Thomas Malthus predicted overpopulation to be the gravest problem of mankind in the future. He was probably wrong in general, but especially for some regions in the world, the Malthusian hypothesis seems like a joke. At least that’s what E&M‘s latest addition to the team, Mykolas Steponavicius, thinks. Looking at Eastern Europe, he demonstrates that for some regions, it is underpopulation, not population growth, that will be the biggest challenge in the years to come.
At the dawn of the 18th century, Thomas Robert Malthus, one of the most influential demographers and political economists at the time, painted a bleak vision for the future of England and the rest of Europe. Contrary to the utopian thinking prevailing at the time, whereby economic and population growth reinforce each other in an upward spiral towards progress, Malthus saw a tendency for population to grow faster than food is produced. In his vision, the benefits of economic growth would be swallowed up by a rapidly expanding population, full of misery and with people fighting over scarce food resources. In hindsight, this hypothesis could not be further from the truth. Humanity has managed to evade the Malthusian trap by, on one hand, limiting population growth through broadening access to birth control and the increased costs of raising a child. On the other hand, advances in technology have allowed us to significantly increase our agricultural production. Thus, at least in the developed world, the rate of food production has exceeded population growth.
Today, the opposite but similarly displeasing prospect is looming behind the European horizon – an aging population. It has become particularly severe in the East of the continent where a mix of low fertility and high mortality rates, as well as extensive emigration flows have led to a population decline. Being a problem in its own right, a shrinking population is especially worrisome for its economic implications. One might say Eastern Europe risks becoming empty before growing rich.
The demographic problem in a nutshell
Eastern Europe (EE) is now the fastest shrinking region in the world. Since the fall of the Soviet Union,its total population has declined by more than 9%, with Latvia and Lithuania losing more than a quarter of their respective populations. Future demographic trends are no more promising. The IMF estimates that by 2050 Eastern European population will have declined by 14%, with Bulgaria, Latvia and Lithuania experiencing a drastic decrease of over 20%. If this keeps up, we might see the coming of the wild East.
While the causes of population decline vary per country, some factors affect the whole region. Low birth rates are part of the story, since they are below the replacement rate of 2.1 and some of the lowest in the world. Having plunged to 1.2 in some countries in the early 2000s, they are starting to take an effect now, as fewer millennials enter the labor market. What separates EE countries from the West are higher mortality rates. Simply put, despite EE citizens being younger than their Western counterparts, they live shorter. Particularly striking is the gender gap in life expectancy – for instance, in Lithuania and Latvia women on average live nearly 10 years longer than men. Another major driver is emigration – since the 1990s a significant number of Eastern Europeans have moved to the Western Europe (WE), especially after the accession to the EU in 2004, which granted EE citizens the freedom of movement. This worked to the benefit of WE’s demographics, as a flow of mostly young emigrants has mitigated their aging problem, while simultaneously exacerbating it in the East.
The economic repercussions of a population decline
The IMF estimates that the demographic decline in Eastern Europe can result in on average 31% lower output by 2050. Accordingly, convergence with Western standards of living would slow down from a potential growth of 22% relative to WE’s income to only 8% by the same year.
The core of the issue is a shrinking workforce. By 2050, labor forces (citizens between 15 and 64 years old) across the region are projected to shrink drastically from 20% to over 30% depending on a country. In fact, the effects of labor shortage have already been felt as the majority of companies in Poland, Slovakia, Hungary and Czech Republic consider it a limiting factor for expanding production. This also poses a serious fiscal challenge. As old-age dependency ratios increase (the ratio of pensioners to working age population), the financing of pensions and healthcare becomes more difficult. In the case of Slovenia and Poland, they are projected to even exceed 60% by 2050. In practical terms, it means increased tax burden which in turn can hurt the competitiveness of the EE states.
A drag on productivity is another worrying aspect of the demographic problem. Not only the population but the workforce itself is projected to age. As physical abilities tend to deteriorate with age and older workers find it more difficult to adapt to a changing work environment, the productivity of a country can suffer. This is especially worrisome for Eastern European economies which tend to be more labor-intensive their Western European counterparts.
