Liang Jianzhang: dont worry about poor families

category:Finance
 Liang Jianzhang: dont worry about poor families


1u3001 Two demographic dividends and economic development

On December 23, 2019, Cai Fang, vice president of the Chinese Academy of Social Sciences, published an article creating the second demographic dividend in the peoples daily. He believed that to create the second demographic dividend, not only the saving rate should be increased, but also the human capital should be increased to promote the total factor productivity and maintain a high return on investment. In the final analysis, improving human capital depends on education.

According to this view, Professor Zhou Tianyong of the Party School of the CPC Central Committee issued the article economic growth cannot have the second demographic dividend under the condition of overcapacity, which emphasized that the national economy is the growth of supply and demand at the same time. Without human demand, there is no need for production and supply at all. The article asks, with the decrease of population, the needs of human beings will be reduced. Then, who will consume and enjoy the products and services created by high-quality labor force and robots?

In Chinas economic circle, Cai Fang is the main introducer of the theory of population dividend in foreign countries. According to this theory, with the decrease of fertility rate and dependency ratio, a larger proportion of output can be used to accumulate, promote technological and industrial progress, and promote economic growth to obtain the first demographic dividend. In order to obtain the so-called second demographic dividend, the premise is that people increase savings in response to the pension and guarantee the capital supply needed for economic growth.

These theories are favored by population cybernetics. In their view, reducing the fertility rate can bring the first demographic dividend and promote economic development, while the aging population with increasing low fertility rate can bring the second demographic dividend and promote further economic development. According to this logic, low fertility is always a good thing.

But in fact, low fertility is only at the expense of long-term interests in exchange for short-term interests. Fewer children can reduce the dependency ratio and increase per capita income in the short term, but increase the dependency ratio and reduce per capita income in the long term. Moreover, due to the weakening of scale effect, after deducting factors such as technological progress and urbanization, the decrease in the later period will be greater than the increase in the earlier period.

Therefore, to get the first demographic dividend by reducing the fertility rate is only to live beyond our means, not to mention the premise that a large number of working population brought about by the previous high fertility rate. Throughout history, economic growth does not need to be achieved by reducing fertility. The industrialization and rise of western countries are completed under the background of population explosion; with the decrease of fertility rate, the development speed of western countries generally slows down.

The second demographic dividend is more like the far fetched self consolation under the aging crisis. According to the idea of the first demographic dividend, the second demographic dividend theory still emphasizes capital accumulation. But in the prospect of aging and shrinking population, the short board of the economy is the shrinking demand and lack of innovation, not the shortage of capital. Even with a high savings rate, sluggish demand and innovation will lead to lower investment returns and lower qualification prices. In Europe and Japan, negative interest rates have emerged, while in China, overcapacity and marginal return on investment have declined. If the first demographic dividend can barely show the short-term benefits of living beyond ones means, the second demographic dividend is more like an unnecessary walnut imagined in the desire to quench ones thirst.

2u3001 There is no direct relationship between the improvement of education and the change of population

Of course, Cai Fang didnt talk too much about the saving rate in his article, but focused on the education promotion to create the second demographic dividend. However, the improvement of education can not be attributed to population transformation, and it is not appropriate to classify the economic growth it brings as the second demographic dividend. Whether or not the conclusion is true, the demographic dividend is derived from population transformation in form; the first is from the reduction of fertility rate, and the second is from the aging. But without ageing, education will rise, perhaps even faster.

Is low fertility conducive to improving education? If there are too many children to build a school, that may be true. But in the past 20 years, China has cut a large number of primary and secondary schools, one of the reasons is that there are fewer school-age children. From 1998 to 2018, the number of primary school students in China decreased from 139 million to 103 million. During the same period, the number of rural primary schools decreased sharply from 610000 to 160000, and that of urban primary schools from 33000 to 28000.

