This is the longer version of an interview that I conducted with demographer and economist Dr Richard Hokenson, founder of Hokenson & Company. A smaller version of the interview appeared in the September 25 edition of DNA and can be accessed here, but since some of the other interesting bits couldn’t be accommodated given the constraints of the print edition meant, I’m uploading the longer version here.
What are the most profound demographic trends influencing our world today?
Planet Earth is ageing. For the first time ever, we are confronted with a situation where generations are not replacing themselves in the population pool. We’re having more brothers and sisters than children, and the population pyramids are shrinking.
The global population today is 6.8 billion; it may never get to 8 billion, and start to shrink. When I first started to do this work 30-plus years ago, the major concern was population explosion: birth rates were high, and there was a group called the Club of Rome, which published a book The Limits to Growth, which said there would not be enough food, there would be wars and famines and pestilence and so on…
But birth rates peaked in 1971, when globally the average woman had five children each. Today, the birth rate is below 2.5 – close to the replacement level of 2.1 children per woman – and falling fast. Perhaps in less than 10 years, it will be below replacement level. So now we confront the issues of population implosion – a shrinking population
The worst example of that right now is Japan, which Japan represents the dark side of an ageing population: you get caught in deflation and you never get out.
But is population alone to blame for Japan’s predicament?
It’s a big part of their problem. They have other issues – the very high level of micro-regulation of the economy and their cultural unwillingness to accept immigrants. With an ageing population, you need more nurses and orderlies and assistants. Japan recognises the need, but instead of importing people with skills, they’re trying to build robots to do those functions! Forty per cent of the world’s robots are in Japan, although they’re mainly industrial robots.
So what are the social and economic implications of the ‘population implosion’ globally?
The biggest economic implication is that the world is engaged in a race to ‘zero interst rates’: a situation where interest rates remain very low globally, characterised by the lack of inflation.
If you do a supply side decomposition of GDP, in terms of labour force, productivity and so on, there’s a strong relationship between labour force growth and the level of interest rates. Labour force growth is slowing everywhere except in a handful of countries in Africa that see labour force growth rates accelerating; everywhere else they’re slowing. In India too, they’re slowing, although not by much.
That’s a very important implication: the labour force grows more slowly, and is shrinking in countries like Japan. In China, it will start to shrink in less than 10 years’ time.
As a result, we’ll all be working many more years. People can’t retire like in their parents’ generations because there aren’t enough workers to support them. And a ‘race to zero interest rates’ globally makes it difficult for people to save enough during their working years in order to retire. We see that tension in Greece and France today. People tend to think of an early retirement as an entitlement, since it was true of their father’s generation. The difference was that the father’s generation had a lot of kids, and the next generation did not. Economists think of it as a ‘free rider’ problem: since I will get the same retirement benefits irrespective of whether I had children or not, there’s no incentive for me to have children.
If you think back, just 100 years ago, retirement systems didn’t exist: before that, your only old-age insurance was your family. People worked on farms, and you had to have kids, who would take care of you when you’re too old to work. Now, we’re industrialised, we do intellectual work, and the need to have children doesn’t exist!
Since the earth’s natural resources are finite, isn’t a declining fertility rate a good thing?
In 200 AD, when the world population was a mere 250 million, a Carthaginian priest made alarmist predictions about pressure on resources. Down the ages, there have been many more such concerns. People generally want birth rates to fall because they believe that if everybody on earth had the same carbon footprint as the average American, we’d all be in bad shape. But Americans have a big carbon footprint because energy is too cheap: so it’s a mispricing issue. You don’t need to be a rocket scientist to figure that out. I live in Holland, which has the most expensive gasoline in the world: it’s the equivalent of about $8-9 a gallon, so virtually everyone uses a bicycle, most cars are small and fuel-efficient, and people just don’t have long commutes.
But aren’t some countries doing better on demographic trends?
Yes, India does better, as does Indonesia, Malaysia and the Philippines: their birth rates are still above replacement level. But even their birth rates are falling, but slowly. In China and Japan, they fell rapidly.
Is India really in a demographic sweet spot? What does it take to harvest that dividend, and what can go wrong?
India’s demographic pyramid is a nice one, but there are a couple of key issues. Economic development in Asia is driven by improvements in productivity as people move from agriculture to manufacturing or services. The poster child for this model is South Korea. In China, it was going the wrong way until 1979, when Deng Xiaoping implemented agricultural reforms.
In India, the trend is moving the wrong way: the number of people on the farm has quadrupled – in part because India tries to protect its farms: it’s very sensitive about being self-reliant in food. But you can protect farmers the wrong way by disincentivising them from becoming productive. The right way is to encourage people to be more productive – invest in tractors and so on – and free up surplus labour to come to the cities.
The second aspect is education: out of every dollar spent on education in India, 85% is spent at the university level. Unlike China or Japan, where literacy levels are high across the board, India has a relatively small cadre of very well-educated and well-trained workers and a big pool of semi-literate and illiterate workers. It needs to improve educational quality across the board – including for women. If India commits itself to investing to improve education quality, it could be the demographic powerhouse in 20 years.
