Good neighbours

The Malthusian Trap.

Malthusian ideas are always present. The contribution of the great English economist, Sir Thomas Malthus was simple: populations can grow infinitely, probably food production will grow infinitely too, but in a much slower rate. Therefore, as food is necessary for existence, there will be an endless struggle for resources. Rephrasing it, even though food production may grow continuously over time, human reproduction is faster, and the amount of people will eventually surpass the available food. Thus, we will constantly face the “Malthusian trap”: the increase in productivity -which increases the food production- will be outweighed by the increase in people, so we should expect the income per capita to stay stable over time.

Yes, it is somewhat theoretical, so let’s analyze a familiar example. As everybody may have experienced, on a birthday the birthday cake size is not the only thing that matters; the amount of guests also matters (among how many is the cake divided). What Malthus tell us is that the amount of guests depend on the size of the cake. Starting from the point in which more guests don’t fit (the size of the cake sets a limit for the invited people), every time the size of the cake increases, we would be able to invite more people. On the reverse case, if the size is reduced, some guests will be left without cake. Thus, in time, we would expect the size of the portion each guest receives to be more or less stable and small.

Translating it into economic terms: the increases in GDP will have two effects, on the short term it will increase the GDP per capita Y↑/P, but in the medium term it will allow a larger population (new guests) and the GDP per capita will remain constant Y↑/P↑. Then, the Malthusian panorama is very dark: since the growth per capita is faster than Y’s growth, there is no way for the average income to improve.

(Historical parenthesis: Darwin confesses that Malthus was his greatest inspiration. Note that the only difference is that Darwin adds to the statement the existence of various species. Therefore, while in Malthus theory the struggle for food will be alleviated by misery and human deaths (intra-specie), Darwin concludes that the struggle for survival will occur between species, surviving the most suitable one (“the most suitable one” he said, already knowing who survived… some nerve!)

Fortunately, today we know that Malthus was mistaken. After the Industrial Revolution, the cake grew to unsuspected levels (the global GDP rocketed), and those who run behind are the new guests- which also multiplied, but not as much.

Everything is to say just one thing: what matters is the GDP per capita (the size of the portion each guest gets), and the growth of GDP is as important as the population growth. I.e., the *per *capita matters, a lot.

Argentina’s Geography.

To analyze the economic evolution of the country, there are 2 factors which are key, one is the institutional–which is increasingly trending-, and the other is geographic – which is slowly stopping to receive as much attention. In the famous comparison we like to make between Argentina, Australia and Canada, for example, there is a geographic accident, which make us very different. Australia is an island, and therefore is geographically limited by the ocean. Canada is almost an island –water to the east, west, the North Pole to the north and the United States to the south. Argentina, on the other hand, has borders with many countries -Paraguay, Uruguay, Bolivia, Chile and Brazil. With a plus: many of our neighbors have economic standards below ours (smaller portions of cake, and without cookies).

What all of this has to do with Malthus?

A country population can increase for 2 factors: a “natural” and an “artificial”. A natural increase of the population is caused by the reproduction of its citizens (greater birth and/or lower mortality). An artificial increase is caused by immigration. Remember that the great Malthus was very concerned about how the per capita term plays on the nations’ wealth. However, his focus was on the reproduction, i.e., on the natural growth of population. His theory didn’t contemplated the population flows between countries. What I mean is that the Argentine geography may cause risks of another kind of Malthusian trap. As we talk of the traditional Malthusian trap-where the increase in the size of the cake (GDP) are diminished by the fast human reproduction-, we can think of an artificial Malthusian trap, where the increases (absolute and relative) of GDP are not only diminished by the reproduction of the citizens, but also by the migratory flow.

Argentina is facing an artificial Malthusian trap.

Under this framework, the difference in geographies start gaining relevance. Regardless of the politicians of the time, Australia and Canada seem to have the migratory flow under control. Any inhabitant of an oceanic island who would like to try his luck in Australia, would have to undertake an adventure to reach mainland (he could try to swim, or go by boat, but is not easy). Canada is in even better conditions. Its only neighbor is the United States. If we think about the main reasons for immigration is to seek better socio-economic opportunities, and having a rich country as a neighbor helps avoiding a strong migratory flow into your country, even when your economy is doing well. Something very different happens to Argentina. Our neighboring countries are far from being economic powers. Speaking in economic terms –comparing GDP per capita on a global level- they are mainly poor or developing countries. In addition, it is easy to move around if they decide to try luck in Argentina. Simply, they must grab their stuff, jump into a bus and, a few hours later, they will be in a new country where their language is spoken and which promises many opportunities that they couldn’t find in their home countries.

Therefore:

Malthus + Argentine Geography → Artificial Malthusian Trap

Unlike Australia or Canada, the Argentine geography makes us face an artificial Malthusian trap, where the relative improvements in GDP per capita are diminished by an increase in the “internal” population (greater birth) and in the “external” population (caused by migration).

We would still need to see what the empiric evidence says about the trajectory of the net migratory flows in Argentina, though I think that when comparing the Argentine economy with the Canadian or the Australian, the geographic factor cannot be left aside. If any economist has come this far and want to help us out, it is very welcome!