This also happens in the first tier cities with rapid population growth. From 1998 to 2018, the permanent population of Beijing increased from 12.46 million to 21.54 million, while the number of primary schools decreased from 2511 to 970. In fact, the proportion of school-age children in the population of Chinas big cities is almost the lowest in the world, so the shortage of educational resources in these cities is not due to too many children, but the mismatching of public education investment.

Is the reduction of students and schools conducive to the optimization of educational resources? In fact, the so-called high-quality education resources left after the merger are only the heritage left when the population is large. This optimization based on heritage is passive and unsustainable, and more reasonable is to increase investment to optimize education resources. The key to a good school depends on teachers and financial resources. Suppose a city with a population of 1 million has two first-class middle schools. After the population of this city drops to 500000, due to the weakening of scale effect, the teachers and financial resources of the best middle schools are more than the average level of the two best middle schools in a city with a population of 1 million.

Liang Jianzhang, one of the authors of this paper, once asked Becker, the winner of the 1992 Nobel Prize in economics, about his views on Chinas one-child policy. Becker first asked China if it was too late to build a school. When he learned that China was actually closing schools, he said without hesitation that it should stop. His reason is that as long as there is the ability to train people, there should be no reduction in the population, because for all countries, people are the most valuable, especially the educated.

So is low fertility conducive to universal university education? In fact, the latter is mainly the choice of policy. As shown in Figure 1, Chinas university enrollment has grown steadily since 1990, but until 2000, the annual enrollment in China was still lower than that in India. From 1998 to 2008, although the number of people of college entrance examination age increased from 19.1 million to 28.06 million, the number of people entering universities increased from 1.08 million to 5.99 million, and the enrollment rate soared from 5.7% to 21.3%. In November 1998, Tang Min, then an economist at the Asian Development Bank, suggested to the central government that universities double their enrollment. One of the five reasons cited included easing employment pressure. It can even be understood that the short-term employment pressure brought by the growth of the age-appropriate population may, on the contrary, partly contribute to the implementation of the university enrollment expansion policy.

Figure 1 university enrollment and school age population over the years

3u3001 The relationship between quality and quantity of human capital

For economic development, population is not only the consumer of demand side, but also the human capital of supply side. Although demand is the ultimate driving force of economic development, human capital is the key to determine economic efficiency and development level. Human capital can be measured by quantity and quality. But in the long-term atmosphere of birth restriction, many people only pay attention to quality, but ignore the basic significance of quantity. For example, in view of the sharp decline of population in the future, there are often responses. Quality is more important than quantity. Whats the disadvantage of quantity reduction? The implication is that as long as there is quality, there is no need to care about quantity, or even think that quality conflicts with quantity.

But the relationship between quality and quantity is complementary rather than contradictory. The strength of a group depends on both quality and quantity. Under the same quality, human capital is directly proportional to quantity, because agglomeration and scale effect may even present accelerated proportional relationship, that is, more than twice the quantity and more than twice the overall strength. As a result, a decrease in population does not mean an increase in quality, which is more likely to be the opposite. In this case, the shrinking of the quantity is a double blow to the overall human capital, which not only reduces the number of individuals, but also reduces the average quality of individuals.

In the development of modern science, technology and economy, the pioneering contributions of a few outstanding talents are indispensable. This just shows the importance of quantity. Talent is largely random, and no one knows which kid is next jobs or Ren Zhengfei. God has given everyone a lottery ticket of ability. Its luck whether or not genius is printed on the lottery ticket, and good education is the ability to cash in the lottery ticket. So it depends on the size of the educated population.

The improvement of human capital quality is reflected in the improvement of knowledge and skills. Where there is a large population, efficiency is usually higher. By analyzing the data of the birthplace of academicians of the Chinese Academy of Sciences, we find that even after deducting the impact of economic development, the provinces with higher population density have a larger proportion of academicians. The reason may be that places with more dense populations, more efficient education and more intense competition help to stimulate peoples potential.

