News editors have been waxing and waning on the sudden growth in population mainly due to the heavy influx of foreigners lured to vacancies which could not be filled by locals. Apart from xenophobic issues associated with a sudden rise in population mainly foreign, yet there are other economic theories which question whether this phenomenon is sustainable. Will the increase in population match a similar increase in productivity? In his book entitled Wealth of Nations, Scottish economist Adam Smith argues that the market, in ideal conditions, guarantees an efficient allocation of scarce resources. This happens because there is an invisible hand that leads the economy making an individual's self-interested actions become a social benefit.
However, Robert Malthus had a different opinion. This economist argued that population growth is always higher than food production since population growth takes place through geometric progression and food production through an arithmetic progression (refer to graph). As the population increases, the demand for food increases drastically, leading to possible food shortages in the short-term. Unless this demand for resources is accompanied by an increase in productivity levels, our standard of living may suffer in the long-term. This may imply that society would now be living on the minimum subsistence level that is just enough to cover an individual's basic needs. Adam Smith and Malthus' theories are almost diametrically opposed so we can proceed to consider a number of objections to the Malthus theory.
The first one is that, in reality, populations did not grow at the rate Malthus thought they would and Western European countries are an example of that. The demographic transition model shows that population growth will increase up to a certain point and then it will stabilize. On the other hand, the prevalence of famine and diseases have not really materialised, particularly because of positive advances in technology and capital accumulation. This means that contrary to what Malthus had predicted, standards of living increased across the years and a number of countries showed a higher production rate when compared to the rate of population growth.
However, today the export of services has overtaken the output of food production. Thus, we need to reassess Malthus' conclusions. Malthus argues that since land resources are limited, production is also constrained. This economic reasoning may be partially true, however in the 1800s Malthus was only considering a closed economy, where no imports and exports existed. With the effects of globalization, countries have managed to trade on the basis of their comparative advantage. This means that although there is always a limited amount of land under cultivation, in modern times most EU countries enjoy an open economy. This allows countries to develop and generate GDP growth beyond the constraints resulting from land limitation.
After considering these arguments, we might be tempted to think that Malthus' theory is no longer applicable today, but this is not entirely true. A number of countries, including Malta have managed to control their population growth because of their economic development, particularly in terms of production, public health, contraceptive measures and family planning.
Malta's population of Malta has been increasing since 2006. Publications by the National Statistics Office show that from 2015 to 2016, the population grew by 9,882, while from 2016 to 2017, it grew by 15,404, implying a growth rate of 55.9 per cent. This growth rate was primarily due to migration locally, particularly the increase in the number of foreign workers attracted to work for lucrative jobs in the gaming and financial services sector.
These facts lead us to reassess the conclusions we reached from Malthus theory. If, on the one hand population growth from one country is controlled, what would happen if people from other countries move to other countries? In such cases, population growth is no longer controlled, especially when foreigners are seen as being an important asset to sustain the economic growth. In Malta's case, foreign workers are becoming increasingly important to fill the current labour supply gap. We need new talent to kick start new innovative industries.
In the past, London, Barcelona and Venice experienced a gentrification phenomenon to which Malta is certainly not immune unless certain precautionary measures are taken during the early days of its metamorphosis. Gentrification is the process by which a place, especially part of a city, (say Sliema and St Julian's) change from being a privileged area to an affluent one when rich tenants move in. This explosion of wealth leads to the buying and demolition of traditional houses and replacing them with ugly high-rise towers in urban neighbourhoods earmarked for upper- or middle-income families or corporates. This raises property values and often causes displacement of low-income families and small businesses.
Gentrification has positive and negative consequences. On one hand, there is a positive development in terms of renovations, more tax revenue, and improvement in the accessibility and mobility options especially because development would imply that residents have most of the basic facilities located nearby. Additionally, with gentrification, the crime rate is expected to go down while prices of properties in the area rise.
On the other hand, gentrification usually leads to an increase in the cost of living and consequent expulsion of the residents residing on the periphery of the cities, especially if they do not have the necessary means to support the increases in the costs of living. In fact, Malta recently reported an increase in the rate of inflation. Additionally, multiple developments lead to rapid destruction of green areas, exacerbating emissions of greenhouse gases and noise pollution. Gentrification also leads to a change in the region's socioeconomic profile of its residents as well as the introduction of tourist centres. As is expected, the developers' lobby group is very influential here and want a superlative return on their investment.
Malthus defended the theory that population growth needs to be controlled otherwise natural sources will do it. In fact, Malta is experiencing a double whammy - an increase in population growth compounded by an unprecedented increase in tourism and these two phenomena poses the question; is this sustainable? While food production is not an issue, Malta needs to reflect on the fact that the high rate of population growth, coupled with an increase in tourism is expected to lead to further increases in the country's cost of living. Further to that, locals are encouraged to modify their traditions and embrace new ones introduced by tourists and immigrants. This is quite a tall order. It should be borne in mind, that the higher the population growth, the higher the cultural and social changes this will bring about. Can we attempt to solve the conundrum by consciously heeding the Malthus predicament?
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Ms Cacho is a research economist at PKF Malta