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Shrinking population=economic decline?

Published at: 26-05-2019

Posted on: May 26th, 2019 by RaduC No Comments

Gross Domestic Product, the GDP, is a measure of the added value produced in a country. It is stubbornly tracked and mentioned to trace national economic changes. GDP growth has been traditionally the sole desire of economic and political elites. Any dip (negative growth in economists` lingo) in the GDP is closely scrutinized and two consecutive quarters of economic decline is all it takes to come up with the brutal diagnosis: Recession.

The question that I think we should be asking ourselves is: has GDP growth become a goal in itself? What is the real purpose of calculating this indicator?  How strong the linkage between people`s wellbeing and GDP, even at per capita values, continues to be?

What is the true reason for calculating GDP, at the end of the day: to find out the scale of collective or individual wealth? We are even more entitled to ask this question as economic growth over the last years, the increase in wealth in developed countries was accompanied by higher social polarization. This is why, even a synthetic indicator, as GDP per capita is, can be the conveyor of a distorted message. Countries with increasing GDP per capita have been in the situation where a large portion of their population saw their wealth stagnate or even fall. The statistical averages in reports painting a good picture were not reflecting the widening extremes.

The fixation over economic growth comes also with another obsession: population growth. That led to the questionable rush by some decision-makers to open the gates to immigrants at the expense of increased nationalism and far right movements. There is this belief among politicians, some of the economists and business people that a country`s military and economic strengths can only exist if the number of individuals in a country is higher. Let`s look at this two topics separately.

As far as the military power of the future is concerned, there is a clear tendency to create armies based less and less on humans engaging on battlefields and more on drones and other remotely-controlled autonomous vehicles. In the future, these lethal machines will be able to coordinate and limit the role of humans in decision-making and command. Yes, a country will be able to have a powerful military despite the decline in and aging of its population. Indeed, even today, the strongest armies are not the ones with the highest number of combatants, but the most sophisticated technologies.

As to the economic variable, the fact that wealth can be achieved only by preventing a decrease in population is too simplistic of an approach. From the perspective of the current and coming tech advances, linking growth to the size of the population is less and less convincing.

Workforce, irrespective of its degree of qualification, is expected to play a lesser part in the economy as automated production lines, expert-systems and AI render humans less needed. It is not the quantity of human resources but its quality that will matter.

This, however, requires a complete paradigm shift: giving up the vicious cycle (some think of it as a Ponzi scheme) of never-ending budget deficits, which increase external debt and need to be supported by continuous increases in GDP. It also entails scrapping public retirement schemes which for decades have relied on the fact that younger generations outnumber the older ones. Such expectations are no longer realistic.

Another objection of those in favor of preventing population decline by any means is that decreasing human resources will adversely impact the creative and innovative potential of countries,  fostered by young generations with much lower chances of finding “geniuses” in a smaller population. This reasoning, correct as it may have proven to be in the last century, needs to be revisited as we will definitely come up with AI machines capable of taking over the bulk of human creative work. Consequently, the creative potential of a nation could be preserved by developing artificial intelligence technology.

All the above-mentioned solutions, however, have a common denominator: the capacity of those countries to invest significant amounts into technology and education. Lower numbers of individuals will have to be offset by their quality. More highly qualified graduates and less under-skilled workers.

This scenario, though, runs a risk which I don`t think to be quantity-related, but rather ethics-related. Despite governments` best efforts, despite the high performance of educational systems, it will be virtually impossible to turn everybody into mathematicians, programmers or inventors. I will not start a whole debate on the extent to which human intelligence follows a normal distribution curve. Clearly, not all citizens are at the top of the curve. There is a distribution there, whatever it may be. A country which compensates a decrease in population by a higher number of robots and autonomous machines will unavoidable create extreme polarization within the nation between those owning financial or intelligence capital, a minority, and the rest. The risk is to see the middle class thinning out into nothingness.

That means that a rising GDP per capita and even a flat one is likely to hide considerable social differences and a dynamic where citizens are pulling in opposite directions.

And finally, one more thing should be highlighted. Emerging economies have no alternatives to positive growth. The process of catching up with the advanced economies must occur at a sustained pace. To be able to use technology to offset a likely population decline, as mentioned earlier, they will require financial capital and brains. From this perspective, the major risk for emerging economies is to grow old before they get rich. To put it differently, they will be facing the demographic challenges before becoming financially capable to cope with them. That is a risk that developed economies face to a lesser extent.

In conclusion, wealthy states with intelligence capital should not obsess so much over a shrinking population as the technological revolution is capable to provide solutions. The countries still in the development process, however, risk of running out of time if upward demographic trends are not maintained.

Have a nice weekend!

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