Tuesday, April 11, 2006

"China’s outlook for population aging, in sum, can in some respects be likened to a slow-motion humanitarian tragedy already underway."

Growing Old the Hard Way: China, Russia, India, via BrosJudd.

A superb article about the demographics/projected economics of the named nations.
I VERY highly recommend it.

16 Comments:

Blogger Harry Eagar said...

Still reading, but things look very grim for Orrin's Poles, don't they?

A catastrophe of biblical, or confucian, proportions seems to me to be the most probable future for China. Despite Richard Nixon's one-China policy, unity has never been the default state for China, and disunity has held down population there very effectively.

I wouldn't invest a thin dime in that place.

April 11, 2006 2:26 PM  
Blogger Harry Eagar said...

I'm putting my money on unimaginable catastrophe as the way out.

Eberstat did not mention that north India is full of Muslims, south India of Hindus. So there are not two Indias but three.

I don't picture north India's relatively larger, relatively and absolutely more illiterate and relatively and absolutely poorer Muslims acting as peaceful though deprived citizens of a great commonwealth.

The Russians, I suppose, can hope for global warming.

April 11, 2006 10:20 PM  
Blogger M Ali said...

This comment has been removed by a blog administrator.

April 12, 2006 6:20 AM  
Blogger M Ali said...

It's possible Muslim unrest might be a factor in India, although Kasmiris aside, they don't seem to have much use for AQ-style terrorism.

What is going to be a factor is caste antagonisms which will be aggravated if the Untouchable have-nots start getting significantly richer compared to the traditional village landlords.

Caste violence is already pretty common in Bihar and looks like it might get worse in Uttar Pradesh.

April 12, 2006 6:21 AM  
Blogger Harry Eagar said...

I wasn't thinking so much of AQ-style violence as good old-fashioned communal turbulence. Modern economies are not very resilient to that.

One thing that has struck me forcibly, though it's hard to cite chapter and verse, in my reading of British colonial administration is their abiding fear of Muslim 'disturbances.'

Despite AQ, Muslims in the 21st century are, overall, less 'turbulent' than during much of the 20th and 19th centuries.

The British authorities never worried much about whether actions affecting Buddhists in, eg, Malaysia, would have caused endless 'turbulence' in Hong Kong and Shanghai.

I take your point about caste troubles. I don't know how they would work out. Village by village violence, or a sort of reverse jacquerie everywhere?

In India, China and Russia, widespread revolt is still within living memory. Eberstat is comparing societies that have never been even a little bit stable with societies that were far less violent.

April 12, 2006 12:44 PM  
Blogger Duck said...

Can anyone tell me how the Muslims fit into the caste system? Are they considered untouchables? And how important is caste to the modern elements of the Indian economy. I can see how it would still be operative in the rural areas, but does it play a major part in the industrial and information economy?

There are many Indian contractors at my current company, and only one has a caste dot on his forehead.

April 15, 2006 8:12 AM  
Blogger Harry Eagar said...

It's pretty important when it comes to access to higher education, as a large fraction (half, I think) of places are supposed to be reserved to low castes.

There have been reports of high caste fathers trying to pass their children off (temporarily, one assumes) as low caste for college entrance.

There was a not unlike case in Maryland reported at a couple places (Volokh was one) this week, involving a father who had his sons genetically tested to see if they had some 'African' genes.

April 15, 2006 11:35 AM  
Blogger Hey Skipper said...

I happen to be the only American in an IT group composed mostly of Indians. We do have one Pakistani on board, though. Amazing how they get along tolerably well when the criteria is merit, rather than competing sky spooks, but that is a matter for another post.

The Indians I work with all agree that the caste system is completely indefensible. And they all agree that their equivalent to affirmative action is almost as bad. They'd make good Liberals. (capital-L with intent).

For most countries, the demographic bulge is a passing concern. There will be twenty or so years of various adjustments, which productivity growth will largely ameliorate.

