population growth: the greatest challenge? · population stabilization, the effect is not dramatic,...

Population & Sustainability Network | Royal Geographical Society | 6th December, 2006

1

POPULATION GROWTH: THE GREATEST CHALLENGE?

I feel I should explain how I come to be speaking here this evening about population growth. I’m not a demographer nor development economist, the two main professional disciplines relevant to this issue. But I was for three years Chairman of the Pensions Commission and when you think about pension challenges you have to think about demography. And I’ve found that people expect me to believe that population ageing and population stabilization, in Europe in particular, is a fundamental problem. So that at the end of television interviews, having discussed the details of UK pension reform, the interviewer often ends with a question of the sort “of course the only real solution to the problem is to have more babies, isn’t it?” The sentiment reflected in this E c o n o m i s t h e a d l i n e [ S L I D E 1 ] , a n d r e f l e c t e d a t

Table of Contents

Presentation to The Economist

Table of Contents

the conferences to which I’m invited at which it is assumed that Europe faces economic decline if its birth rate does not rise, or that we face a severe shortage of workers to which mass immigration is the only answer. But I do not agree with those sentiments. For the more I have thought about it, the more it strikes me that the challenges created by population stabilization and aging in the rich developed world are hugely overstated, and that a focus on these rather minor and manageable problems risks diverting attention from the fact that the biggest demographic challenges lie instead in those countries, primarily located in Africa and the Middle East, which still have rapidly rising populations.


2

So my lecture this evening is going to start with the non-problem, the demographics of rich countries, and then progress to the real problem – rapid population growth in poor, underdeveloped, and potentially unstable countries. To start then with our world, the rich developed world of Europe, the U.S. and Japan. There are three factors changing the shape of our demography: increasing longevity, the long underlying secular decline in the birthrate, and the phenomenon of the baby boom, the temporary and partial reversal of the birth rate in the 30 years after World War Two. [SLIDE 2]

2

UK General Fertility Rate: 1885 – 2005

Source: Pensions Commission

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1885 1905 1925 1945 1965 1985 2005

Est

imat

ed a

vera

ge n

umbe

r of c

hild

ren

per

wom

an

This slide shows that birth rate pattern, the long downward swing of the British birth rate from the threes and fours of the late nineteenth century to below replacement rate level today, but the temporary reversal of that trend in the postwar baby boom. Take that long term fertility trend, plus increasing life expectancy, and the shape of our demography of course changes [SLIDE 3].


3

3

From Pyramids to Columns

0 - 45 - 9

10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 69

70 - 7475 - 7980 - 8485 - 8990 - 9495 - 99100 +

Age Group

A

B

A

B

It goes from being a triangle or pyramid – each generation larger than the one before – to a column with a triangle on top, and with the number of people who live beyond any arbitrarily defined retirement age steadily increasing. As a result the ratio of the area B to area A increases, and thus we get [SLIDE 4] a rising ratio of people aged over, say, 65 to those aged

4

0%

10%

20%

30%

40%

50%

60%

70%

1941 1951 1961 1971 1981 1991 2001 2011 2021 2031 2041 2051

With baby boom No baby boom

UK population aged 65+ as proportion of 20-65 year olds

Source: Pensions Commission Analysis

20 to 65, a rise in what is often called the old age dependency ratio. But an increase with a particular shape – the dotted line on this chart being what would have happened if the twentieth century decline in the birth rate had been smooth and continuous, the non-dotted line the actual path, the difference being the impact of the baby boom, which for the last 30 years has depressed the ratio


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below its long term trend, but with us now facing a period of very rapid increase as the baby boom retires. And obviously the increase in this ratio does pose a challenge for pension systems. In pay-as-you-go tax financed pension systems, it means that if you don’t change the rules the ratio of people receiving pensions to people paying contributions is going to increase. And in funded systems, where people who have accumulated pension savings have to sell them on to the next generation, it means that they will tend to get a lower price if the next generation is smaller. All pension systems, pay-as-you-go or funded, involve a transfer of real resources from the working population, who consume less than they produce, to pensioners, who consume but do not produce. So, this increase in the ratio of over 65 year olds does pose a challenge. Which leads many people to the conclusion that the long-term answer must be to re-stimulate the birth rate, or to accept mass immigration. Buttressing their pension system arguments with two other assertions. First, that slow population growth means lower economic growth. Second, that an aging population will be less innovative and less dynamic. The proposition is therefore, that faced with the demographic move from the pyramid model to a column, we must recreate the pyramid through a higher birth rate or higher immigration. But I disagree with this proposition for three reasons. First, because it is incomplete in its analysis of pensions challenges. Second, because the non-pension arguments are either confused or overstated. And thirdly because it doesn’t allow for the adverse consequences of the population growth which it implies. On pensions the analysis is flawed and incomplete because it ignores two facts. The first is that the retirement age is not and should not be a fixed given, but a variable which should rise in proportion to life expectancy so as to keep stable the proportions of life working and in retirement. And once you make that adjustment a significant part of the pension challenge disappears. Britain currently spends about 6.2% of a GDP on state pensions. [SLIDE 5]


