With the right conditions in place — education, entrepreneurialism, and environmental awareness among them — a young, eager, educated workforce can be the key to prosperity.

In June 2009, U.S. President Barack Obama noted in a speech at a Wisconsin town hall meeting that the U.S. would have to take decisive steps to better educate its children or else suffer further economic damage. American students, he added, now compete with children from India and China, who “are coming at us hard, and…they’re really buckling down.”

The global economic meltdown has been followed by many conversations about how the world economy might steer itself back to health. In this context, Obama’s remarks notwithstanding, it has been surprising to see how rarely these debates include any consideration of education, or of the quality and size of an educated population. And yet it’s clear that if a country’s colleges and schools are in good health and if a significant proportion of the population is graduating from them, the prospects of economic growth are promising. When conditions are right, large numbers of young workers can drive a nation’s growth to remarkable levels.

This theory is known as the “demographic dividend,” a phrase coined by demographer David Bloom. He proposes that when young working-age adults comprise a disproportionate percentage of a country’s population, the national economy is affected in positive ways. Indeed, when he and other demographers have looked at periods of sustained economic growth around the world, they have found that the effect of the demographic dividend was impressive. Bloom estimates that the dividend in the U.S., in the form of the baby boom generation, contributed 20 percent of the nation’s GDP growth between 1970 and 2000. In Japan, during the same period, the contribution was smaller because the dividend coincided with relaxed laws against abortion and birth control, but it still accounted for an estimated 10 percent. In East Asia as a whole, Bloom suggests, the demographic dividend drove one-third of the region’s economic growth between 1965 and 1990.

This dividend effect can also be found in earlier explosive periods of ideas, prosperity, and growth. A dividend in 19th-century England drove the Industrial Revolution. In the United States after World War II, and in East Asia and Ireland between 1965 and 1990, the pattern was the same: a disproportionately large number of births for years, and then, as that population came of age, a drop-off in the birth rate. Women in these large, prosperous, relatively well-educated cohorts have fewer children while in their 20s, and more of them enter the workforce instead.

The economic advantage comes from young workers who are unencumbered by families or other responsibilities. As Bloom pointed out to me, the members of this dividend generation don’t have to spend their incomes on children, and they don’t worry as much as previous generations about financial security and health expenses. They may diverge from traditional career paths into more entrepreneurial directions, and when these risks pay off, the results for the economy are innovation, productivity gains, and rapid growth.

Now, looking ahead, we can see a massive demographic dividend approaching in several countries. The country most likely to be affected, and in fact already experiencing a dramatic boom, is India.

Taking the Dividend to Heart

The underlying premise of the demographic dividend — that growth depends first and foremost on people and their talents — feels simple and intuitive. My years in business have been based on it. Infosys Technologies Ltd., where I was a CEO and co-chairman, has long seen itself as a people-oriented company. The key parameters of company health that Infosys tracks include the number of people recruited from colleges each year, and employee retention and productivity.

Resources

David E. Bloom, David Canning, and Jaypee Sevilla, Demographic Dividend: A New Perspective on the Economic Consequences of Population Change (Population Matters, RAND Corporation, 2003): Research showing the link between population age structure and demographic growth.

Lord Andrew Turnbull, “How to Be a Demographic Realist,” s+b, Autumn 2007: The former head of the U.K.’s Home Civil Service explains why basic assumptions about retirement and growth will have to change.

Infosys Web site: Includes essays and news releases on similar themes, including one on the ACDI/VOCA partnership to promote agricultural information.

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