Salespeople typically are, and should be, optimistic. It’s easier to sell if you’re upbeat, it’s easier to convince people they need to buy if they feel good around you, and it helps keep your spirits up through the inevitable rejections. Optimism is good.

And there’s an old business cliché that “tough times don’t last, but tough people do.” But what do tough people do when tough times do last? Because tough times are going to last in America and through most of the developed world, and capable salespeople and salesforces that intend to take more than their share of the marketplace had better be prepared for it, or they will not fill their quotas, or their expectations. Let’s talk about how to do that.

First, study today’s landscape

The financial panic and meltdown of 2008, and the Great Recession of 2008-09 are different from any other recession since the Great Depression of the 1930s because of the vast amounts of debt run up by consumers and governments. These debts virtually guarantee that growth in the economies of America and most developed countries will be slow for the next five years. Indeed, after a less-than-stunning bounce off the bottom of the recession, America’s GDP grew by about 2 to 2.5% in 2010, some economists believe that growth will actually dwindle to about 1.5% in 2011, and may not get as high as 2.5% again until 2015. Why?

The economy of any developed country is driven by three engines: consumers, governments, and corporations, in that order. But with consumers trying to pay off debts, and coping with the highest unemployment rates in 70 years, they are going to remain cautious about buying things, so that growth in consumer spending will remain soft. Governments shot their wads during the teeth of the Great Recession, and almost all of them are left with such high levels of debt that they are either unwilling or unable to keep spending. Indeed, the predominant theme in many western governments is to cut spending rather than to expand it. This may be precisely the wrong thing to do right now, but it is very much the fashion.

As it happens, the corporate sector has bounced well off the bottom. Those who were going to go bankrupt are gone. Those that remain have tightened their belts, cut their workforces, and are running lean operations that are once again profitable, especially with borrowing costs at record low levels. But most managements were alarmed by the panic of 2008, and, with overall demand continuing to be weak, see no compelling reason to spend much on new plant & equipment, or in hiring workers back. As a result, the one bright spot in the economy, which is also the least important of the three sectors, is in no mood to spend aggressively.

The longer this situation persists, the more it reinforces the mindset among consumers, governments, and corporate executives of the need to spend cautiously, which prolongs the pain. The net result of all this is that as a salesperson, you should expect to work in a slow, grinding economy for years to come.

There are also some possible nasty Wild Cards (surprises) lurking out in the wider world that could make matters worse, possibly much worse, but I’m going to leave them for another blog.

So the future within which you will be selling will be one of cautious buyers, anemic consumer demand, and lean, tough competitors. That’s not what we would prefer, but we really don’t have much choice in the matter. That shifts the question to: What do you do about it?

The mindset of the cautious client

All good salespeople try to put themselves in the client’s shoes, think like they think, and anticipate what they will feel, want, and need. In the current environment, I’d suggest taking that even further, but let’s start with some things we know about clients’ needs in tough times.

Many sales organizations mistakenly believe that clients focus on price in tough times, which leads them to look first at how to shave their prices. But because it’s easier to slash prices than costs, providing a minimal-seeming 10% discount on price can, for example, slash bottom line profits by 30% or more. Cutting prices, then, is the last thing you should consider. It is truly a desperation move – and often not a very effective one. When was the last time you were moved to buy something by a 10% discount?

Instead, studies done on how buyers behave in tough times indicate that they are more concerned about safety rather than price. If they’ve decided they need or want to buy something, they can’t afford a mistake, and so will spend a little more if necessary in order to make sure that what they get is what they want. This reveals something very important about the way prospects think of value.

Value is a simple concept that relates to the mental model every prospect carries in their head when they are considering a purchase. As you know, prospects compare their image of the value of the purchase with the price it will cost them. If they think of the price as being greater than their image of the value of your offering, they won’t buy no matter what you say. If the image of value is greater than the price, the prospect will probably buy (as long as you haven’t ticked them off or made them feel stupid) because they’re trading something of lesser value (their money) for something of greater value (your offering).

With that in mind, let’s circle back to the question of safety. Safety means saving money by not having to go back and repair an earlier mistake. And this has two components: First, they want independent proof of the quality of what you offer before they will commit. And second, they want to know that they can rely on you.

An unexpected approach to selling

In today’s world, there are no secrets, and consumers and corporate customers will go online to check out your reputation, and read reviews about your product or service from sites like tripadvisor, Amazon, or others. Therefore, your best bet is to offer truly objective reviews of what you are offering before your prospect can check for themselves, including any bad reviews or comments. This is counterintuitive; no salesperson wants to knock their own product, but think about it. First of all, you know they’re going to find out anyway, and second, it allows you to both present the bad news in the best possible light, and also to treat it as a conventional objection to overcome. And providing people with the bad news underlines your trustworthiness. You’re giving them the whole truth, not just the convenient parts.

But beyond this, making a sale should be just the opening move in developing an on-going relationship. One of the oldest, and most reliable sales clichés is that the best source of new business is existing customers. Once you’ve closed a first sale with a new customer, that’s when you should work the hardest to make sure they become a regular, repeat customer through follow-up and after-sales service. You should appoint yourself their unofficial, in-house purchasing agent for all products and services in your category, whether such offerings come from you or a competitor, and you should provide them with honest, reliable information, whether it helps you or a competitor, because this gives you a first-right-of-refusal on all future purchases. You should regularly update them on what’s happening in your field, and make sure they have all the latest and greatest information so they can make the best decisions. If you have a better offering, you can make sure the client knows it. If your offering is equally good, there’s an excellent chance you’ll get the business because of your honesty and relationship. And if you can’t match what your competitors are offering, then you reinforce the value of your advice.

Rubbermaid, which is the category leader in their line of products, trains their field salesforce to help stores produce the most attractive possible displays, even if it means showcasing a competitor’s products. By so doing, they reinforce the view that Rubbermaid is interested in their clients’ success first, and their own sales second. They become trusted advisors rather than just another salesperson – and with the quality of Rubbermaid products, the relationship blossoms, and company and salespeople both prosper.

Generational differences count, too

It’s not just their appreciation of safety versus price that clients are changing. Their minds are changing, too, in part because of who today’s clients are. There are two different, but important, ways that clients are changing.

