Is it possible to plan more than five minutes into the future? I’ve been having an interesting debate with a very smart friend who contends that it is fruitless to attempt to project more than a small distance into the future, and that long-term planning is less valuable than improving one’s ability to react to the unpredictable.
I’ve also heard over the years from many business leaders that they gave up trying to do strategic or operational plans that were longer than a year or two. And how often have you heard someone say, “As soon as we complete this plan, it will be wrong”? Everyone nods in understanding, confident that therefore they should waste as little time as possible in planning activities that are obviously unreliable.
And so we collectively put aside attempts to plan, put on our microscope goggles and focus on the things that are right under our noses.
My contention is that if you look at the patterns that take years to develop, you can fairly easily see how those patterns will form the underlying currents upon which the variable, short-term events will play out.
For example, geologists know that the tectonic plates comprising the crust of the earth are in motion, and at what average rate and direction of movement relative to each other. Scientists also know that the motion of these plates is not smoothly continuous, but that they occasionally speed up. We call those accelerations “earthquakes.” Increasingly, the prediction of earthquakes is becoming more accurate, just as we can more accurately predict when and where tornadoes will occur. It’s called “Tornado Alley” for a reason, right?
The human equivalent of geological and climatic patterns is demographics. We know the average life span of a human by region, by socioeconomic milieu, by birth date, gender, etc. We know the birth and death rate. There are now so many humans that the sample size for such studies is sufficiently large enough to provide statistically reliable data. We can project into the future by seven or eight decades what the population will be, by age band and gender.
The most powerful factor affecting economic trends is population, followed by technology contributions to the production of sustenance in its several forms. Both population trends and technology advances are based on humans. So really, demographics drive economics. We can look at the world, a country, a state, a city and a company and reliably determine the applicable demographic trends several decades into the future. Those trends will be the single largest contributor to the quality of human experiences in that time horizon. Why is this?
Simply put, demand trumps supply in the equation made famous by Adam Smith. If there’s not enough supply of food, water, shelter and warmth, the population tends to decline, reducing the demand side of the equation and decreasing pricing while at the same time balancing that supply with the demand. If non-life-sustaining commodities or services are in short supply during high demand, the price rises sufficiently that the demand drops to meet the supply until prices stabilize. Supply-side economics is a flawed concept that had a short time in the spotlight.
As population increases, demand grows and so does an economy. As standard of living increases, population growth slows and then plateaus, reducing demand and reducing economic growth. In the Malthusian school of economics, population “corrections” occur when too many people chase too few life-sustaining products and services, so the population declines from calamity rather than just flat birth-to-death ratios.
The point is that these powerful patterns are knowable today, and they can tell us what the likely scenarios for human experience will be decades into the future. Within these large currents of change are the individual ships and boats we call nations, companies and families. The vessels may be able to choose which direction they attempt to navigate within the waterway, but they can’t change the fact that they are confined to it. The river goes where it’s going. A ship’s captain can choose to slow down, move to the left bank or the right, even try to park on shore for a while if the current is not too strong. But that doesn’t change the fact that the river is moving in a particular direction, inexorably.
There are too many examples of how this demographic view of predicting the future has been supported to fit into a 900-word column. I will leave you with one. The impact of the baby boomer generation reaching retirement age was predicted almost as soon as the generation was identified by its name. Roughly 77 million people were born in the 18-year period between 1946 and 1964. This generation makes up half the current work force in the United States.
The dependency ratio is increasing, which means the people working are supporting more non-working people (kids, old folks and those unable to work) than they did when the baby boomers were in their middle-aged prime. The predicted patterns are now happening: lower disposable income in our population; higher demands on social services; higher drawdown of Social Security; more retirement funds going into lower-risk assets, thus reducing investment in higher-risk public companies (few initial public offerings); less money for schools because of reduced tax revenues and budget cuts; and a plethora of other predicted outcomes.
We knew these patterns were in play, and what would happen. We chose to forget, or just decided that we wouldn’t pay attention. Because planning ahead is impossible, right?