Parag Khanna, Ph.D.
Founder and Managing Partner of FutureMap

Forces of Migration

January 24, 2022 | 53:37

Powerful global forces could cause billions of people to relocate over the next few decades, a transition that may have significant investment implications. Join Hugo and Parag Khanna, Ph.D., founder and managing partner of strategic advisory FutureMap and author of Move: The Forces Uprooting Us, for a discussion of what’s driving migration, including demographics, climate change, and politics.

Meet Our Moderator

Hugo Scott-Gall, Partner

00:36 Hugo introduces his guest, Dr. Parag Khanna.
01:32 Factors influencing trends in human migration.
05:55 The effects of climate change by region.
15:55 Population and migration decline in China.
19:09 Discussing water-stressed areas.
22:57 Population migration in the U.S. and Europe.
31:38 The fault in the current political climate.
35:35 Dr. Khanna unpacks the expression quantum people.
40:15 Investment implications of climate change and future prime destinations.
44:38 Dr. Khanna shares a few of his travel destinations.

Hugo Scott-Gall: Today, I am delighted to have with me, Dr. Parag Khanna. Parag is a leading global strategy advisor, world traveler, and best-selling author. He is the founder and managing partner of Future Map, a data and scenario-based strategic advisory firm.

And he holds a Ph.D. from the London School of Economics and bachelor’s and master’s degrees from the School of Foreign Service at Georgetown University. He has traveled to nearly 150 countries. And as a young global leader of the World Economic Forum, we will be asking him about traveling to these countries towards the end of the podcast, stay tuned for that. His latest book is, Move: The Forces Uprooting Us. Parag, thank you very much for being here today.

Parag Khanna: Such a pleasure. Thank you for inviting me, Hugo.

Hugo Scott-Gall: Not at all, not all. So, let’s get going. I think very simplistically, you write, talk a big thing about how the world’s going to change, specifically though the lenses of people and where they’re going to be. So, let’s call that migration. So, could you kick off with what you see as your big trends, big predictions at how the world is going to evolve in terms of people and where they are?

Parag Khanna: Absolutely. Well, it obviously has been an ironic moment to be discussing this subject when we’re experiencing the most coordinated single act that the human species has ever undertaken, and it happened to be a lockdown. Which suggests the exact antithesis of my argument. But if you really look at the underlying drivers of human migration and mobility over time, over say 100,000 years, or even the last 100 years. You find that those drivers are not only present and agitating today. They’re very much an overdrive and are fueling each other. So, take a few of them. The first is demographic imbalances.

The gap between old and young, the labor shortages within our western OECD countries. And internationally between north and south. So, we have a mismatch between aging societies in need of young workers and caregivers and construction workers and that kind of thing in the north. And we have an abundance of that human capital that is of course sub-optimally productive in the south. So, that has been rectified gradually, bit by bit. That’s why we had such enormous migration waves in the 20th century, if you think about Latin Americans and Asians to North America. Turks and other people from the Near-East to Western Europe and that sort of thing. And that’s just one.

And that mismatch is more acute than ever in history, right? Particularly because we’ve had longevity, increases in longevity in aging along the way. A second driver is political upheavals, whether that’s international conflicts and civil wars, just think of all the failed states, collapsing states, refugee floats from international conflicts. The Syrian crisis of 2015 pushed 2 million people into Europe, just that one phenomenon. What’s happening in Afghanistan today, Venezuela has completely collapsed. Turkey is home to the largest number of refugees in the world. So, that speaks for itself. Economic crises as well, of course.

Remember that, and this is where it’s important to remember that migration doesn’t mean crossing a border. It’s simply relocation and the movement of Americans from the Rust Belt to the Sun Belt after the financial crisis. Southern Europeans to Northern Europe after the financial crisis as well. We are fundamentally economic migrants. And then there’s technological disruptions, like labor automation. When factories close, people are forced to move and relocate and look for more affordable places where there are jobs. Digitization and remote work now allows people voluntarily to go and live wherever they want. So, that is also a driver of movement.

And then finally, there’s climate change. And climate is, if you go back to our most innate historical experience of human geography, the climate is the driver that determines where most people live. Most of the human population, for example, lives between 20- and 30-degrees north latitude. And that’s of course not at all an accident. But as you have been hearing this term, climate niche, right? The climate niche is shifting as temperatures rise, and for every one degree of temperature rise, it’s predicted that a billion people will be displaced from that climate niche.

So, bottom line is, I guess I’ll just sum up, over the centuries, I looked back at the last 300, 400, 500 years, and I realized that the number of people that have moved over these centuries has grown from single digit millions to tens of millions to hundreds of millions in the 20th century. And in this century, surely more than one billion people. And I think that we can expect it, it’s predictable. It’s already happening and that we need to anticipate and prepare for it.

Hugo Scott-Gall: Yeah, and the way I think about that through an investing lens is that there are some things at a high level which are really important, and you know are going to happen. You don’t know exactly the numbers. And I think what you’re saying is that, in the next, pick a number, 50 years we are going to see a lot of migration. Doesn’t necessarily mean people leaving countries to go to another, but within countries and a lot of movement. And that has tremendous investing implications. And you listed a lot of reasons why migration happens and indeed, has always happened. But I guess the one I want to drill down on a bit more is climate.

