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Chapter 2. Stopping at Seven Billion: The Demographic Bonus
In contrast to these countries whose future is fading, countries that have quickly reduced birth rates are benefiting from what economic demographers have labeled a “demographic bonus.” When a country shifts quickly to smaller families, the number of young dependents—those who need nurturing and educating—declines sharply relative to the number of working adults. In this situation, household savings climb, investment rises, worker productivity increases, and economic growth accelerates. Since European countries did not experience the rapid population growth of today’s developing countries, and therefore no rapid fall in fertility, they never experienced a demographic bonus. 28
Virtually all countries that have quickly shifted to smaller families have benefited from the demographic bonus. When Japan cut its population growth rate in half between 1951 and 1958, for instance, it became the first country to benefit from this bonus. The spectacular economic growth in the 1960s, 1970s, and 1980s, unprecedented in any country, raised Japan’s income per person to one of the highest in the world, making it a modern industrial economy second in size only to the United States. 29
South Korea, Taiwan, Hong Kong, and Singapore followed shortly thereafter. These four so-called tiger economies, which enjoyed such spectacular economic growth during the late twentieth century, each benefited from a rapid fall in birth rates and the demographic bonus that followed. 30
On a much larger scale, China’s sharp reduction in its birth rate created a large demographic bonus and a population that saves more than 30 percent of its income for investment. This phenomenal investment rate, coupled with the record influx of private foreign investment and accompanying technology, is propelling China into the ranks of modern industrial powers. 31
China is the most highly visible of a second wave of countries that are likely to benefit from the demographic bonus. The Population Action International study indicates that other countries with age structures now favorable to high savings and rapid economic growth include Sri Lanka, Mexico, Iran, Tunisia, and Viet Nam. 32
After a point, growth in the labor force begins to slow as the results of the falling birth rate are reflected in the shrinking number of entrants into the labor force. This in turn leads to higher wages. Women respond to these by entering the work force, which contributes to a further decline in fertility—one that in some countries is leading to an actual decline in population size. 33
28. For a discussion of the “demographic bonus,” see U.N. Population Fund, The State of World Population 2002 (New York: 2002), and Cincotta, Engelman, and Anastasion, op. cit. note 22, pp. 33–36.
29. Population growth from United Nations, op. cit. note 1; Japan economic expansion from International Monetary Fund (IMF), World Economic Outlook Database, at www.imf.org/external/pubs/ft/weo, updated April 2004.
30. Birth rate data from United Nations, op. cit. note 1; economic expansion from IMF, op. cit. note 29.
31. Birth rate data from United Nations, op. cit. note 1; economic expansion from IMF, op. cit. note 29.
32. Cincotta, Engelman, and Anastasion, op. cit. note 22, p. 36.
33. Ibid., p. 36.
Copyright © 2004 Earth Policy Institute