Hold Steady

If the Population Were to Shrink, What Would That Mean for an Economy Based on Growth?


graphic artwork of a pregnant female figure descending from a skyline on a staircase, decorated with leaves; the background shows rows of numbersKeri Rosebraugh. www.kerirosebraugh.com

It’s highly unlikely that life as we know it – or want it — can continue for long unless we rein in population growth. Too many measures indicate that the great mass of us burning fossil fuels, gobbling up renewable resources, and generating toxic trash is overloading our life support ecosystems. In the central North Pacific Ocean gyre, swirling plastic fragments now outweigh plankton 46 to one. The concentration of CO2 in the atmosphere is far higher today than at any point in the past 650,000 years, and climbing. Nearly one in four mammals is threatened with extinction, as is one in three amphibians and a quarter of all conifers. In many parts of the world, including the High Plains of North America, human water use exceeds annual average water replenishment; the United Nations predicts that by 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity. Unsustainable farming practices cause the destruction and abandonment of almost 30 million acres of arable land each year. The list runs far too long.

Meanwhile, our population continues to grow in leapfrog fashion. Despite declines over the last several decades in the annual global population growth rate and near zero population growth in several countries, the number of humans is still increasing by 1.18 percent per year. That sounds manageable – until we do the math. With more than 6.7 billion of us, even a growth rate of just over one percent translates into 80 million more of us annually, the equivalent of nearly two Sudans, or three and a half Taiwans. Each year, China must find room and resources for eight million more people even though its population is growing by only a little more than a half of one percent annually. The US, with a growth rate of nearly one percent per year, increases by more than 2.9 million people annually, the equivalent of almost four new San Franciscos.

But dare we, as a matter of international or domestic policy, make an effort to reduce our population to a size that better fits our environment? Given that our economy is based on the idea of growth, wouldn’t a decrease in human numbers lead to a fiscal catastrophe? After all, it’s no coincidence that the last 200 years of historically unprecedented economic growth have been accompanied by an equally unprecedented increase in world population. During the 1800s and 1900s, up to half of world economic growth was likely due to population growth. As Georgetown University environmental historian John McNeill explains: “A big part of economic growth to date consists of population growth. More hands, more work, more things produced.”

Global zero population growth might be an environmental imperative, but could it lead to an economic implosion?

The size of a nation’s economy, usually summarized as its Gross Domestic Product (GDP), boils down to population multiplied by per capita income. Slow population growth, and economic growth will likely slow as well unless advances in productivity and spending increase at rates high enough to make up the difference. Maybe this is one reason why population policy, especially in the United States, remains a side issue. Our economic culture takes growth in consumer activity as both a given and a necessity. And if we assume away environmental limits, then each additional consumer brings additional consumer activity. “It’s been said,” Herman Daly, author of Steady-State Economics and former senior economist at the World Bank, reminded me this spring, “that the fox doesn’t advocate birth control for the rabbit.”

Could it be, then, that we can’t afford to stop producing more consumers however much we fear the widening cracks in our ecosystems, lest we risk a shrinking economy accompanied by unemployment and economic turmoil? The answer, despite the hue and cry that usually accompanies each dip in GDP, is both yes and no: GDP likely will fall if we can slow and stop population growth. But the sky won’t.

GDP in a Crowded House

On March 13, 2008, the Economist reported that America’s economic performance in the five years leading up to 2007 was not necessarily better than Japan’s, despite the fact that the GDP of the US was growing at 2.9 percent per year compared to Japan’s GDP growth rate of 2.1 percent. More important than focusing on GDP, the Economist argued, was taking a look at per capita GDP, which corrects for population growth.

“GDP growth figures flatter America’s relative performance because its population is rising much faster, by 1 percent a year, thanks to immigration and a higher birthrate. In contrast, the number of Japanese citizens has been shrinking since 2005. Once you take account of this, Japan’s GDP per head increased at an annual rate of 2.1 percent in the five years to 2007, slightly faster than America’s 1.9 percent and much better than Germany’s 1.4 percent. In other words, contrary to the popular pessimism about Japan’s economy, it has actually enjoyed the biggest gain in average income among the big three rich economies.”

Sometimes, then, an increase in GDP says as much about how crowded things are getting as it does about fundamental economic strength. Conversely, a slowing or stopping of GDP growth caused by a reduction in population growth does not mean that our personal prospects have diminished. “Population decline does not imply any economic hardships,” McNeill says. “Population decline would certainly slow the rate of economic growth, but it would not necessarily reduce per capita wealth or, indeed, per capita growth.”

If the Population Were to Shrink, What Would That Mean for an Economy Based on Growth?

Nicholas Eberstadt, a political economist at the American Enterprise Institute, the influential conservative think tank, concurs. “I’m not convinced,” Eberstadt says, “that population growth is a necessary condition for continuing or accelerating improvements in material well-being.”

