Sunday, June 5, 2016

The Population of China and Absurd Economic Projections

One of Branko Milanovic’s tasks in completing his book Global Inequality: A New Approach for the Age of Globalization was to take current knowledge about global inequality and project what the future might hold.  In order to assess what his prospects for success might be, he went back and read a number of authors who had made similar attempts over the period from the late 1960s through the 1990s.  He was not encouraged by what he discovered.

“We know that purely economic forecasts tend to be very wrong.  But I thought that less formal discussions of the political and economic forces that were considered most important for shaping the future would provide more accurate insights and projections.  I discovered that was not the case.”

“To generalize, all of these works share three types of mistakes: the belief that trends that appear to be most relevant at a particular time will continue into the future, the inability to predict dramatic single events, and an exaggerated focus on key global players, especially the United States.”

In particular, none of the works read predicted the rise of China to its current stature.  China went unnoticed until it became too big to not be noticed.  And now, of course, any number of attempts are being made to project China’s future, all of which are hampered by the three errors observed by Milanovic.

One of the most troubling aspects of the various projections deals with China’s attempt to limit its population.  The standard economic assumptions are heavily influenced by the recent experience in Europe and the United States where support for the elderly is provided partly by contributions from the wages of those who are of working age.  The conclusion then is that a certain number of workers are required to support a given retired person.  A growing population will then have a growing number of elderly requiring support—provided longevity does not decrease.  Since longevity tends to increase over time, particularly in developing countries like China, the number of workers may have to increase proportionately to cover the greater fraction of the population that is elderly.

In other words, by this logic, an economically healthy country must have an increasing population—forever!

Howard W. French recently weighed in on China and its population in an article for The Atlantic: China’s Twilight Years.  According to French, China’s twilight is the result of China’s conscious attempt to limit its population.

“Indeed, China’s fertility rate began declining well before the coercive one-child restrictions were introduced in 1978. By hastening and amplifying the effects of this decline, the one-child policy is likely to go down as one of history’s great blunders.”

All developed nations seem to have concluded, via their fertility rates, they would prefer to have declining populations, or, at least, one no better than constant.  To make the world consistent with their boundary conditions, economists conclude that immigration will be required to maintain population growth and thus economic growth.  The fertility rate in the United States of natives hovers near or just below the replacement rate.  It is the immigrants and their higher initial birth rates that keep the population growing.  French believes that a growing population is inherently a good thing.

“With American Baby Boomers entering retirement, the United States has its own pressing social-safety-net costs. What is often neglected in debates about swelling entitlement spending, however, is how much better America’s position is than other countries’. Once again, numbers tell the story best: By the end of the century, China’s population is projected to dip below 1 billion for the first time since 1980. At the same time, America’s population is expected to hit 450 million. Which is to say, China’s population will go from roughly four and a half times as large as America’s to scarcely more than twice its size.”

Are we to conclude from this that French believes China would be better off if it had not limited its population and allowed it to grow to 2 billion in order to keep pace with the United States?  Apparently so.

“Even as China’s workforce shrinks, America’s is expected to increase by 31 percent from 2010 to 2050. This growing labor supply will boost economic growth, strengthen the tax base, and relieve pressure on the Social Security system. At the same time, Americans will continue to enjoy a substantial advantage over the Chinese in terms of per capita income. This advantage in wealth will continue to underwrite U.S. security commitments and capabilities around the world.”

Before discussing the absurdity of an economic model that demands ever increasing populations, let’s consider what the decline in population has meant to China.  Sheng Yun, as one of those born at the beginning of the one-child policy period has had the opportunity to observe and compare his generation with prior and succeeding generations.  He provides his insights in an article for the London Review of Books: Little Emperors.  Sheng Yun is an assistant research professor at the Shanghai Academy of Social Sciences and a contributing editor at the Shanghai Review of Books.

How about this for a beginning?

“By the 1950s China’s population growth had already outstripped the state’s ability to deliver services.”

Population pressure and bureaucratic incompetence led to famines that killed tens of millions of people in the late 1950s and early 1960s.  As with most countries, trouble in the fields led to growth in the cities. 