5

5

Share of UK GDP devoted to state pensionsAssuming state pensions rising in line with earnings

Source: Pensions Commission

5

5.5

6

6.5

7

7.5

8

8.5

2005 2050

If state pension age remains at 65

If SPA rises to 68

%

If we keep our state pension as generous as today, but still with the retirement age of 65, that economic burden will rise to 8.5% by 2050. But if we increase the retirement age proportionately in line with life expectancy, as the government, following the Commission’s recommendations, now plans to, the rise is only to 7.75% so that about a third of the problem simply disappears. But clearly there still is a rise, which means that the working population, everything else equal, will have to pay a slightly higher rate of tax or national insurance to deliver an adequate state pension to those in retirement. But it is important to understand that this negative effect of low fertility is offset by some powerful economic benefits of smaller families and low population growth. Smaller families mean less expenditure on rearing children and on education: increased public expenditure on pensions partially offset by less on public education. And smaller families mean that people on average inherit more housing capital, simply because if you are one of two children, you will on average inherit one half of your parent’s house, whereas if you are one of three, you inherit a third. And that inherited housing capital is then available at least in part to fund consumption in retirement. At both the macroeconomic level and the individual level, lower fertility therefore has some beneficial effects on our ability to support older people in retirement [SLIDE 6]. At the macro level it means that lower investment in the capital stock of housing is required to


6

6

Low birth rates & retirement provision: offsetting impacts

Higher tax / contribution rate required to support PAYG system

But impact on consumption offset by lower need for investment in new housing stock

Higher tax / contribution rate to support PAYG system

But inheritance of a greater share of housing either

! Reduces need for house purchase

OR! Delivers assets available

for consumption in retirement and thus reduces the need for private pension saving

Macro Perspective Individual Perspective

deliver adequate housing for the next generation, and at the individual level, it means that on average a lower replacement rate from the pension system can be offset by the liquidation in retirement of housing equity. And the potential importance of housing equity is very large – the value of housing assets in the UK, even after mortgage debt, is considerably larger than all pension funds combined. In the Pensions Commission report, we quite explicitly recognized that because of increased inheritance of housing assets, pension provision, measured by replacement rates relative to average earnings, does not need to be as great as would otherwise be required. We didn’t swing to the other extreme and say that because of housing there is no pension challenge. But inherited housing reduces the pension challenge and inherited housing per person is increased by lower fertility. So it is important in looking at pensions and demography, to consider all the complex effects and once you take that comprehensive approach, the demographic challenge to pensions policy, though significant, is at least in a country like the UK clearly manageable. What of the other problems supposedly created by a stabilizing or declining population? [SLIDE 7] In the interest of brevity I will simply assert my answers rather than prove them, but I would be happy to defend them during questions.


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7

Other arguments against population stabilisation?

• Lower population growth implies lower GDP growth

• Ageing population less dynamic and innovative

Does slower population growth mean slower economic growth? Well obviously it means slower national income growth, but an individual gets no benefit from the Gross Domestic Product (GDP) of his country increasing, he gets richer through GDP per capita growth, and while that may be reduced slightly by population stabilization, the effect is not dramatic, it does not mean on end to prosperity growth. And does on average an older population mean a less innovative and less dynamic society? Well, I think that in itself is old fashioned, un-dynamic and un-innovative thinking, a failure to understand that increase life expectancy does not mean just living longer, but also better health and better physical and mental alertness at any given age. Though I will admit that I may be biased in that assessment, since as I move into my 50s I am increasingly convinced that 50 is the new 30. So I’m not at all convinced that the UK should worry about the stabilisation and aging of its population. Indeed I will go further, and assert that the biggest demographic challenge the UK faces over the next 50 years, is how to cope with the problems created by the fact that our population is likely to grow significantly [SLIDE 8], with the Government Actuaries Department principal


