The Age of Constraints, Part I: The Great Economic Squeeze

Labour, Capital, and Energy in a Fractured World

The latest surge in US tariffs hasn’t yet shattered the global economy—but it has more openly revealed the fractures that were already there.

Long before the new wave of US protectionism, the world economy was drifting into a more fragmented, frictional phase. The free flow of goods, capital, labour, and energy—pillars of the late 20th-century global order—had been quietly eroding for years. What the tariffs have arguably done is to make the drift official. They have marked a turning point, not because they started something new, but because they confirmed that the previous global economic model was no longer sustainable.

Still, if US trade policies have clarified the direction of travel, they have also accelerated the journey toward fragmentation—often in ways that undermine the very resilience they claim to restore. By targeting countries and sectors, the US has reignited a zero-sum logic in global trade: one where national security concerns override economic efficiency, and where long-term cooperation is sacrificed for short-term leverage. This approach may score political points domestically, but it risks entrenching the same vulnerabilities it seeks to eliminate—raising input costs, disrupting investment, and pushing allies and adversaries alike toward parallel, disconnected systems.

Yet even without this protectionist turn, economic models were already under strain. The foundations of growth had begun to shift well before tariffs re-emerged as a policy tool. Labour markets were misaligned, with ageing workforces in some economies and idle potential in others. Capital was abundant but increasingly abstract—flowing into intangible assets and financial engineering rather than productive investment. Energy was no longer cheap, predictable, or apolitical. And trend productivity, which once rose smoothly on the back of scale and specialisation, had become choppy and contested.

This is the Age of Constraints—not a crisis, but a condition. A world where the fundamental factors of production no longer reinforce each other, but strain against one another. A world where efficiency is harder to come by, and where growth increasingly hinges not on accumulation, but on adaptation.

This commentary launches a three-part series exploring how these structural shifts—in labour, capital, and energy—are reshaping the world economy. In the next instalment, we’ll explore why artificial intelligence, is in fact a deeply pragmatic response to these constraints. But first, we must understand the systemic pressures that have brought us to this turning point.

But first, we need to understand just how deep the constraints run.

I. Labour: A Global Workforce Out of Balance

In the 20th century, labour was an abundant and cheap input. Factories expanded. Cities grew. Consumption soared. But in much of the world, that labour force is now shrinking—and ageing fast.

• Japan’s working-age population has fallen by over 10% since 2000. • China’s population began declining in 2023, with projections pointing to a loss of 400 million people by the end of the century. • Europe and South Korea face similar demographic cliffs.

At the other end of the spectrum, Africa and South Asia are entering a demographic dividend phase. Nigeria is projected to surpass the US in population by 2050. India now has more young people than any nation on earth.

And yet, capital investment and job creation are not flowing where labour is abundant. Instead, they concentrate in places where talent is older, more expensive, and politically protected.

This disconnect between global labour supply and global capital flow is not just inefficient—it’s destabilising. The global economy was built on the assumption that capital and labour could mix freely. Now, with immigration constrained, geopolitics hardened, and education systems lagging, that assumption no longer holds.

II. Capital: Intangible, Overconcentrated, and Skittish

While labour supply tightens, capital is more abundant than ever. After a decade of ultra-low interest rates, global savings have ballooned. Sovereign wealth funds, pension plans, and asset managers are flush with cash.

The key question- and problem - is where does that capital go?

Increasingly, it has been flowing not into machines, roads, or factories—but into intangible assets: software, data, brands, platforms. These investments often offer faster returns, global scalability, and lower exposure to regulatory or geopolitical risk.

But this shift has two big consequences.

First, it deepens global inequality—because intangible capital thrives in jurisdictions with strong IP law, high human capital, and digital infrastructure.

Second, it reduces the diffusion of productivity—because code doesn’t build hospitals, roads, or energy grids in poorer countries. It stays in the cloud, behind paywalls, or inside a few elite institutions.

III. Energy: Cheap No More

Perhaps the most underappreciated pillar of 20th-century growth was cheap, stable energy. It allowed industry to scale, trade to globalise, and productivity to flourish. But that era is over.

Yes, renewables are cheaper than ever per kilowatt-hour. But that’s not the full story.

• Grid instability, battery storage limitations, and peak load volatility all raise the effective cost of clean energy. • Fossil fuel investment has fallen nearly 40% since 2014—yet global demand remains high, particularly in developing economies. • Extreme weather events, driven by climate change, are adding a new layer of energy unpredictability—from Texas blackouts to European droughts.

Meanwhile, energy demand is not falling—it’s being reshaped. AI training, data centres, electric vehicles, and heat pumps are all placing new loads on the grid.

The result is a world where energy is no longer reliably cheap or abundant—and where access to low-cost, clean, and stable electricity becomes a source of national advantage.

IV. Productivity: Under Siege from All Sides

If we combine fewer workers, cautious capital, and expensive energy, we get to the final constraint: weaker trend productivity growth.

Despite dazzling innovations in AI, biotech, and robotics, productivity growth has remained tepid in many advanced economies. Why?

• Because new technologies take a very long time to diffuse. • Because regulatory frictions and skills mismatches slow adoption. And above all: • Because higher real energy prices are generating huge headwinds.

In this context, productivity gains will not be evenly distributed. They will accrue to the countries, sectors, and companies that can overcome these input constraints. And AI could arguably hold the key.

Conclusion: The End of Abundance, The Start of Adaptation

The global economic model of the last 70 years was built on a specific alignment of forces: growing labour, cheap energy, fluid capital. That model is now unravelling—and unlikely to head back.

Instead, we are entering a more fragmented, frictional, and politically sensitive era—one where economies must do more with less.

And that’s where the next commentary in this series picks up: in Part II, we’ll explore how artificial intelligence is not just a technological curiosity, but a macroeconomic solution—perhaps the most important one we’ve got.