PESTLE

Demographics is not destiny (2)

The previous post argues that countries don't really have to play the hand they are dealt in terms of the workforce and social composition of their bodies politic, as they can shape the make-up of their citizenry through immigration policy.

There are other tools at their disposal. The most commonly used tool is incentives for having children, either positive (e.g., France) or negative (China). Both were successful, and both result in unintended consequences.

If a Pestle analyst wants to look at long-term GDP potential, the first place to look is at population trends, looking for bulges in the working age population (Turkey, Iran) which clearly indicate growth potential. Bulges in the over-40s (Europe) are harbingers of decline. Multiple bulges (U.S.) make you have to think. It is easy enough to find the 'average' age of a population, a bit harder to find out what it was for the past decade or so, and see the direction that the national economy wants to head in. Sites like the CIA World Factbook or Nationmaster are helfpul with this kind of thing.

Or does anybody else think it's a bit funny that our current economic situation blew up in the same year that the Baby Boomers started to reach retirement age and almost simultaneously made major decisions about investment/savings/spending priorities? Nah--just me?

Demographics is not destiny (1)

At least it no longer is. I remember reading in a novel once that the vast majority of the human race had never traveled more than 200 miles from their home. I have no idea if that was ever the truth, but it certainly is not today. I commend this site, called Global Issues, to your attention for the ensuing discussion. The demographic composition of some countries is changing--in some countries, quite dramatically.

In many developed countries today, citizens are likely to name immigration as one of the top concerns they have. Although it seems fairly obvious that immigration is a proxy for fears relating to crime, unemployment and large public expenditures, those concerns are neatly encapsulated in high profile news stories about immigrants. It also piggy-backs quite nicely on the atavistic 'fear of the other' that has characterized the folly of our race for so long.

It is claimed that there are 191 million immigrants today, or 3% of the world's population. I think it might be higher, but I also think it is unlikely to be above 4%. If this percentage was spread evenly across the map, I don't think it would be possible to keep the issue alive as a source of political and social discontent. Obviously, however, immigration is lumpy. But these bullet points from the weblog cited above are a bit telling:

• The last 50 years has seen an almost doubling of immigration;
• 115 million immigrants live in developed countries;
• 20% (approximately 38 million) live in the US alone, making up 13% of its population;
• 33% of all immigrants live in Europe;
• 75% live in just 28 countries

In talking about the next five years, there are two important points to remember about immigration: First, most immigrants don't pick up stakes because life is easy where they are. As someone who has lived the past decade in Italy and Great Britain, I can tell you immigration is tough, even for a white American. It is much tougher for a non-white person from a developing country. (Which is why more than a third of immigrants eventually, like me, return to their country of origin). Second, if you cannot feed yourself and your family, at some point failure to immigrate feels like slow suicide and criminally irresponsible behaviour. So people choose an economically viable destination and go there. People move heaven and earth to get to places like the U.S., UK and France because of economic opportunity--i.e., the chance to avoid starvation. It is rarely a political choice. It does have political effects, however, usually in the form of providing ammunition for race-baiting, fear-provoking idiots, mostly on the right.

The next five years are likely to provide more such ammunition for these idiots, as there are two rules concerning immigration. First, poverty drives immigration. Second, recessions and depressions hit the poor more than the rich, and poor countries more than rich countries. Immigration will tend to increase, and move towards countries that have been least affected by the coming Hard Times. Canada and Australia look like prime destinations. Canada, at least, seems prepared to welcome this. Canada is full of people with good sense.

5 year prediction: Immigration will increase from 3% to 5% of the world's population. It will still be lumpy.

Magnificent Fictions

A quick look around should convince you that we are not created equal, and that we have not been endowed by our creator with certain inalienable rights, e.g., life, liberty and the pursuit of happiness. These magnificent fictions constitute a challenge to whatever gods there be, and are testimony to the great hearts of the founders of the American revolution. Salute.

So we'll have to create these rights for ourselves, and work on contracts with each other to render them unalienable. Sigh. A human's work is never done.

 

50-100 years down the road we will choose life in the form of the right genetic profile and uploads. Liberty, always having been a state of mind, will be a default state as mind becomes more autonomous. The pursuit of happiness will get the time and attention it deserves, not because we've run out of work to do, but because the work will be structured as part of the pursuit.

A post about technology can quickly leave science fiction in the dust, and it makes me glad that I've chosen a 5-year horizon for the forecasting here. Just quickly, then:

As always, in 5 years what's on the screamingly modern desktop today will be a ho-hum part of your mobile. 

Your mobile will be wearable.

Screens for your mobile and your e-reader will be sunglasses or butterfly fans.

Solar panels will be sculpture.

Nano-coatings for planes and cars will be about ready to leave the lab and streamline, protect and beautify transportation.

The first artificially designed life form will have a name.

Parents in South Korea will worry about their children forming too strong a bond with their domestic robot child-minders. Parents in America will realize it's a valid concern.

Some government will negotiate with a pharmaceutical company, offering 99 year patent protection for lifestyle drugs such as Rogaine and Viagra in exchange for the right to manufacture generic version of lifesaving drugs.

