The Next 200 Years and Beyond What the World may look like in terms of Economic and Demographic Grow PowerPoint Presentation

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The Next 200 Years and Beyond Envisioning long term World scenarios in terms of economic and demographic growth Gaetan Lion, October 24, 2021 1

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Introduction This study consists of: 1) First, reviewing the historical data of the World population and economic growth over the past several centuries; 2) Second, envisioning what our future over the next several centuries may look like, while assessing scenarios feasibility; and 3) Looking at recent trends over the past several decades. 2

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History of the World in just two charts When focusing on long term historical economic growth and population growth, you need to remember one single date: the onset of the Industrial Revolution in the early 1800s. 3 Industrial Revolution Industrial Revolution

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Measuring the resulting CAGRs in RGDP p.c. and population growth Extracting the relevant data from the charts, we can derive the respective compounded annual growth rate (CAGR) for the World Real GDP per capita and the World population. Notice how the CAGRs appear pretty reasonable on a stand-alone basis. But, sustained over a long period of time they result in extraordinary growth. Over the mentioned respective periods, the World Real GDP per capita rose by over 10 fold. And, the World population rose by close to 8 fold. 4

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Economic and Population Growth Scenarios over the next 200 years 5 The historical CAGRs for economic and population growth highlighted in yellow since the Industrial Revolution, if sustained over the next 200 years would result in absurd scenarios, including: RGDP p.c. increasing over 26 times over current levels; The World population reaching 50 billion.

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Combining Real GDP p.c. and Population Growth to get World RGDP growth over next 200 years 6 Here we are simply calculating the growth in the World economy as a multiple of current level. The scenario highlighted in yellow represents the one reflecting historical growth pattern since near the time of the Industrial Revolution. RGDP p.c. multiple x Population multiple = World Real GDP multiple. 26.4 x 6.5 = 171.4 times current World Real GDP! The scenarios highlighted in green represent the few scenarios that may be feasible.

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Contemplating 200 year scenarios that may work 7 As specified, the majority of the scenarios would be feasible. Notice, the very low CAGRs considered: < 0.50% for World RGDP p.c. and between -0.15% to + 0.15% for population growth. These are far lower than reviewed historical CAGRs since Industrial Revolution. The green zone represents specified feasible scenarios, including the following constraints: World Real GDP per capita < 3 times current level; World population < 1.5 times current level; World Real GDP > 1.0 < 3.0 times current level.

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Next, looking at 600 years scenarios 8 Using the same low CAGRs considered over the next 200 years, but extending the horizon to 600 years into the future, only 2 scenarios out of 25 appear feasible. They are associated with Zero-population growth (CAGR 0.0%), and close to Zero-RGDP p.c. growth (CAGR ranging from 0.0% to 0.1%).

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Where are we? At the second inflection point of an S Curve 9 As reviewed, the World (economy, population) can’t possibly keep its rate of growth over the next centuries. The next 200 years growth will have to be flatter vs. what we have experienced since the Industrial Revolution. Industrial Revolution Industrial Revolution

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A closer look at the past 200 years 10 Within this section we will use the data from the Maddison Group Project (MGP) that discloses very good estimates of real GDP per capita and population since the Industrial Revolution. The MGP data, we focus on, is aggregated at a large region-basis. The regions include: Africa Asia - East Asia – Other Middle East Eastern Europe Western Europe Western Other (Australia, Canada, New Zealand, United States)* *We could not find a precise country classification by region even after researching the MGP website, and contacting staffers at the University of Groningen in the Netherlands who manage the MGP website. This was true for all regions mentioned above. For instance the segmentation of Asia – East vs. Asia - Other is unknown. The countries included in Western Other are just speculation on our part.

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Population Section 11

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12 Source: Maddison Project Database (MPD) 2020 Since 1820, the World population has increased very rapidly from about 1 billion to 7.7 billion. If we look at 10 year CAGRs, we observe that growth has pretty much accelerated until 1970. And, it has rapidly declined ever since. However, the current CAGR at 1.2% is still far higher than the contemplated feasible scenarios. Source: Maddison Project Database (MPD) 2020 A yearly population growth of 1.2% sustained over several centuries results in absurdly high multiple of the current population level

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13 Source: Maddison Project Database (MPD) 2020 * Western Other includes: Australia, Canada, New Zealand, US. Again, this is our best guess. The MPD has not provided any information on specific country classification by regions. Different regions have very different growth patterns. Africa’s population growth has continued accelerating throughout the reviewed period. This region population growth is still distant from the second inflection point on the S Curve. Meanwhile, Western non-European countries’ growth pattern has gone in the other direction: a steady deceleration. This region is clearly getting closer to the second inflection point on the S Curve.

