The case for a Productive Citizen Economy, and the places where it breaks.

For thirty years, the logic of globalisation seemed relatively straightforward.

If a television could be manufactured abroad for €300 rather than €600 domestically, importing it saved the consumer €300. Multiply those savings across millions of households, and society gained access to more goods at lower prices.

The argument was economically sound, provided that workers displaced by imports could find equivalent employment elsewhere.

But what happens when they cannot?

And what happens when the economy no longer has enough young workers to replace those who leave?

These questions are becoming central to the future of advanced economies.

Germany, Japan, South Korea and China are experiencing demographic pressures that change the economics of employment, automation and industrial competitiveness.

At the same time, governments are reconsidering whether the location of production really is irrelevant.

In March 2026, the European Commission proposed the Industrial Accelerator Act, targeting a manufacturing share of 20% of EU GDP by 2035 and introducing stronger origin requirements for selected publicly supported industries.

The proposal reflects a significant shift.

Europe is no longer treating all production locations as economically interchangeable.

The question is whether this new direction can preserve prosperity without creating an expensive system of permanent subsidies.

The traditional argument for global trade assumes that displaced workers eventually move into more productive activities.

Research into the China shock showed why this assumption is incomplete.

Between 1999 and 2011, increased Chinese import competition was associated with approximately 2.0–2.4 million lost American jobs. The consequences were concentrated geographically, and many affected communities experienced persistent reductions in employment, participation and earnings.

The adjustment was neither immediate nor painless.

Now consider the same mechanism in an ageing economy.

German industry lost approximately 124,000 jobs in 2025, including around 50,000 in automotive manufacturing.

Meanwhile, Germany's population aged 20–66 is projected to decline by between 3.2 million and 6.2 million by 2035, depending on migration.

The disappearance of a skilled industrial position therefore creates several simultaneous losses.

The worker loses income. The government loses tax revenue and social contributions. Local businesses lose household spending. The industrial ecosystem may lose expertise that took decades to develop.

A smaller generation of younger workers makes these losses more difficult to reverse.

This changes the economic calculation.

The relevant question is no longer simply whether an imported product is cheaper.

It is whether the immediate consumer benefit exceeds the wider and potentially persistent cost of losing domestic productive capability.

For most consumer goods, international trade will continue to offer substantial advantages.

For selected strategic industries, however, the calculation may be different.

Our analysis proposes a framework built around three measures.

Core size: the number of residents who work, earn above subsistence, contribute more in taxes than they receive and participate broadly in domestic consumption.

Core productivity: the economic value each productive resident generates, including the contribution of machinery, capital, AI and automation.

Core capture: the proportion of that value retained within the national economy through wages, taxes, investment and domestic demand.

The objective is to improve all three together.

This is a different approach from measuring success exclusively through GDP growth, employment totals or population size.

A heavily subsidised factory employing thousands of workers may contribute little if it simply transfers scarce employees from other businesses.

A smaller, highly productive industrial facility may contribute more through wages, innovation, supplier networks and taxation.

The difference becomes increasingly important as labour scarcity intensifies.

Automation is often described as a single technological process.

Economically, however, there are at least two distinct outcomes.

In the first, companies use technology primarily to eliminate jobs and reduce payroll expenses.

Profits may increase, but workers can be pushed into lower-paid activities, weakening the tax base and domestic demand.

In the second, companies use automation to increase the productivity of scarce employees.

A smaller workforce can produce more, employees can move into higher-value tasks, and wages can rise alongside output.

The same robot or AI model can support either outcome.

Research illustrates this difference.

Studies of American labour markets found that industrial robot exposure was associated with reductions in employment and wages.

German evidence showed a different pattern. Although robots reduced manufacturing employment, total employment was not reduced in the same way, partly because existing workers were retained and redeployed while new service jobs offset industrial losses.

The surrounding institutions mattered.

Training systems, employer relationships and the ability to move workers into new responsibilities helped determine whether automation strengthened or weakened labour-market outcomes.

