Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (39 page)

22
Peter Coy, “Petrobras Makes a Big Bet,” Bloomberg Businessweek, January 27, 2009,
www.businessweek.com/bwdaily/dnflash/content/jan2009/db20090127_390876.htm
.

23
Kenneth Rapozo, “Petrobras as Brazil's Moon Landing,”
Forbes
, September 29, 2011.

24
Ryan Furhmann, “This Could Be the First $1 Trillion Stock,” StreetAuthority, December 7, 2010,
www.streetauthority.com/growth-investing/could-be-first-1-trillion-stock-457883
.

25
Joe Leahy, “Platform for Growth,”
Financial Times
, March 16, 2011, 9.

26
“Brazil's Oil Boom: Filling Up the Future,”
The Economist
, November 5, 2011.

27
Robin Yapp, “Brazil Soars in Clean Energy Rankings,”
Renewable Energy World
, September 28, 2011.

28
“The Cellulosic Ethanol Debacle,”
Wall Street Journal
, December 13, 2011, A20.

29
Ibid.

30
Ikuko Korakone, “Brazil Ethanol Production Will Continue to Grow: IEA,” Reuters, October 13, 2010,
www.reuters.com/article/2010/10/13/us-iea-brazil-idUSTRE69C2VR20101013
.

31
David Pimentel and Tad W. Patzek, “Ethanol Production Using Corn, Switchgrass, and Wood: Biodiesel Production Using Soybean and Sunflower,”
Natural Resources Research
14, no. 1 (March 2005). Available at
www.sehn.org/tccpdf/Energy-biofuel%20outputs%20&inputs.pdf
.

32
Yapp, “Brazil Soars in Clean Energy Rankings.”

33
Ibid.

34
“Brazil to Invest $5.5 Billion in Renewable Energy Sources by 2013,” EnergyRefuge.com, September 14th, 2010,
http://blog.cleantechies.com/2010/09/14/brazil-invest-renewable-energy-sources/
.

35
Hamilton, “Historical Oil Shocks,” 2.

36
Sachs, “Tropical Underdevelopment,” 21.

37
Department of Energy, Federation of Industries of the State of São Paulo, “Atlas of Solar Radiation in Brazil.”

38
Sachs, “Tropical Underdevelopment,” 21.

39
“Brazil's Oil Boom: Filling Up the Future,”
The Economist
, November 5, 2011.

40
Stefan Zweig,
Brazil: A Land of the Future
, trans. Lowell A. Bangerter (Riverside, CA: Ariadne Press, 2000), 71.

. . .population dynamics could account for more than half of the miracle. A third or a half certainly isn't everything, but it makes population dynamics the most important growth determinant by far
.

—David E. Bloom and Jeffrey G. Williamson,
Demographic Transitions and Economic Miracles in Emerging Asia

One hotly debated aspect of the relationship between population and the economy is reflected in the Malthusian perspective explored earlier in this book. For many years, economists and policy analysts fretted that rapid population growth in the less developed world was a major contributing factor to chronic poverty. Specifically, observers felt that a large and growing population retarded physical capital formation. They theorized that by reducing the birth rate, developing countries could divert the resources that would otherwise be consumed by a large population of dependent children and use them for investment. Indeed, that concern figured in China's decision to adopt a one-child policy to limit population growth.

As China has enjoyed the highest compounded growth rate of any large economy in history, (growing by 9.8 percent annually since 1980, with the rate accelerating in the first decade of this century), the Malthusian move to limit birthrates may appear to have been vindicated. But look more closely. In the two centuries since the Reverend Thomas Malthus published his famous
Essay on the Principle of Population
(1798), the debate on whether a larger or smaller population is more conducive to economic progress has become sophisticated. Economists David Bloom and Jeffrey Williamson comment,

Pessimists believe that rapid population growth is immiserizing because it will tend to overwhelm any induced response by technological progress and capital accumulation (Ehrlich 1968; Coale and Hoover 1958). Optimists believe that rapid population growth allows economies of scale to be captured and promotes technological and institutional innovation (Boserup 1981; Simon 1981; Kuznets 1967). Recent research defeats both views: population growth has neither a significant positive nor a significant negative impact on economic growth (Bloom and Freeman 1986; Kelly 1988).
1

In keeping with the facts as summarized by Bloom and Williamson, economists have gradually refocused their attention away from gross population numbers to direct more attention to the composition of the population, or demographics, as an important variable in economic performance.

Research in recent years has shown that demographics are a considerable driver of economic growth. The larger the percentage of a population comprised of people in their prime productive years, the better the economy is likely to perform. Bloom and Williamson showed that from one-third to more than half of East Asia's economic miracle from 1965 to 1990 was attributable to a demographic bonus, arising solely from population dynamics.
2

Equally, Allen C. Kelley and Robert M. Schmidt found that “core demographic variables” account for 20 percent of the variability in the relatively tame growth rate in per capita output in Europe from 1960 through 1995.
3

One could quibble with econometric models, but there is a strong, logical foundation connecting greater economic productivity to greater contributions from persons at the most productive stage of life. Obviously, a hypothetical economy made up of 75 percent retirees, 15 percent children and 10 percent working adults would be hard-pressed to match the results of an economy with 10 percent retirees, 15 percent children, and 75 percent adults in their most productive stage of life. Of course, most countries are lucky that they do not reflect the overall age structure of either hypothetical economy as iterated above. A country without children would have very little future. Equally, a country made up of 75 percent of retirees would have huge problems. Kelley and Schmidt explain:

The argument is straightforward. High (low) rates of population growth result in a disproportionate number of children (aged adults) who consume but who contribute little or nothing to income. Consumption by these “dependents” must be financed and this is done out of savings.
4

The implication of demographic analysis is that an economy performs best when it has a large and growing number of well-trained workers entering the prime productive phase of life. But as the core demographics of the economy are dynamic, the sweet spots for growth, often described as a demographic bonus, depend upon the growth rates of the working age and dependent populations differing. The problem is that demographic bonus phases once achieved, are almost inevitably followed by slowdowns as the workforce ages and retires. Short of an infinite expansion of the population, unlikely for obvious reasons, or a peculiar surge of mortality from a plague or pestilence, dependency ratios for the support of aged adults are inevitably destined to rise. But this waxing and waning of dependency ratios happens at different times in different economies.

