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The Global Economy Is A Giant Ponzi Scheme

Wednesday 27 March 2013

By Mike Seccombe

Essential for any healthy economy is the people to power it. And Europe, North America, Oceania — they’re all losing fuel. What will this mean for superpowers, national borders, and for xenophobia?


Across once-tolerant Europe, political parties of the right are rising on a tide of bigotry. Geert Wilders of the Netherlands is the best-known example, but from Greece to Norway, from Austria to the UK, voters are flocking to far-right parties of prejudice.

In America the political/racial divide has widened over the past decade or so. The nation may have a black President, but it also has a majority on its Supreme Court just itching to overturn the Voting Rights Act, the 1965 legislation which outlawed racially discriminatory electoral laws. It also has a dysfunctional Congress split between the Republicans, whose base is overwhelmingly white, and the Democrats, who are supported overwhelmingly by all the minorities.

It’s happening in other places, too. Surprising places. Singapore, for example, is now in the throes of a raging immigration debate. So is Japan, the plunging population of which is forcing the country to, reluctantly, confront its historical xenophobia.

Even in Australia, often cited as the most successful multicultural society in the world, issues of race, ethnicity and religion are increasingly prominent in political discourse.

The question is, why?

In a word, the answer is demographics.

As we wrote in part one of this feature, half the world, including almost all the developed world, now is reproducing at below replacement level. A generation from now, according to United Nations Population Division projections, less than a quarter of the world’s women – most of them in Africa and south Asia – will be reproducing at above replacement rate. And those UN forecasts are probably on the high side, for reasons we’ll come to later.

Australia’s population has been below “replacement rate” for 30 years. As fertility rates fall, the country is becoming ever more reliant on immigrants.

And as the birth rate has plunged in developed nations, and the native-born population has begun to shrink and rapidly age, governments and business have sought to make up the numbers by importing people to prop up their economies. It’s all they know how to do, for our economic system is, at its base, a giant Ponzi scheme, dependent on ever more people producing and consuming ever more stuff.

But what happens if that all stops? What happens when you get an ageing, shrinking population that consumes less?

“The answer to that question is that we don’t know because it’s never happened before,” says Peter McDonald, professor of demography and director of the Australian Demographic and Social Research Institute at the Australian National University.

But we have some leading indicators to hand, and one of them is the increasing political expression of racial, ethnic and religious prejudice. Let’s take Australia for example, not because it is unusually racist – quite the reverse – but because it has long been one of the countries which has most enthusiastically pursued growth through immigration.

Australia is truly the land of immigrants. The United States calls itself by that name, but the percentage of the foreign-born in the US, according to most recent census data, was 12.9, of whom fewer than half (5.6 per cent) were citizens.

In Australia the foreign born make up 27 per cent of the total population. Another 20 per cent have at least one foreign-born parent.

Instead of focussing on keeping people out, the future will focus on getting and keeping them in. Declining countries will want to hold on to their young people.

Australia has long been motivated by the desire to fill up an empty continent. But as the fertility rate fell – it has been below replacement rate for more than 30 years – that Big Australia goal became ever more reliant on imported people. It’s hugely reliant on imported people.

In the year to the end of June 2012, net immigration was more than 208,300. The “natural increase” of the population over the same period was much smaller: 151,300. Just 42 per cent of the country’s annual increase in population came through births. And many of those births, of course, were to recent immigrants.

Those immigrants increasingly come from non-European countries.

They also tend to cluster, which makes them stand out in Australian society, which until comparatively recently was overwhelmingly white Anglo-Saxon.

Consider the example of western Sydney. According to Glen Capriano, an ex-Bureau of Statistics demographer now with consultant company .id, which provides data to local governments in the area, the western Sydney area grew by 111,000 people in the five years to 2011. Of those new people, more than 75 per cent – around 85,000 – came from overseas. The biggest source area was south Asia, with 30,000-plus new arrivals from India, Pakistan, Sri Lanka and Bangladesh. They added to what was already a melting pot of humanity in this part of the city: Chinese, Lebanese, Vietnamese, Iraqis and Filipinos most prominent among them.

