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     Feb 9, 2011


THE BEAR'S LAIR
Nile lesson for the world
By Martin Hutchinson

The rioters in Cairo's Tahrir Square and the Western commentators on those riots have both missed a vitally important component of Egypt's miseries: its excessive and rapidly rising population. With such population growth, even the wisest Egyptian ruler, the great Ptah-hotep, could not have achieved a rapid rise in the living standards of Egypt's people. We should not mock; if this problem is not attacked seriously and rapidly on a global scale, the world of the 22nd century may bear all too great a resemblance to today's downtown Cairo.

Egypt's economic record under President Hosni Mubarak's rule since 1981 is at first sight quite good, with a growth rate of 5% or so for most of the time. However that does not take account of

 
population growth during the past 30 years - from 44 million at Mubarak's accession to 80 million now, a rate of increase of fully 2% per annum. That reduces the annual per capita growth under Mubarak to well under 3%.

When Egypt's gross domestic product per capita is examined it ranks surprisingly low, at US$6,200 only 136th in the world. It becomes clear when the data is examined closely that Egypt is one of very few countries that is on a per capita basis poorer than it was a century ago. Other likely members of that dismal club are Argentina (among the world's half dozen richest nations in 1911) and Haiti, which appears to have the dubious decision of being the only country in the world that is poorer now per capita than in 1804, the date of Haitian independence (Egypt and Argentina both had very good 19th centuries!).

When you realize that the population of Egypt in 1911 was only 11.8 million, that country's economic trajectory becomes very clear. Only 3% of the land is irrigated, so instead of the 1 million square kilometers of Egypt's nominal area, almost all of its 80 million people are forced to exist on 30,000 square kilometers, an area slightly smaller than the state of Maryland.

In 1911 this was not a problem; after a quarter century of British rule under Evelyn Baring, Lord Cromer (being a Baring, he was economically just about the best of all the British Imperial rulers), the country was well modernized, with a highly efficient textile industry and an agriculture that was efficient, connected to global markets and far beyond self-sufficiency.

Population growth however prevented Egypt from keeping up with its peers among the middling-rich countries of the early 20th century. The export surplus from agriculture was ever declining, while immense public spending was required to provide schools, transportation and housing for the rapidly growing population. While administration remained efficient, roughly until the advent of King Farouk in 1936, living standards were approximately maintained, but Farouk was an idle, corrupt playboy, so that even before his departure in 1952 living standards were slipping badly.

Under Gamal Abdel Nasser's socialism matters were very much worse; resources were allocated indiscriminately to heavy industry and the military, while agriculture was neglected. Thus Egyptian living standards collapsed, with GDP per capita perhaps halving during the 14 years of Nasser's rule. Anwar Sadat began the process of economic reform in the 1970s but when Mubarak arrived in office in 1981 Egypt's living standards were still far below those of 1911, and the country was no longer anywhere near agricultural self-sufficiency. (One of the worst recent problems has been food price inflation, as Egypt is the world's largest importer of wheat.)

Mubarak has done a fairly capable job. He has developed the tourist industry, realizing that a "cheap and cheerful" mass tourism on the Red Sea was far more lucrative to the economy and less disruptive to local mores than the intrusive elite tourism surrounding the centers of ancient Egyptian civilization.

He has engaged in a considerable measure of land reform. However Hernando de Soto, writing in the Wall Street Journal, laments that the required stabilization of property rights has never been fully carried through - another casualty not so much of Egypt's corrupt and unresponsive bureaucracy as of its inexorable population growth, causing the creation of endless new shantytowns, the eruption into the cities of a rootless starving proletariat and the microscopic subdivision of existing land holdings.

Mubarak can thus regret not his overall term in office, which has been capable if imperfect, but the lack of one single major reform early in his term - the institution by some means of a population control policy, whether of simple exhortation, of financial incentives to family size reduction, of extension of old age pensions to provide financial security to those without large families or in the extreme of a "one child policy" similar to that followed by China.

