Strengthening the Weakest Sectors
Any discussion of the demographic dividend in India and other emerging nations must include a cautionary mention of the dividend’s downsides in an already heavily populated country. The dividend is not a pure equation, an unalloyed promise of growth. The real gains of a population boom depend on policies that allow the young to attain high levels of education, find jobs, and contribute to the economy. Even in developed economies that have deployed talent effectively in the past, bad policy can turn a talent advantage sour.
Bloom has tracked a number of countries that did not quite cash in on their dividends. For instance, countries in Latin America stumbled during the 1980s, despite demographic trends that resembled East Asia’s today. Similarly, Russia and Cuba failed to gain from their demographic positives, including a large supply of young workers during that time. In India and countries with similar demographics today, the failure to create opportunity can turn the dividend into a crisis. India experienced these problems throughout the 1970s and 1980s, when unemployment and lack of income mobility fed extremist movements across the country and the rise of the underworld in major cities.
In the United States in the 2000s, one of the early signs of a financial bubble was the funneling of the country’s best young talent into financial trading. A professor at an Ivy League university told me that it had become more difficult to get the best doctorate students to continue their research because the banks and hedge funds snapped them up, whether their degree was in physics or econometrics. These demographic and human capital advantages fizzled away in a bubble rather than contributing to real, lasting GDP growth. Unless industry and government collaborate to build policies that make effective use of a country’s young workers, a demographic advantage can prove ineffective, and even counterproductive.
This means that businesses have to strategize thoughtfully while venturing into a country’s market — looking not just for profits but for places where they can contribute to the growth of the whole economy, especially including those parts that would otherwise be weak. For example, India, an emerging economy, has some obvious weaknesses in its institutions and market maturity. India dismantled its socialist framework only recently (in 1991), setting up its modern stock exchange and commodity markets and freeing businesses from red tape. Because the resulting economic infrastructure is so new, when it comes to job creation and policies that would support the dividend, India has not yet fully figured out how to handle the influx of young workers in the coming decades. The demographic dividend will also place enormous pressure on natural resources, and this pressure is likely to intensify.
This environment presents corporations with a series of opportunities. Instead of relying solely on the growing middle class for customers, many corporations have tapped into the country’s growing poor-but-aspirational consumer base. The advantage of doing so is twofold: It expands markets in innovative ways, and it gives the bottom income earners a way out of poverty. The effect is difficult to exaggerate. The Tata Group’s recent project of making urban housing available to the poor by offering homes starting at US$8,000 suggests the beginning of real estate developments that take the poor away from the grime of the slums and the sway of the slumlords. Tata’s effort is a private, for-profit version of the low-cost housing initiatives undertaken by governments in developed countries to house the poor. Other private businesses offer low-cost English schools and information and communications technology services, provide low-cost health care through hospitals such as Aravind Eye Hospital and Narayana Hrudayalaya, and sell low-cost utility solutions through solar lighting systems.