Tag Archives: Economics and demography

Menarché and Low Fertility

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Earlier this morning I read this intriguing paper by US researchers Robert Drago & Amy Varner. The title of the paper is “Fertility and Work in the United States: A Policy Perspective” and it addresses the important issues of gender equality and the historical trend towards declining fertility in the United States. Now while I was thinking of how to write a post on this general topic I wandered over to Brad Delong’s blog and found he had this highly relevant post entitled Menarché vs Monarchy.

OK, what’s this all about.
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An Ingenious Solution

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The name of the late Ester Boserup came into my mind during a recent discussion in comments. The Danish economist – who is well respected by specialists, but perhaps insufficiently well known outside the ‘inner circle’ – had some pretty interesting views on global population, agriculture and technology. One of her central themes is that it is the pressure of rising population which acts as a motor of technological change (and not vice versa). A kind of Malthus in reverse. Now the point is that when a process hits a constraint, ingenuity may be brought to bear in a way which not only circumvents but supercedes the original problem. All of this was brought into my mind by news of what has been happening in Harvard recently:

“Scientists at Harvard University have found a way to ?reprogramme? adult human cells to an embryonic state. The discovery could provide an alternative to therapeutic cloning, as a way to make embryonic stem cells that are genetically identical to the patient.

The researchers fused adult skin cells with embryonic stem cells, producing hybrid cells in which the adult nucleus had returned to an embryonic state. The journal Science will publish their findings on Thursday.”

Ingenuity once more triumphs over adversity. This I think was also George Steiner’s point about the East European and Latin American novel in the 70s.

Japan’s Population Challenge

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In one of those strange coincidences the world’s second and third largest economies are both scheduled to have elections next month – Japan on 11 September, and Germany on the 18th. The coincidences go further, since these two societies are leaders in another, non-economic, sense: they are leaders in the great global ageing revolution. Japan (at 42.64) and Germany (at 42.16) have the highest median ages of any OECD country (Italy comes third at 41.77, while the US is still a sprightly and young 36.27). The two countries also share the problem that they cannot pump up economic growth by introducing more liquidity (money) into the system, or at least the impact rates of doing so have become very low (see this post on the German problem) .

In fact the comparison goes even further since at the end of the day the elections are about pretty much the same issue: how to make the respective economies grow fast enough to be able to pay for the growing pension and health needs.

The Financial Times today has an interview with outgoing Japan economics minister Heizo Takenaka, and Takenaka is quite explicit: changing demographics is Japan?s biggest challenge.

?From now on, the total population of Japan will start falling,? he said. ?That means if we don?t create a system in which the private sector can carry more responsibility, the burden on taxpayers and on the state will become unsustainable.?

The facts indeed are compelling. Japan is in the process of becoming the first major state to experience structurally declining population (correction: as David points out in comments this is misleading for a number of reasons so lets say Japan is the first post-modern state or society with a developed economy to experience structurally declining population. It was not my intention to indirectly pass any judgement on whether Russia is a major state or not). Population was predicted to start falling in 2007, but preliminary data from the first half of the year suggest that the decline may have already begun. There is no end point in sight. The decline, which is also known as the second stage of the demographic transition, is a result of continuing low fertility, and so far there is no clear way back. Most demographic models suggest that fertility in low fertility countries may bounce back a little, but not sufficiently to reach the 2.1 TRF replacement rate (normally the assumption is in the region of 1.9, and estimates vary as to whether this will arrive in 50 years, or in 100). Meantime the UN median estimate seems to suggest that the total population of Japan (currently something over 125 million) will be around the 45 million mark come 2100. Europe and the US look carefully and take note.

Economic Adjustment Dutch Style

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All is not well in the Netherlands. That was obvious in the June referendum vote, and it is also obvious in the recent economic data. The Dutch economy has been struggling to gain traction of late with poor growth and an actual contraction of 0.5% in the first quarter of 2005. Unemployment too has risen alarmingly for an economy which is often regarded as fairly open and ‘liberal’, from 2% or so at the end of the 90s to around 7% today.

Poverty is also on the rise:

“The most recent preliminary figures from the government’s Bureau for Social and Cultural Planning indicate that at least 11 percent of the Dutch population, or between 700,000 and 800,000 households, lived in poverty in 2004, after the figure had declined steadily in the late 1990s to a low of 10.1 percent in 2000.”

