Which Countries Will Be Tomorrow's Winners & Losers?

The dictum “demographics is destiny” proposes that all the complexities of finance, society and politics are ultimately guided by demographics: the relative size of each generation, birth rates, death rates, etc.

For example, an oversized generation of retirees and an undersized generation of workers to support them has far-reaching consequences that can’t be legislated away.

The influence of demographics isn’t limited to pension costs. Some analysts have made the case that oversized generations of young men align all too well with the launching of wars.

The point is that birth/death rates—low and high--have consequences that impact national destinies for decades.

Another school holds that geography is destiny: if a nation’s geography is favorable, the barriers to prosperity and stability are low, while the barrier is high for nations with unfavorable geography.

Peter Zeihan, author of the 2014 book, The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder, lists the core geographic attributes that are either favorable or unfavorable in ways that influence a nation’s long-term prosperity and built-in geopolitical challenges.

What does geography have to do with prosperity, stability and geopolitical risks?

Navigable rivers that reach deep into productive interior regions lower costs of transport dramatically, while natural harbors enable low-cost access to international markets via ships.

Natural barriers to invasion such as oceans, deserts and mountain ranges dictate whether a nation must spend heavily on military defense of the homeland or whether the cost of defense is lightened by favorable geography.

Zeihan extends geography into the political realm, noting that nations with difficult-to-defend borders require a strong central government to organize taxation and defense, while nations with few contiguous threats (for example,  the U.S.) can be governed in a more decentralized fashion.

Nations with no navigable rivers or deep-water ports are cut off from the wealth-creating potentials of low-cost sea trade, while nations with excellent natural ports and a seafaring tradition have an enormous advantage: consider Portugal, which established trading centers in India and Asia in the 1500s once its explorers rounded Africa, and England, which rolled up Portugal’s chain of wealth-creating trading network into its Empire in the 1700s.

Zeihan notes that while Africa has 16,000 miles of coastline, it only has a dozen continental bays worthy of port construction.  Other places are blessed with a wealth of natural bay: Texas alone has 13 world-class deep-water ports (the map shows 17 ports total.)


Nations surrounded by flat steppes and numerous potential enemies have a much more difficult challenge defending their territory than nations ringed by oceans, deserts or mountains.

One of Zeihan’s examples of the benefits arising from natural defenses and navigable rivers is ancient Egypt. Surrounded by deserts on the east and west and forbidding terrain to the south, Egypt did not have to invest heavily in defense and was thus free to devote its surplus labor and wealth to monumental building projects.

Moving all the needed materials, workers, food, etc. hundreds of kilometers was made possible by the Nile.  The geography was favorable to stable civilization: it was easy to travel within Egypt but difficult for invaders to reach it.

Nations without navigable rivers or ports must invest heavily in artificial man-made infrastructure such as roads. Add in the high costs of permanent defenses and it’s clear why nations with favorable geographies tend to dominate nations with unfavorable geographies: those with favorable geographies have built-in low-cost transportation and defense, which means they can invest their surplus capital in more productive assets such as technology and industrialization--tools that leverage those investments up to regional dominance or empire. Those with unfavorable geography are forced to spend whatever capital they have on transport, defense and essentials such as food.

If we consider resources such as coal, oil, metal ores, timber, rich agricultural soils, etc. as part of geography, those natural sources of wealth and energy dictate whether nations must buy essential commodities from others or whether they can produce surpluses that can be sold to others.

Geography, Costs and Capital Flows

All this boils down to capital: which geographies lend themselves to capital surpluses that can be invested in high-growth industry and technology, and which geographies make transport, defense and the purchase of essential commodities permanent burdens that soak up much of whatever capital is generated.

If we think about it, it turns out capital is also one of the primary dynamics of demographics: nations with a massive generation of retirees supported by a dwindling generation of workers are drained of capital by the high costs of pensions and healthcare for the elderly.

Countries with a large and highly productive young cohort of workers supporting a small generation of retirees can save and invest the surplus capital being generated.  If this capital is invested in productive assets such as technology and innovation, the nation’s wealth expands.

Demographics and geography are destiny largely because they define cost structures and capital flows: if costs are high—from the burdens of transport, and defense and imported essentials, or from caring for a large cohort of retirees, or both—there will be less capital available to invest.

In this circumstance, the nation lacks internally generated capital to grow, and its sluggish economy is unlikely to attract foreign capital seeking a high return on investment.

There’s a positive feedback loop between high growth that attracts foreign capital and trade and favorable demographics and geography: favorable demographics and geography enable high capital accumulation and investment, which then supercharges technological advancement and capital-producing industry and innovation, all of which makes that favored nation attractive to foreign capital, which enables more investment in productive assets, and so on.

