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Wednesday, August 27, 2003

Where Have All the Babies Gone?

Whilst I'm down here in Valencia checking-out the progress of the Bulgarian immigrants, Eddie, over in Singapore, keeps up the momentum with another sterling piece about the effects of the 'baby shortage'.

Oh for babies to boost the economy
By Eddie Lee

ITALY is a Catholic country with a long tradition of large families. But last year, despite tax-funded childcare and paid leave for both parents, its fertility rate was just 1.2, half of what it was in the 1980s. In Britain, a study found that one in five women was childless by age 40, with the number of 40-year-old women without children now twice as high as it was 20 years ago. The fertility rate for the United Kingdom is now 1.6. In Scotland, deaths now exceed births. Scotland's population has started to decline.

Fertility rates are defined as the average number of lifetime births per woman. The rate at which a population replaces itself is 2.1. Europe's rate is about 1.5. By 2050, Italy could lose 16 per cent of its population and Germany could have to import half a million immigrants a year to keep the working-age population stable. United Nations population division director Joseph Chamie says what the world is seeing now is a revolution in fertility. Rates are falling in virtually every country in the world. The same factors that have long contributed to declining fertility rates in Europe are now emerging in developing countries.

The world's population could level off at about nine billion by mid-century, from six billion today. A decade ago, the UN was projecting about 12 billion. Singapore has just recorded its lowest number of births in 26 years. Only 18,503 babies were born from January to June, and extrapolating from this figure, there will be about 37,000 babies born this year - lower than the 38,364 recorded in 1977. Indeed, last year Singapore's fertility rate had already dropped to an all-time low of 1.4. Despite baby bonuses and state-supported dating programmes, Singapore has been unable to reverse the drop in its fertility rate, which first fell below the replacement level in 1975.

Dr Cheng Li Chang of the Thomson Fertility Centre said: 'Singaporeans are very realistic people. Raising children is becoming more costly, especially since our education system is so competitive. 'Parents feel the need to spend a lot of money on tuition and enrichment programmes for their children.' This investment in the future, however, also has the consequence that Singaporeans produce fewer children; hence the demographic conundrum. The economic consequences of an impending decline in population are likely to be far reaching. With fewer people of working age and more among the elderly and dependent, an economy's productive capacity and purchasing power are reduced.

In fact, economists David Bloom and Jeffrey Williamson argue in a 1998 paper for the World Bank that East Asia's economic miracle resulted from a simple demographic trend: The working age population grew much faster than the dependent population from 1965 to 1990. This expanded the productive capacity of South Korea, Taiwan, Singapore and Hong Kong. Rapid growth, of course, is not inevitable. But it occurred in these places because they also had the social, economic, and political institutions that allowed them to realise the growth potential created by the demographic transition. Economists call this the 'gift' phase of the demographic transition, from pre-industrial high fertility and mortality to post-industrial low fertility.

It comes first with fewer infants and children dying young, and later, fewer children being born. The result is an increase in the proportion of working adults in the middle phase of the transition. In the final phase, however, the continued decline in fertility results in an ageing population and a decline in the proportion of working adults. This suggests future demographic change will depress growth rates in East Asia. It is no coincidence that Japan is the oldest nation in the world, with a median age of 41.3, and the first postwar industrial economy to suffer from deflation. It is no surprise either that economic growth in Italy, Switzerland and Germany has averaged just 0.5 per cent, with rapidly falling inflation rates, in the past two years. They have a median age of around 40. All three economies are now in recession.

And you can't blame their protracted sluggishness on the bursting of the 1990s stock market bubble, for central banks demonstrated in the 1970s and 1980s that they had pretty much learnt how to mitigate the effects of stock market crashes. Neither are labour market rigidities a good reason. Quite clearly, the deeper underlying cause in all cases is an ageing population. When thinking about the dramatic economic transformation that occurred in East Asia in the past half century, remember also that the plunge from high to low rates of fertility was much sharper in East Asia than in any other region or historical period. Today, the demographic 'gift' is passing from countries such as Japan, Hong Kong, Germany and Switzerland to China, India and Malaysia. Ditto the growth wave.
Source: Straits Times

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