Population boom heralds big global economic shifts

October 27, 2011

A man watches the skyline of Shanghai from the Shanghai Financial Centre building on October 25, 2011. Reuters pic

LONDON, Oct 27 Few economists have been as spectacularly wrong as Thomas Malthus, who predicted in 1798 that unchecked population growth would doom the Earth to starvation.

As the number of people on the planet reaches 7 billion, his modern-day peers are cautiously confident that the English clergyman will remain synonymous with unwarranted doom and gloom.

With the global population headed for the 9 billion mark by 2050, economists are pinning their faith on continued technological innovation and the invisible hand of market prices to lead to a more efficient, sustainable use of finite natural resources instead of a deadly fight to the end for the last barrel of oil and drop of water.

Malthus has been proven wrong for the past 200 years, so why should he be right in the next 100? asked Robert Aliber, a professor of international economics and finance at the University of Chicago.

Part of the answer to that rhetorical question presupposes uninterrupted advances in technology and productivity of the sort that Malthus, writing before the Industrial Revolution, was unable to foresee.

As Willem Buiter, Citis chief economist, put it, the world would have been doomed long ago if it had been stuck with the largely artisanal modes of production familiar to Malthus.

For a start, if cars and trains and bicycles had not replaced horse-drawn transport, London would be buried now under a deep layer of horse manure.

There is always a Malthusian scenario that will cause the world to collapse. It has been a race between the exhaustibility of resources and innovation, and so far innovation has won, Buiter said. We have several thousand years of human history to support us on that, so Im reasonably optimist! ic.

< p>Game changer

Still, the rapid economic re-emergence of China and India, both with populations of well over 1 billion, is changing the equation.

The failure of the cost of oil and many other commodities to fall farther than they have despite stagnation in the West is a harbinger of the wrenching changes to prices and consumption patterns that rapid growth in emerging economies will bring about.

When youve got China, India and Brazil that are so big and are growing so fast, youre going to get a major reorganization, if not disruption, of the world economic order, said Professor Lawrence Haddad, director of the Institute of Development Studies at the University of Sussex in England.

Were going to go through a massive adjustment in the next 15 to 20 years. Were just beginning to see it, he said.

Some countries are introducing carbon taxes to reflect the non-renewability of fossil fuels and induce consumers to change the way they behave. The fact that water is largely free for most farmers, who use 70-80 per cent of the worlds water, leads to enormous waste, Buiter added.

Either prices or policies will have to change. One way or another we will have to ration these things, he said. Technical change cant do it all for us. We can choose: we can either have physical rationing, which is difficult and inefficient, or price rationing of some kind.

To grasp the scale of the behavioral changes that policymakers will have to bring about, Lester Brown, president of the Earth Policy Institute, an environmental organization in Washington, has estimated the impact on the worlds natural resources if, as he projects, Chinas per capita gross domestic product (measured at purchasing power parity) catches up with that of the United States by 2035 and if Chinese were to spend their income more or less as Americans do.

China would use four-fifths of the worlds paper and 70 per cent of the worlds current grain output. Were China to have three cars for every four ! people, as the United States does, China would be consuming nearly all todays oil production.

The world population is outrunning its basic support systems. Thats why the worlds forests are shrinking, its fisheries are collapsing, its grasslands are turning into deserts from overgrazing, why soil is eroding and why water tables are falling now in 18 countries that contain half the worlds people, Brown said.

So were over-using everything. You can over-pump in the short run but not in the long run. At some point, you have to reduce the pumping to the rate of recharge, he added.

Political challenges

Getting well-fed, gas-guzzling Westerners to change their lifestyles will be a political minefield. Telling Asians and Africans that they cannot aspire to such a lifestyle in the first place because the Earth will not support it raises even tougher questions.

Can South Asia, for example, put the priority on sustainable development when hundreds of millions still do not have access to clean water and many go hungry?

For a region thats clocked something like 6 per cent growth on average over the past decade, the statistics on malnutrition are just truly astonishing and unacceptable, said Kalpana Kochhar, the World Banks chief economist for South Asia.

She said India, whose population is set to overtake Chinas in a generation, could feed its own people and its neighbors with little difficulty if market forces were given free rein.

Theres more than enough food. The problem there is when everything is so tightly controlled by the government, farmers are not able to respond to price signals, Kochhar said.

Brown is less optimistic about the potential to keep raising agricultural yields. Large-scale farm land purchases in Africa and Latin America were a taste of whats to come, he said: Land has become the new gold. Its an early view of the sort of thing well be seeing. It becomes an every-country-for-itself world whether its oil, water, grain or copper.

Conver sely, Brown is excited by rapid progress in developing alternatives to fossil fuels. China does not have to become less energy-intensive, but the energy must come from renewable sources, he said.

Haddad with the Institute of Development Studies agreed that China, starting with a blank slate, had the opportunity to become a leader in the low-carbon economy and green technology, carving out a huge market in the process.

To ensure Malthuss fears remain unfounded, the onus for change lay mainly with Western countries that have accumulated their wealth without realising the damage that unchecked carbon consumption was doing to the planet.

Were the ones that have to change our behaviour and give countries like India and China more of a run at economic growth and poverty reduction, Haddad said. Reuters