China has a population problem.
Not the one that everyone has talked about for decades. For decades China has had a “one child” policy that limited its population growth. The conventional wisdom was that they needed to control this; too many people slicing up the resource pie means that each person gets an ever smaller slice. It was this logic that led Thomas Malthus to predict population growth would eventually outstrip the food supply of a country, leading to widespread famine. Such was the “dismal science” of economics!
But he saw people only as consumers. They’re producers as well. And as billions of individuals enter the middle class and avail themselves of modern amenities, the world’s productivity will skyrocket. New ideas are far more important than capital or labor. We’re richer than we used to be because we know more than we used to know. And ideas are not conserved. A new concept can be adopted cheaply by billions.
Since China is limiting its population growth, it will have fewer new ideas to help its people adapt. It will have less art and literature to make sense of modern paradoxes. It will have fewer innovators who might help reconcile the wisdom of traditional medicine with the analytical rigor of scientific healthcare.
In a free society, increased demand would increase supply. If there aren’t enough authors or artists, we import the literature or encourage immigration. But China is a command economy, with restrictive import and immigration policies. Hmm.
China’s population problem is of its own making. But where there’s a will, there’s a way. Eventually they’ll figure out how to grow their human resources, too.
Douglas R. Tengdin, CFA
Chief Investment Officer
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