Saturday, August 18, 2007

A growing number of retirees will sell assets to a shrinking base of workers

THE ‘population explosion’ in developing countries was till recently considered a severe constraint on growth and development. China’s mandatory one-child norm and India’s ‘sterilisation’ drive were predicated on this view. Population control policies still exist, but hardly anybody talks about the population time bomb any more. Focus has quietly, but swiftly, shifted to addressing issues arising out of an ageing society: decline in the number of workers, pension and welfare reform, migration and decline in growth rates. The population time bomb has yielded to demographic bonus, with babies elevated to the status of future growth drivers. China’s one-child norm now seems growth threatening while India’s failed ‘sterilisation’ drive seems fortuitous!
The population scare in developing countries generated by the Club of Rome and scholars like Paul Ehrlich was preceded centuries ago by something similar in Europe. As Europe entered the first stage of demographic transition, characterised by a sharp fall in death rates consequent on rapid improvement in public health, Thomas Malthus argued that human population growth would soon outstrip food supply, leading to catastrophic adjustment through war, famine and pestilence. This did not happen. Out-migration to white-settler colonies provided a partial ‘safety valve’, but Malthus was eventually proved wrong because productivity growth exceeded population growth. Scholars like Ester Boserup turned Malthus on his head, arguing that population pressure provided the creative impulse that boosted agricultural productivity.
Population density from the dawn of human evolution never exceeded more than 2-3 per square mile right up to the Neolithic Revolution about 10,000 years ago. Even as man began to grow his own food human densities beyond fertile river valleys remained very low as agricultural productivity was low. It is difficult to imagine today that average European grain yields were around 1:4 right up to the end of the Middle Ages. They were slightly higher in the low countries, in the rice growing regions of Italy, and in southern Europe which relied less on meat, devoting more land to cereal cultivation. The predominantly cereal consuming rice-growing riverine areas of China and India, and maize-growing ones of Meso-America, were more productive, and hence more densely populated. The west European marriage pattern of late marriage and high celibacy and resultant lower birth rates underscored these differences. Population density thus adapted to available energy levels, which did not vary greatly over long periods since technological improvements were few and far in between. The demographic pattern was characterised by high birth and death rates. Demographic upswings occasioned by a succession of good seasons were periodically audited by famine, disease and war since man had limited control over his environment.
Indeed, ‘Malthusian crises’ better described pre-industrial societies where the sharply fluctuating death rate was the critical equilibrating force keeping population in check. This equilibrator became ineffectual with increasing food security and improvements in public health that marked the first stage of demographic transition. While death rates respond to technological progress, birth rates adjust to death rates with a variable ‘cultural’ time lag. With rising living standards, life expectancy and literacy, especially female literacy and empowerment, birth rates have adjusted so drastically that most parts of the developed world face sub-fertility rates and declining populations in what is described as the second stage of demographic transition.
The third stage, where population is expected to stabilise after adjustment, remains elusive. Sharp declines in poverty, rising living standards and female literacy have also sent several developing countries hurtling towards the second stage of demographic transition. It is estimated that over the 20th century population quadrupled, while per capita GDP quintupled. Global growth has been unequal, but most parts of the globe have nevertheless seen a rise in living standards. However, most developing countries would gray at far lower per capita incomes compared to OECD countries, constraining their capacity to transfer incomes to cope with ageing-related crises in welfare. Poverty and population growth share more in common than simply positive correlation. Neither seems capable of direct targeting, except in non-democratic environments like China.
Democratic India’s sterilisation drive was quickly transformed into ‘Family Welfare’ following political catastrophe. Both poverty and population are however sensitive to ‘indirect’ targeting through policies that promote growth, human productivity and social welfare. As food supply continues to outstrip population growth, the Malthusian case now rests on the environmental impact of population growth. But unsustainable growth has less to do with population per se than with consumption benchmarks set by rich countries. They also contribute more to global environmental change despite their declining population.
Others argue environmental pressure would stimulate technological solutions for its own abatement. As the ageing and welfare crises in the developed world unravel, migration can be expected to increase sharply, equalising the global demographic structure over the long-term. Human demographic structure has come full circle, beginning and ending with high dependency ratios with one crucial difference: while pre-industrial societies had more infants on account of high birth and low life expectancy, the dependants in post-industrial societies consist primarily of the elderly on account of low birth rates and high life expectancy. The long-term threat to the human species may well be de-population rather than overpopulation.
Migration, crisis in welfare, declining growth and rise in age of retirement are well known consequences of ageing and depopulation. The more intriguing impact however could be through correctives to globalisation which is exacerbating inequality and leaving some countries, especially those in Africa, behind. On account of the strong positive correlation between affluence and ageing, poorer countries will age later, and could become nodes of growth as more affluent ageing societies slow down. Secondly, it is widely believed that globalisation has increased inequality by increasing the rewards to capital relative to labour. Ageing could reverse this equation, with asset prices falling as a growing number of retirees sell assets to a shrinking base of workers. (Alok Sheel, the writer is a civil servant. Views are personal)

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