Beware the demographic cliffThe Bank of Korea has warned that current demographic trends could lead the country’s economy to generate near-zero growth in 10 years. Annual GDP growth, which averaged 3.9 percent between 2000 and 2015, could slow to 1.9 percent between 2016 and 2025, and then to 0.4 percent from 2026 to 2035. A large aging population combined with a weak social security net and fewer births could translate to a slump in consumption.
The central bank’s warning is not a bluff but a reflection of reality. The government has spent 102 trillion won ($89 billion) over the past 10 years to promote population growth but to little avail. Last year’s fertility rate was 1.18, the bottom among members of the Organization for Economic Cooperation and Development (OECD). By next year, senior citizens will make up 14 percent of the population.
The demographic imbalance now threatens the country’s economic viability. Fighting the low birthrate should therefore be economic policy. The government must be more aggressive to stimulate new births. It must upgrade child care, education, and living standards to the OECD average.
At the same time, we must admit to the inevitability of an aging society and come up with realistic policies to tackle it. Efforts to increase the number of new children will affect the socially active population 20 years later.
In the meantime, the central bank has recommended extending the working age and encouraging the economic participation of women to pick up slowing economic activity. The country should make use of innovations like artificial intelligence and automation to improve labor productivity amid a thinning working population. These efforts can offset swift decline in economic activity.
The government must set up a central agency to manage the demographic issue. Separate offices currently separately pursue policies related to the economy, birthrate and aging, and they’re busy pitching their own policies. The government should install a deputy prime minister or ministry in charge of demographic affairs to prioritize policies and actions with the goal of sustaining the population.
JoongAng Ilbo, July 7, Page 30