The panic over birth rates has a blind spot

The resilience of the global economy in the coming decades will hinge on geopolitics, the evolution of supply chains, technology – and demographics. Contrary to some troubling depictions, the slide in birth rates doesn’t mean permanently lower growth. Nor does it have to lead to an inexorable erosion in standards of living or the end of innovation. Some high-profile academics are offering a refreshingly upbeat perspective. 

Fertility rates are coming down dramatically in many countries. The retreat is particularly notable in Asia, where the most dynamic economies have tried – and mostly failed – to encourage larger families. Rates have fallen to record lows in Japan and Singapore in recent months. The number of newborns in Taiwan is plummeting, while China’s population experienced its steepest annual drop since a major famine in 1960.

All have rolled out an array of incentives designed to make parenting more attractive and to ease the burdens that new arrivals place on household budgets. None has made significant headway. Cultural barriers play a role: Women need to be assured that they can reap the financial rewards from having a career – and raising children – and that men will back them.

But panic is counterproductive. A welcome corrective to gloomy narratives comes from a quartet of academics, including Nobel laureate Daron Acemoglu, of the Massachusetts Institute of Technology, and David Autor, renowned for his work a decade ago that chronicled the hollowing out of US industrial regions after imports from China surged. 

Far from being a harbinger of economic collapse, their paper found that output per employee increased between 1970 and 2020. “Our findings challenge the prevailing pessimism: Lower birth rates, and the ageing and shrinking populations they have produced, have raised, rather than lowered, GDP per worker during these decades.” 

Thinning ranks of workers may be an ingredient in the success. Under their model, scarcity spurs the quick adoption of labour-saving technology that can lead to gains in gross domestic product per employee and even overall GDP. Across countries, a 1 percentage point drop in birth rates is associated with an increase of around 27 per cent in worker output. Investment in technology is key. That is positive for export powerhouses like South Korea, whose fertility rate is among the lowest in the world. Labour-saving technologies will comprise a more important share of overseas shipments.

New thinking is overdue. Policy has proven adept at curtailing births. For much of the post-World War II era, headcount management was considered a key plank of development for newly independent nations. Reversing it is far more difficult.

Singapore isn’t giving up, but Prime Minister Lawrence Wong added some valuable perspective in June. “We should have some humility,” he said. “It’s happening everywhere in the world. No one has the answers for now.” Incentives have a role, but the objective should be a better life for the families that do exist. 

To say that the paper disputes the dominant negative narrative on demographic change is an understatement. The authors are careful not to extrapolate too far into the future and acknowledge that the pace of demographic change is likely to accelerate and pose fresh challenges.

But it’s nice to hear an alternative analysis to the pessimism that greets each new measure of fertility or fresh milestones on the way as societies are becoming super-aged. It’s understandable that policymakers look at the numbers and see school closures, and strains on healthcare and pension systems.

They also worry about how a shrinking pool of working-age people will pay enough taxes to support generous fiscal settings. These concerns aren’t without merit: China’s pension system is underfunded; the US Social Security trust fund will cease paying full benefits by late 2032 unless Congress can find a way to fix it. Emerging markets like Thailand have got old before becoming rich.

So much of the discussion has a wistfulness about it. If only we could return fertility to the level of replacement, generally recognised as 2.1 children per woman. But that ship has sailed.

Sure, the right combination of state programmes and subtle shifts in attitude can lift the rate off the floor. In South Korea, for example, where the number of marriages has ticked up since 2023, the fertility rate has inched higher for two years. It’s still an extremely low 0.8. Nobody is talking about a return to 2 or even remotely close to that. 

Ultimately, policymakers will need to fall back on solutions that were always there: immigration and automation. The former can be a heavy lift politically. The latter is consistent with the current boom in artificial intelligence.

South Korea may be in a sweet spot. Its technology exports place it among the big winners in the global economy during the first half of the year, according to new forecasts from the International Monetary Fund.

Technology doesn’t have to be just a substitute for labour shortages or receding populations. It can enhance the productivity of those alive today and the smaller families that follow them. It may even spur innovation.

The planet is a long way from emptying, even if trends are pronounced. Global headcount won’t start going – gently – into reverse for at least another half century. The latest research suggests at least some of the anxiety is premature. That’s progress. BLOOMBERG