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Embracing the bright side of population decline

With global population expected to decline from 2064, it’s easy to focus on the negative economic outcomes. But what about the positives, such as wages growth, sustainability, and innovation and productivity improvements?

A growing body of research is showing that global population growth is slowing down and will likely drop into negative territory within the next few decades.

One study predicted that the global population would peak at 9.7 billion people in 2064 – up from around 7.9 billion currently – before falling to 8.8 billion by the end of this century. If this is true, it'll be the first sustained period of world population decline since the Black Death.

But what’s worrying some experts today is that many countries are already seeing natural population growth come to a standstill. Here in Australia, the lack of immigration contributed to population growth of practically zero in the year to March 2021 . Similar stories are playing out in the UK, the US, and many other developed countries.

 

Shrinking populations and financial markets

What economic impact will these demographics shifts have? After all, we can't ignore the human aspect of our economies. Financial markets are complex, interconnected ecosystems, and our attitudes and behaviour are key to how they perform.

Well, when it comes to population decline, many analysts are bearish.

They say lower birth rates create ageing nations, with fewer people available to look after the elderly. These stretched workforces limit innovation and productivity. Growing economies need growing populations, it is claimed.

However, I believe this is an overly pessimistic view. I'm far more bullish about the impact of declining populations. There are many possible benefits to having fewer people in the world. And I suspect even the negatives aren't quite as bad as people suggest, given humans have an incredible knack for adapting to change.

 

Wage growth

It's widely thought that a smaller working-age population could lift wages. Fewer workers give the labour market greater bargaining power, leading to better working conditions.

There would also likely be more opportunities for women and ethnic minorities, increasing workforce diversity. Research shows that diverse organisations tend to financially outperform their less inclusive competitors. They are also six times more likely to be innovative and agile.

Economic growth might slow, but it is my hope that the above changes would lead to healthier, happier, and more engaged workers – and a more even wealth distribution.

The late Swedish statistician Hans Rosling argued convincingly for bringing the world's final 1 billion people out of extreme poverty to limit population growth and provide better opportunities for millions of families who are struggling.

I'm confident that humans can adjust to a 'new normal' where economic growth is still a goal, but not the only goal. Instead, perhaps we can focus more on creating a world where living standards and wealth distribution are our barometers of success.

Then, freed from poverty, some people will inevitably go on to become the scientists, entrepreneurs and leaders of tomorrow that we'll need when populations decline.

 

Innovation and productivity

The conventional logic is that bigger is better when it comes to population and innovation. More people means more researchers and innovators (as well as more consumers to sell to). And yet, only three of Bloomberg's top 10 most innovative economies have populations exceeding 10 million people (South Korea, Germany and Sweden).

So, it's clearly not just a numbers game

Investing in education and encouraging more people to work in research and development also facilitates the flow of new ideas. Furthermore, automation can accelerate innovation and productivity by performing all of the tedious, time-consuming tasks that would usually fall to humans, freeing them up for more value-oriented work.

Initial predictions for automation were bleak. The 'rise of the robots' would mean job losses, economists said, as employers replaced workers en-masse with machines that never get sick or tired.

More recent research is challenging that theory. One study found that each robot per 1,000 employees boosts employment at a firm by 2.2%. Essentially, automation makes companies more competitive and profitable, helping them to grow the business and swell their ranks.

 

Sustainability matters

It's common to hear industry commentators make statements like "ignoring the environmental benefits for a moment" or "sustainability aside" when talking about population decline. But we can't simply forget about the environment. It's too important. Ever-growing populations continue to put a strain on the world and its resources.

Declining populations can help.

Researchers recently calculated that having one child fewer saves approximately 59 tonnes of CO2 emissions per year. "Having one less child saves each parent more than 20 times (of CO2 emissions) as living without a car, or about 70 times as much as eliminating meat from the diet" Sustainable Population Australia says.

To be clear, I'm not advocating that people should stop having children. I have written previously about the potential repercussions of a 'baby bust' if rising infertility rates are ignored. In addition, and as things stand right now, the global human population begins to decline at the end of this century and is likely to continue along the decline trajectory.

What I am wanting to highlight is the environmental benefits that are associated with population decline.

 

Finding the right balance

Of course, there are some roles that robots simply can't fill. Ageing populations will place more pressure on our healthcare and elderly care systems, for example. And it's hard to imagine artificial intelligence ever having as good a bedside manner as a real doctor or nurse.

Australia's healthcare and superannuation systems are excellent, which should relieve some of this burden. But we must also find ways to make certain roles, such as elderly care, more rewarding.

Automation is therefore just one piece of the puzzle. We must also recognise there are complex services that only humans can provide.

There are undoubtedly challenges we face with declining populations, and I don't pretend to have the answers.

But do our narratives have to be so gloomy? There is far more room for optimism based on the human capacity to adapt.

 

First published on the Firstlinks Newsletter. A free subscription for nabtrade clients is available here.

 

 

Graham Hand is Managing Editor of the financial newsletter Firstlinks. Analysis as at 29 June 2019. This information has been provided by Firstlinks, a publication of Morningstar Australasia (ABN: 95 090 665 544, AFSL 240892), for WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities, we), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances.