Transcription
Wherever you're watching, welcome to the program.
Now, it's been called the demographic time bomb. A shrinking population, but one that's getting older. It's a trend that's likely to have profound consequences for the global economy. And it comes too as governments are racking up huge debts that will be left to future generations to pay off. So, what does it all mean for how we live?
Well, overall the global population is still growing. The UN is forecasting that it'll peak at 10.3 billion by the mid 2080s, but in many advanced economies, it's falling with birth rates below the 2.1 children needed to keep a population stable. Why? Well, a major UN study found that 39% of people said financial limitations were the main reason for having fewer children.
In the UK, the decline in birth rates is typical of other advanced economies, and the average birth rate here is one and a half children. Now, these people have been explaining some of the reasons behind that trend.
"When we had Alex, who's three now, um we always thought once he qualifies for his funded child care, which is from January next year, that we would possibly then think about expanding our family, having another baby. However, if we did that next year, then we would possibly be into paying childare fees for two children at the time that our remortgage is up. Nursery prices and food prices and other stuff is just all things are just just get getting high in price. So, it's just um diminishing the chance for you to have second child."
"I came out of med school with a lot lot of debt. At this moment in time, I don't think I could start a family on this wage at all. Um, I'm a little bit older. Um, and it pains me that I have to wait."
And there are similar challenges around the world. Before being overtaken by India, China was a country that got a lot richer off the back of having the world's biggest population for most of the last quarter century. Those people have powered the labor force in factories churning out Chinese-made goods sold to the rest of the world. But Xi Jinping's government is concerned about sustaining that economic growth. So recently said it will give parents $500 a year for each child under the age of three to help with costs. Here's what some parents in Beijing make of that plan.
"For young couples who just got married and already have a baby, this might encourage them to have a second child. It will help ease the burden and offer some reassurance."
"I think this is a good thing. Raising a child is costly, right? Education and all the other things. Compared to my generation, the costs have definitely increased. That includes food, education, healthare, and all the basics."
"Child care subsidies can solve some of the short-term problems, but more importantly, in the long term, there are other issues such as who will take care of the children."
Well, it took just 11 years for the global population to grow from 7 billion in 2011 to 8 billion by 2022. Better health, nutrition, and medicine have prolonged how long we live. But that also costs money and it's also getting more expensive to support a child. Research from the UN Population Fund found that economic barriers were the biggest reason for millions of people choosing to have fewer children.
So I've been speaking to one of its senior leaders who's been tackling these challenges around the world for more than 30 years. Alana Armitage, welcome to Talking Business. Now I know there's a lot of research been done into what the future of our global population looks like. You've got one called the state of the world population report and it particularly looks at some of the issues around how people view their future when it comes to children. What does that report tell us? What does that research give us an insight into?
"I think what's really exciting about this year's state of the world population report which is called the real fertility crisis is that we're understanding that people's very personal decisions about wanting to have a child are actually directly related to how they see the global economy. So I think the big challenge for uh business for governments really is understanding that this is about our future human capital right. So, um, our study actually showed that one of the biggest reasons why young people today are are finding it difficult to have the number of children they'd like to have is mainly for economic um causes. So, we actually interviewed 14,000 people in 14 different countries and one in five said that they did not think that they would be able to have the number of children they wanted to have. And the 50% of those reported that the reason was financial procarity, economic procarity, whether that is lack of housing, whether that's job insecurity or whether that is lack of affordable child care. Um, so what we are finding in UNFPA is that the real fertility crisis, it's not a crisis of people not wanting to have children. The crisis is really the gap between the desire to have children and what people feel they can actually achieve in today's economy."
So clearly on a family level, on a personal level, that is a huge decision for people to make. But talk to me about the wider implications here because it strikes me that there has been up until now maybe a social contract between generations. one that says a younger generation will be at work and pay for a older generation that has retired and given the squeeze on incomes, fewer people coming into the workforce, that contract has utterly broken down, hasn't it?
