167 | An obvious solution to population collapse
Riyadh, Saudi Arabia
Saturday, 30 December: I am writing from Riyadh today, and my first impressions are positive. A Lamborghini stopped by yesterday for a selfie, and the driver kindly invited me to horse racing this afternoon. Welcome to Saudi!
I've now cycled on ~2,000 kilometres of Arabian sand. On the road, I have met many migrants. 42% of Saudi's population are migrant workers (in the UK, less than 10% is). It's increasingly clear that migration patterns and population collapse are two related, crucial, and unsolved problems of our era. This week, I've been exploring their relationship.
The UK is getting on average older because we are having too few children. Ideally, we must target or exceed the 'replacement' fertility rate of 2.1 children per woman. The UK's rate is 1.61, below replacement. In Saudi, where I sit, it's 2.46. Across the developed world, lower fertility rates are the norm. The US has 1.64 children per woman, Canada has 1.4, France has 1.85, and so on.
Living a long time is good, and I intend to live for absolutely ages. However, because older people are costly, they must be supported by a large and economically productive workforce. The UK is getting old: thirty years ago, only 1.6% of us were 85 years and over; by 2045, 4.3% will be. Older people are expensive: a forty-five-year-old costs the state £7,900 per year, while somebody over 85 costs the state £32,400 annually. This trend is true elsewhere.
The most well-reported 'demographic crisis' is in Japan. Japan's total fertility rate fell below replacement in 1975 and is at 1.37 today. Japan's population peaked in 2008 at 128.0 million and is projected to fall to 87.0 million in 2070 and 49.7 million in 2120. It's hard to believe, but the ratio of those over 65 (i.e. retired) to those of working age will rise to 80% in favour of the retired and stay there for decades. As Japan's figures are revised over time, the problem worsens: People's life expectancy increases, and their propensity to have children declines.
In the paper alarmingly titled 'A "death-laden society": The next stage of a hyper-aged Japan and health challenges ahead'1, the author, with prescience, writes:
Preceding the rest of the world, in 2007 Japan became a "hyper-aged society," a stage of population aging in which at least 21 percent of the total population aged 65 or older. While most other hyper-aged societies today are European countries including Italy, Portugal, and Finland, just in the coming few decades major economies in East and Southeast Asia – South Korea, China, Taiwan, and Singapore in particular – will catch up with the rate of Japan. Therefore, an increasing amount of international attention has been paid to hyper-aged Japan's experience as a precursory case from which other aging societies may draw policy lessons in an effort to address their own challenges ahead.
And here we are paying international attention to hyper-aged Japan's experience. Another foreboding situation is that of South Korea. South Korea's birth rate is 0.7 (provisional figures). Ross Douthat expands upon its implications in the New York Times:
A country that sustained a birthrate at that level [0.7 children per woman] would have, for every 200 people in one generation, 70 people in the next one, a depopulation exceeding what the Black Death delivered to Europe in the 14th century. Run the experiment through a second generational turnover, and your original 200-person population falls below 25. Run it again, and you're nearing the kind of population crash caused by the fictional superflu in Stephen King's "The Stand."
Population growth (or at least not decline) is essential for a growing economy. Healthcare and pension plans must be paid for. If a population shrinks, GDP per capita rises in the short term (due to depopulation), but in the long term, there is an imbalance between the workforce and the retired. Each member of South Korea's surviving workforce will have to become markedly more productive — unrealistically so — to offset the decline in absolute numbers of workers (in a workforce that is 30% smaller, each worker must become correspondingly more productive). Consequently, the economy is likely to slow.
At some point, relatively soon, it will become an existential problem for South Korea, Japan and Western Europe. It's worth noting that South Korea's 230,000 births in 2022 are barely half the 449,000 forecast in 2011 — evidence that our projections are often wrong (and wrong in ways we'd rather them not be).
Al Sharq Restaurant
Unlike Japan or South Korea, Saudi Arabia has no population crisis. Even so, it has an effective model for attracting migrant workers, which may inspire policy elsewhere.
On Monday, I pulled up to the junction where I had planned to find a hotel. In the middle of the desert, there were very few options and rain was forecast. Hanging above an Indian restaurant, a red 'HOTEL' sign swayed in the strong winds, but no lights were on in the four-story building. Ominous. As I stopped, a small crowd gathered and spoke loudly at me in Arabic. It was evident to everybody I was lost. After chatter, the crowd told me the hotel had shut down and pointed me to the far side of the adjacent service station.
