If it all goes wrong: Rebalancing the global economy
By Carl Steidtmann - January 24, 2012
The future belongs to those who show up. — Mark Steyn
As leaders of Deloitte Touche Tohmatsu Limited and its member firms, participate at the World Economic Forum in Davos at the end of this month, I am looking forward to engaging with clients of the Deloitte U.S. firms in New York this Friday on whether growth is still possible if everything goes wrong. The challenge is looking for the pony in the pile of horse-do-overs. I think I have discovered no less than five. Here is the first one.
The doomsday scenarios related to overpopulation, which were previously forecasted, have failed to materialize. In fact the scenario which has unfolded is the exact opposite, with its own set of challenges. Birth rates around the world have plummeted to levels where the implosion of population represents a much greater threat to economic prosperity. Populations are already shrinking in Russia and most of the countries of the former Soviet Union, as well as in Japan. Throughout much of Europe, the population pyramid is standing on its head. For every 100 grandparents there are less than 50 grandchildren.
With a birthrate just above the replacement rate of 2.1, the United States will be the only developed country that will not experience a decline in population over the next decade. The economic malaise in Japan and the financial crisis in Europe are at a deeper level, a crisis of demographics.
As Europe and much of Asia get older, the U.S. will stay relatively young and youth will probably have its way, particularly when it comes to risk taking. There were many risky things I did when I was younger, some I would like to forget. But I took career risks, investment risks and business risks I would not think of taking as I approach my own age of dotage. What applies to the individual so to applies to modern economies. Growth, investment and innovation requires risk taking and without it, modern economies stagnate.
The United States has a second unique advantage in the demographic race. Anyone can be an American. Unlike the rest of the developed world, citizenship in the U.S. is not a matter of birthright or ethnicity. It is much more a matter of values.
As a nation of immigrants, the U.S. does a better job than the rest of the world assimilating new immigrants into the fabric of American life. The open nature of American citizenship makes it an attractive destination for immigrants from all over the world. This gives the U.S. a unique advantage in an ever globalizing economy.
A declining population creates many problems. Pay as you go pension systems become impossible to fund. I feel more secure with my Social Security and Medicare in the near term with a rising population than with my European counterparts’ health and pension benefits are with a declining population. Housing demand falls dragging down home prices. Markets for a wide array of consumer products shrink. Youth unemployment soars as older workers are slow to leave the workforce. Developing new talent for existing businesses becomes difficult.
Since the end of World War II, the U.S. has been a benign hegemon over the global economy, pushing for free trade, protecting global trade routes, funding the IMF and the World Bank, encouraging democracy around the world and owning the world’s reserve currency. At the same time, the U.S. economy is positioned well to remain far more dynamic than its global competitors due to its demographic advantage. Despite many rumors of her demise, demographics suggest that the U.S. has the fundamentals to continue to maintain its economic dominance for many years to come.
Carl Steidtmann is chief economist and director of Deloitte Research – Consumer Business. He is a nationally recognized subject matter specialist on economic forecasting of retail sales activity, consumer trends, technology, and general economic trends. Dr. Steidtmann works with clients to assess the impact of economic, demographic, political and technological changes on their business strategies. He has testified as an "expert witness" on consumer business issues and authored or co-authored more than 400 publications on economics, demographics, competition and socio-technological trends as they relate to business.