Is growth the solution to the demographic question?

International Futures Programme
Economic development is often heralded as the solution to many of the problems associated with rapid population growth. In developed countries, growth could relieve pressures on publicly financed social services, greatly facilitating the difficult policy choices that will have to be made, such as the financing of pensions. In developing countries, growth is also considered essential for relieving poverty in the face of a rapidly rising population and for providing governments with the means to develop their physical and social infrastructure.
Many experts are indeed rather optimistic about future growth prospects. In their view, thanks to technology and globalisation, the world economy could easily double in size in 1997-2020, with average living standards (adjusted for population growth) rising by 67%. Some experts even anticipate that real GDP per capita in the OECD area could be 50% to 80% higher in 2020 than in 1995. In non-OECD countries the figures are 100% to 270%, with average GDP per capita rising from 15% of OECD levels in 1995 to 30% in 2020 in PPP terms. (See article on the Long Boom.)However, even optimists agree that such growth is unlikely to happen unless the right policies are put in place. In developed countries, that means measures to deal with population ageing and efforts to foster increased labour force participation and a more flexible economy. In developing countries, governments will have to develop the basic institutions which are required for the effective operation of a modern economy, such as well-developed markets for land, whereby owners gain revenue to live on, and capital, thus facilitating saving for old age. They should as well introduce measures to reduce child mortality, to eradicate communicable diseases, to provide equal access to health and family planning and to raise the overall literacy of the population, particularly among women.Others are less confident in the ability of growth to offer a solution. They fear that the rapid diffusion of information technology and economic liberalisation could lead to the emergence of a more unregulated global capitalism, a winner-takes-all world of growing social polarisation, political instability and widening income inequalities. Importantly for governments, wealth could be increasingly retained by those who earn it, particularly in the new cyberworld, undermining the taxing capacity of the state and leaving little scope for income redistribution, or indeed the public-led investment that will be needed to develop the physical and social infrastructures necessary to accommodate demographic changes both in developed and developing countries.Sceptics are also deeply concerned that, under existing economic norms and scenarios, growth will inevitably lead to damage to the environment. In particular, they contend that the longer-term effects of growth-induced climate change will have predominantly, if not uniformly, adverse effects on health, cultural life and economic prosperity of future human populations, and raise particular questions of equity between generations.In this overall context, they oppose globalisation, first, because it transforms largely self-sufficient people living in rural areas of developing countries into consumers of capital intensive goods and services. Second, in their view it encourages an environmentally damaging production of exports, such as timber from tropical rainforests. Moreover, as good land is given over to export production, the rural population is confined to marginal lands that are vulnerable to erosion. And then there is the environmental damage caused by the increased transportation requirements of a global economy. Finally, they question the ability of the economy to meet the food requirements of a growing world population, in the face of rapid decline in the quality of farmland, growing shortages of water and climatic change. (See article on food.) While these concerns need to be taken seriously, sceptics may have overstated their case somewhat. First, in the longer run, rapid economic development should ultimately relieve pressures on the environment by hastening the demographic transition in many developing countries, while growing affluence will drive up the demand for environmental quality. Second, in the shorter run, the rapid diffusion of new technologies in such countries will provide new, more effective ways to combat pollution and will promote a more efficient use of resources, including energy. And third, assuming effective environmental rules are enforced, international trade will have a positive impact on the environment overall, by contributing to allocating resources to locations where they are used most efficiently. More fundamentally, it is not clear what would be a credible alternative, given that the "demographic genie" is out of the bottle. On balance, a no-growth scenario is likely to make everyone worse off, particularly in developing countries where poverty, unemployment and environmental degradation would become widespread.Growth based on liberalisation of trade and investment and the rapid diffusion of new technologies offers the best hope for solving many of the socio-economic challenges posed by dramatic demographic change in the longer run. However, growth may not be sustainable without changing the way we produce and consume world-wide. Some of these changes, such as the rising demand for environmentally-friendly goods, will be triggered by price signals and will result from the normal operation of markets. Others, such as reducing industrial pollution to prevent global warming, will be much more difficult to implement because of the externalities involved. They will require decisive go-vernment action, both at the national and international levels. Moreover, the close links between the economic, social and environmental dimensions will call for a horizontal approach, involving all key stakeholders, in business and households, as well as governments. Other stories on this Spotlight on the 21st century©OECD Observer No 217-218, Summer 1999

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