|
WHAT IN THE WORLD IS GOING ON? A GLOBAL INTELLIGENCE BRIEFING FOR CEOs
This is a paper presented several weeks ago by Herb Meyer at the World
Economic Forum in Davos, Switzerland which was attended by most of the
CEOs from all the major international corporations -- a very good
Summary of today's key trends and a perspective one seldom sees.
Meyer served during the Reagan administration as special assistant to
The Director of Central Intelligence and Vice Chairman of the CIA's
National Intelligence Council. In these positions, he managed
Production of the U.S. National Intelligence Estimates and other
Top-secret projections for the President and his national security advisers.
Meyer is widely credited with being the first senior U.S.Government official
To forecast the Soviet Union's collapse, for which he later was awarded the U.S.
National Intelligence Distinguished Service Medal, the intelligence
Community's' highest honor. Formerly an associate editor of FORTUNE, he
Is also the author of several books.
WHAT IN THE WORLD IS GOING ON? A GLOBAL INTELLIGENCE BRIEFING FOR CEOs
By HERBERT MEYER
FOUR MAJOR TRANSFORMATIONS
Currently, there are four major transformations that are shaping
Political, economic and world events. These transformations have
Profound implications for American business leaders and owners, our
Culture and on our way of life.
1. The War in Iraq
There are three major monotheistic religions in the world:
Christianity, Judaism and Islam. In the 16th century, Judaism and
Christianity reconciled with the modern world. The rabbis, priests and
Scholars found a way to settle up and pave the way forward. Religion
Remained at the center of life, church and state became separate. Rule
Of law, idea of economic liberty, individual rights, human Rights-all
These are defining point of modern Western civilization. These concepts
Started with the Greeks but didn't take off until the 15th and 16th century when
Judaism and Christianity found a way to reconcile with the modern
World. When that happened, it unleashed the scientific revolution and the greatest
Outpouring of art, literature and music the world has ever known.
Islam, which developed in the 7th century, counts millions of Moslems
Around the world who are normal people. However, there is a radical
Streak within Islam. When the radicals are in charge, Islam attacks Western
Civilization. Islam first attacked Western civilization in the 7th
Century, and later in the 16th and 17th centuries. By 1683, the Moslems (Turks from the
Ottoman Empire) were literally at the gates of Vienna. It was in Vienna
That the climatic battle between Islam and Western civilization took
Place. The West won and went forward. Islam lost and went backward.
Interestingly, the date of that battle was September 11. Since them, Islam has not found
A way to reconcile with the modern world.
Today, terrorism is the third attack on Western civilization by radical
Islam. To deal with terrorism, the U.S. Is doing two things. First,
Units of our armed forces are in 30 countries around the world hunting
Down terrorist groups and dealing with them. This gets very little
Publicity. Second we are taking military action in Afghanistan and Iraq.
These actions are covered relentlessly by the media. People can argue
About whether the war in Iraq is right or wrong. However, the underlying
Strategy behind the war is to use our military to remove the radicals
From power and give the moderates a chance. Our hope is that, over time, the
Moderates will find a way to bring Islam forward into the 21st century. That's
What our involvement in Iraq and Afghanistan is all about.
The lesson of 9/11 is that we live in a world where a small number of
People can kill a large number of people very quickly. They can use
Airplanes, bombs, anthrax, chemical weapons or dirty bombs. Even with a first-rate
Intelligence service (which the U.S. Does not have), you can't stop
Every attack. That means our tolerance for political horseplay has
Dropped to zero. No longer will we play games with terrorists or weapons
Of mass destructions.
Most of the instability and horseplay is coming from the Middle East.
That's why we have thought that if we could knock out the radicals and
Give the moderates a chance to hold power, they might find a way to
Reconcile Islam with the modern world. So when looking at Afghanistan or Iraq,
it's important to look for any signs that they are modernizing.
For example, women being brought into the work force and colleges in
Afghanistan is good. The Iraqis stumbling toward a constitution is good.
People can argue about what the U.S. Is doing and how we're doing it,
But anything that suggests Islam is finding its way forward is good.
