Building the new order Entry 7

On July 4, the Shanghai Cooperation Organization (SCO) meeting was held, which Iran joined (news here, and here). They are beginning to call this organization the NATO of the East, led by China. The new global institutions are in the making.

A giant screen broadcasts Xi Jinping’s speech at the SCO summit in Beijing. Tingshu Wang Reuters

It is highly recommended to read the second of the links I have provided above. It is from Sputnikglobe, and gives the view from the Chinese block (almost a challenge).

They tell us things as if Ukraine is an idyllic country that the evil Russia has decided to attack. And that we all have to help that idyllic country.

But the situation in Ukraine is not so perfect. It has such serious corruption problems (in the middle of the War) as to have had to arrest the president of the supreme court for multi-million bribes (news here). Are we sure we want to support that at the cost of world peace?

Both the Western ultra-left, and the ultra-right, have long supported ending the War (curious that they agree on that), letting Russia “win something”. What is new is that the moderate left (if you can call the American Democrats that) also supports it, albeit softly, as you can see here, and here It looks like the stage is being set.

The importance of demographics.

We all know it, although we rarely think about it: demographics is one of the bases of almost everything (another is climate change).

What happens is that, as their changes are very slow, we don’t usually pay attention to them.

In this entry I will try to see how demographics affect the new world order that is being established.

The population of an area (or country, or continent, …) does not change from one day to the next, unless there is a bomb or nuclear accident, as was the case of Chernobyl; or a natural disaster, as in the case of ancient Pompeii.

However, its changes, slow but constant, end up affecting the entire social structure, including, of course, the economy and politics.

Whether we are talking about small structures, such as a family, or large ones, such as a country. The same questions must always be asked:

How many people must be maintained with the best possible life in this structure, given the available resources? and

What are the ages and qualifications of this group of people?

With the answers to these questions, and if the decision-makers have good judgment, this structure can be organized to deal with today’s situation.

Most likely, the decisions that have been made involve long-term commitments or investments, which are usually made thinking that tomorrow’s world will be the same as today’s (a big mistake).

The right thing to do would be to ask yourself other questions before making decisions. They are those of the foreseeable future:

Will the number of people in the group change in the future?

What about available resources?

What about the ages and qualifications of these people?

That is researching predictable demographics.

As well as “available resources”, it involves investigating the economy (closely related to demographics), environmental, agricultural, and mining conditions.

If decisions on long-term commitments or investments are made without paying attention to how the circumstances are going to be in the long term, we may find ourselves with serious inconsistencies.

To give a simple but descriptive example, let’s think of a family where the children are about to be emancipated. The parents, thinking that they have more money available, and that they are looking forward to it, buy a very big house. The house has several floors (with stairs). It is located in a place that the parents like, but which has been impoverished for some time (losing demographics). Therefore, losing services, which means losing value. In addition, the children, when emancipated, have had to go to live far away, because of their circumstances.

In the case of this family, it is most likely that, with age, they will end up having mobility problems that will make it uncomfortable for them to live in that house (because of the stairs, for example). In addition, due to the loss of services in the area, the doctor, stores and leisure facilities will be farther and farther away (and more difficult for them, due to the loss of mobility). And, due to the evolution of prices in the area, when they have to sell the house, they will lose a lot of money.

In other words, that decision was not the right one because it did not contemplate the conditions of the future.

I have given the example of a family because it is easy for everyone to understand. In fact, most people would not make such a decision, as the risks are obvious to them.

The same thing happens in large structures (countries), but we rarely remember the importance of demographics for decision making.

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The blocs of countries of the new world order.

We already know that we are heading towards a world divided into two large blocs of countries (one led by China, the other by the USA).

It is very relevant to see the foreseeable demographics in these blocks. With this, we will have data on the future importance of each block.

As I have said in previous entries (here, and here), it is not yet fully defined which country will join which bloc (nor with what degree of membership), but there is an indicator of their proximities in the votes taken at the UN on the Russia-Ukraine situation on April 7, 2022, and February 23, 2023.

In those entries I made an analysis that summarizes that it seems that the countries closest to the USA do not reach half of the world’s population, but they do exceed 65% of the world’s GDP.

In terms of population, the current situation is as shown below, with more than half of the world’s population in the red circle, which are countries of the Chinese bloc.

Regarding the future situation, I highlight the following:

It is a very visual graph (thanks for the tip, Jose Manuel). I recommend going to the original WEB, where you can consult the data in different formats (here).

The graph does not refer to blocks of countries, but to continents, but it is not difficult to extrapolate some conclusions:

In terms of population, the bloc we have been calling “the West” no longer exceeds 50 % of the world’s population today, but in the future it will drop to almost 20 %.

