Telling It Like It Is

THE ENTERPRISE--RESTRUCTURING OF AMERICAN BUSINESS

THE ENTERPRISE

It's hard to believe that the 2008 Presidential race is starting so early.  With "super-Tuesday" primaries clustered in Feb. in many states, most think the apparent candidates will be known months ahead of both the conventions and the election.  I'm not sure that is good--but it is what it is.  Whoever is our next President will be governing our country in a time that is unprecedented in history.   Previous editions of THE ENTERPRISE on this huge topic have focused much more globally.  Now it is time to think about "what does this mean to us--directly--in the USA?"

SIX EVENTS SHIFTING THE SHAPE OF OUR WORLD

1. Shifting Demographics of Civilization
2. The Emergence of China & India
3. Globalization Reconfigures the Planet
---4. Restructuring of American Business
5. The War in Iraq & Growing Middle-Eastern Turmoil
6. The Failures of Leadership in Government & Parts of Industry

4.  RESTRUCTURING OF AMERICAN BUSINESS

This topic was also framed in part by some of Herb Meyer's work, and a lot of it from my contacts, involvement and observation of the US business world for four decades.  If you have not heard about "The Siege of Western Civilization", a 45 minute DVD by Herb Meyer, now you have.  Buy it and watch it.  It will "rock your world."  You will want to share it with others.  I know-it happened to me.  I'll cross back and forth with Herb's material because he is a very bright guy with some amazing insights.

TODAY'S COMPLEX BUSINESS WORLD
Let's go. I like the way Herb says it, so I'll use his words.  (Throughout this piece, his quotes are in italics, with a ---lead-in.)

---"Today's business environment is very complex and competitive.  To succeed, you have to be the best, which means having the highest quality and lowest cost.  Whatever your price point, you must have the best quality and lowest price.  To be the best, you have to concentrate on one thing.  You can't be all things to all people and be the best."

But how do you do that?  First, find and surround yourself with the best people.  Next, choose the best partners-not just to work with you, but to sell to, to buy from and to listen to the truth from.  I use the acronym CAST to remember this point:  Customers, Associates, Suppliers and Truth-Tellers.  Nobody can be good enough at everything anymore. The world is too complex and technology is moving too fast, and accelerating.  That means everyone needs partners to fill in their competency gaps and support them across the board.

Large companies become smaller or "hollower"  doing less and less of the "value added work."  They wonder why they risk being dis-intermediated.  That is why.  Add value or get taken out of the loop.  Their next desperate effort is to merge.  Merger mania consolidates every kind of business so the big get even bigger. I recall my Oklahoma rancher friend who put it this way:  "Putting two big old spreads together don't make it a better ranch.  It just makes it bigger, more spread out and harder to manage."  Sound familiar?

WHAT WILL AMERICA MAKE?  AND WHAT DOES "MAKE" MEAN?
& THE FRACTURING OF COMPANIES
The nagging question that haunts Americans is "what will we make in America during the coming decades, and what does 'make' mean?  And further to that end, what will we do that creates enough value to sustain our extraordinary standard of living.  Meyer calls what's happening a "fracturing" of businesses, so I'll adopt his term.  He makes the point this way.

---"A generation ago, IBM used to make every part of their computer.  Now Intel makes the chips, Microsoft makes the software, and someone else makes the modems, hard drives, monitors, etc.  IBM even outsources their call center.  Because IBM has all these companies supplying goods and services cheaper and better than they could do it themselves, they can make a better computer at a lower cost. When one company can make a better product by relying on others to perform functions the business used to do itself, it creates a complex pyramid of companies that serve and support each other. This fracturing of American business is now in its second generation."

I'd say it may be entering its third generation. No matter, the fracturing continues. The good news is that we now recognize this and are learning how to deal with it.  The bad news is that there are some unintended consequences of this shift that are creating havoc.   (Here I'll paraphrase from Meyer's thoughts.)  The outsourcing that many companies who supplied IBM (and others) are now doing triggers the same thing in providers of services and other production processes.  Thus, they make cheaper, better product and after a while this pyramid just gets bigger and bigger.  Just when you think it can't fracture again, it does.  One characteristic of this trend is that companies end up with fewer employees and more contractors.  Fracturing and reconstruction of industries continues unabated.

---"This trend has created two new words- business integrator and complementor.  At the top of the pyramid, the IBMs are the integrators.  As you go down the pyramid, Microsoft, Intel and the other companies that support IBM are the complementors.  However, each of the complementors is itself an integrator for the complementors underneath it."

THE GOVERNMENT STATISTICS ARE WRONG MORE THAN RIGHT
One result of this is that small business formation explodes, unrecognized and grows faster and faster. We are now getting false readings on the economy and months later come massive adjustments to attempt to correct things.  Too late.  Decisions and actions, by Wall Street, by CEOs and Boards and by independent investors have already changed the course of the business world--based on flawed information.

