Our guest is Clint Laurent from Global Demographics, an amazing demographer, businessman and observer of global trends long before they really take hold. He shares surprising observations that he believes will happen in the next 5 to 10 years.<\/p>\n
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This is the first of a two-part discussion. Watch the second part here.<\/a><\/p>\n
Clint started Global Demographics<\/a> in 1996 and cover 117 countries throughout the world and China. They do that right down to county level of 2,248 counties. Clint believes that demographics are better than financial data from the point of view of forecasting \u00a0because they tend to be stable trends.<\/p>\n
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This QuickHit episode was recorded on June 17, 2021.<\/span><\/em><\/p>\n
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TN:<\/strong>\u00a0Over the last year or so, weâve seen the pandemic. Weâre now having this bullwhip effect with inflation and other things. But I guess this capping off in the last 20 years where weâve seen China as the global growth market and the marginal consumer for almost everything.\u00a0And itâs really forced me to think whatâs next. You and I published a piece about a year and a half ago around Chinaâs population topping out around 2023, 2024. And so Iâm really curious, what do you see happening in the next 5 to 10 years that will really come as a surprise to people? What are some of your observations over the next decade?<\/p>\n
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CL:<\/strong>\u00a0The world is actually as bizarrely almost on a bit of a cusp at the moment. The pandemic is almost irrelevant to what was going to happen. I mean, I know the pandemic caused a lot of economic disturbance, obviously affected some peopleâs lives quite significantly. But really, there was a lot of change that was about to start to happen anyhow, irrespective of whether or not the pandemic came along.<\/p>\n
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From a demographic point of view, the pandemic is not really very relevant. Iâm currently based in the UK and the people who have unfortunately died from it, most of them would have died in the next two years anyhow because they had severe underlying health situations. And so, its effect on death rates has actually been very, very marginal.<\/p>\n
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Secondly, most deaths being over the age of 60, that means it doesnât affect the labor force, it doesnât affect the propensity to have children. So really, it will be a horrible little blip in the history of mankind. And hopefully we move on from it and the vaccines keep working. And so a little bit of hope there. But that aside, it was going to be a big change.<\/p>\n
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And if I can explain the change in the following ways.<\/p>\n
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Up to now, the world has perhaps been a little bit lucky in the sense to be, first of all, had what I call the Older-Affluent countries, and thatâs Western Europe, North America and what I call affluent Asia â Japan, Taiwan, Australia. All of those countries, which are actually only 14% of the worldâs population, account for a very significant proportion of the global consumption. As you know, it grew quite rapidly, which was really quite good. And that is really the first big change is going to \u00a0come into effect.<\/p>\n
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Whatâs already started to happen is people. The only growth in these countries is people over the age of 40. Every age group below that is in absolute decline. So even if theyâre going up in affluence, the young affluent market is no longer a growth market. Itâs more or less stable. Even if you add in increased incomes, which still occur, but at a slower rate. So youâre now looking at a 40+ age group, and in some countries, obviously, Japan is one, itâs 60+ that are the age group thatâs growing.<\/p>\n
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So all of those societies, to some extent, are in a lot of trouble. Theyâre flattening out. Theyâve moved from a pyramid population to a square, and thatâs actually very good.<\/p>\n
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A lot of people say you should have a pyramid population with young people coming through and looking after the old. Thatâs actually the poverty trap.\u00a0Because if young people come through, the dependance, first of all, will keep driving the society down. With a square, then the same number of people need education each year, the same number of people need health care each year. The capacity is there and itâs an improvement of quality rather than an increase of quantity.<\/p>\n
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TN:<\/strong>\u00a0So youâre saying with these wealthy developed nations, Japan is an extreme example, consumption isnât really the worry. Itâs the growth thatâs falling off. So the consumption is stable. Itâs just not growing.<\/p>\n
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CL:<\/strong> Exactly.\u00a0Thereâs one other big change to appreciate is what people say because theyâre getting old, theyâre going to run out of labor force. And hereâs a statistic for you: In Japan, 25% of males, 70 to 74 are still in full-time employment. And youâre saying, âyeah, well, thatâs Japan. Itâs different everywhere else in the world.â You know, itâs exactly the same statistic in the United States.<\/p>\n
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The aged worker is a new phenomenon. In fact, the age worker is the fastest growing demographic. So these countries actually are not running out of workers. And the assumption that we all go decrepit and work after age 64 is just wrong. I am over 65, as you can probably guess. I donât have a single friend whoâs not in full-time employment at this point in time, enjoying it. It raises lots of issues.<\/p>\n
