The traditional World power structures are being radically altered. The developed countries of the west are struggling to compete with rising powers in the developing world. Much of this struggle is along the lines of natural resources and the outsourcing of cheap jobs, but developing countries have one major natural advantage that the Western world cannot compete with and that is their large and youthful populations. This natural asset is a huge factor in the growth we see in many up and coming country’s. According to the C.I.A Fact book, India has a median age of 25.9 years old, Brazil is at 28.9 years old, Indonesia is at 27.9 years old and Mexico has a median age of 26.7 years old. These are major up and coming markets, countries where jobs are being outsourced to and which are receiving an incredible amount of foreign investment. Besides being young many of these emerging economies most notably China and India have populations that are infinitely larger than the United States, which is the third runner up. Having a large population leads to a large number of professionals and production as a result (even in the face of mass poverty). On the flip side, the traditionally large developed economies have much older populations. The United States has a median age of 36.8 years, Japan 44.6 years and Germany 44.3 years. These countries represent the 1st the 3rd and the 5th largest economies respectively. In terms of sheer number of people the United States and Japan are the only two countries that are in the top ten most populated countries. The gap in workforce is also continuing to rise dramatically. Between 2000- 2009 India grew by roughly 153 million people and China grew by around 70 million. The United States grew at approximately 25 million people, slightly less than Nigeria, Pakistan and Indonesia and slightly more than Brazil. Japan managed a meager 350,00 person growth rate and Russia (which is arguably semi- developed) declined by more than 6 million in size. The ultimate question is of course, why is this an intrinsic advantage for the developing countries of the world? Having a young population shores up welfare spending, leads to the growth in new manufacturing markets and makes the professional sector more internationally competitive.
Developed countries are in the dilemma of investing an enormous amount of their national budgets for taking care of their elderly, an investment that leads to no returns. The United States invests tremendous amounts of its GDP on welfare of retirees namely Social Security and Medicare. The Following chart from The Congressional Budget Office shows the increase of spending on Social Security from 1962 to its projections on what spending will look like in 2082 if the system is radically reformed.
The European Union is not devoid of elderly spending either. Its comprehensive welfare state mixed with its aging population is not sustainable. The New York Times elaborates on the age shift in the European Union,
“According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1.”
The graying of Europe has undoubtedly put a massive stain on its resources. The New York Times furthers,
“With the retirement of the baby boomers, the number of pensioners will rise 47 percent in France between now and 2050, while the number under 60 will remain stagnant. The French call it “du baby boom au papy boom,” and the costs, if unchanged, is unsustainable. The French state pension system today is running a deficit of 11 billion Euros, or about $13.8 billion; by 2050, it will be 103 billion Euros, or $129.5 billion, about 2.6 percent of projected economic output.”
Below is a table from CBS and Eurostat on the national spending on Social Security in the Euro zone as it relates to old age.
As we can see the developed Euro zone is growing older and as a result it needs to designate a higher percentage of its budget to maintaining the so called “nanny state.” Isabel Sawhill co-director of the Center for Children and Families at the Brookings Institution illustrates,
“A nation that neglects its young is, arguably, a nation without much of a future. The choice is ours. We need to invest more, and more smartly, in the education and training of the current workforce and the next generation, to provide excellent early education for every disadvantaged child, dramatically improve the quality of teaching, and establish national standards for what all children should know. To fund these goals, we need to gradually reallocate public spending from the elderly to the young. Almost half of current federal spending is dedicated to the elderly, and seniors could absorb virtually all-federal revenues in just a few decades. We need to rein in the growth of Social Security and Medicare in order to invest in early childhood education and health programs, some of which have a track record that would make a venture capitalist drool.”
Developing countries that do not have this aging problem are free to spend their money on investments that bring returns like education, infrastructure and research and development.
Malini Bhupta of India Today writes, “Given that economic growth is being driven by domestic consumption, industries linked to indigenous demand will rebound faster than those sectors and companies indexed to the US economy like the IT services industry. With the Indian Government planning to pump in $100 billion into infrastructure development, this sector will see a surge in demand for people in times to come. “
Bhupta links a sound infrastructure with economic vitality. Currently India is constructing a 3,625-mile superhighway to link Delhi, Mumbai, Chennai and Calcutta to accommodate all the new drivers on the road. This highway will make trade and transportation across the country both easier and quicker. Ambitious infrastructural projects are not limited to India alone. While China is aging like the United States and Europe its retirement benefits are not nearly as extensive and its youth workforce is several times larger. As a result it has been able to pump money into projects such as connecting its oil pipelines to that of Kazakhstan’s thereby ensuring a steady supply of natural resources. Not all young developing countries are spending their money wisely. As I mentioned before Indonesia is one of the emerging Asian tigers, yet UNESCO Institute for Statistics (UIS) reports that only 1.5 % of its total annual expenditures goes into education. The major point is that these younger countries with less extensive social welfare systems have an extreme advantage in terms of how they can allocate their spending. Whether they utilize this to their full advantage is another question.
The largest growth in developing countries has been in the industrial sector. Likewise, manufacturing jobs have been on of the largest losses in older more developed countries (China again being the exception in terms of older countries.)
“For the first time since the industrial revolution, fewer than 10% of American workers are now employed in manufacturing. And since perhaps half of the workers in a typical manufacturing firm are involved in service-type jobs, such as design, distribution and financial planning, the true share of workers making things you can drop on your toe may be only 5%.”
Where we have been losing jobs developing countries have been gaining. The World Institute of Development Economics Research (UNU- WIDER) elaborates,
“In other developing countries, such as Brazil, Mexico, India and China, there were early beginnings, but for a variety of reasons, industrialization did not really take off. After 1950 this changed. Most developing countries experienced rapid structural change with large declines in the share of agriculture, and increases in both manufacturing and services. The pattern of structural change differed from that in the past. The service sector was already large in 1950 and its share increased in parallel with that of manufacturing.”
The Service sector and the manufacturing sector are the two largest sources on economic vitality in developed countries. Whether it is in the form a textile mill in Tijuana or an IT office in Bangalore, large, developing countries with youthful populations are becoming increasingly competitive. The fact that they represent untapped cheaper labor is a big factor, but without the youthful market presence the jobs wouldn’t be moving there.
In the same way manufacturing is becoming increasingly competitive there has been an explosive growth in the professional sector in many developing countries. In this aspect countries with large populations have the most advantage. With an increase in economic growth the number of college graduates has exploded in India and China.
Rediff India Abroad elaborates, “ The India Science Report, for instance, shows that India had a total of 48.7 million graduates in 2004, up sharply from 20.5 million in 1991. And while just around 29 per cent of those enrolled for graduate courses went in for science in 1995-96, this is now up to 35 per cent.”
China’s population of current students and alumni is even more impressive.
The People’s Daily Online reports “The number of people in China with at least a bachelor's degree surpassed 70 million, the second highest in the world, according to a report released by the Ministry of Education on May 27.”
Developed countries like Germany or France will never be able to maintain the number of professionals India or China has simply because of sheer size. As a result of this explosion is secondary education you already seen a growth in industries that has typically been dominated by developed countries.
If the European Union, the United, Japan and the rest of the developed world want to stay competitive they have to find ways to change their demographic trends. Whether this means attracting more immigrants, cutting services, or proving incentives for children, reform is vital. While the United States is not nearly in as bad of shape as Europe, it still has a larger elder population than our up and coming rivals. Making investments in things that provide no returns will ultimately led to the competitive down fall of the developed world.
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