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Published: October 31, 2011

 
 

Demographics Are Not Destiny

Even as the world’s population reaches 7 billion, the rate of growth is slowing and workforces are aging. Companies and countries can prosper by preparing for the changes to come.

Most people generally recognize the role that demographic trends play in shaping societies, mature economies, emerging markets, and the environment. China and India, for example, have become immense economic engines in part because each has more than a billion people. A bulge in the youth population has been a major factor in the recent unrest in the Middle East: Young people are compelled to protest because they feel they deserve opportunities and a voice in society that reflects the strength of their numbers. Europe and Japan, conversely, are known to be suffering economically because of their aging workforces: The proportion of people who are retired, and thus dependent on others to support them, is rapidly increasing.

The conventional wisdom says that there’s nothing one can do about these kinds of demographic trends, that every country must live with its demographic destiny. But that isn’t true. Political and business leaders can do a great deal, if they are willing to take a precise approach to prediction; past and present demographic trends, as well as those expected for the near future, can help them calculate socioeconomic trajectories. In the public sector, the first step is to pinpoint a country’s development trajectory and demographic profile; next, plot the potential for social, economic, and environmental progress; then, look for challenges and opportunities; finally, develop policies and actions to improve the country’s trajectory. Companies can use a similar approach to take advantage of demographic trends in countries where they hope to find new sources of talent or potential consumers.

This proactive approach to demographics is underpinned by two analytical concepts. The dependency curve shows the relationship between a country’s working and nonworking populations over time. The arc of growth shows the pattern of momentum as a country’s prosperity increases while its population ages. With a better understanding of the dependency curve and the arc of growth, and with strategies attuned to their stage of demographic development, country leaders can determine the rate at which their workforce is aging and prepare accordingly: creating a self-sustaining future, avoiding long-term insolvency, and improving quality of life for generations to come. The strictures of demographics don’t have to be destiny.

The Dependency Curve

In 1950, the world’s population was only about 2 billion. Then the post–World War II baby boom, as well as significant strides in healthcare and a relatively low level of warfare, created a spike in population growth and reduced the death rate. These demographic trends led to a larger workforce, higher standards of living, and greater equality.

This shift influenced individuals’ behavior and the structure of families. As standards of living rose, people began to have fewer children, in part to maintain their standard of living more easily, and in part because there was greater access to and acceptance of birth control. Women’s mass entry into the workforce put additional downward pressure on the birthrate. This dynamic began in Western countries in the 1960s and has since spread around the world. Between 1950 and 1980, average annual population growth globally was 1.89 percent. Growth rates began to fall between 1970 and 1980, and the overall growth rate for the period between 1980 and 2010 was 1.47 percent. From 2010 to 2050, growth is expected to fall to 0.71 percent.

The deceleration means that the average age of the global population will rise at an increasing rate over the next 50 years. In 1950, 34.1 percent of the planet’s inhabitants were younger than 15 and only 5.2 percent were older than 64. Today, the younger group has shrunk to 26.9 percent and the older group has grown to 7.6 percent. By 2050, the younger group will slide to 19.6 percent of the population and the older group will more than double, to 16.2 percent. (See Exhibit 1.)

 
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Resources

  1. DeAnne Aguirre, Laird Post, and Sylvia Ann Hewlett, “The Talent Innovation Imperative,” s+b, Autumn 2009: In light of today’s changing workforce, rethink the way you manage people.
  2. David E. Bloom and David Canning, “Booms, Busts, and Echoes,” Finance and Development, vol. 43, no. 3 (September 2006): Analysis of current population trends, featuring the demographic dividend concept.
  3. Alonso Martinez and Ronald Haddock, “The Flatbread Factor, ” s+b, Spring 2007: To understand the life cycle of an emerging market, learn to decode its consumer products.
  4. C.K. Prahalad and Hrishi Bhattacharyya, “How to Be a Truly Global Company,” s+b, Autumn 2011: Three strategies — customization, competencies, and arbitrage — for a business model relevant to emerging economies.
  5. Edward Tse, The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010): A guide to the country’s changing markets, increased competition, shifting government priorities, and relationship with the outside world.
  6. Edward Tse, Bill Russo, and Ronald Haddock, “Competing for the Global Middle Class,” s+b, Autumn 2011: How three types of companies are jockeying to capture the loyalty of billions of new consumers.
  7. For more on this topic, see the s+b website at: www.strategy-business.com/global_perspective.
 
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