Demographics and Destiny

Stephen DeAngelis

August 30, 2012

Demographic concerns differ widely depending on where you live. For example, two articles published in the Financial Times on the same day carried very different messages. In the first article, an op-ed piece written by Majid Jafar, CEO of Crescent Petroleum, Jafar notes that in the Arab world there are too few jobs for its burgeoning population. [“Youth unemployment in the Arab world: tackling the demographic time bomb,” 3 August 2012] In the second article, Jeremy Grant reports that the government of Singapore is urging its population to have more children. [“From Singapore sling to sex on the beach,” 3 August 2012] People, like wealth or natural resources, are not evenly distributed across the face of the globe. Jafar notes that too many people and too few jobs is a toxic mix. He writes:

“The threat to stability in the Arab world posed by youth unemployment is such that governments old and new must urgently address the worsening economic environment. If a solution is not found soon, the whole region risks instability or even secondary revolutions.”

On the other hand, too few young people to fill the ranks of the working class can prove equally problematic. That’s the challenge being faced in Singapore. Grant reports:

“Unfortunate mathematics … threaten the sustainability of Singapore’s economic miracle. The number of ‘baby boomers’ reaching 65 is rising. That’s not a problem unique to Singapore. But what’s really hurting is that the birth rate among ‘heartlanders’, as native Singaporeans are sometimes called, has been in steady decline for some time. That means a hollowing out of the working age population. So concerned is the government that a special unit in the office of prime minister Lee Hsien Loong – the ‘national population and talent division’ – last month issued a 40-page paper that was part of a wider campaign for ideas from the public on getting the birth rate up.”

In an ideal world, the obvious solution would be to move people from places with too many people to locations where workers are needed. We all know, however, that immigration is a sensitive and emotional subject. Large numbers of immigrants can change the culture of a country. Immigrants don’t share the same history, religion, or ethnic makeup of native populations and many are understandably reluctant to shed their culture in order to assimilate. Last fall, the Financial Times published a series of articles about demographic trends around the world. [“New Demographics,” 18 October 2012] Robert Orr, commissioning editor of that series, wrote:

“If people in the world’s poorer countries are having too many children, those in the richer ones are suffering at the other extreme. Low birth rates and ageing populations in many developed countries, notably Japan, are placing a severe strain on the next generation, many of whom will have to work longer to support their parents’ retirements. Such is the concern at Russia’s low birth rate that some fear its population could soon drop to a level that could destabilise the country. So what can be done? For Russia and the rest of Europe, immigration, although politically sensitive, is one solution. The example of some emerging markets, such as Brazil, suggests the correct mix of economic growth and education can bring birth rates down to levels still high enough to support the country’s prospects. In India, meanwhile, a high birth rate and booming economy are expected to propel the country past China to become the most populous nation on earth by about 2030. Not long after that landmark, the world could be welcoming the birth of its nine billionth inhabitant. There is even a chance that the seven billionth inhabitant, who should still be of child-bearing age, will be one of the parents.” [“Foreword: Growing pains,” 18 October 2011]

The bottom line is that there are no easy solutions to demographic challenges. Grant, like Orr, noted that an aging population isn’t unique to Singapore. Ted C. Fishman reported “that the world’s population is aging — that the number of older people is expanding faster than the number of young — but you probably don’t realize how fast this is happening.” [“As Populations Age, a Chance for Younger Nations,” New York Times, 14 October 2010] He continued:

“Right now, the world is evenly divided between those under 28 and those over 28. By midcentury, the median age will have risen to 40. Demographers also use another measure, in addition to median age, to determine whether populations are aging: ‘elder share.’ If the share, or proportion, of people over 60 (or sometimes 65) is growing, the population is aging. By that yardstick too, the world is quickly becoming older. Pick any age cohort above the median age of 28 and you’ll find its share of the global population rising faster than that of any segment below the median. By 2018, 65-year-olds, for example, will outnumber those under 5 — a historic first. In 2050, developed countries are on track to have half as many people under 15 as they do over 60. In short, the age mix of the world is turning upside down and at unprecedented rates.”

