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What will Shape Our Children's Future?

Wolfgang Fengler's picture

Have you ever wondered what the world will look like when today’s children will have grown up to adulthood? What opportunities will be theirs to grab and what new challenges they will have to face? What will the global balance of power look like? Will the old North/South dichotomy still make any sense?

BT023S01 World Bank Sadly, the future -especially technological and scientific advances- remains largely unpredictable. In the 1960s, our grandparents would have discarded as pure science fiction the possibility that we would soon be making video calls around the word from anywhere and without a cable almost for free! Nonetheless, some fundamental shifts can be predicted, especially as many are already underway and unlikely to reverse. In fact, the UN’s high-level panel (“post MDG”) has just issued a report which takes a long perspective on future development challenges.

As a development practitioner – and father of three children - here are the big trends I am keeping my eyes on:

Big economic shifts
 
1. The world’s economic balance is shifting East and South. Since the mid-1990s, poor countries started to grow –increasingly- faster than rich countries. Within the next decade, China will overtake the USA in economic might and emerging economies will outperform OECD countries. Large gaps in living standards will remain, however, as emerging economies account for about 80 percent of the global population.

2. An economic “super-cycle” is under way. Over the last 200 years, the world economy experienced only one episode – from 1945-1973 – when average growth exceeded 3 percent. Between the oil shock of 1973 and the turn of the millennium average world growth hovered at a moderate rate of 2.8 percent. Since 2000, thanks to emerging markets, global growth averaged 2.5 percent, despite the global financial crisis. Some predict that with renewed economic stability the World will exceed 3 percent until 2030 and thus enter another economic “super-cycle".

3. Africa is starting to catch-up. Over the last decade, Sub-Sahara Africa outperformed the world in terms of growth (starting from a low base). Without the relatively advanced South Africa, the continent grew at 6 percent. Almost all stable countries in Africa are expected to become Middle Income by 2025. But the continent is also drifting apart: the stable parts of Africa are catching up with the rest of the world while fragile countries are not seeing many improvements in development indicators, and drifting further away from the rest of the pack.

4. It is too early to count Europe out. Europe is currently facing economic difficulties and challenging demographics. However, the old continent still produces almost a third of global output and accounts for half of total trade. Over the last two decades, Europe’s economies expanded at a rate of 2 percent per year and some countries which were once poor (e.g. Ireland, Poland) have become among the richest in the world. For example, Poland’s per capita income has increased from $2,000 in 1990 to more than $13,000 last year. Many European brands maintain world-wide appeal and its lifestyle and social stability remains attractive across the globe.
 
The underlying trends

5. Developing countries are reaping a demographic dividend. By 2025, owing to steady population growth, the world will be home to 8 billion people. While the adult population will increase to 5 billion by 2020, the number of children below 15 is expected to stay stable. This is creating a favorable “dependency ratio”. Today, the world’s workforce is double the size as children and retirees combined. And the demographic dividend is compounded by an education dividend, as well since highly educated people (having completed at least secondary) will increasingly outnumber those with little or no education.

6. Geographic agglomeration and urbanization. Emerging markets will continue to experience rapid urbanization and population growth will also increase density in rural areas. Globally, cities attract ever greater numbers of people and will be home to 70 percent of the world’s population by 2050. Africa is also catching up and now the most rapidly urbanizing continent. By 2030, half of Africans will live in cities.

7. Technology driving growth and productivity. The mobile revolution continues to reshape economies and social structures. Already today, there are more than six billion people using cell phones. Almost everyone who wants to be connected will be able to, sooner rather than later, because the costs for phones and subscriptions will continue to fall. Phones are also increasingly becoming multi-purpose tools. In many parts of the world, with developing countries leading the way, people already use their phone to transfer money, check test scores or get information on crop yields.

8. A policy consensus around stability objectives, especially in developing countries. The South has improved its macro-policies, while the North is facing challenges. The debt dynamics are telling: many OECD countries are pilling-up debt while emerging markets are keeping borrowing low (and some are even lending heavily to the advanced countries). If Southern Europe had been as disciplined as pretty much any emerging economy (most of which have debt levels below 50 percent of GDP), Europe would not be experiencing a debt crisis. Emerging economies have also improved many social policies.  Countries like Brazil, Indonesia and China are now leading the global dialogue on social protection reform. But the track record in structural reforms and governance remains uneven. Here the gap between most developing countries and the OECD remains large.

Implications for development aid

9. Traditional development assistance will soon run out of ‘clients’. Typical poor countries of the past, both stable and poor, will catch up economically. In the future, there will be two distinctly different sets of developing countries: middle income economies, with large remaining pockets of poverty but vibrant economies and fragile states, mired in conflict and poor governance, which will become the last frontier of the poverty agenda.

