Is capitalism suicidal? (A note on population aging)

I think there’s a a growing interest or concern about population aging. Indeed, this is a phenomenon that humanity has really never experienced in recent history (or at least in that of capitalism.) This phenomenon will (and already) have a huge implication for how we need to organize society and how we prepare and distribute resources.

As you know well, across the globe, fertility rates have declined, and that is a general trend. And as numerous researches show, the biggest cause of this trend is more and better education for women and their participation in non-household economic activities. I think there is nothing we can do stop this trend, and indeed we should celebrate this achievement and push for more opportunities for women in general. (There are some closet misogynists who concern-troll with this by saying “too many women are working with jobs now”, and I am not one of them.)

Perhaps there are other factors that generally contribute to declining birth rates, such as urbanization and a growing sense of individualism. It might be even said that, with worsening climate crises, young people are more likely to have second thoughts about having children (although I am not yet sure whether this has been a meaningful contributor yet.)

But there are countries, many in East Asia, whose declining (or already plummeted) birth rates, it seems, cannot be solely explained by the general factors above. There are something else going on there, and I think they might tell use about whether capitalism has played some role here. And I think South Korea is a good case study for our question.

Korea is a good case study, as I just said, well, because it literally has ended up having the lowest birth rate in the world!

Its birth rates got a lot international media coverage a few weeks ago. The latest statistics suggests that the rate has dropped to 0.78, down from 0.81, breaking through the previous record floor. There have been more deaths than births in a year since 2020, meaning that total population have already been declining.

As you can see from the chart above, what’s as problematic as the tanked rate itself is the rate of decline. Just in 1990, it was above 1.5. But in 2018 it became lower than 1 (0.98), and just 4 years later, it became 0.78. I think this kind of phenomenon has simply not happened anywhere else before.

I’ve heard demographers in this country suggesting that, unless things in our society drastically change (which is unlikely), the rate will very soon plummet to 0.5. While this issue has been hotly discussed and debated for decades and many “measures” were taken to turn the tide, but nothing worked. And it seems people are now (perhaps reluctantly) accepting that this is our fate.

I remember that Francis Fukuyama once said that, in a review of the 2006 movie Children of Men (a Sci-Fi movie in which the world ceases to have a new baby), the movie reminded him of the ongoing fertility crises in East Asia. Now it does feel like that, a bit.

Well, then, what happened here? I’d like to discuss about it from now on.

But before commenting on capitalism, here are some context – some pure demographic factors – that might not be directly linked with capitalism.

1. As you can see from the chart above, the birth rate was very high in the 60s. This was right after the Korean War (1950-1953), and people were making lots of babies. Government at the time thought that Korea needed to modernize and industrialize (which we succeeded, as you know), and the very high birth rate was contributing to high unemployment rates and prohibited said industrialization. So, from the 1960s to the late 80s government engaged in massive public campaign for birth control. This is somewhat similar to what China used to do, although we didn’t end up setting direct quotas or penalizing breaches. (China too is now facing serious population aging issues.)

2. Due to many social/cultural factors (which I won’t cover here), especially from the 60s to late 90s, boys are favored over girls, very very much. While abortion had been illegal until *2019*, it was widely done, and government overlooked it as a tool for population control. But with the development of ultrasound technology, from the 80s, it became possible to accurately predict the sex of a baby. Consequently, from the 80s to the late 90s, mass abortions were done (illicitly and secretly by pregnant women) to remove fetuses with XX chromosomes. If you look at the sex ratio of population born from this period, men’s share is unnaturally higher than women’s (almost 110:100~118:100.) Decades later, when babies became adults, now we have a genuine demographic mismatch among men and women.

(To be clear, women should have a control over their bodies – the problem was that this was forced by society to artificially favor one sex over another, in a mass scale.)

