Investors will demand higher rates of return in the future than people are used to, warned former Secretary of State George P. Shultz.
That's because the rate of savings is not growing as fast as the demand for money, Mr. Shultz told the World Economic Development Congress in Madrid.
Savings will be key to countries' ability to compete for capital. "In order to invest resources, you have to have saved resources. There's no way out of this," said Mr. Shultz, who served as secretary of state under President Reagan and in a variety of cabinet-level posts under President Nixon.
Increasing demand for capital is stretching limited resources, he said.
Germany, a former source of capital, is investing its savings in reunification. In Japan, the savings rate will decline somewhat. Middle Eastern countries now are spending more than they earn. Western governments tend toward "chronic deficit financing," which crowds out the private sector, he said.
The growing pressure for capital means projects will have to be well-managed in order to qualify for financing, Mr. Shultz said. Nations such as China, India and possibly Brazil will have an advantage: they tend to be savers and have large pools of low-cost labor, representing another source of savings, he added.