Europe 2050: demographic suicide and weak economic growth

Surprisingly, we did not say a word about the demographic suicide of Europe by 2050. Demographic forecasts for the major regions of the world have long known to all and updated every two years, the UN and Eurostat for EU countries, however, to use them, need to be an expert on databases.

It does not say no, especially in Brussels, where I prefer the reports on the technological revolution, sustainable development and the transition process in the energy sector. We try to fulfill our duty and warn people, even though we understand that by 2050 we will no longer be alive, and we will not be able to lament that we were not heard. Unlike North America, where the population will grow by 75 million (and in the South 150 million) in Europe, the indicators can be frozen at the level of 500 million people with the loss of 49 million people of working age (20-64 years), and 11 million will fall only to Germany.

Spain and Italy will lose from 7 to 8 million potential workers. France may be happy that will almost catch up with Germany, than it is likely to overtake the UK. Anyway, nothing good in this run, no, because our neighbours are our main markets: Europe accounts for 56% of French exports.

Tectonic demographic shifts

Other tectonic demographic shifts deserve no less attention: China, Japan and Russia will lose, respectively, 38, 20 and 15 million inhabitants, whereas the population of India will increase by 400 million that will allow it to circumvent China at least 300 million. Especially acute, this decline will be observed in the group from 20 to 64 years: 22 million in Russia, 20 million in Japan and 195 million in China. In the U.S., the number of active workers will grow by 20 million over the same period.

To compensate for these losses need hands and brains. In parallel, the population of Africa will grow by 1.3 billion, in particular at 130 million at the North of the continent. This means that immigration pressure on Europe will be strong as ever. However, she never talks about this demographic shock and not being prepared for it. It looks like a demographic tsunami is less important than the digital wave. To this end, we offer our interlocutors to imagine a few millions of climate refugees from Asia more political and economic refugees from Africa and the Middle East. Note that even if only 1% of the demographic increase in Africa will be established in France for 35 years (this date is from us at about the same time interval, and 1980), it would mean 13 million people, i.e. 20% of the current population! When you consider how much the EU deteriorated in 2015 with the appearance of a million migrants (three-quarters of them were political), it is clear that Europe needs urgently to prepare for such a prospect. It could follow the example of Canada, which introduces a quota policy depending on the needs of the labour market. It should also take measures to lift the birth rate. The thing is, the first driving force of this integration is the interaction of cultures in the school. But if the cement add too much sand, he’s just not clutch. To make more sand, you need more cement, that is, children who speak the language of the country, regardless of the color of their skin. In other words, if Europe wants to maintain openness to the world, she should now deal with the rise in the birth rate. But who said anything about family policy in Europe where some hotels and resorts do not accept children, but allow Pets? The media only begin to sound the alarm that in 2016, the death rate in Europe for the first time surpassed the birth rate. It will be interesting to note that this is the case in Germany since 1971, Italy 1991, Spain in 2016 in Russia since 1991 and in Japan in 2006. It’s China’s turn will come to 2028. France and the U.S. this phenomenon will affect only after 2050. The demographic suicide of old Europe on the horizon, however, there is still time: good forecast, rather, not one that necessarily comes to pass, and the one that makes to take the necessary measures to prevent the crisis.

The classical approach is recording strong economic growth of postwar Europe on recovery and catching-up from the United States. “Glorious thirty years” coincided with the demographic wave. At the same time, we have very few people says that the productivity growth in the 1950-1960-ies was twice or three faster than in the 1980s and in subsequent periods, although at the time there were neither computers, nor talk about the technological revolution.

How not to read this the result of the impact of the experience curve and reduce the cost of production for constantly expanding markets? At the same time, economic growth is stable and performance was on the decline in the United States, Europe and Japan since the early 1980-ies. Scientists have raised questions about the reasons for this decline despite the fact that the results of technological revolutions in Informatics, communications, biotechnology, nanotechnology and energy are noticeable like never before. This is a computer Robert Solow paradox: computers are found at every step, but not in the statistics of labour productivity. Surprisingly, these experts do not focus on the link between economic growth slowdown and population aging in developed areas: USA, Japan, Europe.

In Europe and Japan, GDP growth was higher in the 1980s than in the 1990s: 2.5% versus 2.3% in Europe and 4.6% vs. 1.1% in Japan. Over the past two decades, U.S. average is ahead of Europe on 1% growth. The explanation is largely due to demographics, as GDP per inhabitant differs only by 0.2%. So, In the United States from the beginning of 1960-ies there is a demographic growth of 1% per year, which is two to three times more than in Europe. In addition, a higher the us GDP growth is due to greater employment and annual number of labor hours. The United States show the higher growth because more Americans, and they work more.

When the digital wave hides the demographic tsunami

The question of the link between demographics and economic growth is rarely mentioned, both the European Commission and most international and national authorities. Reports on technology, innovation and competitiveness there are so many. Man is considered only from the point of view of human capital and education, which is rightly considered an investment and a factor in long-term growth. To the demographics suitable only in the future of aging and related issues for the balance of the pension system and health care, but do not consider its impact on economic growth and the place of Europe in the world.

