A family snapshot of the world today would show the United States as the grand old man, looking worse for wear. Vigorous, powerful China is forging to the center and vibrant India is being pushing there, too. Europe has moved off to the side, and Russia is aggressively pushing to the center, too, but a closer look shows, it’s on crutches.
Israel doesn’t rate a place among all these giants, but our future depends on how good we are at figuring out what’s really happening amid all the posturing and jockeying.
To do that, the advice of Nicholas Eberstadt, an economist at the American Enterprise Institute is to stop looking at that snapshot and start cooing at baby pictures. Or to be more exact, at demographics and birthrates.
As he correctly points out in the latest issue of Foreign Affairs, political and military power and economic growth depend on the quantity and quality of a country's population. By Eberstadt's lights, China’s future looks dim and America’s looks bright, relatively speaking.
China’s prodigious rate of economic growth over the last four decades was due not just to economic liberalization but to the rapid growth of its workforce. From 1975 to 2010, its working age population nearly doubled and the number of hours people toiled grew even more as capitalist economics increased incentives to work.
That era is already over. The one-child policy launched in 1975 and only abandoned after 40 years has cut China's total fertility rate to no more than 1.6 children per woman, far below the 2.1 replacement level. China’s working age population has already begun to shrink while its population of pensioners is growing.
Worse still, the one-child policy created a huge gender imbalance and a shortage of women and future mothers.
Meanwhile, America’s birth rate has been relatively high for a rich economy and its population was fortified by the entry of 50 million immigrants from 1950 to 2015. Its working age population will continue growing in the years ahead.
The U.S. has its problems, too. Life expectancy rates are falling, fertility rates are in decline and the growth in education levels has slowed. There’s also the problem of future immigration, to which Eberstadt seems to give short shrift despite Trump’s concerted crackdown. But all in all, America looks to be in good shape in the years ahead.
Russia, needless to say, is in hopeless shape -- not only is it suffering a long-term demographic decline, it is failing abjectly create a technology-based economy despite high levels of education.
Europe is in decline too: Fertility rates have been below replacement level since the 1970s. A steady flow of immigrants has until now alleviated the problem, but the rise of the populist right may deprive Europe of that medicine in the future.
Meanwhile, India has all the demographic ingredients for success, according to Eberstadt. Not only it is population continuing to grow: it may have a larger pool of highly educated workers than China by 2040. He also likes the outlook for the Philippines and Indonesia.
As for Israel, there are many ways of measuring our relationships with the world. Trade Patterns have an advantage over a lot of them, because they rise above all the noise created politics and short-term crises. Trade relations show where business is putting its money.
They show that the European Union is still Israel’s biggest trade partner by far. Britain, Germany and Switzerland alone accounted for 17.4% of the total in 2017 even though Europe has been written off as a has-been. However, with 19.4%, America was the No. 1 single target for Israeli exports, while China and Hong Kong together accounted for 12.2%.
Russia made up just 1.5% of the total, which is no surprise given the sorry state of its economy. And with India, our new-found friendly giant, two-way trade came to just 2.9%.
All told it looks like Israel has read the snapshot correctly. Perhaps, too much Europe and not enough India, but the trends are going in the right direction.
Exceptional in Israel
Eberstadt doesn’t mention Israel, but the fact is the “American demographic exceptionalism” he speaks of is not exceptional. The real exception is Israel, which not only produces babies at a rate unmatched by any other developed country but has seen its birth rate actually rise.
Our problem is that our stock of brainpower is in jeopardy unless our schools improve and the growing ultra-Orthodox minority is forced into getting a general education. And just as importantly, we have to be sure we’re putting our eggs in the right basket vis a vis the world economy.
Even if our demographics are favorable, we’re much too small to prosper without foreign trade and investment.
Our eggs need some rearranging because Europe’s and China’s problems are all but fated. Even in the unlikely case of a sudden demographic revolution, the impact would take decades to be felt. Israel cannot and should not abandon either one. But its long-term economic interests are its relationship with America and India, and perhaps even with that pair of dark horses: the Philippines and Indonesia.
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