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14 Source: Maddison Project Database (MPD) 2020 Europe is one of the regions leading into the second inflection point of the S Curve, whereby population growth is in general slowing down. If current trends continue, Europe could reach a steady state of 0% population growth in the near future.

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15 Source: Maddison Project Database (MPD) 2020 As reviewed, population growth rates have been declining for the past several decades in Europe, and since 1830 for other Western countries. They are now starting to construct the second inflection point of the S Curve Source: Maddison Project Database (MPD) 2020 Focusing on Regions with < 0.5 billion

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16 Source: Maddison Project Database (MPD) 2020 Both Latin America and the Middle East are still experiencing rapid population growth until the mid of the 20th century. In Latin America, population growth started declining rapidly since the 1970s; and, in the Middle East since the 1990s. We can expect those respective trends to continue. They are consistent with regions getting closer to the second inflection point on the S Curve. Source: Maddison Project Database (MPD) 2020 Focusing on Regions with population > 0.5 billion < 1.0 billion

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17 Source: Maddison Project Database (MPD) 2020 Source: Maddison Project Database (MPD) 2020 As mentioned, Africa is still growing rapidly. Meanwhile, the two Asian regions’ respective population growth rate has declined fairly rapidly since 1970., consistent with regions getting closer to the second inflection point on the S Curve. Focusing on Regions with population > 1.0 billion

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Real GDP per capita section 18

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19 Source: Maddison Project Database (MPD) 2020 Source: Maddison Project Database (MPD) 2020 World Real GDP per capita is still very much on an upward trajectory showing little sign yet of reaching the second inflection point on the S curve. The table to the right discloses how annual RGDP p.c. growth ranging from 1.5% to 3.% sustained over several centuries result in absurdly high multiple of current RGDP p.c. level. Given that, current World RGDP p.c. growth rate is not sustainable over the coming centuries.

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20 Source: Maddison Project Database (MPD) 2020 Focusing on Regions with < 0.5 billion: RGDP p.c. growth Source: Maddison Project Database (MPD) 2020 Western Europe economic growth (as specified) has slowed down since the 1960s. Other non-European Western countries growth has slowed down since the 1970s. These two regions’ respective economic growth is getting closer to the second inflection point on the S Curve. Eastern Europe economic growth is still in a volatile catch-up mode and appears distant from reaching the second inflection point on the S Curve.

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21 Source: Maddison Project Database (MPD) 2020 Focusing on Regions with > 0.5 billion < 1.0 billion: RGDP p.c. growth Source: Maddison Project Database (MPD) 2020 Both Latin America and the Middle East are still experiencing rapid economic growth, as specified. Notice the very high volatility in both time series.

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22 Source: Maddison Project Database (MPD) 2020 Focusing on Regions with > 1.0 billion: RGDP p.c. growth Source: Maddison Project Database (MPD) 2020 The three regions in Africa and Asia are still very much on an upward trajectory in terms of economic growth, as specified.

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A closer look since the middle of the 20th century 23 Within this section, we have used data at the country level for the past several decades. The original data source is the World Bank. And, the data extracting platform is FRED.

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List of countries reviewed 24 We are focusing our analysis on the top 16 countries ranked by their respective economies’ size. These 16 countries account for over 73% of the World economy and over 57% of the World population. * Whenever we mention Korea, we mean South Korea.

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Fertility Rate section 25

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Fertility Rate is an important causal factor in future population growth 26 A fertility rate of 1.5, holding everything else constant, entails a drop of a population by: -[1 – (1.5/2.1)] = - 29% over the next generation. If we consider that a specific country has a generation length of 30 years, it translates into an annual decrease of the population of – 1.1% A country can avoid this powerful arithmetic of fertility rates by allowing for immigration. However, immigration at the World level is genuinely a zero-sum game.