8

8

UK Population growth: principal projection

Source: Government Actuaries Department

50

55

60

65

70

75

2005 2010 2020 2030 2040 2050 2060 207050

55

60

65

70

75

Millions

projection showing an increase from 60 million today to 68 million by 2050. Britain has a fertility rate of about 1.75 children per woman, somewhat below the replacement rate, but at present and forecast rates of immigration, our combined population replacement rate – newborn babies plus immigrants divided by women of childbearing age – is actually above 2, and when you combine that also with rising life expectancy, that means that our population will grow. And population growth, in rich developed countries, in itself creates significant problems, some of which have negative impacts on measured GDP, some reducing human welfare but in ways which measured GDP will not capture. [SLIDE 9] It creates congestion impacts in transport systems, and it

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Disadvantages of population growth

• Transport system congestion

• Environmental impact

! Of transport systems! Of housing

• Increased competition for limited supply positional goods

! House price inflation

• Adverse impacts increase with income because travel, housing amenity and environmental amenity are high income elasticity goods

• Adverse impacts increase with population density


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creates environmental pressures – new roads and new housing required to house more people, but those new roads and new housing degrading perceived quality of life. It therefore faces societies with politically difficult trade-offs – do you build over greenbelt land to provide more housing, or limit housing land and produce house price inflation, a windfall gain for those who already own houses, but a windfall loss for those who do not. There are economic and welfare costs of increased population density and these get higher as income per capita grows, because richer people tend to spend an increasing proportion of their income on travel, and because richer people place greater value on environmental benefits such as open countryside. In an already densely populated country such as England, I believe those costs of increasing population density are significant. So am I therefore saying that the whole idea that Europe faces a major demographic problem is complete nonsense? Well, I’m fairly close to that but not quite. What matters crucially here is degree. Because even if the switch from a pyramid to a column demographic structure is on balance strongly positive, population stabilization preferable to population growth, significant absolute decline in population, and a therefore demography such as Italy’s [S L I D E 1 0 ] t a p e r i n g a t t h e l o w e r ag e s , c o u l d c r e a t e s e v e r e

10

Italy’s Population Structure 1970-2050

0.3

3.4

6.1

7.6

8.8

0.6

4.4

6.6

7.5

8.3

Male Female

0.8

5.1

7.4

8.9

5.8

1.5

6.5

7.6

8.6

5.5

Male Female

2.3

5.5

5.3

4.4

4.1

3.9

6.5

5.1

4.0

3.8

Male Female

1970 2000 2050

Source: U.N. Medium variant for 2050 projection

Millions

Age Band

80-100

60-80

40-60

20-40

0-20

problems – the strain to the pension system off-setting the benefits of reduced congestion effects and greater inheritance of housing equity. The precise birth rate, and the precise combined birth plus immigration rate does therefore matter. Two is better than three, but also better than one. [SLIDE 11]


10

11

TFR – Children per Woman

1.24

1.25

1.29

1.29

1.42

1.57

1.63

1.65

1.69

1.73

1.74

1.90

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

France

Denmark

Finland

Netherlands

Belgium

UK

Sweden

Portugal

Greece

Germany

Spain

Italy

European Fertility Rates - 2001

Source: European Commission

All western European fertility rates are below two, but there is a big difference between Ireland and France at 1.9, the UK and Scandinavian about 1.7 - 1.81, versus Spain and Italy 1.25. If I were Spanish and there were no possibility of immigration I would be concerned. But actually current immigration to Spain is driving strong population growth, up from 40 million to 44 million in the last ten years. And as for the UK, Scandinavia or France, I think the idea that we face a major problem because of ageing and stabilising populations is just wrong. Given even the minimal level to which immigration could feasibly be reduced in a world where millions of poor people would like to come to Europe, I suspect that the population of western Europe in total will actually continue to grow, or at least not fall by any appreciable amount, and I believe that population growth in the UK is likely to be above rather than below the rate which is welfare maximizing for the already present population. But I also think that both the negative and the positive effects of changing demography in Europe are pretty minor and unimportant compared to the much bigger demographic shifts and demographic problems we see across the world. So let’s turn to the global picture. And what is striking is that many countries are going through the same demographic transition to low and below replacement rate birth rates which occurred in Europe and the U.S. in the twentieth century [SLIDE 12]. Some of the lowest bir thrates in

1 Note: the figures shown in the Exhibit are for 2001. Since then, the UK’s total fertility rate has increased. The long-term forecast assumed by the Government Actuaries Depart in its Principal Projection is 1.74.


