Political Economics Prof

Author: Bennett Greenberg

England in the 1600s: The Beginning of England’s Rise to Global Power and Wealth
INTRODUCTION

In 1600, England had been an insular and agricultural nation, trading primarily with nearby northern Europe. By 1700, England’s commerce was complex and global, as London competed successfully with Amsterdam for American produce and Asian luxuries.

Alan Taylor,  American Colonies:  The Settling of North America, 258.

A theme that runs through this essay is the global maritime rivalry with Holland. England and Holland became global trade rivals in the 1600s. They fought three wars that weakened Holland and eliminated it as a naval rival.

England’s main instrument in its rivalry with the Dutch in Asia was the English East India Company (EIC). In America and the West Indies, it was the Navigation Acts.

By the end of the century, England was on its way to becoming a global maritime trading and naval power. The Dutch had lost out in North America but had established a vast trading network throughout Asia, centered in the Dutch East Indies (Indonesia). It was generally not competitive with the main Asian trade of the EIC or competitive with England as a European political power.

This essay on the spectacular economic progress of England in the 1600s also provides background and context for three other essays on this blog.

American Colonial History, 1607-1775

This background essay helps explain the changing relationship between England and her North American colonies in the context of England’s expanding global trade. It emphasizes the importance of England’s Navigation Acts to the American colonies. The objective was to reduce the role of the Dutch in the American colonies and the West Indies and monopolize all trade with the American colonies and the British West Indies.

The Dutch were instrumental in financing early sugar production in Barbados. They also dominated early financing and shipping of the tobacco industry in the Chesapeake (Virginia and Maryland). Dutch shipping rates were lower than those of the English.

The English sugar islands in the West Indies, mostly Barbados, was the largest source of English imports in the 1600s and an important source of import taxes. In the North American English colonies, England was able to take over the Dutch settlement at New Amsterdam, renamed New York, and using the Navigation Acts, to eliminate Dutch shipping that dominated the trans-Atlantic tobacco trade from the Chesapeake.



NAVIGATION ACTS

As part of its maritime rivalry with Holland, England passed the Navigation Acts.

First enacted in 1651 and strengthened in 1660 and 1663, the Navigation Acts were aimed at the Dutch. All exports and imports of the American colonies and West Indies had to go through England, on English or American ships. Even foreign goods bound for the Americas had to pay custom duties in England. The only exceptions were American exports other than the main exports of tobacco, rice, and indigo. As sugar production in the West Indies, exploded after starting in the 1600s, most other American exports went to the British West Indies.

England imposed high taxes (custom and excise duties) on American tobacco exported to England. During 1660s, new Navigation Acts regulations forced American tobacco growers to ship all their tobacco to England on English ships. Before that, Dutch ships controlled much of the tobacco trade because their rates were lower than English ships. This hurt the tobacco growers because this caused a tobacco glut in England, fewer ships competed for the tobacco trade, and now all tobacco had to go to England and pay high import taxes.

The Navigation Acts were an important part of the mercantilist policies of England. According to mercantilism, the government had the right and the power to shape trade in the political interests of the country. This meant economic war, especially with the Dutch.

The Dutch and English waged three wars, in 1652-54, 1664-67, and 1672-74. The second war was triggered when an English fleet in 1664 conquered Holland’s American colony New Amsterdam, renaming it New York.

ENLAND AND HOLLAND IN THE AMERICAS

England’s main instrument in its rivalry with the Dutch in Asia was the English East India Company (EIC). In America and the West Indies, it was the Navigation Acts.

This rivalry was part of the wider political and economic environment of the American colonies in the 1600s.

In the 1600s, the West Indies became the most valuable part of the English colonial empire. Sugar from the West Indies was far more valuable than tobacco from the Chesapeake.

In 1686, London imported West Indian produce worth £674,518, compared with £207,131 obtained from all the North American mainland colonies.  Sugar constituted £586,528 of the West Indian total, while tobacco accounted for £141,600 of the mainland produce.

Taylor, 205

In 1650, the main sugar island of Barbados had a greater white population than the Chesapeake and New England combined.

After failing to raise tobacco and cotton, Barbados struck it rich with sugar, starting in the 1640s. By 1660, Barbados accounted for more trade than all other American colonies combined.

The sugar planters developed a strong lobby in England, partly because many wealthy sugar planters retired to England. They protected sugar imports from high import taxes. The tobacco growers along the Chesapeake were not so lucky.

In 1668-69 the West Indian sugar crop sold for about £180,000 after it paid about £18,000 in customs duty – compared with the £50,000 reaped (netted) by Chesapeake planters over and above their customs duty of £75,000.

Taylor, 216

This suggests a number of things about the Virginia tobacco growers. It was probably one reason the Barbados planters were wealthier than the Virginia planters, and why Virginia planters went into debt to buy luxuries and expand production (buy land and slaves). It is also intriguing to speculate that this was one reason American tobacco growers complained about being “slaves” to the English crown and merchants who lent them credit. Some of Virginia’s largest planters supported and led the American Revolution.

By 1775, the American colonies were England’s largest trading (imports and exports) partner.

The new set of Navigation Acts in the 1660s made the economic situation worse for Chesapeake tobacco growers. One aim was to eliminate Dutch ships from buying and transporting Virginia tobacco. This drove down prices and worsened the tobacco glut in England.

England and Holland became global trade rivals in the 1650s and 1660s. In the Americas and West Indies, the Dutch captured most of the carrying trade because they charged less than the English. England passed the Navigation Acts to prohibit American exports to use Dutch ships. In addition to being forced to use English and American ships, almost all produce had to go to England and, in the case of tobacco, pay high excise taxes.

The English East India Company:  Trade with Asia

THE START OF EUROPEAN TRADE WITH ASIA. PORTUGAL IN THE 1500s

Spices and luxury goods from Asia were limited and prices went up after the Ottoman Turks conquered Constantinople in 1453. The last leg of trade with Asia was dominated by Venice.

Before the seventeenth century, trade across Eurasia was mostly conducted in short segments along the Silk Road and maritime routes through the Indian Ocean. Business was organized by family firms, merchant networks, and state-owned enterprises. Trade was dominated by Chinese, Indian, and Arab traders.

In 1492, Catholic Spain, after a 400-year crusade, finally conquered the last Muslim area. Spain then bankrolled Columbus’ voyages, expecting he would bring back gold and silver from Asia. The national government expected to use this wealth to finance a continuation of its crusade by conquering Muslim North Africa.

After more than 80 years of trying, in 1497-8 a Portuguese fleet went around the bottom of Africa (Cape of Good Hope) and reached India. And returned laden with spices. It was a very profitable trip. Following voyages established Portuguese trading positions in India and links with Asia east of India. Portugal discovered and conquered the Spice Islands, which were the major source of Asian spices exported to Europe.

Portugal had shown in the 1500s that long-distance voyages from Europe around Africa to India and beyond were both possible and profitable.

But Portugal was a small and poor country. It had a small merchant class. Portugal, relying on a combination of state support (with political objectives) and charted private shipping (much of it foreign), was not able to fully exploit the profit potential of the trade. The number of trips were small, partly because financing was sporadic and inadequate.

Portugal’s Asian trade and Spain’s conquest of Latin America meant that rivalry among Europe’s nation-states was no longer confined to Europe and the Mediterranean. It was now global. Trade and conquest outside of Europe brought new wealth to European countries; the wealth could finance increased national power.

The spice trade from Asia to Europe was both highly profitable and risky. By 1600, both England and Holland were ready to try.

THE ENGLISH EAST INDIA COMPANY: TRADING WITH ASIA

England had defeated a Spanish attempt at invasion in 1588 and was thinking about how to become a colonial power. The country began thinking about colonies in North America and the West Indies.

The merchants of both countries realized that the traditional way to finance trading voyages – merchants and ship owners raising capital for each voyage separately and distributing profits and capital after the voyage – would be inadequate for the huge capital requirements of a sustained, large scale, risky trading venture in Asia. Merchants, investors, and shipowners would have to solicit outside investors to raise enough capital.

They succeeded. For 200 years, the EIC and the VOC were the two largest private companies in Europe, based on book value (total capitalization).

The instrument of England initiating trade with Asia in 1600 was the English East India Company (EIC), a government sanctioned trading monopoly. The goal throughout the century was to reduce or eliminate the competition from the Dutch East India Company (VOC).

Eventually, the EIC evolved into a quasi-state that ruled most of India. The EIC brought great wealth to England’s merchant class and helped develop new financial institutions.

