PESTLE

China's Dilemma (2)

According to Nationmaster, 22% of the world's poor live in China. I don't know if that percentage will increase--times are tough all over--but the raw number most probably will. And this isn't China of 1978, when the entire population was poor. Now, the 100 million who are living on less than $1 a day have middle class neighbours and rich Chinese people on TV.

Why am I so pessimistic about China regarding the next 5 years? These are smart people, industrious and entreprenurial. Well, partly it's because the rest of the world will let them down. In 2007, China's exports were $1.2 trillion. That compares to their total GDP in 2008 of $4.84 trillion. So far this year, exports are down by a quarter. So far during this recession, worldwide job losses are 50 million. Of that number, 20 million are Chinese.

So we have a deteriorating financial situation in a country with brand new access to communications and growing inequality. Sound like a recipe for social unrest? Add in government corruption. China is ranked at the same level as Romania. China is embarrassingly and publicly failing in its efforts to control corruption--this article in Asia Times is just more of the same. And Chinese people now see and hear this every day--and not just in the newspapers, as China has the most internet users in the world, at 300 million.

China desperately needs for its citizens to spend more and save less to compensate for reduced exports. Chinese people are famous for saving. This is the most publicized economic downturn in history, being covered like an American Super Bowl or the World Cup. Does anyone think the Chinese are going to pull their yuan out from under their mattress and buy a Haier TV on the heels of 20 million job losses and 10,000 factory closures? I do not.

More on China later.

Pestle summary: USA

This is the preliminary data collection for a Pestle analysis of the United States, drawn from publicly available information on Wikipedia, the CIA World Factbook and Nationmaster. The United States has the largest GDP in the world, $14.3 trillion. That's almost as much as the next four on the list combined. The United States also spends more on the military than anyone else. A lot more. U.S. spending, at $651 billion per year, is almost 10 times as much as second place China, and about 48% of all military spending is American. It is the third most populous country in the world, with 306 million people. 

There has never been an entity to compare with the United States, and perhaps never will be. My five year forecast for American politics is here. My five year forecast for the American economy is here. My thoughts on why America will be the 'owner' of the 21st Century are here. 

I am not blind to its faults and shortcomings, and have been quick to criticize my home country--and was perfectly willing to live abroad for 13 years--but there aren't adequate superlatives to describe the size and scale of what America has achieved. Just one quick example--in the first Iraq war, George Herbert Walker Bush put together a coalition to drive Saddam Hussein out of Kuwait. The other countries ponied up more money for the adventure than the war itself cost. The U.S. made a profit on their war. His son was not quite so lucky with his misadventure.

If you've been napping, the U.S. has a new president, Barack Obama, and a recession to deal with. President Obama is spending a lot of money to stimulate the economy, and will spend a lot more trying to stabilize the financial system, and a lot more trying to help unfortunate mortgage holders hang on to their properties. Troubled times indeed. And yet, as I write this on March 29, consumer spending has increased for 2 months in a row and the number of houses sold has increased... so how deep is the recession? Well, it's not good--with unemployment pushing 8.5% and set to go into double digits this year, it's a real recession, not a fake. (However, I forecast a return to growth by 4th quarter of this year.) Obama's Democrats have solid majorities in both House and Senate, although Obama is so far trying to tread lightly with his majority.

For Americans who are not poor or black, or both (God help them), access to good education and decent healthcare is at mid-European standards, though certainly not above them. But there are too many poor, and too many disadvantaged blacks. Given the wealth of the country, it is a national disgrace. Immigration is a hot-button social issue, although America would grind to a halt without its immigrants, and the repatriated salaries from immigrants in America dwarf most foreign aid efforts (and probably do more good). One issue that needs to be dealt with in this decade is the total number of people in prison (mostly on drug charges), and the very high number of young black males behind bars.

American higher education is basically the best in the world, and this pretty much guarantees that America will do well in the future. About 99% of the population is literate, most people get 15 years of education, 7 of the top 10 universities are American--but most importantly, 168 of the top 500 universities are American.

 The list just doesn't stop. 153 of the world's largest 500 companies are American. (Second is Japan, with 64.) The U.S. is first in patent applications.