"You know, I think this is one of this is the biggest question for United Nations Population Fund. This is what is causing the greatest anxiety at the moment. And we're seeing that already in Europe, in Asia where in many countries 30% of the population is already um over 65. So definitely this is a big issue. However, one thing that I think is really important to keep in mind is that this is not happening overnight. you know this this transition of age structures is actually something that we can plan for because if you see today the 10 largest economies of the world they all have below replacement fertility. So we need a new social contract. If we look at the way that our systems have been built, the models that we continue to have around pensions, education, health, they were pretty much built, you know, over 50 years ago in a sense when people lived 30 years less. Um, so we really need to radically rethink the way we are promoting these policies. We need an intergenerational social contract that reflects the demographic future that we're going to live in that reflects the modern economy and the way it works."
What does that look like though? Because in China's case, for example, uh the government there suggesting they will make payments for people who have more kids. Um it's not as simple as just everybody having more children, is it?
"So what we need is not short-term incentives, but rather long-term investment. And nothing is wrong with providing these baby bonuses. But interestingly, if you look at the case of Norway and Sweden, they are two countries that have pretty good family policies, right? And what they have found is that their family policies were actually not addressing all the determinants to why people couldn't have the number of children they want. So that includes things like housing. And if you look across Europe, this is a huge issue, especially in southern Europe where fertility rates are so low. Um, also the issue of the pressure that parents are feeling to be sort of perfect parents. We do need a new social contract, one that's intergenerational, one that actually supports the ecosystem for the the whole ecosystem for the family and not just these oneoff payments."
But at the same time, we're told that, you know, demand for the world's natural resources will be under more pressure than ever, be that water, food, or other resource. And so, what is the right strategy to take? Because on one hand, you need to keep the birth rate up to support the economy. On the other hand, though, we're all very conscious of the pressure that's putting on the world.
"What is interesting is our report found that one in five people surveyed indicate that climate anxiety is actually keeping them from having the number of children that they'd like to have. So the climate anxiety is a big factor in today's um you know situation of of young people not having the number of children they'd like to have. Having said that, we know that fertility itself is not directly linked to climate change. It's the consumption patterns that we need to look at. So many of the wealthier countries with low fertility are those that are most contributing to climate change. Yeah. And therefore that in itself is a problem for government policy but also for for how we measure the success of an economy."
I wonder too whether we need to be thinking about how we measure success in an economy and whether GDP is the right way of doing so because that as we've discussed relies on a growing workforce producing ever more output. Right?
"I mean, I think that's the key question and and especially for your show. Um, again, it is so interesting to see that the the the UNFPA report is really showing um that the these very personal decisions really reflect the health of the economy. It signals what's going on in the global economy and it also signals that perhaps we need to look at different indicators. We certainly cannot um be promoting any ideal population size or ideal population composition uh or any ideal fertility rate. We've seen in the past what that actually does to people. It's demographic engineering is always harmful."
And I know this is a big question and there's probably not one clear answer, but let me ask you anyway. Um, is it your view that a growing population or a shrinking population is better for the future?
"No. For the United Nations Population Fund, it's not about numbers. It's about choice and it's about whether every individual has that possibility to achieve the dream that they have, whether it's to have more children, to have less children, or to have no children at all."
Alena Armitage, it's been so good to talk to you on the program this week. Thank you for being with us.
"Thank you so much, Ben."
One of the big challenges for the future is how we pay for the world we want. Now, that ranges from pensions and health care to comfortable living standards. It's about making our investments pay off in a way that provides for the future. Now, they're all challenges that the Thinking Ahead Institute grapples with. It's a not for-p profofit research institute founded by the global investment and pensions giant WTW. and I've been speaking to its boss, Marissa Hall. Welcome to Talking Business. Good to have you here. And talk to me about that challenge of shrinking populations. I mean, the latest figures suggesting that, you know, the UN says by 2100 populations of some advanced economies will fall anything between 20 and 50%. What does that mean for their future, but also for the way we plan our economies?
