Rahim's Letter 017: Demographics, Development and Immigration

Hello from the 0903 LNER Azuma service to Bradford Forster Square!

For those of you I don’t work with, we had our annual investment conference yesterday - it was a brilliant day and I really enjoyed it. It’s very satisfying seeing the best of the business on display. 

I won’t bore you with the finance stuff, but I did want to share some reflections on the world I had afterwards, including the keynote talk, which was on global development by Professor Ian Goldin. 

So let’s start with demographics - the Western world is aging. Our populations are getting older, and we’re having fewer children - less than replacement rate across most of Europe and North America which means we’re going to move to a world with an older population. 

This means more retired people being supported by fewer and fewer young, working people, which puts more strain on our systems because less tax is going towards welfare systems, less people are there to work and physically keep these things going at the very time that we need them more than ever because our population is older and more vulnerable than ever. 

Now we’ve seen this in other parts of the world - Japan and South Korea are much further along these journeys and are doing lots to (unsuccessfully) revitalise their younger populations, but there are definitely lessons we can learn, especially around the use of technology.

Now Professor Goldin wasn’t hugely bullish on AI - what it needs to deliver to justify current market valuations is pretty bonkers, something like $2 trillion dollars of revenue by 2030, at a time when the US defence budget (the largest discretionary spend of the world’s largest economy) is only $1 trillion.  

But that’s not to say it’s not having a real impact in some parts of the economy such as science and research, where it’s helping make major strides in finding answers to some of the world’s biggest questions, such as cures for cancer (it’s difficult to find one ultimate cure for cancer, because by its nature it evolves). 

This links back to the demographics point because when we stop having enough young people to do all the jobs we need, we’ll try to find as many jobs that can be done by robots and technology as we can, not necessarily to save money, but because it’ll be the only way to make these things happen. This is why South Korea and Japan excel at automated machinery and manufacturing - they had to do it to survive.

Another solution to this problem is immigration - bringing more young people into the country is a time-tested way to do this, and a core part of the strongest economies in history. Politically, the country hasn’t been taken to that place yet, and whilst I can see a world where that changes as we slowly realise how much we actually need immigration, it’s going to be a very volatile journey I’m sure. 

If you’ll forgive a couple of political paragraphs, I don’t think we’ll be having it this decade at the very least, although it does increasingly look like the 2029 election is going to be dominated by politics around driving down immigration, as Nigel Garage Farage continues to set the political agenda for Britain. (A very opinionated aside, but why is it always “breaking” news when it comes out that he did something racist? I don’t disagree that it should be reported, but I’d argue that “Nigel Garage Farage is a racist” stopped being breaking news about the time he was in Year 11.)

A possible exception to this is if a charismatic, third-way, Macron esque candidate comes through between now and 2029, who can take a compelling and differentiated political vision to the country. It sounds mad, especially in our first-past-the-post system (which I generally support over proportional systems), but 2029 is a very long time away, so never say never. Don’t forget that we went from the 2015 election to the 2016 Brexit referendum in 13 months.

Anyway, the reason I bring in the politics of this is because the longer we push out this conversation on immigration, the harder it gets. As we get into the 30s and the 40s, the real effects of climate change will be hitting the world, with places we now know and love being under underwater. If sea levels rise just 3m, St. James’s Park will be a mythical story you tell your kids about. It will be increasingly difficult to grow crops, and so food and water security will be taking up more and more of the public discourse. 

And telling the nation that you need more immigrants to prop up the country when there’s a food shortage… well I’ll let you picture how the front page of the Sun might communicate that (it took a lot of self-restraint not to use the popular Scouse nickname for that newspaper).

I don’t have a call to action for you or a bullet pointed three key takeaways, but these are important conversations to have. Think about immigration and technology, not as threats to our way of life, but as catalysts for enhancing it. 

Things are always going to be different - we may as well try to make them better. 

And with that, I’m off to see my family for my brother’s birthday! I sat on the train for few minutes after it got here to finish this and now I’m locked in… 

Have a great weekend - I have a train back tomorrow evening, and so you may get something then as well, if I ever get out (maybe on these mysterious incidents we keep seeing around airlines - I’m not convinced they’re all accidents).

Cheerio!

RH