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Published: October 31, 2011

 
 

Demographics Are Not Destiny

Advanced Developed Countries

The advanced developed category consists of developed and affluent countries. Of our 131 sample countries, 24 are in this category, dispersed throughout Europe, North America, and the Asia/Pacific region. The full group of all advanced developed countries has a total population of 952 million, representing 15 percent of the world’s population. Most of these countries saw their working-age populations grow from the late 19th to early 20th centuries, and then surge in the mid-20th century as the baby boomers entered the workforce. But by the 1960s, fertility rates in most of these nations started dropping quickly, and today, low fertility rates and slowing population growth could threaten their continued levels of prosperity. The notable exception is the United States, which, thanks to its immigration policies and relatively higher fertility rates, will continue to grow.

By 2050, these countries’ populations may continue to age and see prosperity gains dwindle. Like the partially developed countries, these countries could feel relatively less prosperous as many nascent and momentum countries make economic gains. Policymakers must wrestle with the reality of an aging society dependent on a smaller working-age population. How can governments provide the support needed by an increasingly age-dependent population? How should the private sector react to changing consumer demographics?

The advanced developed category covers a wide spectrum of average population age — from the United States, which is still on the young side with a relatively open immigration policy and a growing workforce, to Japan, which has few immigrants, a shrinking workforce, and the most elderly population in the world. Japan must increase productivity by 2 percent per year to maintain its historical GDP per capita growth — which is no small task. That is double the current productivity gain in the United States.

First and foremost, these countries must redefine the notion of aging. Some governments have begun by attempting to raise the retirement age, but that measure is just a starting point. The real challenge is cultural. Countries need to raise a new generation that considers work to be a lifelong endeavor, with periods of varying intensity, rather than an activity that they perform for a preset number of years and then stop altogether at retirement. Developing this concept of work will involve the public and private sectors as well as civil society and academia. It must be introduced as early as preadolescence — embedded in the education system, and reinforced by flexible career paths that allow employees to gradually ramp down in their 60s and 70s instead of retiring.

Making the shift will be challenging, but this approach to work is increasingly plausible in knowledge-based economies, where employees can remain productive despite their advancing years — as opposed to manufacturing economies that require large amounts of physical labor. Pension plans and other social safety nets will need to be reformed accordingly, allowing for the gradual introduction of benefits as employees begin working less. In addition, governments can bolster their workforce through immigration reform and gender equality initiatives that will draw more women into the workforce. On the economic front, productivity gains through innovation will be vital.

For example, Japan must further increase its investment in R&D. It must provide incentives to boost private-sector capital investment, and find ways to integrate more women and older workers into the workforce. Beyond that, Japan will need to consider some important means of boosting its economy that it has ignored in the past. For example, by tightly restricting immigration, Japan avoids some challenges — such as questions of national identity that are raised as immigrants become a large segment of the population — but gives up the major gains in economic output that immigration can bring.

 
 
 
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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.