The economic way to reverse demographic decline

This is the first installment of a two-part essay.

In an April essay published by Asia Times about actual or impending fertility decline to below population-replacing levels in nearly all countries outside sub-Saharan Africa, I observed:

No one has shown how to raise birth rates without greater state coercion than Americans would either tolerate at home in the US or suggest to other countries. Although many countries have pursued diverse pro-natalist policies during the past half-century, none has succeeded in raising birth rates much.

This essay hopes to contribute to changing that – starting in East Asia, where the need for successful pro-natalist policy is more urgent than anywhere and where ideological impediments to innovating successful pro-natalist policy are weaker than in the West, but whence any successful pro-natalist policy may spread to the West.

Monetary inducements for families to have children must, in order to meet normal efficiency criteria in spending public funds, promote child-raising in a way that captures the benefits of labor specialization, including economies of scale, that now facilitate nearly all work except child-raising.

However, until now, no pro-natalist policy has tried to recapture the substantial benefits of labor specialization in child-raising, including economies of scale, that once were captured by families in which the wife bore and raised as many as a dozen children.

Those benefits are not captured by families that raise only one or two children and in which both parents work outside the home most of their adult lives. 

Such child-raising is the last substantial non-specialized labor in our world, and feels as anomalously difficult as growing one’s own food or making one’s own clothes. This may contribute to the increasing unwillingness of many parents to raise a second child.

To be cost-effective, pro-natalist policy must stop trying to induce all households to raise two children rather than only one child. It must produce the desired number of additional children by funding a smaller number of specialized child-raising households that raise many children. 

The second essay in this series will discuss what institutional arrangements might best facilitate this and offer a rough sense of what proportion of the workforce and of GDP might be needed.

Urgent East Asian problem

No one can be faulted for wishing that our world had fewer people.  The largest human population that could sustainably live on Earth so well as the inhabitants of rich countries now live might well be a small minority of the ten billion people now expected to inhabit our planet at peak global population sometime between 2080 and 2100.

If all countries and cultures were reducing their populations at the same rate, if that rate appeared slow enough not to entail grave adverse economic consequences, and if no country sought to increase its population relative to other countries, then no country would need a pro-natalist policy until the global population had declined to its optimal level, whatever that might be.

Regrettably, that is not what is happening. The total fertility rate (TFR) of Africa (4.2 live births per woman per lifetime), although declining, remains far above the population-replacing level, which is 2.1 live births per woman per lifetime. Meanwhile, Europe’s (1.5), the Americas’ (1.8) and Asia’s (1.9) TFRs are now below replacement, while Oceania’s (2.1) is at replacement. 

The regions of our world with the highest TFRs are its poorest and least educated regions: central Africa (5.6), western Africa (4.9) and eastern Africa (4.2). Those with the lowest TFRs are well-educated and far richer: eastern Asia (1.2), southern Europe (1.3) and eastern Europe (1.4). 

The number of live births per year in Nigeria is now over 80% of the number of live births per year in China, which it will soon exceed. 

Sometime around 2100, sub-Saharan Africans appear likely to become a growing majority of the world’s population, in which Europeans, East Asians, and Indians – including Americans of European, East Asian and Indian descent – will be small and shrinking minorities.     

Just as no one can be faulted for wishing that our world had fewer people, the Japanese, South Koreans or Chinese cannot be faulted for wanting to make their countries less overcrowded. 

However, due not only to global but also to domestic considerations, population reduction might more prudently be done more slowly than it will be done if present TFRs are sustained. 

Assuming an average childbearing age of 30 years and hence about 3.3 generations per century, a TFR of 1.8 reduces the birth cohort by 15% per generation and by about 40% in a century. With a lag of no more than one lifetime, it does the same to population, absent migration or changes in mortality or childbearing age. 

Two centuries of a TFR of 1.8 would reduce the population by about 65%. Three centuries of such a TFR would reduce the population by about 80%, but without grave economic stress.

By contrast, a TFR of 1.05 – roughly what China’s TFR is now widely thought to be – reduces the birth cohort by half every generation and by about 90% in a century, and, with a lag of no more than one lifetime, does the same to population, absent migration or changes in mortality or childbearing age. 

