Economics: The Myth of Exploding Populations

This lesson has not been reviewed.

Please purchase the lesson to review.

Every so often in discussions about economic development, you'll hear people make the statement that, because of their exploding populations, poor countries are going to stay poor. Well, how would an economist evaluate that statement? Is it true? Does it even make sense?
Let's start with a famous economist, the first economist to hold a Chair of Political Economy in England, Thomas Malthis. The Reverend Malthis wrote in 1798 an essay on the principle of population, in which he laid out a very bleak view of the connection between population and economic reality. This is what he thought. Population tends to increase at a geometric rate; that is, exponentially, whereas the production of food tends to increase at only an arithmetic rate. That is, populations double every 30 or 40 years, whereas, if you take a fixed amount of land and crowd more and more workers onto it, each additional worker will be able to produce less food than the worker before, the diminishing marginal product of labor. Now, put these two facts together, population doubling every 40 years and the diminishing marginal product of labor, and you've got the recipe for disaster, and that's what Malthis saw coming, that very soon the growth in population was going to create a situation in which people were going to be in a desperate, desperate straight. He thought that either wages would fall to the subsistence level and people would stop having children or, even worse, the population would expand out of control and only war, famine or pestilence would reign back in the excess population, so that the capacity of the earth to provide food was equal to the number of people that were living on it. Malthis has a bleak, bleak view and people frequently cite it whenever they thing about developing countries. Indeed, in Africa today, we see tragic situations, in which famine and pestilence are limiting population growth in places where there isn't enough food for people. But, in general, is it necessary to believe that expanding populations are a cause for concern in developing countries?
Well, you can think about it two ways. First of all, expanding populations can impose costs on countries. That's because there are problems absorbing the labor force into the economy there. A lot of developing countries do not have in place very sophisticated and extensive infrastructures, roads, telephone lines, electricity and so forth. And therefore you get more people and they crowd onto the existing public services and overload them, and there's just simply not enough to go around. That's a problem. I'd like to be productive and a productive worker. I'd like to open a business, but there's no road to the village that I live. There's no telephone line to connect me to the rest of the world. In the absence of infrastructure, exploding populations can create a problem. Another set of problems is there are scarce resources in the economy. There's a limited amount of water, there's a limited amount of arable land, and there's a limited amount of certain important materials. And if the population grows too rapidly, then those resources can be depleted or their prices driven so high that people are once again in poverty. Also, as populations increase too rapidly and the government feels a need to take care of its people, it's going to spend the national savings importing food from abroad, and that's a bad situation to be in. In general, there are all kinds of problems potentially absorbing growth, especially when the infrastructure is not in place to plug people into once they've arrived on the scene.
On the other hand, if there is decent infrastructure, population growth is a wonderful boom for an economy, because it becomes the engine of wealth. Think about this: as the population grows, demand is stimulated. That means there are more people out there who want to buy my stuff. So if I want to become an inventor or a retailer or open a factory, there's more profits to be made. The next thing to think about is the supply side. Whenever there are more people in an economy, there's more scope for specialization and trade. I don't have to make my own food and clothing and do my own carpentry repairs now. I can specialize in one job. I become a plumber and I go out and trade my services with other people. And when there are enough people to trade with, then, everyone considered, I'll be able to get all my needs met either by doing the work myself or working for you and trading money for something else that I need. It's only in a growing economy that there is an increasingly large scope for specialization. And specialization in trade becomes a huge engine for the creation of wealth. Another thing that happens under those circumstances is people start getting good ideas about new things to do and have opportunity to try them. So there's more innovation, there's more technical innovation. People think of good things and put them into practice in an economy that's growing and that's increasing in size and scope for specialization.
So there you have it. A growing economy is not necessarily a bad thing. In fact, if there's an infrastructure, if there's some foundation to the economy, growth can be good.
So where did Malthis get it wrong? First of all, Malthis missed an important development of the 1800' and 1900's, and that was rapid increase in the technology of agriculture. New tools, new fertilizers, new seeds came on the scene so that the existing labor on farms was able to produce lots and lots more food than Malthis ever foresaw. In fact, productivity was rising at such a faster rate than the productivity of the labor supply, that the output per worker increased unimaginably, remarkably during the late 1800's and early 1900's, the agricultural revolution. The second thing that Malthis didn't see was that the economy was moving away from agriculture toward industry and mechanization. So people were going to change their behavior. As a developing country moves away from a primarily agricultural economy to one based more on industry, the incentives of individuals change. People who wanted to have a lot of kids on the farm so that they could have inexpensive labor don't want to have kids in the city, because children in the city are a liability. They find that their existing children are more likely to grow up healthy and education and prosperous if they don't have such a large family. So as the economy moves from agriculture to industrialization, there are going to be natural changes in fertility, natural changes in infant mortality, natural changes in the behaviors that govern the population. Malthis didn't see this coming.
So some of the best policies that a country can follow, if it wants to keep a population boom from becoming a Malthusian nightmare, are: invest in infrastructure, roads, bridges, cable lines, electricity, things that allow a growing population to become a workforce, an asset, rather than a liability, simply mouths to feed. Another thing is to allow government policies that are liberal for trade, that give people an opportunity to go out and start businesses and earn profits from their efforts. This will allow people to move from agriculture to industry, if that's according to their comparative advantage. And provide for public health and such things like that in cities, so that they are livable places. If this happens and the population grows at a reasonable rate, then the transition from agriculture to industry is going to be associated with a naturally declining birth rate. In fact, the U.S. and Japan, which are thorough industrialized countries moving into the information age, actually have falling populations, because of birth rates that are below replacement. If it weren't for immigration into the United States, our own population would be declining.
So there you have it. There's no natural link between some population explosion and the poverty of developing countries. In fact, Malthis has proven to be quite wrong, because he didn't foresee technological innovation and the transitions of economies into states where population rates would quite naturally adjust themselves to slower growth.
Productivity and Growth
Emerging Economies
Hot Topic: The Myth of Exploding Populations Page [2 of 2]