Sunday, January 27, 2013

China Is Dying

Population decline is an indicator of economic decline. That's conventional wisdom. Clearly, China is dying:

The demographic dividend that China has enjoyed in recent decades has kept wage rates low and saving rates high. With fewer children per worker, China has enjoyed a higher income per head, a large chunk of which it has been able to save and invest. The shrinking of the working-age population will put downward pressure on the saving rate and upward pressure on wages, as coastal factories have already found. According to Mr Laurent, the number of 15- to 24-year-olds will shrink particularly quickly, dropping by 38m, or 21%, over the next ten years.

Emphasis added. The highlighted sentence is a more sophisticated demographic analysis than typically explored in the United States. Workforce trends are hidden below the changes to overall population. Is Tampa growing thanks to more retirees? A bigger population is not necessarily better.

Both positive and negative trends can be lurking underneath the usual indicators. That's why Richey Piiparinen and I have developed the lens of ironic demographics:

As residents left Cleveland and Cuyahoga County in unprecedented numbers last decade, one group defied that trend assertively. Young adults, minorities in particular, moved in eye-opening numbers to some urban neighborhoods of the city and its inner-ring suburbs, according to a new report. ...

... "We're talking about an infusion of fresh blood," said Richey Piiparinen, a Cleveland policy researcher who specializes in the economic power behind demographic patterns. "Circulation of people is something we've been languishing in. That may be changing."

Piiparinen makes that argument in report he wrote for the Center on Urban Poverty and Community Development at Case Western Reserve University: "Mapping Human Capital: Where Northeast Ohio's Young and Middle-Age Adults are Migrating."

The migration of young adults into the urban core of a dying city is unexpected, challenging the dominant perception of Cleveland as plagued with brain drain. Everyone is leaving.

What does Cleveland have to do with China? Back to the demographic "crisis":

Since 1995 China’s economy has grown at an extraordinary rate, expanding by 9.8% a year on average. But its ascent relies less on raw human effort than many people think. By Mr Kuijs’s calculations, the mere expansion of employment has contributed only 0.7 percentage points of its annual growth. The movement of labour from agriculture to other, more productive parts of the economy has contributed twice as much. But China owes the bulk of its growth not to adding labour or moving it, but to augmenting it—raising its productivity within industry. The secret of China’s success lies not in the workers it adds, but in what new capital, technology and know-how adds to its workers.

Emphasis added. That's a major paradigm shift. The enhanced quality of the workforce contributes more to economic growth than the increase in workforce quantity. In Cleveland terms, a shrinking city may indicate substantial brain gain. People develop, not places.

No comments: