The ripple effects of an ageing population on an integrated global economy
While growth has had many vectors, the largest contributor was a growing number of younger people joining the workforce year on year. They generate incomes, afford a better life for themselves and a better tax base for governments to build infrastructure. This is what drives developing sectors to create a pattern. What if all this were to stop? This is a reality we are now confronting.
Author Darrell Bricker in a recent article in the World Economic Forum, Humanity will be a lot smaller and a lot older than it is today, said that from six working-age people to one retired in the 1960s, we are at 3:1 today, and soon, we will be 1:1.
This shift over 50 years has steadily gotten to a point where it’s not just a few countries, but the whole world — developed and developing countries alike. This goes beyond race and religion too. Bangladesh’s fertility rate of 1.7 has fallen well below the replacement rate of 2.1. India is at 2.1, Indonesia 2.0, the United States, 1.6. China is an astonishingly low 1.3, which is why, with the government relaxing its two-child policy, they’re now allowed to have three children. A recent New York Times article stated that land is being repurposed in many countries across the world — with school playgrounds being changed to old-age communities.
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What will this mean for the global economy?
At the outset, a significant labour redistribution will occur, which will impact immigration policies on the one hand, and the costing-pricing of goods on the other. The accelerating pace of automation and robotics will enable a lesser reliance on manual labour in many areas. But not every dimension of life can be automated, and thus, globally, the currency for labour — skilled or unskilled — will increase. Immigration will be easier for manual labour, and families with children will be even more welcome than they already are.
As a result, industries with a heavy reliance on labour will see their output priced more equanimously globally — with lesser extremes of high-cost countries and low-cost production bases — since the basis of that difference (labour) has become mobile. Thus, labour-intensive sectors will see common price points in agriculture, mining, hospitality, and so on.
For what can be automated, there will be no stopping it. In the same way that Covid-19 took away excuses for an “always-on, remote work” environment, shrinking demographics will take away excuses for automation. Skilled-but-monotonous jobs are getting automated fastest of all, and this pace will increase. These may include scripted interactions like those in customer care call centres or maker-checker jobs in service industries.
In the private sector, jobs have long been moving from permanent to temporary, and now to transactional jobs which are fuelled by the gig economy. Productivity can only do so much replacement to offset the steep deficit that will be caused. More fundamental resets to established habits and practices will be needed — I see a combination of possibilities stemming from what we have so far considered the secondary workforce or the secondary economy — women, small and medium enterprises (SMEs), elderly people, and students.
More women will be drawn to work, and even more so with the pandemic-induced convenience of work-from-home. SMEs will see a natural resurgence with their agility and focus — they have the potential to become highly-specialised value additions in complex supply chains with larger organisations motivated to move more work to them. But most interesting will be the need to expand the longevity of a workforce — with students entering jobs early, and seniors retiring (if at all) in their 70s.
Early start to jobs will need schools having mandatory vocational content, with the need to do a few years of work before enrolling in colleges — not very different from how the war-era made military service mandatory in many countries. The longer people work, before getting back to education, the more benefits and tax structures they can avail.
Right now, a seven-year-old consumes more data and technology than a seventy-year-old. This will change. For this too, the pandemic has been the driving force. The elderly have steadily become friends with technology — from ordering food and services online, to engaging with others, and for entertainment — they are learning how these technologies work. This adoption of technology will enable seniors to extend their stay in the workforce. Companies, therefore, could choose a multitude of possibilities — from reduced hours and reduced compensation to on-demand retainerships. For the very reason that accountants, doctors, and lawyers don’t retire, across skill-sets, seniors will stay in the workforce longer. Pension plans and retirement benefits will be re-adjusted to factor this in.
Governments will not be immune to these changes. Trust will be the basis for a big shift in governance. A huge workforce in government is dedicated to the adherence to policies and rules — from taxes to law and order. This will change. Technology will have enough algorithms and alerts to be smarter in the case of violations, but in spirit, governance will change to trust and deterrence rather than an inspect- and verification-based system. Taxation will go through interesting innovations — as reducing workforces become more mobile, and as cloud-sourced work continues to defy physical jurisdictions. Governments will compete to make social benefits and tax breaks a big part of citizenship attractiveness.
The innovation landscape is already getting ready for this. Innovations are happening yearly, and are visible every day — better transportation, better health care, a sensor rich world, ever-evolving financial products, better waste and recycling management, efficient real estate, clean energy and so on. What’s less visible but ongoing is innovation in the interoperative ecosystem that helps us learn, work, live, and age better in this changing world. Here, whatever can’t be automated is on-demand, and whatever is specialised, is highly curated with the three ₹— ratings-rankings-referrals. A digital services economy on the backbone of trusted discovery with certifications is already in play. Identity theft possibilities exist, and cybersecurity still has a long way to go, but blockchain technology is creating a foundation for counter-party verifications. Even today, digital handshakes happen before physical handshakes, and we will soon have trusted-party verifications precede a digital or physical handshake. And to back the last bit of fear, micro-insurance will ride alongside every transaction.
These demographic changes will cause a reprioritisation of the innovation agenda and capital. There will be a heightened focus on innovation for elders, given how large a customer base they will be. Longitudinal data will be the ground on which companies will be ready to offer discounts and loans. Hence, “the longer I know you, the more I can underwrite you” will drive capital to managed marketplaces, which so far has been predominantly to open marketplaces. Cyber-identity and security will continue to dominate the innovation agenda for decades to come. It will be the basis on which the financial, health, and work dimensions of our lives have seamless mobility.
After having suffered for the larger part of the last century for population overgrowth, a smaller humanity might be better for the planet. We are shrinking and we need to be ready for it, for it will touch every aspect of our lives much sooner than we imagined.
Rohit Bhayana is co-founder and managing partner, Lumis
The views expressed are personal