The Four Drivers of Geostrategy : 1) Demographic change

In a previous post, Milo argued that strategic thinking should begin at the level of Geostrategy (See Start with Geostrategy or call it tactics). Geostrategy looks at how geopolitical factors inform, constrain, and affect business over the long term.  For convenience, you can place these geopolitical drivers into four categories that interact, evolve and change over time:  Demographics, Geography, Technology, and Culture.  It is “climate change” at the level of these geopolitical drivers– and especially the interaction among them – that create the economic and political “weather” of your firm.  These are often same forces that fund managers harness to generate “alpha” for their funds.  It is at their level that true strategy begins.   In this post, we’ll look at the first one, Demographics.

The Foundations of Lasting Strategy

The Foundations of Lasting Strategy

Demography is the study of human numbers: Population size, Population composition, and trends of change of population.  Auguste Comte, the nineteenth-century French mathematician and sociologist, is widely credited with the dictum “Demography is destiny.” By that, he meant two things:  that demographic forces can alter the realm of the possible, both politically and economically, and that demographic considerations can (but are not always required to) alter the complex strategic balance among, and within, countries.  How does it do so?

Demographic change (i.e. shifts in human numbers, ages and location), affects the long term supply of human capital, influencing everything from labor and pension costs to the availability of creative people (a key component of what economists call Total Factor Productivity). Many of the trends that marketing firms highlight (e.g. obesity, older consumers, etc.) can be traced back to demographic change. Whatever your industry, it doesn’t take long to realize that such trends will affect it on a strategic level.  That’s why such figures are the basis for so many market-entry decisions; what we find in our consulting, however, is that once a market is entered, demographic change becomes an after-thought or – even worse  – gets assumed away for a decade or more!

In the “struggle for mastery” in modern Europe, think of the role of population in the ascendance of Germany over France during the nineteenth century:  In 1801 there were 11 French for every 10 Germans; By 1900 there were 15 Germans for every 10 French.  Likewise, is it conceivable that the United States would exert the economic, political, and military influence of today if its population, instead of surging over 50-fold in two centuries, had simply doubled — as actually happened for France?

On the positive side for the practical strategist, compared to other geostrategic changes — social, economic, political, technological — demographic changes are very slow and exceptionally regular. Demographic change is only sharp and discontinuous in times of utter upheaval and catastrophe. Why? Because everybody who is going to be, for example, over 18 in 2027 has already been born. Migration happens, but rarely in ways that change the fundamental outlook for an economy or country very rapidly (though it has massive impacts over time:  think about the growing Hispanization of the United States).   Even demographic trends rooted in technology (e.g. healthcare, birth control and sanitation), have a quite gradual impact on human populations.

Similarly, demographic trends are very hard to reverse.  The current and impending “graying” of Asia and Europe that we will discuss below is an all but “done deal”:  It is propelled by the basic arithmetic of longer lives and smaller families throughout Asia.  These trends have been developing in these regions for decades if not for generations, and the same is true for population growth projections overall.

If you live in the US or the EU, get used to it!

If you live in the US or the EU, get used to it!

So what do we know about the demographic strategic context of the future?  Let’s look at near certainties.  First,  there will be more people:  by 2050, the UN Population division expects human populations to stabilize at 9.15 billion, and then start to decline.  But – and this is crucial – this growth will be highly uneven:  there will be concentrations of old people in both the rich and the poor world. We also know that a lot more people will be urban, and everyone will need to eat, drink, and use energy.   Moreover, a lot of these people will move around (immigrate, emigrate and just plan move in search of better lives).

It is somewhat counter-intuitive to realize that in the coming decades, we will simultaneous witness something entirely new:  large, low-birthrate populations that steadily contract, especially in “the West”.  There are already 18 countries in the world with contracting populations. By 2050 there will be 44, the vast majority of them in Europe… As a result, in the words of historian Niall Ferguson, we are about to witness “the greatest sustained reduction in European population since the Black Death of the fourteenth century.”  People ask “won’t immigration counter that?”   The hard truth is that immigration on a scale likely to make a measurable impact on that dimension will likely be resisted, or at least give rise to major social and political friction. From a business point of view, however, a graying population offers tremendous opportunities, in the service business for instance. Old people need specialized services, drugs, and doctors and nurses. They also need medical devices and equipment. They tend to be richer than young people at the beginning of their working life, so they control vast wealth, and hence have political influence (they don’t like inflation, and if inflation control reduces growth, then so be it).

You though PORTER identified the drivers of strategy? Think again!

You though PORTER identified the drivers of strategy? Think again!

But ageing is not universal. Some countries are still growing. Saudi Arabia, for instance, where 60% of the population is under the age of 21, but an estimated 35% among young men in their 20s are jobless (The Economist).  Long term consequences of such socio-demographic trends are difficult to anticipate.

While starting in the “rich” world, global aging is occurring almost everywhere. Some countries (most notably China) will become old before becoming rich, which means that funding retirement packages for old people will be an immense challenge. At the same time, Europe becomes old while getting less and less rich, and as a result has a similar problem: unfunded promises, ie liabilities.