South Korea’s 2023 TFR of 0.7, if sustained, would reduce the birth cohort by two-thirds every generation and by about 97% in a century, and, with a lag of no more than one lifetime, would do the same to South Korea’s population, absent migration or changes in mortality or childbearing age.

To imagine that either China or South Korea could substantially alleviate such demographic contraction by immigration without becoming largely non-Chinese or non-Korean within a single lifetime is sheer fantasy. 

That either country could do so peacefully and productively seems no less implausible. That seems especially true for China because sub-Saharan Africa will soon be the only source of so many willing immigrants as China would need to offset any large proportion of the decline in its workforce. 

Furthermore, fertility in most of East Asia is so far below replacement that, if sustained, its economic consequences, including population aging, may be disastrous. 

In South Korea, the old-age dependency ratio – the ratio of population at least 65 years old to population aged 20–64 years – is expected to rise from about 24% now to about 90% in 2060. Prospects for China are only slightly less grim.

Many East Asians are now keenly aware of the nature and urgency of their demographic predicament, although they tend to be too polite to describe it in print so bluntly as I have. 

However, they seem to be unable to devise any effective way of reversing their far-advanced fertility decline. They might find it helpful to revisit the first chapter of the first book about economics that is still widely read.

In Adam Smith’s “Inquiry into the Nature and Causes of the Wealth of Nations”, published at London in 1776, the first chapter, titled “Of the Division of Labour,” famously describes, in its third paragraph, a pin factory in which specialization of labor among ten workers, each doing a distinct phase of manufacturing every pin, enabled those ten workers to make at least 240 times as many pins every day as they could have made if each worker did every phase of making a pin.

In its fourth paragraph, that chapter observes that trade enables division of labor to operate across diverse firms or locations, with one or more of multiple distinct phases of producing a good done in each of diverse locations or by diverse firms. 

This specialization of labor, abetted both by trade and by “the invention of a great number of machines which facilitate and abridge labour,” had in recent centuries increased and had become, Smith suggested, the chief cause of the wealth of the wealthier nations.

Smith’s argument was compelling and insightful, not least in implying that increasing economies of scale pervade any wealthy country’s economy – that at least below some average-cost-minimizing scale of production (or, in cases of natural monopoly, across the whole range of scales of production), workers producing a good can produce it more cheaply by cooperating to produce it in greater quantity, regardless of whether those workers cooperate within a single firm or by trade among multiple firms.

However, Smith did not discuss child-raising as an example of specialized labor with economies of scale, perhaps in part because it had been such labor in all nations for millennia and therefore did not help to explain why some European nations had recently grown wealthier than any other nations had ever been. 

Smith seems also never to have imagined that any industry might cease to be characterized by labor specialization and attendant economies of scale. 

In particular, he did not consider, at least in print, what might happen if women chose to cease specializing their labor in child-raising, the products of which could not be owned or sold, in order to work in other industries, the products of which could be owned and sold, and which labor specialization using labor-saving inventions was making more remunerative relative to child-raising. 

We in whose lifetimes that has already happened have also failed to appreciate it in those terms.

Child-raising as non-specialized labor

Diverse changes during the past century and a half have long been recognized as having fertility-reducing effects.  For example: 

• The advent of more effective means of contraception and legalization of their use has enabled women to choose to bear fewer children.  Improved medical technologies that have reduced child mortality have made it unnecessary for women to bear four or five children in order to replace the population; an average of 2.1 live births per woman per lifetime now suffices to do that.  Together, these developments helped enable women to persuade men to allow women to work outside the home for much or even all of their adult lives, augmenting their families’ incomes but creating a family income loss if a wife stays home to raise children.

• State-mandated old-age pensions to which all workers must contribute and which all retired workers receive have replaced our own children as our old-age support.  Moreover, neither the amount nor the duration of either one’s annual contribution or one’s annual pension varies with the number of children one has raised.  This has eliminated the previously compelling economic incentive to raise children.

• We are also decreasingly religious, and – at least in the West – fertility now correlates strongly with religiosity.  It correlates most strongly with the most demanding religiosities.  On present trends, absent immigration or emigration, the US two centuries hence would be peopled chiefly by orthodox Jews, Muslims, Mormons, Amish and Mennonites.

