Demographics and Destiny

Too many humans or too few?

The global population grew by less than one percent in 2020 and 2021, and Europe’s population fell for the first time since World War II.

Back in January, Elon Musk tweeted: “We should be much more worried about population collapse.” He continued: “If there aren’t enough people for Earth, then there definitely won’t be enough for Mars.” He was reacting to a study by the University of Washington’s Institute for Health Metrics and Evaluation (IHME), suggesting that several developed and developing countries are going to see the start of protracted population declines within a decade.

Japan is one example of a country whose population is already in decline. Its birth rate is running below the replacement rate (which is thought to be around 2.1 births per woman). Russia’s population has fallen by approximately five percent during Vladimir Putin’s presidency – despite his exhortations for Russians to have more babies. Similarly, Spain, South Korea, Thailand and even China could see their populations halve by 2100 if present trends continue.

For some people, including the veteran environmentalist Sir David Attenborough, this would be no bad thing. For such people the only way to save the earth from environmental disaster is to check the relentless growth of the number of people on this planet. Modern humans consume more resources than their ancestors, so if their numbers continue to rise, the finite resources of the earth will be exhausted – or so the argument runs.

The problem is that when the population of a society goes into decline, the percentage of the population who are too old to work (at least full-time) tends to rise and the ratio of the number of people in work to those not working – the so-called dependency ratio – starts to climb. That means that unless there are countervailing increases in productivity for those who are in work, living standards will become subject to downward pressure. Otherwise, taxes would have to go up – thus further depressing productivity and growth. That is a recipe for economic decline.

Also, in societies with declining populations, there will be more goods available with fewer people wanting to buy them, resulting in deflation – and deflation can be as dangerous as inflation, particularly for those who are in debt. Think of the property market. If there were fewer young people climbing the property ladder and more elderly folk downsizing (or dying and leaving property to their heirs) the price of houses would start to fall. Some might say that that would be a good thing.

In pre-industrial societies and certainly in pre-history, there were no doubt uncounted plagues, famines, wars and natural disasters that wiped out entire human populations. What happened to the Hittites, the Sumerians or the Beaker people? No doubt some of them were assimilated by their conquerors and faded from history – we don’t really know. What we do know is that since the Industrial Revolution in the last decade of the 18^th century and the first half of the 19^th century, the trajectory of the human population worldwide has been inexorably upwards. Therefore, we have no experience of how a significant fall in population might play out in a modern industrial society. We can conjecture, however, that it would be extremely turbulent and disruptive – and that is what Musk and others are worried about.

As Damian Green MP, a former work and pensions secretary and current chairman of the all-party parliamentary group on longevity has said, this is genuinely a ‘time bomb’. If there are going to be more people in the older demographic bands who, prospectively, are going to live longer, with the number of centenarians about to explode, then it makes sense to increase the age at which people can receive the state retirement pension. Many advanced countries, including the UK and Germany, have done precisely that – though in many countries, not least France, the issue is political dynamite. Clearly, there are cultural expectations at work around how long people work and how long they expect to remain healthy.

Then there is the issue of healthcare. An ageing population will require more health and social- care resources – but there will be a shrinking population of working-age people who pay taxes and thus fund the healthcare system. Housing will also be a challenge – although the rise of retirement “villages” offered by developers such as McCarthy & Stone and other community models is already anticipating the needs of more prosperous seniors.

Across the developed world, fertility rates are falling. In large parts of the developing world, however, fertility rates, although attenuating over time, are still relatively high − hence the population of Africa is still increasing. Nigeria might have a population of between 600 and 900 million by the end of the century – more than China.

China

China is still the most populous country in the world, with over 1.4 billion people, but the IHME estimates that this figure will fall to 732 million people by 2100. It has been the most populous nation on earth for centuries and yet India is now poised to overtake it – possibly within the next five years.

The one-child policy which was enforced by the Chinese Communist party from 1980 to 2015 has brought about a rapidly ageing population. Analysts at Bank of America reckon that the country’s population could start to fall as soon as this year. There was a 12 percent drop in births last year to just 10.4 million – no doubt partly because of China’s zero-Covid policy. This was a lower level of births than even in the great famine of the 1950s.

Even though the one-child policy has been relaxed, most modern Chinese couples live in small urban apartments and do not feel they have the space to have extended families.