---"People who used to be employees are now independent contractors launching their own businesses.  There are many people working whose work is not listed as a job.  As a result, the economy is perking along better than the numbers are telling us."

But it is also perking along much differently than the government statistics are leading us to believe.  Last year, about 80% of the way through 2006, the Bureau of Labor Statistics (part of the Department of Labor) issued a correction of 800,000 (more) jobs created than its monthly statistics had been reporting.  This is a "correction" of about 40% of the jobs created during the year.  What agency can possibly retain credibility when its measuring systems are off by 40%?  When called to ask "what happened," the answer was, "we are still studying that."  That's all.  Sort of a big OOPS.  This doesn't instill confidence that they have it right yet.  In fact, they probably don't.

MEASURES FROM ANOTHER ERA-NOT CATCHING UP
Herb Meyer makes another good point about how the numbers are leading us astray.

---"Outsourcing also confused the numbers.  Suppose a company like General Motors decides to outsource all its employee cafeteria functions to Marriott (which it did).  It lays off hundreds of cafeteria workers, who then get hired right back by Marriott.  The only thing that has changed is that these people work for Marriott rather than GM.  Yet, the headlines will scream that America has lost more manufacturing jobs.

Granted the workers are probably earning lower wages, and have lower benefits.  After all, their work was "re-valued" to what the market thought it was worth.  This is exactly what's happening to GM, Ford and Chrysler's UAW work force.  It is being "re-valued" into workers at Toyota, Honda, Nissan, Subaru and Hyundai factories in the US.  These companies pay good wages.  Just not the astronomical wage and benefits of the old "big three."

---"All that really happened is that these workers are now reclassified as service workers.  So the old way of counting jobs contributes to false economic readings.   As yet, we haven't figured out how to make the numbers catch up with the changing realities of the business world."

SUPPLIERS PUSH BACK--FINALLY
Another big change is occurring in the US auto industry.  Suppliers are no longer willing nor able to let the automakers push them around.  They are pushing back-big time. Navistar refused to ship truck engines to Ford for the new F-250 at the prices Ford insisted on paying.  Now Ford will get engines, but at Navistar's price.  It's about time that parts suppliers refused to prop up automakers earnings (which were still terrible) by selling at or below cost.  Of the ten largest parts makers supplying the US automakers, 6 are in Chapter 11: Delphi, Dana, Collins & Aikman, Federal-Mogul, Tower and Dura) and another would have been (Visteon) if Ford hadn't bailed it out, and Lear is being pursed by "raider" Carl Icahn.  The remaining ones are hanging on, but all of them are getting tough about pricing at a profitable level.

WHY STATES KEEP LOSING JOBS-THE RE-VALUING OF WORK
The State of Ohio has a problem that is symptomatic of many older industrial states in the US.  It is losing jobs faster than it can attract new ones. It really has 4 problems, all of which are common to states like Ohio-the older industrialized states.  The skills that were used to build the industrial strength in these states are no longer in demand.  1) Core manufacturing labor can be purchased in China for one-fortieth the cost.  2) Those companies that can compete are doing it by increasing productivity.  The problem with this is that fewer workers can create more output, further reducing jobs.  3) The workers already in the state, with obsolete skills and inadequate training/knowledge were accustomed to making far too much in wages and benefits for employers to pay them and hope compete in the global 21st century.  Finally, 4) Taxes are onerous as the remaining infrastructure and taxpayers are burdened with carrying the non-producing remains of a far more robust economic engine.

These conditions discourage new employers from coming to such states, and those that do stay in the USA to manufacture, run to the Southern tier of states where both labor (which has to be trained or re-trained anyway) and taxes are far less expensive-and less is needed in utilities because of a more temperate climate.

BIFURCATION: COMPANIES GET MUCH SMALLER OR MUCH BIGGER.
EMPLOYEES & EMPLOYERS-A RAPIDLY DISAPPEARING NAME FOR WORKERS?
Herb Meyer adds yet another dimension to the restructuring.

---"Another implication of this massive restructuring is that because companies are getting rid of units and people that used to work for them, the entity is smaller.  As the companies+ get smaller and more efficient, revenues are going down but profits are going up.  As a result, the old notion that "revenues are up and we're doing great" isn't always the case anymore. Companies are getting smaller but are becoming more efficient and profitable in the process."

His most dramatic statement is one that I must emphasize as it can lead to a "social upheaval" of epic proportions.

---"The restructuring of American business means we are coming to the end of the age of the employer and employee. [My emphasis added}  With all this fracturing of businesses into different and smaller units, employers can't guarantee jobs anymore because they don't know what their companies will look like next year.  Everyone is on their way to becoming an independent contractor."

