“I’ve often heard people say: ‘I wonder what it would feel like to be on board a spaceship,’ and the answer is very simple. What does it feel like? That’s all we have ever experienced. We are all astronauts on a little spaceship called Earth.” -R. Buckminster Fuller
Spaceship Earth is more than a theme park ride at Disney World’s Epcot, it is taking a worldwide view in our thinking and actions. We cannot isolate ourselves; the populace of the world is interconnected and an investor has much to gain by considering the global economic and demographic trends.
As I noted previously, I had the pleasure of seeing a presentation recently by Herbert E. Meyer, who served as special assistant to the director of central intelligence and vice chairman of the CIA’s National Intelligence Council during the Reagan administration. Meyer has authored several books including “How to Analyze Information,” “Real-World Intelligence” and “Hard Thinking” (Storm King Press, 1993). Meyer provided his viewpoint on the major demographic, economic, political and social trends occurring in the world and their impact on Western civilization as well as business opportunities.
Global demographic trends are fascinating. The world population is growing more slowly, but patterns differ around the globe. People in Western countries are living longer but having fewer children. Seven of the 10 fastest-growing countries are from Africa.
The table below summarizes some data from the CIA World Factbook, a rich resource of geographic, economic, demographic, political and military information for all the nations of the world. I sampled some population data for a cross-section of nations that help to illustrate the major changes occurring in the world’s population.
The first item of note is most of the developed nations are in danger of “dying off” with a low fertility rate. The fertility rate measures the average number of children born per female. A fertility rate of 2.1 children per woman is the long-term sustainable rate to keep the population stable. Drop below that figure and you will see your population age and slowly fade, which puts a strain on the younger population. The United States has a fertility rate of 1.87, below the sustainable rate, unless more young immigrants enter the country. Germany’s fertility rate is even lower at 1.44. Germany has seen its overall population shrink. One can see why German leaders are seeking more immigrants given its fertility rate and declining population.
World leaders are aware of these issues, and some even try to take control. China is in the process of reversing its one child per couple policy, as it now has an unsustainable fertility rate of 1.6. China also has a culture that favors male children, resulting in higher rates of abortion and abandonment of unwanted female babies. In looking at the male to female birth rate, it generally averages 1.05 males to females. In China, the ratio is 1.15 males per female.
Russian demographic issues are interesting as well. Its fertility rate is also unsustainable at 1.61. The life expectancy for a Russian born today is 70.5 years, low for a “developed” nation. In the United States, the current life expectancy is 79.7 years. In 2006, Vladimir Putin called Russia’s demographic trends the most urgent problem facing the nation.
Russia actually instituted a Day of Conception (or Procreation Day) every September 12. Couples are given time off from work to make Russian babies and couples that give birth on June 12 are rewarded.
Russia is also unique in its high abortion rate. Until recently, the average woman in Russia could be expected to have seven abortions over her lifetime. Recently, restrictions on abortions and financial incentives for additional children have helped to reduce the abortion rate in Russia.
The interaction between the birth rate, migration patterns, life expectancy, population age, health care and even wealth impact elderly care and support. Dependency ratios are a measure of the age structure of a population. They relate the number of individuals that are likely to be economically dependent on the support of others. The overall dependency ratio compares the number of the very young (ages 0 to 14) plus the elderly (ages 65 and up) to the number of those in the working-age group (ages 15 to 64). In the United States the overall dependency ratio is 50.9%, so roughly half of the working-age population is supporting children and the elderly. In Japan the overall dependency ratio is 64.5%, so 35.5% of the working population is supporting children and the elderly. If you have concerns over an aging population because of low birth rate and longer life expectancy you can examine the elderly dependency ratio, which just examines the elder relative to the working age population. For the United States the elderly dependency ratio is 23.3%; for Japan the ratio is 43.3%.
The potential support ratio is the number of working-age people (ages 15-64) per one elderly person (ages 65+). In the United States, there are 4.5 working-age people per elderly, while in Japan there are only 2.3 persons per elderly individual. Japan may be a wealthy nation, but it has an unsustainable fertility rate of 1.4 babies per female. The life expectancy is high at 84.7 years. The median age of the population is 46.5 years. The population is shrinking at a 0.16% annual rate. Japan is now selling more adult diapers than baby diapers. It is no wonder that Japan has been focused on creating service robots to perform work.
An aging population acts differently than a young population. Think of your natural spending habits as you age and how that impacts the overall economy and various industries and sectors if the whole country is aging. The spending patterns of my teenage children are certainly different from those of my retired parents. One wonders what impact shifting demographics has on deflation in Japan and the struggles of getting economic traction through “Abenomics.”
The needs and opportunities in the young, fastest-growing countries are much different than those of the developed nations that are aging. Just take a quick look at the population figures for India. It is the second most populous country in the world with 1.2 billion residents. The fertility rate is 2.48 and the population is growing at a 1.22% annual rate. The life expectancy is 68.1 years and the median age of the population is only 27.3 years. The overall dependency ratio is high at 52.4%, but the elderly dependency ratio is 8.6% and there are 11.7 working-age adults to support every elderly person. Only 32.7% of the population is urbanized and the literacy rate is 71.2%.
The face of Spaceship Earth is changing. Even if your investing focus is domestic, to be an effective investor you need to understand demographic trends in the United States and how the rest of the world is evolving. Trends in healthcare, education, infrastructure, transportation, food, energy and even entertainment revolve around demographic shifts.
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