THE ENGLISH EAST INDIA COMPANY (EIC) AND DEVELOPMENT WITH TRADE WITH ASIA

Why England and Holland both decided to make very large investments in the long-distance Asian trade at this time.
- Both countries had a poor chance of becoming continental powers in Europe.
- Both countries had small populations compared to France, Spain, and Austria.
- Both countries were Protestant, often at war with the larger Catholic countries of Europe.
- Neither could compete with the Catholic countries in European continental wars.
In contrast, both countries were maritime countries with a strong merchant class growing rich on maritime trade and finance.
- · Holland was a republic dominated by its merchant class.
- · England was a constitutional monarchy where Parliament had to approve taxes.
- · Both had a shipbuilding industry and experienced sailors, the basis of strong navies.
- · Both were capable of building large merchant ships that were often armed.
- · Financing trade made Amsterdam the financial capital of Europe.
ADVANTAGES OF A PRIVATELY-FINANCED, LONG-DISTANCE TRADING MONOPOLY

The merchants of both countries realized that the traditional way to finance trading voyages – merchants and ship owners raising capital for each voyage separately and distributing profits and capital after the voyage – would be inadequate for the huge capital requirements of a sustained, large scale, risky trading venture in Asia. Merchants, investors, and shipowners would have to solicit outside investors to raise enough capital.

They succeeded. For 200 years, the EIC and the VOC were the two largest private companies in Europe, based on book value (total capitalization).

THE EIC AND VOC IN ASIA

The English East India Company (EIC) was founded in 1600 and the Dutch equivalent (VOC) in 1602. Both had charters that gave them a monopoly on trade between their home country and Asia. They almost immediately became rivals.

In Asia, the EIC suffered defeats at the hands of the competing Dutch East India Company (VOC). The Dutch, led by a very aggressive director, defeated and replaced the Portuguese in the Spice Islands. Then the VOC was able to repulse attempts by the EIC to capture the islands. The Dutch eliminated English attempts to establish entrepots in the Dutch East Indies (Indonesia). The VOC also was the only foreign country allowed to trade with the isolationist Tokugawa shogunate in Japan. The VOC sold the Japanese desired products from all over Asia in exchange for the silver needed to finance the inter-Asian trade and products exported to Holland.

The EIC early centered their operations on the entrepot trade in western India. The EIC’s first ships arrived in India in 1608, received permission to establish a factory (trading center) in 1613, and was granted permission by the Mughal emperor in 1615 to establish factories throughout the Mughal Empire.

A historical look at the early evolution of global trade and how this led to the creation and dominance of the European business corporations English East India Company (EIC) and Dutch East India Company (VOC).

Both countries saw an opportunity to become rich using their merchants, merchant capital, and shipping.

The Beginning of the Industrial Revolution in England

This essay describes the most immediate causes of the Industrial Revolution starting in the late 1700s, including some of the reasons it happened in England. But England had undergone changes in the prior two centuries that increased the chances the Industrial Revolution would start there. Economic growth had depended on England developing a global trading system partly based on its imperial empire. Trade (importing raw materials and exported finished goods), shipping, increased wealth, and a rising merchant class prospering from trade were key to this change. This transformation began in 1600.

THE RISE OF ENGLAND AS A NAVAL AND MARITIME TRADING POWER IN THE 1600s

Except for the Dutch, no other European nation depended on foreign trade for such a high proportion of its employment and gross national product.

English merchant shipping more than doubled, from 150,000 tons in 1640 to about 340,000 in 1686.

Taylor, 259

The explosion of imports from the West Indies was one reason for the large increase in English shipping in this period. A related reason was the Atlantic slave trade, which England came to dominate. Barbados needed a large number of slaves to harvest sugar cane and produce sugar. The port of Bristol became wealthy by specializing in this trade. The town later put up a statue to one of its wealthiest slave traders. It was pulled down in 2020 in a Black Lives Matter rally.

Shipbuilding remained a major industry in England into the 1900s.

By 1700, England was the leading naval power in Europe, with the largest fleet. The English navy was twice as large as the Dutch navy. London was Europe’s most important center for commerce and finance, passing Amsterdam. England’s power and wealth now depended on overseas trade and commerce.

In 1600, England had very little trade outside of Europe. By 1700, about 40% of English shipping tonnage carried American and Asian goods.

England had developed a global trading system. It would begin to assemble a global imperial system. Holland could not match England but continued to own a very lucrative colony in the Dutch East Indies and carried out extensive intra-Asian trade.

INTO THE FUTURE

The main point of the essay on the EIC is that the creation of the modern corporation and the extension of long-distance international trade developed together. These created great wealth in England, especially in its trading, shipping, and merchant class. Unlike wealth in land, this wealth was liquid (mobile) and would later be invested in railroads and manufacturing.

Like the EIC, railroads and manufacturing companies were able to raise large amounts of capital, partly because the companies were limited liability companies and shareholders could sell their shares on the stock exchange. The “railroad mania” of the 1840s was the first stock market speculative bubble of the industrial age. It didn’t end well but it didn’t discourage widespread ownership in new companies.

Also suggests reasons why England was in the best position to start the Industrial Revolution. England was manufacturing goods to be sold in the new English colonies; these markets, especially America, would expand in the 1700s. By mechanizing cotton textile production, England opened up a new, major source of trade revenue. England imported cotton from India and exporting cotton textiles to India and rest of the world.

Later, in the 1800s, America would become the dominant source of cotton for English textile mills. Also the basis for America’s cotton textile industry. Sadly, this rescued slavery from possible extinction.

In both countries, the production of cotton textiles was the first industry of the Industrial Revolution. Cotton textiles were England’s largest source of exports throughout the 1800s. Cotton was the main export of the United States in the 19th century. Export earning helped pay for importing machinery and other industrial inputs.

For a description of the EIC’s structure and strategy, see

The English East India Company: Trade with Asia

For a conjecture that the EIC might be a model for future multinational corporations, see

The English East India Company (EIC): Model for Future Multinational Corporations?

For an excellent survey of colonial America and the historical context, see

Alan Taylor, American Colonies: The Settling of North America.

For all posts in this blog, including links, see

List of Posts by Topic

There are essays on colonial American History, American Economic History, and why England and America were the countries that started the Industrial Revolution. Also essays on;

China.

Information, innovation, and how markets work.

Business, finance, and economics.

Global and national demographics, population projections, and how they interact and influence economies.

Rome.
November 5, 2025
The English East India Company (EIC): Trade with Asia

The Mughal emperor Shah Alam hands a scroll to Robert Clive, the governor of Bengal, which transferred tax collecting rights in Bengal, Bihar and Orissa to the East India Company. Illustration: Benjamin West (1738–1820)/British Library

INTRODUCTION

The English East India Company (EIC) was an innovative new type of corporation. It is a model for the modern limited-liability, stockholder-funded modern corporation.

The EIC also illustrates that the prototype of the modern multinational corporation was created to develop global trade.

HISTORIC BACKGROUND

The creation of the English East India Company (EIC) and its Dutch equivalent (the VOC) were part of the 400-year expansion of European power, trade, and influence. Much of the rest of the world became colonies, part of imperial empires.

By 1600, both England and Holland had a wealthy merchant and shipping class, bankers, substantial liquid capital (wealth) not tied up in land, and risk-takers. These categories overlapped.

Both countries had limited monarchies. In England, the king and Parliament were about to begin a long struggle for power. In Holland, the monarch was mostly subservient to Holland’s powerful and wealthy merchant class.

THE EIC: STRUCTURE AND STRATEGY

The East India Company (EIC) was chartered in 1600 by Queen Elizabeth I to promote and monopolize English trade with Asia. England, a poor country in the 1600s but with colonial ambitions after defeating the Spanish Armada in 1588, outsourced its colonial ambitions to the East India Company and other private companies.

The East India Company was originally privately funded by 218 merchants and other investors. It was the first modern multinational corporation. The EIC was a joint stock company, that is, a company with publicly traded stock bought and sold in a secondary stock market. Like modern companies, the EIC issued financial reports, held annual meetings for stockholders, and had quarterly meetings of the Board of Directors.

It was also a limited liability corporation. Stockholders’ potential personal financial loss was limited to their investment in the company. Creditors could not go after their personal assets.

The EIC was vertically integrated. The company designed, built and repaired its own ships, built its own docks and warehouses in London and in India. It had a large corporate headquarters in London. The company held sales auctions of its imports in its headquarters. It was a major employer in London. It was an “enlightened” employer, offering fringe benefits, including pensions. It provided a retirement home in London for sailors.

The EIC designed and built a new type of ship, called East India Indiaman. They were built for long-distance trade. Because of commercial rivalry with other European states and local hostilities in Asia, EIC merchant ships were heavily armed and often contained marines.

East India Company Indiaman Armed Merchant Ship

©National Maritime Museum

The EIC had to build forts to protect its warehouses and trading stations. It hired a mercenary army and develop a navy (Bombay Marine) to protect property and trade routes. It negotiated with local rulers and signed treaties.

