In memory of Dr. Andreas Höfert

Malthus against Moore: the eternal debate

| Tags: Andreas Höfert

About a year ago, I heard the historian Professor Ian Morris presenting his book, Why the West Rules – For Now. In it he compares East and West over the last 15,000 years, concluding that we may be near the point when the East could definitively surpass the West in terms of economic weight.

Afterwards, Professor Morris was asked how he sees the next 25 years. He said he sees the immediate future as assailed by two forces. Demographic pressures coupled with global warming and scarcity of resources will result in a rather stressful world, which could suffer ecological collapse if these issues are not properly addressed. Opposite this, technological progress goes on accelerating, which could lead to a so-called technological singularity, meaning all of humanity’s problems would be solved at once.

The battle of ultra-pessimistic and ultra- optimistic views is not new. English economist Thomas Robert Malthus (1766–1834), the father of the dismal science, stated at the start of the 19th century that mankind grows exponentially while agricultural output grows on a linear basis. This consequently leads to periods of famine and keeps the bulk of humanity in misery. So far, Malthus has been proven wrong. Technological progress boosted agricultural output beyond a linear scale, and the latest UN demographic projections take into account that populations tend to grow more slowly or even to shrink as they become wealthier.

Former Intel Corporation Chairman Gordon Moore perhaps best represents the optimistic view of the future. In the 1960s he gave us “Moore’s law,” observing that over the history of computing hardware, the number of transistors on integrated circuits doubles roughly every two years. Generalized, this law means that technology also progresses exponentially and hence should be able to debunk the pitfalls of growing populations.

Legendary British investor Jeremy Grantham (playing Malthus) and Danish environmental economist Bjørn Lomborg (playing Moore) provide the latest version of the Malthus vs. Moore debate.

Jeremy Grantham’s new research note, “Welcome to Dystopia,” takes the current, drought-induced increases in agricultural prices as a starting point for a depressing future. “If present growth trends in world population, industrialization, pollution, food problems, and resource depletion continue unchanged, the limits to growth on this planet will be reached within the next one hundred years. (…) We are five years into a severe global food crisis that is very unlikely to go away. It will threaten poor countries with increased malnutrition and starvation and even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth.”

Bjørn Lomborg’s recent article in Foreign Affairs “Environmental Alarmism, Then and Now” defends an opposite, much more optimistic view. Reviewing how wrong the grim predictions of the Club of Rome proved to be 40 years after their publication in 1972, he states that through technological progress, substitution, and recycling “the amount of resources that can ultimately be generated with the help of human ingenuity is far beyond what human consumption requires. (…) The collapse of the food supply is nowhere in sight, and there is every reason to believe that the gains will continue and be sustainable.”

In February 2009, we opened an investment theme called Agribusiness, which in fact addresses the core of the debate between Grantham and Lomborg. Acknowledging Grantham’s view that growing population and threats to arable land will lead to rising food prices, this theme seeks the opportunity in Lomborg’s view of technological progress, and looks at companies offering efficiency gains and lower wastage along the entire agribusiness value chain – from field to fork. Since its inception in 2009, this equity investment theme has outperformed both in absolute terms and relative to the rest of the equity market.