Those Who Want to Boost the Global Economy Should Have More Kids
Editors' pick: Originally published July 21.
The Brexit will almost surely hurt economic growth across the world, but the sharp pain of the U.K.'s decision to leave the European Union is small compared with the economic cancer of slowing productivity growth.
But that isn't even the biggest challenge the global economy faces. There is an even bigger problem that will hurt economic growth for generations.
We are living through the biggest demographic shift in history. There are simply not enough young people in the world.
Very soon, the number of people over 30 will outnumber those under 30. And by 2020, the number of those 65 and older will outnumber children under 5.
Economic growing pains are being replaced by the aches and pains of an aging population.
The shift in age demographics is worldwide. The global workforce is shrinking as a greater percentage of the population reaches retirement age.
A smaller workforce is a major reason for slowing gross domestic product growth and lower productivity all over the world. Added to that, workers face greater pressure to support an older population.
How much is the world's population aging by? By 2050, global life expectancy is expected to reach 77.1 years, compared with 48 years in 1950.
Over a period of 100 years, life expectancy will have climbed by 29 years or 60%. The global population of those over 60 is expected to skyrocket to 2.1 billion in 2050 from 901 million.
Two-thirds of the increase will be in Asia, and China alone will see 21% of the world's increase in those over 60.
The increase in human lifespan is a marvel of modern medicine. It is something that the human race has wanted since the dawn of time, but from an economic perspective, it is also a massive burden.
The impact that this increase in human longevity will have on global economics can be seen by looking at support ratios.
A support ratio is the ratio of a nation's working age population (15 to 64) to its old-age population (65-plus). It reflects the number of workers who support through a country's social support system the old people who can no longer work.
The global support ratio has been steadily falling to 8:1 in 2013 from 12:1 in 1950. In developed economies it is even less, standing at 4:1 in 2013.
It will continue to fall to 2:1 in developed economies by 2050, as fewer new workers are entering the workforce.
For some economies, this year is an especially critical time. The absolute number of people 15 to 64 in those countries will decrease for the first time since 1950.
Countries such as Italy, Germany and Japan have already started to see their labor supply shrinking. Japan could see its workforce shrink by as much as one-third by 2050.
China's workforce likely began shrinking last year after doubling in size since 1970.
Global GDP grew by about 500% from 1964 to 2014, mainly because of large increases in productivity and rapid growth in the labor pool.
But as the workforce shrinks and productivity growth declines, global GDP will struggle.
Global GDP growth has averaged 3.5% for the past 50 years. In that time, contributions from growth in the labor supply and productivity were about equal.
Management consultant McKinsey thinks that average global GDP growth could decrease to 2.1% over the next 50 years. It anticipates labor growth will almost disappear as a source of economic growth (see the figure below).
And thinking that productivity growth will make up the difference is very optimistic, especially considering recent trends.
Is there an economic silver lining to this huge demographic shift? A small one.
Supporting more old people will cause a larger burden on the workforce, but it will be reduced by having to support fewer children. Additionally, there may be more opportunities for investment as savings build up.
Also, slowing labor and productivity growth may drive companies and governments to be more innovative. New policies, new approaches and new technology, such as improvements in robotics and artificial intelligence, may further improve economic growth and quality of life.
But these benefits are still small by comparison. It is simply a reality: Lower economic growth will become the new normal in coming years.
Kim Iskyan is the founder of Truewealth Publishing, an independent investment research company based in Singapore. Click here to sign up to receive the Truewealth Asian Investment Daily in your inbox every day, for free.
This article is commentary by an independent contributor.