Climate motivated, climate necessitated change. So, could you talk a bit more about what that means because that probably, climate volatility or irreversible climate change is not necessarily been a driver historically. Often times, it’s been people simply seeking to improve their lot in life. But now you’ve got, you can debate how much, but quite meaningful climate changes that are changing how hospitable regions are. So, could you talk a bit more about what you think, as a push factor, what that is going to mean?

Parag Khanna: Absolutely. And indeed, as you were saying earlier, really every one of these drivers has investment theses attached to it. If you think about the great demographic deflation of the world, we are reaching what I call, peak humanity. The maximum number of human beings that will ever simultaneously live is not going to be the 15 billion people that were predicted 15, 20 years ago. It’s more like 9 billion people. In other words, when the stock of the human population becomes finite, suddenly you have almost a zero-sum game on demographics. And demographics is of course fundamental to our economic forecasts and calculations.

So, there’s an investment story around every one of these drivers. Obviously, automation, for example, and so on and so forth. But coming to migration, what I do as a traveler is to really take these swaths, these regional patches of the world that either fall within the borders of one country, let’s say Siberia and Eastern Russia. Or within the United States, across borders, parts of Europe and so forth and look at the nexus of their environmental suitability for human habitation. The economic composition of that geography, what’re the activities going on there, what is the industry, the productivity, the supply chains.

Obviously, the human capital and skills. And the political degree of preparedness a country has for migration. Whether it is the emigration or immigration. And to put all of that together into a holistic analysis of these geographies, there’s no question that the southern hemisphere, by and large is going to be more a victim than a victor from climate change. But that also applies across much of the northern hemisphere as well. If you think about the large economic anchors and pillars of the world, it’s North America, Europe, and Asia. And Asia is of course, multi-polar in and of itself. But they all have different climate scenarios attached to them.

A lot of times people forget that Europe has a far higher northern latitude than the United States does. Europe is of course, more at Canadian latitudes. And when you look at these climate niche maps and forecasts from the IPCC and others, Canada of course ends up looking like the promised land, whereas large parts of the United States become unlivable. And so, when we make our macroeconomic forecasts, we do have to start to take into account, you could call it the stranded assets of coastal infrastructure and other kinds of assets that are obviously no longer viable. It could be for regulatory reasons, or it could be because geographies are unlivable.

We have to think about the GDP erosion. There’s a very prominent study that was done called the climate impact study that looked out to 2040 and scored every county in the United States according to its projected gain or loss of GDP as temperatures rise and a high climate change scenario out to the year 2040. And there were many of America’s 3,000 counties that literally will be smaller than they are today in terms of population and GDP. So, you want to be looking at the fundamental, in climatological and economic geography of places, which is so different from the static approach that we’ve had with a non-climate change lens, when making our predictions about markets.

Hugo Scott-Gall: I think one of the things that you’re describing there, and indeed you do in your work is blending these factors. But I guess going back to just climate, where do you see it, let’s get a bit more specific and start talking about your map of the world, given chances are you’ve been to most of the places we’re going to talk about. I’m still super impressed you’ve been to nearly 150 countries.

Parag Khanna: Oh, it’s more actually.

Hugo Scott-Gall: It’s more? Oh, wow.

Parag Khanna: I need to update that bio.

Hugo Scott-Gall: Yeah. Yeah, so when we start thinking about, maybe let’s go around the world by some readings. Just again, to be precise is difficult but we kind of know these things are in motion. And, therefore, there is going to be movement and, therefore, there is opportunity and risk around lots of different investing conclusions, up to and including real estate. So, as we think about say, Asia, I was fascinated in your book where you talk about the rise of ’stans. Kazakhstan, Uzbekistan, Turkmenistan, there are many ’stans and I haven’t been to any of them, and I’ve always looked at the map of the world and always wondered what would it be like to be there?

So, I’ve always been very curious. And you’re saying actually, their time is coming. I mean, their time has been before with the silk roads, but it’s coming because of climate change, and it will push people up, whether that is people coming from India, other parts of central Asia. And also, you think Russia’s time is coming as well. So, maybe in our trip around the world, we can start there and talk about why that you think those regions are going to change or why climate is such a big driver of that change.

Parag Khanna: Absolutely. And this is, to me the region of the world that really tugs at my heart strings the most. I’ve spent so much time there over the last 20 to 25 years and witnessed the demographic changes, the economic modernization and progress and so forth. And indeed, the revival of these so-called new silk roads over the past three decades since the collapse of the Soviet Union. And they have done overall, a pretty good job of managing economic transitions. I’m speaking primarily of course about Kazakhstan and Uzbekistan. And when you look at Russia and central Russia and Eastern Russia, there’s no doubt that there is a lot of climate volatility that isn’t all good.

I mean, the forest fires that were raging last summer in Russia were larger than all of the rest of the world’s forest fires put together, with very little state capacity to control them. So, Siberia is literally on fire, which is not the image that comes to mind when we think about Siberia. But my first road trip across all of Russia was more than 10 years ago. And it happened to have been a major heatwave in the summer of 2010, and I was in a big, beat-up old Land Rover truck that had no air conditioning. And I thought to myself, I can’t believe I’m in a Siberian heatwave. How is this possible, that I’m in a Siberian heatwave? And interestingly enough, six months later, the Arab Spring broke out.