10. Aid needs to leverage additional finance and ideas. With domestic budgets rising rapidly in developing countries, aid will lose its significance in most if it is limited to financial ‘gap-filling’. In fact, except in parts of Africa and a few particular cases (e.g. Haiti, East Timor, Myanmar), donors have already become financially irrelevant. Brazil’s national development bank makes more loans domestically than the World Bank globally. The future of aid is to become a catalyst of system-wide reform and transformation. Knowledge transfer will become at least as important as financial transfers.

 
These deep structural transformations are already underway. On balance they hold more promise than threats. Are we ready to leverage them so our children, wherever they are born today, can have a better life tomorrow?  
 

Comments

Submitted by Jean Doyen on

Very interesting: clear, brief and precise.
One trend not mentioned is the possible impact of Islamic terrorism and the possibilities of conflicts in and among Arab countries. Risks enhanced by the gradual extinction of the oil rent due notably to three factors: (i) the coming on line of new sources of oil and gas outside of Arab countries; (ii) the rise of green energies; and, (iii) the adoption of modes of production, transport and consumption requiring less energy.

Submitted by Liz on

Great analysis right there! I agree with your views especially on Aid-need. I cannot wait for African countries to get over this fallacy of aid. It impoverishes us even the more...

keep it up!

Liz

Submitted by Wolfgang on

Thanks Liz, aid can actually be part of the solution. It helped Europe to recover after the World War, East Asia in its transformation and you can also argue that it helped to improve social outcomes in Africa. However, the key for the future is to leverage aid so that it can achieve even more. Wolfgang

It is absolutely enthralling to see how you relevantly point out the dynamics of development economics and how they will play out to the benefit of the generations to come. I especially like the interconnection you make about technology, development aid and population growth and the demographic shifts. it is thus important that no single of them is looked at over the other because that is what ensures economic balance...

Submitted by Lawrence Mwangi on

Wolfgang.
It seems like Africa will remain behind the rest of the World for ever. If indeed some countries are drifting back, this will have a negative impact on Countries which are moving forward. Kenya for example is not only faced with the internal issues related to the hudge gap between the rich and the poor, high levels of unemployement among the youth etc but also by external factors related to instability in Somalia.

Lawrence

Submitted by Wolfgang on

Lawrence,

indeed it is important to highlight that the challenges will remain enormous. Success is far from guaranteed. However, Africa, including Kenya, is now in a position where they can realistically catch-up if they address some of the key issues, like security, transport and electricity.
It is also of secondary important for Africa to completely catch-up with Asia, Europe or America. The key for now is to make sure everyone can live a decent life, and it would actually help if the rest of the world does well because then Africa can trade more.

Wolfgang

Wolfgang

Submitted by PrefabPostcards on

A fascinating article on new trends. But just to add, As much as I would like to beleive that low income countries under stress will migrate to become MICs, I think we'll be working on them for a good few years to come. But totally agree innovation and ideas are key I the future of the industry and better development outcomes

Submitted by Wolfgang on

Thanks much for the comment,

Just to clarify, it is the stable low-income countries which have been advancing rapidly. Fragile states will remain the focus of development aid and in my view, more than ever. They have NOT made sufficient advances to become Middle income soon. At the same time, there are also some interesting developments as Joel Hellman’s post of earlier this week shows: http://blogs.worldbank.org/futuredevelopment/surprising-results-fragile-states

Wolfgang

Submitted by Wolfgang on

Thanks for raising climate change the signs don’t seem to be improving at all. It is also one of the most obvious downside of the social and economic opportunities which this blog post is highlighting. My sense is that while a new scenario is emerging to end poverty within a generation. However, the innovations and changed to combat climate change and natural degradation effectively are yet to be found.

Submitted by Anonymous on

Sorry to be a downer but this statement beggars the whole optimistic tone: "Some predict that with renewed economic stability ..."

There may be intermittent calms before myriad storms, but there seems little practical evidence that an era of 'stability' is upon us.

Submitted by HAK on

Great analysis...infact one of the reported performance indicators by LDCs when presenting their budgets is: % of domestic financing of their total budgets!

May be a thought from your response to kenyan problem - how can Africa overcom the infrastructure financing challenge. ..e.g. in tapping the enormous opportunity of R.Congo hydro power projects for benefit of entire east & central Africa?

Submitted by Wolfgang on

Hak,

Thanks for raising the important issue of own revenue effort which will likely increase across all African countries as their economies grow.
In terms of the infrastructure deficit, especially energy, there are a variety of opportunities, one of them being hydro-power projects in the DRC or geo-thermal in Kenya. However, the key issues does not seem to be the availability of natural resources – just think of solar which would be everywhere – but the systems to convert these resources into infrastructure that would allow countries to take off.

