|BUSINESSWEEK ONLINE : AUGUST 30, 1999 ISSUE|
How will a shrunken generation of fewer, more pampered children worldwide support their retired elders? By using their extra education, ambition, and advantages
Pyramid schemes start in smirks and end in tears. The early joiners put in a little money and get back a lot because they're paid with the contributions of later joiners. Inevitably, though, the pool of new recruits runs dry. The last people in--the big suckers--lose everything. When the original Ponzi scheme went bust in 1920, namesake Charles A. Ponzi went to prison.
Now, consider this: Modern society itself is an enormous Ponzi scheme. It wasn't for most of humanity's time on earth, when the population barely grew. But since the Industrial Revolution began some 250 years ago, each generation of humanity has been bigger than the one before it. The Ponzi quality of society is most obvious in social security systems, which funnel money from new joiners (workers) to the people who joined the system earlier (retirees). Population growth makes it work.
The trouble starts when population growth begins to slow at the same time that retirees are staying alive longer. World population doubled, to 6 billion, over the past 40 years, but it will increase at a much slower rate, to about 8.9 billion by 2050, according to a projection of the United Nations. And it may even shrink. In the U.S., the number of working-age people per retiree has fallen from eight to five--and it is headed toward three.
Fortunately, there is a way out of this demographic dilemma. In fact, there are billions of ways out: our children, our grandchildren, and our great-grandchildren. The children of the 21st century will be from smaller families. Many will have no siblings at all, like the pampered ''little emperors'' who were born under China's draconian one-child policy. If these children can compensate for their small numbers with high productivity, they will create so much wealth that there will be plenty for themselves and their numerous elders. They will rescue the world from its Ponzi scheme.
The key is what demographers refer to as ''quality over quantity.'' In days gone by, parents had lots of children because they needed the extra farmhands. But in a technological society, the key to success is education. By having fewer children, parents can lavish more attention and a better education on each one. And society as a whole benefits: An educated, productive person creates more wealth--and pays more in taxes. For countries as well as for families, ''quality rather than quantity is the name of the technological game,'' explains Brown University economist Oded Galor.
To be sure, there comes a point where all the quality in the world can't make up for a lack of quantity. In Japan and most of Western Europe, the average woman has fewer than 1.5 children in her lifetime, a dangerously low level. In the U.S., the total fertility rate is 2.0, roughly the number needed to maintain long-term population stability, so further declines would be negative. But for most of the world's population, falling fertility rates are still a positive economic force, explains John P. Bongaarts, vice-president for policy research at the Population Council, a New York think tank. ''In the developing world, a reduction in the birth rate has a powerful economic effect,'' he points out. ''It produces a better-equipped labor force and more savings.''
People invest more in human capital not only when they have fewer children but when they expect each child to live longer. Education is more worthwhile if you have more years to use it, notes John D. Mueller, chief economist at Lehrman Bell Mueller Cannon Inc., a financial-forecasting firm in Arlington, Va. In turn, says Mueller: ''The boom in human capital spurs a boom in physical capital, because better-educated workers need better tools to work with.'' Today there are 11 retirees per 100 working-age people in the world. The U.S. Census Bureau projects that there will be 25 per 100 by 2050. But that could be offset with an additional 1% to 1.5% in annual productivity gains. The step-up in productivity should be easily achievable if less-developed nations continue to catch up.
DEMOGRAPHIC BLOWUP? For an early reading on whether the little emperors can save the world, visit China. Its total fertility rate, 1.8, is the lowest in the developing world because of the one-child policy imposed by the Communist government on urban families over the past 20 years. By messing with Mother Nature, China is risking a demographic blowup in a few decades, when the shrunken current generation must support its retired elders.
Luckily, urban Chinese parents have responded to the one-child rule by investing heavily in their solitary children. On one hand, that means these little emperors are spoiled, says Sun Yuxiao, deputy director of the China Youth Research Center in Beijing. ''Their mentality is that parents should always take care of their children. They don't have the concept that someday, one should take care of one's parents.''
On the positive side, however, Sun says the little emperors are, for the most part, ambitious, confident, and more willing than their elders to challenge arbitrary rules. On balance, he says, he is optimistic: ''Today's single children will become the most capable generation in China's history.''
It's only a slight exaggeration to say that the fate of the world rests on the shoulders of the little emperors of China, the hijos unicos of Spain, the spoiled brats of the U.S. Intergenerational harmony depends on whether they can compensate for their smaller numbers with brilliance. Of course, even if they do thrive, there's no certainty that they will share their bounty. Still, wealth helps. As Charles Ponzi could tell you, it's a lot easier to split a big pot of loot than a small one.
By PETER COY
With Dexter Roberts in Beijing
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