In our view, as long as a society enjoys relatively free markets and the rule of law, long-term economic growth rates are largely determined by two factors: demographic trends and the pace of technological advancement.
In terms of demographics, birth rates high enough to keep a country’s population relatively young, replenish the work force and keep dependency ratios low are crucial to sustained growth. Because of low birth rates, limited immigration and rapidly aging populations, Japan and Western Europe face significant challenges ahead as their population continues to age. Two recent articles on demographic trends in different parts of the world served as reminders of the importance of demographics. The first is an article in the Economist on demographic trends in Africa and another in China Daily about rapid demographic changes in China.
Technological advancement allows a society to produce goods and services with less effort and resources, allowing its population to be more efficient. The classic example is the mechanization of agriculture, which has allowed much of the world to satisfy its demand for food while freeing most of us to pursue careers other than farming. In some cases, technology can even help make demographic transitions easier, for example, Japanese firms have been developing robots to help care for their rapidly growing elderly population.
For us, the impact of technological advancements was underscored earlier this week while reviewing an official statement for a municipal bond initially issued in 1993. The entire 75 page document had been hand typed (on an actual typewriter) and made us realize how far word processing has evolved from the days of the humble Smith-Corona. We can only imagine the amount of effort it required to calculate various tables on a hand-held calculator and the toll repeated revisions must have taken on the typist’s fingers. Inexpensive electronics, modern word-processing and spread-sheets have transformed this process entirely, and let us use our time far more productively. Happily for global growth, the pace of technological progress continues unabated and we fully expect that by 2025 we will look back at 2009 and find much that is amusingly archaic.