The social cohesion of western Sydney is being sorely tested by the enormous numbers of immigrants, but both major political groupings in Australia remain committed to high levels of immigration.

One side, however, has made a point of simultaneously supporting high immigration and stoking xenophobia. It’s interesting to note how their methods have evolved.

In 1988, then Opposition Leader John Howard expressed concern about the level of Asian immigration, worrying that it threatened Australia’s “social cohesion”. He was howled down for his comments and later said he regretted it.

But he had recognised a political problem: the difficulty of reconciling the industrial/economic desire for rapid population growth with the intolerance of a substantial section of the populace to high levels of migration.

It took a decade for Howard to find a formula which allowed his conservative coalition to appeal to both the pro-growth business lobby and the anti-immigrant populists, but in 2001 he succeeded. The slogan was “We will decide who comes to this country and the circumstances in which they come.” (Actually, the slogan is generally credited to the Liberal Party’s pollster, Mark Textor.)

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Asia’s decline: Japan, Singapore, South Korea, Taiwan, Macau, Hong Kong, and most importantly China currently all have fertility rates lower than those of Europe.

With this glib formulation, community concern could be focussed on a tiny subset of new arrivals in the country (7,379 out of 208,300 in 2011-12) — those who arrived by boat as asylum seekers. Meanwhile the migration program would proceed apace, in the interests of “big Australia”. Current Opposition policy is to cut the migrant intake but slightly, to 170,000 a year, with the goal of maintaining annual population growth of 1.4 per cent a year.

So as Australia approaches its 2013 federal election and the conservative parties, now led by Tony Abbott, with Scott Morrison as immigration spokesman, are looking to win it in the western suburbs of Sydney, a key part of their strategy is the exploitation of community concern about migrants. Yet if they win, which looks highly likely, the flow of migrants to the western suburbs will hardly slow at all. The irony is, they may win with the support of more established immigrants. Intolerance of new arrivals is not restricted to Anglos; often the previous wave of immigrants is the one which feels most threatened.

Whatever you think about its principles, it looks effective. Watch for other countries to copy it.

In the meantime, Australia remains exceptionally committed to population growth. That is what keeps its real estate among the most expensive in the world, and what keeps the roads from western Sydney gridlocked — among other effects.

“We’re certainly operating a Ponzi scheme in Australia,” says Dr Bob Birrell, an economist and migration expert from Monash University.

“Our growth is predicated on extra numbers… [and] more of our activity is going into city building and people servicing, which do not directly produce many goods that can be traded in overseas markets.

Last year, Forbes magazine, that most reliable voice of the economic orthodoxy, laid the blame for Europe’s economic decline squarely on its citizens’ failure to reproduce in adequate numbers.

“We’re depending on [the export of] non-renewable resources to provide for these things. And it’s very doubtful that it’s sustainable,” says Birrell. Half the world is facing the problem of low fertility, and Australia, with its massive program of importing people, is providing an extreme example of one approach to the conundrum.

In a nutshell, the problem is this: lower fertility rates mean older, less innovative and productive workforces. More importantly to the Ponzi economic order, older, stable or declining populations consume less. So growth requires either importing people, or exporting stuff, or a combination of the two. Orthodox economics simply can’t cope otherwise. Europe as a whole has been reproducing at well below replacement rate for close to 40 years. The last period for which UN data showed Europe’s total fertility rate above the replacement rate was 1970-75.

Europe’s contemporary demographics give new meaning to the descriptor ‘the old world’. The continent’s average person is over 40 now. By 2050, if things continue on trend, the average European will be 45.7. If one takes the UN’s “low variant” projection, he/she will be over 50 years of age.

And the low variant now looks closer to the mark. Fertility rates had actually rebounded a little over recent years, the result of a bit of “catch-up” after a shift over several previous decades in which women delayed child-bearing. But the European recession has set fertility rates plunging again.

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The recession’s effects will likely linger for decades, in lower rates of earnings and savings, and also in reduced fertility. As the UN’s Jose Miguel Guzman points out, people without jobs can’t afford housing. And they can’t afford children. In Spain, the unemployment rate among those aged 16 to 24 is now 55.13 per cent. Overall it is 26 per cent. Greece is worse, Italy only a little better.