Wolfgang

Submitted by Carl on

I am not a economist so I have a different viewpoint of numbers and statistics. Paragraph 3. Stable countries/Africa/middle income. That income will be centralized in a very few pockets. The average African will not see it.
Paragraph 4. Ireland among the richest countries in the world? Just last year it was lumped into the Greek/Spanish stew of economies looking for a Euro zone bailout.
Paragraph 9. A vibrant economy with large remaining pockets of poverty? Vibrant for who? When the average citizen has access to education, health care and meaningful employment, well, that fits my definition of a vibrant economy.

Submitted by Wolfgang on

Carl,

It is still worth debating and reflecting if the world is becoming a better place, including Africa. More importantly, many other contributions on this blog are trying to shape a discussion on what can be done to help end poverty.
In terms of Africa’s economic trends, there are also several viewpoints and this debate in the Economist gives you both perspectives: http://www.economist.com/debate/days/view/954

My summary is as follows:
Today, Africa’s social indicators are also looking up. More kids are in school than ever before and most African countries will also meet the primary enrollment and gender targets of the MDGs. Now the continent is contemplating a double “demographic” and “education dividend” as the numbers of secondary graduates ready to enter the workforce are rising rapidly. They will outnumber primary graduates in the next 20 years with a high premium on economic growth. Each year, the UNDP is producing its Human Development Index (HDI) capturing these critical facets of developments. The last report contained an astonishing fact: 9 out of the 10 countries with the greatest gains were from Sub-Saharan Africa. If this does not exemplify Africa’s rise, what else possibly could?
In terms of Ireland, the long-term performance remains remarkable. Ireland used to be a relatively poor country, especially by European standards 40 years ago. Now it is a rich country by all metrics, despite recent economic challenges.

Wolfgang

Submitted by Siegfried Wenus on

Thanks for this compact and informative analysis of the positive future global aspects of economics. For 15 years ago it was hard to predict the economic development of many non first world countries. As long as peace and freedom is growing, economics will grow along. There are lots of challenges on the road. I always wonder if we one time will manage that most people on earth can live in luxury as we do now in highly developed countries but without exploiting others. Through all times luxury of a civilization relied on slavery or exploitation of others, until today.
Is there a trend of change?

Submitted by Wolfgang on

Sigi, thanks a lot for your thoughts. If other countries, especially in Africa, follow the East Asian example, it will be possible that a much larger share of the world population will live in prosperity within a generation. As you note, the challenges will still be enormous and not all countries will move forward at the same pace. However, you also raise the important point of exploitation which thrives in poor and closed societies. Economic development can help as it is typically the middle classes which are also at the forefront of social change. But it is not certain. Some countries, especially when they grow rich on natural resources are often in an even better position to resist the opening up of their societies. Wolfgang

Submitted by prabha chandran on

excellent write-up as always Wolfgang! I'm not sure about the economic super-cycle though if it is based on global stability. The Middle east monarchies are expected to fall in the next decade,some experts worry that Syria may become another Somalia as it fragments, Iraq and Afghanistan don't have a good prognosis and the fragile states seem to take one step forward and two back - look at the turmoil brewing in Sudan and Al -Shabab seems to morphing into an even more extreme outfit in Somalia....and lets not forget the political circus in the US...do you really think we are heading into a more stable world? I hope for your children and mine that you are right!

Submitted by Wolfgang on

Prabha,

The term “economic super-cycle” has been used by Standard Chartered Bank. They argue that the world is set for 3.5 percent growth until 2030. While this does not sound spectacular, it actually is by historical standards. For example, the World economy only grew 2.7 percent annually between 1870-1930 or 2.8 percent from 1973-1999.

Crises have been around us all the time. Here are a few big ones of the last 50 years: The oil crisis of 1973, the economic stagnation in Eastern Europe after 1989, the fall-out after the East Asian Financial crisis of 1997. In each of these cases growth in other parts of the world partly compensated for the crises.
However, the fundamental reason for the possibility of a super-cycle is demographics: where we have reached a peak: Today, there 66 percent of the world’s population is of working age (defined as 16-64 years). It will start to decline but still remain above 60 percent for at least another 30 years. This is the highest share in history.

Wolfgang

Submitted by Mehdi Bhoury on

Wolfgang,
I appreciate the quality and the optimism of the article, but I still have some questions:
1- Do you think that MENA region countries could be classified as fragile states which could still be "mired in conflict and poor governance" for a big number of years even if, according to their income, they could be assumed to be MIC's?
2- if they are fragile states, does the demographic shift be a bounty of a curse for the economic policies and the development efforts?

