Lasting Situations of Wealth

The long-term nature of demographic trends means many factors in place today are set to play out in a predictable manner in the future. So while no one can precisely project the future, demographics often offer reliable paradigms for future trends.

DEMOGRAPHIC TREND #1:
Depopulation of Industrialized Nations
From an economic standpoint, two demographic categories figure prominently in long-term national wealth and prosperity: total fertility rate and immigration. Put simply, an industrialized economy requires people. People to work, consume, and pay taxes to provide government services. Since people don’t live forever, they must be replaced, either through the birth of children (fertility) or arrivals from other countries (immigration).

Fertility
The Total Fertility Rate (TFR) is a calculation of the number of children each woman bears in her lifetime. Worldwide, the United Nations states the TFR is currently 2.55. In general, a country must maintain a total fertility rate (TFR) of at least 2.1 to replace its native population. (For a representative sample of TFRs by nation, see the list on Page 6.)

Though over-population of the planet has been a concern of some social scientists since the 1800s, depopulation may actually be a greater immediate concern. The demographic trend of many developed nations is for older, declining populations, particularly among the developed nations of Europe and East Asia (China, Japan, and South Korea). This trend, already in place, presents some significant long-term economic challenges. In 2002, economist Paul S. Hewitt wrote a position paper titled “The End of the Postwar Welfare State” that outlined the economic consequences of depopulation.

Like it or not, our current economic and social organization depends on continued economic expansion. Without it, both government and private sector finances will become significantly more precarious. The most rapidly depopulating nations face the prospect of lengthy “aging recessions” characterized by a vicious cycle of falling demand, collapsing asset values, shrinking corporate profits, deteriorating household and financial institution balance sheets, weakening currencies, and soaring budget pressures.

Based on his assessment of the demographic trends in 2002, Hewitt concluded many aspects of “aging recessions” would begin appearing sometime after 2010, and continue for the next three or four decades. This assessment has thus far proved accurate. As of 2009, Japan, Italy and Germany are already experiencing population declines. In the countries of the former Soviet Union, the drop has been even steeper, due to a combination of declining birth rates and increased mortality.

Shrinking populations with a higher percentage of elderly put pressure on governments to continue to maintain social services, particularly old-age pensions. The problem is too many retirees and not enough workers paying taxes. The current recession has only aggravated this burgeoning problem, as evidenced by the financial distresses of the group of European nations, whose acronym is “PIGS” (Portugal, Ireland, Greece and Spain).

Remember that demographic trends often play out over long time periods. Once in motion, demographic trends are slow to change. Even if families in low-TFR countries begin to have significantly more than two children per woman, repopulation may not happen fast enough to replace all the old people dying. In fact, when the TFR falls below 1.7, most experts think a population decline becomes irreversible. Which means the survival of many countries will depend on immigration.

Immigration
Of the countries with the highest TFRs, a high percentage are on the African continent, and all have underdeveloped economies. Many of these countries also have higher mortality rates, typically due to substandard health services, disease, and/or civil unrest, so population may not increase significantly even with higher TFRs. The combination of poor living conditions and limited economic opportunity provides strong incentive for many to emigrate. These are the people that can become the “replacements” for dying populations in other countries.

If you check the list, you will see nations on every continent that have TFRs well below the replacement rate. In other words, there are a lot of places where immigrants would be considered coveted human resources.

But not every country or region that needs outside population support is considered a desirable relocation destination. Some depopulated countries don’t have the economic opportunities, some don’t have cultures that accept outsiders, and others have repressive governmental structures. (There are very few people trying to immigrate to Cuba.)

U.S. Demographics:  Near-Replacement + Immigration = Economic Vitality
Compared to other developed countries, the United States has a TFR almost at replacement, and the average has been inching upward over the past decade. In addition, the US remains an immigration destination of choice, both for individual freedom and economic opportunity. Even though immigration (both legal and illegal) has slowed during the recession, an estimated 1.5 million new immigrants have entered America each year during the past decade, according to the Migration Policy Institute.

Joel Kotkin is a researcher of global, economic, political and social trends, and the author of a new book, The Next Hundred Million: America in 2050. Kotkin sees good things ahead for America because of favorable demographics. As he writes in a January 23-24, 2010 “Culture” piece for the Wall Street Journal…

“As many other advanced countries become dominated by the elderly, the U.S. will have the benefit of a millennial baby boom as the “echo boomers” start having offspring in large numbers later this decade…

“Within the next four decades, most of the developed countries in both Europe and East Asia will become veritable old-age homes: A third or more of their populations will be over 65, compared with only a fifth of America… Like the rest of the developed world, the U.S. will certainly have to cope with an aging population and lower population growth, but in relative terms, the country will boast a youthful and dynamic economy.”

While illegal immigration remains a touchy political issue, Kotkin focuses on the positives of newcomers to America, saying “immigration represents a critical component of our next wave of dynamism…What drives immigrants is their optimism in America’s future.” Further, Kotkin believes the United States will continue to have an immigration advantage as “nations such as Sweden, Denmark and the Netherlands have turned against immigration” and “our prime Asian rivals – China, Japan and Korea – remain even more culturally resistant to diversity.”