THE ECONOMICS OF POPULATION

An optimum population

Countries are often described as underpopulated or over-populated. From the economist's viewpoint these terms do not refer to the population densities (i.e. the number of per­sons per square mile), but to the relationship between the numbers of people and the supplies of land, capital, and tech­nical knowledge available to them. That size of population which, with the existing stock of land, capital, and knowledge, would give rise to the maximum output per head is described as the optimum population. Thus, the terms underpopulated and overpopulated refer to sizes of population less than or greater than the optimum. A country with more than adequate supplies of fertile land and capital may be underpopulated with 300 persons per square mile, whereas a poor country may be overpopulaled with no more than 20 persons per square mile.

The optimum population is not a static concept since the state of technology and the stock of capital are subject to constant change. An increase in the national stock of capi­tal, improvements in the techniques of production, and in the fertility of the land will all tend to increase the size of the optimum population. But measures other than output per

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head may be taken into account when assessing the opti­mum population. A nation might relate the preferred size of population to the problem of pollution, or the destruction of valuable amenities, or the rate at which non-replaceable resources are being used up.

An increasing population

Whether an increase in the size of a population brings economic advantages or disadvantages depends very much on the size of the existing population in relation to the other economic resources available to it; in other words, whether it is above or below the optimum size. When population is growing fast and there is a large excess of births over deaths, the proportion of people in the younger age groups will be increasing. A large increase in the numbers of young depen­dants can be a serious barrier to economic growth. The eco­nomic resources needed to care for the growing numbers of children and to educate them might have been devoted to industrial development and training.

Alternatively, the same resources could have been used to give a smaller number of children a much better educa­tion. This is a serious problem in many parts of Africa and Asia. By the year 2000, even if the birth rate falls rapidly, the number of children in the 6 to 11 age group will increase by 92 per cent in Africa and 62 per cent in Asia.

An increase in the number of children now will bring about an increase in the number of workers in the future. New workers need capital, however, even if it is only a sim­ple plough. Economic growth depends very much on increasing the amount of capital per worker. Many develop­ing countries with rapidly growing populations find it very difficult to carry out enough investment to maintain even the present very low ratio of capital to workers.

When a country is heavily dependent on world trade for a major part of its requirements of food and basic materials

a rapidly rising population might give rise to serious balance of payments problems. Quite apart from the need to import more food, creating work for the increasing numbers will require larger imports of raw materials and other capital goods. To pay for these additional imports the country will have to achieve a substantial increase in its exports.

We must not assume, however, that a slowing down in the growth of population will remove the causes of poverty. Some of the poorer countries would no doubt benefit from a less rapid growth of population since they could then devote more resources to improving their facilities rather than to extending them. In other regions, however, population growth may not be undesirable. An expanding population will create increased demands for goods and services and growing markets lend to stimulate investment and create employment. A growing population will be able to take more advantage of specialised production and economies of scale. We have seen that many of the more efficient modern production techniques can only be utilised economically in large-scale production. Comprehensive road and rail net­works, power supplies, and other public utilities can only be operated at relatively low cost when there is a relatively large population to ensure full utilisation.

A country with a growing population, and hence a young age structure, will probably be more amenable to change and better able to carry it out. The labour force will be more mobile. With increasing numbers entering the working population, expanding industries will have little trouble in recruiting labour. A more rapid rate of technical progress is possible when the population is expanding, because new industries, new factories, and new techniques of production can come into operation alongside the older ones. With a static or declining popu­lation these changes might have to wait for the redundan­cy of the older equipment.

The effects of an ageing population

Although the population of the world is growing fast, the populations of several European countries are stagnating or, in some cases, actually falling. If a country's population is to be maintained in the long run, every 100 of its women must bear 210 children an average of 2—1 children each. This is described as the replacement level. In most European countries, the rate is below replacement level. In 1987, the fertility rate in Britain was about 1—75.

The effect of a low fertility rate over two or three gener­ations is an overall ageing of the population. In Britain the number of people aged 60 or more was four times greater in 1985 than it was in 1901. It is the over-75s — the group which is growing fastest — which needs the most expensive care and medical attention.

An ageing population also means an ageing labour force, with more workers in their late 40s and 50s. Since older workers tend to be less adaptable than younger work­ers, the economy may find it more difficult to cope with the adjustments required in order to make rapid technical progress.

As the population ages, firms will have to change their outputs to satisfy increasing demands for the goods and ser­vices consumed by older people. There will also be increas­ingly heavy demands on the health service and other social services.

Like many other countries with low fertility rates, Britain faces the prospect of financing a steadily increasing bill for state retirement pensions. The number of pensioners was 9—3 million in 1985, and it was estimated that this would rise to about 13 million in the next 50 years. However, it was estimated that the number of contributors to national insurance would increase by only 400 000 over the same period.