The Collapsing Birthrate

The collapsing Birthrate

In Western and Central Europe and in Japan, the birthrate has already fallen well below the rate needed to reproduce the population. That is, below 2.1 live births for women of reproduce age. Italy’s population - now 60 million - might be down to 20 or 22 million. Japan’s population - now 125 million - might be down to 50 or 55 million. But even in Western and Northern Europe the birthrates are down to 1.5 and falling. But in the USA, too, the birthrate is now below 2 and going down steadily. And it is as high as it is only because of the large number of recent immigrants.
In Japan, Southern Europe, including Germany, the population is already peaking. In the United States it is still growing for the next 25 years. But more important is the age distribution within the population. For example in Italy by the year 2080, a very small number will be under fifteen, and a very large number (one third) above 60. In the United States the young population is already growing much more slowly than the older population. But by 2015 the younger population will start to decrease. There is nothing - except massive immigration- that can prevent a sharp drop in the labor force by 2025 in the US and earlier in other countries. And there is no precedent for this. This has not happened before. For the last 200 years the population has been growing. So the strategy of all companies and institutions will have to be based, from now on, on the totally different assumption of a shrinking population. An aging population is nothing new. Life expectancies have increased and within the next twenty to thirty years the retirement age in all developed countries will have to move up to around 79 (compared to 1936 it is the same as 65). Similarly, there is nothing particularly new in the growth of the population in the Third World. It is growing in a similar way to developed countries and it is quite certain that the population growth will level-off before it reaches a crisis point. In terms of food and raw materials there is going to be no major crisis - they still be ample enough. But clean water and air will be a problem. So the environment and the population will have to find a balance.

4 Major Implications of the collapsing birthrate:

1) For the next twenty or thirty years demographics will dominate the politics of all developed countries. And they will be politics of great turbulence. Equally upsetting will be the political issue of immigration. And the turbulence will be most severe in Japan, in part because it still has the lowest retirement age, in part because its labor market is totally inflexible, but also because Japan has never before allowed any immigration. Conversely the problems are likely to be least severe in the USA both, because is is a country of immigrants and because it has the most flexible labor market. 2) For the next twenty or thirty years no developed country will have stable politics or a strong government. Government instability is going to be norm. 3) Retirement: The trend to early retirement will continue but many people will continue to work part-time or only a few months a year. Employment relations are likely to become increasingly heterogeneous and increasingly flexible, at least for older people. Older generations will move away from manual work and do more knowledge jobs. In the US therefore employing organizations should start as soon as possible to experiment with new work relationships with older people. The organization that first succeed in attracting and holding knowledge workers past traditional retirement age, and make them fully productive, will have a tremendous competitive advantage. The working hours or days will be organized differently and it will be done by people who are not executives nor subordinates and have no rank. 4) The productivity of all workers will have to increase rapidly. Otherwise the country will lose position and become steadily poorer.

Implications for individual companies:

1) The first question is whether the steady growth in the number of older people will continue to provide market opportunities and for how long? In all developed countries older generations have become the most prosperous group in the society. They have more money, but nobody knows how long and how much they will continue to spend. 2) And what does the shrinkage number of the younger people mean for the economy? That there will be fewer children might be seen as an opportunity for upgrading schools everywhere. 3) Also it is imaginable that having fewer children means that a larger share of disposable income is spent on it. For example the Chinese policy that restricts a family to one child has been quite effective in China. There many families, despite their poverty, apparently spend more on the single child than they used to spend on three or four children. 4) The birthday collapse has also political and social implications that can not be predicted. But it surely will also have economic and business implications.
Above all, any strategy has to start out with demographics and with the collapsing birthrate in the developed world. Of all developments, it is the most spectacular, the most unexpected and one that has no precedent whatever.