Rule Number 1 of the Successful Nations: Population
Labor is one of the factors of production. This is an important one. Ruchir Sharma in his book addressed 10 rules of successful nations. The first and most basic rule is the “population”. If we want to put it in simple and short terms, the strong population growth rate is the necessary condition for economic growth. However, it is not the sufficient condition. And when the population is shrinking, it is close to impossible to generate strong and sustainable economic growth.
According to the book, in the last 70 years there were countries that maintained an average growth rate of 6 percent for more than 10 years. And in seventy five percent of the cases, the population of people in the working age grew more than 2 percent annually. That is how strong population growth is a necessary condition for growth. On the other hand only a quarter of countries who experienced strong growth in the working age population (more than 2 percent annually) experienced strong economic growth.
Nowadays as the population growth is shrinking around the world, the global economy seems to be losing one of the necessary cushions for growth. Governments around the world for long have been addressing this problem. The main way is to stimulate families to have more kids. However, there is evidence that this is not a proper way, for example Canada had a baby bonus policy in the 1980s and 1990s. However, the country eventually abandoned the policy. Because it only incentivised very poor families that added greatly to the social welfare expenses.
Postponing retirement is the simplest way to battle short term negative effects of population shrinking. Attracting skilled workers is the other way. Many developed countries with slow or even negative population growth would try harder to attract skilled workers from the developing countries.
Source: “10 rules of successful nations”
