Rodney Johnson | Thursday, January 17, 2013 >>
No, this is not about kidnapping, human trafficking, or anything so horrific. This is about a much larger demographic trends … one with much greater (although less sinister and appalling) consequences.
Potential parents are opting out.
For years we have written about demographic trends, a really boring word that addresses the even more boring practice of counting people and listing their attributes.
The reason we can do this every day without shooting ourselves is because the outcome of the analysis is so fascinating and important. Demographics might sound boring, but the demographic trends are big enough to cause entire countries to rise and fall.
And right now, there is a high-flier country that is shaking with fear…
South Koreans look down the road and see… nothing.
World War II left Korea split after the Japanese were kicked out, with the North run by a Russian-installed dictator and the South run by a U.S.-installed dictator.
The North attacked the South to start the Korean War, which is what drew the Americans into the conflict.
In the aftermath of that war, the U.S. became intent on building the small nation of South Korea into a democracy with a vibrant economy. For the first 10 years the U.S. was responsible for 90% of South Korea’s GDP.
The strategy worked and the country moved through the stages of economic growth at light speed. Its main lines of GDP moved from farming to heavy industry, then to light industry and finally precision manufacturing, all within 50 years.
At the same time, the country’s politics moved from a combination command-economy and oligarchy to a true democracy, where it stands today.
The pace of change was phenomenal, and has brought the South Koreans to the point of being one of the most sophisticated and well-educated populations on the planet.
And that’s where the trouble lies.
As populations move from villages and farming to urban settings with factories and production jobs, the traditional need for more children disappears.
More hands make light work on a farm but city dwellers know that more mouths to feed simply divides a small pie even further. In economic terms, kids are a drag. The greater the wealth and urbanization of a nation, the lower their child birth numbers tend to be.
This is in evidence all around the world, with some notable exceptions like the U.S. Here at home our consistently (and only relatively) high birth rate is due more to recent immigrants having lots of children than because the domestic population continues to grow.
But back to South Korea…
Part of the reason for fewer children in developed countries is that the continued pursuit of a knowledge-based economy in concentrated areas is so expensive. The cost of living in a large city, paying for housing, food, medical care and education is overwhelming. And this doesn’t include preparing for one’s own retirement.
Every child added to that situation compounds the cost because they have their own set of needs to address.
South Korea, with its high-tech, silicon-wafer corridor, rising auto manufacturing star companies, and its status as the most wired (by Internet connectivity) country on the planet, has shot past the point where having more children is a blessing.
Parents, or prospective parents, are finding the cost of raising just one child a heavy burden. So they are making the economic choice to have fewer kids, if any at all.
The result is South Korea now has fewer children per woman of child bearing age than any other country.
By this measure, each woman needs to have 2.1 children – to replace herself and her husband, plus a little for mortality – simply to keep the population from shrinking. Right now South Korean women of child bearing age are having 1.2 kids on average… that’s almost half the number required to just keep the population constant!
And it’s below Japan, which ties with Italy, and surprisingly Germany, at about 1.3. It’s also below China, which clocks in around 1.5. All of these countries are moving toward self-selected extinction, but South Korea is moving the fastest!
In the short run, this means nothing. South Koreans will still wake up tomorrow morning and go to work. Their banks will still function and their factories will still run.
But in the long run, this means everything.
South Korea is sprinting to where Japan sits today – a rapidly aging country with sky-rocketing entitlement costs and a shrinking labor force.
The effects on Japan are clear. The country is desperately fending off continued deflation. Its national finances are in shambles as the government debt-to-GDP now sits above 230%.
Sure, the country is still home to some of the best companies in the world, like Toyota and Honda, but one has to wonder how long these companies will stay there. At some point, the country will be one massive sale of assets. It’s not really a question of “if” anymore, but when.
So the South Koreans are near the front of the line in making a decision on how to address an aging, developed society… and there are no rules.
The Japanese are widely seen as having done it wrong. They hate immigration and keep their work rules rigid. Any attempts to break open their job market have been crushed by older workers still benefiting from the current system. But it is like protecting one’s seat at the Captain’s table on the Titanic.
For us, watching South Korea move to such an extremely low level of child births is a flag of caution about investing in the country. Just as Japan’s low birth trend has led to decades of deflation and a cratering stock market that is now stagnant at low levels, South Korea could follow the same path.
If you’re adamant about investing there, look to the large exporters… and above all else, watch those investments carefully.
Ahead of the Curve with Adam O’Dell
South Korean Economy – Good Today, Gone Tomorrow?
While the South Korean economy will eventually fall victim to its self-induced demographic vacuum… that development is many years out (as Rodney says above).
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