 Urban growth was too great to be sustainable and something had to be done to control it.  The solution chosen was to ship a generation of young people, including Yun’s parents, out to the countryside to live with the peasants for “reeducation.”  Yen would be born to them in 1980, the year China initiated its one-child policy and the year it terminated its “Down to the Countryside” movement.

“…we only children are a lot luckier than our parents and their many siblings (an average of between three and five). They were the rusticated youth or zhiqing, also known as the ‘lost generation’, who were sent to the countryside during the Cultural Revolution to be ‘re-educated’ among the peasants. My mother was 16 when she was sent away: she had barely finished middle school when she was told she would be leaving Shanghai for an unknown world and an uncertain future. But she set off in high spirits, eager to show initiative and prove she had the strength to break with her family of bourgeois intellectuals.  The Down to the Countryside movement was deemed necessary because the population had grown too quickly. Marauding bands of Red Guards were getting out of hand in the cities, and bands of jobless youngsters were roaming the streets. Many later poems and novels describe the tears shed by zhiqing as they boarded trains to the rural areas, but it’s not clear that all of them were sad. My mother wasn’t. But it was a radical experiment that robbed a whole generation of their right to education.”

When Yun’s parents were allowed to return from the country, China had changed.

“Some aspects of life in the 1980s were not so bad for those who’d returned to urban areas. The state was investing heavily in public housing so every working family had a roof over their heads and even if freedom from other kinds of want was rare, at least we were all poor together. There was also a surge in attention to reading, writing, the arts and philosophy, after the barrenness of the Cultural Revolution. It was a golden age; many European classics appeared in translation (often without permission), and every weekend my father took me to buy books. People queued for new arrivals and talked about writers and their work. Popular titles, both Chinese and foreign – usually philosophy or canonical literature – sold in the millions.”

A new emphasis on education meant competition for the best schools and the best jobs.  As always, there were way too many people for the number of positions available.  Yun’s parents were among the generation whose interrupted education left them unable to compete.

“When I was young I was angry with my parents for not continuing their education when they’d had the chance: I thought they were lazy. Now I see how arrogant and wrong I was. In 1977, the year the College Entrance Examination (gaokao) was reinstated (the Cultural Revolution had done away with the national educational system), 5.7 million people sat the tests and only 273,000 were given places. My parents didn’t exercise their right to sit the exam: they knew they wouldn’t stand a chance after so long in the rural areas.”

Things became worse for them when China’s economy began to take off.

“The 1990s hit my parents’ generation hard, and their difficulties lasted into the new century. They were not equipped to compete with the well-educated 1960s generation during the economic boom. Their lack of schooling meant, too, that they were forced to retire early (40-45 for women, 45-50 for men) to make room for younger workers. They are lost in modern China, digitally illiterate, casualties of a radical experiment. But compared to their parents, who could say that they are not fortunate?”

The 1990s would hit Yun’s generation hard also.  The single children of that period were pampered and fawned over as one might expect—thus the title “Little Emperors.”  But overpopulation would strike back at them as well.

“Some of us made it to a top university; we were aiming for a better life and hoping to ‘make a difference’. The irony is that we had already missed the boat: the opportunities associated with China’s opening up were shortlived. The 1990s were boom years for people born in the 1960s (Chinese count generations in ten-year intervals): young, energetic, ready to inherit the new China. Soon they would take all the key positions in the economy, the universities, the state administration, even the arts, leaving their successors with little room for manoeuvre.”

“For the 1960s crowd 1989 was the moment of transition. They were going through college at the time (often with their siblings) and were, on the whole, idealists, believing in reform and freedom. Tiananmen and 4 June changed everything.”

“From then on, instead of trying to change the political system they would focus on wealth creation. From the ashes of their hopes a shrewd, hard-nosed business elite emerged, driving China’s economic performance indicators to new heights. After 1989, foreign multinationals, impressed by the state’s iron determination and commitment to stability, began to invest heavily in the country. Before long, the children of the 1960s were basking in double-digit growth, and cleaning up as equity and property boomed. Few laws or regulations constrained venture capitalism, and China got its first good look at the filthy rich.”