---"The new workforce contract will be, "Show up at the my [facility] and do what I want you to do, but handle your own insurance, benefits, health care and everything else.  Husbands and wives are becoming economic units.  They take different jobs and work different shifts depending on where they are in their careers and families.  They make tradeoffs to put together a compensation package to take care of the family.  This used to happen only with highly educated professionals with high incomes.  Now it is happening at the level of the [hourly] worker.  The only way this can work is if everything is portable and flexible, which requires a huge shift in the American economy."

IN EVERY DARK CLOUD THERE IS A SILVER LINING-AND A LOT OF RAIN
Is there any good news in all of this?  There sure is.  Jobs are still growing in the US, albeit they are different kinds of jobs.  Foreign direct investment in the US is at or near an all time high.  Somebody out there thinks we are doing at least something right.  While our primary and secondary school students continue to struggle in the lower third of the global pack academically, our colleges and universities remain the envy of the world.  Never mind that most of the "products" they turn out as graduates require further training to work productively in business.  US colleges and universities remain the "gold standard" -for now anyway.  The US still attracts the best and the brightest, and the most entrepreneurial because of its great opportunities and its capital structure to fund those opportunities.

THE 21ST CENTURY BUSINESS MODEL
The way herb Meyer closed his discussion on this topic filled me with hope, and then burdened me with responsibility-whether I wanted it or not.

---"The U.S. is in the process of building the world's first 21st century model economy.  The only other countries doing this are U.K. and Australia.  The model is fast, flexible, highly productive and unstable in that it is always fracturing and re-fracturing.  This will increase the economic gap between the U.S. and everybody else, especially Europe and Japan."

The responsibility I felt was to understand this change and learn to capitalize on it.  To do otherwise would be irresponsible and contribute to the US decline instead of its continued rise as a global economic power.

---"On the one hand, this makes the U.S. a magnet for bright and ambitious people.  It also makes us a target.  We are becoming one of the last holdouts of the traditional Judeo-Christian culture.  There is no better place in the world to be in business and raise children.  The U.S. is by far the best place to have an idea, form a business and put it into the marketplace.  We take it for granted, but it isn't as available in other countries of the world."
"Ultimately, it's an issue of culture.  The only people who can hurt us are ourselves by losing our culture.[My emphasis added]  If we give up our Judeo-Christian culture, we become just like the Europeans.  The culture war is the whole ballgame.  If we lose it, there isn't another America to pull us out."

BUY AND WATCH HERB MEYER'S VIDEO-SHOW IT TO YOUR ADULT CHILDREN (OR PARENTS) (instead of some inane 'reality TV' show!)
I can't encourage you too strongly to watch Herb's video, "The Siege of Western Civilization."
It could be the best 45 minutes and $20 you spend this year-and maybe-this decade.

Best, John

THE ENTERPRISE--Globalization Reconfigures the Planet

THE ENTERPRISE

SIX EVENTS SHIFTING THE SHAPE OF OUR WORLD
1. Shifting Demographics of Civilization
2. The Emergence of China & India
---3. Globalization Reconfigures the Planet
4. Restructuring of American Business
5. The War in Iraq & Growing Middle-Eastern Turmoil
6. The Failures of Leadership in the US Government & Parts of Industry

GLOBALIZATION RECONFIGURES THE PLANET

To anyone working in depth with a global business, this is not big revelation.   But it is a big revolution—and it's far from over yet.  Outsourcing of manufacturing over the past decades has tracked the Asian coastal area:  Taiwan and Korea, then China, Thailand and India, and now Viet Nam.  Where next?  Indonesia is already partially industrialized and has plenty of people but is about as far away as you can go (“the other side of the world”-literally).  Back office work and technology-related work like programming and medical support has been going to India and there seems to be no reason for that to slow down.

Call centers are a different story, with Dell's troubles; they seem to be migrating back to wherever the parent company can keep an eye on them.  Would you believe North or South Dakota?  Eastern Europe is booming with new plants and growth.  Central America has spots of interest.  South America would be stronger except for the Socialist dictatorial regimes of politicians like Hugo Chavez and his spreading acolytes.

---Parity Grows, Competitive Advantage Is More Fleeting Than Ever
We used to talk about achieving sustainable competitive advantage.  These days, that is harder than ever.  Information flows around the globe in a second or two.  Competitive intelligence is more pervasive than ever.  Intellectual property is important, but too many countries consider it to be one of those nice-but not necessary to observe-laws.  Knockoffs almost beat the original products into developed markets.  The result is that parity, which Webster's defines as: the quality or state of being equal or equivalent, is the norm.

Companies compete on knowledge, which resides in people and corporate culture (and databases).   Knowledge can be combined to overcome parity by the careful choice of partners.  The critical partnership CAST of Customers, Associates, Suppliers and Truth-tellers usually contributes greatly to the collective knowledge of a company-and thus to its ability to gain comparative advantage over “parity” providers.

