Wednesday, July 4, 2012

America’s "Trente Glorieuses"?

In the post-war period starting from 1945, France and much of Western Europe experienced a virtuous cycle of rapid economic growth lasting thirty years called les trente glorieuses. Economic growth was driven by the combination of rising working age population, incomes and standards of living. This is known as a “demographic dividend”.

America may be on the verge of its own trente glorieuses as it experiences its own demographic dividend, driven by the combination of a rising working age population as the children of the post-war Baby Boomers grow up and enter the work force and immigration.

The American age demographic profile is substantially better than its major trading partners. Despite the angst over dependency ratios, or the ratio of workers to retirees, the expected increase in American workers means that American dependency ratios are likely to stabilize in the decades to come, whereas those of many other countries continue to decline – which will strain the pension system and national finances.

America’s relative youthfulness compared to trading partners isn’t just a product of its higher birthrate, it is also a function if its willingness to accept immigration. The United States and Canada are in the minority of major industrialized countries that openly accept immigrants.

Indeed, BBVA research (via Business Insider) titled Immigrants rejuvenate the United States show that without the influx of Mexican immigrants, the demographic of the US would be much, much older:

What's more, America is attracting the right kinds of immigrants. A recent report indicates that Asian immigrants now exceed Hispanics. Asians are an enormous attractive demographic, largely because they tend to outperform. The latest BLS data shows (via Global Macro Monitor) that Asians are the top earning ethnic group and beat out Whites.

The benefits of immigration
Canada's Globe and Mail recently featured a series on immigration. Reporter Jon Friesen wrote that the shortage of skilled labour was a series of speed bumps to Canada on its way to achieving its growth potential:
The shortage of skilled labour in the Alberta oil sands and Saskatchewan potash mines has become a national issue. But a similar lack of people power is plaguing the ambitious but underdeveloped secondary cities of Ontario, and in Atlantic Canada a third of the population will be over 65 in less than two decades. The Conference Board of Canada estimates that over the next 10 years, there will be a million jobs going wanting across the country. This shortage is a drag on Canada's potential to innovate and compete into the future.
Studies have shown that the children of immigrants tend to be sources of innovation and growth in an economy [emphasis added]:
When immigrants arrive, they not only fill gaps in the work force but pay taxes and spend money on housing, transport and consumer goods. Productive capacity increases and there is a ripple effect across the economy. And studies show that their offspring tend to be among the country's best-educated and initiative-taking young people.
Forbes magazine reported that an astounding 40% of Fortune 500 companies were founded by immigrants or their children. The 40% figure is especially astounding when you consider that the foreign born population of the United States has been steady at 10.5% since 1850. Bloomberg highlighted a report that showed the inventiveness of immigrants:
[P]olicy makers should flag a recent study that found more than three-quarters of patents from America’s top ten patent-producing universities, including MIT, Stanford, and the University of Wisconsin-Madison, were the result of breakthroughs by immigrants. Those universities produced 1,466 patents—a fraction of the total awarded—but many were in such cutting-edge fields as information technology and molecular biology.
In other words, if you want to build a society of innovators and entrepreneurs, encourage immigration as a way to enhance, not only the growth of your work force, but the quality of your work force.

On this 4th of July, this is indeed a note of optimism for America.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.


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