But there is a price to pay. Americans don't live as long or as well as  Europeans or the Japanese. They have to fight for their healthcare--a debilitating struggle that consumes too much time and too many resources for both individuals and businesses. Violence in America has subsided, but it is still an everyday fact of life. And the mobility of the American labor force has fragmented the nuclear family structure in ways that will take 100 years to analyse. It's great that America created MySpace and Facebook. It's not so great that America needed them so badly.

America has done more about the environment than almost any other country, instituting cap and trade on SO2 to fight acid rain, and many more measures to fight air and water pollution. There are land use and water use policies that will need to be revisited soon, due in no small part to growing population, but those types of struggles will not be new to America.

For by art is created that great Leviathan...

Pestle Summary China

Well, I guess this is where I get controversial, at least a bit. There are others who have predicted that China was in for a tough ride over the past few years, but they mostly got ignored, or were proven wrong by events. And, to a certain extent, if you cry doom long enough you'll always get proved right, given the laws of entropy. So this is a bit 'faux' controversy...

This is the introductory note taking exercise for a Pestle analysis of China, drawn on conventional internet sources such as Wikipedia, the CIA World Factbook and Nationmaster. China is the most populous country in the world, with 1.34 billion people. It has the third largest GDP, with $4.84 trillion, behind Japan and the U.S. Like India, the currency and conditions make it useful to look at some statistics using Purchasing Power Parity, which bumps up China's GDP to $7.8 trillion, which would move it ahead of Japan. It also is the second in the world in annual military spending, although that needs a bit of context, as the world's number two spends about 15% of what the world number one (USA) spends. But with PPP, that looks like more money, and insofar as it is used to pay salaries, rather than buy Israeli rocket parts, PPP is valid in this context too.

China is badly governed by the Communist Party, and in my five-year Pestle forecast I will be making the case that misgovernance will prove to be the root cause of a downward spiral that will cost China dearly. It will mark the end of an unprecedented run of growth and opportunity that began in 1978, and for the past 25 years it has averaged 10% growth per year. The record stops this year, sadly. It really is a pity--China's growth has done more to reduce world poverty than any program, aid initiative or growth in the rest of the world combined. The moral of this story is, to get rich may be glorious, but not if you trash your house and alienate your family while doing so.

China is pouring money in to the domestic economy to keep it from going sour, accelerating infrastructure development. It will help. It is unlikely to be enough. Exports have fallen by over a quarter in the last three months, and a lot of businesses have locked their doors. Unemployment is rising rapidly, and China may end up paying poorly trained workers to dig holes and then refill them.

Last year, there were 87,000 'incidents', which in other countries would have been called protests, demonstrations or riots. China is barely keeping the lid on internal unrest, much of it caused by regional and local government corruption, turfing people out of their houses or off the farms without compensation. Again, in the deeper analysis, I will try to make the case that if you get 87,000 riots with 25 years of 10% growth, what you get during a recession may look suspiciously like revolt.

China is either first or second in emitting CO2, and the overall air pollution in China's urban centers is staggeringly bad. 16 of the 20 most polluted cities in the world are Chinese.  Their water isn't so good either. They also have a problem with desertification.

There are pluses. China has 86% literacy, they lead the world in internet users, they are 4th in the world in patent applications for residents (2nd for non-residents), and have 4 of the top 100 universities in the world (and 8 of the top 500). Unlike India, they actually use half the human race (the female half) which effectively doubles their talent pool.

But it's not going to be enough, as we'll see when we dig deeper.

Pestle Summary: India

Once again, these are the topline notes to kick off a Pestle analysis of India--this is very basic stuff culled from Wikipedia, CIA World Factbook and Nationmaster. India is the largest democracy in the world, the second in population, with 1.16 billion people, and 12th in GDP, with $1.23 trillion. India is a country that benefits from having its GDP converted to purchasing power parity, and given the much lower cost of goods and services there its probably accurate to use this, whereas it's not much use for the countries we've looked at so far. At PPP, India's GDP is $3.39 trillion. A lot of that money gets spent on the military--India is 10th in the world with $32.7 billion in annual spend on defence, in no small part due to its nuclear weapons programme.

The first item that gives me pause when talking about India is its neighbors. India will struggle to maintain stable and peaceful borders with the likes of Bangladesh, Bhutan, China, Myanmar, Nepal and Pakistan. And a clear precondition for development is peace. India is not lucky in its choice of neighbors, and this is important. It has been in 5 wars since 1947. Another precondition is either called stability or internal coherence. Wikipedia says there may be as many as 1,652 dialects in India--they have two major families of languages, and 14 recognised major languages within India's borders. More than 13% of the population is Muslim. The caste system still divides India, despite laws designed to prevent it.