Perhaps not the alarming and dramatic increase the AP writer wants to suggest, but hardly encouraging. Actually I’m not sure I buy the entire slant our journalist/author wants to place on the story either:

“It’s all a sign of economic troubles in a country that is shifting from a traditionally strong social welfare system toward a more free-market approach, with rising health insurance premiums and housing costs. Premiums for health insurance have risen by more than 50 percent on average in the past three years, and are expected to rise by around 10 percent in 2006.

Those trends, combined with government cuts in social spending, have led experts to predict that poverty will worsen in coming years“.

The suggestion here would seem to be that the increase in poverty is a result of the reforms. But don’t demographic factors play a part? If all-over the OECD poverty and old age have a strong correlation, and we now have more old people as a percentage of our society, shouldn’t we, unfortunately, expect poverty to rise? Mightn’t it be that without the reforms things would be worse, not better? And didn’t I read something in the Economist about a soft-landing to the housing boom in the Netherlands, might this not be connected (or be becoming harder)? Any Dutch readers got anything to add?

Bra-less In Poland In Wintertime

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With apologies to Mel Brooks, and Zero Mostel, this situation is now really getting out of hand. Not only bras, but blouses and T-shirts and mens trousers and pullovers. New Economist has the story here and here. And this on a day when readings of so-called headline inflation (including food and energy) hit the 2.2% per annum level. Fortunately core inflation (without the 2 ‘volatile’ components) is holding steady at 1.4%, but the last thing we want on our wish list for Germany are higher interest rates driven by the need to control the inflationary impact of upward moving clothing prices produced by a desire to protect laggard textile manufacturers from Chinese competition.

The Emerging Global Labour Market

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Opening my McKinseyQuarterly Newsletter today, I find an interesting link to the McKinsey Global Institute’s latest contribution (free, but registration required) to the question whether Globalization is actually civilizing, destructive, or feeble – as Wharton’s Mauro Guillen put it in this paper with reference to Albert Hirschman’s analysis of the shifting social value attributed to markets.

Actually, the analysis is not so much concerned with moral evaluations but – as one of the study’s authors, Diana Farrell, put it in the preface, with providing

“… a fact base to the public debate on offshoring and
the emerging global labor market to enable policy makers and business leaders
to make more informed and better decisions.”

Even if the study only projects trends up to 2008, it is still apparent that any conclusions drawn from an attempt to analyse something as vast and complicated as the global labour market will always depend on far too many assumptions that may or may not turn out to be true. After all, McKinsey also managed to present a model for rationlising stock market valuations for non-cash-flow-generating companies before and after the crash in 2000 – the variable that changed was… expectations.

Still, I think it is a valuable contribution to raise the quality of the public debate by actually attempting to quantify some variables determining demand and supply. While the study – as far as I can tell from looking at the executive summary – does not support the “feeble” view of globalization, when reading the results it is probably still helpful not to forget that McKinsey is unlikely to be interested in increasing their clients’ employees fear of being outsourced any further (the study deals only with white collar offshoring) –

  • Offshoring will probably continue to create a relatively small global labor market?one that threatens no sudden discontinuities in
    overall levels of employment and wages in developed countries.
  • Demand for offshore labor by companies in the developed world will increasingly push up wage rates for some occupations in low wage countries, but not as high as current wage levels for those occupations in developed ones.
  • Potential global supply and likely demand for offshore talent are matched inefficiently, with demand outstripping supply in some locations and supply outstripping demand in others.

Unocal Update

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Following up on Edward’s post from last month.

Chinese interest has gained Unocal’s shareholders at least $400m extra from Chevron and its shareholders. Whether having regulatory clearance is worth $1.5bn (the remaining difference between the Chevron and CNOOC bids) is an open question. Since Unocal closed at $64.99 per share yesterday, $1.99 per share above Chevron’s bid, the market clearly expects a higher offer from Chevron or a choice in favor of CNOOC.

Unocal’s board of directors has endorsed a sweetened, $17 billion takeover bid from Chevron, rejecting a higher offer from one of China’s state-owned oil companies. …

Chevron boosted its offer by $2 per share to $63 per share — or $17 billion overall — shortly before the Unocal board met Tuesday night. CNOOC Ltd., an affiliate of China National Offshore Oil Corp., has an $18.5 billion offer on the table for the El Segundo-based company. Unocal’s board had previously also endorsed Chevron’s lower offer over the higher CNOOC bid.

More.

What Makes China Tick?

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This week seems to be China week. Everyone seems to be asking the same question: why is China so successful? ( see here and here and here.

Now maybe this is just an excuse for a bit of self-publicity, since I have just spent a day ‘sprucing-up’ the China page on my website, but lets see if I can take a shot at the question myself.
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