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Europe shows the alternative to growth is decline

Published in The Australian (Sydney), 23 July 2010

A shrinking population and inflated expectations are a damaging mix

WITH Australians about to go to the polls, the topic that is emerging to shape the election campaign is population growth.

Prime Minister Julia Gillard has made it made it her priority to move forward towards a smaller Australia, while Tony Abbott has pledged “real action” on border protection.

It is fascinating to observe how both camps apparently accept the necessity to curb migration in order to avert population pressures.

Growth, whether it is economic growth or population growth, has almost become a swearword in the political domain. It now needs to be qualified by the adjective “sustainable”, or no politician will subscribe to it.

Whenever a phrase is so self-evidently correct that no right-minded person would call for the opposite, it is usually a good indication that it is meaningless.

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This is true for “sustainable growth”, because no one would call for unsustainable growth. It is also true for “moving forward”, as only some crustaceans prefer going backwards, and for “real action”, because few voters would opt for “fake action” instead.

Apart from these semantic peculiarities, it is remarkable that the idea of limiting growth is striking a chord with voters, or at least with focus groups.

After one of the longest periods of growth in Australia’s recent history, Australians have obviously forgotten that there is only one thing that’s more unpleasant than dealing with the side-effects of growth. It’s dealing with the side-effects of decline. In order to remind ourselves about this, we should look at Europe.

The financial crisis has hit Europe hard. It mercilessly exposed the weaknesses of Europe’s social and economic model. Over the past decades, Europe had developed into a place in which governments took on an ever-increasing role, consuming more and more of the national economic output.

Taxes were no longer sufficient to satisfy politicians’ appetite for more generous spending commitments, so deficits had to fill the gap between tax revenues and political ambitions.

At the same time, Europeans ceased to reproduce. In industrialised nations, the birthrate needs to be 2.1 children per woman in order to keep the native population stable. In many European countries, however, it has been far below this figure.

In the worst year so far, Italy recorded a fertility rate of 1.19. It has since recovered a bit, but with birthrates in the region between 1.3 and 1.4 in countries such as Germany, Italy or Spain, it is still far from the level at which these countries would remain stable.

A shrinking population would be a challenge in itself, but in Europe’s case the problems are multiplied by rapidly improving life expectancy. Although arguably today’s older generations are far healthier and generally more active than previous generations, it is nevertheless true that older populations mean relatively fewer taxpayers, more pensioners and more people in need of health care.

The mix of high-spending governments, increased life expectancy and lower fertility had for a long time produced a Europe that was a rather pleasant place to live.

However, it was not economically sustainable. After the shock of the financial crisis, Europeans are slowly waking up to the fact that they have created a continent that is on the verge of shrinking, with regard to its economic significance and its overall population.

As a whole, Europe will lose more than 60 million people over the next five decades. The remaining population will be much older than any other population in world history. In terms of demography, Europe is entering uncharted territory. What it will mean to live in country where there are as many people over the age of 80 as there are people under the age of 20 is hard to imagine, but many Europeans countries will soon find out.

The challenges of this demographic change are going to be enormous. Fewer taxpayers will have to shoulder an unprecedented increase in healthcare facilities. Qualified labour will be in short supply as working-age populations are already shrinking across Europe. This in turn will push up wages and prices; inflationary pressures are increasing.

Meanwhile, it will become more difficult to service the existing debt burdens.

The European example is a clear indication of what happens if a society enters into the no-growth zone. It sucks the energy out of the economy, and politicians are condemned to managing the decline with little room for manoeuvre.

When comparing Australia’s growth chances to the European predicament of shrinking and decline, it should not be hard to decide which path is more tempting.

Growth is not everything, but without growth everything is more difficult.

Until focus groups realise this, we won’t be offered truly forward-moving real action on Australia’s population question.

Oliver Marc Hartwich is a research fellow at the Centre for Independent Studies. He will be addressing the Big Ideas Forum on “The future of Europe” on August 2. (www.cis.org.au).

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