The Population Problem
A recent life event got us thinking again about a problem facing humanity that few people consider or talk about. Most of us grew up being told that the planet had an overpopulation problem, and that we were going to run out of most food and other natural resources. The population issue resulted in China enacting its 1-child policy, and books like The Population Bomb created an atmosphere of doom and gloom in the 1970s/80s. The funny thing is that these “premonitions'' weren't entirely off, and “The Population Bomb” predicted the human population growing past 6 billion people by the year 2000. In fact, this came true, however as we know, the world did not collapse, as we found new ways to feed the population, create infrastructure, and innovation actually drove the inflation-adjusted prices of raw materials lower (see the Simon-Ehrlich wager).
The ’overpopulation risk’ persists in humanity’s mindshare, and a 2015 Pew poll showed that almost 60% of American adults still worried that the world will run out of food and resources to feed the planet due to population size[1]. Most casual conversations about the problem will point to the fact that most people still worry about overpopulation (try it with your friends). However, there have been several countries slowly highlighting quite the opposite problem. This hit close to home this week when the Straits Times (Singapore’s leading periodical) published this article. The article titled “More singles, fewer babies, slowest decade of population growth since 1965” discusses how population growth on the island nation is stagnating, and worse, that fewer younger people are getting married, and that those who do are having fewer children.
A study by the National University of Singapore, illustrated that unless Singapore continues to naturalize immigrants, the resident population in Singapore (at current fertility rates) will peak in 2025 and start to decline thereafter[2].
This inverse “Population Bomb” is starting to affect a number of countries. Japan is meant to hit a peak population around now, and decline going forward[3]. Russia has had (on average) a negative growth rate since the mid-1990s, and China, the world’s most populous country, scrapped its one-child policy in 2016 as birth rates started to tumble.
Now, one might argue that this is a problem in select countries, and that overall, especially in the developing world, population will continue to grow (giving credence to the overpopulation fear). However, this is actually a global phenomenon. The World Economic Forum released, just yesterday, this writeup which talks about global fertility rates. Countries like the US have seen their birth-rates fall to 1.6x, China is at 1.3. A country needs a minimum of 2.1x, or the replacement rate, in order to maintain its population (very roughly this makes sense as each woman needs to give birth to two children to replace her and her partner). But as stated, this decline in birth rates is a problem even in the developing world with Brazil’s rate at 1.8, Bangladesh at 1.7, and Indonesia at 2.0. Countries like Pakistan and Nigeria have rates at 3.4x and 5.1x respectively, but even they have seen those rates come down significantly over the last 50 years (and they continue to decline every year). In fact, there are very few countries in the world that are not seeing their birth rates decline year-on-year. Further, with all the ‘stuck at home during covid’ talk meant to produce a record number of babies; the opposite has occurred with most prospective parents worried about their financial future. This data points to a potential peaking of the human population in the next 80 years or so, followed by a steep decline.
Now there are some real economic issues related to prediction if it were to come true. For one, social security type programs globally that require the young to pay for the old will struggle as the old outweigh the young. The same thing goes for insurance which relies on young and healthy policyholders to offset the cost of the elderly or customers of ill-health. These socio-economic issues are real, but this is an investment blog so below we’ll try to think through which businesses will benefit or be hurt by this trend. Again – the pinnacle of this problem is decades away so we may not see the effects for quite a while, but this is on aggregate, and several countries will start facing this problem within the next decade.
Potential Winners:
Any business with advertising as its key revenue model: With fewer people to target for ads, competition for eyeballs will heat-up, increasing CPC and CPM rates.
Businesses related to elderly care: We’ve spoken about this before, but escape velocity (where medical advances will keep people living for longer and longer, and potentially for ever) is nearby. So, any business related to altering the body physically or at the gene level should probably do quite well.
Any business related to fertility: Quite obvious, but one would imagine governments would invest heavily into such programs/businesses.
Augmented/Virtual Reality: Not so obvious, and a bit sad to think about. But one of the issues in developed countries (as shown in the Singapore survey) is that young people are staying single longer. In countries like Japan, the problem is so bad that swathes of the young population have become recluses (they even have a term for it – “Hikikomori”). AR/VR help both these issues, for one, for those wanting to stay single but still want physical intimacy. Honestly, we think if we get to a point where AR/VR can adequately replace physical touch, we’re all (ironically) screwed. Second, for those who wish to stay in their homes, using AR/VR to access the metaverse would benefit greatly.
Talent Acquisition firms: Labour markets would tighten on the back of a lower population, making finding suitable talent harder and harder.
High-end pet care facilities + products: My wife/editor of this blog/pet lover insists this one will come true - lots of couples/singles treating their pets like children & want them to have the best of everything. The data does back this up with, pet ownership increasing across age groups, and 76% of American millennials calling themselves ‘pet parents,’ much higher than the rate of millennials who have human babies.
Potential Losers:
Low-end consumer goods: Or any good that requires high volumes to be sustainable
Housing/Real Estate (both commercial and residential): Quite obvious; with fewer people we need fewer homes, offices, and malls. That said, on the residential side, this could be offset by larger homes.
Budget Travel: Any sort of business targeting the fat part of the pyramid might be an issue here. High-end travel could continue to flourish, especially if the rich live longer and have more disposable income.
Higher Education: With the costs of colleges/universities and the value they add already being questioned, a declining population would be the final nail in the coffin for many tier two and tier three institutions.
This is not an exhaustive list, and if you, dear reader, have any thoughts on the winners/losers of the inverse population bomb, do email us (or comment on the substack). Now that said, it's not as if we’ve really started to factor these trends into our investment decisions yet, as stated, on the whole, it will be decades before we see this effect in aggregate. Further, just like the notion in the 1970s that overpopulation would destroy the planet turned out to be alarmist, we could be being alarmist on the opposite trend too. We never know what kind of human ingenuity might solve this problem, although we get into very Handmaid's Tale territory here, so we’ll avoid contemplating what this can look like 😊
Thanks for reading, and as usual, happy investing!
[1] https://www.pewresearch.org/fact-tank/2015/06/08/scientists-more-worried-than-public-about-worlds-growing-population/
[2] https://lkyspp.nus.edu.sg/docs/default-source/ips/exchange-1_the-population-outcomes-singapore-2050-project.pdf
[3] https://www.macrotrends.net/countries/JPN/japan/population-growth-rate