Showing posts from category economics.
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Dividend or Deficit? The Economic Effects of Population Age Structure
›According to the latest projections, the global population will hit the seven billion mark later this year and perhaps nine billion by 2050. Yet, while the global population is growing, it is also aging, due to falling fertility rates and longer life expectancies. By 2050 the number of people aged 60 and over will reach two billion. At an event at the Wilson Center on April 1, Andrew Mason of the University of Hawaii at Manoa and the East-West Center and Ronald Lee of the University of California, Berkeley, discussed their research on the economic effects of an aging world with discussant Dalmer Hoskins of the Social Security Administration. [Video Below]
Changing Age Structures and Economic LifecyclesThere are three phases of age transition, Mason explained: during the first phase, high fertility rates and declining infant and child mortality rates increase the share of children in the population. In the second phase, the proportion of the working age population (those aged 15-64) increases, potentially providing a boost to production and consumption, and in the third phase, the elderly proportion increases due to lower fertility rates, decreasing production and increasing the burden on state support systems.
From 2010-2015, 85 countries are projected to witness the largest absolute increase in history of their populations aged 60 and over. This increase in elder populations is significant, Mason said, because it may mean slower economic growth.
Based on data collected through National Transfer Accounts, Mason and Lee’s economic lifecycle tracks the labor income and consumption rates of a population at a given age. In high income countries, consumption increases around the teen years as a result of investments in education, then dips slightly, and, finally, sharply rises around the age of 80 due to high health care expenditures. The consumption rate remains relatively flat in low income countries, with consumption differing the most in the older ages.
The support ratio measures the number of workers relative to the number of consumers, while taking into account age-specific variances in number of hours worked and level of consumption. Mason explained that China, after four decades of rapid growth, has reached the peak of its support ratio, with many workers relative to the number of consumers. However, China is rapidly aging, like much of Northeast Asia, and also because of its one-child policy. The resulting decline in its support ratio will likely limit its economic growth; however, Mason cautioned that it would be “rash” to say that its growth will bottom out completely.
The United States has an age structure that is “quite a bit more favorable” than other industrial countries, Mason said. Higher fertility, lower life expectancy, and a higher rate of immigration mean that aging is coming more slowly to the United States than other developed countries.
The Second Demographic Dividend: An Investment OpportunityDuring the first demographic dividend, the labor force grows more rapidly than the dependent population, thus allowing more resources to be spent on economic growth. But what happens after that? As populations age, there is a “semi-automatic” increase in investment in human, physical, or financial capital, Lee explained; for example, as fertility falls, the amount invested per child increases. This second demographic dividend, said Lee, can help somewhat offset the decline in support ratio that comes in the third phase of the age transition – aging.
One response to the increased costs of an aging population, said Lee, is to reduce consumption in proportion to the decline in the support ratio. Another option would be adding more hours to the work day or pushing the retirement age back. In the United States, Lee said that to offset the declining support ratio entirely by postponing retirement would require postponement by eight years up to 2050, and 10 years by 2085.
Brazil, Lee said, is the “world champion” of pension generosity, where pensions make up 12 percent of the GDP. The United States, by contrast, relies on asset income from physical or financial investments for about two-thirds of its retirement income. Brazil’s challenge, when it begins to feel the effects of aging (it is still relatively young), will therefore be much greater than in the United States.
A “New Lens” on Aging
Aging, Hoskins said, is not the “catastrophe” that it has been portrayed to be in the media. Supporting an aging population is “something we can plan for and handle,” he said. It is possible “to do the right thing to make sure citizens have a decent life.” The problems come when a country waits too long or does not plan at all, such as in Nigeria and the Philippines where, Hoskins said, they have very underdeveloped social protection systems and the elderly have little to no income. Mason and Lee’s analysis of the work/consumption ratio, said Hoskins, offers a “new lens” into how the world will deal with aging.
Sources: Los Angeles Times, National Transfer Accounts, UNFPA, World Bank.
Image Credits: “Elderly couple – Meiji-jingu,” courtesy of flickr user Tom Spender. Chart courtesy of Ronald Lee and Andrew Mason, National Transfer Accounts. -
Biofuels: Food, Fuel, and Future?
