Tagged : economic growth

The UK’s Royal Soci­ety has just announced a major new research project on the impli­ca­tions of pop­u­la­tion growth. The study is to be headed by the Nobel Lau­re­ate, Sir John Sul­ston. As the RI points out pop­u­la­tions stud­ies is quite a cycli­cal area of research. The ‘60s and ‘70s were a boom time for the field with less focus being given the the sub­ject in the ‘80s and ‘90s. The fact that the topic is mov­ing back up the polit­i­cal agenda prob­a­bly has much to do with the inter­sec­tion of pop­u­la­tion on two key pol­icy issues; eco­nomic growth and cli­mate change.

The polit­i­cal debate about pop­u­la­tion growth has being going on for nearly three hun­dred years. Thomas Malthus, seen as the father of demog­ra­phy, clearly held the view that expo­nen­tial pop­u­la­tion growth would out­strip improve­ments in agri­cul­tural pro­duc­tion, con­demn­ing economies to a per­ma­nent state of sub­sis­tence. Adam Smith on the other hand believed that eco­nomic growth and improve­ments in people’s socioe­co­nomic cir­cum­stances would reduce fer­til­ity rates over time.

There’s a prima facie case sup­port­ing Smith’s asser­tions. The fer­til­ity rate of many of the world’s most devel­oped economies (Much of Europe, UK, Japan etc. but notably not the United States due in large part to the impacts of immi­gra­tion) has tum­bled over the last forty years. That decline has mir­rored a period of mas­sive eco­nomic growth and ris­ing liv­ing stan­dards in these coun­tries. The ‘Baby boom’ has become the ‘Baby bust’ with very sig­nif­i­cant impli­ca­tions for affected geo­gra­phies. As the demo­graphic mix inverts there are fewer and fewer younger work­ers able to carry the social cost of the ris­ing num­ber of elderly in the population.

Inter­est­ingly, even though the total global pop­u­la­tion is still grow­ing the rate of growth has in decline since the mid-sixties. There is a diver­sity of research which shows that fer­til­ity rate has an inverse rela­tion­ship with fac­tors like edu­ca­tional level (Par­tic­u­larly in Women) and income level. If the RI study is to be use­ful in guid­ing pol­icy mak­ers then it needs to deliver some defin­i­tive research on which fac­tors really do impact fer­til­ity rates, and in what manner.

There is a per­spec­tive (One I do not sub­scribe to) that a grow­ing global pop­u­la­tion is required to sus­tain the needed lev­els of eco­nomic growth. The argu­ment is put for­ward that con­tin­ued growth in the pro­duc­tion of man­u­fac­tured goods will require and expand­ing work­force to make those goods. This gets to the heart of one of my per­sonal inter­ests regard­ing the impact of tech­nol­ogy on eco­nomic growth. I would argue that the oppo­site sce­nario is more likely i.e. that even an increas­ing sup­ply of man­u­fac­tured goods will requires less, not more work­ers over time.

The num­ber of work­ers now employed in build­ing cars in the most advanced and auto­mated fac­to­ries today is dimin­ish­ingly small com­pared to just thirty years ago. With con­tin­ued advances in robot­ics, process con­trol tech­nol­ogy and infor­ma­tion sys­tems this trend is likely to con­tinue. Fifty years from now its likely that many fac­to­ries will ingest raw mate­ri­als at one end and spit out fin­ished good at the other with very few human work­ers required in-between.

To date this trend has been coun­tered by the rel­a­tive ease with which man­u­fac­tur­ing facil­i­ties can be trans-located into low wage economies. How­ever, the very act of intro­duc­ing man­u­fac­tur­ing into low wage economies has the effect of rais­ing liv­ing stan­dards and worker expec­ta­tions which in turn leads to demands to higher wages. When com­bined with worker short­ages this can place a sig­nif­i­cant upward pres­sure on wages under­min­ing the location’s orig­i­nal cost advan­tage. China is now wit­ness­ing this phe­nom­e­non with many man­u­fac­tur­ers now look­ing to move to other lower wage cost East Asian economies. In my view this will over time lead to a lev­el­ing of the global wage cost ‘Play­ing field’. As we reach that point the pres­sure to inno­vate in man­u­fac­tur­ing automa­tion will become extreme because that will be the only way to avoid being caught between the ‘Pin fac­tory’ and the ‘Invis­i­ble hand’. As global man­u­fac­tur­ing com­pe­ti­tion shifts from try­ing to find the low­est wage econ­omy to find­ing the cheap­est way to man­u­fac­ture through automa­tion we will see a dra­matic reduc­tion in the global man­u­fac­tur­ing work force.

The chal­lenges with this sce­nario are daunt­ing. If there is truly a cor­re­la­tion between ris­ing income lev­els and declin­ing fer­til­ity rates then a long period of tech­nol­ogy lead effi­ciency improve­ments in man­u­fac­tur­ing and its con­comi­tant pos­i­tive impact on eco­nomic out­put should cor­re­late with a con­tin­ued slow­ing of the global pop­u­la­tion growth rate. If the point is reached where global pop­u­la­tion growth rate becomes neg­a­tive then you enter into the poten­tially ‘Utopian’ sit­u­a­tion where a smaller and smaller global pop­u­la­tion shares an ever grow­ing eco­nomic pie. Alter­na­tively, if the global man­u­fac­tur­ing work force con­tin­ues to shrink due to automa­tion while the pop­u­la­tion con­tin­ues to grow and those lost man­u­fac­tur­ing jobs can not be more than off­set by growth in ser­vices sec­tor employ­ment then you have a polit­i­cal time-bomb on your hands.

I seri­ously hope the RI study will look at the the cor­re­la­tion of pop­u­la­tion dynam­ics and eco­nomic growth and will fac­tor in the role that tech­nol­ogy will play on both sides of the equa­tion. The likely impact of cli­mate change on these issues I will leave for another post.