Paul Wallbank – Brilliant Communications

Category: demographics

  • Gen Y and the need for building new businesses

    Gen Y and the need for building new businesses

    The retirement of the baby boomers has been an demographic inevitability, but it’s interesting how policy makers and the population in general have ignored the ramifications of this despite the first boomers now aged beyond 65.

    One of the consequences of this is we may see an entire generation being forced to become self employed entrepreneurs.

    Illustrating this point are two stories from the US over the last few days; John Mauldin’s dissection of where US jobs are going and Zero Hedge’s 35 facts that should scare American baby boomers.

    The 35 facts really boil down to one thing, that an affluent, middle class retirement at 65 when average life expectancy is 78 is an illusion for most people – neither their bank accounts or the state treasury can support that sort of spending.

    Which is the point of John Mauldin’s column, that over 50s are taking most of the available US jobs as they can’t afford to retire.

    For those over 50 who’ve fallen out of the workforce due to unemployment or illness, getting back into the workforce is proving to be tough and for many of those folk their later years are going to be a struggle.

    Equally, as Mauldin points out, the younger generation is being locked out of the jobs being hogged by the over 50s.

    Another aspect to that is those employed Gen-X’s and Y’s hoping to get a crack at a seniors manager’s job or their name on the partner’s list are going to find a longer wait as the boomers hold on for as long as they can.

    Those young ‘uns need those high salary jobs too, a Westpac report on US student debt posits that crippling education costs are making it harder for graduates to participate in the workforce and affects their spending power when they do find a job.

    What’s clear is existing government, corporate and social structures are beginning to struggle with the realities of the changing workforce and its demographic composition.

    On a personal level, those Gen Xs, Ys and boomers who are locked out of the workforce have to find a new way to participate in the economy. It’s probably those locked out of today’s workplaces who will build the businesses of the future.

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  • The myth of the baby boomer

    The myth of the baby boomer

    Yesterday I was at the release of Deloitte’s State of Media Democracy report when something that’s been bugging me for a while became clear – have we got our definitions of baby boomers wrong?

    In the report’s demographic breakup  was the usual breakdown of age groups with the interesting twist of separating ‘leading Millennials’ and ‘trailing Millennials’.

    Such separation makes sense, how a sixteen year old uses the media is very different from that of a 26 year old, however there’s a good argument breaking up the baby boomer group the same way.

    deloitte-demographic-breakdown

    While there’s no denying the post World War II baby boom in most Western countries that lasted roughly from 1945 to 1965, lumping the entire group into one demographic bubble with the same economic characteristics seems mistaken.

    If nothing else, the baby boomers should be broken into two groups – those born before 1955 and those afterwards.

    Those born between 1945 and 55 had the benefit of being born into the a world rebuilding from the second world war and the massive improvement in living standards that accompanied the reconstruction.

    For those born after 1955 their work experience was very different; the 1973 oil shock marked the end of the post war economic certainties and also saw the beginning of increased casualisation of the workforce through the deregulations that accelerated under the Reagan, Thatcher and other Western governments in the 1970s and 80s.

    In many ways, the 1955-65 cohort of baby boomers have more in common with the generation who followed them – the Generation Xers, the term coined by the author Douglas Coupland who was born in 1961.

    Equally, the earlier half of the baby boomers have much more in common with those born between 1935 and 45, the ‘war babies’ were too young to fight in World War II and they benefited greatest of all from the post war economic boom.

    So perhaps we should be talking of the ‘Lucky Generation’ – those born between 1935 and 55 – and redefining ‘Generation X’ as those born 1955 and 80.

    While it’s easy to say “who cares”, there’s an important aspect to this. Much of our discussion about the aging population revolves around the boomers retiring and the load this puts on the community.

    Not to mention the foibles, beliefs and voting patterns of the boomers which again differ markedly between the ‘early boomers’ and ‘late boomers’.

    If we accept that the tipping point wasn’t in 2010 when the first baby boomers reached retirement, but in 2000 when the ‘lucky generation’ started retiring then this discussion about how we service a growing – and demanding – group of retirees becomes even more pressing.

    As in many things, life is a lot more complex than the lazy assumptions of demographers and economists would have us believe.

    The myth that the baby boomers are one big fat group with equal demands, needs and assets is something may turn out to fool many of our business and political leaders.

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  • Silicon Valley’s network effect

    Silicon Valley’s network effect

    Philip Rosedale, the founder of Second Life and various others startups has an interesting take on why San Francisco and Silicon Valley are the centres of the tech startup world.

    He puts the region’s success down to the network effect where like minded groups share knowledge and encourage each other.

    If you want to create a vibrant start-up ecosystem somewhere else that is competitive with San Francisco and Silicon Valley (and this is starting to happen right now in places such as Boulder and Austin), you want to do two things: You want to pack the people working together into as dense an area as possible, with public areas and co-working venues where they will see each other constantly, even when they aren’t working in the same company. And then you want to encourage them to let down their guard and be as open as possible about what they are doing.

    Of course the network effect doesn’t just apply to the Silicon Valley tech startup model, it’s just as true for China’s manufacturing hubs, South Korean shipbuilding or historical centres like Detroit’s motor industry and the English Midlands during the industrial revolution.

