10 09 2017

Are we too few people on planet earth?

We are in 2017 an estimated 7,500 million people on the planet earth – three times the 2,500 million we were in 1950. According to projections made by UN, we will be 9,700 million in 2050 and 11,200 million at the end of the century. The growing world population and its natural desire for decent living conditions imply an enormous stress on our planet with global warming, depletion of resources, decreasing biodiversity, polluted and congested megacities and accumulation of waste. Can we handle this in the future?

Most economist tend to say yes, no problem. We just need continued economic growth, then we will have the resources to handle the challenges from the increased population. New technology will make it possible to feed the world population. Natural resources are still plentiful – they may become a bit more expensive to get at, but technological progress will solve that too. So just relax, lean back and enjoy. Hasn’t history shown that concerns about dwindling resources have been groundless panicking? Concerned scientist are sneered at and called Malthusians – in the world of mainstream economists there is nothing worse.

So can we really cope without destroying the planet? In principle, I would say that we can. If resources are used wisely with use of renewable energy, extensive recycling of waste and a just distribution of incomes. We could probably cope even with 20 or 30 billion people. We can make food from sunlight and algae or some other bizarre future technology. We can construct more megacities to accommodate all these people. It may not be a nice place, but it is no doubt doable. This is not the question. The question is: why should we? Is there some inherent quality in endless reproduction, turning the humans into some sort of invasive species, exterminating all other species and endangering its own survival?

Most economists love economic growth, and a growing population is part of economic growth. More people demand more housing, consumer goods, services – they create the basis for an increasing production and rising property prices. A lot of economists hate the idea of a stagnating population, or even worse: falling population. A decreasing population, or even just a transition to a stable population means relatively more elderly people, fewer young people, hence an increase in the dependency rate: the ratio between people in working age to children and pensioners. Some economists apparently tend furthermore to think that countries with stagnating population lack the dynamics of countries with increasing population. It is like capitalism is considered to be incompatible with a stagnating population. It needs to expand endlessly.

The intriguing point is that there is nothing in traditional economic theory that tells us that stagnating or even falling population is bad. It should simply be a question of adjustment in prices: real wages should go up as labour becomes more scarce relative to capital, property prices should increase less than they would do otherwise or should even decrease, public resources should shift from schools to care for elderly people, and so on. The demand pattern for services and products will change, and some industries will become unprofitable and will close, while others will prosper. This is what is called the market mechanism.

Of course, countries facing plummeting fertility rates should wonder why this is so and do something about it– say Germany, Italy, Japan, Spain, Ukraine or Bulgaria. Something must be wrong with the way they have organised society, the values that prevail and/or the way families with small children are treated. But stagnating or gently declining population should not be a worry. The world would no doubt become a nicer place to live in for the less well-off.

As mentioned, a change from increasing to stagnating population means that the society and the economy have to accommodate to this new situation. There will be a lot of hand-wringing about “labour shortages”. If you believe in markets, then there is no such thing as “labour shortages” except for short-term bottlenecks, qualification mismatchs and the like, things that can be overcome with an active labour market policy. But basically you simply have to pay more for labour so that it is allocated to where it is most productive. But, who shall harvest the fruits or vegetables we have on the field? Who shall collect the garbage? Who shall care for our sick? The answer is simple: pay for it. And if it is not profitable for you to pay for the fruit or vegetable harvest, then don’t plant them. The production has to accommodate to the new economic reality. We are some who remember the complaints in Northern Europe in the 50ties and the 60ties as the middle class could no longer afford to have house maids, as these suddenly had alternative job options and hence demanded a better pay. That is called changes in relative prices. This is also the main reason for the do-it-yourself wave as skilled workers have become more expensive. Get used to it!

But the first reaction is always not to accept the new relative prices. Industry X is complaining to the government that they can’t get the labour they need. What does the government then do? Ask them to stop whining and pay up? No. Think about all the lost production due to these labour shortages - this takes so and so much out of the economic growth! So they look for cheaper labour from outside. So instead of growing their fruits or vegetables in Poland, Ukraine or Mexico, they want to import Polish, Ukrainian or Mexican labour to do the job. In Northern Europe in the 60ties and 70ties it was “guest workers” from Turkey, Spain and Portugal. This does not mean that it can’t be a benefit for the host country – it undoubtedly is, particularly if there is already close to full employment. The consumers get cheaper products and the “guest workers” get a better salary than they did at home. But the economy fails to adjust to the new reality which is that the work force is no longer increasing and hence the increase in the real wage for low-skilled workers does not materialise.

A stagnating population will no doubt imply lower economic growth than would otherwise be the case. But then what? If we assume that the UN is right in its population forecast, the world population growth rate will decrease gradually to close to zero at the end of the century. We should be grateful for that and hope that is actually happens earlier. This means that at some moment, almost all countries will have to face it: they have to adjust to a situation where the population is not growing indefinitely. All adjustments in the economic structure are costly, and some people will benefit while others will lose. There are many other factors at play, but the transition to a situation with a stagnating or falling population will imply a tendency towards redistribution from capital to labour. And even the lowest skilled workers will potentially benefit. There are of course other tendencies too, among these robotisation, which will pull in the other direction. For a historic case of the impact of a declining population, we have the effects of the bubonic plague (the “black death”) in Europe and Middle East in the 14th century. The black death, which killed somewhere between 30 and 60% of the population in Europe, lead to scarcity of labour compared to land, so it favoured the tenant farmers and agricultural workers to the detriment of the landlords. The reaction of the landlords was to try to limit the mobility of labour, forcing them to stay on their estates (“The Ordinance of Labourers” in England, “Vornedskabet” in Denmark etc.), but with limited success.

According to the UN projection, the population growth will be very unequally distributed. Up to 2050, some Asian countries will continue to grow, particularly India that by 2025 will surpass China as the most populated country in the world, but is projected to fall slightly from 2050 to 2100. The population in Latin America is expected to grow modestly up to 2050 and then start falling. The main growth is expected to take place in Africa: up from 1.3 billion today to almost 4.5 billion in 2100. Nigeria is expected to reach almost 800 million in 2100, D.R. Congo 380 million, Ethiopia 250 million and Uganda more than 200 million! We have to keep in mind that these figures are based on the present trends for fertility, mortality and migration – we can of course hope for a swifter decline in population growth. The real challenge is to put all these hundreds of millions of new job seekers to work. That will require massive investments in infrastructure, education, health and production facilities to cater for the needs of the growing population. And what about investing more in family planning?

It is said that we are now for the first time in the history of the planet in an epoch, where the activities of one single species is determining the development of it, not some geological or climatic phenomena – the Anthropocene epoch. I think it is true. The problem is that we are not managing it as such.

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Thorbjorn Waagstein

Thorbjørn Waagstein, Economist, PhD, since 1999 working as international Development Consultant in Latin America, Africa and Asia.

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