We are in the midst of change. Change that is dominated by the certainty of demographics and by the manner in which our economy – and those of others – is transitioning.
It is a fearful time, but a time of opportunity for those who will take advantage of changes in this watershed. This is especially true for those who can separate the winners from the losers and who will view the world in a long term, optimistic manner.
I fear that the pessimism that currently pervades our society will not prepare us to future prosperity and the needs in infrastructure, education and energy that will be required.
I have long followed the original thinking of Nikkol Kondratieff, a Russian economist, who was the first to base his theories on actual statistics. He saw the economy as a 55- to 60-year cycle where technology supplanted the old ways of doing things by increasing productivity and through the replacement of certain industries and ways of thinking with new industries and approaches.
We have gone through periods, often called watersheds, where immense social and economic changes have taken place. These periods include after the French Revolution, the American Civil War, World War I, World War II and, of course, now.
After the American and French Revolutions, for instance, we had inventions such as the sewing machine, the steam engine, the use of fertilizer, the McCormick reaper, the harvester, railroads, and the ability to store and transport food. Old farming methods and manufacturing gave way to newer, better approaches. Productivity increased by multiples of 100 times and more rather than by single digit increases.
It is no coincidence that many of these periods of massive change took place after wartime because necessities of war generate innovation and the status that people have.
This 55- to 60-year time frame has much to do with how men and women are able to adjust to change. Many cannot or will not adjust. This is not new – the Israelites wandered for 40 years in the wilderness after lifetimes in slavery so they could have a generation come forth without a slave mentality.
Let me offer a few examples – the cotton gin revolutionized how we get fabric because it pulls off cotton fibers and lets the seeds fall out. Previously, slaves removed the seeds, a tedious process. The sewing machine, a simple reversal of the eye of the needle to the bobbin, led to the mass production of clothing. Farming before the American Revolutionary War had 94 percent of our population working on farms. Then a farmer could feed 1 ½ people. Now less than 2 percent of our population farm, and we could feed the world. Fertilizers, irrigation and machinery, as well as an extension system that educated farmers helped create this revolution.
In this watershed there are winners and losers. Cathode tubes dominated the computer industry at its birth, yet not one of those companies went on to manufacture chips. Skilled heart surgeons lost business when the stent was adopted. AT&T’s land lines are rapidly becoming irrelevant because of satellite, the Internet and cell phone technology. Importantly AT&T’s mind set has not changed. They still see themselves as a regulated industry.
Embracing technology is difficult for many. Many who are unemployed today – the baby boomers – will not transition to new industries because their skill set is obsolete and they cannot or will not adjust to the new work environment. Many of these folks are older and will enter retirement
Others will start their own businesses because they will want to be independent of a corporate system which they see as spitting them out after their “useful lives” are over. This was what rose from the Rust Bowl in the Midwest 30 to 35 years ago when great businesses were started on a shoestring and hope and superior ideas. This is one positive that comes from the obsolescence of some industries and deep recessions.
Forty years ago, manufacturing made up 28 percent of our working population. Today it is less than 10 percent. Many blame China and other low cost foreign manufacturers (many which are contracted by American and other Western firms). But most of this decline has come from massive increases in productivity. Water meters, for example, can be read remotely, which means that water meter readers are no longer needed. Importantly, remotely read water meters can monitor water better than human readers. Computers have made paper transactions more economical. A purchase order costs $50 to $70 when done by hand, but only $5on the Internet. It costs banks $1.07 per transaction to handle cash or checks but only .01 on the Internet. RFID will reduce the cost of processing orders and further will better control inventories and leakage. In my own industry, it takes only a few seconds to retrieve information that took hours before or to create a portfolio analysis that previously took a day. Where I needed a staff of 10, I have three, including myself.
The changes that are occurring often are fearful and are at the root, I believe, of such movements as the Tea Party in the United States. Demographic trends and the change in the position of women equal a shift in power dynamics which is obvious.
In 2000, I gave an interview to The Grand Rapids Press where I said that women managers were more suitable to the way business is now being run. The hierarchal approach – i.e.: like the old Marine Corp. operated – has given way to consensus building and delegation. Mass production has given way to customized manufacturing. In this environment, a “feminine approach” where ideas are exchanged and a consensus is arrived fits in better.
