The first theme is called, “COVID-19 Is the World’s Best Contraceptive.” It’s been assumed for a long time that if you get two people to talk to each other and stare into each other’s eyes for long enough, they will eventually develop a bond. This connection starts with awareness and leads to empathy, friendship, and then a deep emotional connection—you could call it love if you wanted to—and then eventually a romantic relationship. I’ve read this in so many different places that it’s almost like conventional wisdom.

But this isn’t true. Look at the numbers from global data on birth rates in the last nine months. Any major news outlet will have these numbers. They may be slightly different, but the range is approximately the same. Basically, births are declining in major economies by 10-20%. That means 10-20% fewer babies were born as a result of COVID in some of the biggest economies in the world—like Japan, France and Spain.

The numbers are pretty similar across the world. Taiwan has seen a drop. Hong Kong has seen a drop. I read that Hong Kong saw a decline of over 50%. That means the year-on-year change from January to January was about 50%. China is probably going to see a drop. All major economies are seeing a drop. The United States is a little bit different, but it still has one of the slowest growths on record.

Why should we worry about whether or not people are having babies?

Why does this matter? Why should we worry about whether or not people are having babies? First, let’s leave aside the insights and implications of declining birth rates, of which there are many. Let’s start with the precedent that we’ve set in the way we analyze data.

We’ve always assumed that people have babies, or more babies, when they’re financially secure, and when people aren’t financially secure, they have fewer children. That’s the underlying premise of most newspaper articles. But that’s actually not true. If you look at countries with major declines in birth rates, and if you look at countries that are much poorer, where the standard of living isn’t great, and the future does not look so promising—like in Africa, for example—the majority hasn’t seen accelerated decline in birth rates beyond what was normal before COVID.

In this situation, for wealthy countries where birth rates are already low, when the economic outlook gets worse, the birth rate lowers. In many poorer countries where the economic outlook was not good before COVID but got worse during pandemic, we don’t see accelerated decline in birth rates beyond what was normal before COVID.

Where did we develop this concept that when the economy does worse, people want to have fewer babies? It seems to only be true in wealthier countries; it doesn’t seem to be true in many other parts of the world. That has implications on the way we make decisions in terms of product launches, how we choose to invest in economies, and where we build regional and global headquarters. It matters to the world. But we can cut this data in an even bigger way because the declining birth rates don’t mean the same thing for all countries.

Let’s look at Hong Kong, Taiwan, China, Japan and South Korea. Hong Kong is a part of China, but it’s treated differently in the press. What’s the difference between all these countries? You would say they all have declining birth rates with significant numbers, so they’re all in the same boat, but they’re not.

Why countries grow

Countries and markets grow because people are consuming something. Semiconductor chip companies’ share prices are going through the roof not just because car companies and electronics companies are buying more chips, but because people are buying electronics. Therefore, electronics companies are buying more chips. It all starts with the people. If more people are being born, there are more people going through the cycle of being a young adult, going to university, getting married, having children, growing a family, buying homes, buying furniture, buying cars and so on. That’s what drives consumption. The more there is young people who have the ability to earn money and spend that money, that’s what drives an economy.

Economies also grow in other ways. If you have the same number of people, and they become more wealthy, it’s not as big a driver as more people going through the system. But Japan, South Korea, and even Taiwan have already seen big jumps in their productivity. For lack of a better word, they are wealthy countries. So, yes, they’re probably going to be more wealthy in the future, but it’s not going to be as big of a driver as they want. There are some exceptions to the rule—for instance, Singapore tends to crank out big productivity gains each year—but that’s quite rare.

China is different because they still have to go through urbanization, or what some people call suburbanization. This means that as China brings in more people from rural communities and puts them into semi-rural, urban environments, those people will not only consume more, but the process of building those suburban or urban centers drives growth. That’s what makes China a little bit different. China has problems with aging because its population is getting older before it becomes richer. It has a totally different problem than Korea and Japan.

Now, the question becomes: Will the urbanization trend for China outweigh the negative effects of aging for China? That’s what many people need to think about.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #25. Many of you have found Monday Morning 8 a.m. so useful that you’ve asked us to release a book version of these newsletters. We’ve obliged and released a Kindle version, which you can find on Amazon under “Strategy Insights.” It contains the insights from previous Monday Morning 8 a.m. issues, edited into a bite-sized format that’s very easy to use. And you can learn about other FIRMSconsulting books here. 

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