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March 20, 2014
Economorphics
By Linda Nazareth
(Relentless Press, 314 pages, $19.99)
Economorphics is an ugly word, but important. Economist-broadcaster Linda Nazareth coined the term to encompass the themes of economics, demographics and change. “Thanks to the first two factors, our world is morphing into another one, an unfamiliar one to most of us. This change is being powered by a series of ‘economorphic trends’ that will transform our economy, sometimes for good and sometimes in ways we might not have bargained for,” she writes in Economorphics: The Trends Turning Today into Tomorrow.
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The most significant trend is that the so-called demographic window is being shut in the developed world, including Canada and the United States. The window is open when the percentage of the population under the age of 15 is below 30 per cent and the percentage over the age of 65 is below 15 per cent. That demographic balance powers growth, as the labour force can easily handle the younger and older people dependent upon them.
Ms. Nazareth says the sweet spot is when a country moves from an era of high birth rates and declining death rates to a period of declining birth rates and still-declining death rates. The labour force is expanding more quickly than the youth dependent on it, more money is being paid in taxes, less money is going to education, relatively speaking, and economic expansion is likely.
She suggests much of Ireland’s economic success in the 1990s came from precisely this reason rather than economic or tax policy: It had a sharp increase in the working-age population relative to the birth rate.
“Over all, a country gets the most bang for its buck when the so-called demographic window is open – and that is a problem if you look at where things are in the world today. In North America, the demographic window is still open, but only just: It opened in 1970 and will shut by 2015.”
It will mean the demographic circumstances that created the positive economic conditions of the past few decades will disappear. A growing proportion of the population will not be paying taxes, or will be paying fewer taxes than when they worked. As the labour market dwindles, there will be upward pressure on wages, she predicts, which could boost inflation. That said, she dismisses the notion that demographics are destiny. But well-designed policies and safety nets will be required to handle the new reality.
“At the heart of this entire issue is labour productivity: If you cannot get a larger mass of working-age persons to pay the bills, you need to get people working at more effective jobs, making more money and paying more taxes because they themselves are well-compensated. That takes macroeconomic and tax policies, and the right kinds of investments in technology. But if you push all the right buttons, you can solve the problem of demographics,” she said.
Other trends to watch for include:
A world on the move
Globalization of goods and capital is being followed by a third wave – people, moving from place to place within a country and from one country to another. This unprecedented mobility will not be smooth for the people or the countries they enter, as citizens worry about being overwhelmed by the newcomers and question whether the influx will push down wages and push up unemployment rates. Interestingly, while Mexico is often seen as an exporter of people, the country has become a destination for international migration, as its economic prospects seem promising.
More urbanization
The world is becoming increasingly urban and cities are vital economic entities. “We will still be talking about the United States versus China, but increasingly, we may also be talking about New York versus Beijing, or Seattle versus Ningbo [a port city in East China]. When we talk about policy decisions in future, we will increasingly be talking about those that come from municipal, not federal, governments,” she said.
Reshuffling the economic deck
The economic hierarchy will be upended as Europe and North America lose power while Asia gains. Some unfamiliar countries will crop up on the list of the 10 largest economies. Contenders include Iran, Mexico, Turkey, Indonesia, Egypt, Nigeria, Pakistan, Vietnam and Bangladesh.
An expanding global middle class
While we fret about the shrinking middle class in North America, globally, a middle class will emerge, providing spenders from places such as Asia to offset economic weakness in developed countries. By 2030, one estimate forecasts that 58 per cent of the world’s population will be middle class, more than double the percentage in 2009.
Ms. Nazareth, who is also a senior fellow at the Macdonald-Laurier Institute (and a contributor to The Globe and Mail’s online Economy Lab) provides 12 trends in all to watch.
Her writing is clear, neatly bringing a wealth of information to the reader. For business people who have to keep on top of global currents or average citizens intrigued by economics, demographics and change, this book with the strange name will be helpful reading.
POSTSCRIPT
Donald Savoie is a University of Moncton expert on government and regional development and long-time friend of the late entrepreneur Harrison McCain. In Harrison McCain: Single-minded Purpose (McGill-Queen’s University Press, 338 pages, $29.95), he offers a biography that also delves into the role of government policy in the growth of McCain Foods.
Accountability (McGraw-Hill, 295 pages, $30.95) by leadership consultant Greg Bustin shows how to build a high-performance culture.
In Fragile by Design (Princeton University Press, 570 pages, $38.31), academics Charles Calomiris and Stephen Haber examine banking crises over the centuries to illuminate their political origins.
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter
Special to The Globe and Mail
