- - Tuesday, July 11, 2017

ANALYSIS/OPINION:

Like tectonic plates, demographic trends move quietly for a long time before their effects are fully felt. By mid-century, demographic trends at work today will trigger momentous shifts in the economic and geopolitical balance.

Between now and 2050, the world’s population is projected to grow from 7.6 billion to 9.8 billion. A stunning three-quarters of this growth is expected to come from Africa and India, which will become the world’s most populous country. Meanwhile, the populations of China, Europe, Russia and Japan will shrink due to a global trend toward lower fertility.

In “The Graying of the Great Powers,” leading demographers Richard Jackson and Neil Howe analyze two other global trends: an increase in the elderly segment of the population, those 65 and over, and a decrease in the working-age segment, those between 20 and 64. By 2050, they argue, the elderly will represent 31 percent of the population in Western Europe, 26 percent in Russia, 39 percent in Japan, and 24 percent in China.

And compared with 2005, the working-age population will decrease by 18 percent in Western Europe and about 38 percent in both Russia and Japan. China’s working-age population grew until 2015, but will drop 17 percent by 2050.

Admitting more immigrants could help somewhat but is no panacea. The numbers would have to be quite large to make a difference in a population of tens of millions, and would be difficult to absorb in countries like China and Japan, which have no immigration tradition. Immigration has already become a challenge for Europe, where a growing but poorly integrated Muslim minority has spawned social tensions recently heightened by Islamist radicalism and terrorism.

On the other hand, America’s demographic outlook is exceptional. Between now and 2050, its population will increase by 20 percent. According to Messrs. Jackson and Howe, the elderly will be just 20 percent of the population in 2050, and the working-age segment 28 percent larger than in 2005. Furthermore, America is expected to remain a magnet for immigrants around the world.

Population changes affect a country’s economic growth. A McKinsey Global Institute study shows that between 1964 and 2014 the global gross domestic product grew by 3.5 percent annually, driven in equal measure by employment growth and productivity growth. For the next 50 years, though, global employment growth is projected to be just 0.3 percent annually. With the employment engine stalled, what can the productivity engine do to compensate? A lot, thankfully, mainly due to robotics.

Spectacular advances in robotics, including artificial intelligence and 3-D printing, will generate productivity increases greater than those from the steam engine and information technology. McKinsey predicts that over the next half-century robotics can increase global productivity growth by 0.8 to 1.4 percent per year, depending on whether it is adopted earlier or later. Robotics benefits will be felt throughout an economy, but especially in manufacturing.

Developed countries have already been early and enthusiastic adopters of robotics in most sectors of their economies. This has been particularly true in America, a global leader in technology and venture capital. Given the shrinking and aging trends affecting developed countries, robotics will not cause an increase in unemployment, and might even help mitigate labor losses.

In developing countries, robotics is expected to increase productivity, but also reduce employment. These countries’ road to development has usually been to attract manufacturing from developed countries by offering cheaper labor. Since robotics dramatically reduces the labor component of manufacturing, companies in developed countries are more likely to build new factories at home, saving on transportation, cutting response time to customers, and reducing intellectual property theft.

China, the world’s factory, is a case in point. China’s rural residents, over half the total population, live on an average daily income of just $4, two-thirds less than that of urbanites. Robotics makes it possible for Chinese manufacturers to move factories closer to customers in developed countries and employ fewer workers in the factories that stay. This will reduce employment opportunities in general and close the road to higher income for rural residents. China’s unspoken social contract has been that the Communist Party delivers jobs and the people don’t ask for democracy. If employment shrinks, there is a real risk of social unrest. Russia will benefit less from robotics because it is more an exporter of energy than a manufacturer.

A country’s demographics also affects its military since recruits are working age. Countries with a smaller and older population, and a less dynamic economy, will see their military capabilities reduced.

America’s political leaders play an important role in realizing the potential of these demographic trends. As developed countries with shrinking populations compete for immigrants, America must redesign its immigration system to win in this competition. America also needs bold tax and regulatory reform to support a dynamic economy.

Asked what could derail his government’s program, Harold Macmillan, British prime minister in the 1950s and ‘60s, famously answered “Events, my dear boy, events.” If it can avoid adverse events, America will be even stronger geopolitically in 2050 compared to both allies and adversaries.

• Dan Negrea is a New York private equity investor.

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