‘Entrepreneurship is a function of education’ - Clint Laurent

Clint Laurent is the founder and managing director of Global Demographics, formerly called Asian Demographics. Based in Hong Kong, he founded and sold two research firms: Asia Market Intelligence (now Synovate) and Asian Studies. He has a PhD in marketing and statistics from Bath University in the UK.Cliff’s recent book is Tomorrow’s World: A look at the demographic and socio-economic structure of the world in 2032 (see my book review here). He joins us in this exclusive interview on productivity trends, entrepreneurship, education, and investment patterns around the world.

YS: How was your book received? 

A: It seems to have sold quite well – perhaps the most unusual is that at least three large corporates have made multiple purchases for the staff in their planning sections.

YS: Sub-Saharan Africa was a notable omission in your book – but do you have any data which sheds light on trends in that region?

A: The problem in Sub-Sahara Africa is that there are few countries with two census completed (which helps provide key underlying trends. In addition where they have only a few are what could be called complete in terms of the range of variables measured over the two census dates. Things are improving and some countries are reaching the point where the existing population can be reliably profiled and projected. The major characteristic of these are very young populations and consequent rapid increase in the number of people seeking work in the future. The issue is whether they are sufficiently well educated to compete with the large growing labour forces in South Asia and India.

YS: What are your thoughts on the rise of entrepreneurship in different parts of the world, and how they correlate with demographic data?

A: I have no statistical data to really support this – but my general belief is that entrepreneurship is a function of education. Education (even just lower secondary level) gives an individual skill and confidence to try things on their own rather than ‘working for the corporation’. The ability to take risk is to a large extent a luxury of the better educated.

YS: You have tracked ‘where is the money’ in the world – how about some insights on where is the ‘investor money’?

A: The issue with savings is that its availability for investment is not a function of just one thing. For example, there are a large number of rural households in China which save over 25% of their income. This is impressive in percentage terms – but 25% of a small sum is a small sum. So the aggregate savings of the rural household are small on a per household basis and hence the potential demand on it (health/retirement) will potentially quickly use it up. As such these savings are not really available at an individual level for investment – even though in aggregate for all rural households it is a very large sum of money.

However, in the affluent part of the world there are high earnings and an increasing ability to save – as a function of a very large proportion of these populations reaching the working age empty nester stage (that is one or more wage earners in a household of two adults with the household owned and equipped.). This is the most rapidly growing segment in these older countries and also the largest life cycle stage segment.

While their savings rate is lower than the developing countries it must be remembered that some of the expenditure is actually savings – that is paying off the mortgage on the house which is effectively a large ‘saving’. Also due to decent public health and pensions their need to save for their retirement is lower – and this means that what they save (or a portion of it) can be spent on more discretionary items such as travel or recreation. Also because it is less critical to their future existence unlike the rural saver in China these people can take a degree of risk with their savings – i.e. invest.

As such, the savings in the more affluent world are potentially more useful from an individual point of view and a more likely source of investments.

YS: You have rightly identified that India must launch a big education push to reap a demographic dividend. How does India compare with Indonesia, Brazil, Russia and South Africa in this regard? 

A: Actually apart from Russia and the absolute size of the populations, the difference is not large. All have relatively young and growing workforces which by global standards are not well educated. Indonesia, South Africa and Brazil are all ahead of India in terms of education standard – but still low by global standards. Russia is a very different proposition – old and well educated.

YS: Does this BRICS bloc still have relevance, in your opinion?

A: In my opinion, the BRICS was a great marketing tactic to get people to invest money in new areas of the world – the individual countries in the set are very different. Look at the difference in age profiles of India and China for example – and education level of China and Russia etc. They simply had large populations but were very different in underlying demographics and socio-economics and there was no real basis to say they will grow together – which they didn’t. Investing in them has not been a great experience for the investor except in China and even then generally not a great reward after allowing for risk.

Their relevance as a group is not that great – however, their different potentials are opportunities if played correctly. For example, China is definitely a growth market for products and services that appeal to persons over the age of 40 years where as India is still very much a family stage market and hence appealing to household product/service sector.

YS: What are your findings with respect to productivity increase or decrease over the years in different regions?

A: We have done a lot of work in this. Across the 78 countries that we cover, we have found a logical relationship to exist between productivity improvement and the incremental improvement in education and aggregate fixed capital investment per worker. Note the emphasis on the word ‘improvement’. There is not a consistent pattern in terms of level – so you have to use the historic point for that – but there is a good relationship in terms of change. Logically, as education improves and the investment behind the worker increases (e.g. a better computer, truck etc.), so the productivity increases.

So the relationship is sensible. The issue is that this does actually mean that the better educated and higher invested countries (e.g. Japan) must slow in terms of productivity growth. Their ability to improve education is now severely constrained – a county can only have so many PhD’s!!! It is hard to do anything other than marginally improve the education standard in this scenario. Similarly the Fixed Capital Investment is already very high and again anything other than a marginal lift is hard to achieve. As a result productivity growth has to slow. This scenario gradually catches the developing countries. Some provinces of China are already getting to the point where improvement in education standard of the labour force is slowing for the reasons discussed above.

So we will have to get used to the idea of slower productivity growth globally. Rather the emphasis will be on the share that goes to the worker (it normally increases with education and reduced labour supply) as that represents quality of life rather than quantity of life. It is important to realise that there is wider acceptance of the view that the best route for the future is not more people (either by high birth rates or immigration). Rather it is fewer, but better off people, which should be the social objective, as seen in the case of Japan.

YS: What is your next book going to be about?

A: Tomorrow’s China, and then India.

YS: What is your parting message to aspiring entrepreneurs in our audience?

A: Have a go – it is no riskier than working for a large company or government department. You can still get fired there!