Incredible shrinking countries
Jan 5th 2006
Rich countries' populations are beginning to shrink. That's not necessarily bad news
DURING the second half of the 20th century, the global population explosion was the big demographic bogey. Robert McNamara, president of the World Bank in the 1970s, compared the threat of unmanageable population pressures with the danger of nuclear war. Now that worry has evaporated, and this century is spooking itself with the opposite fear: the onset of demographic decline.
The shrinkage of Russia and eastern Europe is familiar, though not perhaps the scale of it: Russia's population is expected to fall by 22% between 2005 and 2050, Ukraine's by a staggering 43%. Now the phenomenon is creeping into the rich world: Japan (see article) has started to shrink and others, such as Italy and Germany, will soon follow. Even China's population will be declining by the early 2030s, according to the UN, which projects that by 2050 populations will be lower than they are today in 50 countries.
Demographic decline worries people because it is believed to go hand in hand with economic decline. At the extremes it may well be the result of economic factors: pessimism may depress the birth rate and push up rates of suicide and alcoholism. But, in the main, demographic decline is the consequence of the low fertility that generally goes with growing prosperity. In Japan, for instance, birth rates fell below the replacement rate of 2.1 children per woman in the mid-1970s and have been particularly low in the past 15 years.
But if demographic decline is not generally a consequence of economic decline, surely it must be a cause? In a crude sense, yes. As populations shrink, GDP growth will slow. Some economies may even start to shrink, too. The result will be a loss of economic influence.
Governments hate the idea of a shrinking population because the absolute size of GDP matters for great-power status. The bigger the economy, the bigger the military, the greater the geopolitical clout: annual GDP estimates were first introduced in America in the 1940s as part of its war effort. Companies worry, too: they do not like the idea of their domestic markets shrinking. People should not mind, though. What matters for economic welfare is GDP per person.
The crucial question is therefore what the effect of demographic decline is on the growth of GDP per person. The bad news is that this looks likely to slow because working-age populations will decline more rapidly than overall populations. Yet this need not happen. Productivity growth may keep up growth in GDP per person: as labour becomes scarcer, and pressure to introduce new technologies to boost workers' efficiency increases, so the productivity of labour may rise faster. Anyway, retirement ages can be lifted to increase the supply of labour even when the population is declining.
People love to worry—maybe it's a symptom of ageing populations—but the gloom surrounding population declines misses the main point. The new demographics that are causing populations to age and to shrink are something to celebrate. Humanity was once caught in the trap of high fertility and high mortality. Now it has escaped into the freedom of low fertility and low mortality. Women's control over the number of children they have is an unqualified good—as is the average person's enjoyment, in rich countries, of ten more years of life than they had in 1960. Politicians may fear the decline of their nations' economic prowess, but people should celebrate the new demographics as heralding a golden age.