Agequake

By Wallace, Paul | Management Today, March 1999 | Go to article overview

Agequake


Wallace, Paul, Management Today


As the age structure of the world undergoes a radical shift, with people living longer and the birth rate declining, we are facing a profound impact on business and employment prospects. But just as surely as an ageing population raises problems, it brings opportunity. Paul Wallace explains how to read the demographics and make the right decisions for the future

Let's call it the agequake. You can feel it already - the seismic shift in the age structure of populations not only in the West but also round the world as people live longer and produce fewer children. The millennium inaugurates a new age of man, when we are no longer young.

The World Health Organisation calls it 'a social revolution that is gradually gaining pace and will accelerate and become ever more evident in the next 25 years'.

The tremors of the agequake are already shaking economies and businesses as the swollen ranks of the postwar baby boom generation enter middle age. In the early 21st Century, the tremors will change to shockwaves as societies grapple with the challenge of unprecedented numbers of older people. An estimated 150,000 centenarians will see in the year 2000, it was revealed recently by the United Nations in its first forecast of the global size of this select age group. By 2050 that number will exceed two million. This is an astonishing change. Demographers believe that in earlier times there was one centenarian at most in the world in any one century.

The agequake matters not just for your company but your own career and financial prospects. Which businesses will be favoured and which will be knocked by the new demographics? What kind of house should you be buying to maximise your chances of making money in a very different property market? Where should you invest?

How can you avoid the 'boomer jam' as the ranks of middle management become clogged with forty-something executives born in the late 1950s and early '60s?

Understanding the dynamics of the agequake can provide answers. There is a tendency for busy executives to write off demographic change as too slow-moving to have an impact on today's fast moving business world. That's a mistake. Take one of the biggest stories last year, a serious recession in Japan that fuelled the Asian economic crisis. Japan is the fastest ageing country in the world and this is a prime cause of its malaise. The recession followed its decision to tighten budgetary policy precisely because of fears that a ballooning older population would wreak havoc on public finances.

Japan's working-age population is now falling, so there's no longer any need for the massive investments that fuelled the postwar expansion. But the Japanese are only too aware that they need to save for a lengthy retirement: their life expectancy is the longest in the world. Put the two together and you have a persistent tendency for savings to outrun potential investment opportunities, and an economy suffering from a lack of demand.

Or take the Russian collapse last August that put the London stock market in a tailspin. Those financiers who bought the story of the Russian economic revival should have thrown away their spreadsheets, packed with bogus numbers, and instead should have examined the demographic numbers that depicted a society in continuing crisis with collapsing birth rates and surging death rates.

In today's ever more integrated international economy, no one can hide. The far-reaching effects of these demographic shifts in distant countries show up on dealers' screens and in the health of our stock portfolios. But the agequake is happening here under our noses. Take a look at the chart and you will see that Britain's age profile is shifting drastically over the 10-year period to 2005. The population may increase by only 2.5%, but the sizes of individual age groups change by far more. In particular, the number of people aged 35 to 44 and 55 to 64 rises by a fifth, while those aged 25 to 34 contracts by that amount. …

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