How Do We Invest in a Slow-Growth Economy?
Since the founding of our nation, all of our social, economic, and governance systems have depended upon growth. To do better every year, we need to earn more and tax more. These days, Americans are asking questions like the following:
- Are we in a stagnant 1% growth economy for the foreseeable future?
- Japan has not seen growth for over two decades. Is the rest of the developed world locked into the same pattern?
- How do we thrive, if we are in a system that requires growth and there is none?
- If we have reached a point where we are asymptomatically hitting a zero-growth scenario, how do we manage?
- And just as important … How do we invest?
Not too long ago, a stagnant American economy seemed almost impossible to imagine. However, we live on a finite planet, and we are approaching maximum resource exploitation. So a flatlining economy might very well be a modern-day fact of life.
Economic growth requires one of two things: more people working or more innovation. Population growth is an unsustainable strategy … so we need to focus on innovation. And we need to learn to do more with less.
We are in the midst of one of the giant inflection points in economic history. The market is sending us the Mother of all price signals, warning us that if we maintain our desperate focus on growth, we will run out of everything and crash.
— Jeremy Grantham, April 2011
Could the Answer Lie in Nature?
The key may be to emulate the inherent attributes of natural systems. By definition, nature is:
Decentralized: No single point of failure, naturally redundant.
Dynamic: Constantly adjusting.
Efficient: Nothing is wasted, outputs feed inputs.
Resilient: Shock resistant.
Self-healing: Recovers well from damage.
Using nature as the model, we can create and design systems and processes that are not only sustainable but actually regenerative – ones that improve (rather than degrade) over time.
Smaller Is Better
The days of large-scale and monolithic infrastructure (agriculture, energy, water, and waste) are numbered. They worked in the past because they were only economical at this scale. But as in other industries, recent technological advancements in these sectors have spawned smaller-scale, more economical modular systems, some of which can be developed and deployed in a year or two.
The full transition to a smaller-scale distributed infrastructure, however, will require a couple of decades. Fortunately, next-generation technologies will accelerate the changes required to be more efficient with our resources, including one of the most vital aspects of sustainability—diversion of waste streams to continuously higher and beneficial alternative uses.
An Emerging Investment Opportunity
To accelerate this transition, financial markets and products will shift as well. These smaller projects will present the greatest opportunities: higher financial returns and lower risk. I expect to see an emerging and burgeoning market for small-project finance.
The fact that we are able to invest not only to sustain ourselves but to thrive as well, despite a slow-growing economy, is an exciting opportunity indeed!