›The Wilson Center’s Program on America and the Global Economy (PAGE) together with the Brazil Institute, have held a series of conferences focused on the field of biofuels and its impact both internationally and domestically. As part of the series, PAGE has published the results of a conference held last July on the current “state-of-play” for the biofuels industry in the United States.
In the brief, Biofuels: Food, Fuel, and Future?, C. Ford Runge and Robbin S. Johnson, of the University of Minnesota, and Calestous Juma, of Harvard University, provide context on the various federal mandates, subsidies, and policies that affect the U.S. biofuels market. They also present recommendations to improve what is now a not-so-new market, with the aim of reducing damaging effects on food prices and creating more international competition. The brief was edited by PAGE Director Kent H. Hughes and Elizabeth A. Byers.
Read more from PAGE on their blog, America and the Global Economy, and download the full brief and other PAGE publications from their website at the Wilson Center. -
Forest Conservation Method a Fit for Canada’s Oil Sands?
›In Wednesday’s speech on U.S. energy security, President Obama stated clearly that the United States would continue to rely on oil imports from Canada and other stable nations. But serious environmental concerns continue to dog the Canadian oil sands industry. Could an agreement reached by Canada’s Forest Products Association provide a model for a way forward?
In May 2010, the Canadian Boreal Forest Agreement (CBFA) was signed by 21 members of the Forest Products Association of Canada (FPAC) and nine major environmental groups, including Greenpeace, the Nature Conservancy, and the Pew Charitable Trusts, without government involvement. The three-year agreement represents the largest forest conservation plan in history and protects more than 72 million hectares of Canada’s Boreal Forest. It also ended a long “do not buy” campaign of FPAC products, previously spearheaded by environmental organizations.
The CBFA essentially commits FPAC to the highest environmental standards of forest management and conservation, as well as the suspension of logging in environmentally sensitive areas, in part to protect endangered caribou populations. In return, environmental organizations agreed to support FPAC members.
The oil sands industry faces a similar challenge. In both cases, industry and environmental NGOs have clashed in a long and bitter battle over industry practices and their impact on the environment. The difference is that FPAC realized that directly engaging environmental groups in reasoned discussion might be a more intelligent approach to resolving environmental challenges than shouting back and forth at one another. FPAC also believes that buyers will be attracted to their newfound reputation for sustainable practices and higher ethical standards.
Model Agreements
Oil sands producers have much to gain by engaging the environmental community in new and innovative ways Should the CBFA model be followed, the oil sands industry may be able to negotiate an agreement with environmental organizations and voluntarily agree to higher environmental standards in return for recognition and support of their efforts from key environmental organizations.This wouldn’t be the first initiative where creative engagement between environmental organizations and industry served to mutually benefit both sides. For instance, in 1999, WWF and Unilever created the Marine Stewardship Council (MSC), a program that rewards fisheries employing environmentally sustainable practices by recognizing their efforts through MSC certification and eco-labeling. Member fisheries maintain that MSC labeling has helped them retain existing markets, expand into others, and in some cases obtain a price premium for their product.
Such an initiative would go a long way to allow oil sands producers to shed their damaging reputation for producing “dirty oil.” Even if an agreement could not be reached, the oil sands industry would be viewed at the very least as willing to listen to the concerns of environmental organizations and take such issues seriously.
Not Perfect, But It’s a Start
The CBFA model may not be a perfect fit for the oil sands but it demonstrates that environmental groups and industry can find common ground on extremely contentious issues.
Finding this common ground must begin with accepting that the oil sands will never be “green.” According to a study by the Royal Society of Canada, in 2008, oil sands mining and development operations covered an area roughly the size of the state of Illinois and was responsible for emitting nearly 37 million tons of CO2. The study also found that there are legitimate concerns regarding the impact of oil sands development on the quality and quantity of regional freshwater supplies.
Nevertheless, the oil sands also represent a critical source of stable energy supplies for Canada and the United States, and calls by some environmental NGOs to halt oil sands production are unrealistic. More than 20 percent of U.S. oil is sourced from Canada, making it the United States’ leading supplier, and roughly half of that comes from the oil sands.
A CBFA-style agreement could help oil sands producers secure the U.S. market, which currently takes 99 percent of Canada’s oil exports, by quelling campaigns in the United States to stop imports from the oil sands. And under an agreement similar to the CBFA, the environmental community could have a larger say in how it is developed and extracted
As it stands, both industry and the environmental community remain engaged in a heated war of words, with neither side really listening to the other. Until they are willing to sit down and engage each other in new ways, both groups are likely to continue to talk over one another and make little progress on striking an environmental and economic balance that could ultimately benefit both sides.
