Go forth and multiply a lot less

The Economist: Go forth and multiply a lot less

Lower fertility is changing the world for the better.

SOMETIME in the next few years (if it hasn’t happened already) the world will reach a milestone: half of humanity will be having only enough children to replace itself. That is, the fertility rate of half the world will be 2.1 or below. This is the “replacement level of fertility”, the magic number that causes a country’s population to slow down and eventually to stabilise. According to the United Nations population division, 2.9 billion people out of a total of 6.5 billion were living in countries at or below this point in 2000-05. The number will rise to 3.4 billion out of 7 billion in the early 2010s and to over 50% in the middle of the next decade. The countries include not only Russia and Japan but Brazil, Indonesia, China and even south India.

The move to replacement-level fertility is one of the most dramatic social changes in history. It manifested itself in the violent demonstrations by students against their clerical rulers in Iran this year. It almost certainly contributed to the rising numbers of middle-class voters who backed the incumbent governments of Indonesia and India. It shows up in rural Malaysia in richer, emptier villages surrounded by mechanised farms. And everywhere, it is changing traditional family life by enabling women to work and children to be educated. At a time when Malthusian alarms are ringing because of environmental pressures, falling fertility may even provide a measure of reassurance about global population trends. …

… Why has fertility fallen so fast, so widely? Malthus himself thought richer people would have more children and, as any biologist will tell you, animal populations  increase when there is more food around.

To understand why wealthy people differ from well-fed animals, imagine yourself a dirt-poor (male) peasant 50 years ago. Your fields are in the middle of nowhere. Your village has no school, hospital or government services, certainly no pensions. Few goods come into it from outside, though disease is rampant and security fragile. Ploughing and reaping are done by hand. But if the harvest is normal, you usually have enough to go round. In these circumstances, the benefit of an extra pair of hands to gather the harvest outweighs the cost of feeding an extra mouth (which anyway falls on your wife more than you). And when you can no longer work in the fields, your children will be the only ones to look after you. In such a society, all the incentives point to having large families.

Now imagine you are a bit richer. You may have moved to a town, or your village may have grown. Schools, markets and factories are within reach. And suddenly, the incentives change. A tractor can gather the harvest better than children. Your wife may get a factory job—and now her lost wages must be set against the benefits of another baby. Education, thrift and a stake in the future become more important, and these middle-class virtues go hand in hand with smaller families. Education costs money, so you may not be able to afford a large family. Perhaps the state provides a pension and you no longer need children to look after you. And perhaps your wife is no longer willing to bear endless offspring. Higher living standards, better communications and more education enable you to rely on markets and public services, not just yourself and your family.

Macroeconomic research bears out this picture. Fertility starts to drop at an annual income per person of $1,000-2,000 and falls until it hits the replacement level at an income per head of $4,000-10,000 a year (see chart 2). This roughly tracks the passage from poverty to middle-income status and from an agrarian society to a modern one. Thereafter fertility continues at or below replacement until, for some, it turns up again …

… Higher standards of living, then, reduce fertility. And lower fertility improves living standards. This is what China’s government says. It is also the view that has emerged from demographic research over the past 20 years.* In the 1980s, population was regarded as relatively unimportant to economic performance. American delegates told a UN conference in 1984 that “population growth is, in and of itself, neither good nor bad; it is a neutral phenomenon.” Recent research suggests otherwise.

Cutting the fertility rate from six to two can help an economy in several ways. First, as fertility falls it changes the structure of the population, increasing the size of the workforce relative to the numbers of children and old people. When fertility is high and a country is young (median age below 20), there are huge numbers of children and the overall dependency ratio is high. When a country is ageing (median age above 40), it again has a high dependency ratio, this time because of old people. …

…  But the switch from one to the other produces a Goldilocks generation. Because fertility is falling, there are relatively few children. Because of high mortality earlier, there are relatively few grandparents. Instead, countries have a bulge of working-age adults. This happened to Europe after the baby boom of 1945-65 and produced les trente glorieuses (30 years of growth). It is happening now in Asia and Latin America. East Asia has done better than Latin America, showing that lower fertility alone does not determine economic success. Eventually developing countries will face the same problems of ageing as Europe and Japan do. But for the moment, Asians and Latinos are enjoying fertility that is neither too hot, nor too cold. According to David Bloom of the Harvard School of Public Health, the “demographic dividend” (his term) accounted for a third of East Asian growth in 1965-90.

Slowing fertility has other benefits. By making it easier for women to work, it boosts the size of the labour force. Because there are fewer dependent children and old people, households have more money left for savings, which can be ploughed into investment. Chinese household savings (obviously influenced by many things, not just demography) reached almost 25% of GDP in 2008, helping to finance investment of an unprecedented 40% of GDP. This in turn accounted for practically all the increase in Chinese GDP in the first half of this year.

Lastly, low fertility makes possible a more rapid accumulation of capital per head. To see how, think about what happens to a farm as it is handed down the generations in a country without primogeniture. The more children there are, the more the farm is divided. Eventually, these patches become so tiny they cease to be efficient. This is occurring in Bangladesh. …

… So if population does matter after all, does that mean the Malthusians were right?

Not entirely. Neo-Malthusians think the world has too many people. But for most countries, the population questions that matter most are either: do we have enough people to support an ageing society? Or: how can we take advantage of having just the right number for economic growth? It is fair to say that these perceptions are not mutually exclusive. The world might indeed have the right numbers to boost growth and still have too many for the environment. The right response to that, though, would be to curb pollution and try to alter the pattern of growth to make it less resource-intensive, rather than to control population directly. …