Increasingly, one sees articles in the business media and popular press about the calamity of a declining population, projected over the next half century.
The Wall Street Journal published one such piece called “The Baby Bust,” outlining the economic detriment of a falling fertility rate in not only industrialized countries, but also occurring in developing economies. The issues relate to growth in economic output, which is highly correlated to population growth, and the rising dependency ratio, which means that fewer working people are supporting a higher number of seniors, children and indigents.
While these demographic realities do represent significant effects that influence economies, they also represent positive trends in ensuring that the human species successfully survives the self-induced threats to its existence. Without population moderation and even decline, homo sapiens may turn out to be a fascinating but brief footnote of the long story of life on planet Earth.
To understand why business writers and economists think that a declining population is a problem, one must remember that U.S. GDP is driven by consumption for two-thirds of its value, which is a function of population and associated income. GDP growth is required for the owners of the means of production of goods and services to see an appreciation of their assets’ value.
Sixty percent of the equity markets is owned by institutional investors who represent that population’s financial security in old age. So population growth equals GDP growth, which equals asset value growth, which equals financial security in one’s senior years when one must rely upon those assets.
Now enters the dependency ratio. If the working population has to spend more of its income to support seniors, children and the indigent (either directly or through taxes), then there is less discretionary spending and thus a retardation of the portion of GDP growth related to consumption, with the exceptions of health care and life support services for the large dependent portion of the population. So assets do not increase in value and savings are consumed for living expenses rather than invested. Lower investment is another negative factor in the GDP formula.
All that sounds bad, and it is if you take a one or two-generation perspective of it.
When the Baby Boomers finally and totally ride off into the cosmic sunset, the reduced birth rate will result in a shrinkage of the population, which will diminish the resource load required to sustain it. If we are successful in collectively reducing our contribution rate to pollution, loss of arable land, loss of potable water, consumption of energy sources and population density, then the generations that follow in a few decades will have a much better quality of life and greater a chance for our species enduring.
Without a drop in population, we will exceed the ability of the planet to sustain us within the next few decades. Look it up, the data is all there in plain sight.
And so what if GDP stays flat? If we keep our GDP as it is today, with a stable population, but we do the things necessary to invest in a stronger middle class, then the quality of life for everyone will increase. All the research, and our own country’s historical evidence, shows that with a strong and stable middle class, every aspect of society and every class within it does better.
If there is a bifurcation between a few rich and many poor people, the quality of life is much worse for everyone. The poor experience a poor life, of course. But the rich do, too, because they become a threatened minority, constantly worrying about their security.
And it’s not a matter of some absolute definition of what “poor” means. Again, research has shown that perceived relative positioning in a society is the key component that results in satisfaction or dissatisfaction, optimism or pessimism about life, general health status and duration of life span.
Many times in my career, particularly in my consulting roles, I met with business leaders who wanted help in figuring out how to grow their businesses successfully. Before I began working with them on strategic planning, organizational design, talent development, etc., I would ask them, “Why do you want to grow?”
That question would usually result in a blank stare for a few minutes, as if to say, “Are you kidding me? Isn’t it obvious? To make more money!”
Sometimes they would even say that out loud. My next question would be, “Okay, so you make more money. What then?”
In every case, the discussion would end up with the client defining success by measures that really had nothing to do with increasing their income beyond a fairly modest amount. The millions they hoped to achieve didn’t really translate into the kind of life they wanted to have.
I think we all fall victim to the mentality that without growth, there is no happiness. And we define “growth” by metrics like GDP or spendable income or asset appreciation. These indicators mean nothing by themselves.
The key question about growth is, “To what end?”
Growth for its own sake is simply activity. Sometimes, as we learned in the Great Recession, flat is the new “up,” especially if quality of life can improve even as the arbitrary metrics of success do not.
Sewitch is an entrepreneur and business psychologist. He serves as the vice president of global organization development for WD-40 Company. Sewitch can be reached at firstname.lastname@example.org.