Friday, December 10, 1999

6 Billion and Growing

When political freedom is secured and the market is unrestrained, more people increases demand, and therefore also the supply, and at the end there is more available for consumption than ever before. People are the ultimate resource, they just don't come with a mouth alone, but also a mind and a pair hands. It is time to party and cut the cake on the arrival of the 6 billionth person on this planet.

A shorter version of this article titled "6 Billion and Growing" appeared in The Economics Times on 12 October 1999.

Birth of baby is usually a source of great joy. Therefore, on October 12, the date symbolically designated to mark the arrival of the 6 billionth person on this planet there should have been a grand party to celebrate the momentous event. This is the first time in history that the human population reached this figure. In the last quarter of a century, the population has increased by 50% from 4 billion. A four fold increase in just this century! Before that it had taken about 400 years for the population to triple to about 1.5 billion in 1900. And in the preceding 500 years, between 1000 and 1500 AD, the population is estimated to have merely doubled from around 250-300 million to 500-550 million. (See here for an historical estimate of world population)

Clearly, the mankind in the last 200 years can be said to have at last begun to grasp the secrets of mother nature and succeeded in harnessing those for his own betterment as never before.

Today, there is so much concern about extinction of species. This suggests that if the number of any species increased, then it is an indication of the quality of the environment. Ironically, this is not applied to the most successful of all species - the Homo sapiens. Far from celebrating this success, today the population is commonly held as the problem.

Problems of Plenty!

It is believed that the food production may fail to meet the demands from a growing a population. If this comes true, then at least farmers of the world would have something to celebrate because of the rising food prices. However, today, farmers' world over are more concerned about falling prices of their produce! In some parts of the world, governments are paying farmers not to produce. Among current arguments against biotechnology lies the fear that productivity may increase still further and force the prices down even more.

In India, in the past 50 years, production has increased four-fold, faster than population growth. And still productivity in the best parts of the country is substantially lower than what has been achieved in other parts of the world. In Punjab, yield of wheat is about 3500 kg per hectare, is half of what has been achieved in some other countries.

Truly, the world is faced with the problem of plenty!

More people, Higher consumption, Falling prices!

The falling-price syndrome has affected virtually every aspect of life. Prices of most natural resources are at their historic lows. This was best brought out dramatically, when the late economist Julian Simon won his famous bet on the future of the planet with environmentalist Paul Ehrlich and others. In 1980, Simon had challenged anyone to accept a bet on the falling prices of natural resources. Ehrlich and others accepted the challenge and claimed that the prices of the chosen resources would rise due to increasing demand from the growing population. When the bet was settled in 1990, Simon won hands down. The real prices of the resources had almost fallen through the ground, although the population had increased by nearly a billion during the decade, and Simon would have won even without adjusting the prices for inflation.

Oil is thought to be one of the critical natural resource in today's economy. Yet, real price of crude oil today is lower than the peak after the first oil crisis in 1973. The recent relative increase in prices is due to OPEC trying to cut its production in order to prop the prices up, and not because of any physical shortage of oil. Amazingly, a litre of mineral water costs more than a gallon of petrol in the US.

It is said that the high consumption pattern in the developed world is depriving the poorer countries. But falling prices clearly indicate that there is no scarcity of natural resources. After all, humans don't just consume they also produce. In fact, greater the number of people, greater the demand for goods and services. But, in an open market characterised by free trade and competition, this also provides incentives to producers to discover new knowledge and innovate cheaper and better means of meeting the demand. And then as economics of scale strikes from this larger demand, the prices per unit of the product fall. Consequently, more people lead to increased demand, but also an opportunity to produce more. It may seem paradoxical, but the more we consume, more there is to consume.

The error lies in our inability to grasp that people don't just come with a mouth for consumption, they also come with a mind and a pair of hands to produce. In fact, given the freedom to operate, people generally produce more than they consume, otherwise civilisation would have remained where it was 10,000 years ago.

