Charles Berger’s valuable piece “If Norway can prosper with a stable population, why can’t Australia?” (On Line Opinion, February 22, 2010) highlighted the lack of evidence supporting the supposition that population growth stimulates economic prosperity. He revealed that no correlation exists between population growth rate and per capita GDP growth among OECD countries. The 2010 Intergenerational Report (PDF 1.02MB) contrived to imply such a correlation by selecting only the “basket cases” of Japan and Italy to compare with Australia. Why not contrast ourselves with Norway or Slovenia, he asked.
However, his discussion perpetuates the vacillation about the economic costs and benefits of population growth, by citing the so-called “economies and diseconomies of scale”. This is the wrong framing of the question. It was wrong when the National Population Council cited it in 1992, and this wrong-headedness is why our understanding has moved so little since then.
Instead of focusing on scale, we should be looking to a far greater extent at the economies and diseconomies of growth rate.
At issue is not a comparison of 2009 with 22 million people versus 2049 with 36 million. It is the comparison of 2009 with 2.1 per cent annual population growth with 1999 at 1 per cent, or perhaps with a hypothetical 2030 with zero growth.
Don’t get me wrong. The “diseconomies of scale” are both real and serious. It’s just that there are no credible arguments for economies of scale, to counter the obvious negatives. The reasons put forward for high immigration and birth rates are to sustain growth, not to achieve a larger population. They are concerned with the economics of here-and-now, while the negatives of scale are mainly future environmental and social impacts. Triple bottom lines never did have clout: there’s only one bottom line that speaks on Capital Hill.
It is argued primarily that we must have an expanding population, in order to maintain “labour supply”, and to counter demographic ageing. These are related but subtly different goals. A third goal, not so publicly acknowledged but the driver for the largest single source of political donations, is to maintain the inflation of property values.
I don’t intend to go into a detailed analysis of the case for each of these, as I want to focus instead on the neglected diseconomies of growth. Suffice to say that all three goals of growth are examples of Ponzi scheme economics, not contributing significantly to the common good but rather shifting wealth from the many to the few, from the younger to the older, and from future people to current people.
Of course, when one is used to being the beneficiary of a Ponzi scheme, weaning oneself off can be an unattractive proposition. Luckily, for most of us the impact would be more than off-set by the dividends of population stabilisation. It turns out that the diseconomies of growth rate far outweigh the benefits.
To explain how these diseconomies work, I’m going to use some plausible ball-park figures. These are not precise costings - they are only illustrating a rationale by which the costing could be done. My point is that Treasury has not done such analyses, and this omission is unleashing a disaster on Australia.
Let’s start with infrastructure. In a stable population, our infrastructure needs would include replacing worn-out facilities and modernising items whose technology or design has been superseded. Different items of infrastructure have differing useful lifespans, but a cost-weighted average must surely be at least 50 years, once we remove growth as a reason for facilities being rendered obsolete. That would imply the need to replace no more than 2 per cent of all infrastructure annually.
If population is growing at 2 per cent, we need to expand the capacity of our entire stock of infrastructure by 2 per cent per annum, or else we start building up an infrastructure deficit, and service access and quality declines. That means doubling the annual requirement for creating infrastructure, compared with a stable population: 2 per cent replacement plus 2 per cent additional. Given that the useful life of much existing infrastructure is reduced by growth outstripping its capacity, the rate of replacement must increase on top of the requirement for addition.
Based on this conservative estimate, we can see that the Howard and Rudd governments have imposed a 33 per cent or greater hike in infrastructure requirement by doubling our population growth within a decade. No wonder local governments are squealing. Evidently, they have not actually increased spending by that much, and this is why we are all suddenly feeling the infrastructure stress.
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