3. Korea has maintained a very restrictive immigration policy. Partly this is due to ethno-nationalism and the idea of “Korea traditionally being a single race/mono-ethnic state” (although it is historically not true). Society should allegedly be “homogenous”, so no foreigners. While this has been the policy stance, given the plummeting birth rate, government may (very reluctantly) change it soon.

It is obvious that these aspects contributed to the decline (although the exact extent is disputed), but they don’t explain why young people at this exact moment are disinclined to have babies. And here is where capitalism comes. Indeed, this has a lot to do with the exact real obstacles to having a baby that young people face in their lives here.

In short, it’s too expensive to have a baby. And the reason it’s too expensive, I think, is there is too much competition at every stage of one’s life. And I think this idea really works well with CasP, which shows how capitalism leads to stagnation. Here are specific regions where capitalism shapes the trajectory.

1. Housing. This might be a familiar problem to all of you. Since the 60s (when industrialization started) “the right to buy an apartment in Seoul” has been treated as a de facto economic right by every administration, and every time the solution for housing was “build more in Seoul.” That was supposed to solve housing. But that’s not how housing works, as economists like Josh Ryan-Collins pointed out in their wonderful book. The more you build in Seoul, the more housing price in Seoul appreciates. On top of this, housing has never been seriously treated as a social program but as a tool for wealth accumulation by middle class. Jeonse, which is a unique system in Korea (in which you pay a lump-sum instead of monthly rents), while touted as a housing ladder, in reality has always been a tool for speculation. People do see housing as wealth accumulation and buy for wealth accumulation. Now it’s damn expensive to buy an apartment and start a family there.

1.5. Differential aging. As CasP clearly illustrates, accumulation is differential. That is, I think, well true about how population aging is happening here, and this is tightly connected with housing. With the de facto policy above, the consequence is that everything is in Seoul, from all the amenities to, most importantly, good-paying (white-collar) jobs. And that leads people living outside Seoul moving to Seoul. In recent years, there is an exodus of young people migrating from countrysides to Seoul, seeking jobs and opportunities. That is contributing to net inflow of population for Seoul whereas countrysides are experiencing new outflow of population and even more severe population aging. It is estimated that very soon a lot of towns in countrysides will simply disappear.

2. Over-competitive education. As you may know, education here is extremely “competitive.” Every parent want to send their children to top universities, and there has been an arms race among household with spending in education – private tutoring and cram schools – whose total budget has only increased. (The myth of) meritocracy and obsession with “fairness” is very strong here, so the only way you can get something and even be able to do something, such as being employed by government, is by taking exams. (For instance, you need to pass a English proficiency test (along with many other subjects) to be employed by government. But… why? people don’t actually use English here?) The consequence is that, despite (or perhaps because of) all the spending ($17 billion in a year), Korea has become the country with the lowest labor productivity return from education spending among OECD countries.

Another consequence is that having and raising a child has become a cost rather than “investment” – and it’s damn expensive. One demographer here explained like this. In agricultural societies (or even in early industrial societies) raising children is basically an investment to your future, because kids will grow up and work and generate income/sales and/or they will at least partly cover your life after retirement. But here it’s become just a massive cost. It might be said that hypothetically if your child goes to top university and gets a good job then the child will cover your retirement (and that is the working theory for many families) but that’s progressively become uncertain and at this point parents are just covering the child’s future by not caring about their future.

3. Practically nonexistent maternity leave & other penalties. Perhaps the most direct obstacle to having a baby for a young couple is that maternity/paternity leaves are practically nonexistent. The labor market is structured (as much as economy in general) in that there are few good-paying white-collar jobs at big multinationals (chaebol), government office jobs, and the rest are jobs at SMEs. Sure, there are now much emphasis on maternity leave and policymakers urge companies to provide employees with more leaves. But mainly due to the size and stability of employment, it’s only workers at big multinationals and government employees can enjoy this policy. For those at SMEs (which account for the 80-85% of all employment), that is simply a fairytale.

