Many would answer the question with China or India. Victor Canto, associate professor at USC and author of several books including “Cocktail Economics; Understanding Asset Allocation;” and “International Investment Strategy”, offers a different point of view in a recent interview published in Trend Letter.
He raises the following points to support his position:
- The Euro as a currency has been a home run. The reduction of complexity of each country having its own currency has increased transparency and simplicity of transaction business.
- The European Central Bank actions show commitment to keeping inflation in check.
- New countries formally in the Soviet Block are already significant contributors to the overall economic activity largely due to their low corporate tax rates of 15% to 20%. This is likened to the Reagan tax cuts in the 80’s. Canto also points out that Ireland’s membership was conditioned on flatter, lower corporate tax structures and since its change, economic growth has attracted many new enterprises to Ireland.
- The European Union’s easier immigration policies are also credited with the capacity for significant growth ahead.
- Adoption of nuclear energy to reduce reliance on foreign oil sources. France appears to be leading in this trend.
Some challenges for Europe include:
- More restrictive employment laws in the more traditional, non-former Soviet Block, will be a drag but Canto further believes this too will likely change in order to compete. The culture of once hired it is difficult to be fired will not likely survive.
- Population growth is a challenge. Canto‘s position is that this may change, but Europe is also an attractive area for immigration.
- China and India will continue to be dominant competitors. See “Shift Happens” for more interesting data.
The US economy continues to grow but the total world market share of the US domestic economy is declining. Considering investments outside of the domestic borders of the United States has been and will continue to be vital part of an asset allocation in an overall wealth management plan. Well considered wealth management strategies need to think globally to grow and protect wealth.