---Latent Capacity Remains Available All Over The Globe
The term latent capacity is one I've been using for several years or more.  It basically says that IF some customer wants a product, there is “latent  (Def.: present and capable of becoming though not now visible, obvious, active) capacity” somewhere on earth to produce it, and quickly, too.  This means that competitors that never existed before can pop up overnight, and challenge industry incumbents in a shorter time than ever.  This latent capacity is the enabler for huge retailers like Wal-Mart to “go overseas” and find whatever it wants, fast.

When latent overcapacity is combined with the logistical competence of a Wal-Mart, the threat is daunting.  To compete, suppliers of all kinds must create value, and make sure that value is more enduring than just the ability to make (or buy) a given item to resell.  This is no small challenge, but it is one that some companies have learned to use well enough to compete.   There are often many competitive enablers:  innovation, technology, information, market knowledge, logistical systems and last, but certainly not least, brands.  All are transcended by "people" as the ultimate value enabler.

---Technology And Transportation Levels The Playing Field
Want to be in China day after tomorrow?  You can.  Want to be in Europe tomorrow morning?  You can.  How about India?  Sure, day after tomorrow is possible.  Even far-off Australia is only about 36 hours (and an extra day, thanks to the International Date Line) away.  Jet air travel has shrunk the world, and when combined with latent capacity, made sources available everywhere.

Then there is information technology's effect.  You can carry your laptop, which has more power and memory than the entire computer rooms of two decades ago.  When you get there, all the other info you need is already there.  It might have been emailed to you.  It might have been sent to you via FedEx, DHL or UPS.  Or it might just be out there on the Web for you to grab (wirelessly) and use.  Bottom line: it traveled lots faster than you did.  A line I once heard (on a decade old TV commercial for the MCI network) showed a little girl on the beach, with a big blue sky behind her.  She says, “There is no “there” anymore.  There is only “here,” and we are all “here” [via the Network].

---The Earth Is Not “Flat” But It Has Some Big “Flat Spots” Amidst Rugged Terrain
Thomas Friedman wrote a brilliant best-selling book a couple of years ago, entitled:  “The World is Flat.”  He was partly right-but not completely.  There are some very definite “flatnesses” and he pointed them out.  But among them, in China, India, Eastern Europe, Africa and Latin America, there are some “rugged places” where the only flatness is that of the lifestyles.

Many of the thousands of graduates of Indian universities are ill equipped to put their knowledge to work either because of culture or infrastructure-one or both of which has not prepared them and will not support them.  A similar situation exists in parts of China, too.  Places in Africa are still much like they were decades or even centuries ago.  A lot of the Islamic world lives almost the same as they did six or seven centuries ago, although the convergence and reach of networked communications is closing in on it.  The question is how these societies will handle becoming part of the larger world.

---Social, Cultural And Political Issues Complicate Matters Immensely
In the 16th century there were three major monotheistic religions in the world: Christianity, Judaism and Islam.  Two of them—Christianity & Judaism—reconciled with the modern world as rabbis, priests and scholars sought and found how to pave the way forward.  Religion remained central to life, but with church and state separated.  The rule of law, individual rights and economic liberty (personal wealth accumulation) are defining points of modern Western societies. These concepts began with the Greeks but didn't take hold until the 15th-16th century when Judaism and Christianity reconciled with the modern world.  That reconciliation unleashed the scientific revolution and the greatest outpouring of art, literature and music the world has ever known.

Islam developed in the 7th century and includes millions of Moslems around the world who are “normal people” (i.e., not radicals or terrorists).  However, there IS a radical streak within Islam and when the radicals are in control, Islam attacks Western civilization. The first attacks were in the 7th century, then later in the 16th and 17th centuries.  By 1683, the Moslems (Turks from the Ottoman Empire) were literally at the gates of Vienna where the climactic battle between Islam and Western civilization occurred.  The West won and moved forward.  Islam lost and moved backward.  Interestingly, the date of that battle was September 11. Since them, Islam has been either unable or unwilling to reconcile with the modern world.  This is arguably the largest problem area at this point in history.

Most of the instability comes from the Islamic Middle East. So when looking at Afghanistan or Iraq, look for any signs that they are modernizing.  For example, women joining the workforce and attending colleges in Afghanistan is a good sign.  The Iraqis moving (even stumbling) toward a constitution is good.  People can argue about the U.S. role and how we're doing it, but anything that helps Islam in finding its way forward is good.

As China emerges, per the earlier point, we will once again realize the difference in thought patterns between Western cultures and Eastern (Asian) cultures.  We first encountered it with Japan and Korea several decades ago.  Now we face it again.  Western thought is logical but serial or sequential, while Asians see things in much more like concentric circles or a spherical imagery. This results in a very different set of conclusions and different thought processes to reach those conclusions.  Understanding this is critical to successfully building relationships with these cultures.