This is just chapter 1 of the tech story five years down the road. It's the conservative chapter, the one meant to convince you I'm making sober and rational assessments. It's the next chapter that starts to get weird.

Who will 'own' this century?

Although Henry Luce called the 20th Century the American Century back in the '40s, my dilettantish recollection of history places the actual ascension to world power at around 1865, when Prussian military observers realised that the North's industrial military strategy had geo-political implications. America has certainly had a good run, but a lot of writers and commentators have called an end to it. There's even a neo-conservative movement for a new American century, although it seems clear they have absolutely no idea what made America predominant to date. Sigh.

At any rate, this post is about who will own the next century. And by own, I mean be the iconic image, the driving force, the society that will shape events to meet its own goals, the dominant power.

There are almost 300 countries on the modern map, so to pursue this topic it is helpful to exclude societies that, for one reason or another, have disqualified themselves from playing the game, so we can then focus on the remaining societies. So, for demographic reasons we start off by eliminating countries that are too small to actually dominate, such as Norway (which seems a pity--they're doing so much so well), but also Russia and Japan. Countries with declining populations will not dominate this century (perhaps the following one). I think realistically we end up with a list of usual suspects plus the BRICs. I think China will self-exclude due to a severe implosion, probably not too far in the future (in fact, it will be within the 5-year horizon of this weblog and I'll discuss it in another post), and we just tossed Russia for the unforgiveable sin of being in decline during a discussion of ascension. So, on the back of my envelope are the following countries:

• France
• Brazil
• India
• UK
• USA

I include France and the UK because, in addition to being powerful developed economies, they also have relationships stemming from prior empires that could theoretically be useful should they decide to get back in the game and strive for dominance. In fact, it would not be too difficult to convince me that France never left the game, but has been keeping a low profile while it rebuilt after the two world wars.

I will exclude India for reasons to do with geography and demographic composition--being surrounded by Pakistan, China, Bangladesh, having regional conflicts and disparities within the country, these will prove too much of a challenge for India. In addition, like China, they are growing their education and research capabilities only at the same pace as domestic GDP, which means that their technology base will be overly occupied with getting their infrastructure up to snuff, and not occupied enough with the needs of the future.

I will exclude the UK because I do not believe they want to play the game. So, we are left with France, Brazil and the United States.

France and Brazil have the enviable status of energy independent nations, with the edge to France being that nuclear energy requires technology growth, satisfies green concerns (well, some of them), and translates quickly into military capability. Brazil counters with the ability to export both oil and ethanol. Demographics gives a clear edge to Brazil, young and hungry, inventive and ambitious. And France loses primarily because its treatment of the DomToms has been callous enough that they cannot rally their former colonies to actively support French initiatives.

So we're back in the New World. Brazil has been derisorily labelled as the "country of the future--and always will be." But eventually that translates into the present. And America is the hegemon, wounded after a decade of mismanagement and wasteful, almost extravagant misuse of resources, but still the most powerful political entity that has ever existed. Brazil is very much where America was in 1865, and if they rise to dominance it won't exactly surprise me, and probably won't shock other commentators--it's pretty much a vanilla choice, the triumph of conventional wisdom.

But, after a decade in Italy and the UK, looking at America with what I hope are clear eyes, I think the next century will belong to America--even more so than the past 140 years. And I believe so because I think that America is best positioned to respond to the major challenges of this century, which fall conveniently under the headings addressed by the title of this weblog.

Political--America has the oldest representative political system in the world, a huge advantage in terms of allocation of social resources. It doesn't need to invent or reinvent representation, and it has substantial internal legitimacy (perhaps never as much as now, after Obama's election).

Economic--America is the largest economy in the world, and the richest of the populous nations. They can get it wrong a hundred times (as they may well do with their response to the recession) and still be a mile ahead of countries like Brazil. If Brazil makes one strategic mistake they fall by the wayside for decades.

Social--America is growing in population, has high levels of education, literacy, labor mobility, and may soon reach Brazil's level of tolerance for each other.

Technology--this is the key. The key technologies for the 21st Century will be genetics, nanotechnology and robotics. Although America only leads in nano right now, it is easily a close second in the other two. Although Brazil is working in these areas and their leading lights are on a par with the best in other countries, they don't have the depth of field to sustain growth at the same level.

Legal--Another key advantage for America. Although they are no more honest than Brazilians, America's legal system is better at dealing with corruption and organised crime, which are the key issues for development and dominance.

Environment--Both are large countries with abundant natural resources, and are large exporters of these resources. Both face challenges in conservation and husbandry, but both are devoting time and energy to that right now, which should serve them well in future.

So, on the whole, I think this century will belong once again to the Yanks, for good or ill. Not surprising that a Yank should pick his own country, and in a formal Pestle analysis there would be a counterparty picking holes in my analysis. But that's why we have a comments section here...

Fade to black

It seems to me that the green machine will fade over the next five years. I don't want (on this weblog, at least) to get overly involved in the debate over global warming--there are plenty of forums discussing that, such as Real Climate and Gristmill taking the pro position, and Climate Audit and Watts Up With That taking the con.