However, one important fertility-reducing change has been largely overlooked:  in rich countries, child-raising has, in recent decades, become the last non-specialized work to which many people ever devote a large proportion of their waking hours.

We no longer spin our own thread, weave our own cloth, sew our own clothes, grow our own food, draw our own water, gather or cut our own cooking and heating fuel, or make our own soap and nightlights, as most people still did even in wealthy nations in 1776. 

With the advent of pre-cooked frozen meals, microwave ovens and services that deliver meals by car from restaurants to homes, we increasing no longer even cook our own food.

Mechanical inventions have made the still largely non-specialized work of clothes-laundering, dish-washing, house-cleaning and even groundskeeping light work that requires relatively little time. 

Having no physical work to do, vast numbers of us, in order to exercise, patronize commercial gyms – institutions that were scarce in the US until the 1980s.

However, we still bear and raise our own children, even though few of us specialize in child-raising by raising many children and never working outside the home. Moreover, this non-specialized child-raising takes more time, during the years when it is done, than does all other work in the home.

Because it is now the only non-specialized work of which any of us ever does much, child-raising seems anomalously hard – as growing one’s own food and making one’s own clothing would feel if one had to revert to it. 

However, it presumably seemed less hard to our female forebears, who specialized in child-raising but also did a lot of diverse kinds of physically demanding non-specialized labor.

This is arguably an important but underappreciated cause of recent fertility decline. Couples who learn by raising one child how hard child-raising is, relative to more specialized and mechanized kinds of work, increasingly choose not to raise a second child. 

Parental economies of scale

Of the many governments of countries with below-replacement fertility – including all rich countries except Israel and Saudi Arabia – none has ever publicly set a national fertility rate target and committed itself to raise the number of live births to achieve that target rate within a specific time by whatever economic incentives may prove least costly and are consistent with providing the additional children with upbringings not inferior on average to those of other children.

Even to advocate doing that – to state publicly the glaringly obvious truth that a 21^st-century state needs an effective population policy – has been beyond the capacity of politicians in countries with formally democratic governments.

However, this silence and inaction may be due in part to the absence of any plausible proposal for reversing fertility decline in the least coercive way, i.e., by monetary incentives. Monetary incentives have proven in diverse countries to be of little or no effect in reversing fertility decline and no one has yet had the stomach to advocate more coercive means of inducing people to bear and raise children. 

The best point of departure for crafting effective, minimally coercive pro-natalist policy – i.e., policy that can and will by monetary incentives increase a country’s annual live births to the level deemed socially optimal, in light of the costs both of increasing live births and of not increasing them, while providing the additional children with upbringings not inferior on average to those of other children – is that any such policy, like any expenditure of public funds, must be designed to achieve its goals efficiently, with the least possible expenditure of public funds.

This implies that pro-natalist policy must strive to capture any benefits of labor specialization and any economies of scale in child-raising that can be captured without making the upbringings of children born and raised in consequence of that policy inferior, on average, to those of other children.

There are substantial economies of scale and other benefits of labor specialization in child-raising – benefits that no state pro-natalist policy has even attempted to capture. Two parents can raise ten to 12 children at a much lower average cost than they can raise one or two children for diverse reasons. 

Preparing food for ten children and cleaning up after ten children requires far less time and effort per child than does preparing food for two children and cleaning up after them. 

Young children can share bedrooms. Ten children need less than five times as much study and play space as two children need. Ten children can ride in a van that costs far less than five times as much as the motor vehicle needed to transport two children.  

Ten children can play a single piano at different times. The minds of ten children can be trained by a single Bach recording, by the same copy of Herodotus’s “History or of The Romance of the Three Kingdoms”, or by a single go or chess board and set of stones or pieces.

If the children are of different ages, then clothing, toys, tools and instruments first used by one child can later be used younger children. In addition, the older children can help care for and teach the younger children, thereby learning parenting skills – as older siblings routinely did before families shrank to one or two children.

Moreover, in child-raising as in much else, practice makes perfect. The more children one raises, the better one becomes at child-raising, both by doing it and by learning from others who do it. 

Furthermore, people who enjoy raising children and would like to do so full-time, as a specialized career, will tend to be better at it and require less compensation to do it than other people would.

“Ichabod” is a former US diplomat.