The United States is currently the country with the highest overall level of science and technology, which is largely attributable to the fact that the United States is the most populous of developed countries. Although the population of the United States has always been less than that of China, the population with university degree has been higher than that of China for a long time, which is an important basis for the long-term leading of American scientific and technological forces in China. But this situation has begun to reverse in recent years; in terms of the number of scientific research, China was less than half of the United States in 2000, and now it has surpassed the United States, and will far surpass the United States in 20 years. Thanks to the huge scale of talents, China has become the world leader in the emerging fields of high-speed rail, mobile communication, artificial intelligence, etc.

At present, Chinas population is more than four times that of the United States, but a large part of this advantage is offset by the integration of the United States with other English speaking countries, as well as the ability of the United States to attract elites around the world. In the past 200 years, Chinas population has only more than tripled, while the population of the United States has grown by more than 30 times. In particular, Chinas population will soon enter into a negative growth, and will accelerate its contraction, while the U.S. population is expected to continue to grow. Even if we do not consider the advantages of the United States in attracting immigrants, the gap in fertility between China and the United States will reduce Chinas population advantage over the United States by 40% per generation. If China fails to significantly increase its fertility rate, two or three generations later, China will have fewer people born each year than the United States, and China will completely lose its population advantage over the United States.

4u3001 Is it good for children to grow up to have fewer children?

Heavy weight and light weight also exist in the concept of parenting. Under the influence of long-term one child, giving birth to one child has become the default choice of many families, and it has almost become a consensus to give birth to less intensive care. However, there is no clear conclusion about the long-term impact of the state of only child on children. Some people think that the only child can get more love and investment, so the performance is better, but others think that the only child is lack of brothers and sisters interaction, and is more likely to be doted on by the elders, so the character is relatively lonely, willful, sensitive, lack of hard-working, adventurous and enterprising and team spirit.

When there is only one child, the familys hope and investment will be concentrated on the child. Dont lose on the starting line will become the default psychology. But if everyone steals and sprints ahead of time, it will only increase individual pressure, which is not good for the whole. If each family has two or three children on average, people may not be so anxious, the way of parenting may be more leisurely, and the potential of children may be greater.

In the same living condition, the correlation between parents and childrens IQ is 0.42, while the correlation between brothers and sisters is 0.47 (Kaufman, 2009). According to this, we can compare families with high IQ and families with middle and upper IQ. Here, the family with high IQ refers to the family with parents IQ at the highest level of 1% of the population, and the family with medium and high IQ refers to the family with parents IQ at the level of 19% of the population. Suppose that one child is born in a family with high IQ, three in a family with medium and high IQ, and the IQ of family members is distributed in a multivariate normal distribution, then on average, the IQ of the only child in a family with high IQ is lower than that of the most intelligent child in a family with medium and high IQ. In other words, in order to cultivate outstanding talents, fewer and better ways of nurturing can not meet the quantitative advantages. One more child, one more hope.

There is no consideration of the interaction between children in multi child families and the influence of parents experience in child care. When Huang Wenzheng, one of the authors of this paper, was teaching at Harvard, he had a colleague named Cai Tianxi, who was born in 1977 and received a doctorate from Harvard University at the age of 22. Later, he became the youngest professor of Harvard at that time. She comes from a small town in Zhejiang Province. She is the youngest child of her parents. There are five brothers on her. Five of the six brothers and sisters in the family received doctorates and one received a masters degree. His father, Cai Xiaowan, is known as a magician of talents. He once wrote his experience of training children as my career is a father. If 20 years later, Cai Xiaowan can only cultivate one or two children at most, and his experience of fatherhood has little use.

5u3001 Dont worry about poor families

No matter how high the education level and social status, most of Chinas current urban residents come from poor families in the countryside. In the early years, only the children of rich families had the chance to receive formal education, and few of the outstanding scientists in modern China were born in poverty. However, the popularization of education in New China has changed this point, bringing a large number of talents from poor families.

These families are very poor, relying on their own hard work to raise their children, raised outstanding astronauts for the country. These outstanding astronauts not only made outstanding contributions to the country, but also brought honor and benefits to the family.

