How the West was LOST #2

HOW THE WEST WAS LOST

by Dambisa Moyo PhD

LABOUR LOST

The editor of one of the world's leading newspapers tells the
story of how a few years ago, in one of its daily editions, it
carried a feature on China's President Hu Jintao. It was
acknowledged to be a fair and accurate (if innocuous) summary of
his career. Each new edition is printed in China overnight and
shipped across the country in the early hours of the morning.
This particular edition was duly printed, but when it landed on
people's doormats or on the shelves of the shops, the page
containing the article on Hu Jintao was missing. As the story
goes, in a matter of hours an army of workers had been corralled
to remove the offending page. Assuming that it took five seconds
(top speed) to tear out the page in each of 2 million papers,
this exercise would have required around 3,000 man hours (1,000
people working three hours each), at short notice. Not to mention
the fact that the newspaper had to be read and vetted, the
decision made, and instructions sent out before all this
happened. Only in China.

LABOUR IS BEING MISALLOCATED

Thus far, the discussion has focused on the West's misallocation
of capital. However, its labour too has been misallocated, again
to the West's detriment. Across the industrialized West, labour -
a key ingredient in economic growth - is being misallocated in at
least three ways.

First, the rapid introduction of pension plans in the period
after the Second World War inadvertently led to a widespread
mispricing of  labourcontracts that,in turn,has made the cost of
labouR look cheaper than it actually is. The postponement of
these hidden pension costs to the future - essentially delaying
the cost of labour - is coming -o haunt the West now.

Second, the broad societal shift to favour the service sector
over the  productive industry has created a society where
exorbitant salaries nd rewards are stacked in favour of those
whose societal benefits seem relatively narrow (sportsmen, CEOs,
hedge fund managers), and as towards sectors with arguably
broader societal gains (e.g. doctors, nurses, teachers); an
exodus driven by bad labour-pricing signals.

Third, laws governing the global migration of labour are becoming
ever more stringent, and more restrictive. America was always
known to be the destination of the best and the brightest, but
today governnent policies are making it much more difficult to
draw on the global pool of talent. All to the USA's detriment.

QUANTITATIVE EASING

There are two aspects of labour that affect a country's ability
to excel as an economic market: one is quantity and the other
quality - and on both counts the West is holding a losing hand.
In the first instance, it a matter of simple demographics.
Based on the sheer size of their populations the West's most
obvious challenges come from China and India. With their
inherently overwhelming numbers, China and India were always
going to give the West a run for its money, particularly once
they figured out the key policy ingredients for economic success.
The West faced, and con-inues to face, demographic threats on at
least two major fronts.

First, in the West, the post-war baby boomers born between 1946
and 1964 failed to produce anywhere near as many children as
their parents. In the 1980s demographers began to highlight the
very real prospect that by the mid-zooos there would not be
enough young people to take their parents' place in the labour
market - the baby boomers who drove America forward in their
furiously productive years would now be past their prime. That
the population of the West ",vas ageing and declining was bound
to have knock-on effects on its ability to compete economically.

Second, a characteristic of emerging economies was (and still is)
the fact that a large proportion of their populations is young.
For many countries, and for many years, as much as 50 per cent of
their populations have been under the age of fifteen, as compared
to around 18 per cent in the West - a well-stocked pool of
labour, ready and willing to learn new skills and man new
industries. With estimates forecasting that emerging economies
could add as many as z billion additional people to the global
middle class by 2030, the inordinate demand they will generate
will provide opportunities for this enormous labour supply. It is
worth noting that policies such as China's long-running one-child
edict will ostensibly alter dependency ratios, but for now the
West faces a sea of rising talent.
Ultimately, owing to healthcare innovation and dietary
improvements, people are living longer. But simultaneously the
young are having fewer children, so that together the work pool
is shrinking and this inevitably will lead to a contracting GDP
pie. While it's true that healthier people can work longer, an
ageing population adds a burden on social services, and will have
enormous implications for health services and private and public
pension schemes.
To make matters worse, despite their good intentions, many
governments again are guilty of pushing policies (this time in
the form of pension plans) that have helped misallocate resources
and once again have left industrialized nations poised for a
great economic freefall.

