Agequake - 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. These age shifts send out ripples that affect all aspects of our lives. The National Health Service is facing a recruitment crisis that has come as a great shock, but which was predictable - because in the 1970s the postwar baby boom gave way to baby bust, with the birth rate falling to a low in 1977. Wind the clock forward 20 years and the number of young people in their early twenties is at a corresponding low, affecting big recruiters like the NHS. These demographic trends will do more than all the campaigns by nurses to push up pay awards, and will have a potential knock-on effect on the private sector.
The agequake is spinning the wheel of business fortune. Sectors favoured by the new demographics are those catering for an increasingly middle-aged population. Companies that rode the postwar youth wave are having to change their act.
Pfizer's success with Viagra highlights the opportunities opening up for pharmaceutical and healthcare companies. Cruise holidays are surging in popularity. In 1998, more than 40 cruise ships were being built to lift the effective size of the world fleet by more than a third. The industry's £8 billion investment follows a rise in European passenger numbers of 17% a year over three years. In America, the average passenger is 48, and the number of 50 year olds in the US is to grow by nearly half between 1995 and 2005.
Other sectors are less fortunate. Levi-Strauss was caught out by the demographic tides and last autumn announced plans to close four factories in Europe. In the US, even bigger closures occurred, after the company came to be identified by young people as making the jeans worn by their parents - a teenage turn-off.
Consumer spending, especially on goods, tends to grow more sharply when the number of people aged 25 to 34 is rising, as in the 1980s. This is when most people set up home and start a family. But when those aged 25 to 34 are declining, the effect is to push down the rate of growth of consumer spending.
This subdued retailing environment explains why so many retailers are looking to expand abroad. It is no accident that Tesco spent more than £600 million in 1997 to acquire a presence in Ireland, which has the most youthful population of the European Union, nor that it has moved into Thailand with its purchase of the Lotus chain of hypermarkets.
The effects of these age shifts are not confined to individual businesses.
The declining number of people in their twenties and early thirties - the first-time buyer group - is a key reason why the recovery in the housing market since the mid-90s has been so half-hearted. Just as the boom of the '80s was propelled by the swelling number of baby-boomers in their twenties (up by over a million), so the turnaround in the size of this age group in the '90s has removed a vital prop from the market. It explains why housing transactions are so low and why demand has been patchy. The action has moved to the trade-up market, fuelled by the increase in the number of 35-to-44 year olds. This helps explain the polarisation of the housing market into 'hot spots', featuring larger homes in sought-after locations, and 'black spots' of bog-standard houses on the wrong side of town. FPD Savills, the property surveyors, says prices soared between 1995 and 1997 in gentrifying parts of Bristol but sank like a stone on the other side of the city.
While housing has been hit by the demise of the first-time buyer, financial markets have been galvanised by another age shift. The long upswing on Wall Street has gone hand-in-hand with an upswing of people aged 40 to 59 in the US population. This is no coincidence. Young populations tend to unleash inflationary forces as they barge into the economy. Resources are stretched while their ability to add to production is initially more limited because of inexperience. As populations age, you would expect inflationary pressures to subside; and this is what has occurred since the early 1980s, providing a powerful impulse to equity and bond markets.
In addition, the middle years are the ones when people are most likely to make financial investments. Earnings peak, the demands of bringing up children start to fall and the prospect of retirement looms on the horizon. People can also afford to take more risks in investment strategy, backed by the knowledge that they can fall back on earned income if stock markets dive. A US survey by the Investment Company Institute shows that more than half of mutual fund owners were baby boomers born in the two decades after the second world war.
Not that baby boomers expect markets to fall. The American experience of the last couple of years is a 'boomer bubble'. Even given the helping hand from the US Federal Reserve in the form of interest rate cuts, the speed with which Wall Street regained ground after the Russian collapse was remarkable. Whatever their genesis, financial bubbles get pricked: share valuations have been stretched to the limit in the US. But while you can expect a relapse in share values, I expect that favourable demographics - a further increase in the share of the 40 to 59 age group in the populations of the US and Europe - will bolster domestic equity markets thereafter in the 2000s.
