Joss Delage wrote me with a question, here is part of it:
Here’s what I’m curious about: assuming things turn out as described in your book, what do you think are the geopolitical ramifications? More specifically, do you envision some countries specializing to attract the top earners, and if so which and how?
I don’t cover geopolitical questions in Average is Over, but here are a few observations:
1. I see elites, working in a coalition with elderly voters, as able to control the political agenda enough to prevent most developed economies from flipping into purely destructive economic policies. So I expect the leading wealthy nations to maintain relatively strong positions in the world. (The book by the way does explicitly predict that U.S. government will get bigger and that social welfare spending will rise, contrary to what some reviewers have suggested.) This will be hardest, however, for the relatively pure democracies, such as the Westminster systems.
2. Some small nations, most notably Monaco and Luxembourg and Singapore, have the option of “specializing” in the higher earners and keeping in only a minimum of stagnant wage earners. A mix of immigration policies and land prices will enforce this choice. Commuting will rise in importance, where possible. But such outcomes will not describe a very large share of the world.
3. One class of vulnerable nations will be current exporters who rely on low wages to be competitive. Automation in the wealthy nations will disrupt their business models. The current Indian model of “doing most things internally” — which is by no means ideal — will be relied on increasingly. Export-led surpluses will not be available to drive growth, as the wealthier nations become the export leaders by increasingly wide margins. Given the rise of smart software and robots too, labor costs will not hold them back.
4. African nations and other poor nations, such as those in southeast Asia, also will not have the option of “last generation” export-led growth, pockets of resource wealth aside. Many of these nations will specialize in lower middle class earners. Free-riding upon global technologies will be important, as with cell phones today. Many more technologies will spread in this fashion, with the aid of price discrimination. We might see billionaires adopting particular regions or groups and transferring technologies to them at relatively low cost. “Wealth without wealth generation” will describe many locales.
5. One key question is whether software-led growth will lower or raise the relative price of most natural resources. There will be much more production! One possible scenario is that manufacturing growth will rise more rapidly than natural resource production will be eased. Countries with the higher-priced natural resources will then be geopolitical winners. And in that case high energy prices become quite a burden on lower middle income earners, who switch out of cars and into bicycles, mass transit, and the like. Yet it remains possible that smart software will do more for energy production, or for copper production, than it will for manufacturing production.
6. In talks (but not in the book) I have suggested that food production is the best candidate for “what will be most difficult to augment” in an age of smart software. Food production seems harder to “wall off” and it seems more embedded in local culture (for better or worse, usually for worse) than factory production. See our MRU video on conditional convergence, which considers the work of Dani Rodrik in this regard. It would mean that the price run-up for Midwestern farm land in the United States may not be a bubble.
Let’s say smart software, robots, and artificial intelligence really do pay off. What other geopolitical predictions would this imply?