ObamaCare may keep US in global top-10 economies

This is one bullet from the grapeshot spread by Credit Suisse demographic analyst Amlan Roy, who also argues that “Bric” is a meaningless concept and that Britain stands at the precipice.
ObamaCare may keep US in global top-10 economies

Amlan Roy doesn't so much give an interview as fire a whiff of grapeshot, whose many projectiles hit a wide range of targets.

His business card calls him 'director, investment banking'; he describes himself as "Credit Suisse's least published analyst"; but what he really does is advise governments and institutional investors about demographics, gender, migration and healthcare issues.

The thick handout he shows, intended for one-on-one presentations for Asian clients, is chock-a-block with data straddling financial markets, economics, history, consumer behaviour, organisational structure, retirement issues, asset-allocation strategy, climate change and more – all branded as part of the story of demographics.

Speaking with AsianInvestor on the sidelines of this week's Credit Suisse investor conference in Hong Kong, Roy somehow crams all of these points, and more, into an hour's discussion.

He relates some of his bigger calls over the past decade, including one prediction in 2001 that long-term bond yields were about to fall, based on an analysis of demand among pension funds and insurance companies to meet their liabilities. In August 2007 he also warned that America's sub-prime woes would hurt emerging markets, because of the impact of a credit seizure on food prices in poorer nations.

One of his calls today: if healthcare and Social Security reform fails in the US, America will lose its status as one of the world's 10-biggest economies in terms of GDP per capita and lifestyle. (Roy notes it will remain a leading economy in GDP terms regardless.)

Roy says the US Congress' passage of healthcare reform earlier this week is a step in the right direction. But by itself, it won't be enough to address the impact of aging, the need for people to work longer and other trends.

"This bill is to be funded partly by cuts in Medicare, as well as taxes on pharmaceutical companies, wealthy families and others," Roy says. "It's a necessary step, but this reform has to go hand-in-hand with changes to Social Security, taxation and education."

In particular, Americans (and citizens of other industrialised nations) must change their working lifecycle and abolish mandatory retirement ages. But America continues to benefit from the highest fertility rates in the developed world, open immigration and great education for its wealthier citizens. Its biggest weakness is inequality, from access to jobs to differences in diet and health between rich and poor.

Another question: does China today more resemble Japan in the 1960s or America in the 1890s? "Neither," Roy says, citing China's unique history as a big, rapidly developing nation with a Communist political legacy. Its gender balance in the labour force is healthy, and it has a disciplined manufacturing base, unlike India, Brazil or Russia. Its autocracy makes reforms relatively easy to pursue. And its people are becoming adept at English.

"Japan was helped by the US; China is on its own, and much bigger," Roy notes, pointing to one of his many charts, this one showing that as recently as 1820, China and India were the world's two richest countries.

Another of his calls or -- more precisely -- observations, is that "Bric" doesn't exist in reality; the four nations have only economic growth rates in common. Yet another chart of his – Roy seems to have a data point or histogram for just about everything – shows the huge difference among the four countries' educational systems, demographics, fertility rates, per-capita GDP, access to sanitised water and life-expectancy ratios.

"India's life expectancy at birth is so far below China's," Roy notes. "And Russia's fertility rate is falling, so its old-age dependency is high." This feeds into everything from economic productivity to differences in food consumption. "There is no economic merit to the concept of Bric," he concludes.

Following a tangent on the need for more longevity derivatives ("Actuaries have got their mortality models all wrong"), he argues that Britain is the most vulnerable European economy to a Greece-like crisis. Its financial situation, lack of savings and dependency on government welfare is unsustainable, he says. What could save it, however, is wealth; its per-capita GDP is far higher than that in Southern Europe.

"We're living until we're 90, but because we're lazy and selfish, we want to retire at 65. This is unsustainable," Roy says, speaking of Britain and of the West in general. "We need to work more, save more and co-share our health costs with the government. People have been spoiled by great asset returns over the past 30 years.

"Asian governments have the benefit of learning from the West's mistakes," he adds. "Its pension systems must not promise non-negotiable benefits." He also says the demographics behind Asian consumption and work patterns makes him bullish on the region, although individual countries can vary.

Roy makes a plea for investors to understand demography better. He says common myths of the field include assumptions that demography is just about very long-term, future trends; that demographics are predictable; and that it's just about age. These views are either wrong or very incomplete -- and he has a backpack full of charts, bullet points and books to prove it.

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