Europe and the demographic time bomb

Contemporary Review, Oct, 2003 by Peter Kruger

OPINION is divided over why Britain and America went to war with Iraq. Perhaps it was all about oil, or then again, perhaps it was to find and destroy weapons of mass destruction. Time as well as Parliamentary and Congressional inquiries may find out whether it was wise to spend billions of dollars toppling the regime in Baghdad. Yet we must not become so focused on the causes of one war to neglect a broader and more fundamental conflict.

What we are seeing, in the Middle East and throughout the developing world, is a re-run of the struggle that took place in Europe and the US during the late 1960s--the battle for the hearts and minds of the next generation of workers and consumers. This time the outcome could radically alter the economic world order. Losing the battle would create a problem that is either intriguing or frightening--depending on how much longer you expect to live.

The Middle East's most effective weapon of mass destruction is its population--37.4 per cent of Iranians are aged 15 or less while just 3.4 per cent are over 65. Iran's death rate is 5 per thousand (a figure which would fall considerably if drivers took notice of traffic lights) while its birth rate is 22.1 per thousand. By contrast, in Germany, only 15.5 per cent of the population are below 15 years while 16 per cent are aged over 65. Despite its excellent health service Germany's death rate is 10.8 per thousand and its birth rate is just 8.2 per cent. Deutsche Bank predicts that by the end of this century Germany's population will have fallen from 80 million to just 25 million.

While particularly steep, the projected decline of Germany's population is typical of the ageing and shrinkage of populations throughout the developed world. Amongst developed nations only the US is managing to maintain a reasonable demographic profile. Its most recent immigrants, often from the Third World, are producing large families and will probably continue to do so until exposure to Western materialism--which appears to be the world's most effective form of birth control--reduces their desire to reproduce.

Throughout Europe current population trends will have a significant economic and political impact. By the middle of this century Europe will have undergone a transformation similar to the one that followed the Black Death, which radically reduced the working population during the fourteenth century, with some historians estimating that Britain lost almost half of its population. Today, in theory, Britain should be able to take the modern demographic transformations in its stride as, historically, its relationship with the global economy has involved constant change. During the Industrial Revolution, Britain's colonies provided a captive market for manufactured goods and a source of cheap raw materials. In the latter half of the twentieth century Britain's manufacturing base shrunk as industrial production was transferred to developing countries. Service industries replaced manufacturing and the workers of Britain, along with those in most other developed countries, survived by taking in each other's washing. This should have given developing countries some economic leverage over the West--but it did not.

The West had managed to switch from being a monopoly provider of manufactured goods to a monopoly consumer. The industrial base of a developing country is still heavily dependent on companies head-quartered in either Europe or the US--where goods are sold and profits are realised. Any earnings re-invested in a developing country flow through either Wall Street or the City of London first. Even the prosperous owners of independent companies in developing countries discover that the best place to invest their wealth is in the consumer-driven economies of the West.

However as demographics start to bite, and the next economic transformation gets underway, Britain and the rest of Europe may find it difficult to pull off the same trick twice. As we get older we consume less goods and, worse still, there are fewer of us to take in the washing. Following the Black Death workers were able to negotiate higher wages. Today, as the workforce shrinks, attempts to force up wages will send jobs, especially those that involve communications, to a developing country. India is already soaking up jobs from the UK's IT and financial services sector while companies in West Africa are processing insurance claims made by policyholders in the US. (See 'India: Back Office to the World' by Alex Ninian. Contemporary Review. April 2003.)

It is not inconceivable that in twenty years from now Indian outsourcing companies will be running a significant part of the NHS. First to go would be NHS Direct, the National Health Service's telemedicine and medical help line service. This would be followed by the back office functions of NHS Trusts--appointment booking and human resources. Advances in communication technology will enable a number of clinical functions such as X-ray analysis and cancer screening to be carried out in developing countries. The model of telemedicine envisaged in the 1990s, where a doctor in Europe treats a patient in the developing world via a broadband communications link, could be turned on its head.