The figures leave no doubt that the recession has affected the fertility rate. The more important question is whether the fertility rate helped cause the recession.

The UN’s Guzman says not.

“There is not evidence of a clear link in terms of demographic change affecting economic performance. The crisis seems to be related more with the political economy than with demography,” he says.

Others say otherwise. Last year, Forbes magazine, that most reliable voice of the economic orthodoxy, laid the blame for Europe’s economic decline squarely on its citizens’ failure to reproduce in adequate numbers, in an article headlined What’s Really Behind Europe’s Decline? It’s The Birth Rates, Stupid.

The Forbes piece was unequivocal: the biggest threat to the European Union was its low fertility rate.

It went on to laud Germany as an example of how Europe should be, in that it had “offset very low fertility rates and declining domestic demand by attracting migrants from other countries, notably from eastern and southern Europe, and building highly productive export oriented economies.”

And it castigated what it called the “Club Med Countries – Greece, Italy, Portugal and Spain”, for not having “developed strong economies to compensate for their fading demographics”.

The piece ended with a dire warning that unless Club Med managed to induce people to have more babies, catastrophic economic consequences would flow for all of Europe and maybe the world.

But the Forbes piece left out a key determinant of the differing fertility rates in different parts of Europe – surely not because it did not accord with the magazine’s ideology.

The social cohesion of western Sydney is being sorely tested by the enormous numbers of immigrants, but both major political groupings in Australia remain committed to high levels of immigration.

It turns out, says Peter McDonald, the countries whose birth rates have held up best are the Nordic and French-speaking countries, closely followed by the English- and Dutch-speaking countries.

“There’s a long history in France and in the Nordic countries … of governments and employers putting in place arrangements to allow women to combine work with family,” he says.

“The southern European countries have the view that they are ‘family-oriented’ countries and the state doesn’t get involved with family matters. That means women in those countries do everything – not only looking after children, but they also have to look after the older people and everything else,” he says.

Turns out the much derided nanny state works. It turns out also that the countries which have the shortest working hours, including Germany, are the ones coping best in both demographic and economic terms.

It would seem that what is needed in those southern European countries is more support for women, to ease the burden of family responsibilities, which would allow them to combine having children and working and so contribute in more than one way to supporting the economy.

Instead, many governments (and, we might add, the free-market zealots at Forbes), are prescribing austerity.

As Thomas Sobotka, one of the authors of a 2011 study on population trends by the Vienna Institute of Demography, told the Guardian newspaper, massive cuts in social spending would only exacerbate the problem.

“This may prolong the fertility impact of the recent recession well beyond its end. It could lead to a double-dip fertility decline,” he said.

But when it comes to fertility declines, Asia takes the cake.

Japan, Singapore, South Korea, Taiwan, Macau, Hong Kong, and most importantly China currently all have fertility rates lower than those of Europe.

Put it down to the Asian work ethic, so often touted by business people and politicians in Australia. Shadow Treasurer Joe Hockey, for example, recently gave a speech endorsing the Asian way, while slamming western European welfare states. But it turns out that while the Asian way may make for spectacular growth in the short term, it results in moribund societies in the longer term.

Japan’s working-age population already is falling fast. China’s and Korea’s are about to start falling, if they haven’t already.

“I’m pretty pessimistic about the east-Asian situation,” says McDonald. “I think those countries find it very difficult move in the right direction of supporting work and family, in particular, reducing work hours. “We are now talking about some 30 per cent of Japanese women not getting married.”

“I saw a couple of people from the Japanese government give a paper recently, essentially accepting this as an inevitability – a low birth rate forever,” he says. It’s the same all over Asia.

“You either work full-time – 50 hours plus a week –or you’re in some crummy part time job. It’s not like the permanent part-time situation in Australia where women can work in decent jobs part-time.

“Not surprisingly, in the circumstances, a lot of women [in Asia] have just given up on the idea of family,” says McDonald.

