The population in Finland is aging rapidly, as the birthrate has fallen significantly in the last two decades and stands at 1.26 births per woman. This is not enough to replace the population. All other things (like mortality and immigration) remaining stable, the replacement birthrate to maintain the current population, is around 2.1 births per woman.
Is this a problem?
In 2023, the GDP in Finland was 281 billion euros. Using the rule of 72 as a rough calculation and a steady growth of 2% per year, this would men it would take about 36 years for it to double to 662 billion. Of course, economies don't grow in straight lines.
S-Group, one of the two large consumer businesses in the country, made 325 million in profit in 2022, a 16% growth from 20 21. In 2023, they made a 447 million profit, a 37.5% growth from 2022. Quite incredible growth for a well-established consumer corporation. However, this profit is only 0.0015% compared to the country's GDP. However, Let's assume that S-Group is able to achieve a straight line growth of 10% profit, using the same rule of 72 to do the calculation in my head, that means that the profit will double every 7 years.
This means that in 36 years, while the Finnish GDP at 2% constant growth would be a 562 billion, S-Group's profits would be at 2,453 billion, which is almost half a percent of the entire GDP. Does this seem sustainable? Of course not, because firstly, economies don't run in straight lines, nor do they continually grow, especially when there is a decreasing population, which means demand goes down. In that scenario, to maintain profit growth, a company would have to reduce costs, which is what they are doing through artificial intelligence and automation.
What has this got to do with the population?
Kind of a lot, because the entire economy as we know it has been built on a system of growth. Not economic growth, but population growth. When a population increases, more resources are needed and therefore, more profits can be made. Not only this, as demand increases, it used to be that more people would need to be employed to serve the supply, so more earnings were generated, meaning more consumer activity was also generated, on goods, services, housing, and anything else that people want to buy.
But, perhaps more significantly, is that in an economic system catering to a growing population, wealth management got built, including social security services and pensions. This means that the system has been set up in a scheme, where the younger pay into their future retirement, paying for the older now. This doesn't seem so bad in some way, but the other problem is that a lot of the value is siphoned out of the system through corporations. Again, if the extraction value isn't too extreme, and the population keeps increasing, the system is relatively stable.
But, that is not the case.
Corporations are goaled with increasing profitability, and that is going to mean that it will eventually lead to reducing costs. Cost reductions can be in processes and technology, but these normally impact on headcount anyway. But all things remaining equal, in a population that is reducing, there will have to be a reduction in headcount anyway, because there won't be enough people to fill roles. But again, this is not the full case, because the reduction in headcount, also means a reduction in consumers, which is going to directly impact on revenue, and therefore, profitability. If a company's customer base decreases, the only ways to stay stable or increase profit, is to reduce costs or increase prices.
Do you see the problem?
Like any Ponzi scheme, the only way to keep the system going is to bring more people into the system, otherwise profitability will suffer, which disrupts every other economic indicator. Profit is actually one of the reasons that the economy is broken, because it is expecting to get more out of the system than what is put in. As I have mentioned earlier, nature is a perfect economy because it is always 1:1, there is no inflation of the energy, just transfer of state and where it is applied. Nature can't generate more energy than is already in the system somewhere, but the monetary economy we have created can, as "money" is the energy and it can be created out of thin air, through government intervention, but mostly through debt accrual and interest payments.
We are quickly reaching a point however, that the system as we have designed it, is no longer able to function as it was, which means it gets increasingly volatile. Economic volatility of course leads to a lot of other knock on side effects, like social and political disruptions and conflicts.
I think we are all familiar.
A declining birth rate in much of the developed world, with an increasing birthrate in the less developed, coupled with immigrational challenges on culture and local services, as well as the constant drive for optimization to increase profits of corporations, and the impact of artificial intelligence and automation, the challenges are quite extreme. The solution isn't a redistribution of global populations through migration, because that is just a stop-gap measure that will soon be unsuitable and actually lead to increased pressures.
Unfortunately, the actual solution is so incredibly unlikely, that it is almost not worth mentioning. Because what it is going to take, is a complete revamp of our understanding of what an economy should be tracking, and what values we expect to get out from it. As the saying goes, “when a measure becomes a target, it ceases to be a good measure.” The way we organize the economy now has become increasingly irrelevant as a process for what we would want as a society, because we value the measure more than the processes involved, and what is accomplished for humanity.
As said, unlikely.
Ultimately, an economy is just a tracking system of interactions, which means that regardless of population size or demand, it is what it is. The challenge is that we have imagined it to be more than a ledger, as if it is a tangible creation, something that can grow. An economy doesn't grow or contract, it just is. Once we believe it is something else though, shifts in the numbers will drive shifts in our understanding, and our behaviors change and therefore, the types of transactions the economy is tracking will change too. It is like having a baby will likely increase the household transactions for diapers, and buying a gun will likely increase the household transactions for bullets.
If we really want to improve the economic situation, we shouldn't be looking at money, but rather, the types of behaviors we want to see from ourselves. What is demanded, supplied, and traded will change, and the economy will align and scale to the changes we have made to ourselves.
As it always does.
Taraz
[ Gen1: Hive ]