In short, the company built its own self-contained infrastructure and pursued its independent strategies.

The company ran its own management training programs and military academy. The selection process of employees was highly competitive, including written exams. Many of its recruits were ambitious young men from the lower and middle classes who were barred from the traditional paths of upward mobility and status. It employed “foreigners,” Scots and Anglo-Irish. Later, the EIC employed Asians and Anglo-Indians in secondary positions.

Economists have a warm spot in their hearts (yes, economists do have hearts) because the EIC was the first organization to employ and pay economists – Thomas Robert Malthus, James Mill, and his son John Stuart. John Stuart Mill was effectively the CEO for many years. Contrary to their economic writings, they did not support free trade with Asian countries.

EIC “officers” and employees were loyal to the EIC. They saw personal opportunities and advancement within the company. They had opportunities for personal power and wealth that were not available at home. Because of their lower class origins and nationality, wealthy returning EIC officers were often resented as upstarts.

The EIC created a powerful lobbying group in England. The company attempted to get the English government to continue to support its monopoly on English trade with Asia. Important politicians and royal officials were bribed.

Unlike other private trading and colonization corporations established in England at about the same time, the EIC was set up as primarily an importing company. The company had the problem of how to pay for products bought in Asia. English exports to Asia such as English woolens were in limited demand. Asian sellers wanted silver. This created a drain of silver out of England, which was a source of friction between the company and the government.

CORPORATE STRATEGIES AND POLITICAL ENVIRONMENT

Besides the English-Asian trade, the East India Company was willing to trade anywhere in Asia, looking for profitable opportunities. Its resources, both ships and men, were highly mobile.

The EIC operated in a violent, insecure environment in Asia. Beside pirates and local conflicts with Asian rulers, England was usually at war with one or more European countries. The conflicts extended to trade rivalry in Asia. The EIC had to fight battles with other national trading companies, foremost of which was the Dutch East India Company (VOC, the initials of the Dutch name of the company). The EIC could not expect much support from England, which was unable to consistently project power in Asia until the 1800s.

The EIC lost out to the Dutch East India Company in its attempts to control the Spice Islands, the source of much of the profitable spice trade. The EIC also lost its footholds in Java and nearly islands, which became the Dutch East Indies (later Indonesia) controlled by the VOC.

Many early trading stations failed in other parts of Asia. Eventually, operations were centered on trading ports (entrepots) and stations in India, the traditional transit area for Asian products bound for the Middle East and Europe. India was also an important source of pepper.

The EIC was caught up in the Seven Years War (1756-1763) between England and France for dominance in Europe, North America (called French and Indian War in America), the West Indies, and India. The EIC, under the leadership of Robert Clive, was able to defeat the French in India and expand alliances with many local rulers. The company’s well-organized military assets with superior firepower made the company a prized ally for local rulers. In exchange, the company was given extensive privileges including the right to collect taxes.

At the same time, the company was developing what would be its most important trade – importing Chinese tea to England. To support this trade, the EIC established new stations that would grow to be Singapore and Hong Kong.

They immediately ran into an old problem – China didn’t want any English imports. Chinese merchants only wanted silver, which led to a major drain of silver out of England. The EIC solved the problem by growing and selling opium produced in India to private traders who smuggled it into China. Some of the financial transactions were handled by a bank that eventually became HSBC.  (One the traders was Franklin D. Roosevelt’s grandfather.)

Chinese attempts to ban this trade resulted in a war between China and England (the Opium War, 1839-1842). China was defeated by superior English warships; the subsequent treaty was the first of many that opened up China to foreign influence and then domination. This would have important long-run consequences.

The demand for tea exploded in the 1700s. The EIC had trouble fulfilling the demand with tea from China. Growing and processing tea was a closely guarded secret in China. But the company smuggled out plants to start new tea plantations in northern India (Assam). These plantations were successful and an increasing source of tea for the EIC. By 1770, EIC exports of Indian tea to England reached £800,000.

ORGANIZATION STRUCTURE, CONTROL, AND GOVERNANCE

Besides the EIC’s legal, financial, and governance structures which were innovative, the EIC had an internal management and control structure very much like a modern multinational corporation. It had to find a balance between home office control and branch management initiative. Given the problems of long distances, slow communication, and changing local operational information, the company was forced into a decentralized structure.

The Board of Governors combined the oversight of corporate managers with the setting of governing rules and regulations. Much of their control was financial. There was also detailed supervision and control of the voyages sent out from England.

While officers of the company often sent detailed instructions about policy to local managers, direct operational control was difficult. It often took over two months for a letter from London to reach India. Local managers had discretion to react to local problems and trading opportunities. They had their own staff and resources. They were similar to “divisional” managers of early railroads and large industrial corporations. Even more similar to corporate presidents and their local staffs of national subsidiaries of multinational corporations.

THE EVOLUTION OF THE EIC FROM A GLOBAL TRADING COMPANY TO A VIRTUAL SOVEREIGN STATE



The painting above shows the moment when the EIC began its evolution from profit-making global trading company to de facto sovereign state. The year was 1765. The Mughal emperor was forced to turn over tax collection in Bengal and two other states

to the EIC.

It was at this moment that the East India Company (EIC) ceased to be a conventional corporation, trading in silks and spices, and became something much more unusual. Within a few years, 250 company clerks backed by the military force of 20,000 locally recruited Indian soldiers had become the effective rulers of Bengal. An international corporation was transforming itself into an aggressive colonial power.

William Dalrumple, The Guardian, “The East India Company: The Original Corporate Raiders,” March 4, 2015.

The EIC was profitable in its early years. The EIC started its evolution from a purely private commercial company to an organization with its own substantial political and governmental responsibilities. For almost 100 years after the Seven Years War, it governed much of India from Bombay (Mumbai), Calcutta (Kolkata) and Madras (Chennai). The large areas around company headquarters in Calcutta, Bombay, and Madras were also effectively ruled by the company, often through “concessions” offered by regional rulers.

The company performed the major functions of a government – collected taxes, funded a military, made laws and regulations, and established a national bureaucracy. Many of its officers became rich because of IPOs (Indian Political Opportunities – aka bribes, private deals, kickbacks on contracts). Stockholders back in London just wanted profits but EIC officials in India saw the personal possibilities as tax collectors and political administrators.

As the EIC evolved from a commercial venture to ruling much of India, it became unprofitable almost from the beginning. By 1773, low tax revenue partly due to famines contribute to £1.5 million in debt and a £1 million unpaid tax bill owed to the English government. The company asked for a large loan, over £1 million from the Bank of England, but received only £200,000.

This began many rounds of negotiation between the EIC and the English government. The company began borrowing large sums of money from the English government. In the early 1800s, the company exchanged loans from Parliament for government over-site and military support. Parliament stripped the EIC of its trading monopolies between Asia and England. Finally, after the 1857 Sepoy Mutiny, the English government took over overall management and supervision of the company and then annexed India as a British colony.

The EIC also came into conflict with the English government when the government tried to impose mercantilist goals on the company. The government, under pressure from its woolen textile industry and then the new English cotton textile mills, banned the company from exporting competing Indian cotton goods (calicos) into England. India cotton, not cotton textiles, was exported to England. India became a large market for the export of English cotton goods.

The EIC start out as a profit-seeking trading company and ended up ruling much of the Indian subcontinent. The costs of administering India would eventually contribute to bankrupting the company; it was forced to turn over the rule of India to the English government.

The home nation-states such as England were becoming more powerful and were able to project power and influence globally. They did not need private trading monopolies to further mercantilist or economic goals.

CONJECTURE

This conjecture is a bridge to the next essay on the EIC :

The English East India Company: Model for Future Multinational Corporations?

In 1765, the EIC took over the running of a large territory in India – policing, military, tax collection, and administration. By 1772, it would deeply in debt and needed a large bailout from the English government. They gave it. It was followed by subsequent bailouts until the English government finally took over the EIC after the 1857 Sepoy Mutiny.  Why? Why not take it over earlier?

Subsidizing EIC was the least bad option.  In 1763, England completed its victory over France. It was the third war with France in the 1700s. England was deeply in debt. As a result of incredible stupidity, England had to commit naval and army assets to control the restless American colonies. The English navy also had to protect the sugar islands in the West Indies, and to its primary task of securing the English Channel. It did not have the military assets to commit halfway around the world to India. It was not necessary – The EIC had a private army of over 20,000 troops that grew to 260,000 in the early 1800s, plus a heavily-armed merchant maring, as the EIC took over governing most of India. This number was far larger than the English army.

