Embracing the Demographic Force Multiplier

It seems clear that Australia’s strategic position in the Indo-Pacific is undergoing degrees of change not seen since the Second World War. The Beijing-Washington rivalry grows more intense by the day as both sides embrace increasingly aggressive strategies. This has forced Australia to take on greater responsibility in upholding the rules-based global order across our region. Pundits and policymakers alike are justified in arguing that meeting the nation’s contemporary challenges requires a whole-of-government approach to our military posture, intelligence gathering, technological development, economic output and societal resilience. What many gloss over, however, is the importance of human capital in complementing and amplifying Australian power across these spheres.

Population has always played a decisive role in determining a nation’s power. Australian strategists recognised this reality immediately after the Second World War, with the phrase “populate or perish” becoming a guiding pillar of Australia’s grand strategy in the post-war Indo-Pacific region, acknowledging that the raw size of a nation’s population will undoubtedly affect its economic weight and overall geopolitical prominence.

With improved technology, however, the actual impact of a national population can be dramatically increased, allowing the individual citizen to contribute much more in terms of output than they would otherwise. For example, despite Thailand having a population three times the size of our own, Australian workers have a labour productivity three times greater than their Thai counterparts - a phenomenon that can be described as the ‘demographic force multiplier.’ It allows countries with less human capital to positively augment their demographic power in order to compete with larger nations. The importance of this force multiplier to Australian grand strategy cannot be understated.

Indeed, as a low-population nation, Australia has always relied on its high-technology status to compete with potential challengers in the Indo-Pacific region. One of the main reasons we were so threatened by Imperial Japan was that its relatively high population had also become more technologically advanced. Once the gap had been closed in the demographic sphere, Australia was without its relative advantage. How then should we view China’s rise?

Wise economic reforms have ensured China’s transition from a low-technology, high-population nation to an increasingly high-technology, high-population power. Without arguing that the Chinese people should languish in a low-technology economy, it’s clear that Beijing’s use of China’s growing demographic force multiplier will challenge Australian interests in the Indo-Pacific going forward.

Given that the Australian worker is three and a half times more productive than their Chinese counterpart (despite our population being fifty-five times smaller than China’s), we currently enjoy a competitive advantage. But how will we maintain our sovereignty and middle power status if China eventually comes to match or exceed our demographic force multiplier? What would we realistically be able to do to protect our interests if China’s population dwarfed our own, not only in terms of raw size but also productivity?

Obviously, we can improve our demographic force multiplier by encouraging productivity-boosting technology, but this is already going to happen thanks to innovation within the private sector. We therefore need to look towards increasing the base-level human capital present within the Australian economy, since doing so disproportionately improves our relative position in the Indo-Pacific. Positive changes to raw human capital yield disproportionate benefits through the demographic force multiplier.

It cannot be forgotten that the demographic sword cuts both ways, however. It is well-known that Japan’s working population has been decreasing for years. When a Japanese worker goes into retirement, Japan loses an outsized-percentage of its competitive advantage over China, since a decline in base-level human capital yields disproportionate losses in economic weight.

Recent IMF research has even shown that Japan’s shrinking worker-base is to blame for much of the stagflation behind the nation’s so-called “lost decade”. So too have demographic losses blunted the economies of Eastern Europe. With the flight of many of the region’s most knowledgeable and productive workers, nations such as Lithuania, Russia and Bulgaria have struggled due to a lack of human capital and the resulting loss in economic weight. In the case of Japan and Eastern Europe, losses in raw human capital have pre-empted a decline in overall geopolitical prominence. This is the last thing Australia needs given its current predicament in the Indo-Pacific.

Continued growth in human capital has long been identified as one of the main factors behind our sustained economic growth.

In light of this demographic force multiplier, we need to adopt a whole-of-government approach to increasing Australia’s population. This will require dramatically increasing our skilled migration intake and an effort to proactively compete for migrants rather than simply throwing open the doors. Infrastructure will need to be improved across our major cities and incentives introduced to encourage natural migration to rural centres.

Finally, we must ensure that new migrants are fully integrated into Australian society so that they can contribute to our nation and feel welcomed as equals. Such an undertaking would require significant commitment from government, but if we fail to ‘populate’, we may well be left with a far less appetising alternative.

Hugh McFarlane is a Security Studies student at Macquarie University who is interested in how underlying societal metrics affect state power.