14 September, 2023
CapX, by Matthew Lesh
A new academic paper arguing that a declining birth rate may actually boost living standards has grabbed some attention in recent days. Professor David Miles – who happens to be the chief forecaster for the Office for Budget Responsibility (OBR) – contends that ‘the economic impacts are likely, on balance, to be positive’ from falling populations.
Miles argues that a smaller population can increase the average quality of life because a higher population puts strains on limited public services, infrastructure and housing. A smaller population also means that less needs to be saved and invested, and more can be spent on consumption today.
This idea is superficially attractive – the country is full, we can’t build anything, and thus fewer people would be a good thing. ‘The UK appears collectively unable to save enough to stop its infrastructure (public and private) falling behind,’ Miles says while referring to ‘the anecdotal evidence from just looking at the UK’s crowded roads, trains and ever-shrinking houses’.
There is a marked defeatism at the heart of Miles’ argument. Britain’s lack of investment is taken as given – rather than a policy choice of successive governments. Miles is effectively playing with a new form of Malthusian logic, that is to assume the economy resembles a fixed structure, rather than something that can be expanded.
Indeed, as is pretty much universally acknowledged, the UK is facing a low-growth crisis. But there is nothing inevitable about this predicament. There isn’t a lack of willingness to invest in housing or infrastructure, there is a lack of permissions from the state because of a broken planning system. As Sam Dumitriu and Ben Hopkinson from Britain Remade recently pointed out, railways, trams, and roads cost significantly more to build in the UK compared to elsewhere because of NIMBY power and excessive bureaucracy.
The great human advancements of recent centuries have come from the ability of large populations to specialise, and identify and nurture exceptional talent. A smaller population practically means we are less likely to identify the next Einstein or have someone like Elon Musk who is able to build a company on the way to make us a multiplanetary species. We may just miss out on the next Steve Jobs, who brought communications and entertainment to our pockets.
But it’s not just exceptional talent we lose. There’s ample evidence that as cities get more dense they become more innovative and productive – a phenomenon known as amalgamation effects. When populations decline, these benefits disappear or can even go backwards.
Matt Ridley in the The Rational Optimist points to the case of Tasmania: a striking case of technological regress. Humans reached Tasmania at least 35,000 years ago, but rising sea levels cut off the island around 10,000 years ago. Isolation and declining population numbers meant there was not enough manpower to sustain tool kits and lifestyles. ‘The first Tasmanians caught and ate plenty of fish, but by the time of Western contact they not only ate no fish,’ Ridley writes, in one of many examples of regress.
The other issue of a declining population that is particularly important considering Miles’ employer, is the pressure on public budgets. Indeed, the OBR estimates that lower birth rates and higher life expectancy will create a £250bn hole in public finances by the mid-2070s.
An ageing population means fewer workers being forced to pay higher taxes to fund pensions, health and social care. We are already seeing early signs of these issues as many have not returned to the workforce after Covid, causing labour shortages, while taxes and spending have risen to post-war highs.
Miles’ solution to this is to ‘expect some continued labour force participation’ and ‘a fundamental rethink about the pattern of careers’. So, expect older people to work longer. This is a good and justifiable idea. But it is already proving extremely difficult to achieve, particularly as a generation of well-off propertied baby boomers comes into retirement and have little direct financial incentive to keep working (as well as a triple-locked pension and increasingly generous social care).
At one point, Miles criticises sharp rises in fertility and high levels of immigration partly on the basis that the UK is a densely populated country. This in itself is hogwash. In fact, just 6% of land in the UK is within urban areas, much of which is made up of gardens and parks.
Interestingly, Miles also does not bother to analyse the economic impact of immigration. Study after study finds that immigrants are disproportionately likely to start entrepreneurial companies, contribute to public revenues and bring necessary skills – including in construction and health and social care. It’s hard to see the UK maintaining its quality of life without these immigrants.
It’s small-minded to conclude that the UK should forgo population growth because we cannot invest enough. It would just mean capitulating to the forces of managed decline, higher taxes on fewer workers, crumbling public services, and a less dynamic society. The anti-growth coalition must be rejected.