Ten years after the EIC became sovereign in Bengal, the American Revolution broke out. England sent a large part of its army and about half of its navy to quell the revolt. After a few years, when English officers realized the cause of subduing the colonies was hopeless, some of the assets were withdrawn but sent to the West Indies. England withdraw its armed forces from America in 1783. Ten years later England was at war with France; the war, mostly with Napoleon, lasted 22 years. At the end, England was deeply in debt.

With the loss of the American colonies, India was the foundation of the British Empire. Although losing money, the EIC was responsible for generating nearly half of England global trade. India was a major market for English exports. Quite simply, the EIC was England’s surrogate colonial masters in Asia. It was cheaper to subsidize the EIC than to take over direct governing of India.

Another reason was that the EIC have bribed government ministers and members of Parliament. Returning EIC personnel, often personally wealthy, also formed a strong lobbying group in England.

But after four decades of peace in Europe and reducing its public debt, England was ready to begin governing India and projecting imperial power throughout Asia.

======================================================

One starting point of reading about the East India Company is:

K.N.Chaudhuri, The English East India Company:  The Study of an Early Joint Stock Company, 1600-1640, Frank Cass & Co Ltd, London, 1965.

For the historical background and context on the EIC, and its role in helping England become a global economic and political power in the 1600s, see

England in the 1600s: The Beginning of England’s Rise to Global Power and Wealth

For the argument that the EIC may be a model for future multinational corporations, see

The English East India Company: Model for Future Multinational Corporations?

Elsewhere in this blog, I argue that the main form of America’s economic competition, and probably geopolitical competition, with China will depend on the success of American companies in developing new technologies and global links. See

American Tariffs and the U.S. Economic War with China

For a case study of a country that became independent after World War II and illustrates the internal chaos of many countries, see

Nigeria

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November 4, 2025
The English East India Company (EIC): Model for Future Multinational Corporations?

INTRODUCTION

The English East India Company (EIC) was an innovative new type of corporation. It was not only a multinational corporations but it was created to exploit the profit potential of global trade.

It might be a model for how a multinational corporation (MNC) could survive and prosper in an increasingly chaotic and hostile geopolitical world.

For a description of the structure and strategy of the English East India Company, see The English East India Company (EIC): Trade with Asia

THE EIC AS A MODEL FOR FUTURE MNCs?

The international political structure is now moving in reverse as the post-World War II economic and political order created mostly by the United States is breaking down. America seems to be less willing to pay for global political leadership, reverting back to its traditional policies of isolationism and protectionism. It hugely expensive military is paid for with deficit financing. Wealthy countries cannot pay for all of their programs; frustrations seem to be expressed in voting for nationalist political parties headed by authoritarian leaders. Most wealthy countries, including the United States, are attempting to limit immigration. Most of the more than 100 new countries created after World War II are dysfunctional or corrupt. Civil wars and local conflicts disrupt the global economy, in addition to terrorist groups, pirates, and criminal gangs.

At the same time, the global economy dominated by multinational corporations operating on a global scale continues to expand. Markets, supply chain technology and organization, telecommunications, transportation, and finance are now all global. They all transcend national borders. Multinational companies have stronger economic links with companies in their ecosystem in other countries than with the rest of their national economy.

While the East India Company operated in a different era, it may suggest some lessons for our times because it operated in a fragmented Asian environment similar to the global one currently evolving. The global political system constructed by the United States after World War II is breaking down. There are over 200 nation-states and territories. Many are poor or small. Many are autocratic (not democratic). But all are sovereign within their borders, although in many cases this sovereignty is limited.

The greatest danger now (2024-25) to multinational corporations, predominantly American, is the American government. President Trump’s pursuit of narrow mercantilist goals — fluctuating tariffs and trade restrictions, attacking universities and greatly reducing research funds, cutting off immigration of technological and scientific personnel, increasing shipping costs, and extorting money from large companies — adversely impact multinational corporations.

No country, with the possible exception of China, protects and supports its companies abroad. (More detail – similarities and differences from EIC. More instruments of Chinese geopolitical projection of power and influence? What about new high-tech companies?) Many are state owned and share some similarities with the EIC.

Maybe multinational corporations, in this environment, will evolve to be more like the EIC. They will need some way to protect themselves from the “extractive” policies of political elites. Governments have power – sovereignty, guns, laws, forms of coercion, corruption and cooptation, “populist” support, that can be used against private companies. They have centralized bureaucracies and armies. But companies control most economic resources (except natural resources like fossil fuels and minerals) and innovate new technology. They have large financial resources. Employees of multinational companies may possibly have alternative loyalties.

MORE SPECULATION ON FUTURE MULTINATIONAL CORPORATIONS

For a wildly imaginative vision of a future society (not too future) dominated by powerful corporations similar to the EIC (with advanced technology similar to AI), see Neil Stephenson’s The Diamond Age. The book centers around an English global company much like the EIC. This corporation combines nostalgic Victorian culture and loyalties with advanced technology and political power.

No one seems to be conjecturing how corporate structures and economic organization will be affected by new technologies such as unsupervised AI, AI-driven singularity, and quantum computing. In an environment of shrinking population and labor force, burgeoning national debt, and increasingly dysfunctional (or to be fair, overwhelmed) central governments.

Another vision is in Donald Westlake’s Good Behavior. It argues that the political structures of nation-states are breaking down. The world is becoming more like the feudalism of the Middle Ages. Kings and emperors (central national governments) had limited power. Local areas were controlled by different types of aristocrats – barons, princes, dukes, etc. The people in a barons’ area of control were loyal to the baron, not the king. Local rulers fought each other. To a large extent, barons were independent of kings and their governments.

Multinational corporations (MNCs) have some of the attributes of the medieval barons. Sovereign in their own domains, they demand loyalty, negotiate and compete with other. MNCs are part of a hierarchy of organizations with responsibilities to each other.

Multinational corporations are increasingly at the whim of national policies, particularly those of autocratic rulers. Autocratic rulers commonly threaten and extort funds from corporations.

When the political objectives of nation-states begin to seriously reduce and jeopardize the profits, or even the survival of multinational corporations, MNCs might began to take measures to protect themselves. Some of these measures may bring them into direct conflict with nation-states.

Already there are large areas where the national governments’ writ doesn’t run. Many groups besides MNCs avoid national power and control. Companies and wealthy individual avoid national laws and launder money, often gained from illegal activities. The more sophisticated, ones who hire lawyers and specialized financial consultants, use shell companies. Cryptocurrencies are used to avoid the financial system and reporting of income. Drug and criminal gangs control large areas. Other areas are controlled by ethnic groups at war with the central government. “Informal” and illegal economic activity beyond government control or oversight make up a large part of the economies of many countries.

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For historical background and context on the EIC, see

England in the 1600s: The Beginning of England’s Rise to Global Power and Wealth

November 3, 2025
Adam Smith’s Pin Factory

Adam Smith – Our Founding Father

ADAM SMITH VISITS A PIN FACTORY

Adam Smith’s description of a pin factory is on the first page of The Wealth of Nations.  (Chapter 1 – “Of the Division of Labour”)  Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity.

Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day.  If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day.  So the pin factory replaces 2,400 to 4,800 pin makers. The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.

This reduction in unit cost or average cost (AC) and the huge increase in quantity produced do not just replace older methods of organization and production.  They increase the potential “extent of the market.” Existing users not only buy more pins at the lower price but also think up new ways to use cheaper pins. The geographical limits of the pin market expand; contemporary and future reductions in transportation costs further expand domestic markets and increase exports.

Adam Smith is considered the Father (or maybe Godfather) of economics.  But this is not economics. At the heart of economics is the concepts of cost and price. No unit price of production or market price are given.

As Adam Smith says, there are limits to specialization and division of labor, and thus limits to reducing unit costs.  But the major source of these limits is not “the extent of the market.” It is the limit of relying solely on the division of labor using pre-industrial production technology. As a source of the continuous increase in the “wealth of nations,” Adam Smith’s pin factory was a dead end, a one-time increase in productivity due to an organizational change. All that was about to change.

Adam Smith’s pin factory is his only clear example of how an economy can grow through one type of innovation. But what is missing is any discussion of the Industrial Revolution or power-driven machinery, which had begun during Adam Smith’s lifetime.  Adam Smith knew James Watt, a brilliant mechanic who greatly increased the efficiency of steam engines. Both worked at the University of Glasgow at the same time. Smith was instrumental in hiring Watt. Watt patented his steam engine just as Smith began writing The Wealth of Nations.  A friend of Adam Smith invested in James Watt’s company to produce his new steam engines.  (The same friend, William Smart, was also Thomas Jefferson’s college tutor.) Adam Smith knew Mathew Boulton, the industrialist who convinced Watt to set up a company and factory to produce his steam engine. It was the beginning of the Industrial Revolution.

