"Wealth makes health." This pithy maxim makes perfect sense. After all, rich countries can afford the best nutrition, sanitation, and health care, while the poor face a desperate struggle to protect their health.

But under the right conditions, the axiom also works in reverse. According to Harvard School of Public Health economists, becoming healthier makes an overlooked contribution to growing wealthier. For developing countries with the right policies, they say, a sizeable economic boost is on offer as health improves.

East Asia's startling economic performance is an eye-catching example, according to HSPH's David Bloom and David Canning, experts in economics and demography, the study of human populations. Hong Kong, Taiwan, Singapore, and South Korea were the development stars of the post-World War II period. In fact, Bloom and Canning say better health -- and the resulting boom in the working-age population, a phenomenon they call "the demographic dividend" -- was responsible for a decisive share of their economic success. Yet Latin America failed to collect the same dividend. And in sub-Saharan Africa, where HIV/AIDS is decimating the workforce, economic disaster looms.

Meanwhile, rich, developed countries face a new set of challenges. After decades of good health, their populations are aging fast. Within 20 years, over a quarter will be over 60. How will fewer young people take care of growing numbers of old? What will be the impact on health, pensions, and employment? Will the "old" world become dependent on a constant influx of youthful migrants?

Population Boom or Bust

In the 1990s, East Asia read like a good news story to economists. But it was one they were struggling to explain. "At first we referred to it as the East Asian 'miracle,'" says Bloom, the Clarence James Gamble Professor of Economics and Demography at HSPH. "That's a word we reach for whenever there's something we don't fully understand."

Bloom and his colleagues sought to bring the miraculous down to earth. They suspected that the answer lay in health and the powerful impact it had on the age structure of a population. But first, they had to get past traditional theories of population growth. In the last years of the 18th century, Thomas Malthus argued that the sexes were seized by an "irrepressible passion." Given half a chance, the poor would breed uncontrollably. Famine would then reduce population levels to whatever size gave the maximum number of people the barest necessities to stay alive.

In the 20th century, the global population exploded, leading to a renaissance in Malthusian thinking. In the 1970s, for example, environmentalist Paul Ehrlich asserted that "the battle to feed all of humanity is over. In the 1970s and 1980s, hundreds of millions of people will starve to death in spite of any crash programs embarked upon now ... nothing can prevent a substantial increase in the world death rate."

Economists, however, were skeptical. They struggled to find evidence for any significant impact of population size on economic growth. "A great deal of research in the 1980s came to the conclusion that population was a relatively minor influence on development," recalls Ron Lee, professor of demography and economics at the University of California at Berkeley.

Bloom worked with Canning, a professor of population and international health at HSPH, and other Harvard colleagues to challenge the received wisdom. At the heart of their research lies an examination of a profound shift in the population age structure. Known as the demographic transition, the shift looks like this: As health improves in the wake of advances in health care and public health, children become more likely to survive their perilous early years. As a result, populations swell, but not indefinitely. Parents don't want ever-larger families, so over time birth rates fall as well. Countries move from one steady state to another. Starting with high fertility and mortality, they pass through a period of population growth, and end up with low fertility and mortality. At this stage, their demographic transition is complete.

The transition pushes population age structure through various stages. First, the proportion rises of children who need to be fed, clothed, housed, kept healthy, and, most important for the future, educated. As these young people mature, however, society realizes a return on this substantial investment. As parents have fewer children, the proportion of young dependents falls. Now it is adults of working age who predominate. For perhaps 50 years, a bulge in the population of educated, working-age adults drives economic growth and prosperity, and the country reaps the demographic dividend. This boom generation ages -- "the pig passes through the python" -- and leaves the workforce (see graph).

The Miracle Explained

It was the baby boomers who fueled the East Asian miracle. Following World War II, the region experienced the most dramatic demographic transition the world has ever seen. Mortality rates plummeted, while birth rates declined sharply just 15 years later. Starting in the mid-1970s, the ratio of working-age people to non-working age steadily increased.

