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Demographic Change

Population change is a matter which does not get a great deal of attention in the public media. Though in the short term it may not be of great importance, in the medium and long term it is a vital issue. Recent reports and research has focused on the reduction of the birthrate in the industrialized countries and the Rand Institute has produced reports looking at the possible impact on the US. However the returns from the latest US census are now available and as The Economist reports the US is starting to see an increase in its population which will over the next fifty years see changes in the relative economic positions of Europe and the US. If the present trends continues the US population will exceed the population of Europe in the next forty years. Population changes are also linked to immigation and the economic dynamism associated with high levels of immigration. In Europe the UK is also seeing an increase in population driven by immigration, whilst Germany and Italy are facing significant reductions in their populations.

Christopher Smallwood wrote in The Sunday Times 10 August 2003 that, "During the next few decades demographic trends will transform the economic importance of different areas of the world. American power will be vastly enhanced at the expense of Europe. In the east, India will overtake China. In our own part of the globe, the economic weight of different European countries will change markedly — with Germany, Italy and Spain shrinking in importance relative to Britain and France."

Smallwood also said that, "The conclusion is that future growth in Europe will indeed be dominated by the downturn in working population and that the picture emerging from the charts of steady decline against America is the best view of the future we have."

These changes therefore have important long-term political and economic effects. Recent research has suggested that aging populations reduce economic dynamism and therefore growth and that Stock Makets in countries with aging populations under-perform. By this logic the attractiveness of US markets will increase compared to those in Continental Europe.

The Rand Institute Report "A Demographic Perspective on Our Nation's Future" 2001 download pdf file

The Rand Institute says that demographic trends foreshadow major economic and social challenges and that, "the United States is experiencing fundamental demographic shifts. Birth rates have declined, average family size has fallen, and people are living longer. Meanwhile, a large influx of immigrants and relatively higher birth rates among the Hispanic population are changing America's ethnic composition, pointing toward a time when no single group can claim ethnic-majority status."

The Rand Institute notes that, "Between 1950 and 1970, fertility rates in the United States dropped from 3.7 children per woman to 1.9; they have risen slightly since then to around 2.0. Fertility decreases in many other industrialized countries were even more pronounced. Recently, many developing countries, including Mexico, China, and India, have undergone a similar transition. Though birth rates in many parts of the developing world remain higher than in the industrial world--and populations have continued to grow--the decline in birth rates has generally been faster and steeper than that which occurred earlier in the United States. Sub-Saharan Africa and the Middle East are the only major regions of the world where average fertility rates and family sizes have not fallen dramatically."

The Economist reported 22 August 2002 that "Demographic forces are pulling America and Europe apart. If the trend goes on, it will fundamentally alter America's position in the world." "America's fertility rate is rising. Europe's is falling. America's immigration outstrips Europe's and its immigrant population is reproducing faster than native-born Americans. America's population will soon be getting younger. Europe's is ageing. Unless things change substantially, these trends will accelerate over coming decades, driving the two sides of the Atlantic farther apart. By 2040, and possibly earlier, America will overtake Europe in population and will come to look remarkably (and, in many ways, worryingly) different from the Old World." The Economist notes that "With 400m-550m rich consumers, the American market would surely be even more important to foreign companies than it is today."

The report also notes that, "Both Europe and America face fiscal problems in providing pensions and health care as their baby-boomers retire. On some estimates, by 2050, government debt could be equivalent to almost 100% of national income in America, 150% in the EU as a whole, and over 250% in Germany and France. So while the burden is growing on both sides of the Atlantic, it is much heavier in Europe." The Economist concludes, "In short, the long-term logic of demography seems likely to entrench America's power and to widen existing transatlantic rifts." This is an important report and worth reading in full.


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