The first way that they are changing is that the younger people moving into the workplace have different values, different ideas, and hence behave differently than the boomers. Although I don’t tend to use these terms myself, many people refer to GenXer’s and Millennials as the two younger generations that are now very much in evidence among professionals – and who will be increasingly populate the clients you deal with. Going into the details of the differences of these groups, especially when compared with the Boomers, is beyond the scope of this blog, but there are a few ways in particular in which they are different that matter to salespeople.

First, they are more skeptical than the Boomers. Both GenXer’s and Millennials have been in the crosshairs of marketers since before they were born. They have been bombarded with the most intensive, most ingenious sales and marketing approaches devised over the last two- to three decades, and have developed an enormous resistance to any claim. They almost start by assuming that a product claim is misleading, that sales and marketing presentations are guilty until proven innocent. This compounds their natural tendency to check everything online, looking for criticisms and lies. In today’s constantly connected world, you can lie once and maybe get away with it, but I wouldn’t count on even that.

As, they value relationships more. If they’re leery of corporations, they value individuals – although, again, they are cautious. But they’ve grown up working in teams in high schools, colleges, and universities, and are receptive to the idea of teamwork.

All of these – cynicism about sales claims, technologically connectedness, and more relationship oriented – support my earlier comments about how to present and persuade.

The rise of women

And the other major way in which clients are changing is that increasingly they are women. A young woman growing up today is much more likely to move into positions of significance and authority than any generation before them. This is the result of several different forces coming together. First, today’s young woman has successful role models before her in almost every realm of life in the developed world, up to, but not quite including president of the United States. (The status of women in developing countries is a completely different issue, and again, is beyond the scope of today’s blog.) Next, more businesses are being started by women than men. The last statistics I saw on this indicated that for every three businesses started by men, there are four being started by women. And businesses started by women are much more likely to survive.

But the clinching argument about the rising importance of women is that almost 60% of all post-secondary students are women. This is true in colleges and universities, but is even pronounced in graduate programs.

All of this means that an increasing number of your clients will be founded, headed, or run by women – a fact you should embrace and run with. And you should start by considering how women, as a group, are likely to view the world and business differently. Naturally, this involves generalizations, as did my comments about GenXer’s and Millennials, so you should treat these comments with care. But women, as a group, tend, again, to be more focused on teamwork and relationships, less macho and interested in ego-promoting arguments, and more interested in work/life balance. Clearly there’s more to this, but the important part is to be aware of the changes in your prospects as well as the changes in the environment.

Now look at tomorrow’s world – from the clients’ point of view

Beyond building relationships and being aware of clients’ mindsets, organizations should take account of the environment in which their clients are working, and look for ways of helping them overcome obstacles that might prevent them from buying. For instance, the banking industry is awash in cash, but has overreacted to their earlier excesses by being extremely cautious in their lending. This means that many small and medium-sized companies may have difficulty in securing financing for purchases. If your firm can offer sales financing on reasonable terms, either directly or through your own financial connections, it will help you secure additional business.

But all of this relates to today’s environment. You should also project yourself into your client’s future so you can think through what they are going to need. That way you can make sure you’re there, waiting with offerings tailored to help them. This works best with a structured approach to thinking about the future.

When I work with clients to help them think about the future, one of the first things I tell them is that if you ask vague, general questions about the future, you’ll get vague, useless answers. Instead, you should ask focused, purposeful questions, because they will lead to insights that you can act on. One way to do this is to break the future possible alternatives, called “scenarios”.

Most business people have heard about contingency plans, which are alternative plans in case the future doesn’t unfold the way you expect it to. But the step before developing contingency plans is to consider what contingencies you’ll need, which comes from thinking through what things might happen that you’re not expecting to happen. Indeed, the first mistake most people make when they think about the future is just that: they think about “The Future”, as if there is only one possible future, when there are billions of possible futures that could occur. If you limit yourself by thinking about just one possibility, then you may find yourself blindsided by something happening that you didn’t anticipate.

Now, the future is inherently unpredictable, and no matter how good you are at preparing, there will be at least some aspects of the future that catch you by surprise. The key in business is not whether you are caught by surprise, but how quickly you recover, and how constructively you respond to surprising events. And one way of doing that is to think about a range of potential futures, most notably those that are expected, those that are probable, and those that are possible. This process is called scenario planning, and it has been used by the military and major corporations for over 50 years.

Using scenario planning to help today’s sales

But from a sales point of view, scenario planning is useful because it allows you to consider what kinds of future your clients may experience, and then how you can serve them in those futures. In effect, you can project yourself into their future, decide what they will need most, and then prepare to serve those needs so that you are standing there, waiting for them when they arrive. You can not only respond to their needs, but anticipate them, possibly even before they anticipate them themselves.

And if you want to take this a step further, you can sponsor a scenario planning session for them so that they can consider where they’re going, and how they’re going to get there. This would entail hosting a scenario planning session for your client, and possibly hiring a facilitator to guide them through the process. That may sound expensive – and it is – but the benefits are enormously valuable because you get to participate in the process. That would mean you would have a much greater insight into their thinking than any of your competitors. And that benefit would be over and above any gratitude they might feel to you for sponsoring the process in the first place.

So scenario planning is a way of: (1) anticipating your clients’ needs and preparing to meet them; (2) anticipating what kind of world you will be competing in, allowing you to prepare in advance for it; (3) allowing your clients to look forward into their own future so that they can prepare, through your sponsorship; and (4) a way for you to invite yourself into their strategic planning as a valuable member of their team.

It’s an off-beat idea – but these are strange and difficult times, and business-as-usual won’t cut it any more.

If you would like to know more about scenario planning, please get in touch with me.

© Copyright, IF Research, November 2010.

‘America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.’
– Abraham Lincoln

Unless America and Americans force a drastic change in the country’s direction, the American dream is dead, and America’s place as the leader of the world is over. I find this intensely distressing and worrisome, and have hopes that the situation may yet be retrieved, but the time available is short. Americans have repeatedly overcome fearsome odds throughout their history to survive and thrive, but if there were ever a time when they needed true grit, self-sacrifice, and a willingness to cooperate with other Americans of different backgrounds, politics, and beliefs, it is now.