DEMOGRAPHIC TRENDS

In 1997 a ninety-year-old Alec Holden placed a bet with the
bookmakers William Hill that he would reach the age of ioo.
William Hill gave him odds of 250-1. In April 2007 he won the
bet. As he picked up the cheque William Hill announced that they
would no longer offer such generous odds - raising the target for
such wagers to 105. Said a spokesman: `If you're prepared to bet
you'll live to Toy, you'll probably be offered odds of 150-1 - to
get the full 250-1 offered to Mr Holden, you've now got to get to
110 - and you can only wager up to 100 pounds.
Mortality tables - a schedule worked out by actuaries which
estimates the probability that a person will die before their
next birthday at each age - confirm William Hill's thinking. In
October 2009, for example, Danish researchers on ageing argued
that more than half of the babies born today in developed,
industrialized nations will live to see ioo. In a report in the
journal Lancet they noted that life expectancy has been
increasing since 1840 and that since 1950 the probability of
living past eighty years of age has doubled for men and women
across developed countries. The United Nations central forecast
for rich countries is that by 2050 one in three persons will be a
pensioner, and nearly one in ten will be over eighty years old.
Centenarians (those a hundred years or older) are the
fastest-growing segment of the American population, increasing
from around 3,700 in 1940 to now around 100,000 on record.
All this is saying is that the West is getting older. The less
productive and more expensive to maintain this growing ageing
population becomes, the greater the burden on already stretched
fiscal balances, and of course on an economy overall, raising the
prospects of labour shortages, lower productivity and invariably
slower economic growth. Of course, the challenge of ageing
populations is not just the bailiwick of the rich, industrialized
world. The UN's latest biennial population forecast estimates
that the median age for all countries is due to rise from today's
twenty-nine to thirty-eight by 2050. And the fact that women
everywhere are having fewer children (the current global average
is 2.6 children per woman, down from 4.3 in the 1970s, and
expected by the UN to further decline to just 2 by 205O) means
the balance will, before too long, certainly tip in favour of the
aged.
Nevertheless, despite the bleak global population dynamics, the
immediate challenge is strikingly in the domain of the
industrialized nations. The trouble is that although there is
some tacit acknowledgment that the costs of a large pensioner
population are huge, few are facing up to the reality of just how
monumental these hidden costs truly are. They are bound to
overwhelm the economies of the West.

WELCOME TO DETROIT

In the summer of 2008, in New York, a business journalist asked
the harassed CEO of a large international bank what he thought
about the global financial meltdown. His telling response:
'Welcome to Detroit.'

In its heyday in the 1950s Detroit, Michigan, was the automobile
capital of the world, home to the big three - Ford Motor Company,
General Motors and Chrysler - and with a population of z million
people ranked as the fifth-largest city in the United States.
Such was the reach of the car industry that one in every six
working Americans was employed directly or indirectly by it. This
behemoth that once straddled the American economy now lies in
virtual ruins, as witnessed by the bankruptcy of Chrysler and the
purchase of the once indestructible General Motors (global sales
leader for seventy-seven consecutive calendar years from 1931 to
2007, manufacturer in thirtyfour countries, employer of 250,000
people, and maker of 8.5 million cars in 2008) by the Italian
motor company Fiat, an event unimaginable just a couple years
earlier.

Today Detroit's population has fallen to just 800,000 residents,
and many of the glistening buildings that once adorned the city's
skyline have been reduced to rubble. Whether it was the advent of
automation that replaced the car industry's large workforce, or
the increase in competition from car manufacturers in Japan and
Germany, one thing is for sure: Detroit, and the car industry
that sustained it, will never be the same again. These reasons
aside, a major factor in the decline of America's motor car
industry was the growing and unsustainable burden of its pension
obligations.
..........

WELL THERE IS MUCH MORE DAMBISA MOYO GETS INTO THAT WILL SEND
SHIVERS DOWN YOUR SPINE, IN HER BOOK "HOW THE WEST WAS LOST."
IT'S A GREAT BOOK WITH INSIGHT THAT YOU NEED TO KNOW FOR THE ROAD
AHEAD FOR THE WEST. OF COURSE SHE DOES NOT KNOW BIBLE PROPHECY.
BUT FROM ALL OF THIS THE EUROPE UNION WILL BE PUSHED INTO
BECOMING THE GREAT WHORE BEAST OF REVELATION - THE BABYLON HOLY
ROMAN EMPIRE FOR ONE LAST TIME IN HISTORY. AND THAT 7TH EUROPE
HOLY ROMAN ENPIRE WILL PLUNGE THIS WORLD INTO THE DARKEST AND
MOST HORRIFIC TIME IN THE HISTORY OF THIS PLANET SINCE MAN WAS
PLACED ON THIS EARTH. IT WILL ALL HEAD TOWARDS THE LAST 42 MONTHS
OF THIS AGE, AND THE RETURN OF CHRIST JESUS, TO ESTABLISH THE
KINGDOM OF GOD ON EARTH, AND TO BRING US THE AGE TO COME, SPOKEN
ABOUT BY GOD'S PROPHETS FROM THE BEGINNING OF HUMAN TIME.