A Bigger Population? The Economic and Planning Implications

By Professor Max Corden

At the recent Q & A of ESSA many points were made about immigration. What kinds of immigrants do we want?  What should be the proportion between humanitarian, family reunion and the skills programme? And, perhaps most important of all, do we want the Australian population to increase at all? Seen from outside the country that would seem an extraordinary question, since, compared with any Asian or European country (other than Russia) Australia is so empty. There is certainly no shortage of space. But there are indeed economic and  “way of life” questions.

How would the existing population be affected by a significant growth in population, one that would result if recent levels of immigration continued, say, for another twenty years. Most important, what sorts of economic, social and environmental policies are needed if population growth is not to lead to a decline in the average standard of living of Australian residents, and indeed to lead to a continued increase.

Here I shall draw on my paper “40 Million Aussies? The Immigration Debate Revisited”, which was published by the Productivity Commission in 2003. It can be obtained on the web by just googling the title of the paper. My remarks here shall focus on Melbourne and the State of Victoria. This earlier paper also deals with many issues that I don’t discuss here.

There is certainly no shortage of space in Australia for an expanding population. I am not talking about the empty areas of the north of Australia or inland, but of the areas that have attractive climates where people want to live. Melbourne can easily expand, and indeed new cities could be planned at its edges. Green areas could be preserved. In addition, there are numerous country towns, notably in Victoria, where the local people would welcome expansion. Certainly only those people who really want to would have to live in high rise buildings in or near city centres, especially the centre of Melbourne. But some people would welcome the opportunity for a “European” lifestyle. The key is to provide choice.

The central issue really is the adequate provision of infra-structure, especially in transport, and for planning that ensures that this infrastructure is provided either in advance of, or simultaneously with, population growth, especially the exceptional growth as we have had recently. Planning of new areas needs to be imaginative. Here something can be learnt both from private developments in the United States and from publicly planned New Towns in Britain. Provision of parks, sporting facilities, and convenient shopping areas are crucial. Since most people in Australia are employed in services of various kinds, not manufacturing, agriculture or mining, there is also scope for office development in new areas.

Some critics of population growth are really concerned about transport problems in Sydney and Melbourne, and about inadequate planning. Thus, one should focus on the source of the problem. Transport problems can be eased by appropriate pricing both of road use (road charges for driving into central cities), and of public transport use. Beyond that, and intelligent planning by governments, especially State governments, the big issue is simply the cost of infrastructure development.

Here the following point is worth thinking about. When a new road or a railway line is built the benefits will be obtained not just by the current population but also by the future population, including future immigrants. Thus, perhaps, it need not all be paid for by current taxpayers. Future taxpayers might bear a share. Thus it would be justified for governments to borrow for development of infrastructure and so impose some burden on future taxpayers. Of course, the purchasers of government infrastructure bonds could be Australians or foreign residents. Here the problem is that high public debt is risky, and that adequate cost-benefit of infrastructure projects is essential (a role for the Productivity Commission!).

We may have plenty of space in general, but that does not necessarily apply to our coastal areas. Here regulations and planning are needed to preserve access and general attractiveness. The bigger the population the more that is needed. This is really a “diseconomy of scale”. On the other hand there are also important economies of scale.

The bigger the population the bigger the choice of entertainments. On that matter I can speak from experience when I compare the Melbourne of my youth (with a population of a bit over a million) and Melbourne now (with four million). Public transport can improve and yet pay when there is more usage: buses and trains can come more frequently.  Many Australians travelling overseas notice the advantages of train services that go to airports, or fast trains that connect major cities – something we noticeably miss in Australia.

Finally, what about jobs?  Here any first year economics student understands that immigrants increase both supply and demand. This hardly needs elaboration. Jobs are provided both by the private and the public sector, with the first more important in Australia. But the Reserve Bank of Australia, through its interest rate policy, can normally – broadly – ensure for Australia as a whole (though not each State or town) that there is an equilibrium, avoiding both inflation and excessive unemployment. There have also been periods in Australian history when significant unemployment has been caused by wages being too high (a matter of some controversy. Provided there is some mobility within Australia it is not necessary for the government to plan the details of employment.

What have I got wrong? What have I neglected? Any comments?