It even suffered in August this year with having to lose its AAA-status from Standard & Poor’s owing to its budget impasse.
While in recent years emerging markets have been the more exciting investment story with their potential for growth, it is important to remember that talk of the US being eclipsed is nothing new. Germany at the beginning of the last century was a growing power and in the 1980s Japan and its way of doing business was the way forward. More importantly, the US still possesses many advantages which are likely to persist for some time, continuing to make it an interesting, exciting and worthwhile place in which to invest.
People power
Perhaps the most important resource a nation possesses is its people. Their education, attitudes and productivity are important. However, many developed countries are suffering from a declining and ageing population.
Japan’s population began to decline in 2005 and in Italy and Spain the birth rate is below replacement level. Even in China the forecast peak in its population is set to be in 2015, leading to the description of a nation that is “old before it is rich”.
The reverse is true for the US. Its population is forecast to rise to 440 million by 2050 from the present level of 310 million, with much of the increase from immigrants and their children.
According to the Brookings Institute, the median age of the population will be just 35 in 2050 compared to 52 for Europe. The age and composition of population has important effects on the dependency ratio – how many workers there are to support the young and old. As most government expenditure is on education, social security and healthcare, this has important considerations for the competiveness of an economy. Thus, the demographics will continue to favour the US for some time.
A growing population is fine, but more importantly is whether they are well educated and productive.
Many in the US fear the country is losing its edge in science and technology, but the facts do not bear this out. A study by the Rand Corporation found that 40% of the world’s research and development spending comes from the US and accounts for 3%5 of the patented new technology of the OECD countries. Meanwhile, the US employs 70% of the world’s Nobel Prize winners and accounts for 75% of the world’s top 20 universities.
This excellence in education attracts many from overseas to study in the US, of who many also stay on in the country to work. This success has led to high productivity levels, ahead of Europe and Japan, particularly in those higher value-added industries such as aerospace. Although emerging countries like China and India are becoming more important players in the technology and science space, both are starting from a smaller base and will take time to catch up.
Resource strength
The US has a comparative advantage through its abundance of natural resources. It has more proven and undiscovered resources of oil, gas and coals than any other country in the world, greater than China, Saudi Arabia and Canada combined. It will not run out of energy anytime soon; it has 28% of the world’s coal, enough for 218 years and has future reserves of natural gas that will last 90 years.
Furthermore, the US Department of Energy estimates there are 1.38 trillion barrels of oil in the Rockies, five times the amount of the reserves of Saudi Arabia. Combined with a growing population and a large land mass with a common law and currency, has allowed the US to benefit from economies of scale in both government and business. All of these advantages contrast starkly with the problems of the eurozone which is struggling with its common currency and China who are scouring the world to secure their natural resources.
All of the positive traits that made the US so successful still exist. Apple, Microsoft and Boeing are world class companies that continue to produces goods people want to buy and use around the world.
It is sometimes more exciting to chase the new, hot investment ideas like frontier markets and forget the US competitive advantages which should continue to provide lots of new exciting investment opportunities.
