China’s one-child policy was once heralded as a textbook example of good government policy.
Implemented in 1979, it was a bid to alleviate the country’s social, economic and environmental problems.
In particular, the policy responded to a reduction in the availability of health-care services and low savings by lessening the strains on overcrowded hospitals and giving parents a reason to save for retirement because few children meant that grandparents would have to fend for themselves.
Never mind that in 1979, hospitals in China were government-run, as they still are today, and people had few outlets in which to invest in their retirements.
The Chinese government estimates that 400 million births have been avoided as a result of the policy. Self-selective abortion has resulted in a plethora of boys in search of girls who don’t exist.
While the natural ratio of boys to girls is 105 to 100, the Chinese preference for boys has resulted in 123 boys for every 100 girls. The population will soon get extremely old before it starts to contract rapidly. By 2050, the country’s population will shrink by about four million people a year, and one-quarter of its citizens will be older than 65.
Economic growth is driven by two factors: labour and capital. If the supply of labour cannot increase, the stock of capital will have to in-crease or the efficiency of production processes improved just to maintain the status quo.
With fewer future workers, not only will economic growth be hampered, but it might not be feasible to support the horde of retirees. China’s pension scheme may be younger than most other countries, considering it was established only in 2000, but it is already scarily underfunded to the tune of 150 percent of the country’s GDP.
However, never fear, the Chinese government is on the case.
Recognizing the error in its previous ways, Beijing has now changed its tune and is relaxing the infamous one-child policy to allow for two children. While this is an increase of 100 per cent, it is a drop in the bucket compared to what is needed.
Not all children make it to reproductive age, which means the birth rate must be 2.1 children per couple just to maintain the existing population.
In fact, the policy is expected to add only modest growth to the number of Chinese births, perhaps an extra one or two million over the next couple years. This is a drop in the bucket in a country with a population of more than 1.35 billion.
The country’s labour force is ex-pected to lose more than 67 million workers over the next 15 years.
China’s population crunch is just a specific example of a general problem: government does a terrible job at fixing prices and quantities in the economy, and problems are bound to result.
Every first-year economics student learns that markets allocate goods from the most efficient producers to those consumers who most desire them.
However, most people don’t realize that the forces that influence prices and quantities in the T-shirt market are the same forces that influence the number of babies being born and the cost of child rearing.…
When quantities are limited, as is the case of children under the one-child policy, the predictable result is that there will be people who want, but are unable, to have a child. Demand will outstrip supply until there is an imbalance.
This mismatch is especially acute with children because it means the unfortunate consequence of not having the “right” amount of workers in the future economy.
David Howden is an adjunct scholar of the Ludwig Von Mises Institute of Canada and chair of the Division of Business and Social Sciences at Saint Louis University-Madrid Campus. This article was distributed by www.troymedia.com.