Can the baby boom generation find economic absolution?
The generation born between 1946 and 1964 is leaving a bitter legacy. As the governing generation, it has mismanaged economies so badly they’ve imperilled their children’s future.
But the rise of a new creative economy could provide this most privileged generation with an opportunity for redemption.
How bad have things become for young people today?
Let’s examine changes in the housing market. The average price of a normal house in Canada more than doubled during the last decade, from roughly $200,000 to $400,000 nationwide. In high-profile markets like Greater Toronto ($622,046) and Vancouver ($902,801) prices have more than tripled. Overall, the housing market over the past 30 years has risen at a compounding rate of over 10 per cent per annum – in largely stagnant economies.
Today, young families pay the price for unwarranted housing inflation. According to the Bank of Montreal, more than 40 per cent of first-time Canadian buyers require substantial parental support, and yet still lumber their futures with debt. Canada’s debt-to-disposable income ratio grew to 163 per cent this year, a new record.
This is a far cry from the situation boomers faced as young adults: housing was affordable and prices were generally equal to their annual salaries.
A case could be made that house prices today simply reflect growth in the economy. If so, why can’t the younger generation afford to buy homes?
As a boomer, I remember when a one-income family could support a middle-class lifestyle, home ownership, regular vacations and college education for the kids. Now you’d be stretched to do that on two professional salaries.
Mind you, in those far off days developed nations weren’t competing with Third World dictatorships over wages and salaries. In the relatively autonomous national economies of the 1960s and ’70s, standards of living in western nations rose for wage earners and young professionals.
What has changed all this? Globalization – another mismanaged boomer-era initiative.
In the idealism of the early post-Second World War years, globalization was designed to be win-win.
Its larger mission was to raise the standards of living in poor nations by integrating them into the global economy.
And the expansion of global capitalism was to be accompanied by the introduction of western-style rights to Third World citizens. It was expected that Third World wages and living conditions would soon rise to western standards, creating a larger market. And that larger market would have a level paying field with more generalized prosperity.
Needless to say, that’s not how globalization played out. Today, multinational corporations lobby emerging nations to thwart unions, restrict human rights advances and quash legal challenges to their draconian working conditions. They operate in countries with poor human rights records, like Mexico, China and Bangladesh. Meanwhile, the goods produced in appalling circumstances flood into developed economies tariff free at prices that undermine western production.
The results are there for all to see. Wages for skilled and semi-skilled workers in developed economies have stagnated over the past 30 years while productivity has nearly quadrupled. Full-time employment is fleeting and financial stresses for young families are mounting. No wonder the younger generation is tuning out.
But there is a silver lining: the radical transformation from an industrial machine-based economy to a digital knowledge economy. Today, intangible assets dominate the economy, representing over 80 per cent of its value.
Our youth are the best educated, most adaptive, creative and globally connected generation in history. They have eagerly innovated in this new economy, creating small businesses with huge potential.
Regrettably, conservative boomer-era bankers and other financiers won’t, or can’t, adjust their mindset, protocols and systems to this new reality. They refuse to recognize or find collateral security in these new intangible asset classes. So they have basically written off an economy the younger generation is advancing at great speed.
Having undermined the general prosperity for the past 30 years, it’s time for the boomers to create a positive future for the next generation. The answer is simple: move with the times, adjust to the new economy with its (presently) unfamiliar intangible assets and invest in the creative future.
Your children will thank you for this act of economic redemption.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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