Smith mentions “fire-engines” (steam engines) once in the entire book, on page 1, but only to illustrate how workers might improve the working of machines. His example is now considered a myth. He makes a vague statement about “proper machinery,” followed by the sentence, “It is unnecessary to give any examples.”

It is hard to believe that someone could survive producing 10 pins a day. Someone this isolated and inefficient is a straw man. In reality, almost all economic activity requires specialization, division of labor, and coordination. In the Industrial Age, this means power-driven machinery, specialization by company and coordination of long supply chains.

A capital goods sector would specialize in producing larger, faster, more efficient power-driven machinery with metal parts. Production became capital intensive; companies became much larger to realize economies of scale.  Economic theorists would continue to ignore the reality of the Industrial and Information Revolutions because the central dynamic – continuous, disruptive innovation leading to new production technology, lower average cost, and new corporate structures – would destroy their key models of perfect competition and general equilibrium.

PIN-MAKING GETS MECHANIZED IN AMERICA

Pin production met the Industrial Revolution in the 1830s.

Some pins were made in America, most in prisons and almshouses. At a New York almshouse, Dr. John Howe, the resident physician, observed pin making and began to invent a machine to mechanize the process. He made his first machine in 1832. In 1835, the Howe Manufacturing Company was established with capital from New York merchants.

One of Howe’s pin machines could produce about 24,000 pins in an eleven-hour day.

Much of the decrease in costs occurred in the packaging of the pins.  About half of the workforce packaged the pins. At first, the pins were “put out” to nearby families. Then the invention of a hand-powered packaging machine brought the operation into the factory. In 1856, a machinist at Howe invented a powered pin-packing machine.  Before his invention, women were paid $1.25 a day to pack about 150 packages; with his invention, women could pack 200 packages a day and were paid only $.75 a day.  (The story of Howe Manufacturing is from Steven Lubar, Engines of Change:  An Exhibition on the American Industrial Revolution, 1986, p. 56.)

By the late 1970s, two hundred years after The Wealth of Nations, manufacturing plants using computer-driven automated machinery could produce 800,000 pins per worker per day. This is 160 times as many as in Adam Smith’s pin factory.

EXTENSIONS

In the United States, before the early 1800s when nails were mass-produced by machines, they were very expensive. If a family built a house using nails and decided to move west, they would often burn down the house to recover the nails for the next house. It is one reason there are so few “vernacular” houses in existence in America before the early 1800s.

Mechanizing nail production had an even greater effect than mechanizing pin production. Cheaper nails revolutionized construction. They made possible the balloon-frame method of home building, where pieces of lumber were nailed together to make the house’s frame. In the long-run, the result was the American suburb.

The story of the continuous improvement in the quality and variety of pins, and the decrease in the average (unit) cost, was repeated for related products. Besides nails:

Spikes – critical input in the building of railroads.

Rivets – made the mass production of airplanes possible.

CONCLUSION

Specialization with hand tools can go only so far. But what if power-driven machines continued to become faster, more reliable, more accurate, and more specialized? Production per plant would go up tremendously and average unit cost would continue to decline. There would be no equilibrium. The Industrial Revolution would be a “permanent revolution.”

Specialization and division of labor does not lead to the Industrial Revolution. Production needs power-driven machinery and continuous improvement in machine tools, machinery, and organization. Machine tools make metal machine parts. New and more powerful sources of energy and heat are created. All of this, and more, has to be organize in new organization forms like factories, new types of management, and new types of internal controls.

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For an excellent example of an innovative entrepreneur at the beginning of the Industrial Revolution in England, see

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution.

For the story of the how the Industrial Revolution began in England in the late 1700s, see

The Beginning of the Industrial Revolution in England

For the argument that the United States was well- positioned to benefit from the Industrial Revolution, see

The Beginning of the Industrial Revolution in America

For some of the historical developments that made the Industrial Revolution likely in England, see

England in the 1600s: The Beginning of England’s Rise to Global Power and Wealth

The above essay explores the roles of the English East India Company (EIC) in Asia and the Navigation Acts in America and the West Indies in making England a global economic power. It gives context to the next two essays.

For a more detailed look at the English East India Company, and why it was the first modern multinational corporation, see

The English East India Company: Trade with Asia

For the story of America’s new revolutionary form of government and an outline of the first decades of American economic growth and development,

A New Nation: America From 1789 to 1860

Further commentary on the dynamics of America’s economic development:

How America Industrialized and Became Wealthy

A Stylized Model of Innovation: The Dynamics of Capitalism

Alice in Wonderland and the Origins of Silicon Valley

For the story of how England lost its economic leadership, see

Innovate or Fall Behind: A Cautionary Tale: England and the Industrial Revolution.

There are a number of essays on American History and American Economic History including

The Stock Market Crash of 1929 and the Beginning of the Great Depression

For a list of all posts with links, see

List of Posts by Topic.

There are more essays on American History and American Economic History. Essays on information, innovation, and how markets work. Essays on business, finance and economics. A series of essays on demographics, population projections, and speculations on how decreasing and aging populations will interact with the economics of individual countries and the global economy.

List of Posts by Topic

There are more essays on American History and American Economic History. Other essays on:

Information, innovation, and how markets work.

Business, finance and economics.

Also a series of essays on demographics, population projections, and speculations on how decreasing and aging populations will interact with the economies of individual countries and the global economy.

Essays on a variety of historical topics, including the Industrial Revolution, Rome, and Europe in the World War I period.

Further comment about Adam Smith. Most of Smith’s book was an argument against mercantilism and restrictions on international trade. At the heart of England’s trade policies was the Navigation Acts. They restricted the development of the economy of England’s North American colonies. American resentment and anger were a contributing factor to the American Revolution. Smith opposed England’s policy of not negotiating with the Americans and then England’s attempt to suppress the Revolution.

November 1, 2025
Introduction to Demographics and Global Population Projections

Photo by Ahmad Shakir Shamsulbadri on Pexels.com

OVERVIEW

Much of this is taken from the summary of the longer and more detailed

Global Demographics and Population Projections

This is a summary and overview of the demographics and population projection essays on this blog (links below). The world is at the beginning of a major shift in population, from large population increases since 1950 to decreasing populations in many countries and, in the long run, in the world as a whole. This historical shift in global and national populations will have a big influence on what happens in the future.

In summary,

·   Huge population increases since 1900, especially after 1950.

·      Because of a big decrease in birth rates, global population will increase until the 2060s and then start to decrease.

·      Some countries are already seeing a population decrease. More will follow in the near future, including the United States. Yearly population decreases will grow larger. At the same time, working-age populations will grow smaller while over-65 population will grow larger.

·     These trends will have a big effect on all other changes – economic, political, environmental.

Think of the world as divided into Africa and Not-Africa (rest of the world). Between now and sometime in the 2060s, the increase in population in Africa will be greater than the decrease in population in Not-Africa. From the 2060s to 2100, the decrease in population in Not-Africa will be greater than the slowing increase in population in Africa.

DEFINITIONS AND BIRTH RATE PROJECTIONS

Demographics is the study of populations and how a population breaks down by age, gender, race, and other variables.

There is one concept that is crucial for population projections:

Total Fertility Ratio (TFR). This is the ratio of the average number of children of women in child-bearing ages. For a population to be stable, women must have an average of 2.1 children each. Any smaller number means the population is “below replacement” and may decrease in the future.

The global birth rate (total fertility rate) is now about 2.3, slightly above the replacement rate of 2.1, and falling. How fast it falls depends critically on how fast it falls in India and in Africa.

The global Total Fertility Ratio (TFR) is forecasted to be 1.7 in 2100, well below replacement. Currently, the lowest birth rates in the world, at around 1.0, are in East Asia – China, Japan, and South Korea. Europe as a whole has birth rates almost as low.

A population may have below replacement birth rates and for some time also have expanding population if in the past it had above replacement birth rates, a large percent of its population were children and young adults, and the adult population is experiencing rising life expectancies. Or, the decrease in population is offset by immigration.

Total populations eventually fall, as the number of children fall, the number of adults below 65 fall, and then the number of senior citizens fall.  A birth rate below replacement will lead to fewer children. Then it will lead to a smaller working-age population (18-65). And finally, a smaller over-65 population.

GLOBAL POPULATION IN THE PAST

Since the beginning of the Agricultural Revolution (farming and domesticating animals) about 10,000 years ago, demographics meant high birth rates, high infant mortality rates, low life expectancies, and high death rates. The world’s population didn’t change very much until the Industrial Revolution, starting in the late 1700s. Death rates fell faster than birth rates; better health and health care reduced infant mortality rates.

At the same time, much of the world’s population experienced rising standards of living. Better public health reached poorer parts of the world. Urbanization, which lowers birth rates, greatly expanded. Better education, especially of females, is correlated to falls in birth rates. One consequence was longer life expectancies and rising average ages in industrialized countries and then in poorer countries. The age composition of the global population changed, as the average age of the populations in most countries started rising.