Slowly, I cycled past a pack of hungry dogs and into the night. This time, there was no sign of a hotel, just Al Sharq Restaurant written in Arabic. I walked in, and two people looked up from the carpet on which they ate. I asked if I could stay. "Nom?", which I think means sleep. It was a hotel, but the proprietor, with hand signals, explained it was full. 'Full?! It's deserted!', I thought, but smiled and walked out, trying to surrender. Merry Christmas.
At that moment, a white Toyota pickup pulled up to within six inches of my bike. In perfect English, the driver calls out, "Hello, my friend, how are you?" I learned this was Yousif, a farm manager who took me for dinner and at whose farm I spent the night and the following morning. He couldn't have been more charming, educated and hospitable.
The diversity of Saudi Arabia
I explain all this because Yousif is Egyptian, and I met workers from Yemen, Pakistan, India, Somalia, and Jordan on his farm. Moreover, on my journey in Saudi Arabia, I have met people from Eritrea, Ethiopia, Kenya, Bangladesh, the Philippines, Syria, and Iran.
More often than not, I have been eating in the excellent roadside Pakistani restaurants that sit inconspicuously beside fuel stations. This is where the migrant workforce also eats: daal and chapati cost a dollar (5 Saudi Rials). As represented by these restaurants, Saudi is diverse. In Saudi Arabia, the non-Saudi population makes up 42% of the population, which equates to 13.4 of 32.2 million people. By contrast, in the UK, expatriates comprise 9% of the population.
Migrant workers are managed using the Kafala system, which is shared across the Arab world.
The Kafala system
"Kafala" translates to sponsorship, and the system governs the relationship between employers and their foreign migrant workers2. The employer (or kafeel) controls the worker's employment, immigration status and freedom. Because of the system's success, Saudi is one of the world's top sources of remittances (money sent home to worker families). Saudi pays higher salaries — twice or three times more than in neighbouring countries — making it an attractive workplace. It's also, I am told, relatively easy to get worker status compared to in Europe or the US.
Saudi needs workers to support its economic growth and development, fill skill gaps, and undertake manual or domestic jobs, which native Saudis would not do themselves. As such, Saudi Arabia is an outlier with its high proportion of migrants. Other countries may have higher proportions (e.g. Qatar and the UAE), but none of them have such large populations. Also, by contrast, migrants make up just 15.5% of the USA and 19% of Germany as of 2020, lower proportions even if they have more migrants in absolute terms (51 million in the US and 15.8 million in Germany).
Corrective measures
As I said, the UK and the West we need to have more children. And if we choose not to, we need to open borders to young people who will work and keep our economy vibrant.
Incentivising parents to have children is difficult, as China's ongoing efforts prove. The birth rate in China in 2022 fell by 10% to ~1.2, the lowest in the country's history (since 1949). Programmes in Shenzhen provide annual allowances of more than 6,000 yuan ($850 USD) to couples with a third child (or more) for three years. But incentives such as this have not moved the needle. It indicates a broader cultural shift needed to change the perception of having children, which might take a generation or more to implement.
Short of physically forcing your population to have children (which most nations will never do), encouraging immigration is the obvious answer. It's also the easy answer. Fortunately, there is a large number of migrants who are either displaced or economically ambitious and would happily fill the gap. Saudi has proved the model, and Japan is following.
Japan has begun to open its doors to migrant workers, and its annual intake has doubled since before COVID-19. In particular, it's inviting 'specified skilled workers, who can immediately take on jobs in designated industries without the need for training, as well as trainees [for] technical internship program[s]'. Overall, the share of foreigners in the total population will rise from 2.2 per cent in 2020 (which is remarkably low) to 10.8 per cent in 2070 and 17.1 per cent in 2120. Of course, some of this proportionate increase is because of the declining numbers of native Japanese through old age.
An unstoppable trend
It is said that China will get old before it gets rich. Similarly, a country with a low birth rate gets old before it shrinks, so it has a disproportionately small workforce supporting a retired generation. Europe's population began to contract in 2020, and a shrinking population will change the conversation about who is or isn't welcome at home.