China will be old long before it is rich (even by Mexican standards).

China will be old long before it is rich (even by Mexican standards).


In parallel, the world’s population is urbanizing. An important tipping point occurred around 2007. In that year, for the first time in history, more people lived in cities than the countryside. By the 2030s, five billion of the world’s eight billion people will live in cities. Fully two billion of them will inhabit the great urban slums of the Middle East, Africa, and Asia. Most of the urbanization, however, is unplanned, leading to seemingly intractable problems in terms of basic equipment and living conditions, as visitors to Mumbai can attest, for instance. Growing urbanization is a boon for building industries, transportation and services in general but tend to put a strain on natural resources and ecosystems.

Urbanization:  planned or unplanned, it is happening.

Urbanization: planned or unplanned, it is happening.

While slow, demographic developments can be both dramatic and utterly unplanned.  Take selective abortion. In several parts of Asia, India and China, parents prefer to have boys, not girls. Modern technology such as sonograms or ultrasound is used to detect female fetuses, and then abort them. This has been going on for decades and is not illegal in most countries.  Nevertheless, these Asian countries now have badly distorted sex ratios.

Surplus males

Asia: from Trade Surplus to Male Surplus

According to The Economist, there are now 914 girls for 1,000 boys, down from 945 in 1981 in India.  Social consequences have not been long in coming:  China sees more wage inflation among young women factory workers than young men construction workers. More dramatically, girls are now kidnapped or bought from parents by brokers and sent to places short of them to be forced into marriage.  And remember – Today’s bride shortage is tomorrow’s caregiver shortage.

What’s more, in high sex ratio societies, “surplus males” share several characteristics: they have low socio-economic status, little or no bargaining power in the marriage market, are un- or underemployed, live a transient lifestyle with few ties to their community, and live and socialize with other “bare branches” creating a distinctive bachelor subculture. In addition, history suggests that compared with other males in society, bare branches will be prone to seek satisfaction through vice and violence. A way to avoid such situations is to develop immigration, but that is, in such places as in Europe, a sensitive issue.

An important thing is not to consider demographic developments only in terms of threats. Many of them offer tremendous opportunities.

Working-age Populations:  not all BRICs are created equal

Working-age Populations: not all BRICs are created equal

Take China for instance. As a result of the one-child policy, the number of working age adults is now declining. This decline creates tension on the labor market, resulting in salary raises. This, on the one hand, makes Chinese exports less and less competitive to the point that it now becomes more profitable for US firms to manufacture in Mexico (or even in the US giving rise to ‘re-shoring’) than in China. On the other hand, rising salaries creates a growing internal market and boosts domestic consumption, allowing for a much-needed rebalancing of the Chinese economy. Clearly, the impact on businesses around the world will be huge.  New opportunities for Mexican manufacturers, resulting in more jobs and revenues, and new opportunities for foreign firms to sell to the growing Chinese middle class. India will have the opposite problem: it will likely provide the largest increase to the global labor force over the next decade—Goldman Sachs estimate an additional… 110 million workers by 2020 while at the same time India lacks educated professionals such as architects in large numbers. Unless India is able to sustain a high growth rate over this period, significant social problems may arise. However, a high growth rate in turn creates strains on the fragile Indian infrastructure.

But lest you think that demographic change is the be all and end all of geostrategic thinking, remember too that demographic factors blend into and impact other Geopolitical drivers.   Consider, for example, the link between rising populations, food and energy.  Consider arable land, energy and the demographic trends above:

  • Energy is needed for processing crops into food, and then for transporting more food to growing cities
  • Energy is also needed for increased refrigeration in cities
  • Biofuels compete for the same land and water as food, but growing populations demand more fuels
  • Cities also strain local ground water supplies, etc.
  • Fertilizers may make land more productive, but also require energy
  • Energy is needed for irrigation, crop drying, and heating

These are only a few elements from which we try to deduce possible consequences of the demographic changes above. Of course, these are not predictions.  Demography is a tricky science because people tend to change behaviors when not expected, with consequences 10 or 20 years down the road.  But because these consequences are often massive, it is essential that they are integrated into your strategy.

In the next post of this series, we will look at geography, the second geopolitical driver of strategy.

6 responses to “The Four Drivers of Geostrategy : 1) Demographic change

  1. Pingback: Innovation Management | Pearltrees

  2. Pingback: The Four Drivers of Geostrategy : 1) Demographic change ... | PRIX EUROPEEN CIVISME SECURITE ET DEFENSE |

  3. Pingback: The Four Drivers of Geostrategy : 1) Demographic change ... | Défense, nouvelles technologies et communication en Europe et au niveau international |

  4. For a broader view about the links between rising populations, food and energy with sources, you can read :
    1- article in M.A.P. n1 : available in SP, IT, GE, FR but not in english
    La crise écologique globale a commencé
    Die weltweite Umweltkrise hat begonnen
    La crisi ecologica globale è iniziata
    La crisis ecológica global ha comenzado

    2- International food policy: towards a “diplomatic revolution” (in M.A.P. n2)
    (also available in others langages)

  5. Is there a book where I can find these concepts? Please let me know.

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