10 for 20: Themes for the Decade

January 10, 2020

  • Demographic destiny awaits as the marvel of the Millennial’s innovations transform the economy and the Boomers burden social programs.

 

  • The governance of choice will change the definition of privacy, how to build trust, and how we create.

 

  • The socialization of data science will transform how we entertain ourselves, how transportation as a service evolves, and how technology becomes intensely personal.

 

  • The environmental renaissance will alter how we generate, conserve, and utilize energy.

 

 

 

 

The times they are a-changin’. Over fifty years ago, the impact of the largest generation in US history began on the US economy. Now, it’s their children’s turn. The US stands alone with a positive demographic outlook in a developed world marred by unfavorable demographics. This trend is not the only reason for optimism.

 

While the quagmire of nationalism burdens part of the developed world, three secular trends will define the extent to which the US and the world will remain open societies. The first is how the world governs choice. How and where we make things determines employment in that industry. The fate of the technology leaders of today is determined by how personal data is deployed and by whom. Most critically, how is trust restored in what people see and hear?

 

The socialization of data science will avail profound insights to the masses. The removal of physical constraints will permit everyone to compete in a virtual world, not just those who won the genetic lottery. Personal transportation will continue its shift to an on-demand service that has profound impacts on the environment and capital. Finally, the insights from wearable technology will provide unfathomable insights into health and longevity.

 

The environmental renaissance will address the world’s most pressing concern: global warming. This action will accelerate the adoption of alternative energy sources, the more efficient use of energy, and the conservation of energy in storage. Critically, localized farming will ease the burden on land and water resources while enabling food resources to reach the most in-need regions. Opportunity, however, is not necessarily reality.

 

Ten for the Twenties

 

Forecasting is a notoriously difficult endeavor, particularly far into the future, as the range of possible outcome expands. Two components are required to generate a credible forecast. A coherent argument for the forecast (e.g., how and why it will occur) and the degree of certainty around the outcome (e.g., when, where, and who will make it happen). In generating our themes for the future, we focus first on how the environment is currently changing and why we expect the continuation or acceleration of that theme.  Next, we establish a degree of confidence in when, where, and by whom these events will occur, and finally, where the impact on investing will occur. The story begins with the highest confidence theme: demographics.

 

Exhibit 1. Themes for the Next Decade

 

 

Demographics

 

Forecasting the demographic profile of a population is the most straightforward task of all the possible predictions of the future.  While war or plague can set demographics asunder, those extremes apply to all forecasts. The key to any outlook is ensuring that there is a credible basis to generate a projection (e.g., in a decade, a 20-year old will be 30-year old) and there is low variability in the forecast (e.g., over a decade, 98.5% of all 20-years old will reach 30-years old.). This degree of certainty is close to non-existent in forecasting. While all forecasters enjoy the ability to forecast certain events, materiality is a critical concern. Fortunately, demographics provide it as well.

 

The workforce declines for the next decade is incredible in scale. The size of China’s workforce peaked in 2016 at one billion and now will begin a generation-long decline. China will retire a city with a population (2.5M) the size of Houston every year for the next decade. While the absolute number is large, the relative amount is about a 3% decline in the workforce. For reference, this is about the same percentage decline that Japan has experienced in the prior decade. As is frequently said, China may indeed get old before they get rich.

 

This outcome is not the case for Europe. They are already rich and old. Europe’s workforce peaked in 2011 at 433 million people, and their decline is well underway. Over the next decade, Europe will send into retirement a population nearly equivalent to Paris (2.6M). The working force population will decline by 7% as the Twenties end. Whereas they are among the most developed countries of the world and have accumulated wealth, the decade that will come will test the durability of that wealth.

 

Exhibit 2. Workforce Growth for the Next Decade.

 

 

 

 

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