By John Richardson
DOW Chemical and DuPont are companies with tremendous histories. It is no exaggeration to say that they have helped to build the American economy, right from the early days of Henry Herbert Dow and Eleuthère Irénée du Pont.
Their innovations have not only created wealth for America, their employees and their shareholders but have also helped make our modern ways of life possible. This is again no exaggeration.
So what happens next? The widespread talk of a merger between these two chemicals giants – if true, of course – would, I hope, unlock another wave of innovation. If not then a merger would be at risk of disappointing just about everyone except perhaps the tiny, tiny minority of people who inhabit Wall Street, and those who make money from mergers and acquisitions.
The essential point is that as the New Normal develops, we need another wave of innovation that builds on the big achievements of the chemicals industry in general.
Ten of these achievements are very well identified and described in this great piece of historical research from the AIChE, an organisation for chemicals engineers. The top ten include making food more and available and convenient and delivering new medicines and prosthetics.
Idealistic nonsense? No, not at all. The way to make money in the future is to spend more on on-the-ground sales team, on product development and on blue sky research and development. There is a whole new generation of innovation that has yet to even happen. The goods and services of tomorrow will need to focus on:
- Demographics. One billion of the world’s population will join the “New Olders”, those over 55, between 2000 and 2030. Popular perception is that this a problem confined to ageing populations in the West. But an important new World Bank study underlines my long-made arguments that China, too, is falling off a demographic cliff. East Asia in general faces the same problem. Middle-to-high income economies in East Asia could lose as much as 15% of their working-age populations by 2040 due to rapidly greying demographics, says the World Bank.
- Affordability. This second point obviously follows on from my first point. Old people spend less money because they are retired. Young people will also have less money to spend in developed economies as a result of the end of the historical Babyboomer demographic dividend. Remember that these Babyboomers were middle class and so rich. This is the key point. So you end up with lower aggregate demand in the West. China’s problem is that it is at risk of becoming old before it becomes rich, as the World Bank again reminded us earlier this week. So now that its credit boom is over, affordability is also the No1 priority for China.
- Sustainability. The climate change debate is over. People will increasingly want not only longer-lasting and more affordable goods and services, but also ones with a reduced environmental footprint. The chemicals industry has a huge opportunity here if its works closely with end-use industries to achieve this end. Automobiles is a great example.
- Providing basic needs. In some parts of the world, of course, populations are not ageing – they are instead very young. But the challenges here are providing enough roads, railways, sanitation, food, fresh water, electricity and education to enable all of these young people to escape extreme poverty. If this doesn’t happen, then we have no hope of making up for the demographic shortfall resulting from ageing populations elsewhere.
This is not idealistic, but is instead quite simply just realistic. Click here for more details.