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The Age of Scarcity

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The developed world has had it good for too long

It is generally agreed that offshoring of manufacturing by developed countries to low-cost non-developed countries helped keep inflation among the former low during the last four or so decades. The developed world has also benefitted in recent centuries from the low global prices of commodities, many of which came from non-developed countries.

Indeed, at first, colonial masters simply stole them – you don’t get much cheaper than that. More recently, poor affordability in the non-developed world has kept prices far lower than they would otherwise have been.

Of course, colonial masters did more than just pillage raw materials. They pillaged wildlife for the fun of it, decimating populations. And they stole from many that most personal and valuable commodity – freedom and happiness.

This article is not going to be a moral crusade against the past abhorrent behaviour of The West – there are plenty of others who can do that far more eloquently and authoritatively than I, and who indeed have done. No. I simply wish to put the current relationship between the developed and non-developed worlds into a historical context.

Putting aside if I may the issue of how badly humans have at times treated each other, the success of the human species defies logic. Our brains are the same, physiologically, as those that sat in the skulls of our ancestors 200,000 years ago, yet our technological knowledge today is several orders of magnitude greater. We share 99% of our DNA with a chimp, yet our respective abilities, for example, to project objects into space are vastly different. The total biomass of the human species is hugely greater than it should be based on the relationship found in much of the living world between a typical individual’s weight and its species’ total population. Imbalances are extreme.

A global map of the producers and consumers of goods and services such as food, minerals, and tourism would look extremely imbalanced. Income inequality – a well-recognised form of imbalance - is generally regarded as a necessary feature of that least bad economic system of ours that we call capitalism. However, while a system that offers financial incentives is almost certainly better than one that doesn’t, there is surely a limit.

I was appalled at the naivety of a recent LinkedIn post that referred to the many families around the world who had benefitted – received salaries – because of the production of a $50 million private jet bought by a single person. By the same logic, it would make economic sense for the entire world’s population to devote all its time and energy to building some inconceivable super thing for a single individual.

The real question is whether an economic system that allows an individual first to accumulate that much wealth, then to spend it on something so extravagant, is a healthy and thus sustainable one. Perhaps it is, but I suspect not. And almost certainly not given our increasing awareness that nature is neither unlimited nor robust.

Non-developed world producers of food, metals and energy commodities do not export them for the sake of it, but to pay for imported goods and services that they need for their own economic development, perhaps even to attain developed country status. They have also been used in less benevolent ways by corrupt leaders and their cronies.

Howsoever exploited, in the absence of efforts to increase their supply or to find substitutes, greater demand for food and energy will lead to higher global prices. For the developed world this will mean higher inflation.

In what may be a more useful exercise from an investment perspective, I am this week compiling monthly trade data by country. A granular look at what rising prices of hard and soft commodities over the last 18 or so months have meant for individual countries could be instructive.

The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.

© Chimp Investor Ltd

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