Finally, the countries around the globe consider their governments as important to them as ours is to us (no matter how contentious and partisan ours has become).  Thus we should be less surprised that they don't like it when America tries to tell them how to behave (or not behave), how to work, think, etc.  Put the US (circa the 1700s) in Iran's place, and put Great Britain (circa the 1700s) in the US place.  How did we react to being dominated by the Her Majesty the Queen's laws?   “No more taxation without representation” was our rallying cry.  As I recall, we revolted and that revolution resulted in the birth of a nation: United States of America.  I am not saying that Iran is like the US.  It's not; far from it. I am saying that it is a sovereign nation, so we should consider how we'd react if the roles were reversed before we form our opinions and policies.

Conclusion
As you can see from the paragraphs above the era of the isolated (by oceans) Americas is over.  English may be the universal language of business, but far more people in the world speak other languages than speak English.  This doesn't mean that everyone in the US must learn to speak and read Mandarin Chinese or Farsi (although it wouldn't hurt if more did).  It means we must first recognize, then appreciate and finally learn to work with diverse global cultures whose beliefs, history, languages and values are far different from ours.  To do any less is an overt attempt to secede from the global society of our own planet Earth.  Think about it; then do something about it.

Best, John

THE ENTERPRISE--The Emergence of China & India

THE ENTERPRISE
This week's edition is a couple of days late, thanks to a little vacation R & R.    While our world is consumed with the distraction of "news events"--the travesty of the crime-less Scooter Libby trial, the sensationalism of Anna Nicole Smith's burial process and the mad rush of numerous candidates into  the 2008 election process--cataclysmic events are unfolding globally—daily.

Perhaps such events and their implications are too large for our sound-bite oriented news media.   However, our future and that of our children and grandchildren depends on how these events unfold.  With no further ado, let's move on to number 2 in the series.

SIX EVENTS SHIFTING THE SHAPE OF OUR WORLD
1. Shifting Demographics of Civilization
---2. The Emergence of China & India
3. Globalization Reconfigures the Planet
4. Restructuring of American Business
5. The War in Iraq & Growing Middle-Eastern Turmoil
6. The Failures of Leadership in the US Government & Parts of Industry

2. The Emergence of China & India

---Three Billion Consumers & Workers
Two huge global powers are emerging differently, and at different-but very high rates, and the combination of the two will soon comprise almost half of the earth's population.  Hence, China & India will have a huge impact on all other nations.  An overlooked element is that both are near neighbors to Russia and Putin's despotic behavior will undoubtedly have an impact on Both Chinese and Indian-Russian relations.

India is America's blind spot.  Some huge events go largely unnoticed amidst our media frenzy.  India's Tata Group pulled off a huge merger, paying $12.2 billion for Corus, the Anglo-Dutch steelmaker.  It was the largest foreign takeover ever by an Indian company.  India is a potentially huge source of innovation, albeit not yet able to commercialize enough of it.

India's economy has grown at 8% per year for the past 4 years and nary a note has been made of this.  This is a huge growth rate.  Indian companies in pharmaceuticals, software, etc. have been bolder about buying up companies, and yet America ignores India's ascendance, while focusing most of its attention on China's growth, problems and power.

Given the huge knowledge base and large/growing, educated population in India, China may be the world's “workshop,” but India could become the world's “brain trust.”  Among the little known trivia, the answer to this question is revealing.  Which ethnic group of immigrants to the US has the highest per capita income?  Indians, of course.

---Demand for Resources; Strain on the Environment
Global shortages of material, energy, and water will continue if the same business and economic models of the past pursue economic development.   If either China or India had the same per capita vehicle ratio as North America, the world's vehicle population would double.  The most optimistic people cannot imagine where the fuel for so many vehicles will come from, be it fossil fuel or some alternative fuel.  And that's just the start.

A precarious environmental situation already exists because of growth in China and to a lesser extent India.  CO2 is just one of the many hazards from this growth. A half-dozen other chemicals are more potent greenhouse gases than CO2, but released in smaller volumes.  Water use and pervasive water (and air) pollution are very serious in many parts of China and India.

---Geo-Political Issues; Population Explosion & Migration
In the last 20 years, China has relocated 250 million people from the farms/villages into its exploding cities. The plan is to move another 300+ million in 20 years to come.  Moving that many people into the cities will mean finding work for them.  That's why China must continue to grow in manufacturing; to put the relocated people to work. Pushing 300 to 500 million Chinese people from farms and villages into cities is probably too much too soon.

Although it gets almost no publicity, China is experiencing hundreds of demonstrations around the country. These are not rebellious students in Tiananmen Square.  These are average citizens who are outraged with the government for building chemical plants and polluting the water they drink and the air they breathe. Taken to its extreme, this could bring Chinese expansion to a halt.  Irresponsible expansion simply cannot continue indefinitely.