Now, you’re in markets. By now, everyone knows the story. That Russia’s wheat imports were restricted after that Siberian heatwave of 2010 and in precisely January 2011, you had the riots in Egypt and now similar phenomenon are happening again with the commodities price volatility. So, there’s some broader lessons here, but this year, to bring it back to climate change and that particular geography, in 2021 Russia has been the world’s largest wheat exporter. And a number of countries in Central Asia, particularly again, Kazakhstan again have really risen up the rankings in global food production.

And with their enormous geography and very underpopulated realms, you could easily imagine far larger populations. And indeed, Kazakhstan’s population is actually growing. Russia’s population is of course in decline. You would say, almost terminal decline given emigration, alcoholism, other causes or mortality. COVID, by the way, has of course been horrific in Russia and they’re underreporting that. But Kazakhstan’s population is growing. It’s very young, high fertility. A lot of optimism and confidence in the society. A large number of foreigners coming in. It’s a real magnet.

I’ve actually talked to and advised private equity funds that’re going in and building and expanding schools, international schools, hospital chains. All manner of real assets and economic assets across the country, given that overall positive trajectory. And when it comes to the new migrants, a lot of people are surprised, most of all myself as someone who was born in India. That over the last 20-something years, I just keep seeing more and more Indians in Kazakhstan and Uzbekistan. And so, I decided to frame this in the book by talking about what I call, the reverse Mughal Empire.

Because of course, the Mughal Empire was founded 500 years ago in Central Asia, in the Fergana Valley. And Babur and his descendants came southward and conquered the Delhi Sultanate, and you had the rise of the Mughal Empire. But now, you have the South Asians moving north. Over the Himalayas in the other direction as it were, and not colonizing of course. They’re guest workers, you would say. But finding their feet and assimilating into Kazak life. And this isn’t an area that people maybe have the historical appreciation to be aware that this really is a melting pot zone.

So, I characterize it as a country of 25 million people that could have 200 million people a couple of decades from now, the way things are going with climate change. Because if you look at those maps again, the biggest red zone in the world in terms of decreasing suitability for human life is India and Pakistan and Bangladesh. Which happen to be the three major South Asian countries, whose combined population is greater than 1.8 billion people.

And so, it becomes perfectly logical from a climate standpoint through these scenarios to forecast that the largest diasporas in the world will be the South Asian diasporas. Far larger than the Chinese diaspora of today. Not least also, because Indians are much younger. So anyway, the global Indian footprint is set to expand massively, and Central Asia is going to be a prime destination for it, given these climate models.

Hugo Scott-Gall: Big country in Asia called China. Let’s talk about China. People, environmental degradation, particularly water. And what does that mean for people flows and then I guess, geopolitical stability in that region?

Parag Khanna: Well, it’s so fascinating because China is still the world’s most populous country, but barely. I mean, at this point the distinction between China and India’s population in the aggregate is negligible. But the age structure of course is very different. China’s median age is far higher than India’s. And so, India will not only rapidly surpass China, given its higher fertility. And of course, the diaspora issue. But China, even though it still has 1.3, 1.4 billion people, the dependency ratio is the real issue. The one, two, four as it’s known. One child supporting two parents and four grandparents. And with again, fertility plummeting. Fertility in China has now reached Japanese levels, it’s sunk so low.

And, therefore, China on the one hand still has the world’s largest diaspora and many Chinese still migrate outward as laborers or scientists or students, whatever the case may be. But China is also importing people. It needs to, given of course the gender imbalance as well. It actually has been importing brides. Burmese, Vietnamese, Thai, Filipino, Korean, you name it. And importing nurses and caregivers for the elderly Chinese whose children and grandchildren have moved away from the countryside and into the city. So, China’s issue, despite its large size is of course, the demographic structure and how to incentivize younger Chinese, male or female.

The so called, lie flat generation of millennials who are just burned out. To work in the services economy, which is to say again, in elderly care and logistics and all of these other professions and fan out and circulate around the country, in a way that will allow them to continue this push toward self-sufficiency. Because of course, whereas there are people from poorer countries who move to China, it’s not a place anymore, given its politics, that is going to be a welcoming place, certainly not for westerners, right? So, you have to actually take into account the geopolitics, the demographics., the gender imbalance, all of these things.

And then again, the environmental issues like water and so forth, you’re very right to raise that. But here’s an area where, even though you might say every problem in China is the largest problem in human history to some degree, they’re taking those steps. They’re working on, true to the reputation as the hydrological civilization. The famous term that Joseph Needham used to describe China.

They are working on these massive river diversion projects and other schemes to provide a stable water supply, a clean water supply for the north, northeastern regions of China. There’s no guarantee of the success of any of these initiatives, but China is making efforts in this regard, far more intensively than India is, which actually has similar water stress issues.