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27 Focusing on Asian countries: Fertility Rate. Notice the spectacular drop in fertility rate for China, Indian, Indonesia, and Korea. Korea achieved this drop without any related policy. Meanwhile, China did it aggressively through its “one-child” policy. Sources: World Bank, FRED

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28 Focusing on Asian countries: Fertility Rate. Continued Between the mid 70s to 1990 several countries’ fertility rate dropped below the replacement rate of 2.1 (horizontal black line). These include (current fertility rate in parenthesis): China (1.7), Japan (1.36), Korea (0.92), and Russia (1.50). Please refer to the table on slide 26 to grasp the implication in terms of future population contractions associated with such low fertility rates. Meanwhile, the two other Asian countries, India and Indonesia, have experienced a rapid drop in fertility rate. Their currently fertility rate is now right at the replacement rate level. We can expect these declining fertility rates to continue and drop below the replacement rates over the next several decades. Sources: World Bank, FRED

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29 Focusing on European countries: Fertility Rate. Sources: World Bank, FRED Between 1960 and 1980, all 5 major European countries have fallen much below the replacement rate (2.1). France (1.87) Germany (1.54) Italy (1.27) Spain (1.24) UK (1.65) Most of these countries are still sustaining population levels through fairly robust immigration. However, the latter is becoming an increasingly contentious issue in domestic politics.

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30 Focusing on European countries: Fertility Rate. Continued. This graph facilitates the demarcation at which date a specific country’s fertility rate dropped below 2.1. As mentioned, several countries (Spain, and Italy) have fertility rates below 1.5. The latter entails a rapid drop in population (please refer to table on slide 26). Sources: World Bank, FRED

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31 Focusing on Other Countries: Fertility Rate Sources: World Bank, FRED Notice the spectacular decrease in fertility rates in Brazil (current level 1.72) and Mexico (currently at replacement level) . The fertility rate curves for Australia (current level 1.66), Canada (1.47), and the US (1.71) very much track each other. And, they look somewhat similar to the European countries (at a slightly higher level). All trends are consistent with countries getting closer to the second inflection point on the S curve.

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32 Focusing on Other Countries: Fertility Rate. Continued Just another look at the same data as the previous slide. Again, the rapid drop in fertility in both Brazil and Mexico is spectacular. Sources: World Bank, FRED

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Population Section 33 The table illustrates that even slow yearly population growth rates are not sustainable over longer periods. As shown, a 1% annual growth rate in World population over 500 years would result in a population that is 145 times larger than current levels. Even reducing the annual growth rate to only 0.25% still results in a population that is 3.5 times larger than current level.

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34 Sources: World Bank, FRED All reviewed Asian countries have experienced a rapid decline in population growth since 1970. Notice how China’s assertive “1-child” policy is not that distinguishable in the data. Granted, on a stand-alone basis it was most successful. But, it’s results our pretty much identical to Korea who achieved the same decline in population growth without such a ”1-child’ policy. Japan’s population has started to shrink for the past several years. Russia’s population growth rate has averaged close to Zero or less since 2000.

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35 Sources: World Bank, FRED European countries’ populations current growth rates are typically under 0.5%. The exception is the UK that has experienced a mild rebound since the mid 1980s. Yet, it remains much under 1%. European countries have experienced much immigration from Turkey, the Middle East, and North Africa. The latter has compensated for this same European countries fertility rates that are much below replacement rates.

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36 The other countries reviewed above also experienced a fairly rapid drop in population growth rate since 1970. One exception is Australia, as its population growth rate has actually increased since 2000. This is due to immigration into Australia that more than compensated for its fertility rate that has been below replacement rate since around 2008. Sources: World Bank, FRED

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Constant GDP per capita section 37 The table illustrates that even slow Constant GDP per capita growth rates are not sustainable over longer periods. As shown, a 1% annual growth rate in such a measure over 500 years would result in a Constant GDP p.c. that is 145 times larger than current levels. Even reducing this annual growth rate to only 0.25% still results in a Constant GDP p.c. that is 3.5 times larger than current level.

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38 Sources: World Bank, FRED Flat line reflects missing data for Russia One of the main themes, is China’s rapid decline in Constant GDP per capita growth during the years 2000s from 10% down to 6% This downward trend is most likely to continue as even a 6% growth rate remains extraordinarily high; and, is clearly not sustainable over the long term. Flat line reflects missing data for Russia

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39 Sources: World Bank, FRED Flat line reflects missing data for Germany All European countries shown above have experienced a rapid decline in Constant GDP p.c. growth rate. At the present, they are now mainly around the 1% p.a. growth level. While Italy’s respective growth rate is currently already negative. The above is typical of countries that are heading into the second inflection point on the S Curve.