Had such a policy been successfully instituted in the early 1980s, restraining today's population to 50 million or so, Egypt would today be much richer and its post-Mubarak transition correspondingly less perilous. Instead, Egypt's population is far in excess of the country's ability to feed it and it is difficult to see how, even with a government better than Mubarak's (let alone with the Islamist or leftist one that is likely to succeed), Egypt's people can be enriched sufficiently to become contented members of the middle-income world. Truly Egypt's history in the last century is a tragedy - all the more tragic because its unhappy economic trajectory was avoidable.

Egypt has two lessons for us. The first is to us as portfolio or direct investors: avoid putting money in countries with high population growth rates, above about 1.5%. Kenya (2.6% population growth rate), Iraq (2.5%) and Jordan (2.2%) are growing too fast to achieve success, even if as in the case of Jordan they are generally well managed and market-oriented. Lower down the scale Nigeria (2.0%), Philippines (1.9%), Ghana (1.9%) and even Malaysia (1.6%) all have population growth rates that are a serious danger to their people's welfare and to outside investors' wealth. Even Turkey (1.3%), Peru (1.2%) and Colombia (1.2%) have population growth rates high enough to be worrying.

With such population growth rates, countries must devote huge resources to infrastructure spending, whether of roads, housing or schools, simply to keep up with the inexorable growth of mouths to feed. Any economic growth such countries manage to achieve is sapped by the sheer arithmetic of excess population, so that per capita increases in living standards are very hard to come by.

Finally, as in the case of Egypt, the country's resources can become exhausted by the pressures of population growth. For example, countries that are amply self-sufficient in agriculture can over time become huge importers of food, draining away the foreign exchange that is needed for economic development. The same applies to mineral wealth; population growth has rendered even mineral-abundant South Africa an impoverished polity with a foreign exchange problem, rather than the wealthy resource-rich country it could have been.

The strictures against excessive population growth apply with even more force to the global economy. As Egypt has shown in the last 30 years, the problems of growth multiply as the population level runs up against the limitations of available resources. While Egypt's population growth rate has been more or less constant (1.95% per annum over the last century) it was far less constricting in the early years of that century, when overall population was less than 20 million and agricultural land was ample.

Similarly, on a global scale, the same population growth rate may be far more damaging today with a global population of 7 billion than it was a century ago with a global population of 2 billion. At some point, we run up against the limits of resources and population growth leads only to impoverishment, however clever the new technologies we may apply to the problem.

On a global scale, we may be approaching that point. If, as seems likely, the global warming effect is real but modest, it may be greatly exacerbated by the carbon emissions of increasing population, particularly if a higher proportion of that population is living a Western lifestyle, complete with automobiles and kitchen appliances. In this context, the 2008 revision of the UN population projections was very depressing. Instead of showing a leveling off of population in 2047 it showed a global population continuing to increase to 9.2 billion and beyond, rising still in 2050.

Without a visible peak in future world population we have no assurance of our ultimate survival. If the global population is increasing by 154 million every five years, as in 2045-50, then it is drawing inexorably closer to the point at which either resources become inadequate or environmental damage becomes uncontrollable. The Club of Rome, which predicted in 1971 that within 30-40 years economic or environmental collapse would overwhelm the world, was laughably wrong.

The collapse has not happened, and on their forecasts should be imminent. Indeed their economic model relied on primitive extrapolation of exponential trends and contained a mechanical flaw - whatever assumptions you inserted, the error term would overwhelm the genuine output within four decades. It would thus be ironic indeed if unlike the great economist William Stanley Jevons, who in 1865 predicted the collapse of the world economy due to exhaustion of its coal supplies, the Club of Rome charlatans proved to be not wrong but merely about 50-60 years early.

Global overpopulation and collapse is not inevitable, just as Egypt's miserable current state was not inevitable. Our descendents in 2111 do not have to live on a planet that has globally come to resemble downtown Cairo - overcrowded, polluted, impoverished and full of rioters.

Technologically, we have today the means to restrict population growth, identifying the countries in Africa and elsewhere where such restriction is most urgent, and implementing by the least intrusive means possible a program of birth discouragement in those countries. Their inhabitants will bless us within as few as 20 years, as they find their prosperity increased and prospects immeasurably improved - and for the globe as a whole we shall definitively prove the Club of Rome doomsayers to have been the charlatans they were.

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.

(Republished with permission from PrudentBear.com. Copyright 2005-11 David W Tice & Associates.)

 

 

 
 


 

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