A couple of months ago, David Pilling reported in the FT on some consequences of China's one-child policy. Coincidentally, the U.S. CDC released figures on childbirths in the U.S. in 2011. Putting the two sets of information together yields some interesting inferences about the future of the two nations.
Pilling reported that young Chinese women are not working in factories in nearly the same proportions as they did ten years ago. "Our generation doesn't work in factories," he reported a typical young woman saying. What could have created that change, I wondered. The answer is to be found elsewhere in the Pilling article: Because of many couples' preferences for male children, they have used abortion to create a ratio of 119 male births to 100 female births. As a consequence, females are much in demand as mates and they can, in large measure, choose to mate only with the most productive males and create the kinds of lives they would prefer. For many young Chinese women, this is a life centered on their families, not their jobs. They will have the one child permitted and will lavish their attention on their successful male mate and their one child, including the one child's education and future prospects. Tiger mothers do not exist only in America.
The consequences for China's future are not hard to guess. Although China has-and will continue to have-a shrinking population that will have to support a disproportionate aged population, China also will have a large educated workforce, and that workforce will be capable of competing globally in whatever economic climate eventuates over the next few decades. China's system of governance may not be the best in the world, but its young people are looking to the future with their children's education and prospects foremost on their agendas.
The CDC report, on the other hand, reports an America that not only is not having babies at replacement levels but, more alarmingly, whose women are having babies non-maritally in record proportions and whose men are falling behind educationally. The drop in the overall birth rate was small and was largely confined to Hispanic women, which might be seen simply as Hispanic Americans becoming more American. The percentage of out-of-wedlock births, however, continues to be astounding. Although teenage pregnancies continue to drop-probably a tribute to schools and others who work with teenage women-the overall proportion of out-of-wedlock births remains a stunning 40%, and of that 40%, the proportion for non-Hispanic white women continues to grow. The following two tables give us a snapshot of non-marital births in 2011.
Percentage of Births to Unmarried Women
By Educational Attainment 2011
Less than High School Diploma
High School Diploma or Equivalent
Some College or Associates Degree
Percentage of Births to Unmarried Women
By Race/Ethnicity 2011
Source: American Community Survey Table S1301
Let us put those birth statistics together with the percentage of recent college graduates that are female: 58%. Looked at another way, as of 2010, among Americans age 25 to 34, 35% of women had college degrees, as opposed to only 27% of men, according to the American Community Survey 2006-2010. See here.
Those statistics together paint a picture that sociologists have been reporting on for some time: American women want to have children but they are not finding men they want to marry. The men are undereducated, under-cultured and under-attached. See, e.g., a fine book by Edin and Kefalas, Promises I can Keep (University of California Press 2005). As a consequence, the women are using the men to have children, then largely discarding them into a society of relatively rootless males. Although it began as a problem mainly among high school dropouts, it has now become a middle class phenomenon of substantial proportions. Here is an interesting graphic representation from the Marriage Project at the University of Virginia.
Non-Marital Births as a Percentage of All Births
This non-marital birth phenomenon contributes to the inability of the middle class to progress economically. Middle class family income (in constant dollars) has stagnated over the last 25 years (with some ups and some downs). See the data from the Census Bureau. Basically, the middle class has made little economic progress, despite significant advances for the top 10% of the population. Many factors are at work to make these statistics, but one that often is overlooked is the lack of two-parent family formation. The women who live without permanent mates and have to bring up their children cannot make as much money as two workers, even though they tend to work very hard and have little time for themselves. Here is recent data on the contrast between single mothers' income (including child support) and other categories of earners:
Income of Families 2010 Based on census.gov Table F-10
All Families w Children
Married Families w Children
Female Head w No Child
Female Head w Children
Male Head w No Child
Male Head w Children
In this society, single men have less incentive to succeed economically than their married counterparts. They remain in the hook-up, sports-and-video-game culture that they inhabited as late teenagers.
The impact of these factors on the children is enormous. According to numerous economic studies (See the review by Professors Acemolglu and Autor from MIT in June 2012), educational attainment is the largest determinant of income among Americans. See, for example, the following table from the Acemoglu and Autor review.
And as numerous other studies have shown, there is a strong link between family income and a child's educational attainment. Thus, although non-marital childbearing has become socially acceptable, non-marital child rearing puts the children at a significant disadvantage.
Let us contrast this hard-working single American mother with her Chinese counterpart described above. The American is always pressed for time. She has three jobs: The home, the children and earning a living. She spends as much time with her children as she can, but often she is tired and finds it easier to keep the children occupied rather than enriched. That is borne out by a number of the studies cited above. The Chinese woman has time to make the house proper for her husband and, especially with only one child, has time to enrich the child's education and make certain the child prepares properly for school.
The Chinese children are highly likely to become better educated, with a better understanding of the world than their American counterparts. That is going to make the Chinese children better competitors for the good jobs that the world will have to offer, most of which will be global jobs, not local jobs.
At this point, if they are still reading, my liberal friends will attack me for my retrograde view of the role of women. I am, my friends may say, portraying the proper role of women as being in the home and bringing up children, not out in the world competing with men for the best jobs. But that attack will be wrongly placed. I am merely describing two phenomena and contrasting their likely results. If I were to focus on the top 10% of American families economically, the picture would look very different, including the roles of the women. In the top 10%, the couples are married, both partners graduated from college, both partners have or have had knowledge-type jobs (in about 75% of the families both partners are in the workforce), both partners are focused for the child-rearing years on the education and cultural enrichment of their children. Both partners share a view of the world in which their partnership is permanent and has as two of its goals mutual economic satisfaction and the success of their offspring. Their children likely will have an even better chance in the global marketplace than their Chinese counterparts. For a vivid description of the modern affluent family, see Charles Murray's provocative book, Coming Apart (2012). For more data on the subject, see the numerous studies on marriage that I have cited above. Mr. Murray is conservative. Many of the authors cited above are centrists or liberals.
The American kids who fall behind educationally are going to pay for it by being relegated to lower paying, more local jobs when they grow up. As a society, we have to figure out how to help the kids that are not getting the parenting and education that they need.
Notes for Investors
As an investor, these observations leave me puzzled. Do they mean that Chinese equities will perform better than American equities? Or Chinese bonds or currency will perform better? I do not reach those conclusions. The futures of listed companies depend on their businesses and their managements, not so much their nominal countries of origin. The people from wherever who are best positioned to compete will work for the most successful companies, whatever their countries of origin. But we should expect more vigorous new companies to come from places where education is best, so long as the governments do not place too much red tape in the way of entrepreneurial business formation. The best venture capital firms know that, and they are positioning themselves to be capable of investing in new companies wherever they are started. If you have an opportunity to invest with smart, globally-oriented venture capitalists, my suggestion is to do so.
I do not suggest investing in individual startups or small developing-country companies. Startup investing takes expertise and, often, hands-on management. Disclosure standards in developing countries are not sufficiently stringent for an American individual investor to do anything but roll the dice.
It is difficult to see what companies profit from single moms earning so little money. But it is not difficult to see what companies could benefit long-term from the perpetuation of the affluent class of Americans. One might look at Coach (COH), LVMH, not traded on a U.S. exchange, and other luxury goods manufacturers. High-end kitchen suppliers and furniture manufacturers, companies that cater to the luxury and experience vacation markets, and manufacturers of exercise equipment for the home also should benefit from the family continuity of the affluent classes.
Disclosure: I am long COH.