The most interesting article I read this week was a summary
of trends likely to affect the global workforce for the coming two decades. The
study was published by McKinsey and summarized on Economist.com. The trends
will all have material impacts on the world as we know it - which will influence the investor psyche significantly. I would classify the trends in to three categories: The Obvious, The
Interesting, and The Frightening.
The Obvious
China and India will produce the most new skilled workers in the coming decades. This is like a BGOTO: blinding
glimpse of the obvious! China and India are the largest countries by population
and growing so fast that this conclusion is fairly obvious. It will be very
interesting to see if these countries can invest in their education
infrastructure fast enough to give these people the skills they need to drive
productivity up.
The Interesting
The McKinsey team predicts that the growth in the education
system and skilled laborers in these two countries will cause a shift in the
capital of the world’s innovation centers! Today, that is the United States. In
the future, McKinsey predicts that by sheer volume reasons, it will be in
China/India. Only time will tell on that one. Innovation is not a numbers game - alone.
Also interesting is the likely labor shifts in Europe.
Europe is already the slowest growing continent in this study. Its demographic
shift will include large flights of population to retirement. The gains needed
in productivity in Europe will need to be large to make up for the slow
population growth and increase in retirement base. McKinsey predicts a
significant investment in automation to improve productivity in Europe. It is
an interesting prediction that may have room for investment in firms that
specialize in such services.
The Frightening
The world labor force was 1.7 billion people in 1980 and
almost half of them were in farming and agriculture. Today, the world labor
force is 2.9 billion – and growing. Needless to say, farming is no longer
anywhere near half of the labor force. The growth in population is not really slowing.
The world will face a significant shortfall in skilled labor
in future decades. In addition, tens of millions of people will be under- and
un-employed. The capital that employs will have the upper hand in setting the
cost of its employees. The employees will not have negotiating power. Economic
inequality is likely to widen its already large chasm based on these trends.
The result will be continued labor strife in developing and
emerging countries. Labor strife often leads to political strife and regime
change. NBC recently reported that by 2020, forecasts show there will be 80
million under- and un-employed men in the Middle East alone. If you think the
Arab Spring is likely to subside, think again. That region faces another decade
of strife based on these numbers. The number one reason a society overturns its
power base is poverty and economic inequality.
The investment conclusion
Economic inequality will worsen in most overseas countries.
In fact, it will likely persist in the US also. Global markets will continue to
be volatile as strife persists – mostly strife that is driven by these
demographic trends.
The US will likely need to deal with its immigration
problems sooner rather than later. Many people in the labor force overseas will
attempt to migrate to the US in hopes of dealing with the inequality in their
own country. But the US will need to be smart about handling immigration –
particularly of unskilled labor or it will face similar problems as the
countries overseas.
The next decade will likely have many highly volatile market
moments – which the Buy & Hedge investor will survive with flying colors.
Expect more and more strife from overseas to generate this market turmoil. Make
sure you are hedged!
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