When US producers decide to manufacture something it's based on market demand and the opportunity to make a profit. In China, it's because they want to create jobs- a very different motive and calculation.  While China must grow manufacturing, Americans are hooked on low priced Chinese goods.  As a result, a kind of economic codependency has developed.  If the US ever stops buying from China, it will explode politically.  If China stops selling to the US, our economy will take a huge hit from massive price increases.  We are subsidizing China's economic development; they are subsidizing the US' economic growth.

China's hunger for manufacturing jobs begets a hunger for raw materials and for oil, which drives prices up worldwide.  By 2020, China will produce more cars than the U.S.  China is also buying its way into the global oil infrastructure; the result is that millions of barrels of oil that would have gone to the U.S. are now going to China.

China's quest for oil to fuel its economy is a major factor in world politics and economics.  Our Navy fleets protect the sea lanes and the ability to get the tankers through. Soon the Chinese will have an aircraft carrier in the Persian Gulf.  The question is, will their aircraft carrier be pointing in the same direction as ours or against ours?  They also currently have eight new nuclear electric power generators under way and 45 on the books to build.  Soon, they will leave the U.S. far behind in their ability to generate nuclear power, which only then (20 years from now) may reduce their reliance on imported oil.

---Social & Military Power Grows-China & A Nuclear India.
What else might go wrong with China? China really wants Taiwan for historic and political reasons.  The Chinese also know that their system of communism can't survive much longer in the 21st century.  The last thing they want to do before they morph into a more capitalistic government is to take over Taiwan.

We may wake up one morning and find they have launched an attack on Taiwan.  If so, it will be a mess of epic proportions, both economically and militarily.  The U.S. has committed to the defense of Taiwan.  If China attacks Taiwan, will we go to war against China?  If the Chinese generals believe the answer is “no,” they may attack.  If we don't defend Taiwan, every treaty the U.S. has will be worthless.  Hopefully, China won't make this kind of move-but then we didn't think they'd shoot down a satellite in space, either.

India and Pakistan are in a perilously balanced standoff.  The US is trying to convince (or coerce) Pakistan to stop hiding Osama bin Laden.  The slightest upset could touch off a nuclear conflict between Pakistan and India and the US could be “caught in the middle” of it-politically if not militarily.  Clearly the world is a much more complicated place in the 21st century.

India has enormous potential, but first must come to grips with many of its own problems, which are keeping it from realizing its full potential.  It is, in many respects, drowning in its own population explosion.  How it deals with internal issues will determine its place in the world order.

The Chinese are smart and industrious.  They have come a long way, very quickly.  They very well may be able to pull off the continued progress to become a huge economic and military superpower.  If so, the US will have to learn to live with it-and with the Chinese ways-in a very different world.

Best, John

THE ENTERPRISE-Shifting Demographics of Civilization

THE ENTERPRISE
Shifting the Shape of Society—The First of Six Events-Demographics
1. Shifting Demographics of Civilization
Demography is destiny.  Absent famine, war or pestilence, those who are born, will get older as they live and then die.  The consequences of this certainty are numerous and certain.

---Negative Population Growth In Countries/Continents---Population Explosions In Less Developed Countries
(I have placed the direct excerpts from Herb Meyer's work in [----italics] to separate them from my observations.)

----“Most countries in the Western world have stopped breeding.  For a civilization obsessed with sex, this is remarkable.  Maintaining a steady population requires a birth rate of 2.1.  In Western Europe, the birth rate currently stands at 1.5, or 30 percent below replacement.  In 30 years there will be 70 to 80 million fewer Europeans than there are today.  The current birth rate in Germany is 1.3.  Italy and Spain are even lower at 1.2.  At that rate, the working age population declines by 30 percent in 20 years, which has a huge impact on the economy.”

Aging Populations of US, Europe, Japan
----“When you don't have young workers to replace the older ones, you have to import them.  The European countries are currently importing Moslems. Today, the Moslems comprise 10 percent of France and Germany, and the percentage is rising rapidly because they have higher birthrates.  However, the Moslem populations are not being integrated into the cultures of their host countries, which is a political catastrophe.  One reason Germany and France don't support the Iraq war is they fear their Moslem populations will explode on them.  By 2020, more than half of all births in the Netherlands will be non-European. The huge design flaw in the post-modern secular [European] state is that you need a traditional religious society birth rate to sustain it.  The Europeans simply don't wish to have children, so they are dying.”

Failure to Assimilate
The failure to assimilate or be integrated into the countries to which immigrants move is a serious problem, evidenced nowhere more than our US border states, especially California.  When our ancestors came from Europe to America (the land of opportunity) for a generation or so, they lived in enclaves and clung to their native languages.  But they learned to speak, read and write English because it was required if they were to realize “the American dream.”