"It's an incredibly complex question. And I think what we're seeing here, as you rightly say, is that we have plunging birth rates and generally older populations. We already reached peak birth rates about 3 years ago. That was 146 million. And when you look at the statistics, you have countries like China, which I think over the next 25 years is set to lose 155 million people. But you also have people living longer, and I think that's actually a really great thing. But effectively you have this demographic time bomb and the strain can be quite pronounced particularly when it comes to thinking about output of economies. So you have countries like western Europe and advanced Asia and greater China where on average over the next few years you're expecting to see a point4% drop in GDP perom. What does that mean? We're talking about $10,000 per person over the next 25 years. And so what we see is the big issue here is the government's ability to provide education, to provide health care, to provide that safety net for individuals in the form of social security and a dignified retirement because actually what you're having is this drop in GDP output. It's not just about living longer, but it's about living well for longer. And that clearly has a financial element and a health element. And you know, advances in medicine mean that we are living longer and able to be more healthier into older age. But financially, are we prepared enough to do that?"
Well, I think the preparation is absolutely the key. I think that's what we do a lot of our work here at WTW, which is working with organizations to make sure that individuals are able to build their personal pension pots for retirement. You know, we always encourage people to save, but actually we've also got to encourage people to invest because that's good for themselves to protect against future inflation or future recessions, but also it's good for the broader economy as a whole. So you've got countries like the UK, yes, New Zealand, Turkey, where they're very successfully introduced automatically enrolling individuals in pension vehicles and is something that is really an investment that can help mitigate some of the effects of this demographic um time bomb. We've got fewer people in work uh so therefore paying ahead. You've got more older people retiring, expecting a pension that they would argue they've paid into all of their working lives. And at the same time, you've got a cost of living crisis where people are just struggling to afford their bills daytoday, never mind being able to put a bit more money away for the future. It feels like a conundrum that is really hard to solve.
"Yeah. And I think it's the financial cost of living side of things, but also what we see is we see that actually there's a cultural element to this. So fertility rates have dropped significantly and finance plays a major part of that. But also we have cultural issues such as you know for instance in Japan where you have women focusing more on professional goals. You've got places like China where the the one child policy that was in place for many many years has a knock-on effect on current generations in terms of thinking about size of families. So I think when it comes to finances and thinking about your overall wealth journey that has to be taken in tandem with the broader social issues and the broader literacy campaigns that we as a society need to be able to run to make sure that people invest and build that personal pension pot for those lower income households that you know it's very difficult to think about saving for retirement when you're have financial difficulties right now."
Um, we're focusing here on countries of course where populations are forecast to fall. There are some particularly in the developing world where populations are forecast to keep on growing and I wonder given the way that the current economic model is set up. Do they stand to have a a strong advantage in future that they've got a growing young population that will be able to a work and b pay for the older generation?
"What we're really talking about here are many countries in subsahara and Africa. So we're talking about Nigeria and Ethiopia and Kenya and Botswana. All of which all of whom have younger populations and growing populations. But what you have in these cases is that still the GDP per capita of these countries and the living standards in these countries are no way equivalent to more advanced economies. they face this issue of trying to make sure that they get rich before they get old. So what does that mean? Well, you need to think about education. You need to think about healthare. You need to think about jobs and transport and technology. Yes. and infrastructure, but you also need to be able to think about how to create a sustainable retirement system that en encourages um the industry to be able to help citizens to build their wealth and to support broader um growth."
But much like our personal budgets feeling a squeeze from the cost of living crisis, government budgets are really stretched too. I mean there's a lot of concern about the debt to GDP ratio for many developed countries often exceeding the size of their economies and I wonder therefore all this debt that is being stored up for future generations with an expectation either you inflate it away or tomorrow's uh taxpayers will pay for it. Where does that leave us economically in future if there are fewer people able to pay back the debt that their parents' generation has racked up?
"You know, you've got places like the US where the debt to GDP ratio is something like 125 um%. And that was one of the main concerns around the recent big beautiful bill that that increasing deficit where in the US it's over $1 trillion annually and countries like the UK where actually you have 100% of debt to GDP. Um, and you've also got at the same time weak productivity and these costly public services. And so what you're seeing here is that actually debt is hampering government's ability to be able to provide the essential services that they need. It's almost as if you're crowding out your ability to be able to spend on these other areas like healthcare and education and infrastructure. So it is a bit of an issue."
Marissa Hall, really good to talk to you this week on the program. Thank you.
"Thank you."