Population decline is something of a hot topic at the moment, and it’s not difficult to see why. Over the last few years, a growing body of research has shown that global population growth is slowing down and will likely drop into negative territory within the next few decades.
A University of Washington study published in The Lancet predicted that the global population would peak at 9.7 billion people in 2064 – up from around 7.9 billion currently – before falling to approximately 8.8 billion by the end of this century.
If this turns out to be true, it’ll be the first sustained period of world population decline since the Black Death, nearly 700 years ago.
But what’s worrying some experts today is that many developed countries are already seeing natural population growth come to a standstill, leaving nations reliant on migration to maintain adequate levels of working-age people.
Take the UK, for example. Falling birth rates and changing social trends (topics I’ve discussed before in a previous article) mean that more people in the country will die each year than are born from 2025 onwards1.
Here in Australia, population growth was practically zero in the year to March 2021 because of Covid-19 restrictions preventing overseas migration2. It’s a similar story in the US3.
In fact, Japan, South Korea and Italy already have declining populations, and only two out of the 38 OECD countries (Israel and Mexico) have birth rates of 2.1 or above – the level required to sustain natural population growth.
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 actions, attitudes and behaviour are key to how they perform – which is why I firmly believe human psychology and sociology are so important when thinking about the future of markets.
And when it comes to population decline, many analysts are taking a bearish stance.
They say lower birth rates will result in ageing nations, with fewer people available to look after the elderly. Stretched workforces would limit innovation and productivity, while encouraging migration to plug the gap could cause social friction. 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 a number of possible benefits to having fewer people in the world. And I suspect even the negatives aren’t quite as bad as many may think, given humans have an incredible knack for adapting to their environments.
Speaking of which, let’s start there. The environment.
When reading about population decline, it’s common to see industry commentators make statements like “ignoring the environmental benefits for a moment” or “sustainability aside”.
But we can’t simply forget about the environment. It’s too important. An ever-growing population will continue to put an ongoing strain on the world and its resources. And declining populations can be a part of the solution.
Providing more family planning options is one of the most actionable and workable solutions for combating climate change. Together with universal education, they could reduce CO2 emissions by 103 gigatons by 20504.
This would achieve a bigger reduction than global onshore and offshore wind power combined.
Researchers recently calculated that having one child fewer saves approximately 59 tonnes of CO2 emissions per year, taking into account not only a typical child’s lifetime emissions, but also the consumption of their possible future generations5.
“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,” the report 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.
Driving wage growth
While it’s always difficult to predict how markets will react to change, it’s widely thought that a smaller working-age population could lift wages. Fewer workers give the labour market greater bargaining power, which should lead to better working conditions.
There would also likely be more opportunities for women and ethnic minorities, increasing the diversity of the workforce. Research shows that diverse organisations tend to financially outperform their less inclusive competitors6. They are also six times more likely to be innovative and agile7.
And while overall economic growth might slow, it is my hope that the above changes would lead to healthier, happier and more engaged workers, as well as a more even wealth distribution.
In fact, the late Swedish statistician and academic Hans Rosling argued convincingly that by bringing the world’s final 1 billion people out of extreme poverty, we could limit population growth and provide better opportunities for the millions of families who are currently struggling.
I’m confident that humans can adjust to a ‘new normal’ where economic growth is still a goal, but it’s not the only goal. Instead, perhaps we can focus more on creating a world where living standards and wealth distribution are the main yardstick for success.
Then, freed from poverty, some people will inevitably go on to become the scientists, policymakers, entrepreneurs and leaders of tomorrow that we’ll need to ensure continued progress when populations decline.
Maintaining 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 competition and consumers to sell to).
But it’s clearly not only population size that matters.
According to the latest Bloomberg Innovation Index, only three of the top 10 most innovative economies in the world have a population of more than 10 million people (South Korea, Germany and – at 10.5 million ¬– Sweden)8.
It’s not just a numbers game. Investing in education and encouraging more people to work in research and development rather than production also helps ensure the continued flow of new ideas. Automation can also help us boost innovation and productivity.
Initial predictions for automation were fairly bleak. The ‘rise of the robots’ would mean job losses, economists said, as employers replaced workers en-masse with machines that never get ill, never get tired and never switch jobs.
More recent research is beginning to bust that myth, however. One study found that adding one robot to the workforce per 1,000 employees boosts employment at a firm by 2.2%9. Essentially, automation can help businesses become more profitable and competitive, thus helping them to grow and swell their employment ranks.
From an innovation perspective, automation can perform all of the tedious, time-consuming manual tasks that would usually fall to human staff, freeing them up for more value-oriented, forward-thinking work.
South Korea is an excellent example. The country has the most robots per 10,000 workers in the world10, and it was recently ranked by Bloomberg as the world’s most innovative economy.
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.
In Australia, our healthcare and superannuation systems are excellent, which should relieve some of the burden. But we must also find ways to make certain roles, such as elderly care, more rewarding and satisfying.
Automation is therefore just one piece of the puzzle. We must navigate a path whereby we implement innovative technologies successfully while also recognising there are some complex services that only humans can provide.
Ultimately, there are undoubtedly challenges we face with declining populations. And I certainly don’t pretend to have all of the answers.
But do our economic and social narratives surrounding the issue have to be so gloomy? I believe there is far more room to be optimistic – about the environment, about living standards, and about innovation and productivity.
That’s not to say we should simply hope for the best. We must also be prepared for the possible downsides of population decline and adapt accordingly. And if I’m confident of one thing, it’s that the human capacity to adapt is second to none.
Emma Davidson is Head of Corporate Affairs at London-based Staude Capital, manager of the Global Value Fund (ASX:GVF). This article is the opinion of the writer and does not consider the circumstances of any individual.