India is poor, unequal in income distribution, and growing. It did better with the Golden Decade than many of the other countries we are looking at, reducing poverty by 10%, but their public debt is sadly 78% of GDP. It will be higher soon.

On the other hand, it has a large and growing middle class, one of the best predictors of ongoing development. India is number 3 in the world for internet users, with 80 million. India is 10th in the world for patent applications, both for resident and non-resident filers. And it's a young country, with median age of 25. But, they don't have good drinking water through much of the country, and they have big, big problems with air and water pollution, deforestation, desertification and soil erosion. 

India's lucky to have Manmohan Singh at the helm during this period. He understands macro-economics and how public policy can interact with economic forces for good or ill. There will be a lot of ill. India has just lowered its growth estimate from 7.1% to 6.5% for 2009, which really means they are still being overly optimistic. They will be lucky to end the year with any appreciable growth.

India's society is beset by tension, only part of it coming from unequal distribution of the growth of the past decade. Terrorism by and against Muslims, persecution of Christians, blatant corruption in regional government (that seeps into Parliament) all make India a fertile ground for unrest over the next five years.

If my horizon was 25 years, I would be writing poetically about India's future. But, as we're talking about 5 years, my prediction will be considerably less optimistic.

Pestle summary: Japan

Once again, this is just note gathering for further analysis, taken from Wikipedia, the CIA World Factbook and Nationmaster. Japan is 10th in the world in population, with 127 million people, 6th in the world in military spending, with $48 million per year, and either second or third in GDP, depending on how you measure it, with $4.84 trillion.

Well, after the lost decade of the 90s, Japan had a brief interlude of mediocre economic performance, to be followed by what looks to be another lost decade. What they've lost is their people. Japan is by some measures one of the richest countries in the world. Their population peaked in 2005 and declined by about 200,000 last year. That decline is set to continue. Their population is also getting older--their median age is 44, compared to 28 for Brazi, and 22% of their population is 65 or older.

Japan has developed a two-tier workforce, with the salaryman in protected jobs with established companies, and temporary workers everywhere else. This second category, almost 30% of the workforce, is getting massacred with the recession going on now.

Their politics is entangled--they've had the same ruling party for 55 years, although that looks set to change, and that's just too long. There is corruption within government, business and even the Yakuza is getting old, fat and lazy--but still powerful. Their signature corporations, the Sonys, Canons and Mitsubishis, got fat and lazy too. Toyota is still getting it done, but doesn't have enough company.

The Japanese live forever, it seems. Their life expectancy is 81 and climbing, and they have 36,000 centenarians 32,000 of them female). With an aging population that is insular and conservative, their attitude towards much-needed immigration is skeptical at best.

The Kyoto Protocol was signed in er, Kyoto, and Japan takes global warming seriously. They lead the world in developing patents for alternative energy generation, and have paid a lot of attention to pollution since Minamata's mercury tragedy.

It wasn't supposed to be like this for Japan.

Pestle summary: Brazil

It could be that fifty years from now people will be saying how blessed it was to be Brazilian in 2014. I don't think they'll be saying that in 2014, however. This is the starting point for a Pestle summary of Brazil. It is drawn on information from Wikipedia, the CIA World Factbook and Nationmaster, and will be developed in detail later.

Brazil is roughly the same size as the United States, and has 62% the population of the U.S.--191 million, 5th largest in the world, and growing at 1.1% per year. Its GDP is $1.66 trillion, 10th in the world. It is blessed in that it does not need to be in the top 10 in military spending, spending a very European 2.6% of GDP on the military. It is energy independent, has a very respectable inflation rate of 6%, and its public debt is an equally respectable 40% of GDP. Rich in natural resources, Brazil is placed to be the major competitor to the United States for owner of the 21st Century. Its people are young, with a median age of 28, with average education of 14 years, and a literacy rate of 88%. So, look out world?