Then the bulge will pass to its great reward, whatever that might be.

Russia, though, is an entirely different kettle of fish. It spans eleven time zones with a population scarcely more than half the US's (which is amazingly empty west of the Mississippi).

For a variety of reasons, none even remotely approximating good, the Russian population will almost certainly decrease by (IIRC) 35% by 2025.

That's a recipe for implosion.

April 15, 2006 2:55 PM  
Blogger Oroborous said...

For most countries, the demographic bulge is a passing concern. There will be twenty or so years of various adjustments, which productivity growth will largely ameliorate.

That may be true for most countries, but perhaps not for Japan, Western Europe, and North America, where rich societies, healthy populations, and democratic governments will result in the concern being somewhat less passing, and rather more of a fixture. In those places, I predict forty or so years of adjustments - beginning now.

The good news is that advancing technology will help to keep productivity growth high, at least in No. America, where social and demographic factors will create the world's most optimal environment for adoption of that tech.

In fact, by 2050 I believe that America's share of the official, recorded world economy will be up from about a quarter to well over a third, perhaps as high as 40%.

I don't know if the 21st century will end with America still on top, but conditions couldn't be much better for the U.S., relative to the rest of the world, through mid-century.

April 15, 2006 10:30 PM  
Blogger Harry Eagar said...

I just finished Marc Levinson's 'The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger,' which is the best kind of business history (and quotes Joel Mokyr, one of very, very few economists that I can make sense of).

He notes, among many points that would interest Duckians, that in a global trade economy, it is impossible to lower your wages enough to compete if you are not near a modern, big and well-managed container port. And that Africa does not have one.

(This is analagous to the comment I heard many years ago from a Silicon Valley venture capitalist, who asked us the question, what is the primary factor in the sucess of a research and technology park? His answer was, it has to be close to an Interstate highway interchange. Having a world-renowned research university nearby turns out not to count for much. See Sophia Antigone.)

His example: It costs $2,500 to ship a container from Baltimore to Cape Town, $7,500 to truck it the 215 miles to Lesotho.

Lesson: the future will continue to pass Africa by, even if -- by some miracle -- it fixes its other problems.

If true, then all the demographic doom and gloomers will have to deduct the population increase of Africa, which won't count for anything.

April 17, 2006 11:53 AM  
Blogger Bret said...

Oroborous wrote: "In fact, by 2050 I believe that America's share of the official, recorded world economy will be up from about a quarter to well over a third, perhaps as high as 40%."

Wow. That's quite a claim. I'm wondering if you could elaborate a little on what the worldwide scenario will look like if America's share of the economy gets that big.

In particular, lagging countries tend to pulled forward by the leading ones since it costs little to absorb technology created by others. For the rest of the world to become that bad at absorbing knowledge and technology from the lead country (the United States) implies some sort of really catastrophic scenario seems to me.

April 17, 2006 3:28 PM  
Blogger Oroborous said...

All figures are in 2005 dollars, including 2050 projections.
My assumptions are that:

Russia is an early-twenty-first-century basket case.
Their oil and natural gas will largely run out, depriving them of their current economic-growth engine, and their population will shrink to perhaps 60 million.
They might come back towards the end of the century, but by 2050 they'll be a much smaller factor than they are now - and, economically speaking, they aren't that big a factor now.

Western Europe will grow slowly, if at all, over the next forty years.
Their demographic and racial/ethnic situations, combined with their social structures, will cause them to be constantly embroiled in racial, cultural, and generational conflict over the coming decades, and they'll spend all of their economic capital on trying to support their Boomers' retirements.

Eastern Europe and Central America will grow rapidly, due to the EU and CAFTA, but they're all small nations, and most of them are starting with very tiny economies.