2. The Emergence of China
In the last 20 years, China has moved 250 million people from the farms
And villages into the cities. Their plan is to move another 300 million
in the next 20 years. When you put that many people into the cities, you have
to find work for them. That's why China is addicted to manufacturing;
they have to put all the relocated people to work. When we decide to
manufacture something in the U.S., it's based on market needs and the
opportunity to make a profit. In China, they make the decision because they want the
jobs, which is a very different calculation.
While China is addicted to manufacturing, Americans are addicted to low
prices. As a result, a unique kind of economic codependency has
developed between the two countries. If we ever stop buying from China,
they will explode politically. If China stops selling to us, our economy
will take a huge hit because prices will jump. We are subsidizing their
economic development; they are subsidizing our economic growth.
Because of their huge growth in manufacturing, China is hungry for raw
materials, which drives prices up worldwide. China is also thirsty for
oil, which is one reason oil is now at $100 a barrel. By 2020, China
will produce more cars than the U.S. China is also buying its way into
the oil infrastructure around the world. They are doing it in the open
market and paying fair market prices, but millions of barrels of oil
that would have gone to the U.S. are now going to China. China's quest
to assure it has the oil it needs to fuel its economy is a major factor
in world politics and> economics.
We have our Navy fleets protecting the sea lines, specifically the
ability to get the tankers through. It won't be long before the Chinese
have an aircraft carrier sitting in the Persian Gulf as well.
The question is, will their aircraft carrier be pointing in the same
direction as ours or against us?
3. Shifting Demographics of Western Civilization
Most countries in the Western world have stopped breeding. For a
civilization obsessed with sex, this is remarkable. Maintaining a
steady population requires a birth rate of 2.1 In Western Europe, the
birth rate currently stands at 1.5, or 30 percent below replacement. In
30 years there will be 70 to 80 million fewer Europeans than there are
today. The current birth rate in Germany is 1.3. Italy and Spain are even lower at 1.2. At
that rate, the working age population declines by 30 percent in 20
years, which has a huge impact on the economy. When you don't have young workers to
replace the older ones, you have to import them.
The European countries are currently importing Moslems. Today, the
Moslems comprise 10 percent of France and Germany, and the percentage is
rising rapidly because they have higher birthrates. However, the Moslem
populations are not being integrated into the cultures of their host
countries, which is a political catastrophe. One reason Germany and France don't support
the Iraq war is they fear their Moslem populations will explode on them. By
2020, more than half of all births in the Netherlands will be
non-European.
The huge design flaw in the postmodern secular state is that you need a
traditional religious society birth rate to sustain it. The Europeans
simply don't wish to have children, so they are dying. In Japan, the
birthrate is 1.3. As a result, Japan will lose up to 60 million people over the next
30 years. Because Japan has a very different society than Europe, they
refuse to import workers. Instead, they are just shutting down. Japan
has already closed 2,000 schools, and is closing them down at the rate
of 300 per year. Japan is also aging very rapidly. By 2020, one out of
every five Japanese will be at least 70 years old. Nobody has any idea about how to run an
economy with those demographics.
Europe and Japan, which comprise two of the world's major economic
engines, aren't merely in recession, they're shutting down. This will
have a huge impact on the world economy, and it is already beginning to happen. Why
are the birthrates so low? There is a direct correlation between
abandonment of traditional religious society and a drop in birth rate, and
Christianity in Europe is becoming irrelevant.
The second reason is economic. When the birth rate drops below
replacement, the population ages. With fewer working people to support
more retired people, it puts a crushing tax burden on the smaller group of working
age people. As a result, young people delay marriage and having a
family. Once this trend starts, the downward spiral only gets worse.
These countries have abandoned all the traditions they formerly held in
regard to having families and raising children.
The U.S. birth rate is 2.0, just below replacement. We have an increase
in population because of immigration. When broken down by ethnicity, the
Anglo birth rate is 1.6 (same as France) while the Hispanic birth rate
is 2.7. In the U.S., the baby boomers are starting to retire in massive
numbers. This will push the elder dependency ratio from 19 to
38 over the next 10 to 15 years. This is not as bad as Europe, but still
represents the same kind of trend.
Western civilization seems to have forgotten what every primitive
society understands-you need kids to have a healthy society. Children
are huge consumers. Then they grow up to become taxpayers. That's how a
society works, but the postmodern secular state seems to have forgotten
that. If U.S. birth rates of the past 20 to 30 years had been the same
as post-World War II, there would be no Social Security or Medicare
problems.
