With increasing frequency, leading financial sector professionals and academics are expressing doubts about our financial system. The current state of the world economy, with low interest rates, worrying demographic trends and low growth, is causing them to challenge conventional wisdom.

 In one of many discussions about the global outlook for this year, Erik Weisman, chief economist of MFS, suggested that the world’s capitalist engine could soon be robbed of one of its main components – population growth. According to some estimates, it will slow significantly, with ominous consequences for the global economy. 

The world’s response to the problem, which consists of a somewhat incoherent combination of financial stimulus, regulation and a search for innovation, may be misguided and therefore miss its target. This is because, the argument goes, our understanding of how capitalism works may be so flawed that we are looking for the wrong solution. The question should be: does capitalism need population growth to function properly? 

The answer is far from clear. To secure uninterrupted prosperity in the form of continued GDP growth per capita, we might have to re-think how we create and distribute wealth. This may entail radical transformation in our societies and a departure from the current system. 

Pension systems, which are a pillar of our societies, could be a relevant starting point to reflect on what direction change could take. After all, slow population growth is mirrored in an ageing population. In many of the largest economies fertility rates are low and at the same time the world’s population is ageing fast. The challenges faced by pension systems around the world are strongly linked with the world’s wider economic woes.

Pension funds should not be responsible for finding the answer to the world’s economic growth problem, nor should they feel obliged to think about it. As a priority they should be focused on their investment objectives. But as large investors they will be concerned with equally large problems. Where to find the economic growth to secure their members’ retirement income is surely a pressing question. 

Therefore, I see no reason why pension funds should not take bold steps towards finding compelling, innovative answers to these problems, individually or perhaps collectively. Some are already doing so, by pushing the boundaries of financial theory or dealing with the perceived risk of climate change. 

Other possible answers could be financing innovation, or promoting scientific research. We need more scientific knowledge on how pension systems, and indeed economic ones, can be improved or overhauled to sustain economic pressures more efficiently. 

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