Hugo Scott-Gall: And water, particularly China versus India is a likely flashpoint. Are there other parts of the world where you can see that diversion of water or not to bat around the wrong word, but the need for fresh water is going to outstrip supply and could well lead to instability. Is this the biggest flash point, just the water flowing out of the Himalayas?

Parag Khanna: Well — there are quite a few flash points, unfortunately. And if one of the maps that I’ve recently been designing overlays the increase in water stress due to falling water tables and other water related phenomena, versus the population density. And so, there are a number of areas that you find that correlation particularly strong and again, with this choropleth cartography, you have pretty direct insight into the places that the next flashpoints are going to be. That said, water wars don’t create more water. Which is why you haven’t really seen an officially declared international conflict over a river basin or something like that.

Because again, that doesn’t actually lead to a productive outcome for anyone. And so, this has actually been one of the areas of fairly innovative diplomacy in boundary regions between countries. That said, it’s not all peacefully managed, where you have a lot of volatility in relations between Egypt, Sudan, and Ethiopia, for example, over the Great Renaissance Dam Project. The Himalayas as you mentioned, the Mekong River, China and Southeast Asia. So, there’s still a lack of transparency among the various parties around dam building, waterflow management, seasonal volatility and providing sharing of information so that countries can prepare accordingly.

But again, it’s not really between these countries. It’s just a slow-moving catastrophe in some cases, like Laos. Or in other cases, you have joint hydrological projects. One of the things that China wants to do is actually divert certain Russian rivers. Russian rivers flow from south to north. Like the Nile does. But of course, since there are almost no people in the vast terrain of eastern Russia. And yet, you have these mighty rivers flowing all the way over to the arctic, they want to do these diversion projects that would bring some of this water down towards China’s northeast.

Not something that’s really advanced in negotiations, but I’ve had conversations with water authorities in China, as well as major energy and utility players in Russia. And they do view it as something that, despite the political sensitivities, is all but inevitable. So, you’ll start to see more infrastructure in that location as well. In terms of major mountain ranges of the world and the populations that surround them, you could have really very little confidence in the Andean countries. That they’re going to manage the Andean runoff in a way that manages to preserve their agriculture, but also ensure long-term water supply. The Rockies, of course better late than never.

But Colorado knows that it has issues to grapple with, whether America can afford that infrastructure. The Alpine countries are the only ones where you can have full confidence that they’re going to develop the hydro engineering projects. Everything from underground reservoirs to long distance irrigation channels and so forth to manage alpine glacier melt. And then there’s the Himalayas where it’s so vast and there’s so many flashpoints and such uneven degrees of economic development, that there isn’t really one pattern for how it will play out.

Hugo Scott-Gall: I just want to do a little bit more on geographical talk before we start talking more specifically about people. So, you said Canada is a huge beneficiary, and so let’s just talk a bit more about the U.S., what you foresee happening in terms of population movement. Because we’ve seen recently in the U.S., you’ve seen an emptying out of the headquarters for our firm, William Blair is in Chicago. Chicago population has been seeping south, down to the southwest whether it’s Arizona, New Mexico, etcetera. So, it feels like that’s going to reverse. That actually, you’re going to see a big push from the south up to the north of the U.S. and across the border into Canada. Is that right?

Parag Khanna: That’s exactly right.

Hugo Scott-Gall: Then the implications of that are pretty big.

Parag Khanna: It is, but we don’t see it in the demographic data yet. What we actually have seen is that Illinois and Michigan are two states that’re still losing people. And Michigan just lost a congressional seat because literally, its population continues to decline. But there’s no question, and this is one of the geographical areas that I focus on the most in the book. There’s no question that the Great Lakes region is perhaps, in the entire world, the most climate prodigious zone to be in, given the fresh water supply and the overall stability of the U,S,/Canada border region.

And so, I do foresee with a high degree of confidence, that the population of the Great Lakes region is going to expand, and it’ll spread across different states, Minnesota, Wisconsin, Michigan, and so forth. And there are communities that I’ve visited and talked to. Municipal leaders and chambers of commerce and mayors and so forth. Where they are preparing for this. They do want to make sure that as climate gentrification brings people from the south back to the north. Again, you had the Rust Belt to Sun Belt migration that you were just referring to. And it will eventually reverse because of the climate situation in Texas and Arizona and Florida.

All of these places that continue to be net gainers in population ultimately will suffer from such climatological volatility that people will move away, and they’ll move back north. So, I’m actually advocating that that happen, and part of my commentary relates to of course, the U,S, infrastructure bill right now. Because the way infrastructure is done is of course, highly politicized. In which every district wants to get its share of the pie. That’s not the way spacial planning should be done. You have to start with the climate model and say, people of Louisiana, it’s not your fault that climate change is bringing these devastating hurricanes to your shores.

But it no longer makes economic sense to be rebuilding powerlines, and other assets, other infrastructure in coastal Louisiana or coastal Mississippi. Instead, we should incentivize people to relocate to climate resilient areas. I go so far as to say, rather than spending a billion dollars a year on rebuilding powerlines in Louisiana that’re going to get destroyed in the next storm, you should probably buy those people a plane ticket to Detroit. That didn’t go over very well with the people of New Orleans when I wrote that in the book or in the Washington Post a few weeks ago.

