Will economic growth transcend flattening population? …keynote speech on the long-term future of investment

Yesterday I did the closing keynote at the PortfolioConstruction conference. The conference, run by Portfolio Construction Forum, was for fund managers and portfolio advisors, covering many of the emerging issues on portfolio analytics, as well as the more interesting asset classes. My role was to pull this all out to the big picture, looking 10-20 years forward at future opportunities for investors. There was probably close to a book’s worth of material in the talk, so I won’t try to summarize it here – I’ll cover some of the issues raised in future blog posts and elsewhere. However I want to share the chart I kicked off my presentation with, which shows the economy over the last four centuries and the next 4-5 decades.

The historical data in the chart comes from Bradford DeLong, an extremely interesting economist at UC – Berkeley. Brad has compiled a thorough analysis of economic history since the birth of mankind, which provides a good complement to some of the more traditionalist approaches. The most evident point from the chart is the acceleration of both economic and population growth over the last centuries. In the year 2000 world population had grown to 2 ½ times its levels 50 years earlier, while in the same period the economy had grown by a factor of 10, resulting in an unprecedented level of prosperity to the individual. We are now at an inflection point in population growth. The United Nations fairly recently revised its world population forecasts for 2050 downwards to 8.9 billion, from the 9.3 billion they were forecasting earlier. Now it is not just developed countries that have low birth rates, but as developing countries progress from agricultural economies, their birth rates too are rapidly falling. Clearly a substantial portion of economic growth since the second world war has been based on population growth, and the associated demands for infrastructure and consumer goods. Barring extraordinary disasters, we know with a fair degree of accuracy what the population will be in 40-50 years. However there is great uncertainty on whether future economic growth can transcend this flattening in population growth. The swift commoditization of goods and services, driven by globalization, on the face of it makes it more difficult to drive economic growth. Yet the associated shift to a highly modular economy facilitates the servicing of needs, and exploitation of economic opportunities, particularly in shifting many poor people into early middle class. I believe that the pace of absolute economic growth in the next 40-50 years will be significantly higher than the last decades, and that economic growth per capita, as human population eventually stabilizes, will grow at an even higher rate. I’ll expand on all of this a bit later.