This is a big problem for the economy. Shrinking workforces mean smaller future markets, discouraging businesses from expanding — especially in service-based economies, where, along with limited productivity gains, costs tend to rise. Investment falters. At the same time, a falling share of working-age people means fewer taxpayers supporting more retirees, driving up pension and health care costs and pressuring governments to raise taxes, increase debt or cut benefits.
In this stagnant setting, businesses have shifted strategies. Instead of reinvesting profits into expansion, hiring and innovation, many companies now focus on stock buybacks and dividends, prioritizing financial payouts that boost share prices and managerial compensation. The result is a vicious cycle of rising inequality, damped demand and low growth. This is happening the world over. No wonder the International Monetary Fund warns of a “tepid 2020s” — and that was before Mr. Trump started his trade war.
What is to be done? For some, artificial intelligence is the way out of the stagnation trap. If A.I. could improve efficiency in labor-intensive service sectors like health care and education, the argument goes, it could revive growth. But the productivity gains of generative A.I., for all the hype, have been limited so far, and it’s hard to see how the technology would translate into widespread improvements for core services. What’s more, A.I. advancements appear to be slowing rather than accelerating. Robots aren’t going to save the global economy.
Others see reindustrialization, under strict tariff protections, as the way to restore economic dynamism. That’s the wager, at least in theory, of the Trump administration. But here, too, there is cause for doubt. For one thing, the decline in manufacturing was not just about trade. Even manufacturing and export powerhouses like Germany and South Korea have seen industrial employment shrink. For another, the industries generally targeted for revival — semiconductors, electric vehicles and renewable energy — employ relatively few workers. The era when manufacturing could provide mass employment is over.
If productivity growth rates can’t be increased all that much, perhaps populations can. That’s the thinking behind natalists urging people to have more kids. Yet even countries with generous family policies, such as Sweden and France, have seen birthrates decline. The other option is high immigration, which remains the most effective way to sustain economic growth in aging societies. The United States has maintained stronger growth than Japan or Germany in part thanks to higher immigration, which has expanded the American labor force. But in these anti-migrant times, with Mr. Trump as president, this solution feels almost fantastical.
