In our book “Beyond Crisis”, (Ringland, Sparrow, Lustig, 2010) we suggested that the economic conditions in the period leading up to 2008 were unlikely to return, and drew a figure suggesting how the global economy might evolve after the crash. This picture has been largely accurate since 2008.
But now there is concern over slow growth globally. China’s growth rate is shrinking and as a recent article in Foreign Affairs points out (https://www.foreignaffairs.com/articles/world/2016-02-15/demographics-stagnation) in every single region of the world, economic growth has failed to return to the rate it averaged before the Great Recession. Economists have come up with a variety of theories for why this recovery has been the weakest in postwar history, including high indebtedness, growing income inequality, and excess caution induced by the original debt crisis. Although each explanation has some merit, experts have largely overlooked what may be the most important factor: the global slowdown in the growth of the labor force.
One way to calculate the world’s potential growth rate is to add the rate at which the labor force is expanding to the rate at which productivity is rising. Since 1960, gains in both factors have contributed equally to potential economic growth. And in the last decade, the gains in both appear to have leveled off. The difference between these two drivers, however, is that there is a debate about whether the decline in productivity growth is real. Productivity measurements have arguably failed to capture savings in money and time generated by new technologies, from super fast Internet connections to artificial intelligence. But it is hard to deny that the growth in the size of the labor force – which is driven mainly by increases in the number of working-age people, those between the ages of 15-64 – has slowed across the world.
In a world with fewer young people, economic growth will be harder to come by. The exception – with large populations of young people – could well be Muslim countries and regions, and Africa. Here, family sizes have remained larger and the working age population continues to increase. This will produce a very different population mix over the next decades, as well as resulting differential growth rates between these regions and those with declining work forces – for instant, East Asia, Europe.
Gill Ringland, Unlocking Foresight Non Executive Director