Feedbacks: Economic Ascent

Influenced by a decade of research on the high performing East and Southeast Asian economies,40 some revisionists appear prepared to accept a stronger role for fertility decline in economic development. Where highly successful programs improved access to family planning services begun early in the 1960s,⁴¹ rapid declines in fertility have more recently provided a set of demographic opportunities: slower growth in the student population, smaller family size, a lower dependency ratio (at least initially), and a slowed rate of labor force growth. However the final step, transforming demographic opportunity to economic growth, is an institutional task. In East and Southeast Asia‹where fertility decline coincided with an enterprising business sector, government policies that encouraged savings, public investment and a well-developed education system‹economic growth was strong.⁴²

Consider, for example, South Korea. In improving the educational status of its people, this country has perhaps taken the best advantage of demographic change. As fertility declined and income grew, both household and government educational investments per child rose sharply.⁴³ By maintaining educational expenditures at about the same proportion of the national budget between 1970 and 1989, real government expenditures per primary school student in South Korea more than quadrupled. Had the share of Korean school-age children grown at the rate of that of Kenya, the South Korean government would have had to spend 5.6 percent of its budget to accomplish universal schooling, rather than the 2.6 percent actually spent.⁴⁴

A second major component of new Asian economic growth, investments in physical assets, was largely fueled by domestic household savings. And the rising rate of these savings as a percentage of gross domestic product can arguably be traced to a coupling of growth in household income and a decline in family size.⁴⁵ While ongoing debates over the proper model for this relationship will likely continue, it is clear that an impressive growth in savings and investment followed closely behind the fertility declines in each of the most rapidly developing countries of Asia.⁴⁶ Lagging behind Latin American countries in savings in 1965, the high performing Asian economies were fully 20 percentage points ahead by 1990. Savings now exceed total domestic investment, making these countries net capital exporters.⁴⁷

According to the World Bank, slowed growth of the labor force‹caused by a decline in fertility‹was among the factors behind the adoption of high technology in the rapidly growing Asian economies. By the 1980s, an early demographic transition reduced labor force growth in these countries well below that of other regions. That, coupled with the increased demand of these vibrant economies for labor, drove wages upward. Aware that other developing countries would eventually edge them out of industries requiring only low-skilled, low-wage labor, policymakers among the newly industrialized Asian economies responded by promoting a shift to highly technical and capital intensive industries.⁴⁸ The strategy succeeded, making good use of earlier proactive educational policies.⁴⁹

In all of this evolution, Rockefeller Foundation population sciences director Steven Sinding has argued, explicit population policies consciously designed by governments to reduce fertility were "embedded in mutually reinforcing economic development policies, such as primary, secondary and eventually even tertiary education (especially of girls), and policies that improved income distribution. These strategies were informed by a knowledge of the mutual interdependence of population policies" with these other policies.⁵⁰

Intriguingly, declining rates of labor force growth and the resulting growth in older populations may offer a substantial challenge for modern societies that have completed the demographic transition.⁵¹ Social security programs, of course, depend on taxation of the labor force in order to provide for the health and security of the aged. While orthodox economic theory tends to place high confidence in the adaptability of modern institutions, ironically some economists are pessimistic about this adaptability in the case of stationary populations and rising proportions of older people. ⁵²