Ken Crist is a program associate with the Canada Institute at the Woodrow Wilson International Center for Scholars.
Sources: Sources: The Canadian Boreal Forest Agreement, National Resources Defense Council, The New York Times, Royal Society of Canada, Vancouver Sun.
Photo Credit: “Athabasca oil sands digger,” courtesy of flickr user . Shell, and “Boreal forest 2009,” courtesy of flickr user Gord McKenna. -
Book Launch: ‘The Future Faces of War: Population and National Security,’ by Jennifer Dabbs Sciubba
›“Demographic trends by themselves are neither inherently good nor bad. It’s really a state’s ability to address these issues that can determine the outcome,” said Jennifer Dabbs Sciubba, the Mellon Environmental Fellow with the Department of International Studies at Rhodes College. At a book launch event at the Wilson Center on March 14 for The Future Faces of War: Population and National Security, Sciubba, along with Deputy Under Secretary Kathleen Hicks of the Department of Defense, discussed the national security implications of demography and its important role in understanding and managing conflicts around the world. [Video Below]
Demography as an Indicator, Multiplier, and Resource
Demography can be thought of in three ways, explained Sciubba: as “an indicator of challenge and opportunity; a multiplier of conflict and progress; and a resource for power and prosperity.”
A country’s age structure can pose a challenge, said Sciubba, because countries with a large percentage of their population under the age of 30 “are about two and a half times more likely to experience civil conflict than states with more mature age structures.” Tunisia’s recent revolution, she said, could be understood as a “story about demography.”
The 26-year-old fruit vendor Mohammed Bouazizi, who set himself on fire on December 17 after being hassled by police, was part of one of the largest age cohorts in Tunisia, those aged 25-29. There are some 64 million young men across the Middle East-North Africa region between the ages of 15 and 30, according to UN estimates. “If his death was the spark” for the unrest in the region, Sciubba said, “it’s the underlying demographic trends that were the fodder.”
Yet, Sciubba sees opportunity within this challenge. Citing the work of Richard Cincotta, she said that “states have half a chance – literally 50 percent – of becoming a democracy once their proportion of youth declines to less than 40 percent.” Tunisia has the best chance in the region of becoming a free democracy based on its demography, followed by Libya, where youth aged 15-29 are 43 percent of the adult population.
At the other end of the age structure, some of the world’s most powerful countries, such as Japan, Germany, Italy, France, Russia, and China, are rapidly aging. This aging will “somewhat decrease the ability of these states to project political, economic, and military power” due to a shortage of labor and a smaller pool of funding, said Sciubba.
Countries with transitional age structures, such as India, Brazil, and South Africa, face different security challenges. With a majority of their populations between 15 and 60 years old, there are more people contributing to the economy than are taking away, which could bolster these countries economically and politically (the “demographic dividend”). Global institutions will have to reform and include these countries, she advised, “or else become irrelevant.”
But the defining trend of the 21st century, said Sciubba, is urbanization. While great sources of economic growth, cities are also quite vulnerable to natural disasters and terrorism because of their concentrations of people, wealth, infrastructure, and bureaucracy.
In looking to the future, Sciubba called for continued support for family planning initiatives. “At least 90 percent of future world population growth will take place in less developed countries,” which are least equipped to handle the demands of that growth, she said. In addition, Sciubba recommended that the United States seek out partnerships with countries that have transitional age structures, particularly India, which could be a stabilizing force in a tumultuous region. She also called on the United States to partner with states in the Western Hemisphere and remain open to migration.
Defense and Demography
“Understanding population is critical to our success in being able to prevent conflict, and also managing conflict and crises once we’re involved,” said Hicks, describing the Department of Defense’s (DOD) interest in demography. However, the DOD does not “treat demographics as destiny,” she said, but instead as “one of several key trends, the complex interplay of which may spark or exacerbate future conflicts.”
Recent world events, such as those in the Middle East and North Africa, “have demonstrated how critical our understanding of population is for security practitioners,” said Hicks. Similarly, the recent earthquake and tsunami in Japan dramatically illustrate the vulnerability of large urban areas. Echoing Sciubba’s comments on population aging, she cited “incredible divestments in defense” in Europe, which, she said, “puts us, as a key partner in NATO, at a thinking stage.”
Under Secretary of Defense for Policy Michèle Flournoy is “deeply interested” in demographic issues, said Hicks. She identified other demographic areas of great interest for her office: the youth bulge in Pakistan, urbanization in Afghanistan, the role of highly educated women in Saudi Arabia, the Chinese diaspora in the Americas, Russia’s shrinking population, and various trends in China, including aging, gender imbalance, urbanization, and migration.
Image credit: “Iraq,” courtesy of flickr user The U.S. Army.
Sources: ECSP Report 12, Financial Times, The New York Times, Population Reference Bureau, UN Population Division. -
Michael Kugelman, World Politics Review
The Gathering Global Food Storm
›March 28, 2011 // By Wilson Center StaffThe original version of this article, by Michael Kugelman, appeared on World Politics Review.
In India’s vibrant capital, food seems to be everywhere – from bustling fruit and vegetable markets and greasy kebab stalls, to sumptuous platters in rooftop restaurants and dilli ki chaat, Delhi’s ubiquitous street snacks. Poor street vendors and high-end chefs alike offer a multitude of culinary options to keep the city – and its array of visiting tourists, diplomats and business leaders – well-fed.
Yet behind this apparent culinary prosperity lies rampant food insecurity. Food-related inflation in India soared above 18 percent in December, sparking street protests over high onion prices. Today, food-related inflation remains high, at nearly 12 percent. In a nation where at least 250 million subsist on less than a dollar a day, even modest price rises have a devastating impact on incomes and livelihoods. Yet, when food prices fall, India’s small farmers suffer. Already crippled by debt and encumbered by water shortages, 200,000 of them have committed suicide over the past 13 years.
India is not alone in this story. Just a few years removed from the 2007-2008 global food crisis, the world is once again experiencing the telltale drivers of acute food insecurity: rising prices of both food and oil, low agricultural yields, destructive weather and unquenchable demand. Once again, nations are banning exports in an effort to keep prices down at home – even as such policies drive up food costs in global markets. The consequences can be seen from Bolivia, where top government officials are hoarding food in their homes, to the Middle East, where the rising cost of basic foodstuffs has become a rallying cry for revolution.
Continue reading on World Politics Review.
Michael Kugelman is a program associate for the Asia Program at the Wilson Center and lead editor of Hunger Pains: Pakistan’s Food Insecurity and Land Grab? The Race for the World’s Farmland.
Sources: The Economist, India’s Contemporary Security Challenges, CNN, The Washington Post.
Photo Credit: Adapted from “India’s Food Crisis,” courtesy of flickr user lecercle. -
Integrated Approach Helps “Model Farmers” Increase Productivity in Ethiopia
›March 24, 2011 // By Schuyler Null
To reach the village of Grar Gaber from Addis Ababa, you drive up over the Entoto Mountains overlooking the capital then motor down two hours of new Japanese-built highway to the town of Fiche. From there it’s 20 minutes on a broken dirt road across rocky hills. I was joined there by about 20 others from the PHE Ethiopia Consortium’s general assembly (see day one and day two coverage here) and Population Action International, to visit an integrated population, health, and environment (PHE) development program run by LEM Ethiopia.
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The Youth of North Africa
Surging on a Knife’s Edge
›March 23, 2011 // By Christina DaggettThe Middle East/North Africa region is experiencing a “youth surge,” said Jack Goldstone, director of the George Mason University’s Center for Global Policy, at a recent GMU event. “In the last two decades the number of people in their late teens and twenties has increased… It’s doubled in Egypt; it’s grown by half in Tunisia; and nearly doubled in Libya,” he told Warren Olney on KCRW’s To the Point.
Such youth surges are problematic because, Goldstone wrote in ECSP Report 13, “population distortions – in which populations grow too young, or too fast, or too urbanized – make it difficult for prevailing economic and administrative institutions to maintain stable socialization and labor-force absorption.”
In the case of Egypt, the youth surge put enormous pressure on a government system that could no longer guarantee jobs to every college graduate, said Goldstone. When government guarantees dried up, graduates found that their poor-quality degrees were of little use, especially in a system that prioritized connections and bribery. The result was an unemployment rate of 25 percent among Egyptian youth and a mounting sense of frustration with the economic system and the government.