To put it bluntly, America is hurtling towards bankruptcy. This is not due only to the Obama administration, or the administration of George W. Bush, but to American presidents dating all the way back to FDR, and the Congresses that accompanied them. There are two major reasons for this coming disaster, one short-term, and the other longer-term.

A massive deficit at the worst possible time in history

The short-term cause is the massive federal deficit. George W. Bush inherited the biggest budget surplus in history and turned it into the biggest deficit in history, and at exactly the worst possible time because of the aging of the oversized population of baby boomers. The boomers selfishly expect their governments to give them more than they have contributed, and get downright nasty when told they can’t have what they want. Bush also inherited a trend towards greater deregulation from Bill Clinton, and accelerated that trend, believing, wrongly, that the financial industry, among others, could be trusted to regulate itself. This is like expecting a greedy kid to regulate himself in a candy store. The events of 2007 & 2008 proved this policy to be both stupid and irresponsible. The resulting financial catastrophe could have led to a complete collapse of the global financial system, and only the massive intervention by virtually all central banks, coupled with unprecedented fiscal stimulus, prevented a complete collapse that would have resulted in a new, world-wide, Great Depression.

The Obama administration inherited this unholy mess, and is not responsible for it, but has not dealt with it well either, leaving too much of a leadership role to a Democratic Congress that too often substituted ideology and partisan politics for sound economics. Obama hasn’t been helped by the Republicans in Congress either, who seem to think that the president is their enemy, and anything they can do to harm him is good, regardless of the consequences for the country.

Yet, my point here is not just the deficits themselves; they are unfortunate but necessary in the short term to stave off a much worse economic crisis. My concern is that the stimulus spending has been directed more towards lobbyist-inspired pork than creating a solid underpinning for recovery. This is a self-indulgent luxury America can no longer afford. It is, alas, far too early to restrain spending, no matter what Tea Party enthusiasts may say. There will come a time for this, but it is not yet.

The scale of borrowing threatens both American and global stability

However they occurred, these deficits will require massive borrowing by the federal government: the Obama administration estimates the U.S. government will need to borrow $10 trillion over the next 10 years. Most commentators say that assumes higher levels of economic growth than are likely, and higher tax increases and deeper spending cuts than Congress will accept, and so are unrealistically low. I’ve seen estimates that place the borrowing requirements (which are remarkably difficult to pin down) as high as $9 trillion over the next 5 years. For the moment, let’s assume that the administration’s figure is correct, and place it in perspective.

China is America’s biggest external lender, and holds almost $2 trillion in foreign reserves. Let’s assume, for the sake of simplicity, that all of China’s holdings are in U.S. dollars, and all of those are in U.S. treasury bonds and bills. This isn’t true, but let’s make that assumption anyway. China has already expressed concern over the amount that America has borrowed, and is borrowing, and is diversifying away from U.S. securities; so how willing will they be to buy that much and more in U.S. debt over the next decade? And who else in the world will have enough in investable funds to buy U.S. debt? Financing of this magnitude has never been done before, and there may simply not be enough investment money to do it. And even if there is, there’s very little certainty that lenders will continue to funnel money to an increasingly debt-heavy American government. The federal government already has proportionately more debt than at any time in its history outside of times of war, and Moody’s rating agency has publicly expressed its belief that America in danger of losing it’s AAA credit rating. (This, on its own, may have severe consequences, which I’ll come back to in a later blog.)

If America cannot borrow the money it needs, then it becomes insolvent. The checks it writes will bounce, which could lead to a financial panic even greater than that of 2008, and one that no central bank or group of central banks will be able to stem, leading to an economic nuclear winter. (I’ve dealt with this prospect in an earlier blog, “WILD CARD WARNING”, published June 3rd, 2009.)

The rapidly approaching Social Security disaster

But the longer-term reason is even more dangerous. Both the U.S. Federal Reserve, America’s central banker, and the Government Accounting Office (GAO), America’s financial watchdog, have publicly stated that the unfunded liabilities of the U.S. government for Social Security and all forms of medical insurance, including Medicare, Medicaid, and Veteran’s Administration coverage, amount to approximately $100 trillion and are unsupportable. To see this, America’s total economic output (GDP) is about $14 trillion per year, so this $100 trillion figure amounts to roughly 7 times the nation’s entire annual income – a horrendous and unmanageable amount. Yet, when George W. Bush attempted a modest (if somewhat misguided) reform of Social Security, all he got was nasty complaints from selfish boomers, violent rhetoric from Congress, and reams of bad press. And these ticking time bombs have much shorter fuses than most people realize.

If you look at the Social Security Online Actuarial Publications website, you will see an extraordinary statement in the second paragraph:

“The financial condition of the Social Security and Medicare programs remains challenging. Projected long run program costs are not sustainable under current program parameters. Social Security’s annual surpluses of tax income over expenditures are expected to fall sharply this year and to stay about constant in 2010 because of the economic recession, and to rise only briefly before declining and turning to cash flow deficits beginning in 2016 that grow as the baby boom generation retires. The deficits will be made up by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about three fourths of scheduled benefits through 2083.”

As bad as this sounds, it’s actually much worse. The ‘trust fund assets’ that the Social Security Administration is talking about redeeming are bonds and T-bills issued by the federal government. When 2016 rolls around, and Social Security starts ‘redeeming’ these ‘trust funds,’ it will be making demands on the government of the United States. In turn, the federal government can only redeem these securities in one of three ways:

• Raising taxes,


• Cutting spending, or


• Borrowing even more in the public markets.

Given the federal government’s current perilous financial position, any of these three choices will be painful at best, and potentially disastrous at worst.

As an aside, we could, and should, ask the obvious question: What happened to all the surpluses in the Social Security system in the decades that led to the build up of the so-called ‘trust assets’? Answer: Congress spent them and handed the Social Security Administration IOUs in return.

And Medicare is even worse

In the same paragraph, the Social Security Administration goes on to comment on the status of Medicare:

“Medicare’s financial status is much worse. As was true in 2008, Medicare’s Hospital Insurance (HI) Trust Fund is expected to pay out more in hospital benefits and other expenditures this year than it receives in taxes and other dedicated revenues. The difference will be made up by redeeming trust fund assets. Growing annual deficits are projected to exhaust HI reserves in 2017, after which the percentage of scheduled benefits payable from tax income would decline from 81 percent in 2017 to about 50 percent in 2035 and 30 percent in 2080. In addition, the Medicare Supplementary Medical Insurance (SMI) Trust Fund that pays for physician services and the prescription drug benefit will continue to require general revenue financing and charges on beneficiaries that grow substantially faster than the economy and beneficiary incomes over time.”