And if it doesn’t, will that young jobless generation be throwing rocks on the streets?
I’m not sure if that’s the risk: but the sure risk is that you don’t fulfil your potential.
Thirty years ago, American companies began moving production to Mexico. Mexico knew it couldn’t hold on to them forever, that they’ll move to other parts of the world: what Mexico ought to have done – but did not do – was to improve the education quality of its workforce so they could compete for the better-paid jobs. That’s the lost potential: that’s why there are so many people coming across the border into the US.
What about changes in ‘religious demographics’ given the widespread fears of an ‘Islamisation’ of Europe and the influx into India from Bangladesh?
It’s the world’s biggest myth. It’s in the Muslim world that birth rates are falling the fastest, including in Uzbekistan, Saudi Arabia, the Emirates, Yemen and Iraq; in Iran it’s already below replacement level. And even in Afghanistan and Pakistan, it’s falling at a slower rate. When women from high birth rate countries move to low birth rate countries like those in Europe, they adopt the local standard. The fear about the ‘Muslimisation’ of Europe is based on false premises. The percentage of populations that are Muslim in Europe grows mainly because of immigration, as opposed to high birth rates.
But demographic change can also be brought about by proselytisation and Islam is the world’s fastest growing religious order…
Would it not be fair to have said the same thing about Christians 2000 or even 1000 or 500 years ago? I don’t think there’s much risk of that.
What accounts for the rage in Europe: the ban on the hijab and controversies over mosques and minarets?
It’s born of fear, but it’s not a legitimate fear. That doesn’t mean politicians don’t play on it. Particularly during difficult economic times, it’s easy to blame the immigrants.
There was this study that was done several years ago in America to assess how people felt about immigrants. It turned out that the people who lived the farthest away from the borders and had the least contact were actually the most open to immigrants. Elsewhere, people fear that immigrants will “take my job”, or their children will crowd out schools and they are a ‘burden’: I have to pay taxes to suppor them, and so on. The fact that very little of that is true doesn’t seem to matter much
I remember back in the early 1990s, when it became apparent that then President Clinton was going to substantially downsize the defence industry after the Cold War ended. The defence industry is a major employer in southern California, and people said, ‘We’re going to have all these engineers lose their jobs so we need to kick the immigrants out’. And they did – and erected fences along the border and put up checkpoints on Interstate 5. Well, the defence industry got downsized, but the engineers found employment in other industries, and people realised they needed the immigrants to mow their lawns and work in restaurants.
Do Muslim societies have high female literacy rates – and if not, are they susceptible to a ‘population explosion’.
They don’t, and that’s the critical issue. The most fundamental driver for lower birth rates globally is education and enfranchisement of women. If women get an education and that translates into economic opportunities, birth rates fall. Which is why when the Taliban goes in, they pull girls out of schools. It’s also an issue in Pakistan – and in some parts of northern India, where for instance, girls don’t go to school because schools don’t have toilets!
In Saudi Arabia today, there are more women enrolled in college than men; the same is the case with Iran. When Boeing sells a 747 to Saudi Air, there are twice as many rest rooms in the business class than on any other configuration. That’s because as the plane leaves Riyadh, women grab their cosmetic cases and run into the loo, strip off their burqas, wear a western dress and spend 30-45 minutes on their make-up. So, it’s changing for women in Saudi Arabia, although slowly. Likewise in the Emirates: these women will be catalysts for change in their country.
How much of China’s ageing problem is because of the one-child policy?
The consensus view is that if China reveres its one-child policy, it can solve its ageing problem. But I believe the one-child policy played a very minor role: birth rates had already collapsed in China when the policy was implemented. China could reverse the policy tomorrow, and not much would happen.
One other issue, especially in Asia, is that women who are not married don’t have children. Having children out of wedlock is inconceivable! What we’ve seen happen in China, Taiwan, and South Korea is a big decline in marriage rate and a big increase in divorce rate.
You see some of the same trends in southern India: India is actually two countries – south and north. The birth rate in the South is below replacement level, with lots of education and economic opportunities for women, big urbanisation and low birth rates.
Northern India, on the other hand, has high birh rates, reduced educational and economic opportunities for women. It’s starting to change, but the question is: how fast does the North look more like the South.
What are the social implications of gender ratio imbalance – the so-called ‘Six Brides for Seven Brothers’ phenomenon – in China and parts of India?
We don’t know; there’s no precedent. In China, there’s a shortage of brides. For several years, women of Chinese ethnic origin have been ‘bride-napped’ to China from Cambodia, Laos, Vietnam and Thailand. Will China therefore become more bellicose with this abundance of male testosterone, and men looking for women? There’s an argument on the other side: that countries are only likely to go to war if they have a surplus of sons. Will China go to war and risk the lives of its ‘only sons’? We don’t know.
Mother Nature has consistently produced 105 males to 100 females – across societies, time, and socio-economic categories. At every age, males are more likely to die than females, so you start off with a few more boys and by the time women reach reproductive age, there are at least as many men as women. But if you start off with 118, as in China, you’ll end up with too many men. That’s a problem.
Is it too late to change global demographic trends?