Even if nominally such policy exists in your company, there are many reasons why one would rather choose to not have a baby. That is, especially for women, when one takes a leave to have a baby, one’s career is basically over. You’ll get sidelined from promotion, pay rise, etc. There are even many cases in which other workers actively bully women who took the maternity leave “for making their lives harder.”

In short, our labor market and corporate culture basically force young people (especially women) to choose between having a career and having a baby. There can be ways to address this by government intervention. There may be an antitrust case for birth rates. Government may simply directly subsidize every employee who wants to have a baby. But that hasn’t really happened.

4. Austerity bias. There is so strong myth of balanced budget in Korea. (While it doesn’t limit government spending, as MMT shows) the debt to GDP ratio in Korea is just about to become 50%, and government has not really spent much, even during COVID. The economy was okay because of the massive trade surplus we enjoyed from the rest of the world, and that has concealed the adverse effects of low government spending (that is also how we have artificially limited domestic consumption, a la Michael Pettis.) Most importantly, government simply don’t spend much on social welfare. The ratio of social spending to GDP is just about 10%, the second lowest ratio among those in the OECD. The mere reason there has been so much desire for wealth accumulation via housing was that government didn’t cover welfare. We need more deficit spending to solve various problems, including birth rates, but that hasn’t happened.

If you combine all of these factors, you’ll notice that, from the perspective of individual, every course of action taken based on these factors are very rational. You need to buy a house (in Seoul) to accumulate – you want to live in a fancy apartment anyway – that’s a good thing. Everything is in Seoul, so you move there. You (or your child) need to go to top university, that’s a good thing. You need a career, so you prioritize it. On the other hand, for you as an employer, maternity leave is a significant cost to your business, so you don’t provide it. And so on. But the consequence of everyone taking these “rational” choices is that population aging, the slow disappearance of society.

I think the declining birth rate is a collective action problem. But it’s not a problem regarding the choice of having a baby itself; it’s a collective action problem regarding our socioeconomic organization. And we do obviously have a choice here. We can choose to not treat housing as a tool for accumulation but as a social goal, buy expanding the role of social housing (based on fiscal spending) and restricting home ownership. We can make education less intensive, less costly, and less stressful, by detaching ourselves from the obsession with testing and “intelligence” and by expanding the role of public when possible (and with a more equitable labor market.) We can make labor market more equitable via stronger antitrust enforcement and corporate governance reforms. Government spend more, and if it’s necessary, we can tax the rich (landowners, big corporations) a bit more.

But no. I (unlike you) need to buy an apartment (in Seoul) – I need to own it. My children (unlike yours) need to go to top universities. We need chaebol because I (unlike you) need to enjoy various benefits by working there. I (as a rich person) am not going to pay more taxes. All of these trend cannot be reduced to “greed” simply. Perhaps this is the logic of capitalism, and this logic is simply against the survival of society.

An interesting question here is, what dominant capital (chaebols, asset managers) are thinking here? Clearly, population aging is a serious systemic risk, right? And as “universal owners”, they ought to act to responsibly minimize such risks? For instance, Big chaebol companies have become more progressive with maternity leaves, sure. (There’s been more of that with all the “ESG’ stuffs.) But that does neither salvage the tanked birth rate not turn the trend.

I don’t have direct answers to this question, but here are my guesses. 1) They prefer the power of private finance over public, so they obviously hate deficit spending 2) They’ve been more focused on the export-oriented economy, so they haven’t paid much attention to it. 3) Especially for chaebols, their dominant status comes from corporate concentration. Making maternity leaves widely available, without fiscal spending, ceteris paribus, requires less concentrated market, since firms with enough size would be willing to afford that.  So they would rather enjoy their dominant status by even risking population decline. 4) They can just stop investing here and move to other countries, which they are already doing.

So I wonder how you think about this. Is capitalism suicidal?

• This topic was modified 1 year, 9 months ago by Brian Kim.
• This topic was modified 1 year, 9 months ago by Brian Kim.