The coming demographic crisis and its implications for countries like Malaysia

Based on what is often covered in our local mass media, and the preoccupations of our politicians and policymakers, we do not seem to pay enough attention to the big issues that are almost at our doorstep and that will have significant consequences for our society and economy. Climate change is obviously one issue. But there is another. Demographic change as aging populations will hit many countries like a raging hurricane. How countries are affected by it will depend on how well they are prepared for it. Although institutions like the World Bank have been highlighting the oncoming demographic crisis (World Development Report 2023: Migrants, Refugees, and Societies), politicians and policymakers seem to be not paying attention. In Malaysia, we do not seem to spend much time thinking about these issues despite their significant potential impact on our country. Our politicians appear busy solving other countries' problems rather than our own. Also, religion, race and privilege take up a lot of public space. These are issues that increasingly help politicians win elections. But these are also issues that divide us at a time when we need to be united like never before in confronting the big challenges lying ahead of us. That lack of unity and preparation will come back to haunt Malaysia with dire consequences for economic growth and living standards.

Contrary to the prevailing gloomy headlines about migration and excessive population growth, the world is on the brink of a demographic upheaval: a surplus of older people and a shortage of younger people. This demographic crisis will be particularly severe in the developed world but is not limited to only those countries. The demographic structures in these societies will increasingly resemble an inverted pyramid, with the elderly forming the broad top and the youth a narrow bottom. Such an unbalanced societal structure is unsustainable and will threaten economic stability and living standards.

What does it all mean for the future? There will be a shortage of young skilled and semiskilled workers in much of the world, with it being particularly severe in those countries which currently have the highest standards of living. Consequently, the demand for young talent will surge across borders like an unstoppable tide. For young talent in countries like Malaysia, the world will really be their oyster, offering unprecedented opportunities.

Within Europe, these trends are already starting to play out. Southern European countries, like Portugal and Italy, are already losing young talent to the richer Northern European countries. Ongoing wars will also deplete the world of young productive workers; the Russia-Ukraine conflict will worsen the already bad demographic trends in those countries caused by falling birth rates.

In Asia, both Korea and Japan must open their economies to foreign talent or face unsustainable fiscal realities and a sharp decline in the standards of living of their aging populations. Even China, the global workshop and technological powerhouse, will find its growth hampered by a growing shortage of young people. Its need for young talent will be very significant simply because of the size of its economy. Technologies like automation and intelligent robotics might offer some relief, but they will not eliminate the looming crisis.

What about countries like Malaysia? Like many other developing countries, Malaysia will experience an acceleration of the current brain drain and will have difficulty retaining enough talent to support the needs of the economy. Losing highly skilled talent would unquestionably have an impact in slowing the growth of the domestic economy. Incomes rise when there is an increase in the productivity of workers, leading to an increase in per capita GDP. When the most productive workers leave, it will have a negative impact on per capital GDP growth and hence on overall incomes in the economy.

Malaysian politicians who talk about attracting Malaysian talent that has moved abroad are dreaming or trying to hoodwink the population. Despite government initiatives like Talent Corp, the reality is stark: once talent leaves, few will return. The focus is also flawed. If we cannot devise policies to retain talent, why would Malaysia be more attractive after the talent has established roots elsewhere? Given that there seems to be no desire to let go of race and religion as the defining criteria in many aspects of social and economic life in Malaysia, those who feel discriminated by these policies will obviously find more attraction in the opportunities abroad. The rising tide of conservatism and dogmatic religious fervor will also drive young talent to societies that offer greater personal freedoms. As global demand for cross-border talent in developed countries increases, Malaysia's brain drain will accelerate significantly and become permanent, despite the fanciful dreams of our politicians and policymakers.

Malaysian employers that have competitive strategies based on neglecting automation and underpaying talent, will find their future viability threatened by an inability to source the necessary talent. The lack of societal, educational, and economic reforms over decades will exacerbate the country's woes. Malaysia, having squandered most of its demographic dividend, will face a significant threat to its economy and society due to emerging domestic and global demographic trends.

Paul Krugman, the Nobel prize winning economist, recently wrote an article in the New York Times, which talks about why the developed world needs migrants and points to the large presence of highly educated immigrants from South Asia and East Asia as a key factor behind the US lead in digital technologies. In other words, the hostility of the developed world to highly educated immigrants is self-defeating - they are shooting themselves in the foot.

Therefore, for the higher-income countries, their long-term societal and economic well-being will be better served by early proactive and strategic consideration of not just the types of migrants they wish to welcome, but also by getting an early start on initiatives to attract and retain the global talent they will imminently require. It will really be a global race, and the losers will pay a heavy price.