Futurecast: How Superpowers, Populations, and Globalization Will Change the Way You Live and Work [NOOK Book]

Read an Excerpt

Chapter 1
Enormous changes happen to most people over any ten- or fifteen-year period. Your brain and body, wants and desires, circumstances and prospects, all change as you grow from a five-year-old to a young adult of twenty, from a new husband or wife of twenty-five to early middle age, and from a fifty-year-old at the height of your career to a grandparent of sixty-five. Societies usually change less than most individuals over fifteen-year periods. Most societies have much longer lifetimes, too—although occasionally a great event like a war or an exceptional boom can shake up a nation’s conditions and prospects in short order. Broader and more powerful forces, beyond the control of any country or its leaders, can shift the course of development of the entire world. Such developments—some new force changes the way people approach family life, new technologies arise that change fundamental factors in all economies, or a global empire falls—usually happen once in many centuries. We live in a period when three such tectonic developments are all unfolding at the same time.
Three great, global forces are currently reshaping our near future. The first is an extraordinary global demographic shift. Over the last half-century, every advanced society and most developing countries have experienced a baby boom followed by a baby bust. The plague killed one-quarter of Europe’s population in the thirteenth century, and the world wars of the twentieth century decimated the young male population of several countries. But what’s happening today—across most of the world, the greatest aging of national populations ever seen, along with the smallest relative numbers of working-age people on record—is without historical precedent. It will have large effects on both how fast different countries grow and the basic capacity of governments to meet the needs of tens of millions of newly elderly people.
The second great force is globalization, principally, the rapid advance of hugely complex, worldwide networks of money, resources, production, and consumer needs. There have been several previous periods in which world commerce and communications suddenly expanded—especially in the era of exploration in the seventeenth century, and the spread of the telegraph and electricity in the late nineteenth century. The current phase is more far-reaching, with new information technologies affecting more societies more quickly. It’s also more comprehensive, with 151 countries agreeing to the World Trade Organization’s general rules that open each of them to foreign investment and to much greater foreign and domestic competition. Whether most people in Europe, Japan, or America thrive or merely get by will depend on how and whether their governments and societies find a way to prosper under these rules—and to compete with China and India’s unprecedented combinations of advanced technologies and huge numbers of low-wage, skilled workers.
The third great historic development is the fall of the Soviet Union, its European empire, and its political ideology. Empires and ideologies have fallen many times before, but not since the time of Rome has such an event left one global military and economic superpower with no near peer. And the rise of Rome didn’t coincide with a period of world-changing economic globalization. Nor was the fall of past empires accompanied by other seismic geopolitical changes of the sort we see today—namely, the rapid makeover of the world’s biggest country from socialism to a supercharged form of capitalism, and a shift of the center of global politics from the Atlantic nations to the Pacific rim. In place of the cold war and everything it demanded of most countries, the geopolitics of the next fifteen years will be driven by a combination of all of these extraordinary developments.
These developments and their combinations and interactions will have profound effects on the course of every major society and the daily lives of their peoples, and no nation or person can opt out of the consequences.
Strictly speaking, they will not determine anyone’s precise future. Wars and new alliances, booms and recessions, social progress and terrible domestic conflicts will come to pass in the next fifteen years, and each one will arise from countless decisions and events no one can know today. But whatever the near future holds precisely for all of us, it will unfold in a world where these three great forces shape its outset and outcome.
The powerful effects of these forces come from their depth and breadth. The family-planning decisions of billions of people over more than two generations have gradually shifted the demographics of most nations and produced the unprecedented aging of their populations. The roots of modern globalization, and the reason it’s not going away, are similarly elemental. Globalization as we know it today comes out of the responses of tens of thousands of businesses to the new availability of low-cost skilled labor abroad, the growing capacity of developing nations to attract foreign capital and technology, breakthroughs in manufacturing that have enabled producers to break up and distribute the parts of their production process across plants in different countries, and the spread of information technologies to manage and coordinate global networks. And America’s position as the world’s sole superpower has come from not only the epochal collapse of the Soviet Union but also sustained decisions over a half century by America to spend whatever it takes to be stronger than other nations, and by Japan and Europe’s major powers to depend on the United States for security. The deep sources of these developments give them enormous momentum as well as power.