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40 Flat line reflects missing data for Canada Sources: World Bank, FRED Similar trend as for the European countries mentioned on the previous slide. However, overall recent growth rates are typically a little bit higher and converge around 1.5% p.a. (vs. 1.0% for the European countries). Notice how Brazil’s respective growth on this count has turned negative, similar to Italy among the European countries. Flat line reflects missing data for Canada

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Real GDP section 41 The table illustrates that even slow Real GDP growth rates are not sustainable over longer periods. As shown, a 1% annual growth rate in such a measure over 500 years would result in a Real GDP that is 145 times larger than current levels. Even reducing this annual growth rate to only 0.25% still results in a Real GDP that is 3.5 times larger than current level.

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42 Sources: World Bank, FRED Flat line reflects missing data for Russia Flat line reflects missing data for Russia Notice the abrupt drop in economic growth in: China since 2010; Russia since 2008; Japan since 1970; Korea since 1990. This decline in economic growth is likely to continue and is consistent with countries’ economies entering the second inflection point of the S curve.

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43 Sources: World Bank, FRED All shown European countries have shown a secular decline in economic growth. They are now typically growing around 1.25% per year, except for Italy that is very close to remaining flat around 0%. The above is consistent with countries economies entering the second inflection point of the S curve.

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44 Notice the abrupt drop in economic growth in: Brazil since 1980; Mexico since 1982; Australia since 1972; Korea since 1990. This decline in economic growth is likely to continue and is consistent with countries’ economies entering the second inflection point of the S curve. Sources: World Bank, FREDS

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Conclusion section 45

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46 Western Europe, Japan, Russia, Australia, Brazil, Canada, Mexico, and US are a bit more advanced on the second inflection point on the S Curve than Korea and China, and even more so than India and Indonesia. The latter have much room to grow at a relatively rapid pace for several decades.

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47 All the countries on the flat portion of the second inflection point on the S Curve already have fertility rates much below replacement rate.

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Fertility Rates… Maybe there are on an inverted S Curve 48 Fertility rates have dropped rapidly. And, they are reaching an asymptotic minimum at the bottom of the S Curve instead of at the top. The only limitation of this inverted S Curve is that it does not give you a representation of World history with the first upward inflection point of a regular S Curve coinciding with the Industrial Revolution.

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49 The positioning of the countries on the regular S Curves on different dimensions is relatively similar. The saying “Demography is Destiny” has some truth to it. With declining fertility rates comes slower population and economic growth.

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Considerations 50 The main insight from this study is very simple. The World population and economy can not grow forever. Even very small annual growth rates in either population or economy result in absurdly high multiples of current levels when sustained over several centuries (see table to the right). To remain a viable World, it will have to reach an equilibrium whereby it will stop growing within the next few centuries. This is so we can still remain somewhat “free range” humans and not run out of resources including potable water, arable land, energy, minerals, and livable space. A capitalist economy may well survive this transition towards a zero-growth equilibrium. Business ownership, retention of earnings may remain strong behavioral incentives that are competitive vs. allocation of resources through any type of central planning. A business can remain perfectly viable through a steady-state, zero-growth equilibrium. Many small to mid-size businesses probably already operate in that mode throughout much of the World. But, how about the stock market? Without growth, the stock market could remain at a static value of let’s say 1 times GDP. And, since GDP is not growing, the stock market would also not grow. Would such a stock market be viable? At the company-stock level, the stock market would have become a zero-sum game. If a company is growing, other companies would contract because the overall economic pie is not growing (again, refer to table above).

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Considerations, continued 51 Would a zero-sum game stock market be viable? It is a challenging question. But, nowadays we have many thriving large markets that are zero-sum games. These include: All the derivatives, options, and futures markets, measured in tens of $trillion that are far larger than the stock markets; Sports betting; Gambling at casinos; and Prediction markets. Could the stock market survive and join that list of thriving zero-sum games? In essence, the stock market may become a bet on a company to win a race measured in market shares. And, that may not be that different than betting on a horse or a football team. Already, this framework may be quite representative of some of the behavioral elements among investors (fast trading retail investors in particular).