The world's most effective birth control device is money. As society
creates a middle class and women move into the workforce, birth rates
drop. Having large families is incompatible with middle class living.
The quickest way to drop the birth rate is through rapid economic
development. After World War II, the U.S. instituted a $600 tax credit
per child. The idea was to enable mom and dad to have four children
without being troubled by taxes. This led to a baby boom of 22 million kids,
which was a huge consumer market. That turned into a huge tax base.
However, to match that incentive in today's dollars would cost $12,000
per child.
China and India do not have declining populations. However, in both
countries, there is a preference for boys over girls, and we now have
the technology to know which is which before they are born. In China and
India, families are aborting the girls. As a result, in each of these
countries there are 70 million boys growing up who will never find
wives. When left alone, nature produces 103 boys for every 100 girls. In
some provinces, however, the ratio is 128 boys to every 100 girls. read that this creates a potentially explosive situation. You have to keep all these
potential sources of political instability contented. One way, historically
often used, is war.]
The birth rate in Russia is so low that by 2050 their population will be !]
smaller than that of Yemen. Russia has one-sixth of the earth's land
surface and much of its oil. You can't control that much area with such
a small population. Immediately to the south, you have China with 70 million
unmarried men who are a real potential nightmare scenario for Russia.
4. Restructuring of American Business
The fourth major transformation involves a fundamental restructuring of
American business. Today's business environment is very complex and
competitive. To succeed, you have to be the best, which means having the
highest quality and lowest cost. Whatever your price point, you must
have the best quality and lowest price. To be the best, you have to
concentrate on one thing. You can't be all things to all people and be
the best.
A generation ago, IBM used to make every part of their computer. Now
Intel makes the chips, Microsoft makes the software, and someone else
makes the modems, hard drives, monitors, etc. IBM even out sources their
call center. Because IBM has all these companies supplying goods and
services cheaper and better than they could do it themselves, they can make a better
computer at a lower cost. This is called a fracturing of business. When one
company can make a better product by relying on others to perform
functions the business used to do itself, it creates a complex pyramid
of companies that serve and support each other.
This fracturing of American business is now in its second generation.
The companies who supply IBM are now doing the same thing - outsourcing
many of their core services and production process. As a result, they
can make cheaper, better products. Over time, this pyramid continues to get
bigger and bigger. Just when you think it can't fracture again, it does.
Even very small businesses can have a large pyramid of corporate
entities that perform many of its important functions. One aspect of
this trend is that companies end up with fewer employees and more
independent contractors. This trend has also created two new words in business,
integrator and complementor. At the top of the pyramid, IBM is the
integrator. As you go down the pyramid, Microsoft, Intel and the other
companies that support IBM are the complementors. However, each of the
complementors is itself an integrator for the complementors underneath it.
This has several implications, the first of which is that we are now
getting false readings on the economy. People who used to be employees
are now independent contractors launching their own businesses. There are many
people working whose work is not listed as a job. As a result, the
economy is perking along better than the numbers are telling us.
Outsourcing also confused the numbers. Suppose a company like General
Motors decides to outsource all its employee cafeteria functions to
Marriott (which it did). It lays off hundreds of cafeteria workers, who then
get hired right back by Marriott. The only thing that has changed is that these
people work for Marriott rather than GM. Yet, the media headlines will scream
that America has lost more manufacturing jobs.
All that really happened is that these workers are now reclassified as
service workers. So the old way of counting jobs contributes to false
economic readings. As yet, we haven't figured out how to make the
numbers catch up with the changing realities of the business world.
Another implication of this massive restructuring is that because
companies are getting rid of units and people that used to work for
them, the entity is smaller. As the companies get smaller and more efficient, revenues
are going down but profits are going up. As a result, the old notion
that revenues are up and we're doing great isn't always the case
anymore. Companies are getting smaller but are becoming more efficient
and profitable in the process.
IMPLICATIONS OF THE FOUR TRANSFORMATIONS
1. The War in Iraq
In some ways, the war is going very well. Afghanistan and Iraq have the
beginnings of a modern government, which is a huge step forward. The
Saudis are starting to talk about some good things, while Egypt and
Lebanon are beginning to move in a good direction. A series of revolutions have
taken place in countries like Ukraine and Georgia.
