By John Richardson
SOUTH Korea serves as another example of how demographics are reshaping Asian economic prospects.
“By 2018, 14% of its population will be over 65, making it officially an ‘aged society.’ That is six years sooner than Japan and more than a century before France, according to the Samsung Economic Research Institute,” writes Reuters.
The above slide places South Korea in the context of the rest of the G20. By 2030, its total number of retirees is forecast to be approaching 40% of the population. Only Spain, Italy, Germany, and, of course, Japan are expected to have older populations.
The extraordinary increase in South Korea’s retirees compared with 1970 illustrates how, as countries become rich, people stop having enough babies. China’s problem is that it is ageing before it becomes rich.
South Korea’s demographics will have severe implications for its healthy state finances, says Reuters in the same article
“A report released by the Ministry of Strategy and Finance in July (2011) warned the national debt would jump to 138% of gross domestic product (GDP) in 2050 as pension and health insurance expenditures skyrocket, from around 34% last year,” the wire service continues.
The labour intensive South Korean economic model is under threat from labour shortages and poor productivity.
Productivity is at risk of getting worse as the workforce ages and, as a result, slips further behind in IT and other modern manufacturing skills.
Training will have to be improved, retirement ages raised and women will need to be more readily accepted in the South Korean workplace.
This emphasises the key role that governments need to play in addressing demographic challenges, as we argue in chapter 10 of our e-book, Boom, Gloom & The New Normal.
The good news for South Korea is that has a tremendous record of economic transformation.
“In 1948, per capita income in South Korea was US$86, on par with Sudan’s.'(South) Korea can never attain a high standard of living,’ wrote a US military official,” the blog said in a 2003 tribute to the country’s transformation.
This far-sighted US official added that there were virtually no South Koreans with the technical knowledge and skills to take advantage of the country’s natural resources.
In 2011, South Korea’s per capita GDP was $31,220, according to the International Monetary Fund (IMF), just behind the European Union and Israel and ahead of countries such as Spain, Italy and New Zealand.
South Korea is, of course, the home of many world-beating brands following its successful escape from the “middle-income trap”.
It also seems to have at least recognised that it faces a demographic problem.
We worry that in the West, policymakers have yet to even recognise their demographic crises.