Rich man, poor man: the emerging codependence between today's developed and developing worlds.

• Author: Ezrati, Milton

The comparisons are stark and will continue to have profound economic and investment implications for some time. China, India, and many other developing economies, though still desperately poor, grow at fantastic paces, while the rich economies of Europe, Japan, and America seem to plod. The developing economies possess youthful, eager workforces. The rich developed economies carry ever-aging populations. Clearly, global prosperity as well as investment opportunity lies as never before with the world's developing economies. But as always in economics, matters seldom fall to simple distinctions between winners and losers. On the contrary, marked growth, wealth, and demographic differences speak loudly to reciprocal needs between developed and developing economies, needs that should yield gains from trade and globalization and consequently create economic and investment opportunities in both the developed and the developing economies.

DEMOGRAPHIC IMPERATIVES AND RECIPROCAL NEEDS

Seen in one light, all the advantages would seem to lie with the developing economies. Rapid real growth at near-double-digit rates in China and India already fosters speculation about when they might "catch up" with or even "surpass" the major developed economies. Other developing economies may not report growth at such a breakneck pace, but they nonetheless are growing much faster than the United States, which has exhibited a real growth rate in the low single digits, or Japan or the European Union, either of which has hardly grown at all. Even more telling for the future are the demographic differences. Lengthening fife expectancies and declining birth rates may be raising the average age of populations the world over, but for a long time to come the developing world will retain the younger, relatively more plentiful workforce that it needs to sustain its rapid growth path, especially relative to the developed West and Japan.

The accompanying exhibit reviews the key indicator in these sorts of comparisons, what demographers call "dependency ratio." By calculating the number of workers available to support each dependent retiree, it highlights the relative burden on each economy's workforce. America, for example, presently has five workers on average to support each retiree. By 2020, even considering impressive, ongoing immigration flows, the country will have less than four workers per retiree, and by 2030, it will have less than three. Europe is even more extreme. Germany, for instance, has only three workers per retiree even now and by 2030 will have barely two. Japan is in still more difficult straits with less than three workers for each retiree today and less than two projected for 2030. By contrast, China, India, Brazil, and other developing economies (not included in this exhibit) face a much less burdened future. China, for instance, even with the tendency for Beijing's long-standing one-child policy to slow the growth rate of that country's labor force, will still have over five workers available for each dependent retiree in 2020 and by 2030 just under four. Workers in Brazil and India will carry even fighter relative burdens, with almost five and almost six workers available for each dependent retiree respectively even by 2030.

For all these clear advantages, matters are not entirely one-sided. For one, labor in the developed world is more productive than in the developing world. Years of investment in education, modern plant, equipment, and technology have given their relatively smaller workforces the tools with which to support a greater burden of...