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I have written three books about economic growth: The Stages of Economic Growth (1960); The World Economy (1976); and Theorists of Economic Growth (1990). In each case I looked forward as well as backward. But I focused mainly on how the underdeveloped countries might achieve levels of output that the industrialized countries had already achieved, what we all confronted along the way, and how we should face these problems. I put aside the long-term prospect, but I recognized and commented on it.

The long-term prospect is, simply, that the earth is finite, and trees do not grow to the sky. At some stage physical output and population (which are not the same thing) will cease to expand.

There are three possibilities. First, economic growth could stop because people said, in effect, that enough is enough. They could say that levels of real income had reached the point that all they required was that existing capital and output be maintained for an existing way of life. They would work as hard as necessary to provide for that static way of life, including the maintenance of the capital stock—which incidentally requires considerable production—and leisure would have to be limited.

There is no reason to believe we are within sight of that point; even in our richest societies, people have little trouble spending extra money.[1]Maybe someday but not now. Individuals may peel off for a life in the spirit of Walden Pond, but this will not be the course chosen by most of us.

Second is the possibility of a shortage of raw materials, food, energy, air, water, etc. A vast literature starting with Rachel Carson’s Silent Spring and the best seller The Limits to Growth has explored this theme in the past 40 years. I devoted some 87 pages of The World Economy to this subject, emerging with the view that we could probably surmount these problems of physical shortage if we conducted wise but possible policies, which I attempted to outline.[2]

The third possibility is that human fertility will decline below the 2.1 replacement level, and population will shortly decline—not level off—but continue relentlessly to decline. This is happening. The long run is upon us in this form. The decline of population will begin in Japan in 2007; the decline in the working force will begin as early as 2001—that is, next year. The future of the human race is now in the hands of people, not of anonymous automatic forces.

The following tables tell the story for the whole world economy.

Table 1. Total Fertility Rate by Level of Income: 1970, 1992, 2000 (estimated).

 

Total Fertility Rate

 

1970

1992

2000 (estimated)

Low Income Economies

6.0

3.4

3.1

Lower Middle Income

 Economies

4.5

3.1

2.9

Upper Middle Income

 Economies

4.8

2.9

2.5

High Income Economies

2.4

1.7

1.4

World

-

-

2.9

Source: Reprinted by permission from World Development Report 1989, (New York: Oxford University Press, 1989), p. 216, Table 27.

Not only does fertility decline as a nation becomes richer but (a) there has been a decline in fertility of almost 50 percent between 1970 and 2000 in most countries except Africa south of the Sahara, and (b) the richest countries in the world and the most precocious developing countries have fallen below the replacement rate—which is 2.1 fertility.

Table 2. Sample Transitional Countries, 1970, 1992, 2000 (estimated).

 

1970

1992

2000 (est.)

Thailand

5.5

2.2

2.0

Turkey

4.9

3.4

2.6

Brazil

4.9

2.8

2.0

Mexico

6.3

3.2

3.1

S. Korea

4.3

1.8

1.5

Indonesia

5.9

2.9

2.7

India

5.8

3.7

3.4

China

5.8

2.0

1.8

Sources: The figures for 1970 and 1992 are from The World Bank: The Development Report, 1998–1999, Table 26. The figures for 2000 are from the 1998 World Population Data Sheet, cited in Note 6.

The latter point is underlined in this chart. Not only mainland China but South Korea, Thailand—and I would add Taiwan—have fallen below the replacement rate.

Another way to portray the human condition is that the death rate has leveled off due to the epidemic of cancer and circulatory diseases, but fertility has continued to fall.

Table 3. Death Rate, Excluding India and China, 1970 and 1992 (per 1,000)

 

 

Countries by Income

1970

1992

Low income

19

12

Lower middle income

12

9

Upper middle income

10

7

High income

10

9

Source: Reprinted by permission from World Development Report 1989, (New York: Oxford University Press, 1989), p. 216, Table 27.

This process has been accompanied by an aging of populations and a disproportionate decline in the working force. As time moves forward inexorably, there will be fewer and fewer in the working force to look after more and more old folks.

A population policy to deal with this turn in our fortunes is needed at once. It should include three elements.[3]

One, a time-buying program that will expand the workforce during the period from the beginning of the fall in fertility to the reattainment of a stable replacement rate, which is 2.1 children per woman. The major sources for this time-buying program are immigration, a rise in the retirement age; and the training of disadvantaged young people in workplace skills. The latter is not a social luxury, nor a moral duty, but a practical necessity giving the need to maintain the workforce as population ages.

Two, a policy consensus achieved by each particular country—including the men and women of that country—that will permit it to reach and maintain the fertility rate of 2.1.

Three, acceptance, as a goal, of a constant population with continued R&D and innovation, and, therefore, a continued increase in real wages and the quality of life.

Some General Principles

From the beginning, the full resources of the media and the political process need to be mobilized, backed by the major political parties, and supported by widely respected private leaders. The two necessary themes are (1) the fall (or expected fall) of fertility below 2.1 is potentially an urgent and mortal problem for modern societies, and it must be countered as promptly as possible by a universal effort; and (2) if successful, the policy offers a long-term solution to population, environmental, and welfare concerns. This means we must go back to a 2.1 replacement rate plus continued R&D and innovation to replace investment dependent on an expanding population and thereby to permit increased real income and improved quality of life.

The citizens in advanced industrial societies have been accustomed to small movements in the right direction, e.g., increasing the retirement age by 2 years from 65 to 67, small increases in elite immigration, a few additional nurseries, a modest increase in subsidies for having additional children, etc. Such small measures have not reversed the falling fertility rate. They have the feel of “too little, too late,” and in any case, it is felt we have plenty of time to deal with the problem of population. But we don’t have plenty of time. There must be a program that matches the size of the problem, that conveys a sense of urgency, not business as usual.

