The author is visiting professor of economics, University of Melbourne
In all the commentaries on the triumphal onward march of the market in the late 20th century, its demographic consequences have been relatively little noticed. An episode in this all-consuming growth has been its penetration of the modern household. As demand for labour has risen, wages and employment opportunities for women outside the home have grown while labour-saving gadgets have taken over household chores. In the advanced world, where this process has progressed furthest, it has led to the increasing economic independence of women, the breakdown of the traditional division of labour between the sexes and the disintegration of the nuclear family. As marriage has become an anachronism, the basic support structure for child-bearing and rearing has crumbled away.
Social and technological innovations have helped soften the blow to a degree. With contraception and in vitro fertilization, abortion, surrogate motherhood and the proliferation of day-care centres, sex has been dissociated from pregnancy, pregnancy from parenthood and parenthood from child-care. Yet all this has done little to strengthen the link between parents and children, now reduced to the tenuous bond of the socially approved minimum of “quality time”. The incentives for child-bearing have collapsed; birth rates in rich countries have plunged quite as dramatically as they did following the dissolution of the extended family in the less developed world.
In very few advanced societies today is the total fertility rate (the number of children born to the average woman during her entire reproductive life span) above the replacement level (of about 2). In Japan, where prohibitive housing costs are an added factor, it is as low as 1.38. In the United States of America, total fertility has fallen from 3 in 1980 to 1.9 in 2000 — although the latter figure is buoyed up by a Latino fertility rate of 3 and a black fertility rate of 2.4. The flow of babies into the advanced world is drying up.
Coupled with increasing longevity, the collapse of the birth-rate has totally changed the age-structure of Western society. In the US, there are now three times as many elders over 60 as there are children below 4. The West, as we knew it, is ageing and will soon be dead. The aspect of this problem that has been most widely discussed is the growing burden of old-age support. A rapidly shrinking working population must provide for a swelling horde of retirees. The elderly exercise their claims on current output through social security and pensions as well as through their ownership of most of the nation’s wealth. A class-division between rentiers and workers is thus superimposed on the generation gap — hardly a prescription for social harmony.
Even more significant is the impact on the savings rate. As the Nobel laureate, Franco Modigliani argued, a declining and aged population is one in which retirees who are consuming their wealth outnumber workers who are adding to it. If the older generation plans to bequeath a legacy to its heirs rather than to exhaust its wealth over its lifetime, savings, though declining, may still be positive. But as fertility declines, the bequest motive weakens. Dynasties disappear; even children become scarce; who after all do you leave your money to'
In the US, the fading of the bequest ethic is well-attested by the evidence. In 1960, retirees were consuming their resources at the rate of 6-7 per cent a year; in 1990, they were doing so at the rate of 12-14 per cent. This was reflected in the collapse of the aggregate rate of personal savings — from 11 per cent of disposable income in 1970 to -1 per cent in 2000. Nor is the US unique in this respect. All the countries in the Organization for Economic Cooperation and Development have low and falling savings ratios to match their low and falling birth-rates and ageing populations. Contrary to received wisdom, the lavish consumption ratios of the rich countries stand in starkly paradoxical contrast to the parsimonious poor of Asia — where the Chinese save 35-40 per cent of their incomes and even India’s personal savings rates approach 25 per cent.
There are of course non-demographic factors as well behind this paradox. The well-developed credit institutions of rich countries — hire purchase, credit cards, housing mortgages and so on — minimize the need for precautionary savings or for saving to fund lumpy expenditures. Social security and medicare reduce the need for private savings to finance retirement or healthcare. Yet, it is difficult to argue that such factors can account for a difference in savings rates as vast as that between the US and the Chinese figures or explain the dramatic fall in US savings rates between 1970 and 2000, a period when public policy was largely directed at dismantling the welfare state.
With savings so low, even the barest minimum of investment can be sustained only through large trade deficits. The American current account deficit, for instance, averaged 1.4 per cent of gross domestic product throughout the Nineties. These in turn imply substantial inflows either of loan or of equity capital. The OECD countries face a future in which they will either be owned by foreigners or be deeply indebted to them.
What is more, as their populations age, their ethnic composition is changing. Immigrants account for an ever-growing proportion of the OECD workforce. In the US, the Chinese are everywhere: no longer confined to the east and west coasts, they have invaded Kansas, Missouri and Iowa, those once-inviolate bastions of heartland America. The “Yellow Peril”, the spectre that so haunted the lily-white Australia of the Thirties, has silently engulfed large districts of Melbourne and Sydney. The Hispanics are flooding into the US, not just into inner-city ghettos, but into the hitherto-white suburbia as well. South Asians are becoming politically significant minorities in England and the US, Turks and Arabs in Europe, and Greeks and Italians in Australia.
All this has produced a diversification of language, culture and cuisine in the West that would have been inconceivable in the Sixties. Spanish and Mandarin are the lingua franca of large parts of metropolitan America. Western food is now almost edible, thanks not only to the standard Mediterranean, Mexican, Chinese and Indian influences but also to the absorption of more exotic flavours from Thailand, Indonesia, Ethiopia and north Africa.
However, the racial balance of the Western world would be unsustainable even without immigration. Even if the US were sealed off to immigrants, non-Hispanic whites, at present levels of total fertility, would lose 10 per cent of their number in every generation, while Hispanics add 50 per cent. The white Anglo-Saxon Protestants, the community most deeply penetrated by the market, would account for an ever-narrowing segment of the population, while more prolific groups increase their share. Natural selection would work to temper the impact of the market on fertility.
There are however limits to this moderating influence. Even if the most fertile communities inherit the earth, the market would continue to erode their birth rates. As long as human children require parental attention, the operation of the market will drive our species inexorably towards extinction. It may be some small consolation that we, people of the third world, will have taken over the advanced West much earlier. More comforting however is the thought that, when doomsday arrives, you, I and all our children and grandchildren (if any) will long be dead.