Virgil wrote: "they change their sky, not their soul, who rush across the sea." The sky will change in our world, but it will keep its soul, which mutates with structural rather than circumstantial changes.

We often consider how our country or our world will evolve in critical variables that affect our decision-making, such as the future of inflation, interest rates, economic growth, unemployment... However, this obsession with the short term sometimes sidesteps reflection on the more structural changes: those that take place over a much longer period of time, and which as such are overlooked, although they end up being far more relevant to our lives.  I am writing in issue 3,000 of Actualidad Económica, almost 57 years running, an event that is therefore relevant to elucidate the structure of the economic situation.

First, inequality will tend to decline.  Inequality can be divided into income, wealth, and geographic disparities (the latter refers to the concentration of economic activity in a few megacities).  The former will be somewhat mitigated as the aging population leads to fewer workers, which will partially allow them to regain the bargaining power lost since the 1970s.  As a result, the share of wages in GDP will rise, and business margins will correct somewhat downwards, although in no case will we return to the figures seen 50 years ago.  In turn, the progressive normalisation of interest rates will lead to lower asset values, which, together with the margin reduction, will also reduce wealth inequality.  Finally, once our societies have grasped the harmful causes behind geographic inequality, they will implement policies to alleviate it.  It will not be eliminated, but it will be mitigated somewhat.

Second, the world population will begin to shrink beginning in the middle of the century.  This will be the first reduction of the world population not generated by wars or epidemics, and this phenomenon, as we have seen, is closely related to the points made in the previous paragraph.  There are two forces that increasingly reduce human fertility: a) urbanisation (it is easier to have children in a small town than in a big city) and b) years of education.  Both forces continue unabated, especially in emerging countries.  Developed countries and China have fertility rates below 2.1 children per woman (thus on the way to population reduction) (Figure 1); many emerging countries (including most of Ibero-America), with India fast approaching, have gone from levels greater than 5 30 years ago to levels too low for replenishment.  The consequence will be lower economic growth and enormous pressure on public finances.  If this trend is perpetuated, the other formidable consequence will be our peaceful (or perhaps not so peaceful) demise as a species.

Third, productivity growth will be surprisingly strong.  Productivity "is not everything, but in the long run, it is almost everything," said Nobel laureate Paul Krugman.  Productivity growth underlies our exorbitant (from a historical perspective) living standards.  For example, the income of a Spaniard, close to $30,000, is in stark contrast to around $300 before the industrial revolution.  Productivity began to grow much slower from the 1970s onwards, limiting economic growth and exponentially increasing the number of years it takes for the next generation to double the living standards of their parents.  However, despite such disappointing data, the fourth industrial revolution has been taking shape since the ominous 1970s, a revolution that is partly behind the changes mentioned in the preceding paragraphs. How is it possible that, in the face of a revolution that incorporates such disruptive technologies as artificial intelligence, robotics, and nanotechnology, productivity has not soared? The answer lies in the fact that it takes many years for innovations to begin to generate significant productivity growth.  For example, the modern steam engine was invented in 1776, but productivity in the United Kingdom only began to soar from 1800 onwards.  For many companies, the covid epidemic has meant a "Cambrian" leap in their digital transformation strategy.  If we take this into account, and the years we have been maturing these new technologies, it is feasible that a productivity surge will take us by surprise over the next few decades.

Our world will change skies, but it will keep its soul, which mutates only with structural rather than circumstantial changes.  As Lucretius said in "The Nature of Things": "This terror... and darkness of mind must be dispelled not by the rays of the sun and glittering shafts of daylight, but by the aspect and law of nature."

Published in  Actualidad Económica