Why falling fertility is not a crisis

By Daniel Moss

Demographic transition has been a defining feature of many significant shifts in economic history. And yet there’s an undercurrent of doom to our recent discussions on fertility and seniority changes that should be challenged.

Birthrates are retreating and, in some major economies, are well below levels historically regarded as desirable. This development, years in the making, either terrifies us or amuses us. When not pushed to enhance food security in a crowded and hungry world, policymakers are urged to plan for a future where the populace contracts too much and the functioning of entire communities is jeopardized. There’s also a burgeoning market for exotica, like the stroller boom in South Korea — for getting around with poodles, not children. The extremes are unhelpful and can’t obscure a broader point: Women have experienced the freedom of having fewer children, or none at all, and there is no going back for them. We should proceed deliberately with responses that buttress the ability to live a good life in a world that’s a touch smaller, not one that’s empty.

Families are becoming more compact. This is intrinsically linked to greater prosperity. Conversations about headcount were, for decades, dominated by fears of too many mouths to feed and too few resources to support them. Mass famines would ravage the planet and law and order would break down. The 1968 book The Population Bomb by biologist Paul Ehrlich, which sold millions of copies, captured the mood. Two generations on, bells are again ringing — for the reverse reason. In a recent report, the United Nations Population Division projected that the world’s headcount will peak at 10.3 billion in the 2080s; a decade ago, the agency saw a slim chance of that occurring. The hand-wringing then was about bursting cities struggling to provide services like healthcare, schooling and sanitation. Now, the UN projects there will be 700 million fewer inhabitants in 2100 than foreseen in the agency’s prior projection. That shift ought to bring relief, not anxiety.

Instead, there is a surplus of doom. Elon Musk proclaimed population “collapse” a certainty. For years, China was the most populous-nation and that status contributed to the sense of awe that dominated economic discourse. The country subsequently surrendered the mantle to India — a big moment in demographic history — and sees the switch as a blow to its prestige. President Xi Jinping equates a large and expanding citizenry with a confident society. He wants women to have more babies as a national service. In 2015, China jettisoned the one-child policy introduced in the years after Mao Zedong’s death, as new leaders rebuilt a shattered economy. The edict worked well, arguably too well. Along with market liberalization, the step curbed poverty and set the country on a growth path with few parallels.

Beijing isn’t alone in conflating birthrates with statecraft. In 1974, US National Security Adviser Henry Kissinger fired off a memo to top officials, including the heads of the Central Intelligence Agency and the US Agency for International Development. He sought a review of aid programs to assess whether they were sufficiently geared toward combating a projected surge in population, especially in developing countries. Washington was anxious that a rapidly expanding citizenry would destabilize pro-American governments and increase support for Communism. At the core of the issue was access to raw materials and energy supplies; if friendly regimes were overthrown and vital exports blocked, America’s economy would have an enormous problem.

But times change and priorities evolve. Flawed approaches should be rectified. At the same time, it’s important to acknowledge there are sound reasons humanity got to this point. It’s a pity discussion is so polarized. The planet isn’t about to empty. Nor is innovation likely to grind to a halt.

China is big, but the concern is everywhere. That’s spurring initiatives that are sensible, if overdue. South Korea, where women have fewer children than almost anywhere else, will establish a ministry to deal with the “national emergency.” Seoul has already appointed a birth tsar. Thailand plans an overhaul of adoption laws, Singapore is doubling paternity leave, and Malaysia wants to curb dependence on income tax. Consumption levies are rising in locations that touted low-tax credentials during Asia’s boom years. In a future with more retirees and fewer young salary earners, this process needs to accelerate. These are sound, constructive policies. Some modifications are more eye-catching, like the storied bus company in Japan that’s so concerned about not having passengers that’s branching out into the hedge-fund business.

Some adjustments are clearly warranted: Total fertility rates, which estimate how many children a woman will have, are in marked decline around the world. The trend is starkest in Asia. The rate in South Korea sank to 0.7 last year, Singapore’s dipped below 1 for the first time, and Japan’s edged down to a record 1.2. China, whose abundant and inexpensive labor reshaped supply chains in the 1990s, and turned the country into the workshop of the world, is wrestling with a population drop. Even the Philippines, whose workers keep hospital systems going far from home and the merchant marine afloat, has seen a notable fall in family size.

