Chief Economist's Corner: Demography is destiny

The phrase “Demography is destiny” is commonly attributed to the French philosopher and father of sociology, Auguste Comte (1798-1857). By coining this phrase, he argued that the size and composition of a country’s population will determine its future.

And even though a lot has happened on the technological front since Comte’s time which means that a country’s growth and prosperity potential does not depend solely on demography, there is reason to keep an extra eye on demographic developments these days. For example, demography will support the super-strong labour markets we have experienced with some surprise over the past few years.

After all, most of us had expected unemployment to rise significantly in the wake of the energy crisis and the dramatic surge in inflation and interest rates. But that is not the most realistic scenario right now. As a matter of fact, more and more signs suggest that central banks have managed to administer monetary policy correctly and create the foundation for a soft landing. In other words, a situation in which unemployment is not getting out of hand, as was the case, for example, after the oil crises of the 1970s, when inflation also skyrocketed and central banks also tightened monetary policy significantly in order to get it under control.

In those days, unemployment settled at double-digit levels, and in Denmark, the government introduced the voluntary early retirement benefit scheme in 1979 to make room for young people on the labour market. But now demography is pulling in the direction of a more permanent shortage of labour because the baby boomers, the large generations born between the late 1940s and the mid-1960s, are retiring from the labour market on a massive scale and are replaced by the relatively small generations of the 1980s onwards.

While the demographic trend is therefore currently helping to support the economies, a different reality threatens in the slightly longer term. Because the population pyramid is being turned upside down. In Denmark, the population is growing only because we are getting older and receive immigrants from other countries. In other European countries with an aging population, the situation is even more serious as a consequence of emigration. And in the country with the world’s oldest population, Japan, a low birth rate has for many years led to the bizarre situation that the number of diapers sold for elderly people today exceeds the number sold for babies. The Japanese population size peaked 15 years ago and a historically very restrictive approach to immigration does not brighten the future prospects for the Land of the Rising Sun.

It is clear that developments will place issues such as public health, retirement age, education levels, immigration and the use of artificial intelligence high on the political agenda in most countries if the prosperity and well-being of the population are to be maintained in the longer term.

China’s population has also begun to shrink in recent years as a result of the country’s long-standing one-child policy, but aging is far from a rising problem everywhere. The global population is actually growing rapidly. In 1950, there were 2.5 billion people on the planet. That figure had risen to 6 billion by the year 2000 and passed the 8 billion milestone last year. The United Nations estimates that the next 50 to 60 years will see further growth of almost 2.5 billion people, after which population growth will level off. At the same time, it is a fact that it is practically only in Africa this growth will occur. According to the UN, the African population will grow from now around 1.5 billion to 3.5 billion by the year 2080 and to almost 4 billion by the year 2100.

The potential for growth in Africa is therefore large in principle, but it is also evident that such a massive population increase in such a short time on the world’s poorest continent presents enormous social and climate-related challenges that can only be solved through extensive external support.

But basically, high politics also depends on demography. And there are many indications that we are on the threshold of a real paradigm shift. The US-led liberal world order is currently being challenged by the BRICS-Plus countries, which – in addition to increasing their economic and political presence in Africa – are also home to almost half of the global population, which, by the way, is much younger and has a much higher fertility rate than in the Western countries.

No one knows what the future looks like. However, it seems beyond doubt that the relative strength of the relationship between the parties to a future multipolar world order, whatever that may involve, will be largely determined by demographic trends.

Demography is and remains destiny.