Businesses owned by women doubled from 1992 to 2006. Twenty-four percent of all family businesses are run by a female CEO/President, up from 5 percent in 1997. This is most important because family businesses are frontrunners of change.
By the decade of 2020, it is estimated that 30 percent of Fortune 1000 companies will be headed by women (it is less than 3 percent now).
Many professional women marry later and many select mates who are younger than them.
In our relationship economy, many organizations use alliances, partnerships and outside consultants. The job of managers is to work with these relationships – and the way women make decisions is more user friendly.
Race is transitioning in the U.S. Thirty percent of our workforce is now made up of Asians, Hispanics and Blacks.
The Census Bureau projects a 46-percent increase in our population by 2050. Whites will be in the minority by 2042 and by 2050 we will be 47 percent of the population, down from the current 67 percent. Hispanics will double from 15 to 30 percent; Asians will increase from 5 to 9 percent. Surprisingly, Blacks will increase only 1 percent to 15 percent.
Unlike countries like Russia, South Korea, Japan, Italy and Germany, the US’s population level is above replacement – in great part thanks to immigration.
Immigration has been good for our economy and our society, although many are fearful of the “others”. Go through the Forbes list of the wealthy. You will find many immigrants or children of immigrants, or minorities who “made it.” In 2010, for example, there were four Indians, six Asians, 30 Jews, and 34 women. One black made the list and three gays.
Many manufacturing jobs have been made obsolete through automation. The cry of “jobs, jobs, jobs” is incorrect. It should be “skills, skills, skills” because we are in a period of time where there are many jobs, but not skilled people to do that work. Many in our society will never be in productive jobs again and this high unemployment masks the mismatch of skills to work. The “bright” side of this is that many of the unemployed are baby boomers who are reaching retirement and may benefit by the massive transfer of wealth from their World War II parents. Others are uneducated and/or cannot reach work because they lack transportation.
Saying that, let me discuss some numbers from the Bureau of Labor Statistics.
The growth of the working age population – defined here as ages 21 to 62 – is changing in a dramatic fashion. Here is a chart of the estimated net change between those entering the workforce.
Decade Average Annual Change
To point out the obvious, we will not have a surplus of new workers coming into the workforce in this decade.
Where will new jobs be?
The Herman Group believes that the shift to digital medical records and the sequencing of the human genome will make Health Information Technology the strongest growth field (for workers) in the next decade. New industries in water, energy (such as algae), waste disposal and medicine will generate new employment (as has recent “new” industries) in communications, social interaction and internet searching.
Where are the shortages for workers? Much of it is obvious. We graduated only 4,492 chemical engineers and 450 petroleum engineers in 2007 out of 1.5 million bachelor degrees earned. We have a current shortage of nurses (a problem that could partially be solved by empowering nurses). The American Medical College says that 250,000 active doctors will retire by 2020, but only 180,000 are entering medical school. Part of this hails back to the retiring baby boomers and the trend to “salaried” doctors, but the gap is bigger than 70,000 a year because of the time needed to go through residency.
In the past we have been able to rely on oversea students to fill many positions, but our success here has led to the growth of more open societies overseas as well as the growth of a middle class in such countries as China, India and Brazil, among others. The Christian Science Monitor had an excellent discussion on this subject in its May 23, 2011 publication. Prosperity elsewhere benefits everyone although job insecurity has also made many in the U.S. fearful.
We are already seeing the impact of the children of the baby boomers. These 80 million strong men and women are called the Y generation or the echo boomers. They are the second largest demographic in our society. They look at the world differently than most baby boomers and will influence our society as their parent did!
Many are fearful of inflation, but have not actually looked at what makes up inflation. One major component of inflation is labor, but labor costs have remained in check for the decade in part because of globalization and productivity gains. Housing prices have gone down as well, partly because of retirees and the lessening demand by first time homebuyers who are marrying later. The restriction of credit has also reduced home purchases.