Today, every 100 Chinese workers support about 20 Chinese retirees. If we extrapolate current trends, then 100 workers will have to support 120 retirees by 2100. As a result, some analysts doubt that China will ever be able to overtake the US as the world’s foremost economic and military power. China’s gargantuan appetite for raw materials from the world at large will abate.

China currently has a state pension age of 55 for women and 60 for men. This will not be sustainable as the population declines and gets older.

Japan

Since the Japanese property and stock-market bubble burst in the early 1990s, followed by a long period of deflation and relative stagnation, certain social changes have become apparent. Fewer young Japanese follow the traditional path of getting married in their 20s and having children. There are an estimated 500,000 (possibly more) ‘hikikomori’ – ‘hermits’. These are young people who live alone and rarely go out.

Japan’s population has been shrinking since 2010. If you plot a map of where depopulation is about to occur it is basically Eurasia − stretching from Lisbon to Tokyo via Berlin, Moscow and Beijing.

The UK

The IHME projections foresee that the UK population will rise from the current 67 million to a peak of 75 million in 2063. Thereafter, it will decline modestly to 71 million in 2100. But the age profile of the population will continue to trend towards more elderly people. A boy born in the UK in 2020 can expect to live for 87 years and a girl to over 90. The UK’s fertility rate has fallen to 1.6 births per woman – but that is well above Spain’s 1.2, Japan’s 1.4, Germany’s 1.5 and South Korea’s outlying 0.9. The severe fall in the UK birth rate over the last two years was linked to the coronavirus pandemic and lockdowns, and will probably be seen as a blip.

Some people predicted that confinement at home would lead to a baby boom – but that did not happen. One possible explanation is that couples put planned pregnancies on hold until the health emergency abated. As it stands, here in the UK, our hospitals are still in crisis mode and that will deter prospective mothers who plan to give birth in hospital.

On the other hand, a report by the ONS, out at the beginning of this year, said that the birth rate in the UK would dip below the replacement rate of the indigenous population as soon as 2025. It also foresaw that immigration would continue to sustain the absolute size of the population until 2058, at which point the UK population would start to decline. Clearly, with much of the global south on the move – supposedly because of climate change but more likely because they see attractive lifestyles on social media – immigration remains the joker in the pack.

According to the OBS, spending on state retirement pensions will rise to seven percent of GDP by the late 2060s and spending on healthcare will soar to 14 percent of GDP – not including social-care costs. I am not quite sure if Boris Johnson and Rishi Sunak committed us to this or not.

Perhaps young people will just decide they’ve had enough, and they’ll refuse to pay the cost of caring for their great grandparents. Growing societies tend to be cohesive; contracting ones are fissile.

Implications

The UN reckons that more than half of the projected global population increase up to 2050 will be in just eight countries, mostly in Africa. Clearly, the proportion of the world’s population who live in Africa and South America is about to rise dramatically – and that will have consequences.

To put this in perspective, the population of planet earth is still set to hit eight billion later this year. The world’s population will still peak in the 2080s at around 10.4 billion and then will start to fall. But there will be more than one billion people aged over 65 in 2030 – about double the number of 2010. This writer will be amongst them and will hopefully still be working.

Countries such as the UK, with high immigration and declining birth rates, should focus on GDP per capita rather than gross output. The need to increase the productivity of the working population has never been keener. Hopefully, with rising interest rates, better capital-allocation decisions will be made, particularly in the fields of robotisation (not least in agriculture) and AI − and these will raise productivity.

The risk is that an ageing population becomes a socially more conservative, more risk-averse and less innovative society. The need to offer immigrants the chance to become socially and economically productive citizens as soon as they can is also paramount. Put simply, we should welcome people who can and want to contribute.

Unfortunately, however, in the UK right now, the level of discourse in the mainstream media around these matters is so lame that there is not much ground for optimism.

Listed companies cited in this article which merit analysis:

• McCarthy & Stone (LON:MCS)

PS

By the time you read this I shall be in Switzerland. I used to love travel, especially by air. Now the whole thing makes me anxious, thanks to queues; the forced removal of shoes and belts; ‘mask-shaming’; and lost luggage. The golden age of flying is over – almost certainly for good.

Even the online check-in process was ghastly. I had to pay extra to choose my seat. And it turns out it is not possible when flying with BA to print boarding cards for both outward and return flights at the same time.

Wish me luck.