"The East Asian economies had huge numbers of new workers entering the labor market. It was a shot in the arm for economic growth," Bloom notes. "We calculate that as much as one-third of the growth in their boom years was the direct result of the favorable hand their age structure had dealt them."

The demographic dividend isn"t just about numbers of workers, David Canning stresses. "In East Asia, the labor supply was growing, but saving rates also increased as healthier adults prepared for a longer retirement. Smaller families likely had an impact on behavior, too, as people invested more heavily in the education of fewer children, and as women were freed up to enter the work force."

Demography and Destiny

Demography is not destiny. Latin America enjoyed demographic conditions similar to those in East Asia, yet suffered disappointing economic performance. "Government policies are critical to realizing the demographic dividend," Canning explains. "The demographic dividend creates growth in both the supply of labor and the potential to save, but you"ve got to channel both into productive employment and investment." Unfortunately, many Latin American countries left their demographic dividends on the table. Weak governance, disastrous macroeconomic policies, and barriers to trade reduced the demand for labor and discouraged savings.
Mexico"s president, Vicente Fox, is one of many policy makers who see the importance of the demographic dividend for their countries. "It is crucial, truly crucial, that we take advantage of it, otherwise we will have lost a great opportunity," Fox says, noting that education and employment are key.

Bloom, too, underlines the importance of education. With Henry Rosovsky of Harvard, he was a moving force behind the 2001 World Bank/UNESCO Task Force, which focused attention on the need for developing countries to reform their higher education systems. Bloom has since been working with Professor Joel Cohen of Rockefeller and Columbia universities to explore barriers to universal basic and secondary education across the world.

"But it's no good turning out educated people if they can"t find work," Bloom warns. "Nothing is more likely to breed unrest than armies of under-employed young people. As the history of so many African countries has shown, conflict can destroy decades of hard-fought development gains in just a few months."

It is on health policy that demo-graphy should have the greatest impact, Bloom asserts. UCLA"s Dean Jamison, a member of the World Health Organization Commission on Macroeconomics and Health, thinks Bloom's and Canning's research is just beginning to have an impact. It took 20 years for analogous work on education and productivity to become accepted into the mainstream. "Health must now move through the same process," Jamison says.

In Africa, a look at health throws economic development issues into relief. Africa's demographic transition has always been sluggish compared with East Asia"s. Now HIV/AIDS is taking a remorseless toll on life expectancy. "Twenty years ago, we could point to improving health standards as one of the few encouraging signs in sub-Saharan Africa," says Bloom. "In most countries, those gains have been lost. We"ve never seen a demographic transition in reverse before, but it's happening as we speak."

The Post-Boom Future

What does Bloom and Canning"s research say about the economy of developed nations, including the U.S., whose boom generation is just starting to gray? Once the "pig-in-the-python" generation reaches old age, what then?

High up in Wyoming's Teton Mountains, the world's leading central bankers and economists gathered last August to ask these very questions. "It was a watershed," recalls Bloom, who, with Canning, was invited to speak. "The Federal Reserve brings some of the most influential economic policy makers to Jackson Hole every year. But they'd never tackled an issue like this before."

Federal Reserve Chairman Alan Greenspan spoke about the exceptional challenges facing policy makers as American baby boomers reach retirement while birth rates in Japan and many European countries plunge well below levels needed to keep the population stable. "It was quite something to speak right after the chairman of the Fed," recalls Canning, "especially when I realized he was using some of my best lines."

No one is sure how rich nations will cope with their demographic challenge. Much depends on how much people save for retirement, and how long they are able to work. One thing is certain: profound social change is on the way.

"We're now turning our attention to the problems of the 'old' world," Bloom says. "The power of demography is that it forces us to consider many interrelated challenges. It gives us unique insights into the future. It's the closest thing we have to a crystal ball."

David Steven is a UK-based journalist and researcher. He is editor of worldbankpresident.org.



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