Let’s be clear that we’re talking about an orderly and relatively slow reduction in population, and not a chaotic plunge in our numbers as a result of war, disease, a breakdown in healthcare systems, or natural catastrophe. “The components really matter in this,” says Eberstadt. “The way in which births and deaths are matched matters immensely.”

Ironically, the economic impact of any planned population decline would be dampened due to how numerous and technologically advanced we already are. We long ago grew plentiful enough and developed the transportation and communication systems necessary for the Smithian specialization of labor that underlies modern economies. Few situations exist anymore where the marginal benefits gained from increasing national populations outweigh the marginal costs, especially when we count environmental costs.

“The advantages that may come with population growth have almost everywhere already been reaped,” McNeill says. “China experienced rapid population growth in the 18th century and in most of the 20th century, which was, from the point of view of increasing the economic product and also the per capita economic product in China, probably a useful thing. Chinese agriculture is very labor intensive. If you don’t have enough people, you cannot maintain the infrastructure of rice production: paddies, canals, etc. But once you have enough people to do that, then additional people are not helpful. They may be able to increase the total product, but they’re likely to have a depressing impact on per capita economic product.”

Daniel O’Neill of the Center for the Advancement of a Steady State Economy agrees: “At this point in history, having too many people, or too high a level of consumption, is much more likely to result in the end of economic progress, via ecological collapse, than having too few.”

Neither does a decline in GDP caused by reduced population growth raise the specter of increased aggregate unemployment. An economic “slowdown” that results from slowing and eliminating population growth is distinctly different from that caused by a credit crunch or the messy bursting of a speculative bubble. While it’s true there will be fewer mouths to pour breakfast cereal and soda into, there will also be fewer pairs of hands needing employment.

“When everybody is potentially a producer and a consumer, if you have one less producer in your society, you will also have one less consumer,” says Peter Victor, an economist at York University in Toronto. “I don’t see why that is bad for the economy. Production has gone down, but so has consumption.”

Continued population growth, meanwhile, is one of the surest ways to further job instability and depress wages. In many poorer nations, skyrocketing populations and entrenched unemployment are two sides of the same tarnished coin. “If the laboring class is having more children, then that means wages are going to have a harder time going up – you’re increasing the supply of labor,” Daly says.

(Un)creative Accounting

Mistaking population growth for economic well-being has to do with the limitations of the measuring stick itself. GDP, it turns out, is an exceptionally crude way of calculating societal progress. As each additional million of us goes out and buys goods and services and, in so doing, grows the economy, we also take our toll on social and environmental resources – a toll that usually gets counted as economic growth in GDP calculations.

First developed in the early 1930s by an American economist named Simon Kuznets as a means of tracking the size of the economy month to month and year to year, GDP simply tallies a country’s total legal monetary transactions. (In reality, it’s not so simple: Inflation must be accounted for, and care taken not to double-count inputs on their way to becoming final products.) When the tally goes up, we talk of the economy growing and strengthening, and when it declines, we worry that the economy is contracting, shrinking, weakening.

All recorded monetary transactions contribute to the total size of the economy and therefore to the growth of GDP, but not all transactions are created equal. “One of the biggest problems with using GDP as an indicator of economic progress is that it does not differentiate between costs and benefits,” O’Neill says. “In the US, for example, the costs of economic growth began to exceed the benefits sometime in the late 1970s. In other words, as the economy has grown through increasing population and per capita consumption, we have been spending more and more money to fix the problems caused by growth itself.”

A sure way that I can contribute to the US GDP, for example, is by buying lots of highly processed foods from across the country, becoming obese, purchasing a bigger car, paying for an additional seat on plane trips, and visiting the doctor’s office and drugstore more often. I’d certainly be generating lots of additional transactions, but my quality of life would have declined, and my demands on society and the environment would have increased. In 1995, Clifford Cobb, then the research director at Redefining Progress, a non-profit public policy organization in San Francisco, published an article in The Atlantic Monthly entitled, “If the GDP is up, Why is America Down?” Cobb wrote: “By the curious standard of the GDP, the nation’s economic hero is a terminal cancer patient who is going through a costly divorce. The happiest event is an earthquake or a hurricane.”

Similarly, the costs of mitigating the stress imposed by a ballooning population on roads, schools, parks, agricultural land, air and water quality, government services, and ecosystems add to the total pool of a country’s economic transactions. But the greater pool and its rising GDP hardly signify that the average citizen is enjoying a higher quality of life. Stop population growth, however, and many quality of life indicators would improve even as GDP likely declined.

“Sure, population decline will slow down aggregate demand. On the other hand, it’s going to increase the amount of resources per capita,” Daly says. “All your per capita measures will be benefited by a slowing or reduction in population. There’s more space for everybody on the beach, there’s less congestion on the highway, and so forth.”