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52 We know the next 200 years will be very different from the last 200 years As reviewed throughout this study, the growth rates over the past 200 years are not sustainable going forward. By, 2220 or so, the World population will not increase by 8 x to over 60 billion. And, Real GDP per capita will not increase by close to 15 x.

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What the past and next few centuries may look like 53 The above could reflect growth in overall World GDP or population. The Industrial Revolution is at the first inflection point of the S Curve. The Present is at the second point. Over the next centuries, World GDP and population levels may decline a bit towards a sustainable Equilibrium (following the smaller inverted S Curve). Over the following centuries, World GDP and population levels may oscillate up and down around the Equilibrium. Notice that throughout this entire path, the World could very well maintain current Real GDP per capita level.

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Special Appendix Section: Least Developed Countries 54 Following the World Bank’s country classification, the least developed countries include the ones in the table to the right. They are primarily in Africa and the Middle East. Notice that Korea, Democratic People’s Republic means North Korea. Earlier in our study, Korea always meant South Korea.

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Fertility Rate 55 Dramatic drop in fertility rate from close to 7 in the 1970s to 4.0 currently. This is still a very high fertility rate that, holding everything else constant, would suggest a doubling of the population every generation. We may expect this declining trend to continue. And, over the next century it is not unlikely that it may drop closer to replacement rate.

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Fertility Rate comparison 56 Many of the 16 countries we reviewed had very high fertility rates in line with the least developed countries including: China, India, Indonesia, Korea, Brazil, Mexico. Invariably, fertility rates plummeted from the 1970s to the present when they are near or below replacement rate. Given that, we expect the fertility rate of least developed countries continue dropping going forward.

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Population & Population Growth 57 These countries have experienced an extraordinary growth in population from about 250 million in 1960 to 1.1 billion in 2020. This growth is clearly not sustainable, especially given the limited natural resource (arable land, water, etc.) and infrastructure constraints. On a positive note, the yearly population growth has steadily declined from close to 2.8% in the early 1990s to close to 2.3% in 2020. Yet, the current population growth rate is still very fast as it entails a population that would double every 31 years (using rule of 72). This estimate is directionally convergent with the still high fertility rate mentioned on the previous slide.

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Population Growth comparison 58 Many of the 16 countries we reviewed had very high population growth rates in line with the least developed countries including: China, India, Indonesia, Korea, Brazil, Mexico. Invariably, growth rates plummeted from the 1970s to the present. Given that, we expect the population growth rates of least developed countries continue dropping going forward.

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Constant GDP per capita (in 2010 $ level & Growth 59 Notice the very rapid growth in constant GDP p.c. from $495 in 1994 to $826 in 2010. Current level in 2020 is about $1,000. Within the 16 countries we reviewed earlier, several ones crossed that level of constant GDP p.c. a few years back, including: China (in 1993) India (2005) Indonesia (1977) Korea (1963) Yearly constant GDP p.c. growth is very volatile and often pretty high. This region is clearly in a catch-up mode with much room for continued rapid economic growth. However, since 2010 economic growth has slowed down.

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Infant Mortality Rate 60 Great progress on this count. Infant mortality rate has dropped from 109 per 1,000 in 1990 to 45 in 2020. This should contribute to a continuing decline in fertility rates and population growth.

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Literacy Rate 61 Great progress on this count too with literacy rate rising from 40% in 1980 to 65% in 2020.

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… very positive trends in female education throughout the least developed countries … 62 The female/male ratio in education enrollment at all levels is now approaching parity (1.0). See the next three slides with rapidly upward trends over the past few decades in all three levels of education.

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Primary Education enrollment ratio Female/Male 63

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Secondary Education enrollment ratio Female/Male 64

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Tertiary Education enrollment ratio Female/Male 65

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Net Migration 66 The above shows how the least developed countries allow some of the developed ones to still maintain or grow their population; despite the latter experiencing birth rates much below replacement rate.

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Least Developed Countries (LDCs) development path 67 Based on the reviewed trends, we can expect LDCs population growth rate to continue slowing down due to declining fertility rate. In turn the latter is due to declining infant mortality and rising female education. We can expect LDCs’ economic growth to continue or even accelerate for several decades due to rising literacy and rising female education. Reaching the second inflection point on the S Curve seems still distant (maybe a century out).

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Thank You 68