Salman Ahmed: With me I have Larry Siegel, who is Research Director at the CFA Institute’s Research Foundation. Larry just gave a really thought-provoking discussion on – titled Fewer, Richer, Greener.
Thanks first of all, Larry, for joining us today.
Larry Siegel: Well, thanks for having me.
Ahmed: One of the points in your discussion was that population growth is actually decreasing, which is at odds with a lot of the research out there on the topic. What led you to this conclusion?
Siegel: Well, it’s simple to count the number of people in the world or in a country, and it’s been done by governments, by the UN population division – there is no controversy on whether recent growth rates are much slower than those that just past, like the ‘60s or ‘70s. The controversy is about the consequences, which is population is still growing; is it still too fast, are there too many people, or have we achieved an equilibrium that’s satisfactory?
Ahmed: So, if the population growth is reaching an equilibrium, or if it’s reaching a more stable rate, if you go back to Economics 101, GDP is equal to growth in productivity and growth in population. So, without the growth in population, will we continue to get richer?
Siegel: We’ll continue to get richer at about the rate of real per capita GDP growth that we’ve experienced in the past. Now let’s say per capita, that’s about 1.8. That number has been added in the past to high rates of population growth rate, so you get 4s to 5s. That’s not going to be possible anymore. But on a per capita basis, that’s all that counts. It’s whether an individual is getting ahead or whether they’re not. And 1.8 has been a satisfactory rate of growth in the past, so I’m saying that it will be in the future.
Ahmed: Okay. So, it’s sounds like we will be more stable in terms of population growth. We are going to continue to get richer as a global population, but all that could be useless if there are poor environmental conditions. So, what does that – the population and the economic progress, what affect will that have on the environment, in general?
Siegel: Well, higher incomes enable you to buy more units of environmental quality. So, if – let’s say that it takes 10% of the world’s production, 10% percent of the world’s GDP needs to be diverted to environmental protection in order to have a satisfactory and long-term environmental situation. That’s much easier if the average person in the world makes $12,000 a year then if the average person in the world makes $2,000 a year, which was the reality sometime in the last century.
Ahmed: So, if someone’s reading your paper on this topic and they want to apply it into their portfolio, where would you recommend or where would you see investment ideas coming from?
Siegel: Well, the first thing I would do is, is think about where most of this economic growth is going to happen. It’s not going to be in the United States or Western Europe or Japan. It will be in the rest of the world; China, India, we’ve all heard of the BRIC countries, Brazil and Russia, but then there is what Goldman Sachs calls the Next 11 , Nigeria, Bangladesh, and so forth. Those parts of the world haven’t yet been discovered by investors. So they may not be as over-priced as some of – or they may not be as highly priced – I shouldn’t say overpriced – as the more familiar emerging markets.
Ahmed: Right. Thanks a lot for your time, Larry. To read more on Larry’s topic, you can read, Fewer, Richer, Greener, which is in the November-December issue of the Financial Analysts Journal. And to find out more about the Morningstar Investment Conference, please visit our website at www.morningstar.ca.
