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Published: October 31, 2011

 
 

Demographics Are Not Destiny

A lack of social cohesion, too, could undermine progress if this issue is not carefully managed. The country’s remarkable creation of wealth has thus far been distributed very unevenly. As countries across the Arab world were vividly reminded in 2010, a large cohort of young people who feel excluded from economic opportunities is the most significant ingredient in a recipe for unrest.

Partially Developed Countries

The partially developed category is by far the smallest. Within our 131 sample countries, this group consists of 19 countries. The full group of all partially developed countries has about 320 million inhabitants, or 5 percent of the world’s population. Russia accounts for nearly half of this population; the other countries in this group are all in eastern Europe, including the former nations of the Soviet Union, as well as nearby neighbors such as Poland, Hungary, and the Czech Republic. These countries had a post–World War II baby boom, but their state-driven economies prevented this large labor force from translating into robust economic growth. Although these nations achieved a certain level of development, they did not fully exploit their demographic dividend.

Today these countries face rapidly declining fertility rates and rising mortality rates, particularly since the collapse of the Soviet Union. Their economies are threatened not just by a growth slowdown, but also by a decline in population. Some governments have tried various programs to encourage more births, including housing benefits, stipends, and lengthy paid maternity and paternity leaves. Unfortunately, these have not boosted birthrates significantly and have weighed heavily on government finances.

The arc of growth analysis predicts that by 2040 many of these partially developed countries will, at best, remain at current levels of economic growth. They will feel less prosperous than most nascent and momentum countries. Although these projections are not certain, the partially developed nations must address some very thorny problems if they are to escape this fate. Are their governments doing enough to prepare for their respective demographic challenges? Is the healthcare sector positioning itself to ensure delivery of effective medical care to an aging population?

On the social policy front, these countries must transform legacy education, healthcare, and social security systems. Governments should consider immigration policies to bolster the workforce; such policies would need to include strategies to integrate immigrants into society without threatening national identities. On the economic front, governments need a growing revenue base. To generate this, business environments need to be improved — via the streamlining of rules and regulations and increased transparency — to attract domestic and foreign investment. And policies should encourage research, development, and innovation to boost productivity and competitiveness.

Russia is the most visible example of a partially developed nation facing these challenges. The bulk of its baby boom population is hitting retirement age — 55 for women and 60 for men — and fertility has been well below replacement levels for years. This will put pressure on government finances by driving up pension costs as the ratio of pension contributors to pension recipients decreases. In 2010, six workers supported each retiree. By 2050, just two workers will support each retiree. Moreover, the legacy Soviet-era culture and the promises made by Russia’s leaders to its aging population since the fall of the Soviet Union have given many people a sense of entitlement that will be difficult to overcome. This unfortunate confluence of factors could significantly impair Russia’s ability to grow its economy.

Russia must take action quickly. Before the breakup of the Soviet Union, Russia was a leader in science and math. That is no longer the case, and to compete again on the world stage it must overhaul its education system. The Russian social security and healthcare systems are also inadequate for the country’s aging population. On the economic front, policies should encourage innovation, productivity, and the competitiveness of local industries, and diversify away from Russia’s reliance on resource industries such as energy, forests, fishing, and mining. Russia should look to the example of other countries in the partially developed category, which are not fortunate enough to sit on large pools of oil and gas and thus must diversify their industries and find new ways to compete in the global knowledge economy.

 
 
 
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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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