Ageing economies may have an advantage here.

When companies cannot recruit enough workers, automation becomes a way to fill vacancies rather than simply replace existing employees.

This can create a reinforcing cycle:

Labour scarcity encourages investment in automation. Automation increases output per worker. Higher productivity supports wages and tax contributions. Stronger household incomes sustain domestic demand.

But this cycle is not automatic.

If companies use AI mainly to eliminate employees without creating substantial productivity gains, the economic benefits may remain concentrated.

The critical measure is not how many robots are installed.

It is whether output per worker, wages and broader economic participation improve together.

Automation cannot solve every labour shortage.

Healthcare, construction, maintenance, agriculture and many domestic services continue to require people.

Ageing societies therefore need immigration.

But arrival statistics provide an incomplete picture.

A highly qualified engineer who spends years waiting for professional recognition cannot contribute fully to the economy.

A nurse who receives targeted language training and enters employment quickly can become economically self-sufficient much sooner.

The difference is institutional.

Qualification recognition, employer involvement, housing availability, childcare and work-related language training determine how quickly newcomers become productive participants.

Germany demonstrates both the possibilities and the difficulties.

The migrant–native employment gap was 10.3 percentage points in 2024.

At the same time, research found that 64% of refugees who arrived in 2015 were employed by 2024, approaching the national employment rate.

Integration can succeed, but the time required matters.

Japan offers another model.

Its foreign workforce reached 2.57 million in October 2025, an increase of 11.7% in one year.

The country is expanding sector-specific pathways for foreign workers in response to shortages in manufacturing, construction, care and services.

The relevant question for the next decade is not simply which country admits more people.

It is which country can convert new arrivals into productive, economically secure residents more effectively.

This requires practical integration rather than treating migration solely as a demographic statistic.

If advanced economies want to preserve productive capabilities, they cannot treat every industry identically.

Our framework distinguishes three broad categories.

The first consists of products where production location has limited strategic importance: clothing, toys, simple household goods and many ordinary consumer products.

These should generally remain exposed to international competition.

The second includes strategic industrial ecosystems: semiconductors, advanced computing, robotics, machine tools, power electronics, batteries, energy equipment, pharmaceuticals and industrial software.

These industries generate capabilities that cannot easily be recreated after disappearing.

The third includes domestic services such as healthcare, education, construction, repair and local transport.

These activities cannot simply be imported. Their productivity and wages must improve as the population ages.

The Industrial Accelerator Act reflects part of this logic.

It proposes origin and investment conditions for selected strategic sectors, while maintaining exemptions and safeguards against excessive costs or delays.

The important distinction is between selective openness and broad protectionism.

An economy can benefit from inexpensive imported consumer goods while preserving strategic production capacity at home or among reliable partners.

The difficulty is preventing the strategic category from expanding indefinitely under political pressure.

The economic case for preserving capabilities does not mean that every domestic industrial project deserves support.

Recent European experience demonstrates the risks.

Intel cancelled its planned €30 billion semiconductor factory in Magdeburg in July 2025, despite a proposed €10 billion German subsidy that had not been paid.

Northvolt, once a flagship of Europe's battery ambitions, filed for bankruptcy in Sweden in March 2025.

Both cases illustrate an important distinction.

Strategic importance does not guarantee commercial viability.

A project can serve a legitimate national objective and still fail because of costs, competition, execution problems or an inadequate supplier ecosystem.

Adidas's Speedfactory experiment offers another example.

The company attempted to produce shoes through highly automated facilities in Germany and the United States, but both sites closed by 2020, and the technology moved to Asian suppliers.

The automation itself was not necessarily the central problem.

The broader supplier network, manufacturing flexibility and scale advantages remained elsewhere.

This is why industrial policy must support productive ecosystems rather than isolated flagship factories.

Public funding should be conditional on measurable progress, productivity improvements and realistic commercial viability.

Otherwise, protection risks becoming an expensive substitute for competitiveness.

