Living off our capital

Until recently any criticism of Australia’s population size and population growth rate was muted by tacit agreement between the main political parties. The Hawke government went against its own policy and acknowledged it was going against public opinion in pushing population growth. While Robert Ray was Minister for Immigration he created the Bureau of Immigration Research whose principal task it was to show how beneficial population growth was to Australia. Neither of these things, at the time, occasioned any criticism from the Opposition.

With the election of the Howard government a deception developed which led the public to believe that immigration was being restricted while, at the same time, the government was steadily increasing the intake, mainly of skilled migrants.

This pro-population growth policy of both major parties was also pursued by powerful vested interests in property development, real estate and sections of the retail industry. Commercial media drew income from these interests so were uncritical of population growth. Paradoxically, the ABC, often thought to be left leaning, also supported high population growth but for the reason that it had accepted that to limit immigration was an indication of racism.

Many in the environment movement and in The Greens party held the same bias. This confluence of support for population growth produced a climate of public opinion in which many of the self serving assertions about the “benefits” of population growth were accepted uncritically. Repeat a lie often enough and in the public mind it becomes the truth.

In the last 12 months or so public debate has shifted. The projections of Australia’s population reaching 50 million by 2050, the outspoken and well informed speeches by Kelvin Thomson and Dick Smith’s film The Population Puzzle have all opened the issue wide. Then Kevin Rudd’s uncritical, “I support a Big Australia” and Julia Gillard’s response to the public dismay at Rudd’s remark have opened the debate.

It is no longer difficult to raise the issue of population growth in public although this has caused those vested interests mentioned above to shout their mistruths and deceptions even more loudly, more often and through the mouthpieces of more numerous “think tanks” which they have created and which have names designed to give the impression of independent quasi-academic organisations.

The two assertions most often and loudly proclaimed are that population growth is necessary and desirable to grow the economy and that without population growth there shall not be enough workers to support an ageing population. I use the word “assertions” to describe these claims rather than “arguments” for neither is supported by evidence.

Economic growth is the yard-stick by which our Federal and each State treasurer, together with most economists and media commentators judge our “progress”. You don’t have to listen to any political speech, radio or TV news broadcast for long before you will be told how well or poorly we or another nation are doing in terms of economic growth. And the implicit assumption behind all such speeches and news items is that economic growth is a reliable indicator of the progress and welfare of the nation. Economic growth refers to growth of Gross Domestic Product (GDP) and is expressed as a percentage. For smaller social units, such as The Australian states, the measure is Gross State Product or GSP.

While it is not the case that GDP and GSP are good or reliable measures of human welfare or progress and some of the flaws in this measure shall be dealt with below, let’s assume for the moment that growth in these indexes are the desirable goal towards which we should be bending our best efforts. It would then follow that growth in these indexes on a per capita basis would be an even better measure of progress. If growth of total GDP or GSP measures the wealth/welfare of a society but population growth is outstripping economic growth, it follows that each person is getting less wealth/welfare. It matters little to the average citizen that national GDP is growing if his or her share of national wealth is declining in absolute amounts.

Researching this issue over many years it became clear to me that a difference exists between those countries regarded as industrial/rich/developed and those regarded as poor and “underdeveloped”. Without going into the details of the statistical analysis used it is a consistent finding that there is no statistically significant correlation between population size, or population growth rate, on the one hand, and growth of per capita GDP on the other, when the countries of the OECD are compared. There are countries with large and growing populations such as the US that do not grow their per capita GDPs as much as countries with smaller and/or slower growing populations. But across the whole of the OECD there is no correlation. So, if a country wants to grow its per capita GDP, it does not need to grow its population.

When poor countries are compared it can be shown that there is a strong negative correlation between population growth and growth of per capita GDP. This is intuitively what one might expect, especially as the poor will spend relatively more on the essentials of life and GDP will align more closely with welfare than in a rich country.

Comparison of the Australian states shows the same lack of correlation between population growth and growth of per capita GSP as in the OECD, although with only six states and two territories the analysis is less incisive.

The ABS released its latest figures for population growth in the Australian states and territories just a few days ago. These figures showed that those states with the highest rates of population growth performed worst in terms of per capita economic growth.

If, for the moment, economic growth is assumed to be a measure of “standard of living” then the states with the highest rates of population growth, Western Australia and Queensland suffered the largest reduction in the standard of living, -2 per cent and -1.9 per cent respectively.

On the other hand the Northern Territory, Tasmania and South Australia showed growth of per capita GSP of 0.7, 0.5 and 0.1 per cent respectively. Australia, as a whole suffered a decline in per capita GDP of 0.7 per cent. (see graph)

So much for the repeated claim by Wayne Swan that the Australian economy is performing well! These figures clearly indicate that far from improving the lot of ordinary citizens, population growth by exceeding economic growth is, on average, making each citizen worse off.

Importantly also, these raw figures do not reveal the full extent of the damaging impact of population growth on the welfare of ordinary citizens. Much of the “cost” of the additional infrastructure required for population growth is added to and inflates GDP and GSP. Thus in terms of the existing population the growth of total GDP/GSP does not represent a real benefit.

Moreover, the costs borne by ordinary citizens in terms of traffic congestion, longer travel times and ameliorating environmental damage are also added to GDP/GSP. These are real costs masquerading as benefits through the misleading way in which GDP and GSP measures are constructed.

These data expose, yet again, the deceit behind the self-interested claims of property developers and some other business interests that population growth is good for Australians and the similar claims made by the major parties that receive large donations from these interests.

Throughout this short article the conventional economic view has been adopted so far: that seeking to grow the economy (grow GDP or GSP) is a desirable social goal and that this growth is a useful surrogate measure of improving human welfare. This is not the case and for reasons which go well beyond the inclusion of costs as benefits mentioned above.

It is claimed that Australia needs more people because our economy is substantially dependent of mineral exploitation and we need skilled workers in those industries and other skilled workers to support the first lot, i.e., build houses for them. The exploitation of non-renewable mineral resources adds to GDP rather like taking money from your bank account “adds to your wealth”. When non-renewable resources are taken from the ground our capital assets are depleted just as our bank account is depleted when we withdraw money. GDP is a cash-flow account rather like money in our pocket. Because we keep no National Capital Account, synonymous with our personal bank account, we are led to believe we are becoming richer through mineral exploitation whereas comprehensive national accounts would show we only become richer to the extent of the value-adding that we do to these resources - and that is very little.

And how does this fit with population? Through non-renewable mineral exploitation, Australia is living on capital, not on interest on capital. We are running down our capital quite quickly. For example according to ABARE, Australia’s black coal reserves amount to 39 billion tonnes and our rate of increase in exploitation is 2.3 per cent per annum. At that rate the reserves will all be gone just after 2050 when, on current rates of population growth, our population will be of the order of 40 million.The implicit assumption that Australia can continue to grow both its GDP (based on mineral exploitation) and its population is putting us on a collision course for collapse.