Population growth is irrelevant: Institutions and incentives matter

Kristian Niemietz
THE UK now has one of the fastest-growing populations in Europe, according to a new report by the Office for National Statistics. In just one year, the population grew by over 400,000 people (to a total of 63.7m), adding the equivalent of a city the size of Bristol.

A growing population means growing demand for a range of services, which, as several commentators frantically warn, will put pressure on a lot of sectors. A spokesperson for the retail trade association has expressed fears that the sector may not be able to cope with the extra demand so quickly. Empty supermarket shelves, and long queues at the check-outs, could soon become a reality.

Trade associations representing the catering industry have also expressed concerns about a shortage of kitchen and waiting staff. The days when people can just walk into a restaurant, and expect to be seated straight away, may be numbered. Pharmacies have warned that access to medicine may become a problem if new staff cannot be recruited and trained quickly enough.

As you have probably guessed, the above statements are fictitious (of course). We do hear warnings of demand-side pressures caused by population growth, but these refer either to the socialised sectors of the economy (like healthcare or education), or to sectors where the supply of key inputs is determined by government regulation (like housing and transport).

If we lived in a free economy which had no such sectors, population growth would be no more of a problem than changes in consumer preferences or technology. It would require the kinds of adaptation and adjustment made by market actors all the time. Government planning, however, does not easily lend itself to flexibility, experimentation, and decentralised responses.

That is not to say that unless we move to a free-market utopia (or dystopia, depending on your inclinations), we cannot cope with a growing population. But even without a complete departure from current arrangements, there are steps that could be taken to make us more adaptable to demographic challenges.

In education, the government needs to turbocharge its timid free school reforms, especially by opening the sector to for-profit schools and school chains. We need equivalents in healthcare – like new “free hospitals” and “free clinics”. The NHS could still fund most healthcare, but it should leave its provision to for-profit, cooperative, and charitable organisations. Building and planning restrictions should be largely abolished, so that the housing supply can grow where the demand is. Large parts of transport infrastructure can also be moved to the private sector, and the remainder should be funded from locally raised taxes, which would boost accountability and responsiveness.

We have been here before. At the end of the 18th century, Thomas Malthus predicted that the explosive population growth he witnessed would soon lead to misery and starvation. At the time, the UK had around 20m inhabitants.

Kristian Niemietz is senior research fellow at the Institute of Economic Affairs.