We assign three analytical scenarios to the development of the EU, Japan and South Korea.

Governments increasingly support strategic sectors while retaining relatively open trade in ordinary goods.

Automation expands as labour shortages deepen.

Migration programmes grow, although integration outcomes remain uneven.

Some reshoring projects succeed, particularly where established supplier networks exist. Others are cancelled, delayed or reduced in scale.

Industrial employment may continue declining even as output per worker rises.

Industrial subsidies and origin requirements spread beyond genuinely strategic sectors.

Competition weakens and production costs rise.

Automation fails to deliver sufficient productivity improvements, while labour shortages remain unresolved.

Consumers pay more, but the productive economic core continues shrinking.

Trade tensions escalate into broader tariffs and export restrictions on critical industrial inputs.

European manufacturers face higher costs and physical shortages in selected supply chains.

Protection becomes reactive rather than selective, weakening competitiveness and increasing economic uncertainty.

These are structured analytical judgments, not guarantees.

The difference between the scenarios depends heavily on productivity, industrial execution and the design of migration and labour-market institutions.

Our research establishes four specific forecasts.

By September 2027, we assign a 55% probability that the Council of the EU and European Parliament will announce a provisional political agreement on the Industrial Accelerator Act.

By the end of 2029, we assign a 65% probability that Germany's industrial robot density for 2028 will reach at least 500 robots per 10,000 manufacturing employees, compared with 429 in 2023.

By March 2031, we assign a 55% probability that Japan will report at least four million foreign workers for October 2030.

By the end of 2036, we assign only a 15% probability that Eurostat will report manufacturing accounting for at least 18% of EU gross value added in 2034.

The final forecast is particularly revealing.

Europe may improve industrial productivity and preserve selected strategic capabilities without achieving its headline manufacturing-share target.

That is why evaluating industrial policy through a single percentage of GDP can be misleading.

The more useful measures are productivity, real wages, economic participation and the durability of strategic capabilities.

For individuals, the immediate priority is to understand how AI affects their own work.

Identify the tasks that technology can perform independently and those where it makes your professional judgment more valuable.

Over the next one to two years, develop capabilities that combine domain expertise with automated systems.

Engineering, maintenance, healthcare, industrial operations and professional services all offer opportunities for this combination.

For businesses, begin by classifying critical inputs according to their strategic importance.

Identify single-country dependencies, particularly in equipment, materials and advanced industrial components.

Design automation investments around output per employee and sustainable productivity improvements, not simply workforce reductions.

Where international recruitment is necessary, treat qualification recognition, language support and employee integration as part of the investment.

For capital, distinguish between businesses whose competitiveness improves through technology and those whose profitability depends on continued protection.

Industrial automation, machine vision, power electronics, grid equipment, industrial software and specialised training are relevant areas for further research.

But subsidies alone do not establish a sound investment case.

The commercial sustainability of each company remains essential.

The debate between free trade and protectionism increasingly misses the central issue.

Ageing economies face a simultaneous decline in available labour, rising pressure on public finances and growing competition for strategic industrial capabilities.

The challenge is not to produce everything domestically or to close economies to foreign workers and goods.

It is to preserve the capabilities that generate high-value employment while using international trade where it creates genuine efficiency gains.

AI and robotics should make scarce workers more productive.

Migration systems should help newcomers participate effectively in economic life.

Industrial policy should preserve strategic capabilities without protecting inefficient companies indefinitely.

And success should be measured through the economic security and productivity of residents, rather than the number of factories receiving public support.

In the coming decades, the countries that prosper may not be those with the cheapest labour or the largest populations, but those that combine skilled people, productive technology and strong domestic economic participation most effectively.

That is the central proposition of the Productive Citizen Economy.

It is also a proposition that can fail.

If automation reduces wages, industrial subsidies repeatedly produce uncompetitive factories, or migration systems cannot integrate newcomers effectively, the model will not deliver its intended results.

These are the conditions we will continue to monitor.

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Series I · The Shrinking Core · Article 2 of 4