Over time, every nation has little choice but to respond in some way to the pressures created by these historic forces. They can affect the way these forces influence their societies through policies that change the behavior of large numbers of their people or companies. But such changes take time to put in place and more time to affect such deep developments—in our judgment, a good ten to fifteen years. This potential for change limits our foresight to roughly the period between now and 2020.
Over that span, for example, nothing can change the demographic dynamics producing the current aging of all major societies and its impact on a country’s savings and growth rates and the sustainability of pension and health-care systems. Japan or the major countries of Europe could ease restrictions on immigration to expand their baby-bust labor forces and trim their state pension and health-care obligations. If such changes were to come about—and there’s little sign of any of this today—the early economic and social effects might be felt in about a decade. Similarly, France, Germany, or Japan could today undertake the difficult economic reforms necessary to make themselves more successful players in globalization—at least France now talks about it—but it would take at least ten years to see an impact on their growth rates and the incomes and productivity of their people. China’s and America’s strengths in the new global economy also could unravel over time if, for example, China were to confront serious social unrest that slowed its modernization or, even less likely, if America turned inward economically. The key roles the two countries play in globalization, however, are very unlikely to change materially in a decade’s time. In geopolitics, it’s conceivable that China or the European Union could permanently double or triple their military investments, starting today. It’s unlikely because it would slow China’s modernization and redouble the pressures on Europe’s social-safety-net systems. Yet if they did so, it would take a generation of such investments to build the capacity to successfully challenge American superpower on even a regional basis.
Looking further ahead over the next one or two generations, profound changes are certain to unfold in many societies. We cannot know what life will be like in America, Europe, Japan, or China in 2035 or 2050. But the aging of national populations, the opportunities and pitfalls of economic globalization, and the consequences of a geopolitics organized around a sole superpower are forces sufficiently entrenched and far-reaching to provide a unique blueprint of their likely course over the next ten to fifteen years.
The Earthquake of Demographic Change
An historic aging process is taking place in virtually every society today. Across the globe, the average age of the population in almost every nation is rising. This kind of change has occasionally happened in the past to one or a few countries at a time, when a war or epidemic has wiped out part of a younger generation. Germany and France each lost about 10 percent of their young male populations in World War I—more than 3 million between them—and the Spanish flu of 1918–1919 claimed 30 million lives, the majority ages fifteen to thirty-five, from more than ten countries. This time, for the first time in recorded history, almost every country in the world is experiencing an unusually large generation followed by an unusually small one. Both the causes and the economic results, however, differ among countries.
In Western Europe, America, and most of the world’s advanced countries, the initial baby boom came out of decisions by tens of millions of couples to defer marrying or having children during the Depression and the Second World War—and once prosperity and peace returned, they choose to have many more children than their parents did. The same outcome was unfolding at roughly the same time in dozens of less-developed societies, but from different sources: There, tens of millions of young couples discovered that many more of their children were surviving than in the past, principally because of large improvements in basic health and sanitary conditions. A second factor also emerged across Asia, Europe, and North America: Medical advances were increasing life spans, especially at the other end of life. From 1960 to 2000, the life expectancy at birth of Americans, Japanese, and Europeans increased by seven to thirteen years; and reached eighty-three to eighty-five for those sixty-five or older. Over the same period, the life expectancy of the Chinese at birth nearly doubled, from thirty-six to seventy years.
Finally, a separate series of factors brought these baby booms to screeching halts in the following generation, when expanding economic opportunities—especially for women—better infant care, and inexpensive contraceptives led baby boom women around the world to choose to have many fewer children than their mothers. Put together all of these forces, and the neat order of generation succeeding generation—the stable age structure that most countries had since the early 1800s—changed radically across the world.
What would happen to your family if, following a few decades of growing paychecks earned by you and your mate, all at once one of you could no longer work full-time and a relative with no resources had to move in? To begin with, it’s a family crisis, and unless you have a plan to somehow raise your income, the material conditions of your family’s life would deteriorate fairly quickly. Family meals would become more basic and vacations less frequent. The cars you drive would grow older and break down more often. You would have to live with more stress and your general health might well worsen. The time and energy you would have to help out at church or your children’s school could slowly disappear. Ultimately, such a crisis breaks up marriages and, almost always, children suffer both at home and at school.
