living standards of the people and of the economy. The level of social security that a country offers has a strong influence on its demographic make-up: things like education levels, employment security and healthcare strongly impact fertility and birth rates, which in the end affect the economy.

York University Professor of Public Policy and Administration Thomas Klassen sat down with me to briefly discuss how governments influence the standard of living indicators, and what factors are really important to the health of the economy.

According to him, economies are determined more efficiently by their demographics, of which population sizes play only a small role. The grand scale of China’s economy is partly due to the fact that there are “relatively few young and old people…and many between 20 and 60 who are working.”

In India, there is an opposite trend as the country is running rampant with a lot of small children. Where there are fewer children and elderly people, the workforce is immediately boosted alone by the number of women who’ll be able to seek work instead of caring for large families—that is without considering the amount of money saved on public pensions and healthcare.

Small families are now the norm since most people don’t own farms which need to be toiled by succeeding generations. But perhaps the most influential factor in the reduction of family sizes is the provision of social security by governments. Public spending and pension plans mean that parents don’t have to have many children to care for them in their autumn years.

Furthermore, public spending allows families access to more resources which can reduce the number of unwanted pregnancies. In many poor countries, the high costs of contraceptives and healthcare, for example, deter individuals from getting them, spiking the number of unwanted births and shaping the demographics of the country.

The accessibility to education is also very important to the make-up of a country’s demographics. Research shows that higher levels of education lead to lower levels of unwanted pregnancies. In India, where the literacy level reaches a mere 61% of the population, the Demographics and Health Surveys programme showed that in 2006 the actual fertility rate was 2.7 (now 2.65), while the wanted fertility rate was 1.9.

The accessibility to basic and higher education in India are long-term challenges linked to the fact that India’s government spending and taxation as shares of its GDP are, according to the CIA World Factbook, “among the lowest in the world.” In contrast, in a country with a literacy rate like Canada’s (99%), the actual fertility rate is 1.58. Educated people are better able to plan for their future and the future of their children, making sending two or perhaps even three children to university much more plausible than sending seven or eight.

Educated people also have higher standards of living. Professor Klassen asserts that “countries with high education levels tend to have people who are wealthier” and who therefore contribute to a healthier economy. Individuals that are educated not only find better-paying jobs, but tend to find partners with similar levels of education. As their household income increases they are able to plan for their future more effectively by, for example, opening a savings account, or by investing their money, contributing again to the general economy. By subsidizing education and implementing social securities such as RESPs, for instance, governments can help the cycle continue and contribute to the growth of the economy.

The demographics of a country are largely affected by the level of social security that it offers, which consequently plays a huge role in the health of an economy.