The third of our revised set of drivers of change is an combination of three drivers from our previous set – poly-nodal world, economic growth and social cohesion (including inequality) – which we are calling “geo-political dynamics”. Naturally there are still inter-relationships with other drivers, notably demographics and climate change, but also technology and social attitudes. This is also an area significantly affected by the Covid-19 pandemic.
As we noted in early September, the demographic trends will lead to declining and ageing populations in the West and advanced economies, with significant continued growth only in India and central Asia until the end of the century and Africa throughout. Population is a key long-term driver of GDP and hence of geo-political power. So we can expect to see a shift towards a poly-nodal world.
China’s rise will not continue unabated, though in the short term it is taking an increasing aggressive stance globally and cultivating a sense of nationalism. The unity of the Chinese Communist Party may itself start to fracture as President Xi is said to facing widespread opposition within the party. The costs of being a superpower are already seemingly causing concern, and spending on the Belt and Road Initiative has been falling since 2017.
In the second half of the century, the growth of Africa will be rewarded with more influence. The growing middle class in Africa has consumer power and will likely increase pressure to more open economic systems Nigeria’s working-age population is forecast to grow over the course of the century (from 86 million in 2017 to 458 million in 2100), supporting rapid economic growth and its rise in GDP rankings from 23rd place in 2017 to 9th place in 2100.
All bets are off forecasting GDP growth over the next few years because of the extended recession caused by the pandemic. Economic forecasts vary widely, from a “bounce-back” V-shaped recovery, a W-shaped one as a second wave hits, to an L-shaped, which isnot really a recovery at all. The World Bank’s “Global Economic Prospects” report in June envisaged deep recessions leaving lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages. Countries hit hardest by the pandemic would have lower growth – US, India, Brazil, UK. Areas of the East Asia and the Pacific would be relatively better off.
We will discuss possible regional scenarios in future blogposts based on our work for the EC Research and Innovation Directorate.
Policy decisions will also hugely influence the speed and scale of recovery. In the EU at least there seems to be an appetite for a substantial continued investment funded by borrowing, though some commentators believe even this is insufficient. Alongside that it is looking to take a more leading role in global politics, filling the space being vacated by the US, being more willing to challenge Russian misbehaviour, and looking for a revised relationship with China based on handling climate change and mutual economic interests. In the UK, conversely, most discussion has revolved around increased taxation versus more spending cuts.
Social attitudes, such as populism and resistance to immigration also affect the way governments relate to the rest of the world. Whatever the outcome of the US election, its population continues to exhibit a weakening enthusiasm for globalisation and a reluctance to engage in multinational organisations. We shall also look at changing social attitudes in a future blogpost.
Social cohesion is eroded by inequality, which had been continuing to rise in developed countries over recent years, though there has been some push-back against the gig economy, part-time working and zero-hours contracts. Nonetheless, recovery from the pandemic may revive calls for de-regulation.
The pandemic brought a wave of community spirit with clapping for health workers and an encouraging increase in neighbourly support. But it also exposed inequalities and vulnerabilities of precarious employment. Over 52% of lower income adults in the US say that they or someone in their household has lost a job or taken a cut in pay due to the outbreak, compared with a national average of 33% in the latter half of March. Only about one-in-four (23%) say they have rainy day funds set aside that would cover their expenses for three months in case of an emergency such as job loss, sickness or an economic downturn, compared with 48% of middle-income adults. Conversely, U.S. billionaires saw their fortunes grow by $434 billion during the nation’s lockdown between mid-March and mid-May. This gap between the 0.1% and the rest is fertile ground for social unrest in the future, and is not limited to the United States.
The climate emergency also drives geo-political change. Climate-driven migration and competition for water resources increase regional tensions, and this is likely to grow as a problem. The melting of the Arctic ice-cap opens up new trade routes and drives increased competition amongst regional players for its oil, gas and uranium reserves. Melting permafrost causes problems to Russia’s oil industry infrastructure, though there is Russian research suggesting that new regions may become viable for agriculture. Continued heating in Africa could bring migration, famine, wars caused by population movement, degradation of the natural environment, some areas rendered unliveable through heat undermining their potential for growth.
If commitments to “net-zero” carbon emissions are to be met (and heaven help us all if they are not), then the use of fossil fuels has to fall dramatically. The price of oil is already falling causing oil giants like Shell to shed 9,000 jobs. Countries whose economies depend on fossil fuels – Middle East, US, Russia, Australia – face huge challenges of realignment.
Automation and AI have a complex interaction with economic and geo-political power. China’s investment in AI has seen leadership in AI become a major global battleground. Advances in this technology promise to give the edge in terms of military and economic strength. Forecasts of the impact on employment vary hugely: Frey and Osborne estimated that 47 per cent of total US employment was at risk from computerisation; by contrast, PWC argue that increase GDP growth from AI will create more jobs than it destroys. The US and UK suggest that employment can be brought back to old industrial areas and supply chains made more secure against future pandemics by “re-shoring” but many of these jobs are likely to be undermined by automation.
We will return to the topic of automation and AI, and more generally, the “fourth industrial revolution” in our next blogpost in this series.
Written by Huw Williams, SAMI Principal
The views expressed are those of the author(s) and not necessarily of SAMI Consulting.
SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.
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