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Observations Entering 1999

By Frank Greenhalgh

EURO

My friend Mohan once told me; "You know there are large countries and there are rich countries, but there are very few large-rich countries. Russia, China and India are large but poor, Switzerland and Saudi Arabia are rich but small. The United States and Japan are the only two nations that are both rich and large." Mohan was pointing out how much the Third World depends on the United States and Japan to be consumers of their products. As we enter 1999, the consensus is that Japan will remain in an economic slump, leaving the US to make up the shortfall, or the rest of the world may face a recession.

Enter the EURO. The EURO will morph a significant part of Europe from a group of small rich countries to one large rich country, economically at least. There should be a lot of volatility at first but as the advantages of a common currency are exploited, the European economy should grow and become another large consumer for the poor countries of the world. Lets hope the EURO is a big success and that we can expect to target Europe as one of our growing consumers.

Demographically Speaking

Population wise the eleven countries tied to the Euro represents about 290 million people or ten percent more than the population of the United States. Demographically, however there is a big difference, which was heralded by the end of WWII.

When the Second World War ended in 1945, Europe was devastated. On the other hand, the United States economy was booming. The war effort had everybody working. The soldiers returning from the front were offered many benefits, free college and low home mortgages to name two. The result was a large baby boom, which has left us a generation of "Baby Boomers". This generation, which is now between 45 and 55 years old, represents the highest percentage of the US population. On the other hand Europe does not have a similar demographic. Europe was rebuilding its industries after the war and did not have a similar population aberration. In any case I believe that this fact might make the growth of the Euro mild in relationship to the dollar.

Whenever economists are asked for the reason we are experiencing the longest economical growth period since the 60s, they point to low interest rates, low oil prices, consumer confidence, a rising stock market, and global growth. They don't say it's because of the "Baby Boomers". I think they should.

The ages from 45 to 55 are wonderful ages for those of us who have lived an archetypal family life (maybe even better if you didn't). Typically during this age period a number of things happen. You have worked hard for many years to reach a respectable salary level. Your children's education is finally paid for; the value of your house has risen significantly and your mortgage has been reduced giving you a significant amount of equity. Possibly your wife decides to work if she hasn't been working all along. All these things add up to a Baby Boomer's boom market. Today the engine that is driving our economy and our stock market is due to the lopsided demographics present right now. The coming of age of discretionary spending is allowing people to buy that SUV, boat, computer, digital camera, or cell phone that would have been put off in the past.

This baby boomer generation is also aware of the possibility that when they are ready to retire Social Security might not be able to support them as in the past. To guard against this the boomers have diverted a large amount of this new cash into 401k plans and mutual funds. Each month, about 12 billion dollars flows into these funds from retirement plans and individuals. This money is responsible for the "irrational exuberance" shown in stock prices today. So when someone says the booming economy is due to Alan Greenspan or Bill Clinton, I say poppycock. It is all those baby boomers on a tear.

Talk like this only leads us to think; "Who will be taking care of the boomers when they all apply for social security?" Also, "Will the economy tank when they become a drag and not a push on it?" That, of course is the rub. The following generation not being as large must still pay the bill for the boomers. The answer is going to have to be higher productivity through high technology. Productivity advances through the use of high tech machinery and computers will enable manufacturers to increase their efficiencies, enabling a smaller population to maintain a growing industrial base.

One standard measure of a company's productivity is its sales per employee. During the 1980s, a number of $50,000 to $100,000 per employee was considered normal, with the $100,000 companies being highly profitable. Today $100,000 per employee represents a smokestack industry. A leader in efficiency and profitability today is a company like Dell Computer. Dell reckons it ships about $750,000 per employee. That is its secret to its high stock price and profits. Compaq is struggling to get to $200,000. As the "Boomers" get old, the fruits of their labor will have to be rewarded by the increases in productivity they leave. Years ago people used to say that the major use of the computer was to put people out of work. Today we might say it will be used to substitute for the people that used to be available to work but have left the work force.

He co-founded CEAG Electric Corporation (now ABB CEAG) and developed the first mainframe power system using the droop paralleling concept. He has written numerous articles and columns, presented papers at the milestone PowerCon convention and consulted for ABB CEAG and other companies. Recently his accomplishments include the development of two Web sites, www.fgl.com with the Power Corner and www.amityville.com. Frank is presently functioning as "Director of Technical Sales" for Toritsu Tsushin Kogoyo Corp.

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