Much has been written about the present period of slow economic growth. In the medium to long term, economic growth consists of population growth plus productivity growth. While population growth in the US has slowed a bit in recent years, the main driver for our slow economic growth has been low growth in productivity. Non-farm productivity in the US has grown at the slowest rate since the 1970s—also an era characterized by slow real growth.
However, we believe that is about to change. At a recent private equity and venture capital conference we attended, our meetings with, in particular, venture capitalists led to case study after case study in autonomous vehicles, robots, warehouses, farm equipment, drones, and on and on.
Given that productivity is, by definition, the result of output divided by human hours worked, it is hard to see how that number does not go up at a faster rate—simply by the denominator effect, even if output itself does not grow as quickly.
This, of course, will have broader implications for our society—both good and bad. We take an optimistic view based on our reading of economic history (after all, the percentage of the US population employed in agriculture in 1900 was 41%– in 2000, it was 1.9%. Where are all the unemployed farmers?), but that does not mean that there will not be disruption in the short or medium term for workers impacted by automation. The 2020s won’t be a good decade to be an Uber driver, or a long-haul trucker. Probably not a warehouse worker, either.
For an investor, though, we think it should be a pretty good time. For private equity investors, who have the time and capital to transform businesses to take advantage of these advances and the economic growth which will result, we think it will be a very good time.