This means that, in the future, if the countries of the Chinese bloc achieve a GDP per capita of a quarter of that of the West, they will have a total GDP of the same size as the West (today, that possibility is still far off).

The West has already reached its population peaks. China is on the verge of doing so. However, Africa is growing strongly.

Africa’s power will also grow a lot. Especially remembering that it is a continent very rich in resources, which are lacking everywhere else.

It is also interesting to see the graphs provided by VisualCapitalist (detail here). It can be seen that:

Except in Africa, birth rates are declining everywhere.

The number of working-age population, today and in the next 20 years: is growing in India and Africa; has bad forecasts in Europe and Japan; and a not perfect situation, but not so bad, in the USA and China.

Because of advances in medicine and social policies, the average age of life is rising everywhere. This means that governments (or families) have to find ways to support more people for more years after retirement.

The Ponzi scheme of pensions.

A Ponzi scheme is a type of pyramid scheme in which the collections from old clients depend on new clients entering the system (not on the profitability of the money of the old clients). With the money of the new clients the old ones are paid, and … it will be seen if the new clients will be able to get paid. That was, among many others, the case for which the financier Madoff ended up in jail.

The Ponzi scheme is a crime, and no private party can make such offers.

However, there are many countries that apply Ponzi schemes, without anyone going to jail for it. This is the case of the payment of retirement pensions through the pay-as-you-go system.

There is much discussion as to whether retirement pensions should be paid under a funded system (each person receives what he or she saved), or a pay-as-you-go system (the government pays everyone, with some difference, regardless of how much they saved). There are also many hybrid situations between these systems, but both define the extremes.

Spain is one of the many countries that operate with the pay-as-you-go system. Pensions are paid with the taxes of those who are not retired today.

If we look at Spain’s population pyramid, it is clear that the baby boom generation is starting to retire; and that there are fewer and fewer births. In a few years it will be very difficult for the working-age population to support so many retirees, even less so if many of those workers have very low salaries.

To understand how demographic changes have evolved in Spain, it is very interesting to click on the “animated graph” in this link.

This problem of population aging is generalized, although in each country with its peculiarities. It can be seen here:

The summary is that in 2022, 10% of the world’s population was over 65 years old, and in 2100 it is expected to be 25%.

In other words, guaranteed Ponzi scheme.

Problems and possible solutions.

With the above I have tried to make it clear that:

The demographic problems in the countries of the Chinese bloc are different from those of the West (they are growing in population, and the West is not).

The problems of having a smaller working-age population and a larger retired population are common to all countries, with the exception of Africa.

The fact that these situations turn out to be a problem is due to the way society has always been organized: the needs of all the inhabitants (those who work and those who do not) are covered by the work of those who are of working age. The rest of the population receives its income, either from the support of their families, or from taxes distributed (which the government collected from those who do work).

And, it is evident that, if with the work of the same people (or, even worse, of fewer people) the needs of more people have to be covered, things do not work. And this is so regardless of whether we are dealing with capitalist, communist, feudal, … social systems.

The only positive is that demographic change is gradual, and there is some time to prepare solutions.

Faced with this situation, each country must adopt its own strategy, and none of them is easy.

The utopian solution – IA.

It would be perfect if all the work (or almost all of it) were done by machines and artificial intelligence, and that the government would hand out money (as a gift, like children’s allowance) to all people so they could buy what they need.

But, neither robotics and AI technology is yet close to being able to do that, nor is it very likely that these governments would not succumb to human weaknesses and cheat in the distribution of these “gifts”.

So this solution is out of the question, at least for a long time.

The productivity solution.

It is almost as utopian as the previous one, but a little less so.

If technical and training advances were made in workers, so that their productivity would increase faster than the non-working population increases and ages, a situation could be reached in which, with fewer workers, sufficient income (and taxes) could be obtained to pay for everyone’s living.

Of course, every effort should be made to favor this solution, but there is little hope that perfection can be achieved by it alone.

Faced with this solution, someone may say that this would increase unemployment, because fewer workers would be needed. But (except in Africa) we are lucky that there will be fewer people of working age, so it is possible that the accounts will fit and unemployment will not be generated (I recall here that the case of Spain is special, as it is almost the only country in the West with high unemployment).

The “ages” solution.

If there is no other way to produce all that society needs to provide for everyone with today’s workers, one solution would be to start working life earlier and end it later. That is, to work more years.

This would have a lot of social rejection (logical, because of giving up conquests), but perhaps it should be studied.

