This article throws a spanner into the works that the
politicians keep throwing at us about the economic need to increase
the population in the country.
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ST 7 Jan 2007
Why the population is not essential in wealth
creation
By Victor Mallet
THIS time last year I wrote a column to celebrate the decline of
the Japanese population.
I wanted to debunk the idea that
countries with falling numbers of inhabitants were heading
inexorably towards social and fiscal disaster or even
extinction.
A year on, there are encouraging signs of a change in attitudes. In
particular, economists are increasingly challenging the myth that
population growth is essential for economic growth.
There have, of course, been setbacks on the road to common sense.
Jim Rogers, who founded the Quantum fund with George Soros,
continues to question the wisdom of long-term investment in Japan
because 'there will be no Japanese' if the current low birth-rate
is maintained - a very big 'if'.
International Monetary Fund economists and Indian government
ministers persist in using the awful phrase 'demographic dividend'
to describe the alleged economic benefits of hundreds of millions
of young people entering the workforce, even though these people
are just as likely to be a social and fiscal burden in increasingly
capital-intensive economies such as India.
The fundamental - and flawed - argument in favour of young and
endlessly growing populations was best summed up by Richard
Jackson, director of the global ageing initiative of the Center for
Strategic and International Studies in Washington.
'Relatively faster growth in the US population will translate into
relatively faster economic growth,' he asserted in a commentary to
mark the day in October when the US population surpassed 300
million. 'This is not optimism, but simple arithmetic.
'Japan and many European countries face long-term stagnation or
even decline in their real GDPs - and hence the aggregate economic
and fiscal resources available to pursue future-oriented agendas,
from investing in the young to investing in national
defence.'
It is tempting to mock this as a
pointlessly circular argument: more cannon fodder means more
cannons, which means more need for cannon fodder. We should also
ask why policymakers focus on absolute economic growth rather than
the per capita income growth that would make more individuals
better off.
Even if one accepts the economic need to boost a country's
workforce, increasing the entire local population is a crude way to
do it. In Japan - where the population is shrinking, remember - the
labour force has been rising this year as older people rejoin the
workforce and more women take jobs. The truth is that nations with
small, stagnant or falling populations can produce strong economic
growth.
If GDP growth depended purely on population increase, Africa, Latin
America, Indonesia and the Philippines would be rich.
Sharmila Whelan, economist at investment bank CLSA, concludes in a
recent report on demographics and Japan's economy that since the
rise of Venice in the 11th century, there has been little
connection between economic growth and population size or increase.
Innovation and specialisation are more important.
Even in China, where population growth has clearly played its part
in increasing the absolute size of the economy, Goldman Sachs
reckons that accumulation of human capital - essentially education
- has contributed more to GDP growth than the growth of the labour
force since economic reform began in 1979.
It could be argued that ageing populations will not be able to
deliver the innovation needed for future economic success. Yet
those who bemoan the cessation of population growth are thinking
back-to-front.
As people move to densely populated cities, enrich themselves and
feel more secure, they tend to have fewer children. It is no
coincidence that some of the richest and most crowded places on
earth - Tokyo and Hong Kong, for instance - have some of the lowest
birth rates.
The point is not that increased
population creates wealth; it is that wealth creation leads
ultimately to static or falling population. There is no reason to
fight something that is both inevitable and good.
More wealth, lower birth rates; not vice
versa
As people move to densely populated cities, enrich themselves and
feel more secure, they tend to have fewer children. It is no
coincidence that some of the richest and most crowded places on
earth - Tokyo and Hong Kong, for instance - have some of the lowest
birth rates.