Translating this into English, Medicare is bankrupt, but keeps operating by soaking up current tax revenues to fund it, increasing the effective size of the deficit that needs to be financed. It also means that the benefits people are expecting will have to be cut drastically – undoubtedly accompanied by much squawking, finger-pointing, and political posturing as president and Congress-critters all try to deflect the huge amount of blame.

Ironically, the new health care bill just signed into law may actually ease the situation slightly, because now government-funded insurance will fund the young and healthy as well as the old, poor, and sickly. That’s how insurance is intended to operate: by spreading the risks. But this change will be well short of what is necessary to avert disaster, and was so botched in the compromises necessary to get it passed that the benefits will be far less than they should be.

Now let’s be clear: the problems with Social Security and Medicare are not the failure of the Obama administration, nor of the Bush administration before it, but of all administrations and Congresses since the 1960s, and even before that. It was always politically easier to ignore the growing problems, and leave them to the next generation of politicians. Now the problems are arriving, and there will be hell to pay. To my mind, the last politician that had the courage to attempt to deal with these issues was New York’s Senator Daniel Patrick Moynihan, who raised the age when boomers could collect Social Security. He is, unfortunately, now dead, and no one else has had the guts to step forward and tackle these problems.

Are these problems too big to solve?

So are these problems solvable? Maybe, but only with immediate, Herculean efforts, unprecedented cooperation between Republicans and Democrats, and a willingness to sacrifice and accept less by the American people. I would think this makes solutions unlikely.

Indeed, I would say that America’s financial problems can only be solved if it solves two other, unrelated problems, one political, and the other societal.

Republicans and Democrats conspire together against democracy

The first problem is the polarization of the American political system because of gerrymandering. (See related blog post.) Gerrymandering is a term we all learned in high school social studies, but which most of us have forgotten. But Congress has not forgotten it. Gerrymandering is the re-drawing of the boundaries of electoral districts to create as many safe seats as possible – that is, where the same party will almost invariably be elected. Republicans and Democrats have connived together to do just this, and the Supreme Court has given them a limited seal of approval. The result is that in normal times, the vast majority of incumbent members of the House of Representatives cannot be defeated in a general election. The Economist newsmagazine once commented that America’s record of re-electing incumbents to the House would do credit to the dictatorship of North Korea.

This means that a Republican in a safe seat cannot be defeated by a Democrat, so his political spectrum goes from the center to the extreme right wing. And a Democrat in a safe seat cannot be defeated by a Republican, so her political spectrum goes from the center to the extreme left wing. This has two unsavory results: First, it means that the majority of voters in the center are not represented at all. And second, it pushes the two parties further and further apart, so that they cannot agree on anything, and gridlock results. That’s where we are today.

What is necessary is for the drawing of electoral district boundaries to be taken away from politicians eager to protect their own seats, and given to non-partisan committees that draw boundaries based on geography and similar needs rather than voting patterns. This has been done successfully in a number of jurisdictions, such as Washington state, and defeated by political machines elsewhere, as in California. But without this kind of non-partisan protection of the American people, the country as a whole is being stage-managed for the benefit and security of the politicians and the political party machines, and not in the best interests of the country. If the Tea Party movement wants a real and important target, this should be it.

The dumbing of America

The second fundamental issue is America’s education system, which has many problems. These include those teachers’ unions that block progress to protect their prerogatives and power (but not necessarily the interests of their members); helicopter parents that verbally and even physically assault and intimidate teachers; students who are more dedicated to fun than learning; violence and drugs, which turn schools into armed camps, forcing students to worry more about their own safety than what they learn; and a culture that now glorifies winning at any cost, including cheating, and elevates sports and entertainment success over academics. Most school systems are such a mess that it’s hard to know where to start to improve them, but the result is that America is producing generations of citizens who neither know nor care about their own history; who believe that America will always be right, and will always be #1 without thought, effort, or sacrifice; and who are uninterested in the common welfare of anyone other than themselves, and have no concept of civic duty. Unfortunately, the odds of a widespread improvement in American education are, if anything, even less likely than a balanced budget, and even if such a miracle were to occur, it would take years to change America’s direction. Yet, even so, if America wants to continue to prosper, it must both improve its education systems, and its citizens must rediscover their dedication to education excellence. Without this, in the long run, nothing else will matter.

Does America still have what it takes?

The financial problems America faces are severe, potentially the worst in its history. To solve them will require higher taxes and cuts to the military to be sponsored by Republicans, and spending cuts and reductions in entitlements to be sponsored by Democrats. It will take the postponement of eligibility for Social Security and Medicare benefits for boomers as well as a reduction in benefits provided, plus the end of ‘gimme-gimme’ pork-barrel politics. It calls, in short, for sacrifice. The alternative is disaster, and the end of America.

America’s problems threaten the stability of the world’s financial system, and the global economy. They also threaten America’s leadership of the world, which has, in the main, been remarkable for its enlightenment and goodness. There are other countries waiting in the wings, notably America’s chief banker, China, who are eager to replace America as the dominant force in the world. If Americans do not immediately begin to grapple with its problems, then both the idea that is America, and the country that is the fact of America will crash with such force and violence that it may lead to the end of America as a coherent society, as well as precipitating a second global depression. The stakes are high. The time is short. And the critical question is: Does America still have the will to be the best?

© Copyright, Richard Worzel, March 2010.

There are three principal issues that will drive health care over the next quarter century: an aging population; technology; and money. They are linked, but different. Let’s start with demographics.

For the past 20 years or so we’ve lived in a period of relative demographic calm because most of the key generations have stayed within a single phase of their life cycle. This is about to change, as three of the key demographic cohorts are about to undergo major demographic transitions. The first group is mature adults (those born 1938 or before, currently in their 70s and up), who have been described as the “oldest elderly.” A steadily rising percentage of this group are now moving into the stage where they can no longer manage their lives and affairs without assistance.

