Population boom heralds big global economic shifts

LONDON Wed Oct 26, 2011 2:29pm EDT

A man watches the skyline of Shanghai from the Shanghai Financial Center building, October 25, 2011. REUTERS/Carlos Barria

A man watches the skyline of Shanghai from the Shanghai Financial Center building, October 25, 2011.

Credit: Reuters/Carlos Barria

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LONDON (Reuters) - 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, Citi's 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 I'm reasonably optimistic."

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 you've got China, India and Brazil that are so big and are growing so fast, you're 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.

"We're going to go through a massive adjustment in the next 15 to 20 years. We're 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 percent of the world's 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 can't 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 world's natural resources if, as he projects, China's 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 world's paper and 70 percent of the world's current grain output. Were China to have three cars for every four people, as the United States does, China would be consuming nearly all today's oil production.

"The world population is outrunning its basic support systems. That's why the world's 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 world's people," Brown said.

"So we're 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 that's clocked something like 6 percent growth on average over the past decade, the statistics on malnutrition are just truly astonishing and unacceptable," said Kalpana Kochhar, the World Bank's chief economist for South Asia.

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

"There's 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 what's to come, he said: "Land has become the new gold. It's an early view of the sort of thing we'll be seeing. It becomes an every-country-for-itself world -- whether it's oil, water, grain or copper."

Conversely, 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 Malthus's fears remain unfounded, the onus for change lay mainly with Western countries that have accumulated their wealth without realizing the damage that unchecked carbon consumption was doing to the planet.

"We're the ones that have to change our behavior and give countries like India and China more of a run at economic growth and poverty reduction," Haddad said.

(Additional reporting by Emily Kaiser in Singapore; Editing by Sonya Hepinstall)

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Comments (5)
Robertla wrote:
supply and demand

technology will reduce the amount of labor used to produce goods and services…..lower wages

commodity prices will rise…….more mouths to feed.

water, wow

capital investments will prove very effective in concentrating wealth, ….providing military infrastructure, yes……..social organization, mmmm, totalitarian, mmmm

famine, possible
pandemic, possible
war, possible

Oct 26, 2011 4:52pm EDT  --  Report as abuse
Peripeton wrote:
The insanity of the “invisible hand” story keeps on destroying the planet. When you start off with a very unbalanced distribution of wealth and power, it is completely insane to think that somehow this will autoregulate itself. Of course in the long run when humans through the capitalist system, deplete all resources the ecosystem will autoregulate itself by eliminating humanity, but I want to hope that some rationality exists and instead of waiting for autoregulation we can just impose it ourselves as intelligent and rational human beings.

Oct 26, 2011 5:30pm EDT  --  Report as abuse
KyuuAL wrote:
And virtually NO investment towards expansion into space. Plenty of room. Plenty of resources. Plenty of energy out there. Sadly, there’s no political will to go out there and conquer it.

Oct 26, 2011 8:10pm EDT  --  Report as abuse
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