There will be more of these revolutions for an interesting reason. In
every revolution, there comes a point where the dictator turns to the
general and says, Fire into the crowd. If the general fires into the crowd, it
stops the revolution. If the general says No, the revolution continues.
Increasingly, the generals are saying No because their kids are in the
crowd.
Thanks to TV and the Internet, the average 18-year old outside the U.S.
is very savvy about what is going on in the world, especially in terms
of popular culture. There is a huge global consciousness, and young
people around the world want to be a part of it. It is increasingly
apparent to them that the miserable government where they live is the
only thing standing in their way. More and more, it is the well-educated
kids, the children of the generals and the elite, who are leading the
revolutions.
At the same time, not all is well with the war. The level of violence in
Iraq is much worse and doesn't appear to be improving. It's possible
that we're asking too much of Islam all at one time. We're trying to
jolt them from the 7th century to the 21st century all at once, which
may be further than they can go. They might make it and they might not.
Nobody knows for sure. The point is, we don't know how the war will turn
out. Anyone who says they know is just guessing.
The real place to watch is Iran. If they actually obtain nuclear weapons
it will be a terrible situation. There are two ways to deal with it.
The first is a military strike, which will be very difficult.
The Iranians have dispersed their nuclear development facilities and put
them underground. The U.S. has nuclear weapons that can go under the
earth and take out those facilities, but we don't want to do that.
The other way is to separate the radical mullahs from the government,
which is the most likely course of action. Seventy percent of the
Iranian population is under 30. They are Moslem but not Arab. They are mostly
pro-Western. Many experts think the U.S. should have dealt with Iran
before going to war with Iraq. The problem isn't so much the weapons,
it's the people who control them. If Iran has a moderate government, the weapons
become less of a concern.
We don't know if we will win the war in Iraq. We could lose or win.
What we're looking for is any indicator that Islam is moving into the
21st century and stabilizing.
2. China
It may be that pushing 500 million people from farms and villages into
cities is too much too soon. Although it gets almost no publicity, China
is experiencing hundreds of demonstrations around the country, which is
unprecedented. These are not students in Tiananmen Square.
These are average citizens who are angry with the government for
building chemical plants and polluting the water they drink and the air
they breathe.
The Chinese are a smart and industrious people. They may be able to pull
it off and become a very successful economic and military superpower.
If so, we will have to learn to live with it. If they want to share the
responsibility of keeping the world's oil lanes open, that's a good thing. They
currently have eight new nuclear electric power generators under way and
45 on the books to build. Soon, they will leave the U.S. way behind in
their ability to generate nuclear power.
What can go wrong with China? For one, you can't move 550 million people
into the cities without major problems. Two, China really wants Taiwan,
not so much for economic reasons, they just want it. The Chinese know
that their system of communism can't survive much longer in the 21st
century. The last thing they want to do before they morph into some sort of more
capitalistic government is to take over Taiwan.
We may wake up one morning and find they have launched an attack on
Taiwan. If so, it will be a mess, both economically and militarily.
The U.S. has committed to the military defense of Taiwan. If China attacks Taiwan,
will we really go to war against them? If the Chinese generals believe
the answer is no, they may attack. If we don't defend Taiwan, every
treaty the U.S. has will be worthless. Hopefully, China won't do anything stupid.
3. Demographics
Europe and Japan are dying because their populations are aging and
shrinking. These trends can be reversed if the young people start
breeding. However, the birth rates in these areas are so low it will
take two generations to turn things around. No economic model exists that
permits 50 years to turn things around. Some countries are beginning to
offer incentives for people to have bigger families. For example, Italy
is offering tax breaks for having children. However, it's a lifestyle
issue versus a tiny amount of money. Europeans aren't willing to give up
their comfortable lifestyles in order to have more children.
In general, everyone in Europe just wants it to last a while longer.
Europeans have a real talent for living. They don't want to work very
hard. The average European worker gets 400 more hours of vacation time
per year than Americans. They don't want to work and they don't want to make any
of the changes needed to revive their economies.
The summer after 9/11, France lost 15,000 people in a heat wave. In
August, the country basically shuts down when everyone goes on vacation.
