Population change affects societies in powerful ways, but even the most insightful economists frequently overlook this variable when they analyze economic issues. The size of a nation’s population and the rate and direction of population change are critical because labor is by far the most important resource in an economy.
Economies can grow — that is, produce more goods and services — in two ways. First, they can marshal more resources, land, labor and capital into productive uses. Or they can combine these resources in more productive ways. But for living standards to rise, a society needs more than just an increase in total output — it needs an increase in output per person.
In theory, either of these courses can increase per capita incomes and the general standard of living in the society. In practice however, the second approach of increasing productivity is much more important.
Historic successes usually resulted from both using more resources and increasing the productivity of resources. Output in the United States grew tremendously from the Civil War to World War I. The population grew rapidly through immigration, high fertility rates and better health. The area of land used in production grew with the settling of the West. The domestic savings rate was high and, combined with strong investment flows from Europe, made capital available to build railroads, factories and other infrastructure.
At the same time, output per worker grew with better education, more and better machines and greater energy use, largely from coal. Such large increases in resource availability, combined with more efficient resource use, meant not only that output grew many times over but that output per worker, and hence per capita incomes, also grew sharply.
The U.S. population is not burgeoning the way it did in the late 19th century, but it is growing faster than in most other industrialized countries. It grew at about 1.2 percent per year over my lifetime, which does not sound like much, but that rate nearly doubled the number of people in our country since 1950. Over the last decade we grew at about 0.9 percent per year. More than a third of this growth comes from immigration.
Population growth in Europe is substantially lower. Birth rates among native-born Europeans have fallen so much that the populations of nearly all European Union countries would be falling sharply if it were not for immigration and the higher fertility of immigrants.
It has become common to disparage “Old Europe” for its slow economic growth. In recent weeks, many commentators criticized Europe for not pulling its weight in getting the global economy moving faster. But this criticism may be unfair. The Economist, a British-based newsmagazine, recently pointed out that virtually all the faster growth recorded in the United States in recent years is attributable to faster population growth here. Per capita productivity growth in the United States and Europe is about the same.
In the 1960s and 1970s, one frequently heard about a global population crisis. When I took freshman English at the University of Minnesota 33 years ago, one of the first pieces we had to read was an essay entitled “Eco-Catastrophe” by biologist Paul Ehrlich. Taken from his 1968 bestseller, “The Population Bomb,” the essay predicted the near end of life on Earth by 1975 as a result of high population growth and pollution.
It is hard to find similar concerns today. Per capita food production for the whole world has increased by 40 percent since 1950. Despite popular belief to the contrary, health has improved in most countries, as has nutrition.
The alarmists of the 1960s were wrong in predicting that resource scarcity would bring about economic collapse. They were right in predicting that rapid population growth would impose terrible strains on national governments.
The population of Iran is now nearly twice as large as it was in 1979 when the Shah was deposed. Brazil’s population of 180 million is twice what it was when I lived there in 1969-1970 and four times what it was at the end of World War II. This sort of rapid population growth imposed tremendous pressures on Iran and Brazil to meet the education, nutrition, health, transportation and communication needs of millions of new citizens every year. Both performed remarkably well over the period from 1950 to 1980 but have suffered relative stagnation since.
The Malthusians were right in regard to parts of Africa. Many African countries have had dramatic increases in population since independence and only modest increases in output. The continent’s most troubled nations — Congo, Angola, Sierra Leone and Liberia — all fit this pattern.
Growth is not the only way population change can stress societies. Population decline can be as severe. Russia’s population is declining by half a million people per year, with few factors in sight to halt the slide. Japan’s population is rapidly aging and soon will decline, again with little visible chance of a turnaround. Both nations face severe economic stress as the result of dropping populations.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.