There will be a dramatic increase in demand for services for this group, especially in chronic care facilities, as this group is growing faster, in percentage terms, than any other age group in the population. Moreover, the children of this group are the boomers, and we boomers are not known for our sweet reasonableness. This means boomer children will demand government help in coping with their parents. The net result is going to be a steadily increasing demand for help with the oldest elderly in our population.

Trouble ahead for boomers – and everyone else

Next are the baby boomers themselves (born 1947 to 1967, turning 43 at the low end and 63 at the high end). In 10 years’ time, they’ll be between 53 and 73. This means the leading edge boomers are now entering the transition to retirement. By my estimates, the annual cost of health care per person remains relatively level until about age 55, at which point it starts going up almost exponentially. The boomers, the largest generation in history, are now entering the high rent district of health care, and although I’ve seen reports that claim that health care costs are going up because of the increasing costs of treatment, and not because of an aging population, I flatly don’t believe it. As one example, the Government of Ontario, in a 2005 publication, projected that health care spending there will rise to more than 55% of program spending (i.e., total spending excluding debt service) by fiscal 2024-25, and I believe this underestimates the real situation as these estimates were made before the recent recession. By 2035, I expect Ontario to be devoting something in excess of 60% of its program spending to health care – and that’s typical of jurisdictions throughout the U.S. and Canada. This will create all kinds of fiscal and financial problems, as well as acrimonious debate at state and provincial governments across North America – and, indeed, throughout the developed world. These costs may even bankrupt all major governments in the developed world, because these programs are essentially pay-as-you-go, and demographic support for the biggest generation in history is simply not there. If governments are to avoid bankruptcy, then people in the developed world are not going to get the health care we want and expect.

Finally, there are the children of the baby boomers, called the “echo boomers” or “echoes”, born roughly between 1977 and 1997 (currently between 12 and 32). In 10 years time, they will range between finishing their formal schooling and approaching their 40s. The echoes are the Next Big Thing for any organization that hires and employs people, for they are not only the next generation of clients and customers, they are also the next generation of health care professionals. The problem is that there aren’t as many echoes as there are boomers, with the result that we are going to experience an increasing shortage of health care professionals for the next 10 years. It will improve slightly after that, but then get substantially worse beyond 20 years, especially in Canada, unless Canada and the U.S. import and certify substantially more foreign doctors, or unless technology provides new solutions.

So where are all the customized drugs?

Next let’s look at the very real promise, and the phony pursuit of personalized drugs. The pharmaceutical industry is talking a good game when it comes to personalized drugs, but I don’t think they mean it. If you look at the current state of such drugs, the industry tends to point to two drugs in particular: Herceptin and Gleevec.

Herceptin (from Genentech) is the exception that proves the rule. It is much talked about, but with few exceptions, its example hasn’t been much followed by pharma companies. In my opinion, the reason why Herceptin is an exception is that the screening test that accompanies it eliminates roughly 65% of potential patients, producing a much smaller potential market. Since big pharma companies are largely run by marketing people and bean counters, they hate the idea of cutting down on potential markets. They would much rather find another blockbuster, even if it means discarding a perfectly effective drug that doesn’t have a large-scale market. And yet, since the overall percentage response rate in the overall potential population for Herceptin is less than 10%, Herceptin would probably not have been approved without a genetic screen. With the screen, a failed drug was rescued, serves as a niche drug, and still produces $1 billion in revenues per year. Yet, despite Herceptin’s success, as far as I know, Genetech doesn’t seem to have made any effort to improve the focus of the diagnostic test; it’s seen as “good enough,” even though they could increase the efficacy of the drug by narrowing the focus further.

By comparison, Gleevec (from Novartis) seems like the industry’s ideal – but there’s a catch. Gleevec targets a particular protein in chronic myeloid leukemia (CML), and produces a 75-80% response rate, which is head & shoulders above competitive drugs. This is the industry’s ideal, but it was targeted on that protein because it was already known there was a relationship between that protein and CML, which is the reverse of most drug research.

Pharmaceutical companies dragging their feet

There are probably other “personalized drugs” in development, but nowhere near the number you would expect from Herceptin’s success as a $1 billion a year niche product. I believe this is because the pharma industry is dragging its feet. And I further believe this is a mistake: pharmaceutical companies should be eager to pursue this approach, as it will make them more money than ever before. The problem is that it requires a different business model with which they aren’t familiar. All they know is that the marketing model they have followed for decades is based on big blockbuster drugs that sell billions of dollars of drugs to millions of people. They don’t see how selling millions of dollars to thousands of people can replace that – yet it can, as I’ll come to in a moment.

Moreover, in both cases, Herceptin and Gleevec involve a single protein, a single test, or a single genetic marker, yet most genetic indicators will be more complex than that. Mostly there will be multiple indications, and a multivariate approach will be called for, which has been a problem in drug research so far.

According to Tufts University, in 2006 it cost $1.2 billion to develop a new drug and bring it to market. Most of that is the opportunity cost of selecting one compound for development compared to other possibilities, and investing the 15 years necessary to bring it fruition. And a hefty chunk of the cost associated with drug development comes in drugs that get as far as Phase II or III clinical trials, and then fail because they either are not effective enough, or they have unacceptable side-effects.

But if you can identify the populations for whom such drugs either have low efficacy or unacceptable side effects, you can still market such drugs profitably, albeit to much smaller segments of the target market. So, which is better? To get nothing from a drug, and flush all of the associated costs? Or to target it to a smaller population, derive lower revenues, but at higher profit margins? To date, the major pharmaceutical companies have generally decided they’d rather flush such drugs than take them to market. If your revenues are $20 billion, and Wall Street expects 20% growth, you have to come up with an additional $4 billion in revenues every year. With that as your target, a drug that might produce $100 million in annual sales is not worth pursuing. Yet, according to one research group with whom I’ve worked, “A failed drug is an expensive lost opportunity.”

Improving the beauty contest in drugs

A major pharma company may have 300 compounds it is considering at any one time, and must pick and choose which ones it will develop. This becomes a matter of internal politics, and a bit of a beauty contest. If, instead, the pharma companies developed companion diagnostics based on genetic indicators right from the start, they would have a much better way of predicting the potential market for each drug, and hence its ultimate profitability. The direct marketing industry knows this well. Broadcast advertising – TV and newspaper ads – sells on the basis of cost-per-thousand. Direct marketing, like direct mail, sells on the basis of cost-per-sale. And successful Google Adwords marketers and the like measure success on the basis of cost-per-dollar-of-profit. Companion diagnostics are a way of coming closer to being able to predict cost-per-dollar-of-profit, and that should be the yardstick pharmaceutical companies use going forward. Moreover, it’s a yardstick that would lead them to substantially bigger profits and lower costs.

