Former Secret of Treasury Hank Paulson wrote a terrific book entitled Dealing with China. In it, he recounts his interactions with China as a Goldman Sachs investment banker and how the country set out to modernize its economy. One of the underlying concepts Paulson discusses is just how important growth is. Several decades ago, China moved tens if not hundreds of millions of people out of poverty, and that process is still happening there today. They did this by creating growth and ultimately jobs. Basically, growth and urbanization create jobs, which gives people disposable income, which they can then use to buy new products and services, which in turn creates more jobs and more growth. This is the flywheel that has molded modern society today. This is wealth creation.
In a capitalist society, things get ugly quick when you don't have growth. Anyone who has been paying attention to today's macroeconomic environment should know what I am getting at. Mary Meeker's report came out last week which did a great job of summarizing some of the key macroeconomic issues we are facing today:
- Internet connectivity growth is slowing
- Emerging country growth (and global growth) is slowing
- Interest rates have declined
- Government debt levels are rising
- Population growth is slowing (and aging)
Here are a few good charts from Meeker's report:
We have reached about 3B internet users globally which is 42% penetration. There is still room to grow, but the growth rate has flat-lined for the first time, which isn't good.
Global GDP growth is slowing. Growth in 6 of the last 8 years was below long-term averages. That is definitely not good, especially in a generally lower interest rate environment meant to spur growth.
As you can see, interest rates have been falling across the board.
And finally, most countries have been levering up, particularly the more developed countries.
Meeker's conclusion is that the "easy growth" era is behind us. What that means is that it is ever more important for technology companies to be truly innovative and focus on creating efficiencies, lowering prices, and either accelerating existing markets or creating new ones altogether. Both tech entrepreneurs and investors need to refocus their efforts onto what is truly be game changing. The world needs growth and all eyes are on Tech.