Meanwhile, nations with high costs and low capital accumulation due to unfavorable demographics and geography will suffer low rates of growth which make them unattractive to foreign capital, leaving them capital-starved.

The Impact of Culture on Demographics

Before modern medical advances, birth and death rates were largely dictated by surpluses or shortages of food, epidemics and war. In today’s world, cultural and political systems influence birth and death rates.  Japan’s low birth rates do not result from a shortage of food, and the decline of longevity and birth rates in Russia following the collapse of the Soviet Union were not the result of famine but of political instability.  

Studies have found that high birth rates decline as the educational and work opportunities for women of child-bearing ages increase.

Broadly speaking, demographics is no longer driven by feast or famine, but by cultural, economic and political dynamics such as educational opportunities for women, political instability and the cost of raising children.

Geography has a hand in these dynamics. Societies with unfavorable geographies may struggle to maintain surplus capital and political stability. The culture that arises in such challenging circumstances may be conservative, hierarchical and fear-based as a response to the proximity of numerous enemies and shortages of essentials. Innovation may be viewed more as a threat than an opportunity. All these traits inhibit experimentation, flexibility, innovation and risk-taking—all the essential ingredients to rapid expansion of capital and prosperity.

Did Nature and Culture Already Pick Tomorrow’s Winners and Losers?

Where does this lead? If geography and demographics have already defined which nations will be attractive to capital and most likely to accumulate productive capital in their domestic economy, and those nations that will struggle due to high costs and low rates of capital investment, in effect Nature (geography) and Culture (demographics) have already picked tomorrow’s winners and losers.

As individuals, we may harbor strong biases about which nations we want to see falter and which ones we want to see prosper. But as investors, we must strip away our political opinions and biases lest they interfere with our primary job, which is to preserve whatever capital we’ve accumulated.

In Part 2: And The Winner Is..., we examine Zeihan’s conclusions about who wins and who loses in the next 25 years, and add our own analysis and conclusions.

Owning any asset in nations poorly positioned  -- disadvantaged geography, challenged demographics, bleeding capital etc -- is an inherently risky bet going forward.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

~ Charles Hugh Smith

This is a companion discussion topic for the original entry at https://peakprosperity.com/which-countries-will-be-tomorrows-winners-losers/

" … nations with a massive generation of retirees supported by a dwindling generation of workers are drained of capital by the high costs of pensions and healthcare for the elderly."
Dude! Money is lent into existence rather than 'saved' into existence. Neither work nor workers create funds or 'wealth'; these are the product of finance. Even as money flows to retirees it remains in the economy, in fact, retirees spend their pensions rather than save them (the pensions themselves are savings). 'Capital' isn't 'drained' by retirees, custody of funds shifts from one group to another. Ultimately, funds spent by retirees & workers (or borrowed by governments in the workers' name) are applied to the servicing and retirement of loans taken on by tycoons. This process: the borrowing by tycoons of their fortunes - the repayment of tycoons' loans by 'workers' (whose wages are also borrowed) is called 'capitalism'.

It really should be called what it is: robbery.

Demographics don't matter except to note there are too many of us … by three orders of magnitude! Conventional economics does a lousy job of illuminating how one form of surplus (labor) is any less costly than any of the other surpluses. Steve From Virginia's 'First Law of Economics': the cost of managing any surplus increases along with it until at some point the cost exceeds what the surplus is worth. Cost of the massive oversupply of humans = destruction of Planet Earth's biosphere.

Aloha! What isn't "robbery"? You drive a Prius or have an XBox or own a house because you robbed the poor of the Third World to mine the metals and assemble your products in their factories leaving them your pollution and your misery. You are the consumer they are the producer. You're a "capitalist" just by your consumption! What isn't capitalism?
Capitalism is nothing but the "accumulation of capital" even cavemen were capitalists only they used a different money.  It seems that Americans accumulate capital faster and in more quantity than a Chinese factory worker or an African miner. Call it what you want. Put anything you want at the top! Call it Socialism. Maybe Communism? Democracy? Monarchy? This pyramid has stayed the same since 1911 only the names and labels have changed. The 1% have always ruled the 99%. Even Marx and Lennon accumulated as much capital as they could before they died!  You think Castro is a pauper? You think Castro doesn't worship capital? Why else would he want to rule Cuba? It's called "Human Action"! What is new?