11

12

0

1

2

3

4

5

6

7

1950 - 55 1960 - 65 1970 - 75 1980 - 85 1990 - 95 2000 - 05 0

1

2

3

4

5

6

7

China

Korea

Hong Kong

Japan

Total Fertility Rates – Asian Countries 1950-2000

Source: United Nations

the world indeed are not in “Old Europe” but in East Asia, with precipitous falls in birth rates over the last 30 years in Korea and in China, and with Singapore and Hong Kong both having birth rates of about one per woman [SLIDE 13]. And rapid falls in birth rates are also occurring in countries as

13

-55 -65 -75 -85 -05-95 -15 -25

Total Fertility Rates – Iran, Turkey, Brazil 1950-2020


0

1

2

3

4

5

6

7

8

1950 1960 1970 1980 1990 2000 2010 20200

1

2

3

4

5

6

7

8

Iran

Turkey

Brazil

20201950

diverse as catholic Brazil, Sunni Muslim Turkey and Shiite Muslim Iran. All of which, on the United Nations medium projection, could move to below replacement rates within the next ten to fifteen years. Indeed for all the occasional talk of deep rooted cultural differences, there is a strikingly universal law apparently at work. Wherever we have three conditions – a high level of


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female literacy, open access to contraceptives, and even a small degree of economic growth, then birth rates tend to fall to or below replacement levels. But alongside those countries are many others, [SLIDE 14] almost entirely located in Africa and Middle East, where the reduction in birth rates has been

14

Total fertility rates: sub-saharan Africa & Middle East

0

1

2

3

4

5

6

7

8

9

1950 1960 1970 1980 1990 2000

Niger

Uganda

YemenSub-saharanAfrica

either nil or very limited. The average sub-Saharan Africa birth rate still is about 5.5; the Ugandan birth rate steady at 7.1 and showing no sign of decline. [SLIDE 15]

15

Population projections: Niger, Uganda, Yemen

Millions

59.417.94.3Yemen

127.024.35.1Uganda

50.211.82.6Niger

205020001950

Source: United Nations, Medium Projection for 2050


13

And in these countries we will see over the next 50 years truly dramatic population growth. The population of Niger, 2.6 million in 1950, possibly reaching 50 million by 2050. The population of Uganda up five times over the last 50 years, expanding another five times over the next 50. And [SLIDE 16] as a result the global population continuing to grow rapidly over

16

World population: projection to 2050UN medium variantBillions


0

1

2

3

4

5

6

7

8

9

2000 2050

Rest of the world

Europe, North America & China

the next 50 years, from 6 billion today to something like 9 billion in 2050, with the population explosion of Africa and the Middle East and south Asia, overwhelming the population slowdown of the rich developed world and of China. Should we be worried about this population explosion, either at individual country level or of the global level? I think we should, but it’s interesting that the economics profession at least went through a period of doubting whether we should, and that that doubt has played a role in reducing commitment to population stabilisation as a policy objective. In the 1950s and 60s it was considered obvious to most experts that rapid population growth was a significant problem. It resulted of course from developments which in themselves were wonderful – dramatic reductions in infant and child mortality, but it was believed that rapid population growth would undermine economic growth for three reasons. First, because rapid population growth condemns low technology subsistence farmers to falling income. Second, because rapid population growth makes it difficult to accumulate capital, both through a direct “capital-shallowing” effect – more people means less inherited capital per person – and because a high child dependency ratio makes it difficult for people to save. And third because world population growth was believed to put pressure on inherently scarce natural


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resources, exhausting them or driving up their price. It was recognized that economic growth would in itself tend to reduce birth rates, but it was feared that some countries might never get to that second stage of the demographic transition, unless overt family policy planning policies were pursued. Subsequently, however, in the 1970s and 80s, this dominant assumption was questioned, and the consensus that population stabilization was a key policy objective decayed. There was a religious factor in that decay – the increasing influence of religious opposition to birth control programs – whether Islamic, catholic or protestant evangelical. And a political factor –increasing resistance to the idea that white people should advise black people to have fewer babies, and increased reticence in the NGO community about the paternalism of so doing. But in part it was based on an economic revisionism, a questioning within the academic community about how important population stabilization actually is to economic growth. That revisionism was based on both theoretical and empirical grounds. [SLIDE 17]2

