Friday 29 November 2013

Demographics 1

There's been a series of articles recently on the one child policy in China, and how this is resulting in demographic problems due to Chinese preference for male children. As a result of the policy, and this preference, there is a massive imbalance of young males to females in China. The recent Party decision to create official exceptions to this policy can be seen in this light. 

It's interesting to reflect that the upcoming world power, China, is going through a demographic crisis that in some ways is  a mirror reflection of that of the declining world power, Europe. The baby boomer retirement has started: a major demographic bulge is hitting European pension systems, creating major fiscal pressure. 

European governments find themselves between two extremes: 

-  The first is how to manage a social security system designed for a worker : retiree ratio of 10:1, when the actual ratio is as low as 2.8 : 1 in many countries. 

-  The second is how to control their own tax impulses, where the Baby Boomer demographic bulge will create an inheritance and property transfer tax bonanza. This is an El Dorado of income confiscation to shore up the system for a few more years. 

With this in mind, I was interested by an Opinion piece today in the Financial Times on German policy under a Christian Democrat - SPD coalition. Entitled "Merkel is not leading a government for the future", the piece takes a quick (and probably too selective) look at coalition negotiations, and concludes: 

"Data just released by the German demographic institute show that the country’s population has the highest median age of all EU countries – 45 years, compared with 39.7 for the UK and 35 for Ireland. ... Both big mainstream parties have become parties of the old. It is this age bracket where they find most of their voters – and the most reliable ones as well. This is the strongest political message the new coalition sends out, albeit inadvertently. If this message sticks – that the old have won – then Germany will lose the confidence of a young, educated generation, and will in the end lose its future."

I can't say I find this surprising. We see the same trend in Germany in many areas (for instance, support pricing of apprenticeships) as well as in many other countries (Social Security and Medicare policy in the United States). 

Older people vote. Younger people tune out, and understandably so given the dismal state of domestic politics in most countries today. How we deal with the declining demographics in Europe is going to be a key policy issue. And as with most other ones, it is for the most part understood only when a single issue (e.g. retirement age change) hits the headlines. 

A real analysis of the impact of demographic change on consumer spending and B2B activity (investment, marketing) is rarely found among our corporate clients.   

(c) Philip Ammerman, 2013