"Population decline is nature's warning, a cautionary tale whispered by the winds of change. It is a poignant reminder that the ebb and flow of life is a delicate dance, and when the steps falter, the harmony of existence falters with it."
— Isabel Allende
Thursday, June 1st. Jeonju, Korea.
Korea has always been a fascinating place for me. I first came here 10 years ago with two friends to just travel around and explore.
I have a clear recollection of the day we arrived and our first restaurant experience. When we were entering the restaurant, we were kindly asked to remove our shoes before entering the eating area, where we then had to sit down on the floor since there were no chairs and the tables were just about 20 centimeters above the ground. Next, while studying the Korean menu — with pictures of dishes none of which I had ever seen before — we were surprised that besides getting water right away, the table was already getting filled with all sorts of various foods without us making a single order. These side dishes are called Banjin (반찬) and are a common thing here, but at the time is was definitely something completely unexpected for us German guys.
At the time, it was my second trip to Asia and maybe I thought that after my first wave of culture shocks when I had traveled to China and stayed there fore 3 months the year before, I thought that I already kinda had an idea about Asian culture… boy oh boy was I wrong!
In any event, at the time I liked Korea so much, that I decided to come back in 2014 for an exchange semester at the Korea University Business School (the above picture is in proximity to the campus and the place I used to live). After that I came back to visit again and see friends on several occasions, the last one being 5 years ago when two of my best friends got married.
Due to various reasons I didn’t find a good opportunity to visit again until now. Thus, it is quite amazing to finally be back here and have the opportunity to further explore this distinctive culture.
South Korea's Demographic Crisis
In this month’s issue we will take a look at Korea as a little case study for a trend, which all of the industrialized countries are facing (to varying extents) and which is going to have profound ramifications for our economies — a low and declining fertility rate.
Jeonju is a traditional town with a rich history, located in the southwestern part of the country. It has a population of 666,500, which would make it the 6th. largest city in Germany, putting it right between Frankfurt and Stuttgart. However, in Korea, it only ranks 19th., even though the total population of Germany (84 million) is substantially larger than that of Korea (52 million). I am always interested in these kinds of statistics.
Especially, if they can be used to analyse other economical aspects that are causing them or stem from that.
Korea’s population is going to substantially decline over the coming decades.
In 2022 South Korea hit a new record low number of total fertility rate, putting it as the country with the lowest birth rate on the globe.
The total fertility rate is defined as the average number of children that a woman has over her life and a fertility rate of 2.1 is generally regarded as the number required to maintain a stable population. Korea’s latest fertility rate of 2022 was just 0.78.
The following age pyramid provides an idea of the circumstance:
Theoretically, a fertility rate of 2.1 would result in a totally straight vertical age pyramid. But as can be seen, the Korean age pyramid rather takes the shape of a cone. This stems from the fact that Korea’s fertility rates were very high from the late 1950s, peaking at 6.3 in 1958, and even though it started to constantly decline after that, it still remained quite high over the following two decades.
It first went below the 2.1 rate in 1985 and has remained below this number ever since. 1985 might seem like quite a long time ago, but it is important to acknowledge that it takes time for the effects of demographics to become obvious.
The above figure obviously shows that the 4 largest population groups are now between the age of 45 - 65. These 4 cohorts are those people that will start to retire over the next years. Furthermore, each of these 5-year cohorts is more than twice as large as the total number of children born over the last 5 years.
Here is another chart that puts the effect on the total population into perspective:
We can see that the Korean population has already peaked in the year 2020 and if the currently projected birthrate assumptions hold true, Korea will see a dramatic decline in its population, cutting it to less than half over this century.
What is the reason why Korea’s birth rate is so low?
In essence, the Korean economy is characterized by several large family owned business conglomerates known as Chaebols. It is a business environment in which some industrial players over the years were able to gain close connections to politicians by means of giving large donations in exchange for political favors.
Chaebols are generally associated with conservative business practices and hierarchical corporate structures. They have seen a huge economic success over the previous decades and were able to ingrain their dominant positions.
This makes it very difficult to change business structures and the hierarchical work environment. During the Covid hysteria lockdown phase also Korean workers were working from home and while many companies have realized that in many instances it might be beneficial to work from home and adapt a more flexible working environment, this has not been the case in Korea. They are basically now all required to be back at the office for the full working time.
A good friend of mine now working at Samsung told me about an online meeting in which all employees were allowed to participate and ask questions and state their opinions to the companies leadership. One guy apparently asked something along the lines of why it is so difficult to make any corporate changes when it comes to the interior working environment, when most other successful international companies have had substantial changes in recent years. The answer essentially was that the company is following those strategies because they are what has made them the largest company in Korea. What a great and forward thinking answer!
Furthermore, in order to make progress in their careers, young Korean people are under enormous stress and are working a crazy amount of hours. Often they need to stay long over time and they cannot be sure at what time they will be able to leave. However, it is not necessarily efficient working time, but it is usually not their decision at what point to call it a day and go home. According to my friend, a lot of time is also spend just to play various stupid corporate games, which sometimes even might go directly go against the companies interests, e.g. making small mistakes to get less or easier work handed from the superior.
Another aspect she mentioned is that getting ahead and getting promoted often is not based on actual performance, but rather on the skill of flattering superiors.