There may be better value further afield. While many investors are disillusioned with the idea of investing in developing countries, it is clear, looking ahead, that developing countries have the agequake on their side. Thanks to fertility decline, many are no longer weighed down by looking after legions of children. Their labour forces will continue to grow fast and their age structures will bulge in the middle, like Chinese lanterns, with workers in their most productive years.
The growing number of people of 40 and 50 in western populations may support financial markets but it spells problems in the workplace. Let's call this the 'boomer jam' - too many bosses while the number of employees they're supposed to be managing disappears over the horizon. In the past the age profile of labour forces, like the population, resembled a pyramid.
For example, in 1990, there were over a third more 25-to-34 year olds in the British labour force than 45-to-54 year olds. But the postwar baby boom, followed by the baby bust of the last 20 years, is making the age pyramid bulge in the middle. By 2010, there will be a fifth more 45-to-54 year olds in the labour force than 25-to-34 year olds.
It would be nice to think companies will adapt to an ageing workforce by becoming less ageist, but you would be naive to bet your career on that. If you have any entrepreneurial flair, you should deploy it - because the labour market will become a place where it is easier to provide work for yourself than to rely on employers. Updating skills will be more crucial than ever to remain employable in this environment.
The agequake is arguably the most significant trend to affect our lives in the next century. Throughout this century, populations have been relatively young and fast-growing. Now they are growing older and many countries face population decline.
Global ageing will be a leitmotiv in business, society and international relations. But it also will be throwing up opportunities. Capitalise on those if you can, but ignore the agequake at your peril.
Agequake, by Paul Wallace, is published this month by Nicholas Brealey, price £18
AGEISM IN THE WORKPLACE
Ageism is alive and kicking in the workplace. A recent survey by the Equal Opportunities Review of job advertisements in the Sunday Times which featured age limits showed that executives are only really safe in their mid-thirties. The barriers start going up past 40 and become virtually insuperable around 50. A survey in 1996 of members of the Institute of Management showed that over half the respondents had used age in recruitment and selection.
Why are companies apparently so hostile to older workers? A survey by Bernard Casey for the Organisation for Economic Co-operation and Development (OECD) showed that employers worry about lack of appropriate qualifications and the short payback period on training. Another concern is health. In the early 1990s workers over 55 were half again as likely to be off sick as those aged 25 to 54.
But tomorrow's older workers will not be the same as today's: they will be better qualified and should be healthier. The OECD estimates that half of all workers aged 50 to 64 in the developed world had less than upper secondary education in 1995. By 2025 this should drop to a quarter. 'This educational upgrading,' it argues, 'should provide the basis for workers to acquire skills throughout their working lives and thus enter their older age relatively well equipped.' Today's baby boomers are also in better physical shape than their parents were at the same age, so their health should be less of a problem in the workplace.
On these grounds, you might expect ageism to become less of a problem in future. After all, employers have to work with the material that is available. Figures for the European Union show that 40 and 50 year olds will increase from around 45% of the prime working-age population (20-59) to 55% in 2015. In the UK, a number of companies have joined to form the Employers Forum on Age which presses the case for employing a workforce of all ages.
But value in markets is created by scarcity rather than glut. In tomorrow's labour market, younger people will be in short supply while there will be a glut of older workers. What is more, new graduates will have qualifications and skills that are bang up to date. The returns on new investment in know-how - the latest MBA, a hotshot computer technology graduate - are far higher than the returns on old investments, the degrees of yesteryear.
New recruits are rather like greenfield sites, capable of much more efficient production, while older workers are more like long-established plants, difficult to adapt to new working practices. Managers identify lack of flexibility and problems with new technology as two principal disadvantages of older workers.