I make the comment that this solution would be much easier to apply in non-democratic countries, where the will of the leader is imposed without question, and without accepting complaints. The Chinese bloc has an advantage in this respect.

The minimum solution.

If no other solution can be found, there is always the option of living a little worse every day, and distributing less income among more people.

It is not at all desirable, but it is almost certain that in more than one place it will have to be applied, as has happened a thousand times in history.

The “labor competition” solution.

This would be the case of countries that encourage the immigration of people of working age to cover their needs to produce enough to support the population.

If the country gets enough working immigrants to compensate for its excess non-working age population, it can work.

However, as the problem is almost global, the country that achieves this solution will do so by worsening the position of other countries. It will be a competitive situation. Something like a global auction of workers, in which the country that offers the most wins.

This may have a certain fit with the previous solution (that of minimums). It would occur if the country that has accepted (because it has no other choice) the minimum solution, in turn accepts to “auction” its labor masses to other countries on the condition that those who emigrate send part of their salary to their country of origin, to their families. The truth is that with a small part of the salary in a prosperous country you can pay a reasonable quality of life to your family in a poor country.

In reality, this, in a disorganized way, has happened many times in history, and continues to happen today. It is what happened in rural Spain in the mid-20th century, or what is happening in Peru today.

However, for the receiving country, there is the danger that an excess of immigrant inhabitants, coming from another culture, and being precisely the “producing inhabitants”, can generate great cultural clashes. This is the example of France a few days ago.

The birth solution.

To fix the lack of young people of working age, someone might think about incentivizing women to have more than six children each.

Even if they managed to convince them, it would take twenty years for these children to reach working age.

Therefore, this solution is not valid for the short or medium term.

It must be discarded.

The solution was horrendous.

It is very hard just to quote it, but someone may end up coming to the conclusion that, if the active population cannot be increased, the inactive population must be decreased: bringing forward the death of the elderly.

It would be genocide by age.

Unfortunately, history tells us that genocides have been organized more than once.

Regarding this, I say that I wish it was not premeditated, but it is suspicious that Covid has occurred at this time, when the world is facing these situations, and when the final consequence of the pandemic has been the premature death of many elderly people.

Climate change also has an impact.

In addition to all the demographic problems mentioned above, it must be taken into account that, due to climate change, some areas are becoming desertified, losing their capacity to support crops, to guarantee water supply and, in short, to be habitable.

This will force to plan migrations, which is something much better than letting them happen in a disorganized way. But that, no matter how well planned, is a guarantee of conflict.

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In short: we had better be aware that the demographic problem is serious. Slow, but very serious. And that, precisely because it is slow, it offers us time that we should not waste.

Moreover, it should be noted that the Chinese bloc of countries has a somewhat easier time coping with the situation than the Western bloc.

My personal conclusions are:

As for the war between blocs of countries, the less than 2 billion inhabitants of the West cannot win a war against the more than 6 billion of the Chinese bloc. Much less if the war is on their territories. That would be like a guerrilla war, or one of resistance. Something like Vietnam. The West would have lost before it started.

Conventional war (even if it is global) is not a logical solution. These wars kill the young (the soldiers), who are the essential population to work, pay taxes, and support the elderly. They are, today, the essential population. Killing them in the war would worsen the situation for everyone.

To monitor the strengths of each block of countries, you have to look at the GDP growth of each country, but subtract the population growth of the country. Those that have that “corrected GDP growth” higher than the rest will improve their position, the rest will not.

The solutions that each country applies to face the problem of its working-age population should be closely watched. Those that get it right will have a better chance than those that get it wrong (or late).

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Readings that have interested me.

In the process of writing this entry I have come across the following issues that have caught my attention. They are not related to what is discussed in this entry, but I recommend watching them.

Blackrock thinks that central banks will not bail out the West when recession hits (news here). If that happens, the problem will be very big in the West (not so much in the Chinese bloc).

The problems of unrest in France have escalated. They may become problems of social stability. And they may spread to other parts of the West. The cause lies in the ability to socially integrate immigrants from other cultures (news here). Be careful, this is very serious (thank you, Victor, for warning me).

My friend Jose Manuel has made me see a curiosity of adaptation of society to climate change with technological advances. It is something old, but interesting. The eruption of the Tambora volcano in 1815 created a climate change that caused the death of many horses. It is no coincidence that the precursor of the bicycle was invented on those dates (news here, and here).

That’s as far as I’ve gone for today. I think I will dedicate the next entry to energy sources. However, as at other times, circumstances may lead me in other directions,

As always, I welcome comments on my email: pgonzalez@ie3.org