demographic bonus vs middle-income trap

The demographic bonuses have become a hot discussion topic several years ago. Of course, Indonesia taking part of that discussion and even projected to take benefit of that conditions. They become hot topic because of its value of potential opportunity to achieve economic growth.

The demographic bonus is a complex situation, there is no easy way to ensure that a country will reap its benefit or not. However, it has been any countries challenge to faced, involving all the perspective policies. A demographic bonus simply defined when a country having the condition of large working age population relative to its dependent population. This means that there are more people working and contribute to the economic, inclusively and exclusively, which are expected that fewer people depend on government support of any form and policies. When more people are having their job and less of them needed govern support, it means the economic rate and income per capita are in the positive condition.

Indonesia currently experiencing the demographic bonus, estimated almost 70% of total populations. Almost 191 million people of 275 million in total this 2023 (Viva Budy Kusnandar: katadata.co.id). and this is expected continue rolling until 2036. Indonesia should have sophisticated strategies taking advantage of this opportunity, which impact to significant economic growth. There are many countries that have taken the demographic bonus phenomenon. South Korea experienced this in 1970s up until 1980s, this rapid period helps the country growing the economic growth that making them as developed countries nowadays. Singapore also experienced this in 80s-90s, drives the government to invest heavily in education and infrastructure during the period, I don’t need to explain the result. Last, China is currently experiencing the demographic bonus and expected to peak in 2030.

Of all the articles, they believe that the key to reaping the benefits of a demographic bonus is to invest in education and infrastructure, also creating an environment that support to economic growth. Improving the quality of education will improve the quality of skill, creating enough job and or position that absorb the large working-age. To support that the government need to invest in infrastructure and other productive assets. As the end result, it expected to respond the social challenge such as poverty and inequality.

Sound very positive right? Is it that good or is there any hidden danger potential in it?

In every good there is always bad, in any positive there is another negative potency. Yin and Yang, the world balance. This is when we prepare ourselves to dodge the middle-income trap.

Middle income trap is a condition where a nation succeeded reaching the middle-income level but could not get out (trapped) to become a developed country. This term is popular for the first time once written in world bank report released in 2007 that entitled An East Asian Renaissance: Ideas for Economic Growth (Muhammad Faisal Yusuf: setkab.go.id). According to the Wikipedia, several countries have their history of fallen into the middle-income trap situation. Brazil and South Africa has been stuck in this trap for many years. Having numbers of advantage such as large population, rich natural resources and well-educated population, cannot convince that they can avoid the intended trap. They were all unable to achieve any higher income level of developed countries due to factors such as corruption, inefficient government bureaucracy, low of investment since the lack of innovation, and political instability. The demographic map itself playing important role to catch the demographic dividend windows. The government must know the best time on when the bonuses has come and utilized or they will be left behind with poor labour market condition and increasing aging population.

The middle-income trap is a serious challenge faced by many countries. However, according to several articles, there are some strategic steps that countries can try to escape the trap. Countries need to invest in education and innovation in order to move to the higher value-added. They need to reform their bureaucracy too, overcoming the corruption and making it more efficient. Sociologist Salvatore Babones and political scientist Hartmut Elsenhans call the middle income trap a “political trap” as economic methods to overcome its existence. They argue that countries can escape the middle-income trap by investing in physical and human infrastructure, enforcing social policies like higher minimum wages, and having a weak currency that makes exports competitive and stimulates domestic employment (Salvatore Babones, Hartmut Elsenhans. BRICS or Bust? Escaping the middle-income trap: Stanford University Press). For me, although it is considered as an economic part, but sounds like a political job that needed political willingness to make any supporting policies. This is why maintaining the political stability also play an important role evercoming the trap.

The demographic bonus, if it can be used in a good spot, can lead to increase economic growth and citizen prosperous. However, if it’s misused, it may drag the country fall into the middle-income trap. There’s a lot of homework that has to be done to overcome it, economically and politically. At least there is simply fundamentally thing that we can do to overcome it to ourselves such as increase savings, skills and innovation to stimulate the industries to absorb our skill and sets the economic growth gears in motion. Or we can create and drive our economic growth by establishing a line of business known as entrepreneurship.