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Population growth and economic growth:The revisionist case

• Malthusian limits on food production irrelevant to modern economies

• Capital accumulation less important than technological progress

• Natural resource limits removed by innovation –stimulated by population growth

• Population size and density have some positive advantages

• Economic take-off always associated with rapid population growth

• Regression analysis produces unclear results

Theoretical arguments

Empiricalarguments

Theoretically it was pointed out that modern economic growth is not primarily based on the agricultural sector, that simple Malthusian limits to population growth do not therefore apply, and that even in the agricultural sector rapid productivity growth can be achieved via new technology, India’s green revolution. It was also argued that the role of capital formation in economic growth had been overplayed, relative to autonomous technological advance, and that limits on attainable savings rates arising from high birth rates were not therefore as important as previously supposed.

2 See Population Matters, OUP 2001, Chapter 2 for a summary of the original and revisionist arguments and key protagonists.


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The idea that the world faced a shortage of natural resources was challenged. Indeed it was noticed that the price of commodities has tended to fall over the years and argued that population growth itself could drive innovations which increase our ability to extract raw materials at low cost. In addition, it was pointed out that absolute population size per country and increased population density can have some advantages, making possible the specialisation of labour on which modern economic growth is based. Many African countries, it could therefore be argued, were too sparsely populated to make the transition to modern urban and prosperous economies. Empirically meanwhile it was pointed out that the takeoff of the industrial economy in 19th century Europe and the USA occurred in a period of rapid population growth. And that when you attempted to estimate the adverse impact of rapid population growth on economic growth, through rigorous regression tests, the correlations were of weak statistical power. Most of the analyses continued to suggest that rapid population growth had a negative influence on population growth, but they suggested that the conclusion was uncertain, and that many other factors were also at work. But the lack of a clear and simple relationship between economic growth and population growth should not surprise us, because it is obvious that there are many other factors at work, and that the relationship between demography and economic growth is bound to be complex. It is, for instance, highly likely that for any given level of technology and prosperity, human welfare will first rise and then fall as population density increases, but also that the optimal population density will change over time with the level of technology and prosperity. [SLIDE 18] Thus, for instance,


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18

Optimum population size

Modern BritainH

uman

wel

fare

Medieval Britain

Population size

in medieval pre-industrial Britain there must have been a level of population density above which Malthusian constraints would set in, the ability to feed people off available land given available technologies declining above this limit. There would also have been a level of population too low to generate the division of labour and specialisation of economic function on which even the low technology of medieval Britain depended. England might well have been poorer per capita if the population had been 10 million not 4 million in 1340, but also poorer if it had been 1 million not 4 million. Similarly today, but for different reasons the impact of population size and density on welfare is likely to have both a rising and then a falling part of the curve. Rising over some population range because below a certain population Britain and the developed world in general would not be able to support the extreme specialisation on which modern economies are based, but then falling above a certain density not because of Malthusian food production constraints, but because of the adverse congestion and environmental effects I mentioned earlier. So optimal population size and density can be expected to change with the level of technology and prosperity. But also with the population level already achieved in other countries. Because scale economies and specialisation of labour effects don’t need to be achieved in each individual industrial country, but can be achieved at global level. It may have been essential for Britain to reach a population of a few tens of millions to achieve the first industrial revolution, but once the world population is several billion, New Zealand can be a rich country with a population density no higher than that of medieval Britain.


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As for the relationship of population growth to prosperity growth, [SLIDE 19]

19

Optimal population growth rateG

row

th in

GD

P p

er c

apita

Population growth

Highly negative

Highly positive

we should again expect to see both rising and falling parts of the curve – not a continuous linear relationship. Strongly negative population growth rates would depress GDP per capita growth. But equally population growth at the maximum physically possible must, even the revisionists would admit, create insuperable problems. Therefore the mathematical relationship for which we search must, at different points over the whole range of possible population growth rates, have either positive and negative signs. But with the optimal growth rate likely in turn to be a function of the population density directly achieved. And with the optimal level of population density or growth likely also to vary according to geographical and socio-political factors which it is difficult to model in a mathematically precise way. Thus, for instance, a strongly positive growth in the potential labour force, deriving from a high birth rate twenty or so years earlier, might have positive benefits in a coastal region ruled by a reasonably efficient even if dictatorial government, generating rapid growth of the manufacturing sector. The Pearl River delta in southern China a possible example. But the same growth in a poorly governed country and particularly in a landlocked country might generate a self reinforcing cycle of high unemployment, crime, political instability and declining integration in the world economy. And the same growth in a country still largely dependent on subsistence agriculture might have a direct Malthusian effect in degrading living standards. All of which means that we should not expect ever to find a precise and universally applicable mathematical measure of the extent to which rapid population growth harms economic growth.


