Blogposts » The Bigger Picture

The Bigger Picture
How globalization, digitalization and demographic change challenge the world

The megatrend report “The Bigger Picture” of Bertelsmann Stiftung examines the central interactions between the megatrends of globalization, digitalization and demographic change and their effects on people’s employment and income opportunities. This has direct consequences for individual participation in social life and social cohesion – and thus for the need for political action.

Fundamental interactions between megatrends

The starting point for the analysis is the demographic structure of a country. It shapes the country’s integration into the international division of labor. Western industrialized countries such as Germany, which have relatively few workers by international comparison, specialize in products that require little labor but a lot of capital and technology to manufacture. The relative shortage of labor is also an incentive to develop labor-saving technologies and to promote digitalization. This reduces the costs of international trade and outsourcing of individual production steps, which in turn increases or accelerates economic globalization. The associated higher competitive pressure then increases the need for technological progress and acceleration of digitalization in order to withstand international competition (see figure 1).

3

Megatrends and prosperity

In principle, it can be stated that globalization and technological progress have increased material prosperity measured by GDP in all participating economies so far. This is positive for the participation opportunities of citizens since greater material prosperity is the basis for greater immaterial prosperity and improved opportunities for social participation (better educational opportunities, higher time prosperity for political and social commitment, etc.).

Within an economy, however, the international division of labor and technological progress also lead to decline in employment and income opportunities for certain groups of people. This also means that their opportunities for social participation are diminishing.

Five possible future developments

With a view to the future developments of demographic change, globalization and technological change or digitalization, five development trends are of particular importance:

  1. The worldwide demographic development on its own leads to a redistribution of global prosperity. At least a trend towards wages approaching a global average can be expected. The same applies to GDP per capita. While the emerging markets – especially in Asia – can expect increases in individual prosperity measured in this way, real income declines are likely in the developed industrialized countries because of this. Africa threatens to be left behind even farther economically if it does not succeed in creating sufficient jobs for its rapidly growing population.
  2. Within the group of industrialized countries, the international competitive pressure will increase considerably in those countries with the most strongly ageing populations (Japan and Germany). These countries face an even greater loss of international competitiveness than the other industrialized countries – including the associated unemployment and income losses.
  3. Technological progress – and above all the advancing digitalization – generally has the potential to improve people’s supply situation with goods and services. Possible tendencies towards monopolization in parts of the digital economy can, however, prevent these potentials from being utilized if monopolists exploit their market power to the detriment of consumers and employees.
  4. The labor market effects of progressing digitalization are inconsistent because digital technological progress has both job-destroying and job-creating effects. In the short term (i.e. over the next 10 to 15 years), however, significant net job losses are unlikely. In the long term (i.e. from 2040/50 onwards), the job-destroying effects may outweigh the job losses.
  5. In any case, it can be assumed that human resources will be increasingly replaced by capital and technology in production processes – especially in industrialized countries, but also in the rest of the world. For the international division of labor, this may lead to a trend towards “insourcing”, which can be promoted, above all, by 3D printing technology. Beyond this, the distribution of income will shift in favor of the production factor of capital. In the industrialized countries, this also means that the share of income earned by gainful employment in overall social income will continue to decline – especially for low-skilled workers. If human resources are needed to a lesser extent in production processes, many developing countries will lose one of their key competitive advantages, i.e. low wages.

The expected structural change in the economy means considerable changes for people, which is usually associated with a high degree of uncertainty. Particularly in times of major structural change, reliable social security systems are therefore required to give people the security they need to actively shape structural change instead of simply letting it happen to them or even wanting to prevent it. This is becoming increasingly difficult for ageing industrial nations, which are losing their international competitiveness in the long term and also have to spend a large part of their public revenues on pensions, nursing care and health care. Without this “social safety belt”, however, there is a risk of increasing social tensions, which could lead to increased political polarization (see figure 2).

4

Reading recommendations: The complete report is available in German only. An English summary can be found in this MegatrendBrief.