Traffic jam in Lagos
At some point I hope to come across a game-changer in terms of the impact of changing demographics on economic growth. But the recent publication from the International Monetary Fund, The Fiscal Consequences of Shrinking Populations, is not it.
The consequences of current demographic trends, namely higher pension and health care spending as a proportion of national income and potentially lower economic growth, and the possible solutions, namely higher birth rates, higher labour force participation, more migration, entitlement reform and more effective public spending, are the same as have been discussed ad nauseam in many papers both academic and popular.
The IMF report does add one interesting feature to the mix. While it uses current UN projections which imply that the global population will peak around 2100, they caution that, on past performance, the UN may be optimistic and the peak, and all that this would start to bring with it, could come sooner.
Our fiscal projections rely on the UN’s medium demographic scenario [they write] and should be interpreted with caution, as in the past fertility and mortality have declined at a much faster pace than projected. The fiscal risks associated with this uncertainty are mammoth in the long term.
What the IMF doesn’t do, perhaps because it is too scary, I consider what happens over the longer term when the global population hasn’t just peaked but has started falling rapidly.
Julian Simon was a game-changer in the 1970s and 1980s when he debunked much of the population control ideology then in vogue in many circles and which, unfortunately, still persists. But in the absence of a new vision we are told that we are caught on the horns of a dilemma. High fertility rates will risk increased fossil fuel use and pollution, leading to social and economic collapse, while low fertility rates, leading to shrinking populations, would also risk social and economic collapse. Neither road to collapse seems a particularly attractive option.
But that is because the IMF assumes that everything else stays the same. And maybe that is the game-changer we need, a change in “everything else”, or at least the part of it that relates to levels of consumption.
Recently I read an interview with the head of one of the main UK polling organisations. He said that “Even I couldn’t see the benefit of iPads when they were first launched. I now have three.” Does anyone really need 3 iPads?
Would it be possible to put a halt to economic growth for the wealthier parts of global society and allow the rest of the world to catch up? Finding a way of doing this would require more than the development of a new economic theory. It would require social and political change in many countries and a change in the material expectations of many people. Are we ready to embrace what this would entail and could modern Western capitalist economies, built as they are on the perpetual cycle of production and consumption, cope with the transition?
If we moved to a less consumerist society, fertility rates would be less of an issue and family sizes could increase without having such an impact of energy use and pollution. Families might then become more robust which, in turn, would reduce many of the social and fiscal costs currently associated with family breakdown and also provide greater support to the elderly, thus potentially reducing pension and health-related expenditure.
But there is the all important requirement to move to a less consumerist society which unfortunately does not seem likely to happen any time soon, at least not by choice and not by enough people.
Dermot Grenham is an actuary in Glasgow.