Demographics

A great demographic tide is ebbing and flowing within and between continents. Instead of a population boom, industrialized countries are experiencing a “baby bust” owing to declining fertility rates. Europe is depopulating more quickly than at any time since the Black Death. Industrialized nations, which account for three-quarters of global eco nomic output, are also confronting older, atrophying populations. In a matter of years, several nations will house a greater proportion of elderly than the U.S. state of Florida, where pensioners and retirees account for one in five residents. The costs of caring for these retirees, coupled with the dramatic decline in the working-age population, pose one of the most critical challenges for governments and the private sector alike in the coming century. Absent serious reforms, developed countries will have to spend up to 16 percent more of GDP simply to meet their old-age benefit promises. The “pay-as-you-go” social security system that served advanced economies so well in the previous century will soon be unsustainable, since there will not be enough young people earning enough money to support their elders.

At the same time, much of the developing world is confronting a “youth bulge” as the 15- to 29-year-old crowd accounts for a rising percentage of the population. New international tensions are brewing over immigration, as migrants from the poor south seek entry to the rich north, which in turn seeks to balance its need for labor against its desire to protect cultural and social cohesiveness.

In developing countries, young people will continue to migrate from the countryside to cities in search of higher wages and a better standard of living. Within a decade, for the first time, the majority of the world population will live in cities, and nearly half of the people living in developing countries will be urban dwellers. The number of megacities, with populations greater than 5 million, will jump from 40 to 58, and the majority will be in the developing world.13 Some of these urban areas— such as Seoul and possibly Kuala Lumpur—will emerge as bustling centers of commerce and culture. They are already heavily investing in new infrastructure and are likely to grow enough to keep their new arrivals productively employed. But other megacities—Dhaka, Karachi, Lagos, Manila, and Jakarta—threaten to emerge as ungovernable zones of crime, poverty, disease, and environmental degradation. Unemployed youth, frustrated at their inability to emigrate abroad or find jobs at home, may become fodder for radical movements and terrorist groups.

A deeper understanding of demographics will help corporations maintain their bearings and emerge intact.

Companies navigating through an aging population on one side and a youth bulge on the other might feel caught between Scylla and Charybdis. But a deeper understanding of demographics will help corporations maintain their bearings and emerge intact. Industrialized world population declines will yield worker shortages, which can only be addressed by importing labor or exporting jobs. Although some countries might be reluctant to open their borders to foreign workers, companies can take advantage of demographic trends to outsource increasingly sophisticated business functions to the swelling ranks of skilled information technology (IT) workers in key emerging markets such as India, Malaysia, and Chile. Also, by monitoring demographic trends in the developing world, companies can acquire a sixth sense for which countries will likely remain stable and which are at risk of dissolving into zones of political and social instability. As governments in advanced economies increasingly burden the private sector with pension and healthcare costs, companies will be able to strategically target their foreign investments by monitoring which countries offer the most favorable labor costs relative to productivity for specific kinds of work.