Britain faces a bit of a conundrum at the moment. Actually it faces several, as you may have noticed, but there’s one that I don’t think has been articulated very often. That’s the problem of population, and its connection to the health of the economy.
There are many things that governments do to try and stimulate economic growth. Various strategies go in and out of fashion, but population doesn’t often get mentioned. It is, however, pretty important to economic growth. Put simply, the more people there are working and earning and spending, the bigger the contribution to GDP.
In his new book The Rise and Fall of Nations, Morgan Stanley’s chief strategist Ruchir Sharma describes ten key factors in identifying countries to invest in. One of them is population – “is the talent pool growing?” Population growth doesn’t automatically lead to economic growth, but it’s hard to do without it.”To produce strong economic growth in a country with a shrinking population is close to impossible,” says Sharma.
Britain is as reliant on this as anyone. From a fairly stable population through the 70s and 80s, growth rates in Britain ramped up dramatically in the late 90s, feeding into new low-paying jobs in the services sector. Analysing the links between Britain’s population and economic growth, economist Craig Berry writes that “it is not clear that the UK can develop a growth model in the foreseeable future which functions without strong population growth.”
This population growth hasn’t come from people having more children. The fertility rate in Britain has been below the replacement rate for forty years. The rise in population has come from people living longer and – you can see where this is going – migration.
Here’s a graph from the latest ONS bulletin:
Wait a minute, some might be saying. Does immigration create growth and jobs? Or do people migrate because Britain is growing and jobs are available? And the answer to that is both. People move to find work, which is why the graph above shows a dip in net migration during the recession. But the availability of workers also dictates where and when jobs will be created. (To take one example, how many families had an au pair when you were at school? The availability of young European women willing to work weird hours for low pay, on short term contracts, created that particular phenomenon of modern middle class parenting.) Immigration is both a cause and an effect of a growing economy.
So Britain relies on immigration to raise its working population and deliver economic growth. And yet we just voted to leave the EU, with concerns over levels of immigration playing a major part. If and how we actually leave the EU is yet to be determined, but the free movement of people is controversial. Plenty of people would like to see Britain out of the single market in order to reduce immigration. Others are trying to suggest some kind of unlikely compromise where we can stay in the single market but control our borders. Either way, we appear to be voting for lower immigration.
Does the general public know that lower immigration will hurt Britain economically? Probably not, given the media scare stories about scroungers and NHS tourists. When asked, 64% of people say that immigration is “a problem, not an opportunity”, and three quarters of people are in favour of reducing it.
But what’s the alternative? Endless immigration and a limitless UK population? Hardly sustainable, from an environmental as well as social angle.
Hence the dilemma.
There are no right answers to this. There are a few things we can do to help grow the workforce without population growth, and productivity measures we can use to get more value out of the workforce. We will need a strategy to cope with an aging population. But I reckon we’re also going to have to put a bit more thought into how we run an economy without economic growth.