Well, in my friends opinion, the leadership initialized this online event just to pretend to be open to their employees opinions and question, but not with the real intention of actually listening or changing anything. In her words, Samsung is just like the “Titanic”, a huge ship sailing straight ahead and not seeing the iceberg in front.
In my opinion, this working environment might be the number one cause of the low birth rate. Building a family requires a lot of energy and time and if you never can be sure when and whether you can go home makes it even more complicated and stressful.
Moreover, another friend who has been in a relationship for 10 years told me that she doesn’t want a child because even though her boyfriend (who would like to have a child) promises to share the additional workload of caring for a child, she thinks that the way in which the culture works, the bulk of the burden and expectations will finally always fall on her. In addition, she also thinks that it would have negative aspects regarding her future career prospects. In other words, it might be kind of a mismatch between the changing world of women emancipation on the one hand and the traditional way of thinking that is still rooted throughout the culture on the other. I actually heard this kind of viewpoint multiple times now.
Finally, I have also heard some other reasons that are about how the Korean government is and/or is not supporting the boosting of the birth rate, but I think these are very complicated questions which vary from country to country and it would require a deeper dive into it on my part to make a qualified judgement about which countries child policy has the most beneficial — or rather damaging outcome. (in my personal opinion the government should stay out of it altogether, the question of having children should be the pure decision of individuals, their situation and their desires. It should not be influenced by artificial subsidies or constraints).
What are the general concerns that the world has to deal with amidst the low birth rates?
South Korea is just one extreme example, but almost all of the developed countries face similar scenarios. Here are a few bullet-points of what I think will be the main challenges that Korea and the rest of the “developed” world are facing:
An aging population: The most obvious consequence is the shift of age proportion in a population. While there will be a continuous decline in working individuals, there will be at the same time a steadily increasing quantity of retirees who need to be supported. Thus, it will raise the dependency ratio and put more and more burden on the young generations who need to support the whole system. This in turn will put pressure on:
the healthcare system
social security programs
pension systems
The debt spiral on steroids: Continuous readers of this newsletter are already familiar with the severe debt burden that our governments are facing. I am convinced that we — pretty much all nation states — have already crossed the line of no-return (meaning: it is IMPOSSIBLE to ever pay back all government debts and promises honestly) and that the global economy is therefore in for a massive collapse. How exactly it will play out depends on many factors and is exactly what we are trying to, follow, ponder about and inform readers in this newsletter. Demographics play a huge role in this analysis, since a lot of the government promises are not included in the official debt numbers, but these so called “unfounded liabilities” still have to be paid, as people get elder and the claims increase, which puts further pressure on the treasuries.
Shifts in competitiveness: A decline of young people entering into the working force also causes challenges for the companies in those jurisdictions. In order for companies to stay competitive, they require constant innovation and technological advancement. It is therefore crucial for them to have access to a business environment that offers a healthy supply of young and motivated individuals entering into the labor market. If that environment is not given, they might either start to shift their operation to different jurisdictions, or be faced with a disadvantage against their foreign competition.
Shifts in geopolitical power: As some countries populations — and particularly the part of the population that is in the working age — decline in comparison to other countries, this will also tend to have a massive effects on the global importance of those countries international relationships and therefore lead to major shifts regarding the geopolitical chessboard.
Cultural & ethnic changes: Faced with this situation a lot of countries will see immigration as a method to fill the empty job position, or even encourage more immigration to stay innovative and competitive. This might in fact be one great way to deal with the situation and is in my opinion definitely a net positive that we might see. However, we also see that it can have many negative side effects, especially if it is not a naturally occurring immigration process, but if politicians try to “manage” it as we are seeing particularly in Europe. Cultural shifts are always a difficult challenge for a society and many will try to stop it, but given where we are as a global society, I think an increased speed of cultural change is inevitable. We should rather try to embrace it and make it work well than try to prevent it.
Here are the market indicators for May:
The market action has remained suspiciously quiet over the past month. However, as the FED once more increased its rates, the pressure on the banking system and the indebted corporate sector remains high. As regional banks still see customers withdrawing their money in order to put it in larger banks which are deemed as more save. Or, upon realizing that they can get a much better yield at the same (or even a lower) risk, they start purchasing short-term government bonds. At the same time, leveraged corporations, many of which require further funding, still have to refinance their current debts at higher rates. I think the whole house of cards is in an increasingly fragile situation.
Thus, it might just be the calmness before the storm.
P.S.: Last month I was promising to ask my Korean friends about their perceived danger from a North Korean attack.
Well, the fear of such an attack is basically non-existent. Koreans are more concerned with the tread of Chinese fishing boats, catching fish on Korean territory, as a friend’s friend who works in the maritime police on the Korean west coast told us a few days ago over some Makgeolli (막걸리), one of my favorite things to enjoy in Korea — Geonbae (건배 = cheers)!
I hope you enjoyed reading this newspaper. Likes, comments and shares are highly appreciated. I put a lot of work into it and if you think the content is worth your time, please consider to subscribe, so you can receive it on a monthly basis. Its free and without commercials.
Best regards,
Disclaimer: The content of this newsletter is for informational and educational purposes only. It contains my personal views and opinions, which are not to be taken as direct investment advise. All investments have risks and you should do your own due diligence before making any investment decision. If you require individualized advice, to review your unique situation and make a tailored advice for you, then contact a certified financial planner or other dedicated professionals.