Capitalism is an unstable system. More specifically, the Anglo-American version is unstable. This is a point that I have made in an earlier post but it is worth repeating again. The currently accepted paradigm assumes infinite growth. This is usually defined as growth in the bottom line which is a measure of the supremacy of the financial system in the recent past that this one measure overshadows any other. Growth in the bottom line can come either by increasing sales or by cutting costs or by a combination of both. Increasing sales in turn can come by either increasing the number of units sold (whatever those units may be) or by increasing the price per unit or again by some combination of both. In practice, it is not always possible to keep on increasing the price per unit so there is usually an element of increasing the number of units sold involved. Increasing the number of units again involves either inducing more and more people to buy the producer's goods and services or inducing the same number of people to keep increasing their purchases or a combination of both. Again, in practice, it is this combination of both that is employed by producers.
From prehistory till the dawn of the industrial age, the global human population was largely static but very slowly increasing if seen from a perspective of several centuries at a time. Periodic crises would knock back the population severely. For example, there is evidence to suggest that an ancient volcanic explosion may have resulted in an abrupt and dramatic decrease in human population although this is not accepted by everyone. In historic times, the black plague caused massive population decrease in Europe and around the world. Collapse of empires such as the decline of the Roman Empire were another reason for population decreases. Population levels would then recover until the next crisis. Despite the crises, there was still a gradual increase in population levels. The industrial age saw a very rapid increase in population. This was caused by improvements in medicine and sanitation which dramatically lowered overall mortality rates as well as maternal mortality rates.
In the past, before improvements in medical care, when mortality rates were high and specially infant mortality rates were high, it made sense for people to have large families. This way, it could be ensured that some children would survive to adulthood. As agricultural productivity increased over time, the population would grow to take advantage of the extra food. This was what led Malthus to make his grim predictions. As mentioned above, the industrial age brought improvements in medicine and sanitation that caused mortality rates to fall. However, birth rates continued to stay high. The result was a population explosion at first in Europe and North America and then in the latter part of the 20th century in most of the rest of the world. It seemed only a matter of time before the worst predictions of Malthus would start playing out.
But then something strange started to happen. For the first time, people gradually started restricting the number of children they had. This trend started first in the developed economies and has now spread to the rest of the world. It happened unevenly and slowly at first. The end of the Second World War actually caused an increase in births - the so called baby boom in the US. Now however, it is firmly established that the birth rates have fallen to below replacement levels in most parts of the world. This is an unprecedented situation. Below replacement birth rate means that over time, the population grows older and starts to decline. Japan is most advanced in this trend with most of Europe following. The US is currently maintaining its birth rate at a replacement level thanks mainly to immigration. The birth rates in developing economies have also mostly fallen to below replacement levels although a high birth rate in the recent past means that there is a large bulge of young people currently working its way through. Over time however, these countries will also experience a graying and then a declining population.
What does this mean for businesses? Earlier I had said that one way to increase the bottom line is to increase the number of units sold and one way of doing this is to sell to larger numbers. How does a declining birth rate affect this calculus? In later posts, I will be exploring this question and some implications of a declining birth rate for businesses and the economy.
From prehistory till the dawn of the industrial age, the global human population was largely static but very slowly increasing if seen from a perspective of several centuries at a time. Periodic crises would knock back the population severely. For example, there is evidence to suggest that an ancient volcanic explosion may have resulted in an abrupt and dramatic decrease in human population although this is not accepted by everyone. In historic times, the black plague caused massive population decrease in Europe and around the world. Collapse of empires such as the decline of the Roman Empire were another reason for population decreases. Population levels would then recover until the next crisis. Despite the crises, there was still a gradual increase in population levels. The industrial age saw a very rapid increase in population. This was caused by improvements in medicine and sanitation which dramatically lowered overall mortality rates as well as maternal mortality rates.
In the past, before improvements in medical care, when mortality rates were high and specially infant mortality rates were high, it made sense for people to have large families. This way, it could be ensured that some children would survive to adulthood. As agricultural productivity increased over time, the population would grow to take advantage of the extra food. This was what led Malthus to make his grim predictions. As mentioned above, the industrial age brought improvements in medicine and sanitation that caused mortality rates to fall. However, birth rates continued to stay high. The result was a population explosion at first in Europe and North America and then in the latter part of the 20th century in most of the rest of the world. It seemed only a matter of time before the worst predictions of Malthus would start playing out.
But then something strange started to happen. For the first time, people gradually started restricting the number of children they had. This trend started first in the developed economies and has now spread to the rest of the world. It happened unevenly and slowly at first. The end of the Second World War actually caused an increase in births - the so called baby boom in the US. Now however, it is firmly established that the birth rates have fallen to below replacement levels in most parts of the world. This is an unprecedented situation. Below replacement birth rate means that over time, the population grows older and starts to decline. Japan is most advanced in this trend with most of Europe following. The US is currently maintaining its birth rate at a replacement level thanks mainly to immigration. The birth rates in developing economies have also mostly fallen to below replacement levels although a high birth rate in the recent past means that there is a large bulge of young people currently working its way through. Over time however, these countries will also experience a graying and then a declining population.
What does this mean for businesses? Earlier I had said that one way to increase the bottom line is to increase the number of units sold and one way of doing this is to sell to larger numbers. How does a declining birth rate affect this calculus? In later posts, I will be exploring this question and some implications of a declining birth rate for businesses and the economy.
Posts
No comments:
Post a Comment