A frequently overlooked side of a demographic debate is the devastating effect emigration and aging can have on a country’s infrastructure. Rural areas suffer the most, with public infrastructure lagging behind a rapidly declining local population. Schools in Lithuania’s rural areas fail to fill in the classes, which are often no bigger than 7 or 8 pupils, sometimes of mixed ages. The education system in turn becomes incredibly inefficient as a large portion of financing is directed towards maintaining a crippled infrastructure as opposed to improving students’ abilities. Raising government spending becomes like collecting water with a sieve.
Defying conventional wisdom
In my home country, Lithuania, the conventional wisdom says that shrinking population, among other issues, will solve themselves once we reach full convergence with Western standards of living and dispose of Soviet legacy. This view is akin to what an Eastern European historian Timothy Snyder calls the politics of inevitability – the belief in a natural societal progress, whereby all solutions are known and no alternatives exist. While this is certainly a comforting way to look at the world since it relieves one of the responsibility to think and act, it is largely mistaken. For one, progress is not linear as it can and has been interrupted once we dare to project an overly optimistic picture the future. Exemplary of this point is Francis Fukuyama’s broadly discredited proclamation of the end of history. More importantly, the “panacea” of economic growth and Westernization is an illusion as population decline is slowing down the economic convergence itself.
So, how can this demographic trend be reversed? One of the remedies are fertility policies, usually provided in the form of child allowances or tax exemptions for larger families. Lithuania, Hungary and most notably Poland have already taken steps in this direction. Poland’s PiS party’s 500+ program which entitles parents to roughly 120 euros per child per month, while certainly popular, is unlikely to raise the birth-rates. Moreover, according to the Civil Development Forum, a Polish think-tank, the policy imposes a significant burden on public finances (9.5 billion euros in 2020, accounting for nearly 10% of the budget) and might have unintended side-effects, such as pushing women out of the labor market.
Labor market policies promise the upshot of relieving pressure on public finances by expanding the labor force. For instance, many European countries already have plans to raise the retirement age in the near future. However, that would impose an additional hardship on Eastern European men whose lifespans are only slightly above the retirement age. Not to mention the poor health of many elderly citizens, disqualifying them from many jobs and resulting in higher claims for disability and unemployment benefits. Boosting women’s labor force participation can prove effective but only in countries with low participation rates, such as Moldova. Many EE states, however, have already achieved high female employment figures.
Immigration offers the easiest way to balance the labor markets in the short-term. Several Eastern EU countries have already welcomed increasing numbers of immigrants from the non-EU countries by simplifying employment procedures. Ukrainians currently make up the largest immigrant group in Poland, Hungary, Czech Republic, Lithuania and Estonia. However, relying merely on intra-regional migration will prove unsustainable for Eastern Europe, since the pool of working-age migrants is likely to dry-up eventually. While openly pushing for non-European immigration is certainly suicidal for any politician in a region as conservative as Eastern Europe, the actual immigration policy has been different. Recently, faced with severe labor shortages, countries like Poland, Hungary and Romania have accepted significant numbers of workers from India, Vietnam, Mongolia and other Asian countries. Paradoxically, the same self-interest that leads populist leaders, like Victor Orban, to adopt xenophobic rhetoric is simultaneously making them loosen restrictions on immigration from outside of Europe. We can only hope that exposure to less familiar cultures will dispel the populist narratives.
Population decline as a political problem
Nearly 30 years after the fall of the iron curtain, the gap in the standard of living between Eastern and Western Europe has narrowed. Some were quick to rejoice over the outstanding economic advances of the region and got lulled into believing that progress was bound to continue uninterrupted. Unfortunately, many issues persist, including a vicious cycle where a relatively poor economic situation in the East and a shrinking population reinforce each other.
To evade this cycle, we first have to recognize it as a threat and restore the belief in our ability to shape the future. That, however, we cannot do without having a real policy debate. As always, there is no universal remedy, as each country has a unique set of existing policies, expectations and issues. For most Eastern European countries allowing in more immigrants, improving the quality of public services and, when possible, encouraging more women to work could help to alleviate population decline. It is clear that in the light of handouts and aggressive anti-immigrant rhetoric, policy-evidence matters very little to the public. It is our job to offer a convincing narrative which would propel citizens to favor long-term well-being over immediate personal gain.
Cover Photo: Empty Beach in Lukecin, Poland (Marin Jozwiak, Pexels)