lorenzo bini smaghi : demographic trends, technological progress and economic growth in advanced economies speech by mr lorenzo bini smaghi, member of the executive board of the european central bank, at the 66° congresso nazionale di pediatria ( 66th national paediatrics congress ), rome, 22 october 2010. * * * i would like to thank roberta serafini, isabel vansteenkiste and nadine leiner for their drafting suggestions. i would also like to thank ioannis grintzalis for his valuable research assistance. the views expressed reflect my personal opinions. introduction first of all, i would like to thank the societa italiana di pediatria for inviting me to participate in its annual meeting. you are probably wondering what an economist is doing at a paediatricians ’ meeting. to tell you the truth, i have been wondering about that too. let me try to answer that question. in brief, this will be my line of argument, based on nine points. 1. in a society characterised by limited demographic growth, technological progress is the main engine of economic growth. 2. the main instrument for developing technology is human capital. 3. the supply of skilled labour, which makes intensive use of human capital, is not keeping pace with the increase in demand, either in the united states or in europe. 4. this explains why there is a strong correlation between the level of education and the probability of getting a well - paid job. those who do not have access to education risk being marginalised and having a relatively low income. 5. over the past 25 years, the supply of education has not increased in line with demand, and this has generated a worldwide “ excess demand ” for high - level education, increasing competition and costs. in other words, when it comes to gaining access to high - quality education, competition is now much fiercer than it was for the previous generation. 6. in advanced societies, the new generations are not prepared for the new competitive environment. such preparation occurs during the early years of an individual ’ s life ( according to some, during the first seven years ), when the personality and the cognitive abilities are shaped. 7. educational methods are largely responsible for this lag. the natural tendency to apply the methods inherited from the previous generation is insufficient in the context of excess demand for high - quality education. 8. it is not easy to change educational methods, in respect of those

is among the countries with the lowest share of young people – the corresponding figure was only one in seven ( 14. 2 % of the overall population ). the slide also shows that the share of people aged 14 or younger has been declining in all these advanced and emerging market economies since 1985. however, although this decline has been even stronger in the emerging market economies, these countries still have proportionately more young people. second, the share of the working age population in advanced economies has remained either broadly stable or has declined over the past 25 years, while it has risen substantially in emerging market economies ( chart 3 ). in brazil, for example, the share of the working age population rose by more than 8 percentage points between 1985 and 2008, while it declined by almost 1. 7 percentage points in italy. third, the populations of many industrialised countries have been ageing, while those of brazil, china and india have been getting younger. these diverse demographic developments – and the ageing of the population in particular – make it more difficult for many advanced economies to continue to grow and to remain competitive on world markets. the problem has been exacerbated over the past 25 years, not least because many advanced economies have not acted quickly enough to address the ageing problem and its detrimental impact on economic growth. but competition from emerging market economies has not waited. moreover, in many of these emerging economies, competitiveness has also been stimulated by investment in the technology sector. let me elaborate on this last point with the help of a few figures. … and on technological progress ten years ago the eu member states committed to transforming the eu by 2010 into “ the most competitive and dynamic knowledge - based economy in the world [ … ] ”, as emphasised in the lisbon strategy. in order to achieve this aim, an explicit target was introduced whereby each country was to spend at least 3 % of gdp on research and development ( r & d ) by the year 2010. the data clearly show that progress in this direction has in fact been very limited ( chart 4 ). among the largest four euro area countries, italy ranks the lowest, and its level of r & d intensity has increased marginally since 1996. 1 at the other end of the spectrum, china more than doubled its investment in r & d over the same period. the role of human capital together with r & d, the economy ’ s ability to innovate crucially depends on human capital. 2 human capital is a broad concept,