But alas, this is taxpayer money at work, so we have to be utilitarian about it. So again, start with climate, then think about migration and demographics and relocation. And then, make your 50-year infrastructure investments, right? Because it is a generational investment, so it needs to be done in this next generation in climate resilient places in ways that we’ve never considered before. So yes, the Great Lakes will absolutely be a winner. The only question is who realizes it first. And Canada of course as well.

Hugo Scott-Gall: That’s a great point, that’s a great point and I don’t hold out a lot of hope on most infrastructure planning that it’ll take into account, the things you’re describing there over the time period you’re describing. So, one last place on our geographical tour and then we’ll drill down into people and politics, because that’s very important. And so, this is your idea of a new Hanseatic League. The idea that actually, Northern Europe, Greenland, Canada, Newfoundland, northeast Canada, it can become a new trading zone in the way that the Hanseatic League back in the day, in the North Sea and the Baltic Sea was very successful. That’s a pretty interesting idea.

It’s a pretty interesting idea of where the economic center of gravity of Europe might move and indeed, where Europe will have to look. Because I think last 10 years, last 20 years in Europe, it’s been very much look east. Look east. Certainly, Eastern Europe, Germany towards Russia. Big effort to try and attract investment from China, but Europe’s center of gravity moving north because of climate is an interesting idea and definitely a different scenario to the centers of attention and effort of the last 20 or 30 years.

Parag Khanna: Well, the core of Western European economies are still of course, the engines of the European economic commonwealth and area. Germany, in particular, of course. And Germany has a fairly stable climate scenario. And of course, to the extent that countries or regions can generate micro-climates through their renewable energy and other environmental systems. Germany and Switzerland and France are leaders in that as well. Going back to nuclear power and all of the other things that they’re doing with wind and solar and all of that.

So, I’m again, very, very bullish on Europe for different reasons than people — well, I mean of course, there’s generally a market pessimism about Europe, given slow growth, aging demographics and so forth. But if we tie together a couple of threads here, the outbound Asian populations, and let’s remember that Asia represents not only most of the human population, but most of the world’s young people as well. The outbound Asians are now increasingly choosing Europe over the United States. I see this with students, I see this with tech workers, and IT workers. You see it with nurses and doctors and all sorts of professions. So, you have the rise of what I call, the Asian Europeans.

Instead of the Asian Americans. I grew up labeled an Asian American. And there weren’t any Asian Europeans up until relatively recently. But I predict in the next 20 years, there will be many more, millions more Asian Europeans than there are Asian Americans, for a variety of reasons, some of which we already discussed. So, the new Hanseatic League is the icing on the cake, in the sense of as the northern cone of the planet starts to take on these characteristics of year-round economic activity and arctic shipping and growing populations. Diversification of economies.

Those cities with that maritime heritage and obviously, capacity, political will, connectedness and so forth are going to really thrive again. and I see this because I also went to high school in Hamburg, one of the old great Hanseatic League cities and spent a lot of time in Estonia and Finland and Sweden and so on. But I do see already the networks that are forming. Whether it is railways across the Nordic countries, obviously more ferries and shipping lines and airline connections. The ways in which those countries collaborate through processes like the Baltic union, which is a national transnational body.

The things they do around integrating their banking systems and telecom and so forth is all evidence of this new Hanseatic League. And of course, their trade with each other, the flows of people and talent are all very dense today. And territories like Scotland, the ports such as those of Newfoundland and Canada. And eventually, more towns that will spring up in Greenland. I’ve visited the northern most city in the world, or town in the world, Kirkenes, Norway. And I’ve seen the population grow from 10,000 Norwegian fisherman seasonally, to really a year-round community. With a wide range of economic activity going on.

Whether it’s shipping and, of course, still the fishing and other industries. But arctic tourism and the exploitation of minerals, the mineral deposits of northern Finland and Sweden is a huge industry already for Sweden and will be even more so for other Nordic countries. So yes, there is this reemergence of the Hanseatic League. And I think it really speaks to a number of simultaneous trends. The rise of cities, the connections amongst cities. Again, the sharing of talent and knowledge. The spread of internet cables between these cities and on and on and on it goes. So, I’m quite bullish on that entire zone.

Hugo Scott-Gall: Yeah. Yeah. But that all makes sense and again, back to the investment implications, I think it’s super important. So, a few more things that I wanted to cover before we finish. One is, to talk about the politics of this, then to talk about your phrase, quantum people, and then just to maybe finish off a round, investability and some of the datasets you’re bringing together. So, the politics of this right now in most certain, western democracies, are the wrong way for this. They are, we don’t want more people coming in, more people coming in causes problems.

And we’d have fewer problems if we didn’t have people coming in. That’s a simplistic summary, but that is permeating the politics, certainly in Europe and has done in the U.S. So, what you’re arguing for is, that’s going to have to turn on its head and actually, it’s going to go the other way. Countries are going to say, we need more people. We need to make ourselves more attractive so we can attract people. That is very different from the current political climate, so I think it’s very interesting and could you expand on that?

