Economic and demographic trends

This session examined how the developing world will begin to exploit the demographic advantage associated with young and growing populations while the developed world continues to struggle with the economic challenges of an ageing population and workforce. The narrowing of the income gap between developed and developing countries will cause significant disruption, and potentially result in protectionist responses from the developed world nations (such as artificially complex standards and compliance requirements for developed world products and services). Discussion referenced the opportunity for increasing numbers of small and medium sized businesses in the developing world to dis-intermediate developed world firms who have until now occupied the higher margin areas of the commercial value chain. Rising levels of urbanisation (70% of the world’s population will live in cities by 2030) will yield cost saving opportunities for governments administering services to concentrated populations, as well as higher demand for services and infrastructure. In the long-term, an increasingly hyper-connected world will enable individuals to participate in the global economy from any location which will potentially reanimate communities as drivers of entrepreneurship and innovation. Finally, the iterative process of technology adoption confers a competitive advantage on the younger generation’s capacity to rapidly assimilate new concepts and working methods – although newer touch screen devices and dynamic interfaces are also more accessible and intuitive to older users and the disabled than any previous generation of information technology.

Specific questions for further discussion

(links take you to the relevant forum subtopic):


Q1: Will developing world busineses succeed in dis-intermediating developed world firms within the next 5-10 years - or just continue to compete by providing low cost labour?

Q2: What responsibility should the developed world take in incentivising the transition of emerging economies from from labour intensive to innovation/skill intensive development pathways?

Link to main discussion topic:

Trends in migration, population and demographics

African immigration to Europe is decreasing and members of the African diaspora are returning home. Whilst some have concerns about the stability of domestic African governments and the quality of infrastructure – there are many who are concluding that they can’t wait for the public sector to deliver the solution and that the diaspora need to work alongside communities to generate these solutions themselves.

More broadly the traditional syndrome of “brain drain” from developing to developed world is becoming increasingly less relevant because the Internet allows diaspora communities to contribute politically, socially and economically to their home countries and communities of origin.

In the developed world economies have evolved to depend less on manufacturing and manual labour which to an extent diminishes the challenges of an ageing population. Nevertheless, this situation still poses a problem for established welfare and pension systems where an increasing number of elderly citizens depend upon a decreasing number of young people to generate the necessary tax base to support them in their old age.

The developed world benefits from demographic and economic competitive advantage

It was suggested that the disparity between developed world and developing world incomes will begin to narrow – with potentially unpleasant repercussions in the developing world. For example, as $40K incomes drop to $30K in developed countries, $10K incomes will rise to $20K in developing countries. Many services and functions can now be provided remotely which will benefit the developing world in terms of further job creation.

There is a significant correlation between economic growth in the developed world over the last 30 years and immigration patterns. For example Canada imports around a million new immigrants per hear (3% of the population) – and the growth rate of the Canadian economy is usually around 3%. As countries in the developing world start to exploit the demographic advantage associated with young and growing populations, the developed world will continue to struggle with the economic challenges of an ageing population/workforce. This will cause significant disruption over the next 10-20 years.

China has invested a lot of resources in Africa and has gained significant political influence. However, there is also a growing realisation that the deal China is offering in Africa is not substantially different from the deal offered by Western countries during the 1960s.

Alongside the rise of the middle class in Africa, 40% of Africa’s population still lives within diaspora communities in other countries. This diaspora is now returning home to set up businesses, investing their money and skills and penetrating policy making circles. However there is a need to educate young people on how to appreciate and exploit the value and resources in their own countries – rather than allowing foreign operators to monopolise the high margin components of the supply/value chain (for example in the area of mining of minerals and metals). There needs to be more coordinated national and transnational discussion and debate about how to better exploit and share existing innovation.

It was suggested that there are limitations to bi-polar approaches which split the world in developed and developing countries. For example, China is currently experiencing rapid rates of economic growth, although their competitive advantage is substantially based on large social and economic inequalities. As those inequalities become increasingly difficult to maintain in the face of rising pressure for political, social and economic freedom, then this competitive advantage will start to be eroded. Higher levels of welfare and environmental protection for Chinese citizens will inevitably involve higher costs and therefore higher prices for Chinese exports.

