Slowing population growth creating an economic time bomb

Slowing population growth creating an economic time bomb

Rather than worrying about an overpopulated planet, we should worry more about the possibility of not having enough young people to sustain economic growth at current levels.

In the 1973 film “Soylent Green”, the cumulative impacts of rampant overpopulation, pollution and climate change had, by 2022, ravaged the Earth to the point that a company began manufacturing the only remaining source of food, which contained human remains.

Thankfully, the dystopian view of our present, not a rare trope at this time, turned out to be mostly wrong. While climate change and pollution are certainly among the world’s most pressing Gordian knots, the fear of overpopulation may prove to be overblown.

One of the biggest demographic concerns today has been very slow rates of reproduction, considered insufficient to sustain global economic growth at current levels.

To maintain the world’s population, the replacement level of fertility, the average number of children born to each woman, must be about two. With almost all developed countries – also being the biggest consumers – recording birth rates below replacement level, economic growth could begin to falter as businesses struggle to find additional workers and consumers.

Immigration has always been a key tool used by many countries to avoid stagnations similar to that experienced by Japan. It will therefore seem possible to use new incentives to compete for immigrants – in late 2018, Japan introduced legislation to encourage foreigners to settle there to compensate for its annual population decline of 400,000.

However, a combination of the coronavirus pandemic and the restrictive policies of recent years has driven down global net immigration.

Key demographic shifts, such as a shrinking population of under-18s and working-age adults, and rising death rates, mean an economic time bomb is on the way.

The labor shortage will need to be alleviated through productivity improvements, fueled by tech mega themes such as mobile connectivity, internet of things, cloud computing, business software, artificial intelligence and automation. Blue-collar and white-collar jobs will increasingly need to be automated or eliminated with robotics and software.

The result is that the makers singing since the industrial age are growing the cake as fast as they can the anthem of the last hundred years, facing a settling of scores.

Policy makers generally follow Adam Smith (18th century Scottish economist), whose two main drivers of growth were population and the productive reinvestment of profits. But if growth in labor supply, and by extension total consumers, falters, it falls to Smith’s second engine of capitalism to take over.

The problem is that information-dependent digital-age businesses require far less capital than their asset-intensive industrial-age counterparts, leaving the world awash in cash and with few options for make it work productively.

To tackle these problems created by declining populations and to keep economic activities and per capita profits growing, governments must stop relying on inflationary fiscal and monetary stimulus to make the pie bigger, and instead find ways to distribute the existing pie more evenly. by encouraging productivity gains via deflationary technology.

While overpopulation has been a major contributor to the creation of the hellish landscape depicted in “Soylent Green,” the ramifications of a declining global fertility rate may be just as significant, upending centuries of capitalist theory and practice and demanding a new paradigm for managing the transition to lower growth for longer.

It’s a perspective that those wedded to outdated industrial-age systems, models, and government policies may find it hard to accept and adapt to.

• Brad Slingerlend is co-founder and investor at Denver-based NZS.

Disclaimer: The opinions expressed by the authors in this section are their own and do not necessarily reflect the views of Arab News