Parag Khanna: Absolutely. And I think though, the train has already left the station and the initial conditions that you’re describing, we can already safely modify away from the generalization that western societies would prefer to close themselves off and look at the divergence within the west on immigration policy. Because I do believe this war for talent is already well underway. And some of the anchors of western culture and the western system, such as Canada and Germany, very much prove to break from the nationalist, populist frame that we tend to ascribe to all western and OACD countries.

If you look at Canada, of course, it’s pound for pound the most generous country in the world, in terms of inward migration. They’re increasing their population by one percent every single year. That amounts to more than 400,000 people. So, they’re on track to really become a demographic superpower and in Canada, there is a consensus that immigration policy is economic policy. There are years where Canada, with 1/10th the population of the United States, not only brings in almost as many people as America, but actually out imports and out recruits skilled migrants from India. Because of the Trump administration’s curb on H1V visas and so forth.

You look at Germany, it’s of course been more reluctant. You might even say, accidental. But, of course, Germany is the economy now in Western Europe that’s benefitted from integrating, whether it’s asylum seekers, refugees, and other migrants over the last 30 years. In the Balkans, from the former Soviet Union, of course in the Arab world and elsewhere, from Turkey into its economy. Through its vocational training system and so on. And look what just happened in Germany’s election, right? The far-right parties were more or less obliterated. And that was actually predictable because Germans have become very pragmatic about this issue.

And if you look at the agenda of this new coalition government. I mean, you can become a citizen of Germany within three years, irrespective of your heritage, is not something you would expect from a country like Germany or any countries where traditionally, birthright citizenship is the only way to acquire that nationality. So, there’s a lot of exception to the rule. Britain is learning this, by the way. Boris Johnson and passports, people before passports and so on. Look at how the combination of Brexit and COVID exposed the shortage of truckdrivers, nurses, doctors.

So, it’s actually easier to migrate to the U.K. right now than it was five years ago. So, I think that really, the train has left the station. It’s a war for talent, particularly young talent. And countries realize, especially those with very large, outstanding pension liabilities and entitlements that they need those young workers.

Hugo Scott-Gall: Yeah, and as I said at the start, there were some big trends that you don’t know precisely how to forecast and quantify them. And that’s not the point, you know they’re going to happen, and I think what you’ve just described is something that is going to happen. That we’re going to see these people flows. And I guess we’ve really talked a lot about the push of climate change and then maybe the pull of countries make themselves more attractive.

But let’s talk a little bit about people themselves. You’ve got this good expression, quantum people. Can you talk about what you mean by that and actually, what aspirational young people are going to want to be? And I think a core of what you’re going to say is that people, they want to be mobile. Mobility is destiny and they want to be mobile. So, quantum people is a way of describing the tools that can make you mobile and portable skills.

Parag Khanna: Absolutely. Well, there are three categories of people that I describe as quantum people and they vaguely, or some of them somewhat overlap. One of them is just youth and this is very important in understanding the future of our human demographics. Because today’s young generations, millennials, Generation Z, and Generation Alpha, who are today’s babies, are the three largest generations in the history of the human species. Roughly 1.8, 1.9 billion people each. So, the world is still more young than it is old, despite aging. But young people are not having children, right? There’s been a global fertility crash, dating to before the financial crisis, but accelerated by the financial crisis and further accelerated by COVID.

So, we’re experiencing, we’ll soon experience a demographic freefall. And today’s young, who have no children and don’t own homes are also the largest generation in the world and they want to, and there again, as we discussed at the very beginning, living in the wrong places. And I want to characterize the median human being in the world. I mean, Hugo, you and I both grew up in the world probably where we said, what’s a normal person? And you might say well, it’s a husband and a wife, it’s a two-income household living in a suburban geography with two children, right? That would be our conception of the median person in the world.

Today, the median human being is young, has no children, does not own a home, lives in a city and is economically struggling. These are the characteristics to me of the median human being on the earth today. And that is going to continue actually, all the way long into the future because young people aren’t having children. They can’t afford homes. They do live in cities. They live in the wrong places, in climate stressed places, and they want to be mobile, they want to move.

So, you’re a quantum person if you are a Filipino nurse or an Indian construction worker and you spend your life moving around from construction site to construction site or elderly home to elderly home in different countries, collecting your paycheck, and sending it via remittances around the world. That’s a quantum person.

But then, of course, the top of the pyramid you have the quantum people who have five passports, who are all tri-net worth individuals. Who have many different residencies and so forth, and that’s also a demographic I talk about in the book and, of course, that demographic is super interesting because you can see how again, in a world of, not in a world of a set number, though not a finite number, still a growing number of high-net-worth individuals. Economies are catering in a way to these individuals again, by selling passports, selling citizenship, engaging in what’s called, sovereign equity. Instead of raising more sovereign debt and a fact that can obviously negatively affect their credit rating. They’re trying to attract sovereign equity in selling bits of themselves, real estate and so forth in exchange for citizenship and nationality.

And then there’s the digital workers and digital nomads. The number of countries that have these digital nomad schemes for the millennials who are talented and who are services economy and tech workers. That has grown from one or two countries. That has grown from one or two countries like Estonia, to 75 countries today. There are 75 or more countries, pretty much half the world is now competing for young people to come and live there, to spend money, to drink coffee in their coffee shops and stay in their Airbnb’s and use their coworking spaces, because fundamentally consumption in the service economy is such a huge driver of our economies today.

