From Peak Oil to Peak Child

As a supply chain manager I spent the majority of 2007 focused on fuel costs. In that year, crude oil rose from around $50 to $150. Direct oil consumers were hit hardest, and for me this particularly included a transport budget that was predicated on $50-per-barrel oil. That was a hard, sobering year. As the price of oil mounted, companies around the world realized how much petroleum was baked-in to the costs of so many other aspects of their products or services… But then prices receded and our panic at the thought of peak-oil dissipated.

Another critical peak is occurring. It is much more dangerous to company performance in most industries, but lacks the poignancy of the oil crisis in 2007. The oil crisis happened in 12 months, this peak is occurring over a century, but in that long process this is till a unique moment. I’m talking about peak-child, the fact that we have already past the moment when the most children have been born. In fact, we passed it a while back. According to the UN, the peak occurred in 1985-1990, and has been in decline since. Year by year, in the average school there are less children. A theoretical averaged kindergarten with 100 children in 1990 would have 97 by 1995. And today, in 2014, they would have 79 children. We peaked in 1990 (as a world), and looking specifically at western cultures the drop-off has been substantial. That peak-year group is now between 23 and 27 years old. They are in or just leaving their first jobs out of university, and behind them is an ever-so-slightly smaller pool of qualified workers. Unlike the oil crisis of 2007, the smooth change and long time frames make this crisis less poignant, but it is real nonetheless. What, in short, is the heart of the crisis?

Creating more value with fewer active people… Even if birth rates skyrocketed tomorrow, the next twenty years will be the same story: each year less new graduates coming in and more older workers leaving. By 2030, we’ll have 25% less new graduates than today, and the rate of older worker exits will be higher. In effect, one new worker will need to replace two exiting workers, simply because there will not be enough people to go around. In fact, it could be much more severe because we can rapidly lose population but not rapidly add them back. Past events like disease outbreaks and wars show that a country can quickly lose a portion of its young adults, but no efforts can create and rapidly age new people to replace them.

The slow decline away from peak-child has far reaching consequences, from social structure to market sizing to company strategy. My challenge to those reading this article is simple: take a moment to imagine the world we are certain to be heading towards. In your company planning, what parts of your strategy are predicated on a large youth cohort? In your personal career progression, will your goals be impacted by tougher and tougher competitive markets for new graduates? In your investing and retirement planning, how are you moving with the tide of demographics and how may you be accidentally against it? Historic swings in birth rates have had enormous weight in industry size and fortunes. Its no surprise that disposable diapers were invented as the baby-boom was kicking off.

Lastly, ask yourself if this article missed a vital vantage or dimension of the problem… and if you find one, leave a comment!

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