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The huge, hidden cost of population growth

Geoff Davies

Population growth does not necessarily translate into increased wealth.

Australia’s population just passed 24 million and former foreign minister Bob Carr, unusually for a very public figure, reckons we’re growing too fast.

He cites the pressure on the housing market, clogged infrastructure and the greater difficulty of limiting greenhouse gas emissions. At some point, we will exceed the carrying capacity of the continent, and perhaps we already have. Those are all sound reasons, but they tend to be brushed aside by the growth lobby, partly because the numbers are hard to pin down.

But what if we knew that halving immigration would save us $50 billion or more a year? According to some little-noticed papers by development economist Jane O’Sullivan, population growth costs us over $500,000 per person added.

Our population has been increasing by about 400,000 a year, more than half from immigration and the rest from natural increase. The total cost to us is therefore about $200 billion a year. A much slower growth rate could still leave plenty of room for having babies, for immigrants and for refugees.

Carr says we have a third world growth rate. That’s interesting because, back in 1986, economist Lester Thurow argued that developing countries could not progress if their population growth was as high as 2% a year. Thurow’s reason- ing was that such a country would be scrambling to expand its facilities – more houses, more farmland, more roads and so on – and would have few resources left over to invest in a better future. Australia’s growth rate has been

Can Australia maintain and expand its infrastructure to deal with a population growing by 400,000 each year? [Photo: Graham Tidy] running at about 1.5% per year or more, the highest among major developed countries.
O’Sullivan’s numbers are big enough and immediate enough perhaps to focus some minds, so how does she get them? Basically, she follows Thurow’s lead and looks at the cost of expanding what she calls durable assets. These include infrastructure like roads, dams and train lines, but also houses, schools, shopping centres and even the education of a skilled work- force. It makes no difference whether these things are paid for by the government or the private sector, the cost still comes out of our total effort every year.

For example, major infrastructure typically lasts for about 50 years. That means we have to replace about 2 per cent of it every year, on average. What the bean counters call gross fixed capital formation (i.e. infrastructure) cost $283 billion in 2010, about 22 per cent of GDP for that year. So the cost of just maintaining our infrastructure is very large.

Now here’s the key point. If Australia’s population increases by 1% in a year then we have to build extra infrastructure. Instead of building 2% of total infrastructure, we have to build 3%, half as much again. So, working backwards, that $283 billion cost comprised about two-thirds replacement, $190 billion, and one-third addition, $93 billion.

Today, that $93 billion would be well over $100 billion, and that’s only part of the cost.

That example just illustrates the logic of O’Sullivan’s argument. Over several studies, she has looked more carefully at the kinds of assets requiring expansion, their lifetimes and costs, and various complicating factors. The result is that a population increase by 1% a year uses about 7% of GDP. For Australia, with a population growth rate about 1.5%, the cost is more than 10% of GDP.

That’s a huge impost on our national effort – about $15,000 per taxpayer. The total would easily pay for the national broadband network in one year. It would pay for a lot of high- quality schools, hospitals and public transport.

But, of course, in this age of cost- cutting, governments do not pay the full cost of expanding our infrastructure.

Engineers Australia says we are falling well short of maintaining our infrastructure properly, so our cities are choking and our long-distance transport is second rate.

Why has this huge cost been overlook- ed? One reason is that the cost shows up in many different parts of our economy, some public and some private.

One large effect in the private sector is to push up housing prices, but malfunctioning banking and investment policies also contribute to that problem. Our governments are happy to leave the public costs scattered through many portfolios so the total is effectively invisible.

One of the unstated reasons for pursu- ing rapid population growth is that it keeps the GDP growing and allows our politicians to proclaim “growth”.

However GDP per person has in fact been increasing only slowly and sometimes not at all.

The other major reason is the familiar one that certain interest groups push their selfish interests at the expense of the rest of us. Those would include the building industry, that benefits directly, and those who just want to see their business expand through no effort of their own.

We need a better-informed and more balanced discussion of the rate at which our population expands, as well as of a sensible maximum for our total population.

Dr Geoff Davies is an author, commentator and scientist. His blogsite is at BetterNature.

Source: Canberra Times, 22 Feb 2016

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