So again, there are many different categories of quantum people, but more and more people are certainly becoming quantum people, even in a world where I think we have to acknowledge, most people, most of the human species, may still not leave the country or the continent in which they were born, but those are not the populations, and this is not to be dismissive of them of course. Ethically, I focus on all 8 billion people of the world, and I try to come up with solutions for all 8 billion people of the world. But when it comes to what is moving the needle economically in the next 10, 20, 30 years, it is the quantum people.

Hugo Scott-Gall: Yeah. Yeah. So, let’s round it out with thinking about investment implications and you have thought a lot about this I know, and you have created some proprietary datasets, blended some data sets. I think really, and correct me if I’m wrong, to really think about ways of investing in these likely changes. Because in a sense, we’re talking about fragility and maybe anti-fragility, regions that will benefit, get stronger with climate volatility and regions that will get weaker with climate volatility. Is that a good way of thinking about the first order investment implications of climate change?

It’s likely where people move to and probably, it’s real estate that feels it most obviously. But secondarily, you get big shifts in innovation clusters and innovation clusters lead to a loss of second third order effects. Is that how you think about it overall and maybe you can talk a little bit about the datasets you pulled together to, I think in an area that’s so important on any given day, it probably isn’t. But as a huge trend, it’s important and maybe there is an absence of an intelligent blend of datasets around it.

Parag Khanna: That’s exactly right. And it isn’t politically correct to say so, but there are places that have the capacity to be winners from climate change. And therefore, relative to other geographies, exhibit that anti-fragility. And that’s where Canada comes in. Northern Ontario or central Ontario in areas like Waterloo, which now is a very thriving academic, vocational, and technical ecosystem. Where Silicon Valley tech companies are relocating large clusters for R&D activity. The same thing is happening in Switzerland. You can see this in Sweden, in the Baltic countries, and so forth.

So, there is a new distribution, that was happening in any case, just given rising wealth and education and connectivity and entrepreneurship in these societies, it’s not all climate related. But yes, indeed. When it comes to the impact of climate fundamentally on our real estate, land, and property assets, we mostly focus on the downside, right? We have a lot of companies out there that tell you that Miami is going to sink and that you don’t want to be exposed to these coastal areas in various parts of the world.

But it actually is still a very big, vast world. And what I set out to do in the course of writing this book is to say, if I can qualitatively answer these questions as to what are the prime geographies that are going to be the winners from climate change and what should they do to adapt and gain in population and become the new core, if you will, instead of the new periphery of the world economy, what are they? And then I realized there should be an algorithmic approach to this. So, we started pulling together data sets and that’s become Climate Alpha.

And it’s a mix of climatological data, socio-economic data, fiscal and other indicators, we’ve back tested with 20-year time series data and now we’re projecting forward through what’s called scenario-based forecasting to look at what would happen to asset prices, across the various asset classes of real estate, under different climate scenarios or other governance scenarios as well and demographic scenarios. And even energy scenarios, in terms of the composition. Because of course, if a country moves more rapidly towards renewable power, then it’s going to decrease its current account deficits as an energy importer, for example, and all of these other effects.

We were trying to code and model all of these possible scenarios for different geographies. And then to price out to the year 2040. But choosing any year increment between now and 2040. What will happen to asset values in those places? So, that’s what Climate Alpha, our product does. And it isn’t really, yes. Price of real estate assets is a dependent variable.

But you want to know this whole story along the way to understand what other industries are going to benefit, because as you rightly say, it isn’t so much a neat first, second, third order effect. It’s all of these changes happening in economies simultaneously. And real estate is simply one barometer of the health or vitality of a society.

Hugo Scott-Gall: Yep. So, let’s round up, let’s finish off with some fun stuff. So, you’ve been to loads of countries, you’ve been to loads more countries than I have, by quite a large number. And a number of the ones you’ve been to, I really want to go to. So, let’s do quickfire. Of all the countries you’ve been to, what were the most scary?

Parag Khanna: Scariest place for me would be a tie between Venezuela and Nigeria. And that is despite having served in U.S. Special Operations Forces in Iraq and Afghanistan, I was never more afraid than I was in parts of Lagos and parts of Caraccas. And so, that’s really telling about those places. It’s really the degree and the potential for arbitrary violence in those countries and in those capitals, which of course is on full display if you look at Venezuela right now. And it had a different kind of chaos to it under Chavez when I had first gone and visited.

And Nigeria, you just feel at any given time, anyone could just put a gun to your head and just pull the trigger and take the wad of cash out of your pocket for no reason. And so, I constantly find myself paying bribes to be able to cross the street in parts of Nigeria. Orders of magnitude to me scarier. Of course, when you’re in the military, you’re protected in many different physical ways. But even walking around Kabul, Baghdad. Obviously, I’m of a certain complexion, so that also has something to do with it. But I never really felt as afraid in those places, even at the height of the surge, I didn’t feel as afraid in Iraq and Afghanistan as I did when I was traveling through Nigeria and Venezuela.

Hugo Scott-Gall: Biggest positive surprises.