The simple diagrams below indicate very roughly the three periods envisaged in this transition:

I. The time-buying program that expands the workforce temporarily and limits the fall in output

II. Getting back to 2.1 through measures taken by the whole society that permit women to play their part in the workforce and increase the motivation to increase fertility

III. The long-run reconciliation of a stagnant population and rising real wages

Three Phases: Alternate Objectives

There are two diagrams presented because each country may ultimately seek a population level below the level at the start of the transition, or at the previous level, or, less likely, above the previous level.

Phase I. Maximizing the Workforce During the Period of Its Decline (and the Population’s)

Hamish McRae has listed a set of measures to enlarge the workforce to compensate for the decline it will otherwise suffer.[4]

·       Retirement ages will rise.

·       Female participation in the workforce will climb.

·       Part-time working (including working at home) will continue to increase.

·       University students will be expected to work part-time while studying, a process already begun.

·       Greater efforts will be made to reduce unemployment.

·       Retraining for different jobs several times in a career will become more normal.

·       Volunteer labor will be used to a greater extent.

·       There will be more pressure on children to learn marketable skills.

It is worth making some additional comments on this list.

The heightening of existing efforts to move men and women from the welfare rolls, or, indeed, some of those in prisons, into the workforce. This is not a matter of morality or budgets but a way of enlarging the workforce while reducing public expenditures.

Immigration is obviously a way of increasing the workforce in the short run in compensation for the decline in the indigenous existing workforce, but it should be regarded as a time-buying method rather than a long-term solution as compared to bringing the population of a given country back to a replacement fertility rate. Immigration will dry up from a given source—say, Mexico—as that country experiences a rise in income per capita and goes through the demographic transition. The possible playback effects in the politics of a receiving country of an “excessive” immigration level will also affect the possibilities. The method used by some of the Japanese firms when confronted with a local labor shortage—of sending some plants abroad—may have a wider application. And the limits and possibilities of extending the retirement age radically will justify exploration.

In short, there are some considerable possibilities for enlarging the workforce in the face of its attenuation by demographic forces. They are extremely important in this phase given the decline of the existing workforce in relation to the expansion of welfare demands for the dependent population. But they are not a substitute for bringing the fertility rate back to 2.1.

Phase II. Period of Expanding Fertility Back to 2.1.

There is one thing to be said, in general, about the second stage of this transition. The quicker we get to Phase II, the better. Starting now means we are already dealing with a degenerating situation.

The longer we permit this degenerative condition to continue—symbolized by the falling proportion between the working force and the dependent population—the harder and more expensive it will be to achieve the turnaround symbolized by Phase II.

The specific tasks of Phase II follow:

First, the men and women of society must achieve a treaty—or a deep understanding—that men, and the society as a whole, will have to make arrangements to permit women to reconcile having two children with advanced education and a maximum career in the workforce, of which she is capable.

Second, countries will have to decide after domestic political debate what target population they will seek—above, at, or below the initial population level.

Third, the envisaged increase in fertility will add, of course, to the flow of dependents, although children are less expensive for the public budget than dependents beyond the retirement age.

Fourth, for a time the fertility rate will have to go higher than 2.1 for those countries that have fallen below that level, assuming they wish to attain a level of population above the nadir represented in the charts. For those now above 2.1, with the fertility rate falling, the task will be to halt the fall in fertility at 2.1 and thus achieve the chosen population.

Fourth, in general, Phase II continues measures of Phase I and lasts, say, 16 to 22 years depending on the years of schooling absorbed. These will be years of maximum strain, depending on the swiftness and extent of the time-buying measures set in place in Phase I, but the beginnings of the rise in the fertility rate will indicate that the job can be done and will be an important optimistic turning point in the transition.

Finally, the homegrown expansion of the workforce should supersede, in part, the desired (or imposed) limits of workforce expansion, e.g., the increase in fertility will gradually match the decreased flow from the hitherto disadvantaged people as the limits of transfer to the workforce are reached. Similarly, we will learn the limits on immigration and of the flow from the increased retirement age to the workforce, which may exhibit diminishing returns as time passes.

The Political Economy of a Static Population at Chosen Level

As fertility rises to 2.1 and population continues to fall at a diminished rate, the long-term problem will become increasingly clear: to maintain full employment in a world lacking the stimulus to investment of a rising population.

Hopefully there would be agreement on the gap to be filled; and there will be rough agreement on how much of the gap-filling can be done by the private sector, although there will be some political debate on that score.

We might also have some debate on the priorities. On the side of the public infrastructure, new bridges, improved roads, new school buildings, smaller classes, possibly increased expenditure for the exploration of space are among the possible lines of investment. On the private side, increased investment in a post-petroleum generation of automobiles and the rapid exploitation of the possibilities of science are possible. But some part of the gap may be filled (as envisaged by various economists of the Great Depression of the 1930s) by a fall in taxes and a consequent increase in private consumption.

Conclusion

The greatest lesson that emerges from examining this scenario of three phases in the transition is the importance of Phase I: setting time-buying targets high and holding out from the highest and most effective political level of a positive image of the outcome.



[1] For an effort to establish this point for the U.S. see W.W. Rostow, The World Economy (New York: Macmillan, 1978), p. 798.

[2] Ibid, pp. 571–658.

[3]W. W. Rostow, “Modern Japan’s Fourth Challenge: The Political Economy of a Stagnant Population,” The Japanese Economic Review, Vol. 51, No. 3, September 2000, pp. 297–307.

[4] Hamish McRae, The World in 2020, (London: HarperCollins, 1994), p. 101.