There is a growing demand for a young, dynamic workforce, and that workforce is available overseas. Because of the free-market dynamics, the migrant flow is probably unstoppable. The only losers in the medium term will be politicians who say it can or should be halted. The UK's ONS demonstrated the inevitability of increasing migrant flows a fortnight ago: the UK issued 322,000 work-related visas in the year to June 2023, up from 198,000 in the year to June 2022. Nearly two-thirds of work visas went to Indian, Nigerian and Zimbabwean nationals, as non-EU workers are replacing EU workers. In response to this success (my opinion of success at least, being the employment of large numbers of migrant workers), the Conservatives put out a press release. It reads,
Immigration is too high, and we must bring numbers down. That is why today, the Prime Minister and Home Secretary have announced a plan to cut immigration by:
Ending abuse of the Health and Care Visas. By stopping visas allowing dependents to come and limiting visas to people caring for people (CQC regulated activities).
Increasing the salary needed to get visas. With 48% increase in the salary threshold. Preventing migrants from undercutting British workers.
[It goes on…]
I felt very uncomfortable reading this. Why is it too high? There is no explanation. And why must we bring the numbers down? Again, there are no details. If unemployment is low (which it is, at ~4%, the lowest since the early 70s), and the number of people claiming asylum is stable at 70,000 per year, why is migration a problem? It's only a political problem3. The government's positioning of immigration as a bad thing neither recognises the fundamental issue, a soon-shrinking and already-ageing population, nor welcomes migration as its solution.
Moreover, only 3.6% of the world's people live outside their country of birth, which suggests there is room for much more migration. And the UK, as we have seen, could have a much higher proportion of migrant workers. Overall, the West sees immigration as a problem, and depending on the party, the issue is a political goldmine (UKIP) and minefield (Labour). Recognising the value of immigration and educating the public about its potential is an opportunity for mainstream politicians4. As countries face stagnating and even shrinking populations, innovative migration policies will become necessary to sustain economic growth.
My week in books…
Read:
Going Infinite by Michael Lewis. I thought this was going to be boring, but it was quite thrilling. SBF is unique. It did trigger some PTSD: I sold all my crypto a year ago, on the day that FTX went down. It was absolutely the worst time to sell, and I knew it, however I couldn’t hack the rollercoaster of crypto speculation. It turns out that even in the most Blue Chip crypto company (with the exception from perhaps Coinbase) was a criminal mess. It begs the question, what about all the others? I have also learned from Lewis not to trust effective altruists with our long-term future, as they will be happy to put you and me through the very worst short-term pain to get there. Here is a great summary from my friend Max:
The Surrender Experiment by Michael Singer. A re-read for a perspective shift. Cycling is all about surrendering, and if you’re looking for some spiritual nourishment for the new year, this is it. A quote: “the practice of surrender was actually done in two, very distinct steps: first, you let go of the personal reactions of like and dislike that form inside your mind and heart; and second, with the resultant sense of clarity, you simply look to see what is being asked of you by the situation unfolding in front of you.”
Reading: Stalin: Paradoxes of Power by Stephen Kotkin. A Distant Mirror by Barbara Tuchman. A Moveable Feast by Ernest Hemingway.
This is a rather grim phrase and is perhaps used to get clicks (I clicked). Because of its demographics, rather than 0.8 million people dying annually in the eighties, 1.6 million Japanese will die annually for the next few decades. The author notes that this raises three questions: (1) shortages in basic medical resources; (2) possible dilemma between "dying in place" and "lonely death"; and (3) urgency to develop a national framework for end-of-life decisions.
Writing in Riyadh, it's not prudent for me to write of the disadvantages to the Kafala system. It has, however, been criticised as creating a power imbalance between the worker and their employer, and its migrant workforce doesn't get naturalised over time.
Even so, politically, immigration and asylum are the third 'important issues facing the country' after the economy, health, and well before (to my surprise) defence and security despite a European war. Its registered importance is not because of recognition of the need for immigration but because (of course) migration is seen as threatening.
The truth is, we are nowhere near the population ceiling for the UK. We have only 277 people per km2; the Netherlands — not a particularly dense country, by my observations — has 424 per km2. Scaled up, our 67.7 million people could become 103 million if there were 424 people per km2. This is a crude calculation, but it makes a point that the UK is not bursting at the seams.