Population time bomb

The fear of a robotic future, when robots, i.e. artificial intelligence, will take over the jobs of people seems to be gripping the world including the Philippines. There are those who predict that robots will take over not only manufacturing jobs, but also service jobs like those in the business process outsourcing industries. In time, the robotic revolution will come.

 But for now there is a more pressing economic problem confronting the world. Economists have been wondering why the world is going through the weakest recovery since the Second World War. Some developed countries, like Japan, have seen stagnant growth and previous economic tigers like China are showing evidence that its days of rapid economic growth is over. Most economists attribute the last economic crisis to a debt crisis and reduced consumer demand. There are those who believe that it is the rise in global income inequality. All of these reasons are partially correct. 

There are now an increasing number of experts who have come up with another reason. Ruchir Sharma, in his book The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,  believes that there are other factors that have impact on economic growth. He points out that while consumer demand is picking up economic growth is still well below the pre-crisis era. He believes that experts are looking to the wrong place for explanation.

In his book, he says: “My team and I turned our attention from the arguments that primarily focus on demand to those concerning supply, the side of the economy that supplies labor, capital and land, the basic inputs to growth. We found an unexpected culprit. One critical cause of the missing growth was of all things, a shrinking supply of people  in the active workforce.

The finding was so thoroughly at odds with popular fears about how human jobs are being replaced by the rise of robots and artificial intelligence, it seemed hard at first to accept. How could too few workers be a problem if technology has made them obsolete? But in this case the numbers don’t lie.”

The world population is expected to increase from the present 7.3 billion to around 9.7 billion by the year 2050. There is a fear that this represents a population “explosion” that could result in overpopulation compared to food supply. But we need to look more closely at these figures.

The population may be growing but there are fewer babies being born. There are fewer younger people entering working age. A large portion of the increase in population is the result of people living longer. 

The combination of a smaller working age population and a dramatic increase in the number of older people is a mix that Sharma calls “toxic for economic growth.”He quoted some population figures. Right after World War II, the world annual population growth was two percent. He writes: “Then around 1990 global population growth just fell off the cliff. The population growth rate has since halved to just one percent.”

If the population growth rate had stayed at two percent, the world population now would be 8.7 billion and not 7.3 billion. The world would not be talking about the problems of an aging population and the negative impact on economic growth.

There are two main causes for the dramatic decline in birth rates. In developed countries, like Western Europe and Japan, the population slowdown was caused by rising prosperity and higher education levels of women, many of whom decided to pursue a career and have fewer children or none at all. In the poorer, emerging countries, the fall in population growth starting in the 1990s was the delayed result of extremely aggressive birth control policies especially in the two most populous countries in the world – China and India. The one child policy of China has reduced its population and caused a social crisis by causing a shortage of marriageable women because Chinese couples heavily favored male babies. 

The reduced birth rate has been accompanied by a change in demographics leading to an aging population. Since the 1960s, science and better health care have led to people living longer. Worldwide, the average age of human beings have gone from 50 years to 69 and still rising. Most of the global population growth is, therefore, among people over 50 years old. In fact, the fastest growing segment of the population are people over the age of 80 years. 

The population of working age people worldwide is actually shrinking. One dramatic example is Japan where the report is that the sales of adult diapers is higher than the sales of baby diapers.

 Sharma says that the working population needs to grow at two percent to have the likelihood of an economic boom. There are other ways to increase a nation’s working population aside from increasing birth rates. One obvious way is to encourage immigration. Japan now is finally beginning to accept overseas workers from the Philippines. Another way is to attract more adults like senior citizens and women to enter the labor force. Other countries, like Singapore, Denmark, Chile and Australia are trying to increase fertility rates. 

There are a small number of countries where the number of working age population is still growing at the rate of two percent or more. This list includes the Philippines, Kenya, Nigeria. Population growth does not automatically result in rapid economic growth. In the past, it has sometimes resulted in famines, high unemployment and civil strife.

Rapid population growth is a precondition for fast economic growth, but it does not guarantee fast growth. Rapid population growth pays off only if the political leaders create the economic conditions necessary to attract investments and generate jobs.