Panic misses the mark, however. Demographic transition has been present at major hinge points in history, including the industrial revolution, and may even have been the decisive element. As society moved from being predominantly agricultural to urban, there was less need to have large families. Parents realized that as education standards grew, it was better to invest in smaller families. The returns could be enormous.

This was the advent of the so-called demographic dividend, the sweet spot where the labor force expanded dramatically with fewer dependents. If you invested in education during this window, you got the payout. During a reporting trip I took to the Philippines last year, officials told me they were optimistic that they could get the dividend. The shift to smaller households was welcomed, not dreaded.

If so much good has come from smaller families through human history, why the consternation? The difference, according to Mark Koyama, a professor at George Mason University in Fairfax, Virginia and co-author of How the World Became Rich, is that economic development in East Asia has been so much faster than in Europe and the US. “They compressed 200 years into 50 years,” Koyama told me. “In terms of demography, they compressed what happened in 80 years into 30.”

The implications for fiscal policy are significant, but not insurmountable. Falling fertility means a major reduction in the cohort coming into their careers, while the older group swells. That leaves authorities with less tax revenue to buttress spending on pensions and medical care. China’s move in September to lift the retirement age, the first increase since 1978, was a nod to this concern. If worries about the solvency of social security systems leads more governments to shore them up, so much the better. That would be a good approach at any time, whatever the fertility rate.

One stumbling block is us. We struggle to adapt to the idea that slower growth can be beneficial. So much of our mindset, and so many economic models, expect things are going to get better — and that assumption is based on bigger is better. We have a bias toward plenty. We mourn bankrupt municipalities in rural Japan with their boarded up pachinko parlors and abandoned homes. The flipside is that in some areas there are two jobs for every person and the nation’s unemployment has consistently been below that of its Group of Seven peers. Back when people obsessed about Japan’s brush with deflation and off-and-on recessions, declining population was thrown in as another interminable woe. Japan’s demographic profile hasn’t fundamentally changed, but the nation is celebrated as regaining its former prowess. Stocks are high, inflation is up, interest rates are rising, and Warren Buffett is bullish.

These changing demographics will also require a leap in how society regards the middle-aged and elderly. The way we talk about race, gender, and identity has changed for the better. Why is language about age stuck in the past? We know that finishing work at 65 is fiction for many people, for example. We should be talking about longevity, not aging. Artificial intelligence can plug emerging holes in the workforce. To the consternation of some, bots are already replacing people in a range of fields, including call centers in the Philippines. But, as one executive explained to me, the machine still requires someone to maintain it and develop capabilities.

Fortunately, conventional wisdom about labor is getting some scrutiny. Yes, the share of the population that’s working age will contract and bring with it a cooler economic expansion. But the labor market isn’t about to implode. If people’s working lives weren’t so constrained and measures of the labor force’s vitality recognized people working longer, and later, then the hit to growth isn’t nearly so pronounced, according to a paper by two Harvard University academics. Policy should be driven by anticipated moves in the economy, not the rear-view mirror.

A major problem with throwing around words like “emergency” is that governments may actually invoke those conditions, bringing the full force of their power to bear. This where politicians overreact to perceived threats. “It opens the door to places we don’t want to go,” warns Jennifer Sciubba, president of the Population Reference Bureau in Washington. “Too many times ‘emergency’ has meant suspend checks and balances, just this one time.” She recalls former Indian Prime Minister Indira Gandhi’s imposition of martial law in the 1970s and the aggressiveness with which mass sterilization was pushed during that sorry period. There is good reason to be wary of something similar happening to achieve the opposite goal. Women would surely be the losers.

We need to be alive to the challenges of population growth, but resist the allure of rash decisions. The fertility ship has sailed. It’s time to focus on adaptation and remember the good that has come our way as families have become smaller.