Relentless Press, 304 pages, $19.99
Leaders need to know how to inspire and manage, and have a solid understanding of the policy field in which they operate. But that’s not enough. You can be blindsided if you don’t have an acute sense of the world outside your bailiwick and how trends might disrupt your plans or require a response sooner rather than later.
Economist-broadcaster Linda Nazareth offers some assistance in Economorphics, which looks at economics, demographics, and other changes that are set to influence our world – the trends that are turning today into tomorrow. “Thanks to the first two factors, our world is morphing into another one, an unfamiliar one to most of us. This change is being powered by a series of ‘economorphic trends’ that will transform our economy, sometimes for good and sometimes in ways we might not have bargained for,” she writes.
David Foote alerted us to the power of demographics in his best seller of the late 1990s, Boom Bust and Echo. It seemed we had become a nation of demographers, as his ideas resonated with the public. Nazareth focuses us on a particular element of demographics that she believes will transform our world: The “demographic window” which is being shut in the developed world, including Canada and our southern neighbour. The window is open when the percentage of the population under 15 is below 30 percent and the percentage over age 65 is below 15 percent. That particular demographic alignment propels economic growth, as the people in the labour force can easily handle the younger and older people who are dependent upon them.
The sweet spot occurs when a country moves from a situation of high birth rates and declining death rates to an era of declining birth rates and still-declining death rates. In that situation, the labour force is expanding more quickly than the youth dependent on it. More money is therefore being paid in taxes, fewer funds are going to education relatively speaking, and economic expansion is likely. She points to Ireland’s economic success in the 1990s as it happened to be in the sweet spot and attributes that fact for the country’s widely-hailed growth rather than the conventional argument which says that it arose from economic or tax policy. With a sharp increase in the working-age population relative to the birth rate, Ireland was groomed for growth.
“Overall, a country gets the most bang for its buck when the so-called demographic window is open – and that is a problem if you look at where things are in the world today. In North America the demographic window is still open, but only just: It opened in 1970 and will shut by 2015,” she writes.
Of course, other parts of the world differ. India’s demographic window opened in 2010 and will remain open for an estimated 40 years. Asia’s window opened in 2005 and goes until about 2040, and Latin America has a similar profile. Indeed, for the world as a whole, the window is open from 2005 to 2040. But our own window and that of Europe and Australia/New Zealand, areas to which we have the closest ties, are closing or have closed, and even China, the colossus that has a great impact on our economy, has only 10 more years before the window slams shut.
“Simply put, it means that the demographic circumstances that created many of our positive economic outcomes are disappearing. The new demographics will create an economic situation that is very different – unless policies are put in place to offset the adjustment,” she warns.
An example is the labour market. Today we fret about higher than preferred unemployment rates. But as the population ages, we are close to a time when there will be relatively high retirement rates relative to the low number of new labour force entrants. So unemployment would come down (unless other factors intercede, of course), and there will be upward pressure on wages and inflation.
Policy-wise, this would mean encouraging more people to enter the labour force and to stay there a longer time. We have scrapped mandatory retirement laws, as that was a human rights issue. But at a deeper level, we may become frantic for people not to retire and need to encourage that.
She asks: “How much have governments prepared for this hurtling train called population aging? Not enough. To put it mildly, government purse strings will be affected by aging. More people will be looking for pensions, and fewer people (again, relatively speaking) will be paying taxes. As well, there will be higher demand for health services, which typically must be paid at least in part by the public sector.”
She stresses that demographics are not destiny. But well-designed policies and safety nets will be required to handle the new picture. “At the heart of this entire issue is labour productivity: If you cannot get a larger mass of working-age persons to pay the bills, you need to get people working at more effective jobs, making more money and paying more taxes because they themselves are well-compensated. That takes macroeconomic and tax policies, and the right kinds of investments in technology, but if you push all the right buttons you can solve the problem of demographics,” she says.
She sets out 11 other trends, beyond the demographic window closing, to be alert to. These include:
• A world on the move: Globalization of goods and capital is being followed by a third wave, people, moving from place to place within a country and from one country to another. This unprecedented mobility will not be smooth for the people involved or the countries they enter, as existing citizens worry about being overwhelmed by the newcomers and question whether the influx will push down wages and push up unemployment rates. Interestingly, while Mexico is viewed as an exporter of people, she notes the country has become a destination for international migration, as its economic prospects seem promising.
• More urbanization: The world is becoming an increasingly urban place and cities have become more important as economic entities. Over the next 20 years, this will become a planet in which the majority of people live in cities of one size or another. “We will still be talking about the United States versus China, but increasingly we may also be talking about New York versus Beijing, or Seattle versus Ningbo (a port city in East China). When we talk about policy decisions in the future, we will increasingly be talking about those that come from municipal, not federal, governments,” she writes.
• A reshuffling of the economic deck: The economic hierarchy will be upended as Europe and North America lose power while Asia gains. The world’s 10 largest economies will soon have some unexpected members, with contenders such as Iran, Mexico, Turkey, Indonesia, Egypt, Nigeria, Pakistan, Vietnam and Bangladesh.
• An expanding global middle class: The middle class is shrinking in North America but globally a middle class will emerge, providing spenders from places like Asia to offset economic weakness in developed countries. By 2030, an estimated 58 percent of the world’s population will be middle class, more than double the 2009 figure. Many will be poor by our standards, with daily household expenditures of $10 to $100 per person, but in their countries that will gain them middle class status.
• North America class struggles: In North America a series of economic changes are creating a society where the rich are getting richer, the middle is losing some ground, and the poor are falling off the wagon. These changes will create a restructured economy, and perhaps some social issues that governments have to be sensitive to. “If people start believing that their prospects are diminishing, they are going to act differently than if they believe they have a strong chance to move forward,” she observes.
Economorphics, a word she coined, is a jarring, unappealing addition to the language, one we might prefer to do without. But Economorphics is a book that government executives can learn from, as they establish policies for tomorrow.