There are a few bumps in the road ahead for Brazil. They are cursed with oil, doubly cursed in that they have had to deal with corruption for quite a while (67% of managers say corruption in Brazil is a major business constraint). Lula da Silva has done a magnificent job since 2003, but he has not been able to clean out the stables completely, and having a history of corruption and a windfall discovery of oil has been a curse for countries ranging from Russia to Nigeria. They are also stuck with the Amazon, in the sense that the rest of the world will demand they take good care of it, but probably won't pay Brazil to do so. Perhaps most importantly, Brazil is in a part of the world that is almost guaranteed to be troubled, fractious and even combative over the next few decades, and this will bother Brazil more than it would after a few more decades of development.

With Embraer and a few others, Brazil is beginning to develop indigenous technology suppliers, though they need a lot more. They need to work on their higher education, but are coping for the moment by sending the children of the elite abroad for education. They have class and racial issues, but seem to be coping with them far better than many other countries.

The oft-repeated joke about Brazil is that it is the country of the future--and always will be. I think this is the last period that that joke will be relevant.

Pestle Summary United Kingdom

Again, this is a first sort--just an overview that will back up further analysis. The United Kingdom is 23rd in world population, with about 61 million people. It is 6th in GDP, with about $2.9 trillion. And it is 4th in military expenditure, with about $61 billion per year. (Statistics as usual compiled from Wikipedia, CIA World Factbook and Nationmaster).

Politically, it seems as if the string has run out on Labour, and the Conservatives will in all probability take over in late spring of 2010. David Cameron, a pleasant man who sadly just lost a son, will inherit a mess. In the same way that current Prime Minister Gordon Brown has tried to micro-manage his government, his government has been trying to micro-manage the United Kingdom. There are local councils in England that put microchips on people's garbage bins to check if they are throwing out the right stuff. Scotland's National Party's long term plans to split off from the UK are on indefinite hold due to the economic downturn.

Economically, the UK had too many eggs in one basket--too much of their economy is based on complex financial services--read U.S. sub-prime mortgages... and they are taking a worse hit to their economy than most developed countries. The recession will bit deeper and last longer here than in most countries.

Socially, this class-conscious society will carry on, with too big of an underclass being supported by too small of a middle class. One tends to think it will boil over at some point, but the stolidiy and placidity of England seems never ending. Immigration has subsided as the issue, replaced by the recession and its effects on home prices. The NHS, the state-supported healthcare system, has improved dramatically, although it could still get a lot better, and people know it.

Technologically, the UK is still a hotbed of innovation and still resolutely unable to exploit it. Oxbridge (Oxford and Cambridge) still are 2 of the top 10 universities in the world, and the Russell Group of universities rival the Ivy League in America. The UK government makes a real effort to encourage entrepreneurs, up until the time they actually invent something, at which point they almost all sell out to foreign companies with capital. In that, they are only following the example of too many larger UK companies.

Legally, the UK has more problems than they care to admit. There is corruption in high places--witness BAE's dodgy deal with the Saudis some years back, a deal that still goes uninvestigated. There are also worrying signs of the UK backing away from important freedoms, such as jury trials. Terrorism is being used as an excuse for taking away too many liberties.

Environmentally, the UK is clean and green and worried about CO2. They have made some of the most ambitious pledges about going even greener, and nobody knows how they are going to pay for them.

It is easy--maybe too easy--to predict a return to the era of moth-eaten sweaters and shabby bedsits for the UK. They're actually too smart and too hard working for that to be a guarantee. But the middle classes need to develop a mechanism for expressing political will--right now, the only voices heard are the protestors. There is no real voice for most of England. Until that develops, they will flounder.

Pestle summary Russia

For each of the 8 countries we're covering, we'll start off with topline statistics as sort of a summary, or more of a launching pad for further exploration. We'll start with Russia, partly because this may be the last 5-year period that it is included in the top 10 international powers. Out of all the 8 countries I will look at individually, Russia faces the most daunting challenges. They have faced worse--I would hate to be a centenarian from Russia--but I doubt if they have the resources or leadership to avoid a sharp general decline over the next five years.

Most numbers here are from Wikipedia or the CIA World Factbook, with a little Nationmaster thrown in.

GDP: 8th in the world 2009, 1.75 trillion

Population: 9th in the world, 142 million

Military expenditures: 5th in the world, $50 billion

The Russian Federation just finished a spectacular decade, averaging 7% annual growth since 1998. But at the end of that spectacular decade, their average income is $640 per head, their life expectancy is 66, and they only average 14 years of schooling. They really needed to make better use of the Golden Decade.