It is now fairly clear that the relative performance of leading economies in coming decades will be significantly affected by the percentage of their populations destined to fall into the various cohorts over the next 20 to 30 years. Since all persons who will be in their prime working years or retired in 2030 are already alive today, demographic projections can provide useful hints about the prospects for economic growth.

Among the headline implications of demographic projections, the working age population of Russia is projected to fall by 17 million, to 101.2 million, with a further 14.2 million drop from 2030 to 2050.

Another surprising finding lurking in population statistics is that South Korea's workforce is destined to shrink by 3.7 million persons by 2030,
5
a prospect that strongly reinforces the logic of reunification between North and South Korea. In showing that the demographic bonus was responsible for as much as 50 percent of the growth of the Asian tigers between 1965 and 1990, Bloom and Williamson noted that an “important implication of these results is that future demographic change will tend to depress growth rates in East Asia.”
6
Now that the demographic bonus has reversed itself, South Korea's economic performance appears destined to falter unless it can increase its workforce.

Similarly, Europe's working-age population is destined to decline by 10 percent, or nearly 50,000,000, implying an even more pronounced slowdown in economic growth. Europe's demographic decline in the next couple of decades is destined to reduce its population by more than the Black Death.

In contrast, Brazil's workforce will add almost twice as many people as that of China between now and 2030.

Perhaps the most surprising projection of economic performance informed by demographic analysis is the implied slowdown in China due to a drastic fall in the growth of its workforce. China's recent economic rise has been driven by the population boom that preceded the one-child policy introduced in 1979. But demographics are fate. The downside of China's strict effort to limit population growth is the fact that it succeeded. Hence a major labor-force gap that's now only a few years away.

“China will be in deep trouble in 15 to 25 years,” says Reiner Klingholz, who spent 10 years working in China and now directs Berlin's Institute for Population and Development.
7

According to the Stanford Center on Longevity, over the next two decades, China's workforce is projected to grow by just 9.9 million persons, or about half Brazil's projected growth of 18.4 million.
8
Given that China's population is 6.5 times larger than that of Brazil, the fact that the Brazilian workforce will grow by almost twice as many persons over the next two decades may signal a sharp slowdown in Chinese growth. The other factor of note is that almost all the growth in the Chinese workforce will occur by 2015. Thereafter, the impact of the one-child policy will begin to bite.

Note that the one-child policy is more complicated and involves more exceptions than simply restricting every couple to one child, as is often supposed. When the policy was introduced, China's population comprised one-quarter of the world's people, occupying just 7 percent of the world's arable land. Two-thirds of the Chinese population was under the age of 30. The one-child policy was initially introduced as a “temporary” measure. As reported in the
New England Journal of Medicine
:

Despite its name, the one-child rule applies to a minority of the population; for urban residents and government employees, the policy is strictly enforced, with few exceptions. The exceptions include families in which the first child has a disability or both parents work in high-risk occupations (such as mining) or are themselves from one-child families (in some areas).
9

The policy involves a set of regulations encouraging Chinese families to limit themselves to one child or, in the cases where second children or even third children were permitted, to space their births five years apart. In the rural areas where most people lived, a second child was generally permitted after five years, especially if the first child was a girl. In remote, underpopulated regions and among some ethnic minorities, a third child was sometimes permitted. Notwithstanding often heavy-handed government enforcement of the one child preference, the
New England Journal of Medicine
described China's abortion rates as “relatively low, with 25 percent of women of reproductive age having had at least one abortion, as compared with 43 percent in the United States.” Among those women having abortions, one of the main reasons given was “a lack of government approval for the pregnancy under the one child policy.”
10

The number of live births per woman in China fell from 2.9 in 1979 to 1.7 by 2004. (The rate in the urban areas was 1.3 children per woman, while that in the rural areas was just a touch under 2.) According to Chinese authorities, the policy has prevented somewhere between 250 million and 300 million births.
11
This estimate of prevented births seems credible when the growth of India's workforce is compared to that of China. India's population in 2011 was 1,210,193,422, some 130 million smaller than that of China (1,339,724,852). Nonetheless, India's workforce is projected to grow by 241 million by 2030 while China's expands by only 9.9 million. If China's population were growing at the same rate as India's, its workforce would have expanded by 278 million, midway between 250 million and 300 million.

The Chinese policy of strict population control had the effect of creating an otherwise “artificial” demographic bonus, beginning in the 1990s, as there were fewer children than there would have been otherwise, reducing the dependency ratio and increasing the percentage of the population comprised of working-age adults. Demographers estimate that the demographic bonus resulting from the one-child policy was responsible for up to 30 percent Chinese economic growth since the 1990s.

Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies in Washington, points out, after expanding at an average rate of 2.5 percent a year over the past three decades, China's working-age population has almost stopped growing. He states that China's working-age adult population will contract by about 1 percent a year from now through the mid-2020s. Similarly, the UN projects the number of 15- to 24-year-old Chinese will fall by almost 62 million through 2025 (to 164 million) while their aging population will rise 78 percent (to 195 million).
12