Which brings me to new research tools. Although statisticians deny it vehemently and for obvious reasons), statistical analysis is no longer sufficient in a world where relevant data are growing by orders of magnitude, and multivariate analysis is required. The old tools just aren’t up to the task, yet companies cling to them because, as Abraham Maslow once remarked, “When all you have is a hammer, you tend to see all your problems as nails.” Yet, new tools are emerging in strange and unusual places, such as mathematical models of fuel combustion in jet engines, and software techniques for designing radio antennae, none of which have any credibility with pharma companies – but which can solve these kinds of massive data problems. By using such tools, and embracing rather than avoiding pharmacogenomics, I believe pharmaceutical companies can reduce drug development costs, perhaps by an order of magnitude, produce more successful drugs, albeit for smaller potential markets, and sell them for higher profit margins because of their higher efficacy. Let’s look at one potential new tool set to see if this is realistic.

Genetic programming – a new tool set

I’m going to describe one specific tool that’s already emerging into the marketplace, and about which I – accidentally – know quite a bit, called genetic programming, or “GP.” Genetic programming is a machine-learning technique where the system evolves by reinforcing success. It uses the idea of natural selection to discover solutions. The solutions that work best are combined to discover even better hybrids, much as cross-breeding horses can create offspring that are faster and more robust than their parents. GP is not an artificial intelligence system, and there is no attempt to mimic human reasoning. GP’s advantages are that it:

• Solves the problem of too much data.
• Integrates large & diverse data sets.
• Facilitates the unbiased discovery of key factors, especially where the key factors are unknown.
• Ignores factors that turn out to be irrelevant or unimportant; and
• Creates human readable models that can serve as indicators for future research.

Moreover, GP is a non-linear method, which means it can be dramatically faster than conventional analysis techniques, especially for multivariate analysis involving large amounts of data. Indeed, large amounts of data tend to produce more robust results.

I’m about to describe a company called Genetics*Squared, but in the interests of disclosure, I must also say that I know the principals, I have worked with this company, and I own shares in it. This is also how I know so much about it. However, since Genetics*Squared (or “G*2”) is privately held, there are no shares available to outsiders anyway, so the disclaimer is academic.

G*2 is a “dry” biotech company that uses GP to analyze clinical trial data in order to produce prognostics and diagnostics predicting who will respond to a given therapy or pharmaceutical. G*2 is about to seek FDA approval for a prognostic test for colorectal cancer to determine which patients, following surgery for colorectal cancer (CRC), are at risk for a relapse and should seek additional treatment. Preliminary indications are that the test they developed has 85% sensitivity, and 90% specificity. These results compare with the National Comprehensive Cancer Network (NCCN) guidelines of 73% and 38%. This means G*2’s test is very good at identifying the people who are – and are not – at risk for recurring colorectal cancer. The test does not suggest the form that treatment should take; that’s up to the patient and her doctor to explore and decide.

A logical next step from there might be to use genetic programming to run clinical trials with those patients who are at-risk for a relapse in CRC to see which ones would respond to an off-patent, generic chemotherapy drug, such as 5-FU (Fluorouracil), a chemotherapy drug that’s been around since the 1950s. For those identified at high risk for CRC recurrence, and for whom 5-FU is found to be effective, as identified by such a diagnostic, the efficacy and cost of 5-FU would have the potential to completely undermine the market for any new drug for whom there was no screening test.

For instance, suppose G*2‘s test were to eliminate 66% of a potential market for a new chemotherapy drug for CRC, and suppose further that one-third of those at risk for relapse could use generic 5-FU instead of the newly developed drug. This means that instead of a potential market of 100% of those people who have had surgery for colorectal cancer, the pharmaceutical company would have a potential market of only 22% of such patients. (Please note that I’m making these numbers up purely for illustration purposes.) Hence, using more sophisticated screening, and a low-cost, generic drug might not only be more effective, but could spoil the potential market for a new drug that does not identify the appropriate niche for its use. It is this low-cost competition that will ultimately drive the pharma industry toward pharmacogenomics, not regulation: the threat that smaller companies could destroy the market for blockbuster drugs. Moreover, how many failed drugs could be resurrected with an appropriate genetic screening? And how much would that save in R&D costs? It will ultimately be money that will make pharmacogenomics appealing.

On beyond genetics

Beyond genetics, IT will also force a reshaping of health care. Moore’s Law, coined by Gordon Moore of Intel fame, states that computers will double in speed, and halve in price every 18 months. (Actually, Moore’s Law refers to the number of transistors on a chip, but this is the effect of it.) Yet Moore’s Law, even though it represents exponential growth, is too conservative. Not only is the pace of change accelerating, but the rate of acceleration is increasing. This implies that a computer for a given price will be roughly 1000 times faster in 10 years’ time than it is today. This is going to produce changes over the next 10 years that are at least twice as dramatic as the changes of the last 10 years. And technology is going to have direct and important changes in medical practice.

Let’s start with the basic building block of the global computer network that tracks and identifies new diseases and epidemics that I described earlier. The precursor to the computer companion, which forms that basic building block, is already in widespread existence today: the smartphone, such as the BlackBerry or iPhone. For instance, I understand that there is an application for the iPhone that communicates with a heartbeat monitor to monitor your health heartbeat-by-heartbeat, much as I described it earlier. Only this isn’t science fiction; this is today’s reality. As smartphones become more powerful, more globally connected, and work with devices that monitor and analyze different aspects of your health, I expect they will gradually morph into all-purpose assistants, including health monitors.

When coupled with the intricate knowledge of our individual genomes, and the dramatic increases in our understanding of what the various markers in our genomes mean, these computer companions will become incredibly powerful and useful agents on our behalf. And analysis of individual genomes is not that far off. The first reading of a human genome was the focus of the Human Genome Project, and it cost billions of dollars. Today, the cost of reading a genome is approaching $1,000, and within five years, or ten at the outside, it will approach $100 per person. And once read, your genome will provide a continuing source of new insights into why your health is the way it is, plus why your body is the way it is, as we learn more about how to interpret the genetic markers buried in each genome.