    We shouldn’t forget that fifty years ago governments sought to to emulate Detroit’s success and a century ago cities strived to be like Birmingham.

    That’s something we should keep in mind when looking at ways to emulate Silicon Valley – in trying to copy today’s successes, we may be mimicking a model that has already peaked while overlooking our own unique advantages and the opportunities in new industries.

    For cities striving to become world centres of industry, it might be best to first figure out what they do well and then find a way of attracting the smartest people in that field to move there.

    Then again, it may just be that most industrial hubs are accidents of history and the best we can do is try to attract smart people to our communities.

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  • A business lesson from the Catholic Church

    A business lesson from the Catholic Church

    The Catholic church may be a two thousand year old institution with medieval beliefs and beset with scandal, but the clerics know how to handle business succession well.

    Pope Benedict’s resignation was not only unexpected but also almost unprecedented with it being six hundred years since a pontiff quit before dying on the job.

    In many organisations such an unexpected and rare event – dare one use the ‘black swan’ line – would create havoc, or at least paralysis. Instead the clerics handled the process smoothly.

    This contrasts with the succession planning in many companies. In larger business even when the CEOs handover is planned, there’s a period of write downs and blood letting as the new leader stamps their authority.

    Sometimes it gets very ugly indeed, particularly if the former CEO has been kicked upstairs onto the board.

    In smaller businesses, there’s no succession planning at all. Many businesses die when the owner retires if there’s no buyer for the operation.

    That shortage of buyers is a major problem for smaller business owners. Many baby boomers have planned their retirements around getting a good sale price for their businesses.

    If they can’t get the sale price, the boomer small business owners work until they drop.

    Which is what popes usually do.

    It’s often said the Catholic Church is the biggest corporation on the planet. Given how smoothly their bureaucracy deals with succession planning, that’s not surprising.

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  • Australia welcomes the multi generational mortgage

    Australia welcomes the multi generational mortgage

    At the height of the Japanese property boom in the 1980s, the hundred year mortgage came into being.

    Pushing payments onto children and grand-children was the only way home prices could continue to rise once they hit levels which the average Japanese worker could ever afford with a more traditional twenty or thirty year mortgage.

    Twenty five years later Australia finds itself in a similar position as parents guarantee their childrens’ mortgages.

    Repeating the Japanese mistake

    While the Japanese looked to sticking their mortgages onto their kids and grandkids, Down Under the kids are fighting back and getting mum and dad to underwrite their unaffordable loans.

    This weekend’s Sydney Morning Herald features in its property section the story of how Sharon and Graeme Bruce guaranteed their son’s and his fiance’s mortgage in Sydney’s inner suburbs.

    While the story isn’t clear on the size of the deposit (which isn’t surprising given the SMH’s shoddy editing), it appears the Bruces’ have guaranteed around $300,000 so his son and future daughter-in-law can grab a five bedroom, 1.45 million dollar mansion.

    One wonders what great businesses Matt and Hannah could build if mum and dad were prepared to stump up a similar amount to invest in a start up?

    Australia’s property obsession

    Sadly we’ll never know – in Australia, the smart money gets a job, pays off a mortgage and accumulates wealth through investment properties. What cows are to African tribesmen, negatively geared units are to the Australian middle class.

    The hundred year strategy hasn’t worked too well for Japan, with a declining population those mortgages entered into a boom level 1980s values now don’t look so attractive and are one large reason for the nation’s lost decades.

    In Australia, things aren’t likely to work so well either. The Baby Boomers and Lucky Generationals – those born from 1930 to 1945 – guaranteeing their kids’ and grandkids’ mortgages are relying on ever increasing property prices.

    This is understandable given that few of them have any experience of long term stagnation, let alone decline, of property values but it leaves them incredibly exposed should the Aussie housing market slump.

    Can an Aussie property decline happen?

    Many Australians, particularly those with vested interests, maintain such a decline can’t happen but the prospects aren’t good as the SMH story shows;

    The couple had attempted to buy a small terrace in Newtown but kept getting pipped at the post by other young professional couples. At a higher price point they had no competition.

    Despite his parents’ generosity he said he would still need to rent out a few of the rooms to help pay for the mortgage.

    So Matt can’t afford the mortgage. That’s not good starting point and one that could cost his parents dearly, which they don’t seem to care about much.

    ”Obviously my dad guaranteeing the loan was the only way we were going to purchase this,” Mr Bruce said. ”You need to have a 20 per cent deposit otherwise the banks want you to pay insurance … it’s a bit of a rort really.”

    It’s fair to call mortgage insurance a rort – as it certainly is – but its purpose is to protect the banks should a mortgagee default and the financiers find themselves out of pocket.

    With Matt’s parents getting him out of paying that insurance his bank has much better default protection, equity in his parents’ property.

    Guaranteeing risk and misery

    I’m not privy to the finances of Sharon and Bruce, but most of their contemporaries can ill afford to lose several hundred thousand dollars in home equity in their later years.

    That is where Australia’s multi-generational mortgages could turn very nasty, very quickly as older Australians find themselves having to deliver on the guarantees they gave on behalf of their over committed offspring.

    In Japan, it’s taken a long time for the population to realise their national wealth has been squandered on twenty years of propping up unsustainable property prices and economic policies.

    One wonders how long it will takes Australians to realise the same has happened to them and what the political reaction will be.

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