[A] 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.
[B]
During the second half of the 20th century, the global population explosion was
the big demographic annoyance. 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
frightening itself with the opposite fear: the onset of demographic
decline.
[C] 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.
[D] 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 power, but people should celebrate the
new demographics as heralding a golden age.
[E] 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 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.
[F] 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.
[G] 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.