This thread draws heavily on the ideas of Dr Jane O’Sullivan of the University of Queensland and her paper “The Burden of Durable Asset Acquisition in Growing Populations”. Dr O’Sullivan has put her finger on the exact mechanism by which population growth impoverishes us all.
The main issue that every political party and candidate in QLD needs to address as an urgent priority is population growth. It affects any hope we have of building a sustainable and resilient future here locally.
The state of Queensland is paying a massive and growing economic cost for population growth. The estimate is $170000 per resident added in the previous year. And this cost is born by the existing population.
The present existing population is paying for capacity expansion on behalf of the future population (including taking on large debts and paying much higher utilities and rates charges dwelling prices and selling state assets).
This capacity expansion (more tunnels and roads schools hospitals opening up new tracks of land to be cleared for homes more teachers doctors dentists police…) to provide infrastructure expansion is not to improve services for the existing population. It is to tread water stay still avoid going backwards and incurring an infrastructure deficit (as happened under Peter Beattie’s government). In fact even paying all this money and incurring all this debt conditions deteriorate as we pack in closer and use up finite resources and clear precious areas of bushland and build over precious area of food-growing land.
Anna Bligh and Campbell Newman both built infrastructure non-stop. They were faced with infrastructure deficits that they could not ignore. But even building as fast as they could and putting the state and Brisbane City Council massively into debt and selling off assets we are still going backwards in terms of infrastructure capacity because our population growth outstrips our asset growth. We are not even staying still. We are going backwards in terms of both infrastructure and economics.
Anna Bligh has not ‘won’ by working flat out to build infrastructure for QLD. It is an electoral disaster for her. No-one likes the asset sales and debt. We all feel in our bones that we are losing the battle with liveability in this state without actually being able to identify the core cause.
The core cause of Queensland and Brisbane City Council and Australia’s problems is population growth.
Australia now has the highest population growth of any OECD country. After a long period of a stable rate of population growth we have sharply increased our population growth rate (by big increases in net overseas migration – more people coming in from overseas than are leaving; and the Baby Bonus and campaign to encourage people to have more babies).
About two thirds of Australia’s current population growth is coming from immigration. This is making a rapid and massive change in the Australian population.
Between lots more immigrants (forget refugees on boats – we are talking approved immigrants flying in on planes) and lots more babies Australia is now inevitably on track for ‘A Big Australia’.
Apart from a few oil-rich nations no country has lifted itself out of poverty without first reducing its fertility rate (APPG-PDRH 2007).
How does population growth cause us diseconomies (debt loss of assets higher costs) through the burden of durable asset acquisition?
Firstly the sums are simple. Not only do the sorts of increases in population growth rates that we have been experiencing since 2004 incur large economic costs they also kick in very rapidly. Falls in population growth rates result in benefits that kick in equally rapidly. Slowing population growth rates immediately allows existing capacity for capital formation to ‘get ahead’ improving existing service access and quality. It sets going a ‘virtuous cycle’ of personal optimism contributing to investment entrepreneurship educational effort lawfulness and political stability.
We think in terms of slow-moving commuter traffic crowded public transport long hospital waiting times falling education outcomes more violence for police to handle higher rent prices and increasing electricity and water prices and rates.
What all of these come back to is our stock of durable assets: roads bridges airports tunnels trains buses ferries water supply infrastructure power stations fuel refineries school buildings hospitals plant and equipment and all the trained staff to operate and provide services.
These need to be built (or skilled) in the first place then maintained and ultimately replaced all at an economic cost to all of us. Nothing lasts forever and unfortunately they break down wear out get used up or (in the case of personnel) retire or move on.
However if we look after them they last a good time. That is why we look after our cars our homes and our furniture and possessions. They cost us a lot to buy. We cannot afford to just keep replacing them all the time (or at least we don’t want to have to keep replacing them – we’d rather use any spare money to improve our lot not just stop it from going backwards). We maintain them and budget long-term to replace them.
A new baby calls for us to sharply increase our supply of durable assets. A crib a pusher a car seat maybe a bigger vehicle maybe a bigger home.
Similarly rapid population growth from a large rise in immigration rates forces us as a state a nation a suburb to acquire a lot more durable assets to meet the needs of the additional people.
Either we incur the economic cost to meet the need for capacity expansion or we incur an infrastructure deficit which hangs over us as overcrowded and inadequate roads etc that will not go away. It is a huge political liability too that destabilises our political system.
We have all been deluded about the diseconomies of population growth (the large costs to all of us) because we’ve been looking in the wrong places (GDP growth); and capacity building (infrastructure construction skilling up our workforce) are misleadingly labelled “investment”; and the costs are in lots of places distributed across all of us instead of in one place clearly labelled “the cost of population growth”.
Economic discussion about population growth usually focuses on age distribution (more working age people in proportion to ageing population) labour supply demand for homes and capital. But the costs of an ageing population are small compared to the costs of providing additional infrastructure for a rapidly expanding population such as we now have.
These can show some small benefits but they are not where the costs are. The costs (diseconomies) are very large and they occur in the capacity expansion that is needed for the sort of population growth that we are undergoing.
What we call “investment” needs to be broken in two. If we have to build a new power station to supply power to all the new people who are arriving to live in Australia that is not investment. It offers no new benefits. It is simply to stop going backwards. The people who are already here pay for it and they will not get any increase in standard of living or power supply from paying for the new power station. It is quite different from living in a stable population or one growing at a stable rate over a long period (at least the lifetime of the durable assets). Then a new power station would add increased capacity for the existing people with increased benefits in power supply.
Expenditure on capacity expansion to provide for the needs of the growing population should be accounted for as the recurrent cost of population growth. We shouldn’t be borrowing funds for this just as we shouldn’t buy our household food with credit or we are just building ourselves a bigger and bigger debt. We need to live within our income for our recurrent costs. And building infrastructure for an expanding population is just this.
It is different from incurring a debt like a mortgage because of future gain (we own our home). It is just running hard to stay still not get ahead.
The costs are recorded in a lot of places (Health budget Education budget BCC’s budget for roads and tunnel building and acquiring new buses ….) and they are spread across all of us (our power bill increase our rates increase higher medical insurance costs road tolls higher public transport tighter restrictions on access to services we used to enjoy freely more competition to get scarce places…) The alternatives are higher taxes and more asset sales. We end up losing ownership of our own country and seeing profits from the exploitation of our natural resources going straight overseas (both the resources and the profits and the jobs too!)
We need to break the idea of population growth up more too. A population may be stable in size (Europe) declining in size (Japan) growing at a long-term steady rate (Australia before the most recent decade) or expanding rapidly (Australia now Ethiopia Egypt Syria). These make very different demands on their store of durable assets to provide for the needs of the population.
The most difficult to handle is the rapid expansion in population growth rates. Dr O’Sullivan has calculated the additional costs. For every 1% of increased population growth rate per year (compared to a stable population) the acquisition burden (cost) for additional capacity is equal to the lifespan of the asset.
For infrastructure the average lifespan is 50 years with 2% being replaced every year in a stable population. For workforce training it is 37 years in the workforce after training on average with 2% new graduates each year in a stable population. So with a 1% population increase the economic burden of providing additional capacity will increase 50% for infrastructure and 37% for workforce training per year.
Work has been done to tease out the actual costs in NSW and Queensland and they are both $170000 per resident added in the previous year.
Dr Jane O’Sullivan is President of the SE QLD Branch of Sustainable Population Australia. I encourage you to get a copy of her excellent paper which adds so much to our understanding of this issue. It was published in the journal of the Institute of Economic Affairs February 2012.
