Does the economy need a growing population?

By Dave Sanderson

The final blog in our series this week from Dave Sanderson to mark World Overshoot Day

It all depends on who you ask!

The view of most mainstream economists in the 21st century (so-called ‘neo-classical’ economists) is that a growing population provides more workers and thus more production and also more consumers, so Gross Domestic Product (GDP) will increase, and that this is a good thing. Indeed, during the industrial revolution in Europe and the USA, this appears to have been the case, as GDP grew, infrastructure such as railways and drains became widespread and the foundations for national prosperity were put in place.

But not everyone would agree. Many people in 19th century British factories worked very long hours, were poor and lived in awful accommodation. They didn’t share in the new wealth. And this is the case today, in countries such as India and Nigeria. Population may increase, GDP may increase, but if GDP increases by the same or a smaller percentage, GDP per head decreases so on average people become poorer. GDP / head is thus a much better measure than simple GDP.

The availability of investment and other materials also matters. There may be more workers but if the resources are not there to increase production (land, raw materials, investment etc), there might be a serious shortage of work and many people become poor. Land in particular is a fixed asset. We cannot make any more. So if more land is used for factories and offices, there is less available to grow food or to build houses on.

The majority of newly created wealth may be captured by a small elite (eg in a dictatorship), leading to serious inequalities and no benefit for most people. An increase in GDP or an increase in population are not the same as an increase in well-being for the majority.

Some politicians argue that immigration (or indigenous population growth) is essential to maintain standards of living when an increasing proportion of the population are ageing and thus no longer in work. These additional people can work in business, making money to support the elderly. This is lazy thinking, of course. These young workers will have children, who will need supporting. And the workers will eventually become old themselves, so requiring more workers to support them in turn. It becomes a pyramid scheme, always requiring more people to keep it going, until it eventually collapses.

Development economists like to point out that a fast increasing population offers the possibility of a ‘demographic dividend’ for a limited period of time. Forty per cent of the population of the world’s least-developed countries (LDCs) is under the age of 15, and the total population of these countries is expected to double by 2050. This poses great challenges, but if countries can lower fertility rates and reduce population growth, it also provides a great opportunity for accelerated economic growth, as measured by GDP.

The term “demographic dividend” (DD) refers to the accelerated economic growth that a country can achieve when the proportion of its population that is of working age is greater than the proportion of its population that don’t work (children and the elderly). This frees up household and state resources that can be invested to generate economic growth rather than supporting dependents. In order to achieve a DD, countries with rapidly-growing populations need low fertility rates, a healthy and educated population, female participation in the labour force and a positive investment climate and appropriate infrastructure.

A number of current developed countries have achieved a DD during their journey to their current affluent status but many currently undeveloped countries seem to be a long way from achieving the four criteria above. In other words, a DD is theoretically attractive but if a country encourages its birth rate to boom to try to achieve this, it seriously risks ending up with much bigger problems than it would have had otherwise.

There are other significant, common drawbacks with the mainstream, neo-classical economic argument, although there are sometimes potential solutions:

Increasing consumption leads to resource depletion, which in turn limits consumption unless alternative resources can be substituted (as they often are, at the moment, via innovation),

Increased consumption leads to increased emissions and waste, hence the rise of reuse, repair and recycle initiatives and the circular economy. Regulation is frequently put in place to limit emissions,

Increasing population requires the building of additional infrastructure, such as schools, hospitals, roads, water supplies and sewers. The cost of doing so absorbs much and sometimes all of the extra GDP generated, leading to economies ‘running to stand still’ with no net benefit to their people,

Biodiversity is falling fast, as is the total biomass of non-human, non-domesticated animals and plants. Nature reserves and biobanks are attempting to conserve genetic diversity as many wild species are thought to have the potential to provide materials of benefit to people (pharmaceutical products for example),

Loss of the eco-system services provided at no cost to humans by nature are often hard if not impossible to replace. These range from pollination of crops by wild bees to prevention of coastal erosion by mangroves, carbon capture by peatlands to the emotional benefits of peaceful and beautiful places.

Hardly anyone talks about the likely economic effects of decreasing populations. Yet in an overcrowded world, this is worth thinking about. Population increase is not pre-ordained. Anyone (in a free society) can decide not to have children or to just have one or two. A change of culture in a society, a change of behaviour in a population could thus rapidly alter the population. What might happen? GDP would no doubt decrease, but GDP per head may well not.

A  UK focused 2015 paper by the charity Population Matters listed many benefits that could be had. These include economic benefits such as full employment, rising wages and increased incentives to increase efficiency and productivity. The need to keep expanding infrastructure would end, enabling the money to be spent on other things. Food, water and energy security should increase as demand falls, while quality of life should improve, with less traffic congestion, noise, pollution and pressure on public services. House prices would fall, increasing affordability. Carbon emissions would decrease, slowing climate change, wildlife would have more space and in general sustainability would become much more achievable.

So there is significant interplay between the changing number of people and economics but whether you see population increase as a benefit or not probably depends on whether you are a politician or economists or a normal person lower down the hierarchy.

Dave Sanderson is a retired economic development professional, active in many areas of sustainability. He is deeply involved with Greater Manchester TreeStation, is on the Board of the Woodland Trust’s Smithill Enterprise Hub, helped found the Saddleworth Hydro Scheme, acts as a Woodland Creation Champion, monitors bird populations for the RSPB and BTO and is an active member of the charity Population Matters.

To find out more about how population growth and sustainability impact the planet, visitwww.populationmatters.com and get involved.

 

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