For anyone seeking to understand the future and exploit that knowledge to his or her own advantage, there is no greater truth than the saying, “Demography equals destiny.”
More precisely, it’s the intersection of demography, technology, and psychographics that determines precisely what’s going to happen. However, demography is by far the most powerful and most predictable of these factors. And today, demography is pointing toward wrenching changes that will redefine our basic assumptions about employees, consumers, and investors.
The most significant change is that the aging of the Baby Boom generation will result in a labor shortage that threatens to bring the economy’s growth to a screeching halt. In the United States, conventional wisdom says this will lead to real GDP growth of just 2.4 percent and 7 to 8 percent nominal equity returns from 2011 to 2030. That’s much lower than pension plans need to meet people’s expectations for retirement, as we will discuss in Trend 5 this month. Worse yet, Europe and Japan aren’t expected to even come close to these numbers.
The Trends editors foresee three possible solutions. But, before we discuss these, let’s take a realistic look at the greatest problem of our era.
As Peter Drucker points out in Management Challenges for the 21st Century, modern businesses and governments have consistently made every decision based on the assumption that populations will always grow. This principle has held true for more than six centuries, but now it is abruptly beginning to reverse. Before long, there will be fewer workers, and fewer consumers, in the world’s wealthiest nations.
Why is this happening? To maintain a stable population, a country must produce a birth rate of 2.1 children per female. The EU birth rate in now 1.8, and it is just 0.8 in Japan.
During the two decades from 2005 to 2025, the working-age population will decline steadily in Europe and Japan, according to UN estimates. Worse yet, the decline will accelerate in the following 25 years, between 2025 and 2050. China will experience workforce growth through 2025, but thereafter, even China’s numbers will turn negative.
And, even if we could increase birth rates today, it wouldn’t pay off for the economy for roughly 20 years....
