The Asian Century will be built on human capital

Authors: Wolfgang Lutz, IIASA and Samir KC, IIASA

Asia today is home to more than four billion people — more than 60 per cent of the total world population — yet its influence in world affairs remains disproportionately small.

Businesswoman standing in office. (Source: AAP)

The reason for this imbalance is that, while influence on the world stage is partly a function of population size, it also depends on economic and other dimensions. Still, Asia is rapidly catching up in these other dimensions, most importantly in the field of education. While its stunning economic growth — first experienced by the smaller ‘Asian Tigers’ and now by demographic billionaires China and India — is widely recognised, the extraordinary expansion of human capital, probably the single most important factor behind the region’s economic ‘miracle’, has received much less attention. Almost everywhere in Asia the young are much better educated than the elderly, so further strong improvements in the human capital of the labour force are inevitable. And those improvements will most likely translate into rapidly increasing economic and political power.

A group of demographers in Vienna at the Wittgenstein Centre for Demography and Global Human Capital — a collaboration between the International Institute for Applied Systems Analysis (IIASA), the Austrian Academy of Sciences and Vienna University of Economics and Business — has recently reconstructed and projected human capital by age and sex for all countries of the world. But what is a country’s human capital? The phrase encompasses a population by age and sex, together with its health status and distribution of skills (educational attainment by age and sex). This broad view of population also includes what economists call the ‘quality dimension’ a factor that can be readily modeled and forecast using tools of multi-dimensional demography.

Compare, for example, the education and age pyramid for China in 1970, as it is now and as it is projected to be in 2050. In addition to the conventional age pyramid that plots women on the right and men on the left, sorted by age group, these figures add colour to show the educational status of men and women in each age group, and their highest levels of attainment. As Figure 1 shows, in 1970 the vast majority of Chinese women older than 30 had never received any schooling. It was only in the younger cohorts that an increasing proportion of women had received some primary or even junior secondary education. The figure also shows that for men basic education had already spread. The Chinese picture in 1970 resembles the typical pattern for a poor developing country—such as many African countries today. Figure 2, a snapshot of 2010, clearly illustrates how far-reaching the expansion of education has been. A vast majority of each of the younger cohorts in China had completed or were completing secondary education. Still, the legacy of much lower education for the elderly remains. By 2050 the entire age pyramid will be filled with a well-educated population, and China is expected to have a significantly higher human capital base than most industrialised countries today.

This rapid expansion of human capital is likely to have massive consequences for virtually all aspects of society and the economy. It has been shown that a good education has positive effects on human health, wealth and wellbeing. The evidence now clearly shows that educational attainment is closely linked to higher life expectancy and economic growth, and even to the quality of institutions and whether societies will make the transition into modern democracies. While specific predictions are difficult because there are clearly strong path dependencies and cultural factors involved, it is fair to say that as the general population becomes more educated it becomes politically and socially empowered. Recent studies even show that more educated people (after controlling for income) tend to be less vulnerable to natural disasters and hence education may be a key strategy to help societies adapt to unavoidable future climate change.

It’s clear from Figure 3 that China has some challenges in store. Due to low fertility the age pyramid gets very narrow at the bottom, and together with increasing life expectancy this implies rapid population ageing. Many other countries in Asia also face this challenge. But consider again the role of education. We know that virtually everywhere the more educated elderly are much healthier than their less educated peers. They also tend to work longer and contribute to society in other ways. Today we say that 70 is the new 60; in the future 80 may well be the new 70. At the same time, at the bottom of the pyramid it may be that a smaller number of highly educated young people is exactly what the labour markets of the future need, as production becomes more and more automated and technology advances. If this turns out to be the case, low fertility in Asia may not be an obstacle to making the 21st century the Asian Century. It could even be an advantage, as it will make it possible to invest even more into making people skillful, healthy and knowledgeable — enhancing the wellbeing of everybody.

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Wolfgang Lutz is Founding Director of the Wittgenstein Centre for Demography and Global Human Capital, International Institute for Applied Systems Analysis.

Samir KC is a Research Scholar at the International Institute for Applied Systems Analysis.

This article appeared in the most recent edition of the East Asia Forum Quarterly,‘Demographic Transition’.

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