Eight Billion Consumers
The world’s population is believed to have crossed the eight billion number for the first time in late 2022. The previous milestone of seven billion was reached as recently as 2011. This spectacular growth is thanks, in part, to the remarkable progress we have made in the areas of infant mortality and longevity over the last few decades.
Current beliefs are that the world’s population will continue to grow until it reaches a peak in the 2080s - around the ten billion mark. However, multi-decade predictions are notoriously inaccurate, so we’ll have to see how that one turns out. Nevertheless, these staggering statistics bring up a few thoughts and several reasonable fears.
Fears and Consequences
The concern shared by many people is that unchecked population growth will lead to increased competition for resources, causing environmental degradation and economic instability. This is a long-standing fear that biologist Paul Ehrlich famously expressed in his 1968 book titled “The Population Bomb” (co-authored by his wife, Anne). The book warned of mass starvation, environmental destruction, and other catastrophes resulting from excessive population growth.
In the above scenario, you would naturally be concerned about the effects on global economic progress, feeding through to the values we see when we open our investment statements. Investment returns are correlated to economic activity and growth, and in a world dominated by lack and regression rather than abundance and progress, we would not be confident about the outlook of our finances.
It's worth noting that while population growth is accelerating in some countries, in many developed countries, the opposite is being seen. Indeed, some countries are facing the bleak possibility of someday having too many old people with insufficient young and productive citizens to support their economic growth.
A Contrarian View
While I do not want to diminish the educated concerns of those who want the best for the planet, I believe that the opposite view should also be considered.
The economist Julian Simon famously took a bet with Paul Ehrlich that he was wrong about the nature of the relationship between population growth and the abundance of resources. Simon argued that as the population increased, resource prices would actually decline for four reasons: people would react to resource price increases by consuming less, searching for new supplies, inventing and discovering substitutes, and recycling.
Their bet was about the direction in the price of a basket of raw materials. Settled in 1990, the bet was won by Simon after the real price of the basket of metals had fallen by 36%.
While only an isolated anecdote within a sea of information, it demonstrates that what we might intuitively think would result from population growth is not necessarily the obvious outcome.
Measured in a certain way, resources have become more abundant in relation to the labour time it takes to “buy” them. Humans continually prove that we are a species of innovation and ingenuity. It is, therefore, not clear that resource constraints will limit future economic progress.
We have simultaneously seen a vast reduction in the number of people who live in poverty. Coupled with the growth in the overall population, we have never had so many middle-class consumers alive at any time. Moreover, with advances in consumer demand fuelled by developments in internet accessibility and device manufacturing, we have more reasons to be optimistic about future economic growth. Add to this the possibility of breakthroughs we cannot even imagine yet, and the future may be brighter than the like of Ehrlich would have us believe.
Betting On Humanity
As owners of the world’s greatest companies through our investments in equity portfolios, we are set to benefit from the expected rise in demand, innovation, and prosperity. There are eight billion potential consumers for the products and services currently being offered, with new ones being developed daily. Is it likely that in the long term, the combined value of all the companies in the world will decrease? This notion seems absurd to me.
Optimism does not deny room for a certain amount of circumspection, so valid concerns are reasonable. However, I believe even the true challenges we will face can be overcome in time. Here’s to nine billion!