India will grow rapidly and constantly, but they're starting from a base GNP of less than US$ 1 trillion.
Even if we assume that they could maintain an annual average real economic growth rate of 7% for the next 45 years, which seems very unlikely to me, their GNP in 2050 would be only ~US$ 24 trillion, or about half of the $ 50 trillion that my mid-range scenario estimates that the U.S. economy will be producing in 2050.
Further, they are experiencing the same demographic trends that every other advanced nations is, and in their most urbanized/educated areas, the fertility rates are the lowest.
The most likely case is that their 2050 economy will produce US$ 9 trillion, or less.

Japan and South Korea's demographic structures will limit their growth. Both will have smaller populations in 2050 than they do now. Japan's economic output will be smaller in 2050 than it is now.

South American economies are currently very dependent on agriculture (including fish farming) and natural resources.
While demand for both will grow, raw materials and commodities aren't typically reliable national routes to lasting wealth.
Brazil is attempting to become a more industrial nation, to capture more value-added profits.
My assumption is that South America will grow more rapidly than Western Europe, but less rapidly than India.

Australia and New Zealand will grow modestly, but Australia is hampered by a lack of skilled labor, and New Zealand is a tiny nation, with a smaller population than Israel.

Africa will be the 21st Century's "China story". The necessary infrastructure improvements that Harry speaks of will be made in many nations, and the continent as a whole will grow rapidly.
However, the oil will be mostly gone by 2050, and aside from the oil, Egypt, and South Africa, the continent is roughly starting from zero - base subsistence.
In 2100 Africa may be a power player, but in 2050 they'll still be small potatoes.

About Singapore, Malaysia, Indonesia, the Philipinnes, and the rest of Asia, sans China and North Korea, I have no guess. My assumption is that none of them will become economic powerhouses on a global scale, although many of them may do very well.
North Korea will rejoin the community of nations, but won't be healed by 2050.

China is a hard one.
If we assume that they continue to grow rapidly, at say 6% a year, then by 2050 their economy would produce US$ 24 trillion.
However, assuming that they could keep up a real growth rate of an average of 6% annually for the next forty-five years is, as in India's case, extremely unlikely.
Their demographic situation is horrible, possibly the worst of any major nation save Russia. Their political situation cannot hold. Can. Not.
Under the most likely best-case scenario, China produces US$ 11 trillion in 2050.
Under the worst-case non-nuclear-war scenario, they have a civil war sometime in the next three decades, and produce US$ 3 trillion in 2050.
As Harry noted, foreign investors in China have to be looking for the quick buck, 'cause the long-term money is very iffy.

The Middle East will be in dire trouble by 2050.
They have large and growing populations, and depend almost entirely on a wasting asset, oil.
By 2050 two-thirds or more of their oil will be gone, and they'll be trying to support populations that will be 50% larger, on 50% of the revenues that they now receive. Per-capita income will be a third, or less, of what it is now.
Few Muslim-majority nations have thus far shown any ability or inclination towards manufacturing or knowledge industries, so my guess is that by 2050 Jordan, Pakistan, Qatar, and the UAE, nations that have shown some ability, will have larger economies than either Arabia or Iran.
Iraq is another hard one.
Assuming that the nation of Iraq still exists in 2050, they ought to be doing quite well, and have diversified from dependence on oil exports.
If they split into three, then at least the Kurds ought to do OK.

That leaves North America.
If we consider the NAFTA nations as a unit, we don't see the demographic crisis that we see in Europe, India, or Asia. Fertility has slowed in N.A., but later and less than in the EU, India, and Asia.
N.A. is far richer than India or China, allowing us to ride out our smaller generational crisis more easily than they can, and our economy is far more dynamic and adaptable than is the EU's.
Note too that by 2050, the center of global oil production is likely to be No. America, as the African and Middle Eastern reserves of cheap oil are depleted, and we exploit much more of the hard-to-produce reserves in Canada, America, and the Gulf of Mexico.

If we assume an annual real economic growth rate of 2%, by 2050 the U.S. GNP will be $ 30 trillion.
If 3%, $ 50 trillion.
If 4%, $ 75 trillion.