After a generation, and two at most, these immigrants had legal citizenship and were now “Americans” even if they hung onto a part of their native language(s) and heritage(s).  They became part of the great “melting pot” that was the United States.  Immigrants from Mexico often come here simply to earn money and take it back to Mexico.  We call them “guest workers” or in more cases than not, “illegal aliens.”

Incredibly Low Birth Rates
The statistics Herb Meyer cites are staggering.
----“In Japan, the birthrate is 1.3.  As a result, Japan will lose up to 60 million people over the next 30 years. Because Japan has a very different society than Europe, they refuse to import workers.  Instead, they are just shutting down.  Japan has already closed 2000 schools, and is closing them down at the rate of 300 per year.  Japan is also aging very rapidly.  By 2020, one out of every five Japanese will be at least 70 years old.  Nobody has any idea about how to run an economy with those demographics. … Japan no intention of bringing in immigrants. Property values in Japan have dropped every year for the past 14 years. The country is simply shutting down.”

Longer Life Expectancies, Less Money to Last
The aging of populations combined with greater life expectancy due to improved medical care is creating a crisis of epic proportions, not just in Japan but also in Europe and the USA.   As people age they are both less able and less inclined to work the kind of jobs and schedules they did when they were younger.  The principle of “pensions” (originated in Europe) and of “Social Security” has led these aged and aging people to believe they neither should work, nor should have to work.

Yet many of them are woefully unprepared to sustain the life style they have become accustomed to while they were working.  Savings are low, investment skills are spotty, and retirement assets are inadequate.  And as the working portion of the population continues to decline, the amount it must be taxed to support the non-working parts must grow.  Otherwise benefits must be cut dramatically and the “retirement age” pushed out.  This will require people who have “retired” to return to a employment in companies that are loathe to take on the elderly people with their slower work pace and tendency toward expensive health problems.

Birth Rates and Economics--Meyer Explains:
----“Why are the birthrates so low?  There is a direct correlation between abandonment of traditional religious society and a drop in birth rate, and Christianity in Europe is becoming irrelevant.  The second reason is economic.  When the birth rate drops below replacement, the population ages.  With fewer working people to support more retired people, it puts a crushing tax burden on the smaller group of working age people.  As a result, young people delay marriage and having a family.  Once this trend starts, the downward spiral only gets worse.  These countries have abandoned all the traditions they formerly held in regards to having families and raising children”.

----“The U.S. birth rate is 2.0, just below replacement.  We have an increase in population because of immigration.  When broken down by ethnicity, the Anglo birth rate is 1.6 (same as France) while the Hispanic birth rate is 2.7.  In the U.S., the baby boomers are starting to retire in massive numbers.  This will push the "elder dependency" ratio from 19 to 38 over the next 10 to 15 years.  This is not as bad as Europe, but still represents the same kind of trend.”

----“Western civilization seems to have forgotten what every primitive society understands: you need kids to have a healthy society.  Children are huge consumers.  Then they grow up to become taxpayers.  That's how a society works, but the post-modern secular state seems to have forgotten that.  If U.S. birth rates of the past 20 to 30 years had been the same as post-World War II, there would be no Social Security or Medicare problems."

The Wave of Aging Boomers but Too Few Workers
There are enormous monetary and financial implications of these seismic demographic shifts.  There is currently a lower proportion of the US population in the “prime working ages” of 34-49 years old than would be “normal.”   This is the 'baby bust” that followed the “baby boom.”  Each year 3 to 4 million (give or take a few) Americans reach 60 years old, and this will continue from now until about 2030-23 years from now. 

These people are or will soon be leaving the active work force, taking with them knowledge, experience, and effectiveness. Immigrants, outsourcing, and a smattering of youthful high achievers are replacing them.  The social turmoil will be huge.  The organizational turmoil will be larger yet.  The economic impact will be largest of all.  Think of a major sporting team that has all of its experienced, championship players leaving over relatively a short period of time.  Trouble, for sure; disaster, maybe. 
And yet the cause and the impact, as usual are related.

The “Catch 22” of Wall Street and Pension Funds
People have complained for years about how Wall Street's demands cause American companies to do bad things, dumb things or at least mercenary things.  Outsourcing jobs is just one example. So is “downsizing.”  This puts thousands of “hourly workers” out of jobs.  Yet why does Wall Street press for this?  Because it wants to meet the expectations of investors, most of whom are large investment funds.  What kind of funds?  Pension funds, mostly, but mutual funds too.

Who are the investors in these mutual funds?  The very workers who are being laid off, that's who.  Who are the pensioners whose pension funds are still under funded in spite of Wall Street's and the fund managers' headlong rush for returns?  The pensioners are those very same people being forced into early retirement without enough pension or savings to live as they have been accustomed to.  “What goes around-comes around,” in both good and bad ways.