During this transition period, from the late 1800s to the present, average life expectancies increased from roughly 30 years to 75-80 years in industrializing countries.

Global population:

1900 – Approximately 1.6 billion people

After World War II, the global population exploded:

1950 – 2.6 billion

2024 – 8.0 billion (November, 2023)

The global population has more than doubled since 1970, going from 3.7 billion people to the current (November, 2023) total of 8.0 billion (UN numbers).

The period from 1950 to 2000 was unusual. Not just in the United States, the global population experienced high birthrates and high population growth rates. In the middle of this period, partly due to more effective and more available birth control, birth rates began declining in the industrialized countries. The growth rate of the world population began to slow.

POPULATION PROJECTIONS

The global population is projected to be:

2064 – 9.7 billion (the peak global population)

2100 – 8.8 billion

By the 2060s, the global birth rate will be below replacement. Over the next 40 years (2025-2065), the world’s population will rise by about 1.7 billion and then over the 35 years after that, decline by approximately 0.9 billion (900 million). By 2100, the global population will have fallen to 8.8 billion.

By 2050, 151 countries (out of 192) are forecasted to have a birth rate lower than the replacement rate (<2.1). 23 countries are forecasted to have population declines greater than 50% by 2100. China’s population is forecasted to decline by 48%, from the current 1.4 billion to about 750 million in 2100.

Compared to the present, Africa is expected to have about 2.2 billion more people in 2100. The rest of the world is expected to see a decrease of about 1.4 billion people. One billion of the decrease will occur in China (about 750-800) and India (about 250-300). The rest of the decrease will occur mostly in Europe, southeast and southern Asia, and Japan. The US may be at the beginning of the downward population curve if the recent trends of a below (and falling) replacement birth rate and the current decrease in net immigration continue.

About 500 million of the African increase will happen in Nigeria. (See essay in this blog on Nigeria) Nigeria’s population growth will be so great that by 2100 the country may pass or equal China as the second most populous country in the world.

The global population is aging, with the over-65 age group becoming a larger percent of the total. By 2100, there will be 2.4 billion individuals older than 65 years compared to 1.7 billion individuals younger than 20 years.

The industrialized and modernizing parts of the world now have low birth rates – mostly below replacement – and low death rates. Birth rates are also falling in much of the rest of the world.

Declining population is already true in Japan, China and Russia, and is about to be true for most of Europe and much of Southeast Asia.

As the population and the labor force of a country decrease, it is possible that income per capita will continue to rise for a generation or two. But in the long run, income per capita will probably fall.

It is nearly impossible to predict technological and organizational change over the next 25 or 50 years. This will help determine if increases in productivity will counter the decrease in the size of the working population. This raises questions about the role robots in manufacturing and distribution (Amazon warehouses) and AI models in offices will play in the future. Robots are used more in countries with a declining number of employees now or in the near future (Japan, South Korea, and China).

GLOBAL DEMOGRAPHICS

Outside of Africa, the global birth rate is already below replacement but longer life expectancies will lead to continued population growth for one or two generations. Many countries already have or are about to have declining populations.

Countries with over a third of the world’s population and most of the world’s output now have birth rates below or at replacement. They are mostly the wealthy, industrialized countries, including the United States, Canada, Brazil, Western and Central Europe, Turkey, parts of Southeast Asia, Japan, Russia, and China. Collectively, the size of their workforces has stopped growing. India, the exception, has a birth rate that just fell to replacement and will probably continue to fall. This will add another 17% of the world’s population that has a below replacement birth rate.

There are falling birth rates for most of the rest of the world’s population, coming down from very high levels. But total population continues to grow, partly because of lower infant and child mortality rates, public health programs, better medicine, and longer lives in most of the world.

Regardless of what happens to the size of the labor forces in individual countries, the size of the global labor force after around 2100 will start to fall. An important question may be how it is allocated by migration.

GLOBAL FORECASTS

We are now in a period of a slowdown in total population growth rates. Global population is growing at about one percent per year and the rate continues to fall. But the increase in the number of people is large.

Changes in total population may be points on an exponential decay curve. The decline in numbers after achieving the maximum number of people in the 2060s will depend on how fast the African birth rate falls. Countries with birthrates well below replacement and aging populations may experience accelerating decreases in population.

The rate of decline could change with changes in the availability and cost of birth control, anti-aging medical technologies and more available health care for an aging population.

A big unknown is future medical technology that prolongs life expectancies. Technological advances might also decrease medical costs per capita. Regardless of the projections, the fastest growing age cohort in the foreseeable future is 80 years and older.

Countries with birthrates well below replacement and aging populations may experience accelerating decreases in population.

POOR COUNTRIES AND RICH COUNTRIES

Wealthy countries have below replacement birth rates, no growth or declining populations and labor forces, low real economic growth, and aging populations and labor forces. Population will continue to concentrate in cities; the population of a small number of cities will be responsible for technological innovation and economic development. Rural areas will continue to lose population.

Africa and a few poor countries outside of Africa will have the opposite problem. They will have above replacement birth rates for a generation or two. This will lead to high growth rates in labor force age groups and total population. Whether or not this will translate into high economic growth rates is problematic, depending on many other factors. These countries could be a source of large immigration to richer countries.

Many poor countries have poor infrastructure, poor education and health facilities, diseases, parasitic and corrupt political elites and bureaucracies, military coups, and internal violence including civil wars for political control. As an example, the next essay I will send you is a quick look at Nigeria.

All countries will sooner or later face the same challenges:  With declining populations and smaller labor forces, will they be able to invest in economic growth and development (innovation and structural change), deal with environmental costs and climate change, and support aging populations?

(DISCLAIMER:  MY LAWYER FORCED ME TO ADD THIS)

The posts on demographics contain long-term forecasts. They give the best estimates, given the assumptions. All contain large ranges of uncertainty (standard deviations or uncertainty interval), which is one reason to learn about statistics. Generally, the further out the forecast, the larger the uncertainty interval. It is impossible to forecast major changes in health care and AI technology, immigration laws, and other variables that could change the exponential trends.

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For more on future demographics and how population trends might interact with economic variables, see

Global Demographics and Population Projections

Demographics and Economic Growth

Demographics, Immigration and Future Economic Growth of the United States

Demographics and Population Projections of Japan

For how the expected demographic trends might influence future United States government finances and deficits, see

Government Finance 101. Fiscal Policy: Welcome to Alice in Wonderland

October 17, 2025
Demographics and Economic Growth

The Future Manufacturing Labor Force

SUMMARY

This post is a summary of some of the themes of previous posts on demographic and population projections, with an emphasis on how demographics impact economic growth. See bibliography at the end of this post. For a list of all blog posts on a wide variety of topics, see List of Posts by Topic on my blog.

Almost all countries outside of Africa are already facing or will soon face below replacement birth rates. Without immigration, this could lead first to smaller labor forces with greater numbers of retired citizens. Eventually, however, both the number of workers and retired citizens will decrease. During both stages of the transition, there will be issues of how to increase total output, maintain standards of living, and allocate income between the two major age groups. For background, see Global Demographics and Population Projections.

Population and economies can growth even if birth rates are below replacement. But eventually both economic output and real income per capita fall unless countered by migrations, new technology that increase productivity, or organizational, political and societal change. Societies will have to manage these transitions to avoid economic and political crises.

The first country that has started on the demographic declining path for wealthy nations is Japan. The depopulation curve starts with a slow descent, then accelerating. Japan has until 2030 to prepare for the rapid decrease in total population and the labor force age group. For details, see Demographics and Population Projections of Japan.

Other countries – China, countries in Southeast Asia, and countries in Central Europe – will soon face the same demographic trends as Japan.

The countries outside of Africa will have a collective labor shortage; the countries inside Africa will have a collective labor surplus. Wealthy industrialized or industrializing countries with declining populations will have different problems and strategic alternatives than poorer countries that have above replacement birth rates and increasing populations. For details about global population projections and the demographics of these two types of countries, see Global Demographics and Population Projections.

Immigrants into the wealthier countries will be one way to counter a dwindling labor force. Some of the immigrant will come from countries with declining labor forces. Immigrants will be especially in demand in the “service” sector with rising numbers of older citizens needing medical care and other services. In the United States, immigrants, both legal and undocumented, are also crucial for new construction, farm labor, restaurants, and various service and maintenance industries. But until the labor shortage becomes critical, there will be continuing political opposition to immigration.

An aging population plus increased immigration of different ethnic and religious groups may be necessary for economic growth but also a recipe for political conflict. Aging populations tend to become more conservative, less likely to support change, but more in need of immigrant service employees.

