(This essay was published in South China Morning Post on 12 November 2014.)

Thirty years ago people watched programs produced by TVB and listened to Canto-pop. These creative products were Hong Kong’s great exports to the Chinese-speaking world. Today, people prefer to watch imported Korean television series.

 

What has happened to Hong Kong’s creativity?

 

Many believe creativity in the entertainment industry here took a dive after the 1980s. Creativity is of course needed in all industries. It is an essential element in the formation of all new businesses and in fostering economic growth. So has the formation of new businesses slowed down in Hong Kong?

There is some indirect evidence for this. The percentage of employers in the workforce (excluding domestic helpers) rose from 2.6% in 1971 to a peak of 6.7% in 1996, but fell to 4.8% in 2011.

 

Five contributors have often been cited for entrepreneurial activity: education, market experience, property rent, skilled work force and financing. But one that is often ignored is the age composition of the work force.

 

A study of 83 countries published this year, by James Liang, Hui Wang, and Edward Lazear, found a decrease in the median age by 3.5 years resulted in a 2.5% increase in the entrepreneurship rate. This is a very large effect given the average rate is only 6.1% in these countries.

 

In the last 50 years, most of the developed world has experienced a dramatic demographic shift. For instance, Japan’s fertility rate dropped below the replacement level in the 1960s and is now 1.3, which means each generation will shrink by 40%. Hong Kong’s fertility rate is even lower, at 1.2.

 

Entrepreneurial capability depends on creativity and business acumen. Creativity declines with age, but business skills increase with experience in high-level positions.

 

A young society provides more opportunities for the young and the most creative to acquire the skills necessary for entrepreneurship. Having too many older workers slows entrepreneurship. Not only are older workers less innovative, but when they occupy key positions, they reduce the opportunities for younger workers to accumulate business skills.

 

Hong Kong’s demographic structure is unique because a large proportion of its population arrived in the post-war years. The subsequent baby boom greatly expanded the young workforce beginning in the 1960s and was a major cause of the rise of entrepreneurial activity in the 1970s and 1980s.

 

But the precipitous drop in the fertility rate since then has increased the median age of the population aged 20-64 from 21 in 1971 to 41 in 2011. This has been an important cause of the decline in entrepreneurial activity since the 1990s.

 

That declining trend will now end, however, because the baby boom generation is starting to retire. Figure 1 shows the median age of the workforce is projected to stop rising and level out. And the percentage of employers, based on the sex, schooling and age composition of the workforce, is projected to rise to 7% by 2025 and maintain at that level.

 

Many young people in Hong Kong today feel their job and upward mobility opportunities are limited, but the future is looking brighter.

 

Some things can be done to help, though. Hong Kong’s labor market is tight and there is considerable temptation to postpone the retirement age, but a better solution is to invest in more education, introduce innovative financing arrangements to foster start-ups, increase the supply of space at affordable rents, and systematically tap the wisdom of the retired to provide advice and training for start-ups.

 

A huge opportunity also beckons in the Pearl River Delta – the median age of Shenzhen’s official population of 8.38 million between the ages of 20-64 is only 28.

 

I am optimistic for the future of Hong Kong’s young people because of the return of positive demographics in the workforce.

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