I won’t say it’s too late, but countries have for a variety of reasons been good at reducing birth rates, for example, with the introduction of contraceptives that reduced birth rate.
As countries became urbanised, birth rate declined. If you’re on the farm, children are an asset; in the city they become a ‘liability’, since you have to spend on day-care and so on.
But the only country that I know of that has raised its birth rate is Sweden. This is what Sweden does: if a woman has a child, she or the father get 18 months’ paid leave. And it gets better! As a demographer, you don’t want just the first child, because in developed countries, one in three women have zero children. So what you want is a ‘higher order’ brith – a second or third child. To get that, in Sweden, if a woman is pregnant with an additional child within 18 months of that birth, she or the husband gets full five years’ paid leave.
It worked. Birth rates went from 1.5 to 2.0 – but it came at a terrible price. When the policy was instituted 25 years, it was thought it would be gender-neutral: that fathers would stay at home as much as mothers. But it’s not been the case; in almost all cases, it was the mother who stayed at home. And since it’s a company-paid benefit, it became very hard for a young Swedish woman to find a job – because if you hired her, she could come in next week and say, “By the way, I’m pregnant, this is where you need to send the cheque for the next five years!”
The US has the highest birth rate in the developed world – 2.1, the replacement level. A major reason for that is that housing is more affordable in America, so it’s easier for people to afford a large-enough living space to start a family. What you often find is that it’s not that the women didn’t want children, it’s that they waited too long. This issue is of fecundity versus fertility.
The ability of women to conceive is the highest in their 20s. If a woman has not had any children, and try to become pregnant in her 30s it becomes very difficult.
The paradigm for the ‘Baby Boomer’ generation in the US was to delay marriage, and delay childbirth. What was more important was to get an education, establish your career. Well, maybe Mr Right didn’t show up when you were 32 or they have difficulty in having children in their 30s.
However, those women who did have children are now the icing in the Oriole cookie: they’re getting squeezed. They still have young children at home, and now their parents need their help. It used to be that the average woman in the US spent 20 years as the mother of a dependent child but only 7 years as the daughter of a dependent parent. Now it’s 20-20.
Does immigration have a positive or a negative contribution to make to demographic change?
Out of 7 billion people on earth, about 1 billion working ‘elsewhere’: of these 300 million work in another country, and the rest within their own country. Immigration is going to be especially important for Europe, which has no growth, and more people are dying than being born. If Europe is not to fall by the wayside, it needs need to import more people, but the big debate for Europe is going to be who should be allowed to come in.
In the US, the focus on immigration is ‘economic integration’: can you do the work? If you work in the garment industry in New York, the language spoken is Spanish: the employer learns Spanish. People who come to America are not forced to ‘become American’ – and not even forced to learn English. You go to any major city in America, and there are sections where you won’t see a sign in English: it could be Spanish, Korean or Vietnamese.
Europeans have always looked down on America for that: they want their immigrants to ‘socially integrate’: learn the language and the customs. Well, guess what, it’s not worked! You see that from the experience of Germany, France and the UK. Even people who were born in their countries didn’t identify themselves as locals. That’s going to be a big issue, especially for countries like Germany. If Germany runs out of workers, should it import workers or move production into East Germany?
What lessons do America’s experience with unfunded liabilities for its ‘Baby Boomer’ generation hold for other economies?
The problem of ageing is the least severe in America. The age dependency ratios get a bit worse but then they stabilise: that’s the power of a replacement level birth rate and openness to immigration, whereas in Europe it seems to get worse and worse.
You see it in the battle over the retirement age in France. But think about this: where did the retirement age of 65 come from? It’s an arbitrary figure. It started in 1874, when the railroad was being built in western Canada, and somebody said: at what age might it be unsafe for someone to operate a train? You could have said 60 or 70. Until that time there was no retirement age: you worked until you said you couldn’t. It was then felt that perhaps it shouldn’t be left to an individual’s decision.
But that’s what stuck. The notion that there’s a fixed age for retirement – 60 or 65 or 62 whatever it is – is so new. And maybe that made sense when work was physically demanding. But nowadays, work is not physically demanding but intellectually challenging.
The other issue, especially in America, is gerontophobia: the fear of growing old. The recognition that if I’m in my late 50s, and if I’m going to live 20 years, it may not be 20 good years – because of Alzheimer’s. But the more active you stay mentally and physically, the less likely you are to develop Alzheimer’s – and the less severe it will be. So there’s an incentive. Instead of working to a fixed age, transition it out: work fewer hours per week, fewer weeks per year, but work until your late 60s or 70s.
In sum, what would you say are the three biggest demographic myths?
The biggest myth is that the whole world will be Islamised or the whole of Europe or the US will be Muslim. The second, of course, is the myth of population explosion.
The third biggest myth relates to the role of population in the carbon footprint. The carbon footprint isn’t a population problem: it’s an energy mispricing problem. The reason why people favour reducing population growth is that ‘we can’t have Asians having the same carbon footprint as Americans’.
In the US, people have really long commutes, and they commute by themselves, because gas is so cheap. If gasoline were $8 a gallon, they would live and commute differently. The price for things has to reflect the total cost.