Big Ideas: No Poor Countries
In his foundation’s annual letter, Bill Gates makes this prediction:
By 2035, there will be almost no poor countries left in the world
Mr. Gates makes a compelling argument that we have overlooked the massive economic, political, and social progress in countries that we regarded as desperately poor. He attributes some of that progress to foreign aid, which the US government and his foundation provide.
How will the world be different in 20 years when the poor countries of 20 years ago have moved up to become middle-income countries?
Here’s what typically happens as a country’s population moves from poverty to middle-income:
- wages rise as education and expertise allow workers to move up the value chain
- people in the middle class become consumers, with income for discretionary spending
- greater wealth tends to promote internal social and political stability; social unrest is less likely
- people live longer, healthier lives
- population growth moderates as the birth rate declines
US Workers, US Investors
How will those changes across the world affect the US worker, and the US investor?
US workers in higher-value jobs will face even more competition. We’ve already seen many lower-skill jobs migrate off-shore, but some higher-value jobs will face those same pressures. US workers at all levels will have to be flexible and ready to compete globally. Continuous education and re-training will be essential. Jobs that can’t be off-shored will be in-demand.
US companies may find new markets for their goods and services as more countries have income to spend and become a bigger part of the global economy. (See our previous article about trends in the US share of the global economy.) But those new markets will pose a competitive threat as well. Foreign companies will develop the capability to provide advanced health care products and services, technology, and other high-value products, which they will export to the US. US companies will be pressed to innovate, gain efficiency, and develop these new markets. There will be both opportunity and risk.
Investors could benefit over the long term from a diversified portfolio that recognizes the growing economic power of formerly poor countries. These are the Emerging Markets countries; examples are: Brazil, Mexico, Indonesia, Taiwan, Thailand, Poland, South Africa.
Currently Emerging Markets investments as a category have fallen out of favor because of short-term factors: exchange rates, monetary policy, balance of trade, slowing growth. To some degree, they have fallen out of favor after being the darlings of the 2000s. Those stocks have under-performed for the past few years.
But if Mr. Gates is right, over the next 20 years investors may be in the best position to take advantage of the rise of poor countries both in the US and abroad.