Money is indeed borrowed into existence but that process creates interest payments into the indefinite future, paid by future workers/enterprises via taxes. Most of the current expenses of pensions and elderly healthcare (SSA and Medicare in the US) are paid by tax revenues,not borrowing. Taxes matter to those who have to pay them, especially if you're in the 50% range (paying self-employment up to $114K and 35% in combined state/Federal income taxes). Taxes are transfer payments, yes, and that money is spent by retirees, but that doesn't equate to capital being accumulated or invested in future productive capacity.
Demographics still matter IMO. Virtually every public pension/healthcare plan is pay-as-you-go, mostly funded by taxes. Borrowing trillions to avoid raising taxes generates its own set of problems.

If demographics didn't matter and borrowing money into existence was all that was needed to support an aging populace, Japan would be an economic paradise instead of a nation teetering on the edge of a debt/currency "event."

Dude! Money is lent into existence rather than 'saved' into existence. Neither work nor workers create funds or 'wealth'; these are the product of finance. Even as money flows to retirees it remains in the economy, in fact, retirees spend their pensions rather than save them (the pensions themselves are savings). 'Capital' isn't 'drained' by retirees, custody of funds shifts from one group to another
Money is a non-sequitur, and the method of its creation is immaterial in this case.  "The economy" the retirees live in is not national, it is international, and if a nation overall consumes more than it produces, capital flows out of that over-consuming nation to other places.  Not money - capital: fractional ownership of the means of production, ownership of debt, ownership of property, and so on.

If a society has managed to actually save capital in a pension fund (and by that I don't mean money; I mean shares of stock in companies, debt, etc), then each retiree "living on a pension" drains capital from that fund.  If there are more workers contributing to the fund than living on a pension, the net flows of capital into the fund are positive.  If the reverse is true, then net flows are negative - capital is draining out of the fund.

And when I say capital, I really mean capital.  Fractional ownership of companies is capital, no more, and no less, and that's what is inside most of these pension funds.

And as Charles points out, many "pension funds" contain no capital whatsoever (i.e. US Social Security).  These "funds" essentially require existing workers to transfer a portion of their production more or less straight across the board straight to the retirees.  No capital is involved - effectively the current group of workers directly support the retirees.  The more workers society has per retiree, the less each worker needs to contribute.  At some point if the demographics get bad enough, all the current workers will be doing is supporting retirees.  This makes it impossible to invest in anything else in the economy; investment will still happen, but it will only be because capital will flow out of the country to other places.  I.e. foreigners will buy shares and corporate debt and slowly the entire country will be sold off bit by bit in order to fund all this "retirement."

So yes, money is created by debt, but that is a non-sequitur for purposes of this discussion.  The issue is capital; if there are not enough workers per retiree, and either stored capital is being drained from an actual fund, or the current productive base is having to transfer more and more of its output on a percentage basis to the retirees, take your pick.  That money is created by debt is irrelevant in either picture.


I disagree with the aim of your point.  Not all savings are the product of financial shenanigans.

The money in my retirement accounts was largely 'saved' into existence.  I made a few good and bad investments over the years.  The net result is that I probably could have done just about the same in bonds as in stocks.

The money in my accounts that the Fed and US Government are trying so hard to make worthless, represents saved earnings, not financial games.

What you described is probably true of investment bankers and other Wall Street types, more than the majority of world savers.  I'm talking about the majority in headcount, not bank balances.

The points in the article are valid, but perhaps dated, to an extent, or at the very least incomplete.
Missing, in my opinion, are some physical capital, economic structure and social factors.

First, all else being equal, countries without rivers, that have invested heavily in rail systems, instead of roads, autos and semis, are in a better position to weather an energy supply downturn than countries addicted to personal and small scale transportation solutions.  

The US is still getting this wrong.  We have hundreds of diesel train engines sitting idle in the Arizona dessert while semis continue to wear out our highways.  

On a side note, very little irritates me more than pulling into a rest stop at night and seeing all the semis running their diesel engines, all night long, for the sole purpose of providing air condition in the cab.

Second, countries with a high percentage of jobs provided by large corporations, are likely to weather the near term transition poorly.  Large corporations are not in business to provide jobs.  They have proven that over and over.  

Third, countries with large factory farm corporations are less prepared to weather a downturn than countries where small family farms are still the norm.

Fourth, countries with larger portions of the population in gargantuan cities are going to have a problem.

Fifth, countries with significant obesity and sedentary lifestyle health issues have an issue.

Sixth, countries where the population spends a significant percentage of their time watching TV or playing games on their X-Box or iPhone are less likely to happily transition to personally producing their own staple items.

I could go on, but simply put, the paths we have taken will be deciding factors in what follows.


