Demographics: the survival of development and social status

demografia
Roberto Lancellotti
01 Jul 2019
Roberto Lancellotti is an investor and senior advisor for companies and start-ups related to digital and innovation; moreover, he is a board member of some major companies. Roberto also operates on a more social level through his work on youth unemployment and immigration. Until 2017, he was Senior Partner and European Director of McKinsey’s Digital and Business Technology. For 25 years Roberto has worked with clients internationally on transforming their operations and business models through the best ICT technologies.

Retex. Demographics, development and social status. Or, more simply, survival. Correct?

RL. There is little discussion about demographics and often its centrality to the economy is often neglected. Italy has one of the lowest birth rates, Germany is in a similar position and France, considered as the European reference point for birth rate, has been witnessing decreasing numbers (2.1 births per woman are required for the population to remain stable). Overall, the total population is decreasing, and the average age is increasing, all of which significantly impacts the economy. 

Retex. At which scale?

RL. The immediate impact for Italy, and other countries with similar dynamics, is on consumption. A family composed of 65-year olds consumes from 10-15% than one composed of 35-year olds. The issue is considerably more far-reaching than one expects, this lack of consumption is one of the reasons which has held back Italy and the rest of Europe in the last twenty years.

Retex. Understandable. An older generation means less workers

RL. If this trend continuous for 20-30 years we will have several million less workers since those meant to work by that time, are already born.

Occupation and productivity

Retex. Therefore, to survive we must act on occupation and productivity.

RL. Yes, excatly. We will have to work much more to compensate for the demographic gap. What is worse is that Italy’s occupation rate is clearly lower than the European average; if it were equal we would have an added 3 million workers and those employed are mainly adult males. For young men and all women, it is a greater challenge. Firstly, the misalignment between schooling and the skills required by employers. Secondly, the slow development of cultural ideologies such as the ‘typical life’ of women in the South.

Retex. Hence, we should aim at being more productive?

RL. Theoretically yes. Yet, since the Second World War, developed countries have kept growing but at decreasing rates and Italy has been stuck for the past twenty years. This is due to many reasons, from a fractured economic system, to minor investments in innovation (especially in small companies) to an inefficient public administration. Therefore, in this case productivity is necessary, but complex.

Retex. Overall, without a significant change of pace, the decreasing number of workers will result in significant problems for growth.

Social Status

RL. Yes, and not only for growth. People will have to put in more and get less out. If we look at the logical chain between demographics, growth and public debt. Currently, Italy’s debt as a percentage of its GDP is among highest in the world. The ageing population will only worsen this debt.

Retex. How?

RL. If we look at government spending, around 800 billion yearly, around half is spent on welfare, pensions and public health. Pension and health costs will only increase in parallel to the increasing average age; and it is high improbable to collect more debt to cover these costs. Logistically, two levers are left: one is to increase taxes, yet these negatively impact growth, second is to reduce pensions and public services. 

Retex. This is an enormous issue which requires action on all aspects. What role can immigration play?

RL. Without a significant influx of immigrants in the nest 20 years, it will be impossible to win this challenge. Official numbers from the Ragioneria di Stato, not of governments, state that even with immigration influxes above current ones and optimistic estimates on occupation and productivity, the welfare system will face an arduous period by 2040. It seems far, but it will impact everyone of us: it will be when the current working generation will want to enjoy some benefits and their children will have to keep the economy afloat as well as our pensions. One of the societal pillars is at significant risk and everyone should be aware of this. 

Politics

Retex. And what is the political system doing about this?

RL. Politics, here and abroad, should focus more on the medium and long term. Yet, its cycles are incredibly short and abandon their political figures. You can draw your own conclusions from this…