Manufacturers and retailers must pay attention to demographic trends if they are going to thrive in the decades ahead. Young and old have different tastes in food, clothing, entertainment, music, and so forth. They also have different concerns about health, the cost of living, and their quality of life. Meeting the needs and desires of these unevenly distributed groups is a complicated matter that isn’t going to get any easier. Fishman highlighted the fact that “aging populations … alter how business is done everywhere.” He went on to state:

“The high costs of keeping our aging population healthy and out of poverty has caused the United States and other rich democracies to lose their economic and political footing. Countries on the rise amass wealth and geopolitical clout by refusing to bear those costs. Older countries lose work to younger countries.”

Fishman pointed out that China is an interesting case. It is likely to grow old before it becomes rich. That is why, he writes, “China is doing all it can to lure the world’s production and capital while its work force is young.” Fishman concluded:

“China is not the only country in which a young labor force attracts global businesses and investors. Much of the developing world, particularly in Asia and Latin America, operates the same way. An outspoken champion of outsourcing, Nandan Nilekani, a former head of Infosys, the Indian technology giant, is well known for promoting India as a place to corral young workers in an otherwise aging world. Call it ‘global age-arbitrage.”

In the spring of 2011, The Economist took stock of 2010 census reports and population forecasts coming in from around the globe. It noted that UN forecasts now have the global population rising through the year 2100 then leveling off at just over 10 billion people. Previous forecasts had the global population leveling off around 2050 then starting a gradual decline. [“Demography … isn’t destiny, one hopes,” 12 May 2011] The article notes, “The UN now says only 51 countries will have fertility rates between 1.85 and 2.1 by 2050.” The article notes that national birthrates will have big implications for individual countries. It continues:

“Some of these projections are incredible: they are warnings as much as predictions. Still, the general picture is probably right. Sub-Saharan Africa is by far the fastest-growing part of the world. Little larger than Europe or Latin America today, it will be bigger than either by the end of the century, and much more than half the size of Asia (it is now only a fifth). The consequences could be severe. The Sahel would be turned into a desert by the soaring population of west Africa. China’s dependency ratio—the number of children and old people as a share of working-age adults—is rising faster than Europe’s, which will surely require scrapping the one-child policy. And China and India will be riven by conflict if the sexual discrepancies the UN projects come to pass. In 2025 China will have 96m men in their 20s but only 80m women. India will have 126m men in that age group and just 115m women. Overall, the world’s population is increasingly stable. Below the surface, strains are growing.”

Over the next 40 years, companies are going to have to track and respond to these demographic changes if they are going to seize opportunities or avoid crises related to them. Fishman asks, “Will the world ever grow young again?” His answer is ambivalent, “Perhaps, but not anytime soon.” He concludes:

“Today, many of the places that are growing old the fastest are in the developing world, largely because that’s where urbanization is most rapid. It is hard to conjure a situation in which people move back to the countryside and again have larger families. Instead, if past is prelude, today’s young countries like China will be the countries that in the not-distant future go shopping for younger workers in younger places. Those places will be transformed by satisfying an older China’s needs, and the cycle will repeat itself: when the world finds its next young place, that country may well age even more quickly than the formerly young countries that preceded it.”

It doesn’t take a clairvoyant to see how changing demographics is going to change the business landscape. Changing demographics will determine what people want and need; thus, changing buying patterns to which manufacturers and retailers must respond. I believe that demographics is just one more reason that manufacturers and retailers are going to move more of their budgets into targeted (or algorithmic) marketing so that they can better serve their customers. To learn more about that subject, read my post entitled The Disruptive Potential of Algorithmic Marketing. Changing demographics will determine where people live; thus, changing how supply chains must adapt. Changing demographics will also determine the make-up of the workforce. Manufacturers will have to locate plants in areas where young people are available as well as having to adapt to using older workers (if they can persuade them to continue working). Companies that ignore changing demographics are unlikely to thrive in the decades ahead.