Changing demographics will influence the national and global allocation of labor. Decisions about allocation of labor – outsourcing, immigration – will sharpen the conflict between national policies and the global economy. Corporations have different strategies and objectives then national governments.

Changing demographics will influence the mix of supply and demand. In wealthier countries, more of the economic and political decisions will be driven by the increasing population of the elderly, including public support for health care services and biotechnology research. In poor countries, the economic objective will be how to grow rapidly to employ a quickly growing labor force.

There are three substitutes for a country’s shrinking labor force – immigration, investment in innovation and new technology, and organizational innovation and more productive employees. Better educated and trained employees and researchers are crucial for innovation and economic development. The new technologies of robotics and AI may reduce the long-run demand for the human labor force, especially in areas of white collar data processing and analysis jobs, although both will create new jobs demanding a high skill level.

How will governments and societies cope with the triple problems of declining populations, supporting an aging population and the cost of mitigating global warming?

THE ACCOUNTING IDENTITY OF ECONOMIC GROWTH

The accounting identity here is a framework to explore implications of a shrinking labor force for economic growth and development.

An accounting identity says nothing about causality, assumptions or feedback. But it introduces some general issues.

The following accounting identity shows the sources of economic growth:

The economic growth rate (growth rate of total output) roughly equals the growth rate of the labor force plus the increase in labor productivity (output per member of the labor force).

If the labor force numbers are stable, all of the increase in output depends on the increase in productivity. The pressure on productivity is even greater if the labor force numbers are decreasing. So, for example, if a labor force is increasing at about 1% per year and productivity is increasing at about 1% per year, output will increase about 2% per year. If the workforce stops growing, productivity will have to double to 2% to yield the same economic growth. If the workforce were to decrease at 1% a year, as it is in some countries already, productivity would have to increase 3% a year to achieve 2% economic growth. This is a high productivity growth rate for a developed economy.

Declining population, declining labor force and some increase in productivity could lead to higher standards of living (real income and consumption per person). But the demographic trends, without other changes, might lead to less innovation and lower or negative rates of productivity growth.

Low rates of productivity growth with accelerating rates of labor force and population decline could also lead to less output (negative growth rates) and declining standards of living.

LABOR SUBSTITUTES

A member of the industrial/information labor force today is better educated, with new skills, working with better capital equipment and IT inputs, compared to a member of the labor force a generation or two ago. The difference should show up as an increase in labor productivity. Increase in total factor productivity is due to innovation in capital equipment – including information technology – combined with employees with new skills and knowledge. Other factors included economies of scale, network effects, public investment and organizational innovation.

Capital investment, technological innovation, and organizational change are substitutes for labor. The composition of the declining labor force will change.

2-3% sustained productivity growth is unlikely without a dramatic impact from AI-augmented robots, AI-augmented business software, advances in new energy and production processes, and, possibly, quantum computing. Unit costs and prices are falling for a wide range of new outputs – EVs, solar panels and systems, energy from other renewables, hydrogen, large batteries and carbon capture.

Changing demographics will help direct the actual products and services of the new technology.

Some white-collar, middle-class jobs will be eliminated and replaced by software like AI, which will become more sophisticated in the future. AI programs are already able to analyze large quantities of specialized data and quickly reach conclusions and devise strategies. While AI and other new technologies will create technology jobs there is a fear that for the first time in the history of the Industrial Revolution, more jobs may be eliminated than created by new technology. Labor-intensive manufacturing and white collar data processing may be hit the hardest. One possibility is that high-wage, advanced technology systems may replace labor-intensive economic processes in low-wage countries. The economic disruption may be less if matched by a decreasing number of workers.

The new information technologies may primarily affect white-collar jobs, unlike past industrial technologies that mostly affected blue-collar jobs.

There will possibly be a greater importance of a globally connected and managed economy. Multinational companies will develop and control technology and globally allocate labor and other inputs. This might increase conflicts between the objectives of multinational companies and national governments.

DEMOGRAPHICS AND DEMAND

Demographics also influence the demand side of economies. Americans spend more money on pet products and services than on childcare. In South Korea, which has the lowest birth rate in the world, consumers spend more money on “baby carriages” for pets than for human babies.

Companies use demographic information when planning marketing and advertising strategies. Changing demographics are analyzed when developing new products, changing product mix, and segmenting markets. The explosion of detailed demographic information about smaller and smaller segments, down to individuals, combined with online marketing technology and almost real-time data analysis algorithms, is revolutionizing marketing and advertising.

Companies are using this data and analysis to fine tune pricing strategies such as price discrimination and dynamic pricing.

Autonomous driving vehicles and robotaxis should find a huge demand from older Americans, the number of whom are expected to double in the next 20 years.

IMPLICATIONS FOR ECONOMIC POLICY

In the past, there was a correlation between industrialization and secular increases in population. There were also national and international allocation of labor. A large number of people left Europe between 1815 and 1914, especially at the start of the second stage of the Industrial Revolution around 1870. An estimated 60 million people emigrated from Europe. They opened up new agricultural lands in other countries and provided some of the labor force for the new factories, mines, and railroads. The United States also experienced a large immigration of Latin American and Asian groups, starting in the 1960s. There was also large internal migration within countries. At the same time, the Industrial Revolution created new economic groups including industrial entrepreneurs, industrial work force, investment bankers, and a new technical and managerial middle class. This led to political conflict between traditional elites and the new groups, fights for political power and status. This also led to a call for economic and political reforms – the Populist and Progressive movements around 1900.

The standard economic models demonstrate that the demographic changes we saw over the last 200 years are a function of economic growth and development. Industrializing, urbanizing populations have declining birth rates. The experience of the poorer regions of the world tends to indicate that these demographic changes can occur even without economic growth and development because of imported modern health and the spread of primary education. The challenge for low and middle-income countries now is the danger of “getting gray before getting rich.”

Although wealthier countries concentrate on the costs of their rapidly growing retired population, for most of the world the critical question over the next two generations will be how to accelerate economic growth to provide jobs and opportunity for the growing working age population. The related challenge is how to improve education, training and economic opportunity to raise standards of living now to provide the resources for the aging population in the future.

For the entire world, these objectives are complicated by how to pay for the social costs of past industrialization and environmental degradation, and the future costs of climate change.

Over the next 40 years, the global population is expected to increase by 1.7 to 2.0 billion people, despite below replacement birth rates in most of the world. Although wealthier countries will concentrate on the costs of their rapidly growing retired population, for much of the world the critical question over the next two generations will be how to accelerate economic growth to provide jobs and opportunity for the growing working age population. Part of the challenge is how to improve education, training, and economic opportunity to raise standards of living now to provide the resources for the aging population in the future.

For the entire world, these objectives are complicated by how to pay for the social costs of past industrialization and environmental degradation, and the future costs of climate change. This will be a major part of future investment and a possible source of income and employment, especially for the technically educated.

In the long run, the positive side of declining global population may probably be less demand for resources. It depends on fewer people versus higher standards of living and changing preferences. Combined with substitute technology, global warming might slow down or stop. Climate change might not have quite the devastating effects trend projections indicate.

The advanced and industrialized countries with stable or declining populations and labor forces will have to consider the following:

Economic growth will have to come from large increases in productivity (output per member of the workforce). To achieve this, and also meet social welfare costs, most countries and regions such as the European Union will have to make changes in economic policies. Particularly disruptive and contentious will be the adoption of automated factories and offices. On the positive side they will increase labor and total productivity; on the negative side they will probably eliminate a large number of existing and future jobs. Retirement ages and requirements might change, depending on political resistance. Tax laws will have to change.

Even in the United States, a large increase in retirement age populations is leading to potential underfunding of public and private pension funds. Taxes to fund public pension funds are rising, both in amount and as percent of federal, state and local budgets. Despite this, unfunded liabilities – promised future benefits not covered by projected future revenue – are also rising. The $300 billion/year deficit in social security funding after the trust fund runs out in 2034 will probably be paid for by an increase in general government expenditures.

The United States is already experiencing large yearly fiscal deficits and a very large and rapidly-rising national debt. For the present and future impact of these trends on federal government budgets, see

Government Finance 101: Fiscal Policy. Can’t Anyone Add?

Multinational corporations will develop and adopt the new technology. Countries that do not have quality education, invest in public infrastructure, fund scientific research, encourage innovation and change economic incentives will not be able to attract foreign and domestic investment and compete in the global economy. And their best educated and most motivated people may emigrate.

On the other hand, poor countries with decent transportation, energy and communication infrastructure will probably attract foreign investment. Real wages of at least part of the labor force will rise.

Attitudes towards immigration might change from the current restrictive policies of some countries. Attracting “human capital” will be just as important as attracting investment capital. Trans-border movement of people will increase. New national, regional and international agreements will have to be negotiated. Remittances back to the home country will be a more important part of the economy of many countries and global capital flows.

