We like “big picture” analysis here at HS Dent.  It’s very easy to get wrapped up in the noise of economic press releases and stock market prognostications and lose sight of the major themes that will shape the world in the decades ahead—and no theme is more important than demographic trends.

We were delighted to see Jack Goldstone write an article on demographics in the latest issue of Foreign Affairs: “The New Population Bomb” (Registration may be required to view entire article)

Goldstone outlines the major demographic shifts afoot–the aging of the developed world, the urbanization of the emerging market countries, and the relative shifts in population and economic clout between developed and developing world.  All of these are themes that HS Dent follows. Goldstone also arrives at many of the same conclusions as HS Dent.  The effects of these demographic changes will, Goldstone writes, “have a dramatic impact on economic growth, health care, and military strength in the developed world. The forces that fueled economic growth in industrialized countries during the second half of the twentieth century — increased productivity due to better education, the movement of women into the labor force, and innovations in technology — will all likely weaken in the coming decades.”

Goldstone continues,

College enrollment boomed after World War II, a trend that is not likely to recur in the twenty-first century; the extensive movement of women into the labor force also was a one-time social change; and the technological change of the time resulted from innovators who created new products and leading-edge consumers who were willing to try them out — two groups that are thinning out as the industrialized world’s population ages [This is consistent with HS Dent’s research into S-curves and market penetration - CLS]

Alas, there is more bad news:

Moreover, developed countries will be lucky to keep productivity growth at even that level; in many developed countries, productivity is more likely to decline as the population ages…. All this means that just as aging developed countries will have proportionally fewer workers, innovators, and consumerist young households, a large portion of those countries’ remaining economic growth will have to be diverted to pay for the medical bills and pensions of their growing elderly populations. Basic services, meanwhile, will be increasingly costly because fewer young workers will be available for strenuous and labor-intensive jobs. Unfortunately, policymakers seldom reckon with these potentially disruptive effects of otherwise welcome developments, such as higher life expectancy.

Goldstone has a good grasp of the demographic issues.  There are significant challenges in the years ahead, but there are also incredible opportunities.  The problem in the developed world (particularly parts of Europe and Japan) is that with a an aging and shrinking population, there is less aggregate demand.  Who, exactly, are you going to sell your products to when every year there are fewer people alive and able to buy?  Who are you going to sell your house to?

This has never happened in the industrial and post-industrial eras.  Never.  It is truly unprecedented.

But, within the shrinking pie, if you can figure out a way to gain a bigger piece of the pie, there are opportunities.  In Japan, for example, the robotics industry is booming.  Robot labor is partially filling a gap left by the aging and depopulation of the country.

The opportunities are out there.  You just have to look for them.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

700,000 Americans abandon their traditional landline phones every month, according to the Economist, and roughly 25% of all Americans are “cell phone only.”

We’ve written in these pages before about how technological and demographic changes are fundamentally altering sleepy old industries like newspapers and college text books.  The revolution in telephony, however, is a much bigger deal involving much larger companies and a lot more money.

Like many revolutions, this one is being led by the young.  The chart below makes a vivid point: younger Americans in their 20s and 30s, who generally tend to be highly mobile (bordering on nomadic) have shunned the traditional home phone en masse, opting to use their mobile phones exclusively. In 2008, more than 40% of the “just out of college” age cohort chose not to bother with a home line, and the number has risen every year.

It’s not hard to understand why.  When you move every 6-months, transferring your home phone service can be a cumbersome drag in an era in which Americans are used to instant service.   It’s also uneconomical for a young single person to pay for both home and mobile service, especially considering that young people spend comparatively little time at home.  (Plus, an iPhone is so much cooler than a home phone, dude.) Read the rest of this entry »

By now, everyone should be aware of the anti-regime protests taking place in Iran.   The country is experiencing unrest not seen since the 1979 Islamic revolution that deposed the Shah and brought the current regime to power.  The “spark” that ignited this rebellion was the disputed presidential election, of course.  But the “tinder” that caused this fire to spread are Iran’s demographics.  As you can see from the charts below, Iran is primed for revolution. Read the rest of this entry »

I rarely take the time to read the “Business Life” section of the Financial Times.  It’s the one section that I consider “soft” fluff journalism in a newspaper that usually prints high-quality “hard” news.   (I see little value in reading about water cooler etiquette, new standards of office political correctness, and the “next new thing” MBA buzzwords that sound remarkably similar to the previous batch of “next new thing” MBA buzzwords…I got more than enough of this drivel in grad school, thank you very much.)

At any rate, in scanning the section, I did come across an interesting and worthwhile article on the interaction in the workplace between the Baby Boomers and their children, the Echo Boomers (or Gen Y).   In “A to Z of Generation Y Attitudes,” Alison Maitland analyzes reports by the US Center for Work-Life Policy and London Business School titled “Bookend Generations” and “The Reflexive Generation,” respectively, and finds that the Echo Boomers, despite all of their supposed tech sophistication, are not too unlike the Baby Boomers.  Both generations tend to be rather unorthodox and free thinking relative to Generation X, the much smaller generation sandwiched between them.   The attitudes of Generation X tend to be more conventional, as their smaller numbers naturally make them more conformist.

In this sense, the coming years will be defined by “bookend” dynamics in which the both the older Boomers and the younger Echo Boomers will set the social and career standards with Gen X being lost in the middle.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

We found an editorial in the usually gentlemanly Financial Times that was downright caustic.  We don’t usually comment on angry rants, but this one is somewhat instructive in that it could be a sign of things to come.  

We have heard about “generational warfare” for decades now, but now, in the wake of the worst bear market and recession since the Great Depression, it might finally be upon us.  The Baby Boomers have always had charmed lives of sorts.  Born into the affluent, suburban, post-war America of the 1940s and 50s, they were spoiled practically from birth with a sense of entitlement.  

Despite their size as a generation — the largest in history — as a group they have many of the characteristics of only children, such as a predisposition to self-indulgence and a deep belief that they are (and should be!) the center of attention.  Read the rest of this entry »