It is tens of thousands of hard-working ordinary and even poor families that support Chinese society and make China rise rapidly after the reform and opening up. In his memoir, Lee Kuan Yew wrote that China really wants to catch up and even do better than Singapore. He said that Singaporeans are only the descendants of illiterate and landless farmers in Fujian, Guangdong and other places, while some in China are the descendants of dignitaries and scholars left behind in the Central Plains. As one of the most farsighted politicians in the world, Li Guangyao has deep confidence in the quality of the Chinese population. Singapore, which he once led, is composed of the descendants of countless poor farmers. Now it has entered the list of the most developed countries in the world, and its population quality ranks the forefront in the world.

6u3001 Coping with the crisis of ultra-low fertility is the top priority

Cai Fang mentioned in the article that the human capital embodied in the skills of workers and entrepreneurs fundamentally depends on the overall improvement of education development. Of course, thats true, but the proportion of university enrollment in China now exceeds half of the population of school age, and the potential for further improvement is limited. Although the free compulsory education is only nine years old, the energy and cost invested by Chinese families in basic education is so large that Chinas overall investment in education is not poor; the listed companies engaged in supplementary education in China are leading in quantity and quality in the world.

In our opinion, the bigger problem of Chinese education is that the burden and inefficiency of exam oriented education make parents exhausted. For this reason, we suggest that we should abolish the entrance examination, merge junior high school and senior high school, reduce the 12 years from primary school to senior high school to 10 years, and extend the compulsory education to 10 years to popularize senior high school education. At present, the third day of junior high school and senior high school are mainly used to review examinations. To shorten the two-year high school education by canceling the entrance examination and weakening the college entrance examination will not affect the learning process, but improve the efficiency. If the female graduates from 19-20 years old undergraduate course, 22-23 years old masters degree, and enters the society two or three years in advance, she will have more time to fall in love, get married, raise a baby, and better balance career and family.

Cai Fang suggested extending compulsory education to cover preschool education. We very much agree and have made similar suggestions before. According to the survey conducted by the national health and Family Planning Commission in 2015, the enrollment rate of 0-3-year-old infants is only 4%, far lower than 50% in some developed countries. If the government takes the lead in building a large number of kindergartens and allows parents who live in the local areas to send their children to the kindergartens free of charge, it will greatly reduce the burden of raising families.

However, Cai Fangs goal in the article is to make the number of children born as close to the familys wishes as possible under the premise of the policy. Here Cai Fang did not say what was wrong with the birth restriction policy, and he was too optimistic about the population situation. According to the 2017 national fertility sampling survey conducted by the national health and Family Planning Commission, the average number of ideal children and planned children of Chinese women of childbearing age were 1.96 and 1.75 respectively from 2006 to 2016. In South Korea, where fertility intention is much higher than this, the actual fertility rate is less than 1.0 at present. Whats the reason to think that the painless policy can make Chinas fertility rate close to the will? Moreover, in order to maintain the sustainable reproduction of the nation, the fertility rate must reach a replacement level of at least 2.1, rather than the groundless 1.8 mentioned by Cai Fang.

All in all, China faces a far more serious problem than the improvement of education, which is the ultra-low fertility rate. There are too many things to do to raise fertility. We have also been proposing to reduce the burden of raising families by reducing individual income tax for higher income families and providing child care subsidies directly for lower income families.

With the end of the two-child policy, the population of childbearing age is shrinking rapidly and the fertility rate continues to decline, and Chinas birth population is facing a rapid decline. Chinas huge population size is a gift admired by its competitors, but this precious advantage is weakening at an unprecedented speed. Although there is still room for Chinas economy to rise due to the improvement of education level, technological progress and urbanization, these effects are not either or related to population size. If the size of the population does not decline, these effects will only be stronger. Therefore, the effect of improving education level to promote economic growth is not the reason to weaken the crisis of ultra-low fertility.

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