By Robert A. Vella
Economists say that the relationship between economic growth and population growth is very complex and that a singular correlation does not exist. On a marginal level, this is true. There are so many economic factors outside of population size that it isn’t necessary to list them here, and I’m sure readers could easily name many examples. On a basic level, however, there is an obvious relationship between economic growth and population growth upon which the system of capitalism is fundamentally dependent.
Although all human beings engage in activities to support themselves and their families, whether they are subsistence farmers or corporate executives, not all such activities are considered as economic activities under the capitalistic definition. The globally accepted measure of economies is the Gross Domestic Product (GDP).
From Encyclopaedia Britannica:
Gross domestic product (GDP), total market value of the goods and services produced by a country’s economy during a specified period of time. It includes all final goods and services—that is, those that are produced by the economic agents located in that country regardless of their ownership and that are not resold in any form.
The OECD defines GDP as “an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).” An IMF publication states that “GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).”
GDP does not include several factors that influence the standard of living. In particular, it fails to account for:
Non-market transactions– GDP excludes activities that are not provided through the market, such as household production, bartering of goods and services, and volunteer or unpaid services.
Non-monetary economy– GDP omits economies where no money comes into play at all, resulting in inaccurate or abnormally low GDP figures. For example, in countries with major business transactions occurring informally, portions of local economy are not easily registered. Bartering may be more prominent than the use of money, even extending to services.
More straightforwardly, GDP only measures the final aggregate value of legitimate and monitored monetary activity. Therefore, GDP is neither a complete measure of all economic activity nor is it an accurate measure of living standards or quality of life standards. For example, a subsistence farmer may be able to adequately provide for their family but – unless any surplus production is sold on the open market – their net economic measurement is essentially zero. Likewise, economic activity on the black market (i.e. the underground or shadow economy) is also not measured by GDP.
Therefore, capitalism is assessed by the monetary growth of prevailing economics. The more growth there is, the more profitability there is. The more profitability there is, the more living standards will consequentially improve (in theory). And, the more people there are involved in economic activities, the higher the potential for economic growth there should be (all other factors notwithstanding).
But, what happens when population growth stagnates or begins to decline? Is economic growth still possible? Bullish economists might say yes, that market innovation and technological advancement are more important factors. They might envision a hypothetical Monopoly board which can expand from the growth of accumulated wealth. In other words, the amount of money is more crucial to the game than the number of players. But, doesn’t one player always win in the end at the expense of everyone else? What does history reveal about the relationship between population growth and economic growth?
The following graph suggests that there is a basic relationship. Over the last six decades, world GDP growth was highest from the early 1960s to early 1970s when world population growth was also highest. Since then, both growth rates have gradually declined.
And, world population growth is expected to continue declining. Here’s the projection through 2050:
If the relationship between population growth and GDP growth is true, then the system of capitalism we have relied upon for centuries could devolve into a more recessionary pattern over the coming decades. Even more troubling are the projections through 2100. Although the world population growth rate is falling, the total world population is still forecast to rise:
Considering the relationship between population growth and GDP growth (again, assuming it is true), it is inconceivable to expect a stagnant world economy to be able to sustain over 11 billion people – or, 4 billion more souls than are alive today. It also may be just coincidence (or not), but the growth rate and total population lines on this graph crossed and began moving in the opposite directions right around the time of the Great Recession of 2009.
Throughout the entire history of capitalism, expansion, growth, and profitability were its fundamental features. As long as there were new lands and peoples to feed this growth, capitalism flourished. Never was there a time of contraction in which capitalism excelled. Free markets didn’t end the Great Depression nor the Great Recession, government intervention did. As humankind faces the 21st century challenges posed by overpopulation, the exhaustion of Earth’s natural resources, and the ravages of climate change, can capitalism in its present form continue to meet our economic needs?
Unless we are able to quickly colonize other worlds (e.g. Mars), the answer appears to be “no.” What we are seeing now is capitalism beginning to consume itself. Economic growth, and particularly profitability, are not occurring in an expansionary environment. Instead, stronger players (i.e. wealthy individuals and corporations) are extracting profits from weaker players (i.e. workers and consumers) in this real life game of Monopoly. Like an organism feeding upon itself due to starvation, an inevitable demise seems most certain.
For the record, I support private property rights, entrepreneurship, individual empowerment, and earning profits through honest work, innovation, and merit. Therefore, I oppose communism. However, I also oppose the unrestrained avarice of laissez-faire capitalism (a.k.a. neoliberalism) and the corrupting practice of corporatism.