The greatest medical tool humanity has ever had

When coupled with global analysis of lifestyle factors, food, exposure to particular viruses, bacteria, and chemicals in our personal environments, we will begin to build a broad understanding of what helps – and hurts – us, both as individuals, and as a species. This will be, I believe, the greatest medical tool humanity has ever had.

But it won’t end there. There will be lots of developments in lots of areas. These range from dramatically improved x-rays, CAT scans, and imaging of all kinds, to computer-oriented solutions to difficult problems, to the rise of robots, both for surgery and for attending to pateints.

Let’s start with an example in imaging. Dr. Otto Zhou of the University of North Carolina is working with Siemens to bring out a much clearer and more precise x-ray technology based on electron-field emission[i].

This allows for an array of receivers so that a CAT scan, for example, can be taken all at once instead of progressively, so that the images will be dramatically sharper and more detailed. It also allows for imaging at the same time as treatment, so that health care professionals can watch precise images as the same time as they zap a cancer tumor, for instance.

Up until now, robots have been seen as science fiction phantoms, good for Hollywood, and not much else. All of the robots to date are seen either as being bolted to the floor in car factories, or as cute little toys that don’t do much. But did you know that Toyota is pouring billions of yen into producing household robots, and plans to start marketing them in their home market, in Japan, this year?

Over the next 10 years, we are going to see the gradual emergence of much more flexible and powerful robots. BigDog & HRP-4C are both examples of today’s robots. They are awkward and clumsy. Rather like human toddlers, they are taking their first steps, and those first steps are ungainly and tentative. Yet, like human toddlers, they will improve rapidly, and this will be powered both by dramatically faster computers, and increasingly sophisticated tools and techniques to use them.

According to Raymond Kurzweil, an inventor and technologist, by 2016, a $1000 computer will have more computing power (not “intelligence”) than a human brain. By 2036, he projects that a $1000 computer will have more computing power than the entire human race. And increasingly sophisticated software will harness this power into seeming-intelligence that will first rival, and then exceed our own. And in health care, this rapidly accelerating intelligence will produce a rapidly increasing flow of new discoveries and treatments.

It’s not all good; trouble ahead

Finally, let me address one of the problems ahead, just to demonstrate that I’m not a pollyanna, and that I do appreciate that the road to dramatically improved healthcare will be rough. The biggest problem ahead is summarized in two words: money and politics.

We know that money spent in preventing disease is generally more effective than curing it. Hence, promoting the use of condoms for safe sex is more effective than trying to deal with an AIDS epidemic, but politics and social attitudes often get in the way. Moreover, we know that some choices make no logical sense. We know that we spend, on average, about half of all the money we will ever spend on health care in the last six months of our lives. So sensibly, we should know when to say enough is enough. But paranoia about litigation, coupled with an attitude of preserving life at any cost, seems to prevent us from even discussing such issues, particularly when it’s your mother, your wife, or your son that’s involved.

Yet, I don’t think I need to convince anyone here that our health care systems in both America and Canada are leading towards bankruptcy. The U.S. Federal Reserve and the Government Accounting Office essentially agree on the extent of the projected unfunded liabilities of the U.S. federal government. The Fed estimates it at $99.9 trillion, while the GAO estimates it at $101 trillion – and almost 2/3 of these estimates relate to health care costs.

And while the Canada Pension Plan is in much better shape than Social Security in the U.S., Canada is in no in better shape in terms of its promises on health care. The IMF published a report, which has been refashioned as a book by Peter Heller and published by the IMF, called “Who Will Pay?” In this book, Heller quotes the IMF as indicating that as of 2002, the U.S. had explicit net debt of about 45% of GDP, and Canada had explicit net debt of about the same (Canada’s has moved down since then, while America’s has shot up). However, when you add the implicit debt due to future promises, in 2002, America’s explicit plus implicit debt amounted to about 265% of GDP, and Canada’s amounted to about 415%. What is beyond dispute is that both governments – indeed, all governments of all developed countries – are going to be under enormous financial pressure because of the aging of their populations. What we don’t know – and what I would strongly suggest you should prepare for – is how governments and voters will cope with being unable to give boomers the health care they demand. To attempt to do so is to court being voted out in favor of some demagogue who promises the impossible.

And there’s another aspect to the future: the war against infectious disease has not yet been won. We are already experiencing a silent pandemic about which virtually nothing is said: the spreading of antibiotic-resistant superbugs. And even here, policy choices are clouded by what should be extraneous issues, such as creating deliberate breeding grounds for superbugs by feeding antibiotics to livestock, a practice advocated and protected by the farm lobby. As well, neither governments nor pharmaceutical companies want to finance the development of new antibiotics. Governments don’t want to do it, because it looks, to a bean counter, like an extra expense. Pharmas don’t want to do it because there’s no guarantee of a large enough market. Moreover, we have no true cures for viruses at all, except vaccination ahead of time, and there is not much money going into research in this field, either. Yet, in the war against infectious diseases, I can promise you that we have not won the war, only an opening skirmish. We have pitched battles yet to come, whether in the emergence of a viable airborne ebola virus, or some completely unknown bacteria infection.

For example, consider the H1N1 flu pandemic. It had the potential to be as bad as the Spanish flu of 1918-20, although we also have a better idea how to contain it. But now imagine the emergence of a hyperbug – a strain of bacteria resistant to all known antibiotics – emerging in the midst of the flu pandemic. This is not unlikely; overcrowded hospitals and over-tired health care workers create a likely breeding ground for just such a hyperbug. The day will come when we can analyze and respond to such threats in a matter of days, but we’re not there yet, and millions of people will die until we get there.

Two questions everyone wants answered, but no one wants to ask

At the core of the health care debate, there are two questions that no one wants to ask, but that everyone wants answered. First: How can I get someone else to pay for my health care? And second: Do we want a more effective & more expensive health care system, or a less effective & less expensive health care system? And the problem is that voters (and hence politicians) want a more effective, less expensive system, which is not one of the choices. Worse yet, we are not even discussing these issues. Instead, we are shouting at each other about useless matters that won’t solve the problem.