By way of comparison, between 1928 and 2003, the U.S. economy grew at a real average annual rate of 2% per capita. And between 2006 and 2050, the U.S. will be adding population at a much faster rate than any other of the world's current ten largest economies.

By 2050, we're likely to have a population of 500 million. Due to an increased rate of technological development*, compared to 1928 - 2003, I believe that between 2006 - 2050, we'll see an average annual real rate of per capita economic growth of 3%.
If we combine both projections, we get a forecasted 2050 U.S. GNP of $ 80 trillion.

Even if economic growth remained at the 20th century rate, and the American population of 2050 was only 400 million, the 2050 GNP would be $ 40 trillion.

So, in 2050, the economic output in 2005 dollars of various nations might be:

U.S. :................$ 50 trillion
EU :..................$ 20 trillion
India :...............$ 10 trillion
China :..............$ 10 trillion
Rest of the world: $ 40 trillion

Or maybe:

U.S. :................$ 80 trillion
EU :..................$ 30 trillion
India :...............$ 15 trillion
China :...............$ 3 trillion
Japan :...............$ 3 trillion
Rest of the world: $ 40 trillion

* Including automation and information technology, and biotech, which will make us more productive by reducing illness and infirmity, and delaying the onset of "old age".

April 18, 2006 2:33 AM  
Blogger Harry Eagar said...

All reasonable or at least plausible assumptions, except about Africa.

But, as Pat Michaels says about climate predictions, making projections 50 years in the future is unlikely to work out.

I just don't buy demographic correlations with economic output. Look at Switzerland.

April 18, 2006 9:20 AM  
Blogger Susan's Husband said...

With regard to Africa, while the point about container ports is significant, it seems that the reason Africa doesn't have a well managed container port is the same reason it has all of its other problems. Should a set of contiguous nations in Africa get their act together, building a usable container port would not be hard.

April 18, 2006 2:13 PM  
Blogger Bret said...

Oroborous,

As usual, a well thought out and detailed response to my question. As I suspected, your analysis (U.S. economy as high as 40% of world economy) is based on the rest of the world being governed even more poorly than it currently is ("Russia ... basket case ... Western Europe ... constantly embroiled in racial, cultural, and generational conflict ... China ... civil war ... Middle East ... dire trouble," etc.) and our government continuing with more or less it's current level of effectiveness.

That's a very, very dark picture that you're painting for this century, so I sure hope you're wrong. I'm wondering if the United States can really do so well if the rest of the world is having such a hard time.

I don't happen to share your pessimism for the rest of the world. I think that the demographics you mention, while negative, won't have quite as big an impact as you foresee. I think that China can bounce back very quickly from a civil war, if that should occur.

Also, I notice that you're using exchange rate GDP numbers instead of PPP GDP numbers. I generally prefer the latter and it makes a major difference in the calculation. For example, by PPP GDP, India is currently at $3.7 trillion instead of less than $1 trillion. Changing just this measurement changes your first table to approximately:

U.S. :................$ 50 trillion
EU :..................$ 20 trillion
India :...............$ 45 trillion
China :...............$ 45 trillion
Rest of the world: $ 40 trillion

Which would put the United States at 25% (up from 20% currently). That seems more plausible to me.

April 18, 2006 10:27 PM  
Blogger Harry Eagar said...

At some point, which probably passed a while ago, these breakneck backward economies are going to have to start accounting for costs, notably clean air and water.

I was talking to an economist last summer who had just gotten back from some city in China none of us have ever heard of, although it has a population of 8 million.

He described an exciting takeoff from the airport, which is a single strip, right downtown, with no terminal (you just walk out over the pavement from the street). It was exciting because right next door is the city's sole, soft coal powered electricity generating station, which was spewing impenetrable black smoke across the runway.

No way are India and China going to maintain these very high expansion rates, if, indeed, they really are achieving them today.

April 19, 2006 11:23 AM  

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