Gender Equity and Diversity
Meyer touches another pair of issues that are of today's hot buttons:  “gender equity” and “diversity.”

----“The world's most effective birth control device is money.  As society creates a middle class and women move into the workforce, birth rates drop.  Having large families is incompatible with middle class living.” Who would have thought of this as a consequence of letting women realize their potential?  In decades past, a baby boom was created.  Now it will be much more expensive, harder to do and socially unlikely."

----“The quickest way to drop the birth rate is through rapid economic development. After World War II, the U.S. instituted a $600 tax credit per child. The idea was to enable mom and dad to have four children without being troubled by taxes.  This led to a baby boom of 22 million kids, which was a huge consumer market that turned into a huge tax base.  However, to match that incentive in today's dollars would cost $12,000 per child.”

Male-Female Gender Imbalance in China & India
----“China and India do not have declining populations.  However, in both countries, there is a preference for boys over girls, and we now have the technology to know which is which before they are born.  In China and India, many families are aborting the girls.  As a result, in each of these countries there are 70 million boys growing up who will never find wives. When left alone, nature produces 103 boys for every 100 girls.  In some provinces, however, the ratio is 128 boys to every 100 girls. The birth rate in Russia is so low that by 2050 their population will be smaller than that of Yemen.  Russia has one-sixth of the earth's land surface and much of its oil.  You can't control that much area with such a small population.  Immediately to the south, you have China with 70 million unmarried men - a real potential nightmare scenario for Russia.”

So now what?
What does this all mean?  What are we to do? Here are a few of Meyer's observations.  I'll close with some of mine.

----“Europe and Japan are dying because their populations are aging and shrinking.  These trends can be reversed if the young people start breeding.  However, the birth rates in these areas are so low it will take two generations to turn things around.  No economic model exists that permits 50 years to turn things around. … Europeans aren't willing to give up their comfortable lifestyles in order to have more children. In general, everyone in Europe just wants it to last a while longer.  … They don't want to work very hard.  The average European worker gets 400 more hours of vacation time per year than Americans.  They … don't want to make any of the changes needed to revive their economies.”

Of course remember the caveat.  There are things that can change demographics.  Famine, war, pestilence, ethnic cleansing, are just a few.  Consider how likely each of these is.  They are not very likely to be widespread in today's society (at least we hope not).  But a few instances are shocking if we think about them.

----“The summer after 9/11, France lost 15,000 people in a heat wave.  In August, the country shuts down while everyone goes on vacation. The severe heat wave killed 15,000 elderly/infirm people living in nursing homes and hospitals.  Their children didn't even leave the beaches to come back to bury them.   Institutions had to find enough refrigeration units to hold the bodies until people claimed them.  This loss of life was five times bigger than 9/11 in America, yet it didn't trigger any change in French society.  When birth rates are so low, it creates a huge tax burden on the young.  Under those circumstances, keeping mom and dad alive is often an unattractive option.  That's why euthanasia is increasingly popular in European countries.”

Implications-There Are Many
In the U.S. we also have an aging population starting to retire at a massive rate.  This could have several possible major impacts:
--Possible massive sell-off of large four-bedroom houses and a movement to condos, patio homes, etc.
--A huge drain on the treasury for Social Security and Medicare. 
Boomers vote, and they want their benefits, even if it means putting a crushing tax burden on their kids to get them. (We are the only country in the world where there are no age limits on medical procedures.)
--A huge drain on the health care system, (which will also increase the tax burden on the young, causing them to delay marriage and having families, driving down the birth rate even further.)

Solutions?  Sure.  Look for them.
But “every dark cloud has a silver lining.” such demographics present enormous opportunities for products and services tailored to aging populations.  The challenge is to find them, understand them and serve them.  For example, there will be tremendous demand for caring for older people, especially those who don't need nursing homes but need some level of care.  Ditto for products they can use with impaired physical or motor skills. Perhaps a “cottage industry” will develop whereby the healthier people make a business of taking care of three or four people in their (too large) homes. 

The demand for that type of service and for innovative products to physically care for aging people is already big and will get much bigger.  Products that play to the infirmities of aging, without being offensive about it, are likely successes.

What can you do? Look outside your four walls and think about what drives your work, your business and your life.  Study the impact of demographics on your business, on the customers you serve and the ways you serve them.  Stay tuned to where the action is-and where it's going.

Demographics are greatly underrated as an indicator of where the opportunities are now, and will be in the future.  How populations will grow and shrink is much less understood than it should be, given its inevitable importance to business and society. Businesses need customers.  Find the customers.  Then understand what they buy and why they buy it.  Then sell it to them. 

Study the demographics (and psychographics) in each of your markets and then plan accordingly. This great demographic shift is just one of the Six Events that are shifting the shape of our future and the future of our children and grandchildren.  Forewarned is forearmed.

Best, John