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Let’s look at some of the other countries in our region, whose work and welfare regimes Hockey appears to aspire to. Hong Kong has a birth rate of 1.09, which is on track to see its population almost halve in a generation. Taiwan is at 1.10; China, 1.55; Thailand, 1.66; Vietnam, 1.89. Even Indonesia’s fertility is just above replacement rate, at 2.23, and is falling fast. Malaysia and the Philippines are still growing pretty quickly, as are the south-Asian countries, which may give them a competitive edge for a few decades – and a growing export industry of people. But it is not projected to last more than a few decades.

Let’s return to America. The United States also is reproducing at below replacement rate, and its birthrate has declined sharply in recent years. America relies for its growth on immigration and also, historically, on the higher fertility rates of immigrant women.

Guess what? The US birth rate not only fell to its lowest level ever in 2011, but the greatest decline was among immigrant women. Hardly surprising, really, given that most of the sources of migrants – including all of South America, are close to or below 2.1.

Nonetheless, the number of non-white births in the United States exceeded those of Anglos for the first time in 2011. Within a generation, the US will become a majority-minority country. The United States is still attractive to migrants, but not as attractive as before.

Many undocumented workers (Brazilians being a prime example), disheartened by the exploitative and depressed US labour market and by political hostility in Republican-controlled states, are simply going home. Or not coming in the first place, because their home economies present better chances.

So, let’s end our Cook’s tour of the demographic world now, and look at what it all means.

First, governments and their business backers will have to look to their industrial relations and family policies. If you do not provide support systems which allow women to cope with both paid work and family responsibilities you will (a) lose a significant part of your workforce at a time when the working-age population is already in sharp decline, (b) see unsustainably low fertility rates or (c) both of the above.

Second, even while that might slow the rate of fertility decline, it is unlikely to restore it. So they will have to look to their migration policies. In the near future, says Guzman, governments might be “encouraged to limit out-migration”.

Think about that; it turns the idea of border control – which is in any case a concept only of the 20th century – on its head. Instead of focussing on keeping people out, the future will focus on getting and keeping them in. Declining countries will want to hold on to their young people.

As a result, the United Nations projections suggest much lower migration flows in the future.

And of course, says Guzman, many countries are going to have to consider policies such as higher retirement ages and changes to pension schemes. Guzman is quite categorical about the magnitude of the shift that needs to be made to enable societies to cope with the certainty of declining population across much of the world.

“Already,” he says, “some [countries’ populations] are decreasing. We have never experienced anything like that, and it creates fears in governments in terms of the implications for society. It is quite legitimate for governments to have these fears… to openly say ‘Okay, if we continue like this, we’re going to disappear.’

“You cannot solve it with just immigration.”

Peter McDonald agrees that the declining-fertility conundrum cannot be solved just with immigration, but disagrees with the UN projections of greatly reduced migrant flows.

“The UN projections are ideologically driven, in my view.

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Workers in Kunshan, China, assemble strollers on a production line. “The medium projection is that everybody’s fertility ends up around replacement level, and migration disappears to zero. That’s what they do to Australia for example – they push fertility up and then gradually move migration down to zero.

“I don’t see that as the future of Australia for a moment.” “Migration [is driven by] the economic difference between the source country and somewhere else, and the political situation, of course. And the environmental situation.

“For 60,000 years people have been moving around the world for those reasons. And they will continue to do it.”

But the big picture, says McDonald, is this: “If you are looking to migration to offset the low fertility rate, you are talking absolutely enormous numbers. Way above any capacity to actually absorb them.”

It’s not just about prejudice. There are big practical hurdles to importing large numbers of people of different language cultural practice. They need infrastructure, they need services, they need help. Even with the best will in the world, it takes time to assimilate migrant populations.

And over the longer term, as fertility declines in ever more countries, immigrants are going to be harder to come by In the longer term, the world will have to adjust its economic system to cope with the novel concept of less. Fewer people, less consumption, lowered need for resources, energy, housing, roads, you name it. And Australia is singularly ill-prepared for that medium-term future.

In the short-term, though, it means more foreign faces on the streets of Paris and London and Amsterdam and New York and western Sydney. And greater political traction for the prejudice mongers like Geert Wilders and Scott Morrison.

See online: The Global Economy Is A Giant Ponzi Scheme