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Population change and the EU

29 January 2013, 17:04 CET

Growth from smaller technology and service companies can deliver the taxes to pay for ageing populations. EUbusiness examines how.

Speaking at a London Business School conference last week, Jeff Immelt Chief Executive of GE was clear about the future; namely he did not know what it holds. However, the strategy is clear. Above all, GE’s focus is the fast growing developing economies, particularly India, China, Russia and Brazil.  Also, the company is putting much greater emphasis on government relations and government contracts. It is focusing its efforts primarily on Green Tech and Healthcare and intends to produce more innovative products at more price points.

The continuing prosperity of GE and others requires successfully addressing major changes in government priorities and in the profile of consumer demand. A key determinant of both is demographic change. A new book ‘The power of numbers, why Europe needs to get younger’ analyses demographic change over the next 25 years and the likely implications for the countries of the EU. Written by Richard Ehrman, the book is published by The Policy Exchange, a centre right UK think tank. Whatever one’s political viewpoint, the 167 pages of easy to digest analysis should be on the reading lists of business and government strategists.

Forecasts of demographic change are open to interpretation and the limitations of the data, but save for major unforeseen crises, projections for the EU are pretty well set for the next 25 years. As is well known, a key issue is the massive strain that the rapidly ageing population, particularly in the southern and eastern nations of the EU, but also in Germany, will put on their own economies and by implication, the EU more generally. By way of illustration, an Austrian toy manufacturer is quoted by Ehrman as saying ‘The toy trade is slowly dying across central Europe. There are not enough children any more’. This may sound like a line from the children’s classic movie Chitty Chitty Bang Bang, but it is hard to overstate the underlying seriousness.

Paul Polman, CEO of Unilever, also speaking at London Business School, highlighted that ‘50% of the Fortune 500 companies were founded during eras of recession or depression’. By implication, to avoid the negative effects of demographic change, the challenge for national governments and the EU is to radically improve the political, financial and legislative support available to entrepreneurs. In particular, this needs to be prioritised in government contracts, given the scale of government spending as a proportion of GDP.

However, having run a highly successful company in one of the world’s largest government technology contracts, my experience is that these contracts are often out of bounds for SMEs or the terms are far too onerous (particularly as regards risk transfer and guarantees). Also, frequently such programmes are too ambitious and the contracts too complex, with lawyers the only parties likely to make a profit. Both are reasons why I have avoided a number of other major government contracts.

 ‘The Power of Numbers’ includes detailed analysis of the financial implications of an ageing society, what Europe can do to improve the quality of the workforce, the environmental impact of population change and issues around defence capabilities. The fundamental issue is that government expenditures across the EU have been sustained on the back of fully employed baby boomers and an increasing tax take. This era is rapidly coming to an end with the key date being just 9 years away. 2018 is when the effects of ageing populations really begin to kick in. 

Thankfully, demographics are not the whole story. It is SMEs, particularly technology and service companies that are the major employers and will deliver most growth (and hence taxes).  Accordingly, it is this part of the economy which governments need to focus on, as much as the GEs and Unilevers. Failing this, the likelihood increases of even some wealthier EU countries becoming victim to playwright Jean Anouilh’s theory of tragedy; ‘Maintenant le ressort est bandé. Cela n'a plus qu'à se dérouler tout seul. C'est cela qui est commode dans la tragédie’ (‘The spring is wound up tight. It will uncoil of itself. That is what is so convenient in tragedy’ – from Antigone).

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Michael Ter-Berg

   Michael Ter-Berg

Michael Ter-Berg is a director of and formerly Chief Executive of one of the UK's most successful University transfer technology companies, Medic-to-Medic/ Map of Medicine (University College London) and President of a leading Swiss Hotel Management School, DCT.