September 24, 2019

People – Too Many, Not Enough, or Just Right?

Gerard Smith
Managing Principal

A while ago I wrote about the effects of demographic change, the size of the population and its composition, and how these effects are felt gradually – so slow to unfold that they don’t receive the attention they deserve.

A recent article by Zachary Karabell in Foreign Affairs reviews two books that examine population and its impact on human history. The title of the article “The Population Bust” and its subtitle “Demographic Decline and the End of Capitalism as We Know It” make it clear that current assumptions about continuing population growth are almost certainly wrong. The reason is that while demographic change is gradual, the reversal in trend is nevertheless happening too quickly for current population models to adjust in real time. Even though the assumptions that worked in the past no longer apply, it takes years to alter forecasts. The UN for example, continues to predict global population growing to 11 billion by 2050, even though a number of academic demographers believe that it will max out at 9, possibly even 8 billion before declining for the rest of the century.

And while we may think that this is only a matter of academic concern, we should remember that population growth is closely tied to economic growth, and vice versa. Fewer people, many of them old, will consume less. Moreover, with fewer young but more old people, the burden of dependency will increase for most countries – markedly so in China, with the world’s largest population and in a surprising number of developing countries as well. Hence, we have “the end of capitalism as we know it” in the Foreign Affairs article’s subtitle. Immigration is thus a form of economic stimulus, despite its current toxicity as a political issue.

On a (slightly) more positive note, assumptions about climate change, and hence government policies are also linked to forecasts of population growth, so a decline in numbers (and hence energy demand) would lead to a decline in emissions and reduce the environmental strain. A minority opinion is that it is already too late for that – that the cumulative emissions to date are enough to cause higher temperatures and the raft of associated disruptions that will result. The fact remains, however, that in the majority consensus position, represented by the IPCC report, all of the RCP (representative concentration pathway) scenarios assume global population will continue to grow, albeit at different rates, until 2080 (and beyond in the worst case) – so the possibility of an earlier decline and its effects remains unexamined.

Considering alternative futures is fundamental to any form of strategic foresight—that is, an organized approach to anticipating events over the horizon. But the bigger point to be made here is that how things turn out in the future is in large part dependent on how we prepare for things that might happen. A severe storm cannot be avoided, but the damage and disruption it causes will be substantially less if preparations have been made. Similarly, economic policies that assume continued population growth are likely to be ineffective if population stalls and declines. Preparing for the future means considering alternative futures, but these must be plausible and unconstrained by current assumptions – particularly when there is plenty of evidence that these are flawed.

An approach that sticks doggedly to current assumptions, while merely varying the result by 5 or 10% in either direction, isn’t really scenario planning at all (at least as we do it). Our fundamental approach is to assume a wide range of futures, and then take each individual “future” and to imagine a story of how that future might come to be. Only by forcing yourself to imagine previously un-thought-of futures are you really starting to take future uncertainty seriously. Demography seems to be the most solid and predictable prognosticatory field, but this principle – How might we be wrong? – applies even to it.

Comments  | 

Charles Thomas
A very well-argued summary Gerard, with a clear call that we must stop simply assuming away demographic growth and take seriously the uncertainties you raise. The economics of higher education, for example, has always seemed to assume a kind of leverage model - Year 2's student applicant pool will be larger than Year 1, thus more revenue for a very modest increase in class size. That, in turn, leads to questions about the professions that drive post-graduate education. Just how many lawyers, doctors, dentists, accountants will we really need, especially when substitution technologies are added into the calculus of a demographic decline?

Thoughts?