Russia is extremely dependent on exporting natural resources, especially natural gas and oil. The price of those are falling. So is their population--it's declined 5% since 1993 and although it is slowing it shows no sign of reversing. Alcoholism, drug addiction and AIDS are taking a heavy toll on Russia. Inflation is high, at 12%, and unemployment looks to increase from its current 6%. They've already blown through a good chunk of the petro-dollars they had put aside, and the current economic crisis is not going to be kind to Russia.

Seems pretty clear that Vladimir Putin is very much running the show, with President Medvedev along for the ride. This suits the Russians just fine--but it shouldn't. A decade of rising oil prices made Putin look a lot better than he really is.

Their levers of power are the energy they supply to much of the EU and their stockpile of nuclear weapons (They are 5th in military spending, with $50bn annually, less than 10% of the U.S.). On the perceived corruption index, they rank #129, between Niger and Sierra Leone. On business efficiency, they are ranked 45th out of a total of 51 countries, and sit between Italy and Romania.

Their environment's a bit of a mess, with a lot of leftover waste from the Cold War, the oligarchic exploitation of resources, and some stuff left over from WW2. As Nationmaster lists them, "air pollution from heavy industry, emissions of coal-fired electric plants, and transportation in major cities; industrial, municipal, and agricultural pollution of inland waterways and seacoasts; deforestation; soil erosion; soil contamination from improper application of agricultural chemicals; scattered areas of sometimes intense radioactive contamination; groundwater contamination from toxic waste; urban solid waste management; abandoned stocks of obsolete pesticides". They can survive this because the country's so big.

As for technology, they can't run their oil companies without Western help--but they're trying. They export nuclear technology and have good competence there. But Russia only has one university in the top 100, so long term prospects for entreprenurial excellence are dim.

I hate to be so bleak--maybe when we look in greater depth we'll see reason for hope for this country--they certainly have shown themselves to be resilient, if nothing else. 

Defining the universe

When looking at international trends, it doesn't make sense to look at 295 different countries. If you want to look at economics, the top 10 countries make up about 75% of world GDP at nominal rates. Similarly, the top 10 countries hold about 59% of the world's population (note that it's not the same 10 countries). And for military spending, the top 10 account for 75% of the total. If you capture strong trends in these, it will have a marked influence on the total--especially as the big spenders for military are also the big exporters, and the top GDP producers also account for a good chunk of FDI.

Five countries are in the top 10 in all three categories: The United States, China, India, Russia and Japan. (Hmm. Three from Asia... fits right in with current thinking about the Asian century...). Those five should occupy most of our time, then. We should also look at Brazil because of its potential, and France because of its achievement--and I like to throw in the UK, because of its history and the Commonwealth. Which gives us eight countries to explore in depth. Adding those extra three also increases the total percentage of world activity covered on this weblog. I will try to look at each of these under each of the PESTLE categories, and then I'll tend to look at regions to try and give a bit of decent coverage overall.

But! I do take special requests. A lot of people visiting this blog are using country specific search terms and PESTLE. Toss a request my way and we'll see what happens.

Stress Testing the Third Sector

Before I continue with healthcare technology, let's take a minute to talk about the third sector, the charities, not for profits and non governmental organisations that have assumed such a large role in society over the past decades.

These organisations receive their money from a variety of sources, but all of these sources are facing tough choices--which they will naturally pass on to the third sector when they can. Smart government (definitely not smart governance) would be cutting funding to third sector organisations and letting them decide which of their constituencies must suffer, and there is some evidence that that is happening. Smart management in the third sector (not something the third sector is famous for, but one can hope) would be to get firm commitments for five years at whatever level they can and to publicly readjust their missions accordingly.

How can third sector organisations prepare for the future? They are subject to the vagaries of elected officials, capricious donors and other third sector organisations, not to mention transnational bodies. What would be a good list of practices to have on hand?

1. Have a 5-year business plan for normal operations

2. Have a contingency plan for times of stress that will insure completion of core mission for 1 year

3. Cultivate a group of contingency investors/donors/funders for times of emergency

4. Create contingency agreements with landlords, car companies, food suppliers, telecoms providers, etc.

5. Have something to barter with

Come on, folks--help me out here. Those five points look pretty thin.