Free but expensive or priced but cheap

Throughout much of human existence on this planet, most of the things man needed for survival were freely available in nature. He could just go out and get it - fruit from a tree, animal for meat. But ironically, while being free, these were not cheap. He was completely dependent on the vagaries of nature, danger stalked him on each step. The enormous price that man paid for these "free" items is reflected in the small population. The population simply had no opportunity to grow.

From that era, the history of civilisation is that of privatisation. Access to resources were restricted to only those who invested their time and energy on developing those resources. This opened the door for trade among people. Goods were no longer "free", but they became enormously "cheap". This is the story of market economics, it puts a price on goods, and makes it abundant. By the same token all attempts to keep things "free", creates the condition of perpetual shortages.

As the nineteenth century economist, Henry George, used to say, more foxes leads to less chicken, but more people mean more chicken.

Clearly, most of the things that we take for granted today, would not have been accessible to such wider sections of the populations if the population had remained what it was one hundred years ago, and much less so two hundred years ago.

Rising value of labour

The only thing, which in a free market actually appreciates in value, is the price of human labour. More number of human beings - free, enterprising and skilled - far from lowering the wage rate actually pushes it up. The reason we see a rising standard of living.

It would worth noting that 6 billion can fit in less than a thousand cities like Hong Kong, if the people were free to urbanise. And that would leave over 90% of the planet available for agriculture, resource extraction, recreation and wilderness. More than enough to meet the needs of a much larger population at much higher levels of consumption than currently accessible even to richest.

More significant than 6 billion, perhaps is the period sometime in the middle of the next decade, when 50% of the world's population is projected to be living in urban areas. Urbanisation not only improves the quality of life, mortality and infant mortality is much better in cities than in the countryside, for instance, but it also help in increasing the rural productivity as fewer people depend on land for their survival. Labour becomes more mobile and therefore, available for more productive purposes.

Policies, not population, responsible for poverty

No doubt there are many problems. Environmental problem is at the top of the agenda today. But environmental quality is just like any other valuable resource. The problem, therefore, stems primarily from the failure to bring environmental resources to the discipline of the market forces by instituting property rights and market prices.

If there are no physical shortages, why does poverty persist? The answer lies in the policies. It is not population but policies that are the cause of poverty. These have curtailed people's opportunity to seek newer, better and cheaper economic options. The resulting misallocation of resources is manifested in the problem of poverty amidst plenty.

Breeding inequality

Therefore, blaming population growth for the problems help in diverting attention from the policy instruments. Much more significantly, by holding population growth responsible for the economic problems, we are also questioning the basis of political freedom. Since, if a person, particularly a poor person, is considered incompetent to decide on his or her own family size, then he can never be trusted to make sound political choices. Logical consequence of this is that universal adult franchise, or democracy, the most cherished political instrument to have evolved, based on the premise that all humans are fundamentally equal, comes under question.

Rather than reevaluating their own policies, this focus on population, lets the elite and those in authority to be contemptuous towards the poor and those in lower strata of society. Domestically, this leads to political and social inequality, and economic discrimination. Internationally, such an approach implies pure racism.

More the merrier!

At the dawn of the new millenium, it is time we realised that the ultimate resource is people. As Julian Simon would say, "The ultimate resource is people, especially skilled, spirited, hopeful young people, who will exert their will and imagination for their own benefit, and in doing so will inevitably benefit the rest of us as well."

To do this, the people need freedom and peace to operate. So let us strive to ensure that political and economic freedoms are not curbed. Such curbs are a reflection of our lack of imagination, because of which we devise policies that restrain freedom, curtail choices, and dampen the spirit of inquiry and enterprise. This leaves everyone poorer, economically and politically. India is perhaps the best illustration of the consequences of trying to divide freedom - fifty years of self-imposed deprivation and stagnation. The country prided itself in being the largest democracy, and yet held its own people to be unfit to decide on some their own economic interests. This pushed hundreds of millions to perpetual destitution. It is difficult to imagine a more criminal wastage of the most precious resource, its people. Freedom is indivisible, one cannot be sustained without the other.

Let freedom reign. Let us celebrate arrival of the 6 billionth person. More the merrier!