Seismic shifts that will redraw the world order

We are at a very interesting point in the world today. The world is in transition and we could even say that this could be an inflection point where the current world order is coming into question and there is a good chance of a new world order emerging. The western powers will not like it. But this power shift most likely will happen across a host of countries in an increasingly multipolar world. Entire regions & countries will be touched and affected by this shift.

Covid as a disruptor –  The Chinese Wuhan Virus and the lost two years have fundamentally altered the world. China thought that it could control the virus faster and profiteer by vending medical supplies and establish even more hegemony in the world trade by tightening its grip on global product supplies.It did not pan out that way, though. 

While China benefited initially, lower demand and supply chain bottlenecks in other parts of the world, did not allow it to fully exploit the situation. Also, its vaccines were ineffective and China was unable to sell much. Then China experienced what it exported – a massive Covid outbreak. Due to ineffective vaccines and lack of herd immunity, total lockdowns were imposed. Its economy was impacted majorly due to this, especially in 2022.

The US was massively affected by the Wuhan virus. The death toll there was massive ( over 1 million on last count ) as their hospital infrastructure could not cope with the influx. The US just had 50,000 ICU beds at the start of the pandemic. At the height of the pandemic they had to prioritise as to whom they can give treatment and who will have to be excluded! It was that bad. Supply chain shocks were felt there. The US pumped in massive amounts to cushion the effects of Covid – some USD 2.5 Trillion. The effect of that and other supply shocks led to massive inflation from which the US and other countries are reeling under.

Most other countries, India included, had Covid outbreaks and a roller coaster ride in 2020 and 2021. Health and finance of people were affected majorly. There was a rethink and redraw of priorities with people. Atleast some started to think about what is important for them in life. Due to this, they wanted to slow down on work and refocus more on relationships, leisure, personal growth, fulfillment etc.  This is a major shift.

High contact businesses like hotels, entertainment, travel, tourism etc. were forced to remain shut during Covid. People worked from home and have now become one of the accepted ways to work ( atleast for some types of work ). This major shift is largely positive for businesses. They can save on office costs as some portion of the workforce would work from home and they can hire from anywhere, globally. This increases their talent pool and can bring down human resource costs. This is another major change after Covid.

The Ukraine war – While it looked like we would return to normalcy in 2022, the Ukraine war began due to relentless expansion of NATO, close to Russian borders . This led to sanctions from the Western powers on Russia. There was disruption in supply of fuel, wheat and other agri products, fertilisers etc. Global logistics costs shot up. All these led to soaring inflationary trends across the world. 

Neon gas ( Ukraine is a major exporter ) which is an important ingredient in chip manufacturing was curtailed, exacerbating the already bad semiconductor shortages. Russia has now stopped supplying gas to Europe. This may have very serious consequences for Europe, during the winter. They will be forced to buy gas at several times the Russian gas prices. Gas is not just about heating homes alone. 

In Europe, many industries depend on Russian gas to power their factories. Lack of Russian gas will affect industries like chemicals, steel, aluminium, glass, paper, auto etc. and they will be forced to buy costlier options from other sources, upsetting cost structures.  Incidentally Europe also imports lots of Agri products from Ukraine/ Russia, which also has been disrupted. All these can plunge Europe into a recession and that can have a domino effect on the world.

The disruption of Russian fuel has sent the prices of Crude and other fuel very high and has sent inflation soaring, across the globe.

Geopolitical tensions – During 2020, India experienced aggression from China on the border and we are in a stand-off situation since. While currently there are no major skirmishes, there are over 50,000 troops on either side of the border. Infrastructure is being created in these places for longer term standoff. Roads, tunnels, railway tracks, airfields are all being constructed to enable faster logistics support in border areas. 

China has border/ territory  disputes with over 20 countries. While that problem is simmering, the Taiwan problem has now bubbled up and has the potential to escalate into a war. A war with Taiwan will hugely impact availability of semiconductors across the world and send prices of various gadgets using microchips soaring.

There are tensions in the vicinity of Israel that can be disruptive. Armenia and Azerbaijan tensions resulted in a war in 2020, where Azerbaijan has taken back some of the disputed territory from Armenia. These are breakaway countries from erstwhile USSR and border disputes are from that period. This is a place with simmering tensions and is a potential flashpoint.

In a connected world, the problem in one part of the world is hardly an isolated incident. It affects other parts too due to the linkages countries and regions have with one another, especially commerce. Due to this reason, such a war will pull other powers into the conflict. That can escalate the conflict and can result in further logistics disruption due to no go zones and blockade at sea. Economies across the globe will be impacted due to this.

The changing demography – There is a new problem that many countries are grappling with – aging population. Birth rates in most countries have dropped dramatically below replacement levels. This is a result of urbanisation, birth control measures, better education for women, fertility drop, cost of raising children, increasing marriage age, women’s participation in the workforce etc. However, there are many countries above the population replacement rate of 2.1. India is at 2.2. China & USA are at 1.3 & 1.7 respectively – both below replacement levels. 

China’s population is expected to halve in about 45 years as the current fertility rate might be as low as 1.15. This is more negative than positive. Massive workforce shrinkage means that there will not be enough hands to man the factories that manufacture for the world. One may say that automation would take care of that. That is probably true to a great extent. But, if there are less people, internal consumption would also shrink. If population shrinkage is also prevalent in many parts of the world, growth by exports will also be difficult. More than any other country, China may get affected the most.

The USA also has a declining fertility rate, but is to some extent offset by immigration. On an average, about a million immigrants come legally into the US every year ( a lot more come illegally; about 11 million illegal immigrants are said to be there in the US, who take up the grunt work ). A lot of legal immigrants are well educated, bring in top end skills, start businesses & create employment. Unicorns created by Immigrants is about 55%, while their representation in the population is just 14%! Hence, the immigrants bring huge value to the US and keep the economy moving. However, population aging is still a problem in the US as well. 

China does not have this advantage of a vibrant immigrant population. In fact, they have the problem of their citizens moving out of China.

Europe faces the aging population crisis too. In Germany, it is acute. That is one of the reasons why they were fine to accept migrants from Syria and other places. 

An aging population means that they would not be actively contributing economically and will infact be drawing down on their wealth. The dwindling working age population will need to pick up the slack which will become increasingly difficult. Also, elderly care will be needed which is people intensive. If the population shrinks, there is a problem there – who will offer geriatric care for the elderly? However, this is an area where massive employment would be created and younger people from countries with favourable demographics would migrate for work to others where elderly population predominates.

India has a replacement level fertility rate for the moment. But this is coming down. Also, India faces a brain drain problem. However, there would still be a massive productive workforce in India that can be leveraged for its growth. But people need to get better educated & skilled to be able to participate and become productive constituents in our economy. That needs to be worked on. Else this could be a demographic nightmare instead of a demographic dividend.

Till now I have touched upon some broad aspects that are driving the change. This is the first part. In part two and three, I will attempt to paint the effect of some of the broad trends on the changing world order and what it could hold for some countries, regions and the world. 

This is a broad sweep ( probably very broad )  and can easily go wrong as there are too many unknowns. I am the first one to accept it. However, please pay attention to the facts I have bring out and arguments that are used to draw some conclusions.  If nothing else, you will find a good summary of many things that have happened in the globe and its probable effects. 

Hope you enjoyed reading this!