“When the children of the 1980s hit the job market, we found ourselves in an unenviable situation. The rental on a small one-bedroom flat in a city like Shanghai is at least 5000 rmb a month (double that in the French Concession); buying would mean a mortgage for life. Many of us still live with our parents and are known as kenlaozu, ‘boomerang kids’: the little emperors are stuck at home, and not very different from the West’s generation of neets.”

Surprisingly, young girls would end up beneficiaries of the one-child policy.  Economically, the lower birthrate was compensated by making jobs in the modern economy available to both sexes.

“Traditionally females were used as domestic help, birth machines or clan assets to marry off or trade. Women didn’t go to school, and were encouraged to internalise the saying that ‘a woman without talent is virtuous.’ Illiteracy was their proper condition: they were there to clean, farm, and above all to give birth to a male heir. They could not dine with men at the same table.”

The one-child policy has been viewed as encouraging abortion and infanticide to ensure that the one child would be a boy.  Those things occurred, of course, but they had been occurring anyway due to the traditional Chinese patriarchy.  The one-child law forced parents of a single girl to reconsider how they viewed their female child, and, ultimately, helped emancipate girls from the limited lives they had known beforehand.

“These issues were deadly serious but they resulted less from the policy than from the nature of Chinese patriarchy, which the policy threw into sharp relief. People were willing to break the law, to pay a fine to have a second go at having a boy, even to murder or abandon female babies. Paradoxically the one-child policy undermined the atavism of tradition, even while seeming to encourage it. I grew up in Hefei, about 500 km west of Shanghai, where I remember a striking young girl from the countryside who attended a private violin class; she was the daughter of peasant parents who spoke poor Mandarin. Without the one-child policy, her father would have tried fanatically to conceive a second, third, fourth child, until the family produced a male heir. His daughters would have led miserable lives. Instead, he invested in his only child’s violin lessons.”

“The one-child policy meant that growing numbers of rural and urban female students attended universities, once a strictly male preserve. Before long we shall see more and more women in positions of responsibility in many fields.”

“The one-child policy also freed women from the burden of domestic work and childcare. Many more Chinese women go out to work than Indian women, and full-time housework is no longer a choice for the modern Chinese woman; only a few choose to quit their job after giving birth. When the one-child policy was wound up last year (it was replaced by a two-child policy), there was very little interest: Dinks (dual income, no kids) are quite common in big cities – none of the seven commissioning editors at the Shanghai Review of Books has children – and the one-child policy was becoming an irrelevance.”

Yun is aware of the arguments of people like Howard W. French that a falling population means fewer and more expensive laborers, and perhaps a less-competitive China, but is unmoved by the argument.

“I am not an economist, and so I can’t help wondering why it’s a good thing to exploit cheap labour, turn ourselves into a vast manufacturing hub for the world market, and destroy our own environment.”

Yun is personally more concerned with the difficulties involved in feeding the existing large Chinese population.

“If we had allowed our population to grow like India’s, we would be consuming far more of the planet’s grain and livestock than we are already (the Economist likes to remind us that, with our population at its current size, we eat half the world’s pigs).”

 He also provides an anecdote to force us to consider what a world with a couple of billion hungry Chinese might be like.

“After high levels of melamine were discovered in powdered milk in 2008, mainland mothers descended on Hong Kong and emptied the shelves, leaving Hong Kong mothers with nothing: it was a small illustration of what two or three billion Chinese could do to the Earth’s resources.”

Each country has an interesting story to tell.  Each country took different paths to the present, and each will take different paths to the future.

It was necessary for China to limit its population in order to maximize the common good—for both the Chinese and the world in general.  Economists who continue to argue for ever greater populations to ensure economic growth are foolish.  The notion that wealthy societies can increase their populations indefinitely by immigration to maintain growth is only sustainable if we assume that poor countries with high birthrates will be nurtured as sources of cheap labor forever.  That is not the kind of world anyone would wish to live in.

Yes, China will have a problem to face as its population ages.  All countries face the same problem, and they will have to deal with it.  Each country will likely come up with its own scheme, and the basic issue will be how to pay for it.  Fortunately, the globalized economy has produced and concentrated enormous amounts of wealth.  All we have to do is come up with a better way of distributing it.

The interested reader might find these articles informative:

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