Shrinking Pains

While reducing population growth in an orderly fashion promises more economic good than ill, it will bring about social and economic challenges that even proponents of shrinking the population do not dismiss lightly. Of particular concern are the challenges associated with reducing the number of working age people relative to retirees.

The trick is to hit the sweet spot of a generational equilibrium between births and deaths. A population can achieve a “steady state,” neither growing nor shrinking, one of two ways: either match high rates of birth with high rates of death (lots of people born to live short lives) or match low death rates with low birthrates. With little to be gained and much to be lost by promoting a high death rate, our success in reducing and stopping global population growth hinges on our ability to reduce birthrates. Doing so will fundamentally change the demographics of many countries as the ratio of younger people to older people declines.

“One of the things we know about a steady state population is that it will probably be a grayer population than we have today,” Eberstadt says. “That would change the tenor of society. There would be a smaller proportion of children than we have today. Under current arrangements, that might put a lot of stress on our healthcare and Social Security systems. But if we looked rather unflinchingly at the actuarial sustainability of those systems, we could fix all that stuff in the long term.”

The new demographics will require changes at the family and public policy levels in how we care for our elderly. In many countries, these changing demographics are already in play. In Japan, for example, the 65-and-older age group grew from 4.9 percent of the population in 1950 to over 21 percent in 2007. Even though our population continues to grow more rapidly than that of most industrialized countries, the US is facing a similar situation as the Baby Boom grays. Whereas today there are 3.3 workers for each Social Security beneficiary, by 2034, when all the Baby Boomers will be over 65, there will be only 2.1 workers per beneficiary.

In aging nations, the government will have to tax the remaining workers more, find an additional tax source for Social Security benefits, pay smaller pensions, raise the retirement age, or some combination of all four. Italy has tried to adapt to an older citizenry by raising the retirement age to 59. Germany curtailed annual government pension increases and raised the retirement age by two years, to 67. Governments’ best efforts to deal with shifting demographics sometimes come up short. Statistics hint at some of the social ramifications. Forty percent of Belgians over 75, for instance, will live in poverty by 2016, according to the National Pensions Office in Brussels, in part because of lower pensions.

Another option for a country with a declining number of workers per elderly is to allow in more working immigrants. But that, of course, defeats the goal of settling into a population sized to fit the supporting ecosystems.

Enough Is Enough

Capping population growth and possible GDP will require a profound rethinking of our notions of progress and political clout. Historically, power and prestige – whether on the individual or societal levels – have been linked to size. Governments have balked at the idea of shrinking populations because declining numbers suggest a diminishment of economic force and military might. Many ordinary citizens worry that a smaller economy may lead to fewer opportunities for themselves and their children. The biggest challenge, then, is convincing people that growth for growth’s sake simply can’t keep working.

Getting to that conclusion will require a coordinated global effort. If we continue to maintain the ideal that size trumps everything, then any country that deliberately diminishes in population may put itself at a competitive disadvantage with its neighbors – at least until we learn to place a value on clean water, fertile land, and green space. Fewer workers mean higher wages, which means more costly products and probably lower exports. A nation that breaks from the dominant GDP paradigm and begins using more accurate economic accounting that includes the social and environmental costs of production will raise the costs of its products, further reducing its competitiveness. Essentially, we either grow together or shrink together.

If we are able to find a way to collectively reduce population, then our current ideal of progress would have to be remodeled. Instead of trumpeting quantity, we would prioritize quality. In economic terms, that means putting greater emphasis on the value of the goods we create rather than simply the number of goods. Wealth creation would be linked to improving what we already have.

O’Neill says, “Even if we assume a scenario where markets stop expanding (i.e. world economies become completely integrated and there is no more economic or population growth), stock prices could still increase if companies added value to their products by producing higher quality goods instead of a greater quantity of goods. This would be a much better scenario for the planet as well.”

The notion of removing aggregate quantity from our measurements of collective and individual prosperity constitutes a direct assault on conventional economic thinking. It eliminates the idea of infinite growth and puts in its place the ideal of sufficiency. In a society obsessed with the latest stock market gyration, the thought is outlandish. But as Peter Victor suggests, such thinking is a sign of wisdom – the perfect worldview, perhaps, for a globe that at some point soon needs to get grayer.

“I think what’s lacking from the public dialogue is the idea of sufficiency,” he says. “I think a mature person, frankly, ends up working the concept of ‘what is sufficient?’ instead of always having to think that they improve themselves by acquiring more and spending more. That’s a sign of immaturity, and I would say the same thing about societies. A mature society is one in which the notion of sufficiency has come into the public dialogue.

“In my mind, it’s not to grow or die. It’s to grow and die. That’s the problem. And the problem is how we wean ourselves away from such an ideology in as smooth a way as possible.”

Deborah Rich raises organic olives and her two children in Monterey, CA. She is a frequent contributor to the San Francisco Chronicle.

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