Aleksandra Alekseeva | Dreamstime.com
George Friedman is the Chairman of Stratfor and his (free) Geopolitical Weekly articles often appear in Mercatornet. I always enjoy reading them. He has recently written on demography and the long term implications of a declining world population. “Global Decline and the Great Economic Reversal” is an interesting read and I strongly recommend that you have a look at it. The key points that Friedman makes are the following:
1. Population decline is happening and it is happening around the globe:
In fact, the entire global population explosion is ending. In virtually all societies, from the poorest to the wealthiest, the birthrate among women has been declining.
By the end of this century, Friedman predicts, all countries will be at 2.1 births per woman or below (that is, at or below the rate of replacement).
2. Population decline is irreversible and inevitable:
It is primarily a matter of urbanization. In agricultural and low-level industrial societies, children are a productive asset. Children can be put to work at the age of 6 doing agricultural work or simple workshop labor. Children become a source of income, and the more you have the better. Just as important, since there is no retirement plan other than family in such societies, a large family can more easily support parents in old age. In a mature urban society, the economic value of children declines. In fact, children turn from instruments of production into objects of massive consumption…Children cost a tremendous amount of money with limited return, if any, for parents. Thus, people have fewer children.
3. There is an argument that there will be massive economic dislocation due to a rapidly ageing population (an argument that we’ve made on this blog before):
But the argument is that the contraction of the population, particularly during the transitional period before the older generations die off, will leave a relatively small number of workers supporting a very large group of retirees, particularly as life expectancy in advanced industrial countries increases. In addition, the debts incurred by the older generation would be left to the smaller, younger generation to pay off.
4. The obvious answer to this problem is immigration from countries that still have surplus population. The problem is that for some countries, mainly in Europe and Japan, there is no history of successfully assimilating immigrants.
5. Friedman predicts that as populations contract, GDP per capita will rise, as he believes that GDP will not fall as quickly as productivity will increase:
The capital base of society, its productive plant as broadly understood, will not dissolve as population declines. Moreover, assume that population fell but GDP fell less — or even grew. Per capita GDP would rise and, by that measure, the population would be more prosperous than before.
6. Friedman also emphasises the unprecedented nature of the current reversal of population growth. This is the first time in 500 years that the population will not be growing. As he notes, this will have a massive impact on our economies. In short, he believes that the cost of labour will increase while the cost of capital will decline. He also believes that declining populations will result in declining land values and therefore the decline in the value of housing:
For the first time in 500 years, this situation is reversing itself. First, fewer humans are being born, which means the labor force will contract and the price of all sorts of labor will increase. This has never happened before in the history of industrial man…That would mean that in addition to rising per capita GDP, the actual distribution of wealth would shift…If the cost of money declined and the price of labor increased, the wide disparities would shift, and the historical logic of industrial capitalism would be, if not turned on its head, certainly reformulated.
7. He concludes that the “path to rough equilibrium will be rocky and fraught with financial crisis” and that some countries will fare much worse than others. He ends on a positive note however:
The argument I am making here is that population decline will significantly transform the functioning of economies, but in the advanced industrial world it will not represent a catastrophe — quite the contrary. Perhaps the most important change will be that where for the past 500 years bankers and financiers have held the upper hand, in a labor-scarce society having pools of labor to broker will be the key.
Those are only some of the salient points of what is, overall, an excellent and interesting article. I would like to share some ideas that came to me as I read the piece:
Why can’t rich societies “afford” children? It is interesting that it is an economic inevitability that we have fewer children now because they are no longer economically valuable. Western societies that have lower birth rates are far, far richer societies than they were when birth rates were much higher. You would think that that would make it easier now for us economically to have larger families than our peasant forebears. It would also be interesting to compare the average family size of rural workers against urban dwellers and the upper classes in earlier societies to see if the latter two groups (which had less of an economic imperative for big families) had fewer children. (As a tangential aside, Shannon noted last week it seems to be the wealthier families that have fewer children in New Zealand suggesting it’s not all economic imperative…)
Urbanisation and house prices. The argument that homes will get cheaper with a lower population is not necessarily true if urbanisation keeps on intensifying and a declining population wants to live in the same place. Land as a whole might get cheaper but demand for housing in some places might increase. (I’m thinking of Auckland, New Zealand as an example of this.)
We are entering unknown territory. Friedman assumes that we will reach some population and economic equilibrium in the future (maybe by the end of the century). However, he does not state why this is so. If fertility rates go below replacement rate as they are in so many countries nowadays, is there any guarantee that they will climb to the magic replacement rate of 2.1 children per woman? Not only is the reversal of population growth unprecedented in the last 500 years, I would argue that global population decline is unprecedented throughout recorded history. Before the last 500 years the population may have remained stable as mortality kept pace with large families, but we simply do not know what the result of the world’s population declining. Once people get used to smaller and smaller families, why will this below replacement fertility rate reverse? Friedman suggests a population decline of 20% as an example, but places like Japan are looking at a much greater decline than that.
Loss of the family as the basic unit of society: Allied to this last point, there is a greater loss that is not mentioned in Friedman’s article, the decline of the extended family unit. The end of having numerous cousins, brothers, sisters, aunties and uncles. The rise of “little emperors” or single children not knowing the joy (and difficulties) of having a sibling. As families grow smaller, will their importance as the building blocks of civil society also decline? If so, what will take their place?
How will the aged be supported? Finally, the article does not give an answer for the problem of an ageing, top heavy population. Who will pay for the pensions, healthcare etc of an elderly population? Even if per capita GDP is to rise, taxes will have to significantly rise to pay for the current social welfare schemes. Will the younger, working population agree to that? I think that the problem of an inverse population pyramid will be one of the rocks on the path to a smaller global population in the 22ndcentury.
Whether we reach population equilibrium in that century is, I think, unclear. What such a world means for family life is also unclear.