Attitudes about work, labor laws, retirement and retirement ages will change. The benchmark age of 65 was arbitrarily set by Bismarck almost 150 years ago when a very small percent of the German population lived that long. When the United States adopted Social Security, life expectancy was 56 years. The life expectancy of America’s younger workers is already around 80 years.

The Japanese government and elites seem to have accepted declining population, slow (if any) economic growth, social stability and rising per capita income. They are increasing immigrant labor but there is a limit. They will export capital, earning income from overseas investments. They will outsource production of Japanese companies and export manufacturing technology, including robots. Whether all industrialized, wealthy countries can adopt the same policies at the same time seems unlikely.

What is uncertain is whether or not the Japanese government can continue to fund domestic expenditures by running large deficits. Global interest rates were low until 2022. This assumes that Japanese are willing to lend their savings to the government. Maybe part of an implicit social contract that the money will be spend on services for the elderly.

Other countries facing a “Japanese future” do not have the resources (per capita income and tax base) that Japan has. Many other countries do not have the political and cultural stability that Japan has. Hardly any country realizes this is soon going to be their number one domestic problem.

Countries are already facing the domestic problem of needing more immigrants to augment the declining labor force in the face of rising opposition against immigration. Without immigration, some countries will be facing declining output and lower standards of living. This will probably increase domestic anger and stresses. Rather than Japanese stability, there will be further instability fueled by increasingly shrill populist, nativist politicians.

More people will see they are living in a “zero-sum” country where more domestic resources will have to be allocated to a rapidly increasing older population It could be that political battles will be fought over age-based “income inequality.”

If taxes on the working population go up, this might further discourage economic development (innovation and risk-taking) and growth. The exception may be for products and services aimed at senior citizens.

Demographics are heavily influencing the areas of investment in wealthy countries; these sectors will drive future economic growth. Three current active areas of research and net investment are robots and AI (reaction to declining workforce), autonomous driving and robotaxis (aging population) and biotechnology (aging population).

How will governments and societies cope with the triple problems of declining populations, the cost of mitigating global warming, and supporting an aging population? With dysfunctional societies and governments, large and growing budget deficits and national debts, opposition to immigration, on top of existing political, ideological and economic problems?

The solutions may have to be global. This suggests increasing conflict between national governments (and their power elites) protecting privileges, national identity and sovereingty. This appears to be happening in the European Union. Maybe national governments can by replaced by international organizations whose members are not national governments. Some possible alternatives might be multinational corporations and privately-funded NGOs.

Fighting global warming, especially reducing the burning of fossil fuels, may pose an economic threat to poor countries dependent on “extractive” industries. Developing and poor countries whose economies depend on exporting raw materials – fossil fuels, minerals, agricultural goods – may have a particularly difficult time.

Increasing population and rising real income in emerging economies, especially in Asia, are increasing the demand for energy. A dramatic increase in the number of cars in Asia is the main reason for the continuing increase in global demand for oil. Increased demand for electricity is being partly met with new power plants burning fossil fuels. For at least another generation, these trends will make it difficult to meet global goals to drastically slow down or stop global warming.

DEMOGRAPHICS AND DEMAND

Demographics also influence the demand side of economies. Americans spend more money on pet products and services than on childcare. In South Korea, which has the lowest birth rate in the world, consumers spend more money on “baby carriages” for pets than for human babies.

The large increase in the Hispanic population in the United States has created a demand for new types of food and restaurants, new source of popular music, Spanish language TV and radio, bi-lingual teachers, imported beer, shifts in airline travel, and higher income remittance services. Chili is the go-to food at many Super Bowl parties.

Companies use demographic information when planning marketing and advertising strategies. Changing demographics are analyzed when developing new products, changing product mix, and segmenting markets. The explosion of detailed demographic information about smaller and smaller segments, down to individuals, combined with online marketing technology and almost real-time data analysis algorithms, is revolutionizing marketing and advertising.

Companies are using this data and analysis to fine tune pricing strategies such as price discrimination and dynamic pricing.

An aging population has increased demand for health care, retirement communities, RVs, leisure activities such as cruises, robot companions (in Japan), and reverse mortgages. Autonomous driving vehicles and robotaxis should find a huge demand from older Americans, the number of whom are expected to double in the next 20 years.

South Korea has the lowest birth rate in the world. Sales of “baby carriages” for pets is greater than sales for human babies.

DEMOGRAPHICS AND SUPPLY

If there are labor shortages, the result may be larger salary increases. Corporations may then step-up investment in labor-saving technologies, especially if immigration in the wealthier regions is limited by the political backlash.

The shortage of workers may accelerate the development of robotics and AI to substitute for workers. Economic growth will depend more than in the past 250 years on economic development, innovation, new technology and productivity increases than on population and labor force growth. The quality of workers – their education, skills and knowledge – will be more important than their numbers.

Demographics will change attitudes about retirement, immigration, employment and unemployment, automation, work and leisure, and economic growth. Retirement programs may be especially strained as the ratio of retired people to working people goes up.

DEMOGRAPHICS AND FOOD PRODUCTION

Demographics is interacting with climate change in another important area – food production. Many scientists believe the most serious effect of climate change will be its impact on food production.

Global warming and more extreme weather events will make it more difficult to expand food production using current technology. As in other areas, trend projections can be changed by the development of new technology such as drought-resistant strains of grains.

The global population will include about 1.7 to 2.0 billion more people between now and the 2060s. The challenge here is how to feed them, on top of rising food consumption per capita in emerging economies and possible negative effects of rising temperatures on food production, especially in tropical areas.

Technology is a substitute for using more land. Yields per acre have gone up dramatically in the last 75 years. In the U.S in the last 100 years, tractors eventually replaced about 23 million horses and mules. About 60 million acres of cropland planted to feed the horses and mules were freed up. Farms became larger and reduced the number of workers needed to produce food. (The Economist, “A Short History of Tractors in English,” December 23, 2023, 20-21.)

Expanding agriculture, and highly productive modern agriculture, are now a threat to the environment and a cause of climate change and environmental degradation. Examples are the burning of tropical forests, depletion of aquifers, and heavy use of fossil fuels to run machinery and produce nitrogen fertilizer and farm chemicals.

Food producers in industrialized areas may find that declining populations mean lower sales. But exports to poorer regions with increasing populations may rise.

SPECULATIONS AND SUMMARY

Static or declining labor forces outside of Africa mean economic growth will mostly depend on increases in productivity. To counter demographic trends, technological innovation leading to high rates of productivity growth will be necessary to increase standards of living (real income per person).

Rising population in poor countries make high rates of economic growth both pressing and difficult. Emigration pressure from poor regions of the world will probably increase unless there are high rates of economic growth in poor countries.

Most of the world’s population increase will take place in cities and surrounding metropolitan areas, creating even larger massive urban areas. Large urban areas are increasing rapidly in poorer countries.

It is nearly impossible to predict technological and organizational change over the next 25 or 50 years. This will help determine if increases in productivity will counter the decrease in the size of the working population.

Demographics interact with global economic and environmental trends. More people mean more food and more consumption products and services, which means more energy and technological inputs. At the same time, new technology must reduce carbon-emitting energy and production processes.

BIBLIOGRAPHY

DEMOGRAPHICS AND ECONOMICS

I believe that projections and related analysis of demographics should be the starting point of any long-range planning. There is time to implement strategies that mitigate the probable negative impact of these trends. For the data, see

Global Demographics and Population Projections

The United States may be one country that avoids experiencing declining population and labor force. For details on how this may be possible, see

Demographics, Immigration and Future Economic Growth of the United States

Japan is already on the declining labor force and population curve. It also has the world’s oldest population. For details, see

Demographics and Population Projections of Japan

For a case study of the difficulties of an African country trying to develop, see

Nigeria

For a discussion on why England and America had the prerequisites to start the Industrial Revolution and continued to economically develop, see

THE INDUSTRIAL REVOLUTION IN ENGLAND

The Beginning of the Industrial Revolution in England

Adam Smith’s Pin Factory

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution

A Cautionary Tale – England and the Industrial Revolution

AMERICAN ECONOMIC HISTORY

The Beginning of the Industrial Revolution in America

How America Industrialized and Became Wealthy

Alice in Wonderland and the Origins of Silicon Valley

AMERICAN HISTORY

The classic book on colonial immigration is David Hackett Fischer, Albion’s Seed. For a much shorter study of colonial American immigration, and an introduction to some long-term consequences, see

American Colonial History, 1607-1775

For a case study of a country (multi-national empire) undergoing industrialization, internal migration, the rise of new classes, and heightened social and political tensions, see

The Austro-Hungarian Empire Before World War I

October 16, 2025