Change will come slowly at first. Social systems have tremendous inertia. Drug approvals are slow. Payers are slow to accept new, more expensive, more effective drugs. Doctors are so swamped that they are reluctant to take the time to learn new fields, like genetics, that impinge on their own, so that practice in the field can often take years or even decades to catch up with research in the lab. And the general public, and the politicians they lead, don’t take the time to understand the debate, with the result that they fall prey to demagogues who cloud the issues for their own reasons. In Canada, it’s a phony “public vs. private” debate. In America, it’s the misleading “socialized health care is worse than dying” debate. Both debates are largely irrelevant to the central issue of financing health care. Worse, they divert attention and vital resources from the real issue.

Changes will start slowly. But the pressure from an aging population, an Internet-informed voting public, and the startling developments from science will start to move the log jam, slowly at first, and then faster and faster. If you are not prepared when the pace picks up, you will quickly be left behind. I wish you good luck, and God speed. Thank you.

by futurist Richard Worzel, C.F.A.

All developed nations are struggling with health care because of their aging populations. In America, for instance, the Great Debate is on, chock full of noise and nonsense, about providing universal health care. Those opposed say that it is socialized medicine, and therefore a sin, and bad. Those who are for it say health care is a human right, and therefore a virtue, and good. And I can’t (or won’t) resist adding a couple of asides:

First, health care is not a human right. Tommy Jefferson and Co. never murmured a syllable about it, and would, I suspect, have been flabbergasted that someone would even suggest that government should pay for it. Likewise, the canard about socialized medicine is hypocritical nonsense as America has, today, the worst, least effective, most expensive kind of socialized medicine in the world. Medicare and Medicaid cover the two most expensive groups of the population: the old, and the poor, while leaving out the young, the middle class, and the healthy, all of whom would lower the costs per person of health care. And many of those who do not have health care coverage because they fall through the cracks (some 40 million-odd Americans) will go to the local hospital emergency room. Emergency rooms must, by law, treat walk-ins, even when the hospitals know they won’t be paid for such treatment, thereby throwing the burden on those who do pay. Since hospital emergency room care is the most expensive, and least effective, form of continuing health care imaginable, I submit that America has a hybrid system that costs more, and does less than universal health care would cost in its place. (Depending, of course, on how much pork is larded into final legistlation).

On the other side, Canada has universal health care, without a parallel private system – at least in theory – so that people stand in line, and if you die before you get to the front of the line, too bad. (Why this is worse than dying because you can’t pay has never been explained by the American right. Moreover, Canada really does have a parallel, private system: you fly to the America and pay to get treated there. No one wants to acknowledge this officially; it’s Canada’s dirty little health care secret.)

Britain has a hybrid system, with public health care available to all that is frequently dreadful, and occasionally pretty good, but with a parallel private system that anyone can use if they’re willing to pay. Of course, the private system bleeds resources that would otherwise go to make the public system better, so there’s a cost to both the private payers, and to the overall health of the nation. France has an excellent system, where patients co-pay 20% of the cost of treatment, but all patients generally get prompt, top-notch care, including home visits if necessary. The only downside is that this system is threatening to bankrupt the national government of France. And other nations have other systems that work to greater or lesser extents, but no one is interested in cataloging what works and what doesn’t anywhere else, since that would mean putting aside the ideology wars that dominate health care debates. (I’ve only listed the systems of which I have direct knowledge through personal experience with friends and relatives.)

Yet, the world is getting older, and my calculations show, based on such data as I can find, that health care costs in developed countries stay reasonably stable, on average, until around age 55, at which point they start to go up almost exponentially as aging bodies need more and more care. Post–war generations (notably the baby boom in those countries that had one) are now entering their early 60s at the leading edge, which means that the number of people needing ever-rising amounts of health care is going to place enormous strains on the health care systems of all developed nations, regardless of how they decide to pay – or not to pay – for it. Public or private, it doesn’t matter, health care is threatening to break the bank everywhere.

Which leads me to the one question that everyone wants answered, and nobody wants to been seen to ask: How can I get someone else to pay for my health care? Everyone wants the finest possible health care, no matter what it costs, and everyone wants to duck out on the bill. This is particularly true of those who are reaching the Danger Zone of 55 and up – we want to find a way of forcing the rest of the population (which means the young) to pay for the health care we know we will need. Which, by the way, is blatantly unfair and unreasonable of us, especially as we have systematically ducked all responsibility for laying resources aside for that purpose in order to keep our incomes and spending artificially high. Now we want our children and grandchildren to pay for our fun.

So the real, underlying problem of health care in a world of aging people is that everyone wants to shove the costs off on someone else. Since that’s not possible, in aggregate, we get all the creative fairy tales dressed up as politics that are going on, with truly nonsensical arguments used to create enough furor to distract us from the real question.

Avoiding this question is not a win-lose issue; it’s a lose-lose issue, one that will bankrupt our governments and harm us all if we don’t soon start speaking the truth, to ourselves and to each other. As long as we duck this question, we will be dealing in smoke and mirrors, and not grappling with the real issues.

But if we do start truth-telling, then we can start asking other, relevant questions, like: Ignoring ideologies, and based only on empirical evidence, what’s the most cost-effective way to run a health care system? What works best in other jurisdictions, and how can we adopt it here? How do we attract health care workers without spending our entire budget on their services alone? How do we structure an insurance system that spreads the risk within an age group, while not unduly penalizing the young? How do we encourage the development of new drugs without bankrupting payers? What’s a fair share of health care cost per individual, and how should we measure it? Are we going to distort the premiums to benefit politically powerful groups, or use statistics to determine health insurance costs? If the latter, should we give price breaks to those who lead healthy lifestyles and penalize those who are couch potatoes do eat junk food? And how do we deal with the inevitable groups that want to distort the system? For instance, if we decided to penalize those who eat junk food for the (documented) higher costs of their health care, then the entire fast food industry would lobby against the proposal, but quietly, and behind closed doors. So, how do we prevent his from happening?

None of these questions are easy. It would be far easier to duck behind the current smokescreens of public-vs-private care and ideological purity. But if we do that, we will all of us suffer because of it.

I think the time has finally come for honesty, because the consequences of lying to ourselves will be devastating.

© Copyright, IF Research, June 2009.