We have not worked off the large inventory of homes that are in default. Less than half of new homes (1 million vs. 2 million) are being built now than in 2005-2006 and much of that is for apartments. Rental units make up 50-60% of all new residences. Lastly, there is a trend for retired couples to sell their homes in the suburbs and move to the city.
Housing has long been a large part of our economy, but it is not likely to be as important in the next few decades. As our population increases, much of our excess housing will be absorbed. What many experts look for is to regain the lost value in real estate and they think that will take eight to ten years. But is that the point? The real key is to see how long it will take to use up the current inventory (which I estimate that will take two to five years, depending on the community). Shopping centers and office building space will compress because of the Internet and people working from home.
Winston Churchill said “maybe this crisis is a blessing in disguise. If so, the disguise is very effective.” Within our current crisis, there is reason to be positive in this period of inevitable change.
This transitional period is painful. We can observe the facts, which are by their nature are short term, or we can interpret what will arise long term. I prefer to take the longer view. But I will not just extrapolate past performance and expect trends to continue. For instance, this is not a “normal” recession and the old formulas for stimulating the economy may not work now.
I do believe, however, that we have avoided a major depression, in part because of the safety net provided by government and because of the extension of liquidity and credit to avoid severe financial panic (and the ensuing restriction of the money supply). Government policy also allowed some companies, such as AIG and GM, time to unwind and restructure.
We need to realize that the near collapse of the banking system in the United States in the 2008-2009 period was due in part to inflated housing prices and cheap money, as much as fraud, non-enforcement of regulations, and the misuse of new financial instruments. The recapitalization of banks and real estate is in part keyed to demographics – that is retiring baby boomers, lower fertility, and later household formations.
Given that we are in shift to a changing economy and society, what should we look at that will be different?
1. We will be more culturally diverse and women will have a more important position in running government and business. We will look at the way we have done things in the past with different eyes. I have mentioned one big change in the way we will manage, for instance.
2. The shortage of skilled workers will generate more automated processes, such as machines that diagnose medical problems; using nurses and technicians rather than doctors.
3. New industries will rise up that address shortages in food, water, and fuel.
In agriculture, mechanized equipment and farming techniques used in the West will be exported to less developed countries. Genetic engineered seed and animals, especially fish, will be developed. Fertilizers will be improved, and extension services that we take for granted in the US & Canada will be greatly expanded.
With growing populations, we will have to insure that we use water more efficiently. Improved plumbing (including flushless toilets), improved water meters, pipes that can replace leaks, better ways to clean water and recycle it, are but a few of the new world of water, as are energy efficient water desaltation.
We have heard a great deal about solar energy and other alternatives such as wind power and batteries. These alternatives will continue to make progress. But progress will continue to be made with the algae, where currently 1 acre of algae equals 50 acres of corn ethanol. Creating types of algae and distilling it more effectively will become more important. Ways to conserve energy (such as painting roofs white), LED lighting, insulation, and motors which are improved will also be important.
These three”basic” groups – food, water and energy – will be in short supply, and industries will rise up to use them better.
New technologies will generate solutions to problems. Nanotechnology has been especially useful in coatings. For example, Science News reported that “materials scientists in Texas have developed flexible coatings mere billionths of a meter thick that keep cotton clothing from going up in flames and plastic foam from melting.” This technology will fulfill, in my opinion, future promises.
Our educational and medical systems need to be delivered in a more efficient and effective manner. Here opportunities abound to do things better. For example, E-learning can better be geared to instruction for children and adults by using coach teachers. Future text books can be down loaded into Kindle rather be printed, allowing faster updating than before. Games and other techniques can be used to better teach. As for medicine, machinery might be used to better diagnose disease and drugs might be customized to the patient.
So how do you look at the world like a futurist? First, think about trends that are obvious and ask yourself how they might affect you, your family or your business. Second, look at who will win and who will lose. If advertising is migrating to the Internet, won’t TV, radio and print lose? Third, explore things in a different manner, the cotton gin and sewing machine is examples. Fourth, look at aberrations; that is how I identified the S&L crisis and the sub-prime problems.
Bob Chernow is a Milwaukee businessman and futurist. He is vice chairman of the World Future Society, a 12,000 member international organization.