In this book, I have argued that the innovation capacity of a country is fundamentally determined by demographic factors, including the size, geographic concentration, and age structure of the population. The effect of demographics on innovation has been at work throughout history. I have surmised that the alternative rise of Western and Eastern civilizations throughout history can be partly attributed to demographic factors moderated by geopolitics and transportation technologies.
However, until recently, the effect of demographics on innovation has been underappreciated, partly because of the seemingly negative effect of a large, concentrated population on resources and the environment. Malthus was one of the most famous economists and demographers ever, and his theory was the theoretical foundation for the anti-fertility movement in many developing countries in the 1970s and 1980s. The effect of aging was underappreciated also because aging is a very recent phenomenon in just a few developed countries, such as Japan.
Going forward, I believe that the effect of demographics on innovation will be increasingly prominent for the following reasons.
The three big heavyweights—China, India, and the United States—will be the leading nations of innovation. China will surpass the United States in terms of innovation between 2030 and 2040, but its innovation capacity will be in decline after 2040, as a result of aging. The United States will likely regain leadership by 2050, thanks mostly to its unmatched ability to tap into the global talent pool. The large metropolitan areas of China and the United States will continue to attract the most creative innovators and entrepreneurs. The race between China and the United States will be an interesting one to watch. The stakes are high, because these innovation hubs will increase in importance and wealth due to the network effect. India will be the fastest growing economy for years to come, thanks to its large population, and it will become a serious competitor in innovation in the second half of this century.
The race of innovation will be a race of human capital development. The winners will be those countries or cities that can nurture and attract a large stock of highly skilled workers. To keep fertility from falling further, most countries will need to design and implement generous pro-fertility policies. The education sector needs to take advantage of the latest technology and the lifelong learning trend to mint more potential innovators and entrepreneurs cheaper and faster.
Moreover, the race of innovation among countries (and cities) will be like a beauty contest to attract highly skilled immigrants. Highly skilled workers are increasingly mobile within a country and internationally, partly because English has become the language of the academic and research community. Consequently, the competition to attract talent will be fierce (but not destructive), and actually will generate a lot of common good, since the government will work hard to improve public services, infrastructure, and the environment in order to attract talent. In a way, each government is like a hosting company competing for customers (i.e. innovators on the effectiveness of its political and economic institution).
Lastly, it is my view that globalization will continue, reflected not so much in the trading of goods, but in cross-border cooperation in innovation. An increasing share of patents today have co-authors from different countries (Witze, 2016). Any nation that restricts the international flow of people, ideas, or capital will run the risk of isolation. Therefore, isolationism and populism will be increasingly more costly when innovation is not only more important, but also more international, Of course, there will always be occasional rises of populism and anti-globalization sentiment, but the competitive pressure among countries to foster and attract the best talent and companies in the world will be an effective counterbalance.
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