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So the labor force keeps going in these countries as well. So they donât even need migrant workers to sustain these countries. So they are nice, comfortable niche. Growing steadily, not phenomenally. Youâre talking about 1%, less than 1% growth in total consumer spending. Households are getting a little more affluent. Number of households is flattened out, which would have implications for the housing market. But itâs not going down, so itâs actually not too bad.<\/p>\n
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TN:<\/strong> So you say GDP is pretty stable, but whatâs happening to GDP per capita in those countries? Does it continue to grow?<\/p>\n
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CL:<\/strong> It does, but just at a much slower rate. Youâre talking 1% or even less than 1%, but itâs positive. And do remember, 1% of a hundred thousand US dollars is more money than the total income of households at the other end of the spectrum. Much of their spending power is quite significant. But a really important point to keep in your mind right now is that consumption expenditure will start to level out. It wonât hit that high growth rate anymore. It drops back to about 1% or even slightly lower.<\/p>\n
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Then the other big change youâve got is what I call the next group of countries, which is older but not so affluent. And that obviously includes China. Now, letâs just put China to one side for the moment and look at the other countries in that group. Youâre talking about Russia and the Eastern European countries. All of which have huge potential because like the previous group that I just talked about, they score really well on education.<\/p>\n
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And countries that score well on education, with the right capital investment, can lift the productivity.\u00a0The countries that have weak education, it doesnât matter how much capital you throw into them, they donât lift their productivity. And thereâs plenty of statistics to prove that.\u00a0So these countries actually have a resource. I mean, Latvia, Romania. It doesnât really matter. And that actually got the one thing thatâs really hard to do. Good education.<\/p>\n
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Why is it hard to do? India has been really bad on education up to now. It finally has universal education. Every kid, 5 to 12 is now supposed to be in school. But it takes another 10 years before some of those kids come out of school and get into work. And it takes another 10 years before the workforce has become sufficiently skilled that the capital investment comes and lifts the productivity.<\/p>\n
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So these Eastern European countries and Russia are actually interesting from the QuickHit point of view. They start getting the fixed capital investment right, got the education right. They could actually be the next growth area. Only warning to you is they also are relatively old. So itâs a growth area of 40 pluses and 60 pluses. That is going to happen because theyâre under earning at the moment. They can lift their incomes, obviously, buy bit of car, bit of clothing, all of those sort of things. But itâs a growth area of an older population, not a young population.<\/p>\n
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TN:<\/strong> And itâs something that nobodyâs watching, Clint. Like, I donât think anybody is really looking for that even as a possibility. A lot of people have written Russia off, see it as a petro state or whatever, and central and Eastern Europe is kind of just kind of a no manâs land in many cases. So some manufacturing there. Thereâs some services there in terms of globalization. But I donât think thereâs a lot of expectation to see rapid growth there and high productivity there. So I think thatâs a really interesting question mark that most people arenât even thinking about.<\/p>\n
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CL:<\/strong> Thatâs right. And if you go into these countries physically, you start to see some of the big brands starting to look at them. And you come across someone from XYZ Corporation there. We just have a little look. So some people are starting to see that itâs there. Itâs just as you say, itâs not visible yet.<\/p>\n
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Letâs switch to China briefly. China slightly different and also very similar. First of all, remember 1989, China introduced the one child policy. That came under a huge amount of criticism. But ignoring how you feel about that, is one very simple thing it achieved. It levelled off the number of young kids needed to be educated. And subsequently started, it was 1979, they introduced.\u00a0Such that by 1984, when they introduced compulsory education for all six to 12 year olds, they were talking of a relatively stable number of kids. So they could focus on the quality of education. And so every kidâs been going to school in such when you go to the year 2000, youâve got this population still living in the rural areas. But who could read, write and do sums and all of those sort of things. Could get on their bike, go into town and get a job in a factory or an office or whatever.<\/p>\n
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And the differential between an urban worker and rural worker in China is 3.6. And thatâs actually how China drove its growth and its productivity per worker and its influence. What it did is, it said, take all these people who are nice people, but not well-educated, not earning very much money, educate them, put them into job, let them earn lots of money, and have a good lifestyle. And that drove up the productivity and the whole success story of China.<\/p>\n
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TN:<\/strong> So urbanization and wage arbitrage, productivity gain for China. But is that running out in the next ten years or does that continue over that period?<\/p>\n
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CL:<\/strong> Weâve got it going through actually. Itâs 20 million a year at the moment, which is a phenomenal number. Thatâs Australia, every year. Itâs 20 million at the moment. We have it dropping down to about 11 million by 2040 because itâs still a lot of people moving there.<\/p>\n