As has been noted in other contexts, it matters more who's left than who's right. There's no money left, there will be a diminishing of political will, there will be a grand turning to other things. The green agenda will have to sink or swim on the short term viability and easily seen payback of individual projects.

It won't help that there is likely to be a volcanic eruption, probably in the Pacific Rim, that will put enough sulphates into the air to cool things off--nor that other cycles that affect the climate are turning down the thermostat, at least temporarily. These things, which operate independently from any anthropogenic contributions to greenhouse gases, will take the heat off of any urgency to deal with climate change, and there will be other pressing demands on the public purse.

A major recession is not the time to try and convince developing economies to go green. The recent fall in the market price of carbon emission permits in Europe is another sign. President Obama's failure to talk much about the energy proposals in his stimulus bill is a bit telling.

Five year prediction: Whatever happened to Al Gore and climate change?

PIGS will fly

Obviously, at the beginning of this weblog it is a temptation to be provocative and dramatic, elements one would typically avoid in a PESTLE. But, in a search for readers, one looks for headlines, I suppose.

The European Union will face considerable stresses over the next 5 years. While I don't forecast the break-up of the EU or abandonment of the Euro, it is not unimaginable that one or more countries will drop the currency. The obvious candidates would be the PIGS--Portugal, Italy, Greece and Spain, which used to be referred to by the more dignified sobriquet of the Olive Belt. These countries have weaker economies, difficult political situations internally--almost to the point of paralysis in some cases--and fairly high levels of corruption and organised crime, in some cases.

What they also have is very high levels of public sector debt heading into a deep recession--not a good position to be in. This table from an article titled "Do BRICS (and Germans) Eat Pigs?" perhaps makes the point better:

Table 2: Actual Debt & Age Related Contingent Liabilities

Source: Goldman Sachs, European Weekly, 22/01/2009

The stronger and more open economies of the EU need (and have the political clout to insure) very different economic policy than one which would meet the urgent needs of the PIGS. The EU is growing in different directions, with new members Albania, Romania and Bulgaria aligning their (mis) governance and economies with the PIGS, while the more robust countries of Scandinavia, France and Germany move in another direction. Something will eventually have to give.

If the PIGS unite with the new members, they may be able to push policy in their favor. In which case, the policy surprise to watch for (not that I predict it, but I would not be surprised to see it) is a move by Germany to return to the Deutschmark, something that would be quite popular with large segments of the German population.

An article by Ian Bremmer in Foreign Policy disagrees, and makes the obvious point that weaker countries enjoy eurozone protection in many ways, and predicts that other weaker European economies may actually join the Euro. That may well happen. But it doesn't exclude the possibility that a Eurozone full of weak economies will certainly not suit Germany, and may not suit other countries as well. Germans feel strongly that they are bearing more of the burden for the EU than other countries. By many measures, they are correct.

5 year prediction: Something of an existential crisis, caused by economic turmoil, with members of the EU having serious discussions about their continued membership.

Economic--prepare for high inflation

It is my opinion that, starting in about two years, inflation will rise dramatically. As more countries count on deficit spending to stimulate their economies, and countries that previously bought large amounts of government bonds rein in their purchases, the only alternative will be the 'debauching of the currency' in many countries. Specifically, I believe this will happen in the U.S., U.K., and Japan, at a bare minimum.

I believe the stimulus is more important and that the potential depression it is designed to prevent would cause greater damage than dealing with inflation--if inflation is dealt with promptly and intelligently. But nonetheless, I think the coming period of inflation will be painful.

The mechanism is probably easiest to demonstrate with China. They export a lot to the U.S. We pay them with dollars. They buy U.S. government debt with many of those dollars. But Americans will buy less--and the Chinese economy will not replace American purchases with domestic demand. With fewer American dollars, the Chinese will buy less American government debt. Chinese exports have fallen 17.5% in the past year. Now, it's a bit more complicated. Their imports have fallen even faster, and their trade surplus has grown--they have a lot of dollars. But not to save. Their economy has stalled, and they are spending money on the same things President Obama's stimulus package is targeting. So they won't be spending spare cash on Treasuries.

Stimulus:                                                 % of annual GDP

USA: £800 bn                                                  6%

China: 4 trillion yuan                                      14%

Japan: 10 trillion yen                                       2%

Australia: A$ 42 bn                                          1.3%

Germany: €40-50 bn                                        1.3%

UK: £20 bn:                                                     1.1%

France: €26 bn:       1.4%

Purchasers of U.S. government debt (2008 in billions of US dollars)

China 682

Japan 577

UK 360

Carib banks 220

Oil exporters 198

5-year prediction: Inflation varies between 7% and 12% in most developed countries.

Welcome and introduction

It is my intention to attempt to forecast developments in the next five years in the following sectors:

• Political
• Economic
• Social
• Technology
• Legal
• Environmental

I hope to show my work so that, agree or disagree, readers can see why I think the way I do. I've been doing this for a living for several years now--it's time I did it for fun, without the need to consider client concerns or political... not correctness, but... well, okay. Political correctness.

I will try to cover more than the U.S. and Europe, but given their weight in most of these categories, it may take a while for a true international representation to appear. Please be patient with me. Please correct me when I err.