Demographics are the long-term population trends of countries and regions. Even though these trends have a big impact on countries’ hegemony, they are rarely taken into account as a determinant of geopolitics. While not claiming that demographics are destiny, we can nevertheless use global demographic trends to explain the hegemonic shift taking place today.
- We have written before that, given the huge global demographic imbalances, economic immigration is an increasingly important means of dealing with countries’ demographic problems, albeit very politically sensitive. Given the fact that most people in developing countries are still too poor to migrate, high economic growth rates in, for example, India and East Africa could also lead to a supply-side push for migration.
- Human capital, human’s intangible stock of capital, is a general measure of the skills, education, health and habits of individuals that helps to improve their productivity capacity and earning potential. As such, it can be considered the qualitative component of the labor production factor, and helps to explain a significant part of observed income differences across the world.
- The world has seen a structural decline in fertility rates (i.e. the average number of children that would be born to a woman if she were to live to the end of her childbearing years) since the 1950s. Although this is a global process, the drop of fertility rates below the replacement level (2.1, meaning two children for every parent and a residual accounting for early mortality causes) has been observed mainly in advanced economies.
- Demographic dividend occurs when countries simultaneously experience significant decreases in their birth and child mortality rates, hence boosting the share of working-age population in relation to the general population. In this way, a larger share of the population contributes to the productive side of society, while having fewer babies and older people reduces the burden on the labor force, hence stimulates growth. Using data from the World Bank, we find evidence for this, as the combined GDP of countries before and at their demographic dividend has grown about twice as fast as that of economies that passed their demographic dividend between 1980 and 2018.
- Countries with slower population growth become relatively less attractive as investment opportunities for companies and investors than economies with a burgeoning population. As fertility rates have stabilized in most advanced economies, but at a level below replacement level, this demographic “drag” will only very gradually fade in the coming decades, hence will exert a structural downward pressure on capital expenditures and consumption spending. This does not apply to all demographic categories of course, as spending is shifting from baby diapers to the “silver economy”, but on the whole, it will lead to a smaller future “total addressable market”.
Connecting the dots
Looking at data from the Maddison Project Database 2018 and the UN World Population Prospects 2018, we have constructed a dataset on the global population between 1800 and 2100. Doing so, we observed the following patterns. First, China has been the world’s most populous country since 1800, but by 2027, for the first time in modern history, it will be overtaken by another country: India. The second is that the share of Western European countries of the global population will shrink dramatically: from 13% in 1800, 15% in 1900, 6% in 2000 to little over 3.5% by 2100. The third is that Latin America’s share of the global population has stayed roughly the same since the 1950s, around 5%, and will remain so in the coming decades up until 2100 (when it will account for 6% of the global population). Likewise, the share of “Western offshoots” (i.e. the U.S., Canada, Australia, and New Zealand) will stay roughly the same, around 4%, until 2100. The region that stands out for its rapid population growth is Sub-Saharan Africa: its population grew from 60 million to almost 100 million in 1900, to 1 billion in 2017 and will amount to a whopping 4 billion by the end of this century. By then, it will account for more than 35% of the global population, up from 7% just after the end of WWII, dethroning East-Asia Pacific region as the most populous region for the first time ever. Fifth is that although the Middle Eastern and Northern African region will see rapid population growth, their share of the global population will “only” triple from 2% to 6% of the global population between 1900 and 2100. Sixth is that population growth in the rest of East Asia, Eastern Europe and Central Asia will dip strongly, while remaining around replacement level in South and Southeast Asia. Especially China’s population will drop, from 1.4 billion in 2019 to just over 1 billion by 2100 (India’s population will continue to grow and will peak at 1.7 billion around 2060). What does this demographic transition mean for the geopolitics of our time?
We can define hegemony as the dominance of one party over others, meaning that it can impose its will on others because of a preponderance of strength. This strength is generally a function of demographics (i.e. how big is the population), economics (i.e. how rich is the population or how large is the economy), hard
power (i.e. military power and capabilities), and a residual of “soft” or “sharp” powers (e.g. diplomatic abilities). As such ceteris paribus, demographic growth is a positive contributor to the hegemony of a state, implying that Sub-Saharan Africa’s and India’s strength vis-à-vis other states will grow, at the cost of, for example, Western Europe or China.
However, the relationship between demographics and hegemony is not a monotonic one. First, this has to do with the multicollinearity between the explanatory variables. For example, countries experiencing a demographic dividend will see their slowing population growth offset by increased economic growth. Furthermore, a larger population can contribute to the military capabilities of a country, to create a stronger army and longer defense lines. More importantly is that in an ageing society public funds will have to be directed away from military means towards healthcare and social spending, reducing the relative power of a country’s military. On the other hand, high population growth without economic growth could lead to destabilizing political situations. The “youth bulge” that once plagued Latin America, and caused its high level of youth criminality and gang membership, might now threaten the African continent and India as these countries are experiencing strong population growth but little economic growth. This requires increased investments in human capital as well, so these valuable assets don’t “depreciate” over time. From a socio-cultural perspective, one could also argue that having a young population also contributes to the soft power of a country: younger generations generally represent positive values and energetic dynamism, while the later stages of life are generally associated with stagnation and conservation. As such, this could be another setback for Western European countries as well as China and Russia.
However, in the end, the effects of demographics on hegemony are not unambiguous, but depend very much on the institutional and socio-cultural context in which population growth is managed and framed. Failing to capture the demographic dividend might thus lead to political destabilization, but capturing its potential could lead to a period of economic growth. As demographics are not destiny, governments have an active way of managing their effects.
- Countries currently form alliances based on economic interests, ideological similarities (e.g. authoritarianism versus liberal democracies) or strategic imperatives. However, demographics transcend all these alliances, and could lead to a new geopolitical ordering of the world. For example, the U.S. could form a demographic “stationary society” with other countries such as Indonesia, the Philippines and India, which have similar demographical challenges and could thus benefit from increased coordination and policy alignment (e.g. schooling programs, sports leagues). Against this, an “ageing alliance” of China, Russia, Japan and Western Europe could be formed that would voice more conservative thoughts, as well as formulate ideas on how to live in societies in which the majority of the population is above the working age.
- As the role of smart weapons and digital technology is increasing in military strategies, political conflict has become too costly and we have thus entered a period of “geo-economics”, we can expect the demographic determinant for military capabilities to weaken in the future. As military hard power wanes, soft power might grow in importance and these strategies could increasingly focus on demographic issues such as their nation’s youth values as well as the vitality of their elder generations.
- Many macroeconomic variables, which are prima facie unrelated to demographics, such as savings and spending, are nevertheless significantly correlated to population trends. For example, research shows that the introduction of the contraceptive pill put downward pressure on real interest rates in Germany, with real interest rates adjusting from their initial level of 2% in the 1950s to the terminal level range between -1.0% and -0.05% going forward between 2050 and 2200. Likewise, as countries with high population growth are becoming more important in the global economy, they will have a more profound effect on global capital supply (savings) and demand (investments). Because of excess savings in emerging markets, short-term nominal interest rates in global financial markets remain stuck around zero, as real interest rates cannot fall sufficiently to clear the global market for savings and investments. As a result, financial markets are coping with a global savings glut, a hypothesis coined by Ben Bernanke. Future research could show more “demographic biases” in macroeconomic models and demonstrate their interrelationship.