Things You May Have Missed in 2014

When I think about the past year, a number of significant events come to mind; the heart-wrenching Ebola outbreak in Africa, the simmering conflict in Ukraine and rise of ISIS, the al Qaeda splinter group that has gained power across much of Syria and Iraq.  But while all of these developments were justifiably headline grabbing, a number of smaller trends emerged. Some of these may well have an outsized impact on the global economy going forward and some are, well, just interesting.

 South Korea Takes the Lead in Wireless Technology…

 While some areas of the U.S. are still rolling out standard 3rd Generation (3G) technology, South Korea is working on building out the world’s first 5G network. South Korea’s lead here should come as no surprise; the country was a pioneer in developing wireless technology and introduced 4G service way back in 2006. The country’s network today is the fastest in the world, six times faster than the global average.

The government is leading the 5G effort by investing $1.5 billion to develop new mobile standards. The hope is to have trial systems in place as early as 2017 and a commercial rollout in 2020. South Korean wireless companies such as Samsung, SK Telecom and LG, all of whom stand to benefit greatly from faster and cheaper data transmission, are contributing to the research effort. While the powerful combination of government money and private sector expertise seems sure to succeed, there are other “dogs in the hunt.” Three ministries of the Chinese government are working on 5G technology while the European Union has formed an infrastructure partnership focused on 5G technology with Alcatel-Lucent and Nokia.

How will 5G change our lives? Experts expect that the technology will eliminate the waits often suffered downloading applications and disruptions such as out of sync video calls.  Faster transmission speeds will also likely unleash a whole host of new products and services such as holographic phone calls and movie downloads that take less than a second.

 China’s Baby Boom Fails to Boom…

 The Chinese government’s one-child policy, first introduced back in 1980, has successfully reduced population growth. Unfortunately, it has also had a number of less favorable consequences including a growing population of elderly and coincident decline in the number of working age citizens. To reverse this trend, China began to slowly relax the one-child rules last year. The results, however, have been disappointing. While the Chinese government initially expected an additional 2 million babies this year, only 804,000 couples have applied to have a second child. Many believe that the high cost of living and education in particular is contributing to the tepid response.

China will need to address its declining work force if it hopes to sustain high economic growth rates. The United Nations projects that between 2010 and 2030 the Chinese labor force is expected to decline by 67 million workers. Expect further efforts to reverse the birth rate (see chart left). Other policies, such as rising the retirement age, may be proposed as well.

 Research and Development Funding – Look Out Below…

 In 2014, spending on research and development (R&D) as a percent of total federal outlays hit its lowest level since 1956. Bipartisan bickering as well as the general economic malaise appears behind the depleted funding. Unfortunately, there is little room for optimism in sight with current budget proposals calling for further declines.

The U.S. could well use the economic boost that R&D funded innovations provide. Productivity gains are bumping along at a rather anemic 2% annual rate and global competition is heating up. China specifically, intends to boost spending to 2.5% of GNP from just under 2% by 2020 and the OECD expects to outspend the U.S. within 5 years.

Not all is lost, however. The private sector here in the U.S., which has supplied about 2/3rds of total R&D spending, will continue to play a key role. But historically, many of the nation’s important break-throughs, such as the internet and voice recognition software, have resulted from basic research efforts that were funded by federal outlays.