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China’s Failing One-Child Policy

China’s Failing One-Child Policy
Profile photo of David Howden

china one childImplemented in 1979 in a bid to alleviate social, economic and environmental problems in China, the country’s one-child policy was once heralded as a textbook example of good government policy. Faced with a reduction in the availability of health-care services and low savings, the policy lessened the strains on overcrowded hospitals and gave parents a reason to save for retirement (few children means that grandma and grandpa have to fend for themselves).

Never mind that in 1979 China, as is the case today, hospitals were government run and retirement savings had few outlets for investment.

The Chinese government estimates that 400 million births have been avoided as a result of the policy. Self-selective abortion has resulted in a plethora of boys in search of girls that don’t exist. While the natural ratio of boys to girls is 105 to 100, the Chinese preference for boys has resulted in 123 boys for every 100 girls. If you’re single a single man reading this and wondering where that woman of your dreams is, be thankful you’re not Chinese.

The one-child policy has some grave repercussions (quite literally as the case may be). The population will soon get very old before it starts to contract rapidly. By 2050 the country’s population will shrink by about 4 million people every year and one-quarter of its citizens will be over the age of 65.

The looming problem in China is just a recognition of a very unfortunate fact. Economic growth is driven by two factors: labour and capital. If the supply of labour cannot increase (e.g., due to a one-child policy) the stock of capital will have to increase or the efficiency of production processes improved on in order to just maintain the status quo.

China’s coming demographic crunch carries with it grave concerns for the world’s no. 2 economy. With fewer future workers not only will economic growth be hampered, but it might not be feasible to support the horde of retirees. China’s pension scheme may be younger than most other countries (it was established only in 2000) but it is already scarily underfunded to the tune of 150% of the country’s GDP.

But never fear, the Chinese government is on the case!

Recognizing the error in its previous ways, Beijing has now changed its tune and is relaxing the infamous one-child policy. Now any couple consisting of two only children (which is basically everyone) will be allowed to have two children. While this is an increase of 100% in the number of children most families can have, it is a drop in the bucket compared to what is needed.

Consider that since not all children make it to reproductive age, the birth rate must be 2.1 children per couple just to maintain the existing population. In fact, the policy is expected to only add modest growth to the number of Chinese births – perhaps an extra 1 or 2 million over the next couple years. This is a drop in the bucket in a country with a population over 1.35 billion.

Over the next 15 years, the country’s labour force is expected to lose over 67 million workers. This is almost two Canadas!

China’s population crunch is just a specific example of a general problem: government does a terrible job at fixing prices and quantities in the economy and problems are bound to result. Every first-year economics student learns that markets allocate goods from the most efficient producers to those consumers who most desire them. What most probably don’t consider is that the prices and quantities that result in the t-shirt market are created by the same forces that produce the number of babies being born and the cost of child rearing.

Playing God with these simple economic outcomes – prices and quantities – has some unfortunate outcomes. First and foremost is that any natural equilibrium that the market would have established is upset.

When quantities are limited, as is the case of children under the one-child policy, the predictable result is that there will be people who want to have a child but unable to. Demand will outstrip supply until there is an imbalance. With children this mismatch is especially acute as it means the unfortunate consequence of not having the “right” amount of workers in the future economy.

Of course, I would like to think most people recognize the unreasonableness of China’s approach. After all, trying to target the “correct” population growth rate – as the one-child policy strives to do – is tricky to say the least. More to the point, it is impossible. Just like when government tries to allocate any good the result is predictable – either surpluses or shortages, but never the exact “correct” amount.

These same reasonable people who see the problem with the China’s one-child policy probably don’t extend the same reasoning to policies in Canada aimed at producing a specified amount of children. Whether it’s the Canada child tax benefit or Ontario’s “baby bonus” system, these and other programs like them have an implicit goal in mind. To the point, they think that the production of children must be stimulated by reducing the cost of them.

While it is certainly nice to qualify for such benefits as they do offset some (though far from all!) of the costs of child bearing and rearing, this is not a sufficient condition for the policies. If it was, why not just extend these tax credits to the production of all sorts of goods produced. Sellers of t-shirts, garden tools or vacations to Whistler are all goods which currently aren’t available for tax credits, and yet not one thinks that they should be. The market price allows for a amount of each of these goods to be produced cognizant of the relevant constraints – be they costs, technical restraints or resource availability. Somehow the market produces just the right amount of these goods, and the price makes sure that there are never people waiting in line to buy them or sellers stuck with excess supplies in search of a buyer.

Just like in China, between the federal and provincial governments there are a bevy of policies aimed at targeting the “correct” amount of children. We’ve seen how these types of top-down policies are working in China, albeit at a much greater scale. Maybe it is time to use the same logic on our own domestic child policies.

  • Luton_Ian

    While the natural ratio of boys to girls is 105 to 100, the Chinese preference for boys has resulted in 123 boys for every 100 girls. If you’re single a single man reading this and wondering where that woman of your dreams is, be thankful you’re not Chinese.

    Girls?

    You mean those strange creatures that have human shape but no interest in computer games?
    _______________
    On a serious note, great article and excellent juxtaposition of central planning policies.

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Profile photo of David Howden

David Howden is Chair of the Department of Business and Economics, and professor of economics at St. Louis University, at its Madrid Campus, Academic Vice President of the Ludwig von Mises Institute of Canada, and winner of the Mises Institute's Douglas E. French Prize. Send him mail.

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