Parag Khanna: Geographically?

Hugo Scott-Gall: Yeah.

Parag Khanna: Oh, okay. This is an easy one, actually. It’s the Caucuses. And I spent a lot of time in the Caucuses, particularly in Georgia and Azerbaijan. I spotlight them again in this book, because again, their geographic location and their climate related future is fairly positive. They’re small countries, they’re getting wealthier. They have energy and other assets. They’re somewhat elevated. And the governance is improving. Of course, not a week goes by where there isn’t some minor political crisis in Georgia. But generally speaking, they’re connecting themselves to each other through the Anatolian corridor to the Caspian Sea.

So, I’m quite bullish on the Caucuses and I bring this up because these may seem like geographically remote and insignificant places, and they may always be. But you have to compare with what Georgia was like in the ’90s and early 2000s when I first went there. And I wrote a chapter in my very first book about Georgia. And it was the most heinously corrupt country I had ever yet, I had been to up to that point in my life. And I was literally handing out $5 bills, $10 bills everywhere. The cops would stop you just for existing. And I compared it in my first book to basically, a tinpot West African dictatorship.

Now, if you go to Tbilisi, Georgia today or just the country, small country that it is. You’ll be mesmerized by the oozing charm of that country and the turnaround. And the World Bank rankings underscore this. Ease of doing business and other sorts of things. You will see that it’s the European cultural capital of 2018 or 2019 or something like that. There’s just festivals going. The lingua franca on the streets of Tbilisi is now American English. So, it’s become a mountainous, windy East Berlin, as I describe it in this book.

So, there is very little not to love about the cost-effective lifestyle in a place like that. So, biggest surprise in terms of turnaround country at least for me has to be Georgia, and particularly in the Caucuses in general.

Hugo Scott-Gall: Biggest surprise on food. Food was much better than expected, or is that just too difficult to answer?

Parag Khanna: Oh, my goodness. Well, I’m a foodie. Well, I’ll tell you what’s so funny. People think that Georgian food is really good, and I actually don’t like it. So, food, food, food. I, oh my goodness, you’ve stumped me. I mean, Vietnamese food is amazing in Vietnam and very bland elsewhere, right. So, in terms of the contrast between the home market versus abroad, you want to be eating Vietnamese food in Vietnam. It is a total shock to the senses in the best possible way.

Hugo Scott-Gall: Yep. What’s left on your bucket list? Where do you really want to go that you haven’t been?

Parag Khanna: Papua New Guinea. I want to hike the Coconut Trail, very famous route where you hopefully don’t get lost and kidnapped by some here-to-for, undiscovered indigenous tribe. But it’s certainly on my bucket list. And of course, it’s one of the societies that’s been most studied by anthropologists for its linguistic diversity and other cultural attributes, so that would be a lot of fun. I want to go scuba diving in Raja Ampat, which technically belongs to Malaysia. And this Southeast Asian region where I now live is a cornucopia of cultures. It is perhaps the most densely diverse corner of the planet.

And I’ve lived here now for almost 10 years, and despite traveling to a different Asian country every week, you really feel like you could spend your whole life literally visiting different nodes and hubs and corners, rural and urban of this region and never get bored of it. And that’s quite a contrast for those of us who grew up, even in New York. I mean, when I got married, my wife and I just had a long weekend to spare for a quick honeymoon and we’re New Yorkers, Manhattanites. We say, where can we go for Labor Day weekend just quickly in a short radius that we haven’t been to before? And we settled on Charleston, South Carolina.

Hugo Scott-Gall: Yeah.

Parag Khanna: Now, Charleston is a lovely town. But now we live in Singapore and if you can imagine, I mean, we can fly to Hong Kong for lunch. I can go to Manilla for lunch. Kuala Lumpur for lunch, Jakarta for lunch. Or have weekends in the most exotic treehouse resorts in Cambodia. Or be in Borobudur in Indonesia. And just countless other gems that are in the immediate radius of Singapore. So, I’m so delighted to have wound up living here and I hope that climate permitting, I’ll probably stay here for a long time.

Hugo Scott-Gall: Well, I am absolutely green with envy. COVID has meant not much travel, and certainly not much travel to Asia and I miss Southeast Asia desperately and now want to hit you up for all the places you just mentioned. So, I’m green with envy, but I’m also extremely grateful for you agreeing to come on the podcast. It was great meeting you when we spoke before, we have a mutual friend who I’m very grateful to for introducing us. I really enjoyed this, and I want to thank you for taking more time than I said it would be. But I hope you think it was worth it and I really appreciate it.

Parag Khanna: Oh, a great pleasure, Hugo. We could’ve gone on for hours.

Hugo Scott-Gall: Yes. Well, yes, we could, and we will no doubt in the future

Parag Khanna: Absolutely, thank you.

Hugo Scott-Gall: All right, well then thank you very much. Thank you for listening to today’s episode of the Active Share. To hear additional insights from William Blair Investment Management, visit us at blog.williamblair.com. The Active Share is available on iTunes, Stitcher, Google Podcasts and TuneIn. For questions, comments or topics you’d like to hear discussed, email us at podcastim@williamblair.com.

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Hugo Scott-Gall, Partner

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