Demographics and Development
Thomas Robert Malthus predicted in his 1798 An Essay on the Principle of Population that human population, about one billion at the time, would soon begin to double every 25 years, eventually causing global food shortages.
The population has since grown sevenfold, so he was right about massive growth, albeit at nothing like the rate he expected. However, he was wrong to doubt our ability to rise to the challenge, through advancements in agriculture, health, energy, trade and transport.
Global population growth is simply a function of the rates of births and deaths. Both were relatively high until the 18th century, nearly canceling each other out. Families needed to be big, to sustain the ravages of famine, disease and war. In the early 1800s, more than seven children, on average, were born in the United States to each woman. During Malthus’s lifetime – he died in 1834 – population growth started to accelerate as death rates plunged. As illustrated by the chart below, the pace of growth continued to increase for another century-and-a-half.
In the first half of the 20th century however, birth rates in many countries started to taper off. As industrialized economies replaced agrarian ones, big families went from being a boon (more bodies to farm and work) to being a burden (more mouths to feed and minds to educate). Today, fertility rates in all industrialized countries are below the replacement level of 2.1 births per woman. (The average in the G7 [Group of Seven large economies] is currently 1.7 – see chart below). The rise of service-based economies since the end of the last century has reinforced the trend to smaller families. More educated societies, most notably those with educated women, are waiting longer to have children and having fewer of them.
Many people still do worry about the impact of existing and continuing human overpopulation, especially regarding the very real risk that climate change will soon forever change the way we live. Globally, the population continues to rise and the United Nations projects 9 billion people by the end of this century, up from around 7.6 billion today. Emerging markets, particularly in sub-Saharan Africa, southeast Asia, and India are certainly still struggling with rapidly growing populations, as birth rates remain high and death rates decline.
However, this is a situation not at all dissimilar to that experienced a couple of generations ago in now developed countries. And as information and technology spread faster, there is reason to believe that the emerging economies and their demographics will more quickly evolve. Indeed, many emerging economies are already near or below replacement fertility levels (Thailand [1.5], China [1.6], Russia [1.7], Brazil [1.8], Malaysia [2.1], Mexico [2.3]). Populations in these countries may soon begin to decline. In the Philippines, to take another example, the fertility rate of 3 children per woman is down from 7 in 1965. Over that same time period, India has gone from a rate of 6 to 2.4. At current projections, both the Philippines and India’s populations will be below replacement levels in just ten years.
That’s why some academics speculate that these global population growth rates will drop faster than the United Nations expects. In Empty Planet: The Shock of Global Population Decline, authors Darrell Bricker and John Ibbitson argue that the global population will soon begin to decline, dramatically reshaping the social, political, and economic landscape. The benefits are considerable, notably to the environment and to the living conditions of women in the developing world. But as John Apruzzese writes in his article, Prospering in a Low-Growth World, aging populations and worker shortages may restrict economic growth, with long-term repercussions for investors. How economies manage this disinflationary transition will be a crucial part of their economic success or failure.
If Malthus were alive today, he might appreciate the power and potential of human ingenuity in confronting the demographic challenge he identified. But the shift toward a shrinking population may be the more relevant conversation now.
Brian Pollak is a Partner and Portfolio Manager at Evercore Wealth Management. He can be contacted at brian.pollak@evercore.com.
Evercore Wealth Management, LLC ("EWM") is an investment adviser registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. EWM prepared this material for informational purposes only and should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. It is not our intention to state or imply in any manner that past results are an indication of future performance. Future results cannot be guaranteed and a loss of principal may occur. This material does not constitute financial, investment, accounting, tax or legal advice. It does not constitute an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Specific needs of a client must be reviewed and assessed before determining the proper investment objective and asset allocation which may be adjusted to market circumstances. EWM may make investment decisions for its clients that are different from or inconsistent with the analysis in this report. EWM clients may invest in categories of securities or other instruments not covered in this report. Descriptions provided in this material are not substitutes for disclosure in offering documents for particular investment products. Any specific holdings discussed do not represent all of the securities purchased, sold or recommended by EWM, and the reader should not assume that investments in the companies identified and discussed were or will be profitable. Upon request, we will furnish a list of all securities recommended to clients during the past year. Performance results for individual accounts may vary due to the timing of investments, additions/withdrawals, length of relationship, and size of positions, among other reasons. Prospective investors should perform their own investigation and evaluation of investment options, should ask EWM for additional information if needed, and should consult their own attorney and other advisors. Indices are unmanaged and do not reflect fees or transaction expenses. You cannot invest directly in an index. References to benchmarks or indices are provided for information only. The securities discussed herein were holdings during the quarter. They will not always be the highest performing securities in the portfolio, but rather will have some characteristic of significance relevant to the article (e.g., reported news or event, a new contract, acquisition/divestiture, financing/refinancing, revenue or earnings, changes to management, change in relative valuation, plant strike, product recall, court ruling). EWM obtained this information from multiple sources believed to be reliable as of the date of publication; EWM, however, makes no representations as to the accuracy or completeness of such third party information. Unless otherwise noted, any recommendations, opinions and analysis herein reflect our judgment at the date of this report and are subject to change. EWM has no obligation to update, modify or amend this information or to otherwise notify a reader thereof in the event that any such information becomes outdated, inaccurate, or incomplete. EWM’s Privacy Policy is available upon request. EWM is compensated for the investment advisory services it provides, generally based on a percentage of assets under management. In addition to the investment management fees charged, clients may be responsible for additional expenses, such as brokerage fees, custody fees, and fees and expenses charged by third-party mutual funds, pooled investment vehicles, and third-party managers that may be recommended to clients. A complete description of EWM’s advisory fees is available in Part 2A of EWM’s Form ADV. Trust services are provided by Evercore Trust Company, N.A., a national trust bank regulated by the Office of the Comptroller of the Currency and/or Evercore Trust Company of Delaware, a limited purpose trust company regulated by the Delaware State Bank Commissioner, both affiliates of EWM. Custody services are provided by Evercore Trust Company, N.A. The use of any word or phrase contained herein that could be considered superlative is not intended to imply that EWM is the only firm capable of providing adequate advisory services. This material does not purport to be a complete description of our investment services. This document is prepared for the use of EWM clients and prospective clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of EWM. Any unauthorized use or disclosure is prohibited. The Chartered Financial Analyst and CFA trademarks are the property of CFA Institute. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S.
IRS Circular 230 Disclosure:
Pursuant to IRS Regulations, we inform you that any U.S. Federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for (i) the purpose of avoiding IRS imposed penalties or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. This information is provided for information purposes only and does not constitute financial, investment, tax or legal advice.
©2016 Evercore Wealth Management LLC. All rights reserved.