Today is 5/15/2016 with about $40,000/yr/pp income USA, not 200 years ago with $300/yr/pp income nor 200 years future with $300,000/yr/pp, given 1% productivity growth. Rough estimates shown since the crystal ball is cloudy!
The point is, economics are changing with automation, robotics, AI, computers, and many many yearly productivity improvements. Each automation reduces the cost needs of childcare, education, caretaking, food, energy, and so forth. 


Thanks for clarifying the need for capital and the difference between income transfers and capital, Dave. Les, excellent list.  Obesity and lifestyle illnesses will dramatically impact demographics and productivity, which Job001 noted is critical.  In general, productivity improves if capital, innovation, and social/financial flexibility are present. One of the worrisome trends recently is the decline of productivity in developed economies.  I attribute this at least partly to financialization substituting financial trickery as the way to generate profit rather than actually improving efficiency and the production and delivery of goods and services.

I never bought into the assertion that a larger aging retired population lowers the "productivity" of the broader workforce and by necessity burdens the rest of the "productive" workers with taxes. Rarely if ever in these discussions do I hear mention of the fact that countries with lots of old people also tend to have few young people. Has anyone ever done much analysis of how much financial burden children are in comparison? I don't know but I'd hazard a guess that over the first 20 years of a person's life they are probably more taxing of the "productive" (whatever that means) class than an old person is in the last 20 years of their life.
The difference is that in western cultures we throw our old people into faceless institutions and get the state to support them which means everyone has to support them via equally faceless taxes – easy to complain about those taxes – whereas for most things related to children, parents are generally on their own, with a little bit of state support. It isn't faceless with kids and generally having a baby is viewed as being a decision that adults should go into on their own accord and if they decide to have kids they should make the sacrifices themselves. So whether it's parents privately supporting kids, or taxes publicly supporting old people, the drain on the "productive" class (there's that word again I hate because it's never defined) providing food, clothing, housing, energy and manufactured stuff is the same. 

The other side of the coin is that an aging population wanting to retire perfectly matches the tremendous increases in per-hour worker productivity in the mature western economies over recent years due to technological automation, which would otherwise throw people out of work absent economic growth (many economists would argue that technology allows for the creation of "softer", more virtual goods and services that can increase GDP without increasing consumption of natural resources – the problem with this argument is that the people consuming these "virtual" goods and services still need to eat, and the proportion of total income going to life necessities today – that is, life necessities that come from resources harvested from the natural world – is probably even greater than it was before the recent explosion of high-tech gadgets. We just have more realistic video games today, which I'm sure dramatically improves the standard of living for everyone!) 

So what we are seeing with the economic malaise from old people in Japan is merely what the rest of the world will eventually face, even without an aging demographic, because there just aren't enough jobs available to "produce" the amounts of goods and services that consumers are willing / able to buy due to resource constraints, and the unwillingness of our economic leaders to adjust the work week accordingly. Inventing rationales about how we are all going to be able to live off computers and high tech doesn't change the fact that you can't eat a ten-fold increase in computing power over what we had 10 years ago.

Ultimately the problem boils down, as it always does, to an ultra wealthy elite class who owns almost all the "productive" capital, and an increasingly impoverished and divided middle class fighting over the remaining crumbs, blaming each other for stealing the other's wealth, whose only means of accumulating "capital" is through getting a good job which are becoming harder and harder to come by these days.

Steve, you seem to know way too much. :slight_smile:
The only thing left to add would be: 'Nature has determined the wealth and prosperity, so those who own it are the intermediates between the Nature and those who are lacking its blessing'
Doesn't it ring a bell?
The more I read such funny articles, the stronger feeling is that 'it's the same old same-old'.

Mark, Don't fall for the "Big Lie" :Taxpayer dollars do not fund federal expenditure. Just ask ben Bernanke -as happened on 60 minutes. He said the Fed just marks up reserve accounts in the Fed by typing numbers into them. Etc.
So pensions are NOT paid for by taxation. They are paid out with created money and can be done into the indefinite future, at any time and at any amount. It's a net credit operation. We are not now saddled with pension debt and never will be.

So you need to recast your argument and limit the problem to non government debts etc. The new money paid to retirees is a boon to the economy, so dependent on spending it is. The aging demographic is a big issue as the aged are not massive spenders, having downsized from those years. The real issue is that in the West the population is only rising through immigration. It takes a while to make immigrants contributors to the real economy. Just like children, they cost. As population, the working cohort, declines the economy declines and does not grow. 

The solution is not to grow spending but to conserve the resources we still have. We don't seem to have a system that depends on anything besides growth. But our finite world tells us it won't continue to work for much longer. The current "dynasty" is closing down and we all will be gong down with it. Enjoy the ride!