In 2000, the ambitious Lisbon strategy for economic growth and employment relied mostly on information technology and knowledge economy to ensure that Europe, its future and influence in the international arena by 2010. Released in 2004, the report of WIM Kok (Wim Kok) reiterated the policy of knowledge society and sustainable development, while the aging of the population, again nearly has not got attention. It was noted that it may reduce the economic growth potential of the EU to the whole point (to 1% instead of 2%) by 2040. At the same time did not say a word about the comparison of the demographic trends in Europe and the USA. The issue is that more evident that such comparisons are systematically conducted in the field of innovation, research and performance.

Demographic multiplier

How to say Alfred sauvy (Alfred Sauvy), economists “refuse to see” the relationship between economic growth and population dynamics and not trying to check it out. Whatever it was, the glorious thirty years went hand in hand with a rise in fertility, those in the US, no doubt, is also associated with the best demographic. Over the past 30 years the average fertility rate is 2.1 children per woman against 1.5 children in Europe. At the same time the population continues to grow due to the strong migration flows. As an explanation of differences in growth rates in the US and Europe are generally selected technological factors. However, the question arises: is there not here a kind of “demographic multiplier”. This hypothesis allows to understand better the growth and the fact that the increase in productivity in the 1950-1960-ies were on average two times faster than in 1980 —1990th years, despite the technological revolution (in theory it should be a source of productivity growth). With the new economy, the question seemed solved: economic growth and productivity in the United States much more than in Europe. Not confirmed whether this is the technological backwardness of Europe from America? Now in this respect there are doubts, as we have confirmed statistics. In the 1980’s, the GDP growth in terms of the economically active population were approximately equal in both zones (about 1.5%) with a small margin of Europe in the 1980-ies. However, since the 1990s years, Europe began to take positions in relation to the US, where the figure was 2% in the 1990-ies, 1.5% to 2007 to 1% after the crisis. In Europe it was about 1.7% in 1990-ies, 1% from 2000 to 2007 and 0.3% after 2008.

The question arises: it has to do with technology or the demographic gap? We believe that a crucial role is played by the second factor, since differences in this area become more noticeable. Not all citizens belong to the group of the economically active population, however, the number of hours worked largely explain differences in productivity per employee: Americans work per year on average 46% more than French. They work in connection with the existence of effective demand, which is probably higher than in other countries due to population growth. If we abandon the hypothesis of the interdependence of the indicators “GDP per inhabitant” and “demographic growth”, then we can make another assumption: we are talking about the demographic multiplier, which may contribute to explain the greater increase of productivity in the US compared to Europe. For the most part economists, referring to the famous Cobb-Douglas production function, explain the increase to three factors: capital, labour and technical progress. Back to the sources: performance is the substrate of the additional economic growth that is not explained by growth of production factors (capital and labor). For lack of a better, that increase is debited to the asset technical progress (in this case, the diffusion of information technologies), which is a positive way of referring to otherwise inexplicable residue.

Demographic dynamics and apparent labour productivity

GDP growth depends on two factors: GDP per employed economically active population and economically active population. Growth of the first indicator, the U.S. bypassed Europe since the mid 1990-ies. In fact, the differences of GDP per active population (apparent labour productivity) is even greater in connection with the number of employed people among the growing population. Technological progress, training and savings help to reduce the cost of production, improvement of quality and overall value added, that is, the ratio of GDP per active population.

The multiplier of population dynamics still plays a role in the United States, although less than in 1960-ies, but still more than in aging Europe. Economists don’t see it because you’re not. Anyway, such a hypothesis would explain the differences in the GDP per active population in the United States and Europe since 2000 years is much better than the mere gap in the field of information technology. Long-term economic growth in developed countries relies on the demographics: without human capital, it begins to suffocate. When the birth rate is 1.5 children per woman in Europe in the future will be less than one third of the young active population than it is now. The drop in the birth rate for the country is the same as the decline for the enterprise: this allows you to improve the financial situation at the cost of serious problems in the future. From all this it follows that the family policy with emphasis on population growth is an investment in the long term. Someone will say that the lack of fertility in Europe and its negative impact on economic growth and standard of living can be compensated by immigration flows larger scale. Actually, this is a mistake, as evidenced by the recent vote in favor of a British exit from the EU, as well as the reaction of the population of almost all European countries with the recent flows of migrants from Africa and the Middle East.

European countries look like Apple orchards, where trees are actively fertilized for 40 years and began to grow old, but no one seemed to care, in order to produce new seedlings. For investment and consumption needs confidence in the future and the need to purchase that, unfortunately, is declining with age. The dynamism in the economy and demography of the same source: the desire to live is manifested both in the economic initiative and the birth of children. The entrepreneurial spirit akin to the spirit family!