A mail from a friend today alerted me to this fine op-ed in the IHT by Philip Bowring. Bowring's main point is quite neat even if of course the ultimate conclusion to re-write the practices of national accounting may be a bit far-fetched. Bowring's starting point is the economies of East Asia which, I am sure my readers will, agree have performed quite well in the 1990s and 2000s with the important intermezzo of the Asian currency crisis in 1997. In fact, one could argue that with the crisis in 1997 East Asian economies embarked on an even further solidified path of growth driven by investment and accumulation of capital and, we should never forget, foreign exchange reserves. You see, this was part of the scheme at the offset in the sense that these economies would not risk to go hat in hand to the IMF the next time crisis loomed at the doorstep. This is not about the Asian currency crisis and its aftermath per se but if you want more I have a synopsis up here.
Philip Bowring starts off with the simple point that although East Asian economies in general have been doing very well on the investment front with respect to physical capital (and according to many the quality of human capital) they have not been able to halt the demographic transition which to a considerable degree has eroded the quantity foundation of these economies' human capital. In this way and as if guided by an invisible force, these economies have also transcended into lowest low fertility (TFR < 1.5) and in fact some economies are hovering around the "single child per women" mark. This makes Mr. Bowring wonder whether in fact the economic experience of these economies are so stellar as we are lead to believe.
South Korea, Hong Kong, Taiwan and Singapore have over 40 years averaged roughly the highest consistent economic growth rates in the world. All but Korea have steadily accumulated massive surplus savings and foreign reserves. But change the national accounting principles behind these rosy numbers and a different picture emerges, one that the societies concerned have barely begun to grapple with. In one vital respect these countries (soon to be joined by China) collectively may have the worst record of investment in the future since homo sapiens evolved: Investment in the next generation.
They have the lowest fertility rates in the world. Hong Kong is at the bottom (excluding births to non-residents), with around 1.0 births per woman of child-bearing age (the replacement rate is 2.1). Taiwan, Singapore and Macau come in at 1.1, while South Korea, at 1.2. is on par with Europe's lowest, Belarus. None of these economies has had replacement-rate fertility levels since the late 1980s.
(...)
Imagine if these four economies had invested less in infrastructure and reserves and more in people. They would now most likely have much lower foreign-exchange reserves, but they would not be facing a situation in which their work forces - unless replaced by immigrants - will decline dramatically within 20 years as the population over 65 continues to grow.