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But also that we should not treat the absence of mathematical precision as denying the important negative consequences of rapid population expansion. For if the 1970s and 1980s saw the rise of a revisionism, subsequent analysis makes it increasingly clear that rapid population growth can seriously impede economic growth and poverty reduction.

! Regression analysis using data from the 1980s, rather than earlier periods, now does reveal reasonably strong negative impacts of rapid population growth.3

! And that in part reflects the fact that it is only in the last 25 years, since

1980, that the extraordinary divergence has occurred between both the demography and the economic performance of East Asia, (in particular China) and Africa. With most of Asia achieving very rapid growth of per capita income, much of Africa hardly any, and with East Asia achieving a population slowdown with translates [SLIDE 20] into a rapidly rising ratio of workers to dependants, while Africa has achieved no increase in that ratio.

20

Ratio of workers to dependents

1

1.2

1.4

1.6

1.8

2

2.2

1955 1965 1975 1985 1995

East Asia

South Central Asia

Africa

Source: Bloom & Canning, Cumulative Causality, Economic Growth and the Demographic Transition

And increasingly it is clear that the causation flows both ways – that economic success tends to generate a birth rate reduction, but that birth rate reduction in

3 See Kelley & Schmidt, Economic and Demographic Change, A Synthesis of Models, Findings & Perspectives, chapter 4 of Population Matters, 2001.


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turn reinforces economic success. And increasingly we understand why that is true. [SLIDE 21]4

21

Why population matters

• Capital formation is important – crucial to the East Asian economic take-off

!Technological progress often embedded in capital!Dependency effects have significant influence on savings rate

• Human capital investment very important

• Declining marginal benefits of increased density and scale

• Malthusian limits of food production still relevant in very poor countries / regions

! First because capital formation, enabled by the higher savings rates

which people with smaller families can achieve, is actually a very important contributor to economic growth alongside autonomous technological growth. Technological growth indeed is usually embedded in new capital equipment, which results from savings. It is now clear in fact that a large part of the Asian economic miracle depends on superior capital formation which has been assisted by this demographic dividend. Some analysis indeed suggest that almost all of East Asia’s superior growth has been due to higher savings investment, and some other studies suggest that all of East Asia’s higher savings is due to the demographic shift.5

! Second, because human capital is absolutely essential to economic

growth, and parents with smaller families can decide to devote more resources to educate each child, and countries with lower population growth can afford more and better public education per child.

! Third, because the positive effects of increased density exhaust beyond a

certain level. China does not need further population growth to achieve

4 See Bloom and Canning Cumulative Causality, Economic Growth and the Demographic Transition, chapter 7 of Population Matters, 2001. 5 See A. Young Lessons from the East Asian NICS, A Contrarian View, European Economic Review 38.


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even the most extreme forms of division of labour and economic specialisation. Uganda may be better placed to participate in the global economy with 25 million people than with 5, but expanding to 125 million will give no further benefits

! Fourth, because although Malthusian limits are removed by the

transition from low productivity subsistence farming, in many countries that transition has not yet been achieved, and countries still significantly reliant on subsistence farming – parts of Ethiopia, much of Niger, parts of northern Kenya, face declining incomes as the population grows, falling incomes which undermine capital accumulation and which may generate political instability which then undermines economic growth in a self reinforcing cycle.