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Now, this is the other big trick. Because some people have been saying, Chinaâs populationâs leveling out. And, you know, we thought it was 2023, where even the Chinese government agrees with us. Now, itâs 2023, and itâs leveling out. The working age population is starting to shrink. Oh, dear. That can have a decline in the workforce. No. Theyâre having a decline in the rural workforce. The rural workforce have in the next 20 years.<\/p>\n
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The urban workforce keeps growing for the next 10 years to 2030. The number of people working in urban jobs, which are highly productive, keeps going up. So for the next 10 years, Chinaâs GDP growth still chugs along reasonably well.\u00a0After 2030, the growth rate drops away and we have it down to about 1.3% by 2045, because it just isnât the extra workers to keep growing the total GDP. So thatâs the story there.<\/p>\n
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But again, coming back to the consumption side, China in the last 10 years in the urban area had this huge group of people, 220 million of them urban, aged 40 to 64 years of age, educated, earning quite good money by turning a stand and spending money on holidays and trips and things like that. And between 2010 and 2020, that went up to 100 million people.\u00a0Think about it, a 100 million extra people with disposable income. It was no surprise that the retail side of China took off and tourism and all of that. It was those people. Theyâve got a house.\u00a0Theyâve got a fridge, theyâve got a refrigerator. Letâs have some fun. Thatâs really whatâs happening right now.<\/p>\n
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Now, the bad news is that now it flattens out. Every age group under 40 in China is already declining and will continue to decline in size.\u00a0So donât go after the kid market in China except on the wealthy and those sort of areas for education. The 40 to 64 age, what I call the working age optimist, it grows for a little bit, and then it flattens out. And itâs named the 65 plus, which in China is not like the other countries. The 65 plus at the moment doesnât have great health, doesnât have a great life expectancy. You get some extension of the workforce, but not a lot.<\/p>\n
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So Chinaâs consumption is healthy as well. Itâll chugging along quite nicely. And to digress slightly, but I think we need to recover quickly here. The one child policy, itâs moved to three now. Thatâs totally and absolutely irrelevant.<\/p>\n
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TN:<\/strong> Yeah, it doesnât seem like itâs going to do much. Theyâre too rich to want to have more kids, right?<\/p>\n
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CL:<\/strong> Exactly. And actually, itâs the birth rate thatâs not the important point. Itâs the number of women of childbearing age. And that goes down by a third. It drops 330 million now to about 220 million in 20 years time. And the birth rate canât give up fast enough to compensate there. So births in 2019 are 14 million. It dropped to 10 million last year because of the pandemic, waiting to come back up a bit about to 14. Itâll be down to 11 million by 2030. And they canât change that even with the three child policy. That wonât change.<\/p>\n
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TN:<\/strong>\u00a0Itâs not the three child policy, itâs the fact that there are not enough women to have babies. And those women are wealthy enough that they donât want to have three kids.<\/p>\n
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CL:<\/strong> Thatâs really basically it.\u00a0Just look at Singapore. They tried everything to get the birth rate up.<\/p>\n
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TN:<\/strong> I was there. They were paying people to have babies and it still didnât work.<\/p>\n
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CL:<\/strong> Even send them on cruises. I mean, I volunteered.<\/p>\n
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And then you have, so thatâs the second group.\u00a0And the key point by the first group is nice and stable now, chugging along nicely, but no longer super growth in consumption. Nice growth in consumption is how I call it.<\/p>\n
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The third group, what we call the family stage. And thatâs obviously dominated by India, Brazil, Indonesia all there. The bulk of populations is in that 25 through to 39, having children, at work, that sort of stage. So the working age population is still growing a bit, but not a lot. Educationâs improving. It varies quite a lot across this group. India is at the weaker end. Indonesia is probably one of the better ends.<\/p>\n
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So, youâve got a bit of a dichotomy there. But theyâre generally in a position to be able to attract capital and generally in a position to be lifting their total consumption, but not dramatically. Weâre still talking of relatively low incomes under 10 thousand USD for the average family per annum. So the growth is there.<\/p>\n
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TN:<\/strong> So Indonesia, India, Brazil and so on, the capital formation, capital investment is the real weakness there. And it seems to me thatâs a function of, largely, education. Is that fair to say?<\/p>\n
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CL:<\/strong> Thatâs exactly what it is. As they get the education right and theyâre working on it, most of these countries have been quite responsible in that area. And as they get that right, so the investment comes in, so the consumer gets more affluent and becomes a virtuous circle.<\/p>\n
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TN:<\/strong> And what time scale are we talking about for that consumption to come in a really notable way to take the place of the under 40 Chinese consumption or the under 40 Western Europe or American consumption?<\/p>\n
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CL:<\/strong> Well, thatâs the bad news.<\/p>\n","protected":false},"excerpt":{"rendered":"
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