This frustration found a symbol when Mohammed Bouazizi, a 26-year-old Tunisian, set himself – and an entire region – on fire after his third run-in with the police cut off his only source of income. Youth across North Africa and the Middle East, Goldstone said, could identify with Bouazizi’s desperation and frustration after years of dealing with a closed economic system and a corrupt government.
While overall economic growth has been strong in the region – a fact which had misled many observers (including himself, Goldstone admits) into thinking the region was more stable – these economic gains were apparently being captured by the ruling elite to a far greater degree than previously thought, said Goldstone. For example, it is estimated that ousted Egyptian president Hosni Mubarak and his family are worth between $40 and $70 billion.
Meanwhile, a burgeoning surge of young people were struggling to get by. Goldstone pointed to a Gallup poll conducted in 2010 in which only 12 percent of Egyptians and 14 percent of Tunisians would classify themselves as “thriving” – down from 25 and 24 percent, respectively, in 2007 and 2008.
While the Ben Ali and Mubarak regimes have fallen, these revolutions do not ensure the youth in these countries will have a prosperous future. They need not only access to capital, said Goldstone, but also access to information and social networks so that they can identify market opportunities and stay connected.
Immigration to more developed countries could also be an important avenue for economic growth and education. In a Foreign Affairs article, “The New Population Bomb,” Goldstone writes, “Given the dangers of young, underemployed, and unstable populations in developing countries, immigration to developed countries can provide economic opportunities for the ambitious and serve as a safety valve for all.”
The future of Middle Eastern youth, and that of the region at large, depends on the quality of their education and their ability to be productive, said Goldstone. They stand on “a knife edge,” he said, and the transition to democracy will not be smooth or easy.
Image Credit: “Protest Face Paint,” courtesy of flickr user Ahmad Hammoud.
Sources: The Economist, ECSP Report 13, Foreign Affairs, Gallup, International Monetary Fund, KCRW, Voice of America. -
Hu Angang and Liang Jiaochen, ChinaDialogue
China’s Green Five-Year Plan: Making “Ecological Security” a National Strategy
›March 16, 2011 // By Wilson Center StaffThe original version of this article, by Hu Angang and Liang Jiaochen, appeared on ChinaDialogue.
Five-year plans (FYPs), which set down and clarify national strategy, are one of China’s most important policy tools. Just as they have helped to drive China’s economic success over recent decades, so they will play a pivotal role in putting the country on a green development path. The 12th Five-Year Plan, now under consideration by the National People’s Congress, marks the beginning of that process in earnest (Editor’s note: Since this was originally published, the National People’s Congress voted in favor of the plan).
FYPs embody the concept of progressing by degrees, or developing step by step. This approach has been one of the driving forces behind China’s economic progress in recent decades and will now provide the platform for its green development. It is the methodology underpinning China’s socialist modernization: to reach a new step in development every five years. Unstinting efforts over a number of FYPs have driven China’s transformation.
Climate change presents a long-term and all-encompassing challenge for China. It demands a long-term development strategy and broad goals, as well as near-term action plans and concrete policies. Combining these is precisely the idea behind FYPs.
At the global climate change summit in Copenhagen in 2009, China demonstrated it has the long-term political will to respond to climate change; to work with the world to limit global temperatures to no more than two degrees Celsius above pre-industrial temperatures (the goal set out in the Copenhagen Accord). In November that year, the Chinese government formally put forward its medium-term targets on climate change: a reduction in energy intensity of 40 percent to 45 percent on 2005 levels by 2020, and generation of 15 percent of energy from non-fossil fuel sources by the same date.
Continue reading on ChinaDialogue.
Hu Angang is a professor at the Chinese Academy of Sciences and Tsinghua University and the director of the Centre for China Study. He has worked as the chief editor for China Studies Report, a circulated reference for senior officials. Liang Jiaochen is a PhD student at Tsinghua University’s School of Public Policy and Management.
Sources: Business Green, UN Framework Convention on Climate Change, World Resources Institute.
Photo Credit: Adapted from “China: CREME,” courtesy of flickr user IFC Infrastructure (Alejandro Perez/IFC).