That year, a severe heat wave struck and 15,000 elderly people living in
nursing homes and hospitals died. Their children didn't even leave the
beaches to come back and take care of the bodies. Institutions had to
scramble to find enough refrigeration units to hold the bodies until
people came to claim them. This loss of life was five times bigger than
9/11 in America, yet it didn't trigger any change in French society.
When birth rates are so low, it creates a tremendous tax burden on the
young. Under those circumstances, keeping mom and dad alive is not an
attractive option. That's why euthanasia is becoming so popular in most
European countries. The only country that doesn't permit (and even
encourage) euthanasia is Germany, because of all the baggage from World
War II.
The European economy is beginning to fracture. Countries like Italy are
starting to talk about pulling out of the European Union because it is
killing them. When things get bad economically in Europe, they tend to
get very nasty politically. The canary in the mine is anti-Semitism.
When it goes up, it means trouble is coming. Current levels of
anti-Semitism are higher than ever.
Germany won't launch another war, but Europe will likely get shabbier,
more dangerous and less pleasant to live in. Japan has a birth rate of
1.3 and has no intention of bringing in immigrants. By 2020, one out of
every five Japanese will be 70 years old. Property values in Japan have
dropped every year for the past 14 years. The country is simply shutting
down. In the U.S. we also have an aging population. Boomers are
starting to retire at a massive rate. These retirements will have
several major impacts:
Possible massive selloff of large four-bedroom houses and a movement to
condos.
An enormous drain on the treasury. Boomers vote, and they want their
benefits, even if it means putting a crushing tax burden on their kids
to get them. Social Security will be a huge problem. As this generation
ages, it will start to drain the system. We are the only country in the
world where there are no age limits on medical procedures.
An enormous drain on the health care system. This will also increase the
tax burden on the young, which will cause them to delay marriage and
having families, which will drive down the birth rate even further.
Although scary, these demographics also present enormous opportunities
for products and services tailored to aging populations. There will be
tremendous demand for caring for older people, especially those who
don't need nursing homes but need some level of care. Some people will
have a business where they take care of three or four people in their
homes. The demand for that type of service and for products to
physically care for aging people will be huge.
Make sure the demographics of your business are attuned to where the
action is. For example, you don't want to be a baby food company in
Europe or Japan. Demographics are much underrated as an indicator of
where the opportunities are. Businesses need customers. Go where the
customers are.
4. Restructuring of American Business
The restructuring of American business means we are coming to the end
of the age of the employer and employee. With all this fracturing of
businesses into different and smaller units, employers can't guarantee
jobs anymore because they don't know what their companies will look
like next year. Everyone is on their way to becoming an independent
contractor.
The new workforce contract will be: Show up at the my office five days
a week and do what I want you to do, but you handle your own insurance,
benefits, health care and everything else. Husbands and wives are
becoming economic units. They take different jobs and work different
shifts depending on where they are in their careers and families. They
make tradeoffs to put together a compensation package to take care of
the family.
This used to happen only with highly educated professionals with high
incomes. Now it is happening at the level of the factory floor worker.
Couples at all levels are designing their compensation packages based
on their individual needs. The only way this can work is if everything
is portable and flexible, which requires a huge shift in the American
economy.
The U.S is in the process of building the world's first 21st century
model economy. The only other countries doing this are U.K. and
Australia. The model is fast, flexible, highly productive and unstable
in that it is always fracturing and re-fracturing. This will increase
the economic gap between the U.S. and everybody else, especially Europe
and Japan.
At the same time, the military gap is increasing. Other than China, we
are the only country that is continuing to put money into their
military. Plus, we are the only military getting on-the-ground military
experience through our war in Iraq. We know which high-tech weapons are
working and which ones aren't. There is almost no one who can take us
on economically or militarily.
There has never been a superpower in this position before. On the one
hand, this makes the U.S. a magnet for bright and ambitious people. It
also makes us a target. We are becoming one of the last holdouts of the
traditional Judeo-Christian culture. There is no better place in the
world to be in business and raise children. The U.S. is by far the best
place to have an idea, form a business and put it into the marketplace.
We take it for granted, but it isn't as available in other countries of
the world. Ultimately, it's an issue of culture. The only people who
can hurt us are ourselves, by losing our culture. If we give up our
Judeo-Christian culture, we become just like the Europeans.
The culture war is the whole ballgame. If we lose it, there isn't
another America to pull us out."
Scary stuff...
|
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