The latest analysis is therefore taking us back to the dominant assumption of 30 years ago – that birth rate decline is not only an almost inevitable consequence of growing prosperity but also an important factor in achieving growing prosperity. And that very rapid population growth – of the sort forecast for countries like Niger, Yemen, Uganda, but also Saudi Arabia, Egypt and Pakistan, can make it much more difficult to achieve economic prosperity, and can trap countries in a pattern of slow income per capita growth, but also in potential social and political instability, given the predominant role played by unemployed young men in crime and in extreme political or religious movements. And while it is true that the process of successful economic growth has in all successful economies involved a period of rapid population growth, it is important to realize that the population growth now occurring in the countries on this chart is of a different magnitude. This slide [SLIDE 22]

22

UK and Uganda population surges

0102030405060708090

100110120130

1800 1850 1900

Uganda 1950-2050

UK 1800-1900

1950 2000 2050

Millions

Source: United Nations: 2050 Figure is Medium Projection


21

shows the UK’s population surge from 1800 to 1900, an increase of three and a half times in a century, and alongside it Uganda’s forecast increase from 1950 to 2050, an increase of 25 times in a century. And this slide [SLIDE 23] shows South Korea’s population growth from 1950 to its projected level in 2050,

23

Korean, Malaysian and Ugandan population surges

0102030405060708090

100110120130

1950 2000 2050

Uganda

South KoreaMalaysia

Millions

Source: United Nations: 2050 Figure is Medium Projection

compared with Uganda’s over the same time. Rapid population growth in Korea over the first 30 years of the century, but still much slower than Uganda’s, but with economic growth then driven onwards by the demographic dividend of slowing population growth, and with increased prosperity then itself producing a further demographic slowdown. If the rapid population growth countries of Africa and Middle East do achieve sustained and strong per capita income growth with these sort of rates of population growth sustained over a century, they will be doing something unique in economic history. It seems very unlikely that they will succeed. Finally, a brief comment on the global population picture. Here again [SLIDE 24] is the U.N. projection for world population, but with the figures now


22

24

World population: Projections to 2010

0

2

4

6

8

10

12

14

16

2000 2050 2100

High

Medium

Low

Source: United Nations, World Population to 2300

Billions

extended to 2100 and the high and low variant added alongside the medium. It illustrates two things. First, that the U.N.’s medium forecast is for a broad stabilisation of the global population in the second half of the 21st century. Secondly, that that stabilisation is vitally dependent on the assumptions made. And in particular is dependent on the assumption, in the medium projection, [SLIDE 25] that we will see over the next 50 years ago a dramatic fall in birth

25

Past and projected total fertility rates

Uganda, Yemen & Sub-Saharan Africa

2

3

4

5

6

7

8

9

1950 2000 2050

UgandaSub-Saharan AfricaYemen

Source: United Nations, Medium Projection for 2050

rates in those countries where it has not yet occurred. And if rapid population growth harms the prospects for economic growth, this assumption may be too optimistic. Should we therefore be worried about the trend in global population, as well as worried about the economic and poverty reduction prospects of


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specific countries? The answer I believe is clearly yes because it is the total global population which determines crucial environmental impacts, including the most crucial of all, climate change. We cannot now prevent some significant human induced climate change, but even to limit it we need eventually to limit manmade emissions to something like 20% of current level, and to achieve cuts of maybe 50% this century.6Achieving that will require that the western world cuts our emissions per capita by something like 80% below current levels, given that the developing countries are bound to increase their emissions as they become more prosperous, and given also that the only feasible and fair long-term policy is one in which each country is allowed a roughly similar level of emissions per capita. Cutting our emissions is possible but it is not costless and the bigger the cut the more difficult it is. And the higher the global population grows, the lower the emissions per capita that can be sustained, and the less likely that there will be political support to achieve them. And if they are not achieved, many climate models suggest that the most adverse climate consequences will be in sub-Saharan Africa, further undermining the likelihood of economic growth, poverty reduction and population stabilization. It matters a lot to global environmental sustainability whether the world population stabilizes at around nine to 10 billion or goes on growing to 14 million or more. It matters a lot whether the countries which have not yet started on the demographic transition to lower birth rates manage to achieve it, both for their people and for the world. So let me sum up. I started with some people’s expectation that as someone charged with developing pension system reforms, I would be concerned about the dire consequences for Europe of population stabilization, population decline and population aging. But I believe those supposedly dire problems are massively overstated, that the pension challenges of old Europe are eminently manageable with some sensible and rather obvious policies, that population stabilization is strongly beneficial and that in Britain specifically our biggest demographic challenge the next 50 years will be further population growth in an already densely populated country. And I am certain that the challenges of old Europe are very small indeed compared with those faced by the high birth rate countries, where the importance of population stabilization as a driver of prosperity and poverty reduction as well as a consequence, needs to be restored to the centre of the debate.

6 See Stern Review, The Economics of Climate Change, Page 199, Pathways to Stabilisation.

population growth: the greatest challenge? · population stabilization, the effect is not dramatic,...

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