I greatly fear for the future of these countries including arab countries in transition. Everything hangs by a thread and hopes can easily collapse.I'm trying not to be pescimistic, but that's what my eyes are seeing.

Submitted by Wolfgang on

Mehdi,

Thanks for your thoughts and questions:
1. The fragility in the Middle East and North Africa is of a different nature than of countries mired in long-lasting conflict such as Afghanistan, DRC, Somalia, and Haiti where child mortality, illiteracy and life expectancy are at much lower levels than in the countries you refer to. However, you are right in the sense that a prolonged economic downturn in MENA.
2. The demographic dividend is only an opportunity, not a guarantee. Indeed it can also be squandered. However, it is important to note that the source of the demographic dividend is the sharp decline in death rates, especially for children. This is a treasure to maintain, irrespective of the economic trends.

Submitted by Olga on

This is very nice -- and optimistic! Thank you, Wolfgang for a succinct overview. One minor quibble: Maybe bankers ought to be more concerned about risks than others? Concerned about prevention of disasters? You point to climate change which puts at risk future generations. There are also pandemics which put at risk not only future but also this generation (thanks to this, with a non-zero -- and rising -- probability there will be a less numerous, though poorer, future generation to worry about). Other global risks that are undermanaged include financial crises. Global risks are even worse managed than national ones. Awareness is the first step.

Last week The Economist reviewed the impacts of the Black Death (one of the recurring high-impact pandemic episodes, that killed 1/3 of the European population) and found studies showing that this pandemic led to great progress (end of feudalism), higher wages, less poverty, larger middle class, and generally accelerating prosperity, better shared. Since efforts to prevent pandemics are grossly inadequate (see here: http://blogs.worldbank.org/health/diseases-without-borders-managing-risk-pandemics),
the Economist article makes for reassuring reading: http://www.economist.com/blogs/freeexchange/2013/10/economic-history-1?fsrc=scn/fb/wl/bl/plaguedbylabour

Submitted by Anonymous on

Olga,

thank you for your valid points and contributions to the global risk agenda. Indeed, a world of 10 billion will face unprecedented risks. If we start focusing on those risks while acknowledging that a major demographic transition is underway, we would already have achieved a little.

Wolfgang

Dear Wolfgang. This is a very interesting summary of the global economical situation and where it heads. It is amazing to note the sharply decreasing donor aid to poor countries and hopefully this will have a secondary positive consequence being the decrease of widespread corruption that affects these emerging economies?

Submitted by Wolfgang on

Dear JP, aid will only decline in relative not absolute terms. I would argue it is good that aid remains at significant levels because (i) we need it in the poorest countries, and (ii) if used well, helps to in the successful transformation of all developing countries. Do you imply that aid drives corruption in the poor countries today? But this would be for a different blog and debate. Wolfgang

Submitted by Pieter Leenknegt on

Dear Wolfgang, I usually like the freshness and eruditeness of your analysis, but this piece is pure Prozac, I am afraid! Somebody already mentioned the threat of fundamentalism (I would spontaneously link it to local economic forms of marginalization and transboundary terrorism hampering development as we want to see it happen), but also not a word spared for the manifold environmental and climate threats that await us at the doorstep? I also find your analysis on the global demographic dividend far too optimistic: in the absence of totally unbridled (labor force) migration (which I don't expect to see happen any time soon), the reality is rather more fragmented, full of pockets of ageing on the one side and of demographic explosion on the other.

Submitted by Wolfgang on

Dear Peter,

I am surprised you liked my previous blogs because there are several pieces where some of these long-term trends are covered in more depth, especially the global demographic dividend, Africa’s rapid population growth or the “education dividend”. Here they are:
http://blogs.worldbank.org/africacan/can-rapid-population-growth-be-good-for-economic-development
http://blogs.worldbank.org/futuredevelopment/global-demographic-dividend-and-how-make-most-it
http://blogs.worldbank.org/africacan/kenya-s-education-dividend

Apocalyptic predictions of demographic-related doom have been plenty. Malthus, some 200 years ago, anticipated that the world would run out of food. He was echoed in 1968 by the “neo-Malthusian” Paul Ehrlich, who coined the “population bomb” metaphor. Most of these predictions, however, have largely been proven wrong. Today, we the human population is on average wealthier, healthier and better educated than ever before. Life expectancy is now exceeding 70 years, twice the long-run historic average of around 35.

I still take your point that we are facing enormous threats, especially environmental threats, which need new answers. However, we should not make Malthus’ mistake that humans cannot adjust to new circumstances and innovate to address the new challenges.

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