The potential for economic dis-intermediation in developing countries

It was commented that it can be misleading to focus too much on where the next billion dollar company will be founded – given that in aggregate billion dollar companies’ account for a small minority of economic activity when compared to the vast array of small and medium sized firms. The exciting future proposition is not just whether an African company will become the next Google (although this may well happen) – but whether the thousands and thousands of small and medium sized enterprises will begin to dis-intermediate developed world firms who have been acting as middlemen in the international economic equation (occupying the most high margin areas of the value chain).

The product branding industry is insufficiently developed in Africa which creates problems in relation to effective brand protection. Western companies will usually have far more success in taking an African product and marketing it within developed economies than African companies themselves. This needs to be addressed through better awareness and education of African entrepreneurs.

How will the developed world respond to these economic challenges?

There is also a risk that the demographic and economic challenges facing the developed world in the face of rising competition from developing economies may yield increasingly protectionist economic responses. This could be achieved in stealth by applying artificially complex standards and compliance requirements (for example in the field of telecommunications) which make it difficult for developing world companies to compete with domestic companies in the developing world.

In response it was contended that such protectionist approaches could be significantly damaging to developed world economies in the long term – and that realisation of this would be likely to involve those countries opening up immigration and increasing the use of entrepreneurial visas.

The shortcomings of labour intensive development pathways

Historically labour intensive economies are less effective. Labour shortages incentivise innovation - which was one of the primary drivers behind the industrial and manufacturing revolutions in the West. The traditional route towards development has been the manufacture of goods using low cost labour. However, in light of the present urgency in cultivating sustainable development pathways and mitigating the effects of climate change this approach is no longer compatible. Therefore one of the central challenges is to ensure that the developing world increasingly follows a developmental approach driven by rising levels of skills and innovation instead of just exploiting low labour costs. However it was recognised that this will be exceptionally difficult as it involves invoking the “do as I say not as I do” axiom.

The emergence of China, Brazil, Russia and India as global economic actors will certainly involve a reconfiguration as to where global power lies – although there will also potentially be additional challenges in relation to shortages of food, housing and resources alongside environmental factors.

One of the primary differences between the developed and developing world is the point at which they invested in infrastructure. It is more expensive now to build road and rail networks, and invest in housing than it was 50 years ago. Countries that have a backlog in infrastructure investments will struggle unless they have significant reserves of natural resources (e.g. oil and gas) or high standards of domestic governance.

The decreasing importance of location and the reanimation of communities

A key trend is that for the first time in human history people can participate in the global economy from anywhere. Communities are using the Internet in different ways – but we are starting to see the notion of Gross Domestic Local Product (GDLP) becoming increasingly relevant as a tool for policy makers at regional and national level, given that communities will increasingly become key drivers and providers of employment. Innovation in the availability of microfinance also represents a significant opportunity for successful community development and local entrepreneurship.

Public libraries in Chile have helped small businesses get online so that now they selling products that they used to sell in courtyards to a national and international market. Community libraries in Nepal have empowered local women to sell honey which serves to sustainably fund both the public library and support local community infrastructure projects.

Intergenerational trends and technology adoption

Adopting technology is not a one-off task – it is an iterative and on-going process, given that technology is continuously evolving and adapting. This automatically confers a competitive advantage on the young who are better placed to assimilate and absorb new concepts and working methods. However, research has demonstrated that the older generation find newer touch screen device interfaces to be far more user friendly and intuitive to operate than the old mouse and keyboard combination.

100% adoption is not necessary in the developing world to achieve significant social and economic impacts. In India currently only 15 million people have Internet access at home (of which probably 12 million work in the ICT industry). If that figure rose over the next few years to 100 million (still a fraction of India’s 1.2 billion citizens) that would clearly have substantial positive social and economic consequences.

Need to foster mechanisms and opportunities for intergenerational learning, which is a process that can benefit both old and young alike, whilst creating social capital which can trigger new forms of economic activity.

Increasing urbanisation

By 2030 70% of the world’s population will live in cities – and yet a potential long term trend could be for people to exploit the arrival of increased hyper-connectivity to relocate themselves to smaller communities which will in turn reactivate the economic, social and cultural fortunes of those communities.

The trend towards urbanisation can also have benefits in terms of governments and municipal authorities taking advantage of concentrated populations to administer services (which are more costly to provide across spread out populations). This can also involve the reuse of inner city spaces and the intelligent design of new spaces and infrastructure to maximise the livelihoods and sustainability of those urban populations.