The results are much the same for a country—when the number of working-age people who produce everything from food and pharmaceuticals to education and supersonic bombers, falls, just as the number of people who need and expect a lot of help from government rises. Over time, the quality of national life may deteriorate, too. With fewer people producing wealth and more older people needing income support and medical treatment, taxes rise and investment slows. Lower investment rates mean that over time, most people’s paychecks will grow more slowly—or stop growing altogether—even as their taxes increase.
Demographic shifts are very powerful forces, but their ultimate outcomes are not predestined. Starting with Thomas Malthus’s famous essay in 1798, people have worried that the aging of a generational bulge like the one so many countries are experiencing today will badly strain a country’s resources and drive down its economy, often long before the baby boomers reach middle age. Malthus is not much read today for his predictions, but his dark scenarios retain a hold on many people’s imaginations. As recently as the 1970s, the U.S. National Academy of Sciences and the United Nations both warned that sharp increases in population around the world would leave most people worse off. A presidential commission of academics and public officials, chaired by John D. Rockfeller III, pronounced that “we have concluded that no substantial benefits would result from continued growth of the nation’s population,” and zero population growth “would ‘buy time’ by slowing the pace at which growth-related problems accumulate.”1 Like Malthus, they overlooked the power of new technologies to create new resources and get more out of those we have, they underestimated the wealth that could be generted by better-educating all those additional people, and they didn’t understand how well some economies and societies can adjust to changing conditions.
A family, like a nation caught between less income and greater expenses, has alternatives, none of them wholly appealing. One of the parents can go back to school and learn a new set of skills that pays more. The family could take in a working-age cousin in similar straits and pool their incomes. Then there are options no one likes to consider, such as asking an aging relative to cut back on his medications. A nation, like a family, has alternatives, too, even if their responses are shaped by other factors. In the United States, the society learned new skills: Government spending and the ambitions of entrepreneurs and scientists promoted the development of computers and software that ultimately raised U.S. productivity, so that even a smaller number of working Americans could produce more. China went further along the same kind of path. There, a new generation of leaders not bound by the 1948 revolution, or Mao Zedong’s perverse ideology, opened their backward economy to advanced western technology and business methods. The United States, China, the East Asian countries, and later much of Central Europe also deregulated scores of industries and opened themselves up to foreign producers.
These changes ultimately cost America about one-third of its manufacturing jobs, as they did in Europe and Japan. One difference was that Europe and Japan generally held on to most of their regulation; while in America deregulation brought on more intense competition, producing economic pressures that created a lot more jobs of other kinds. Another difference was that as the boomer generation aged, the United States opened its borders to more immigrants that supplemented its workforce, while most other advanced countries kept their borders closed. The rapid changes in China and Southeast Asia also cost many tens of millions of people their traditional livelihoods, while other factors opened up economic opportunities in much of Asia. Once falling infant mortality rates brought down the average number of births by women across much of Asia, millions more Asian women went out to work.
In some countries, the right policies helped turn their generational bulges into what pundits called economic miracles. All the investments in education and health care across East Asia in the 1950s and 1960s helped make their bumper crop of boomers healthier and more productive; and by the 1970s and 1980s, those societies had the world’s fastest-growing economies. The baby boom came a little later to Ireland than to East Asia or most of Europe. Since the early 1990s, the “Celtic Tiger” has been Europe’s fastest growing economy—huge tax and regulatory concessions for foreign IT companies explains much of it, but economists figure that the bulge of better-educated Irish boomers entering the workforce in the 1980s and 1990s has accounted for two-fifths of that achievement. While small-nation powerhouses like Korea and Ireland have created economies that can help support their demographic bulges as the boomers retire, countries that have taken less advantage of the new demographic conditions find themselves in real trouble. Much of Latin America ignored their own boomer bulges or approached them as a burden. Almost two generations of military dictatorships neglected mass education and the policies that might produce sensible modernization, leaving a legacy of slow growth and volatile politics for their more democratic successors, who now face rapid expansions in their labor forces from late-coming baby booms. Japan, Germany, and France invested in educating their boomers in the 1960s and 1970s. Their resistance to the demands of globalization in the 1980s and 1990s, however, has cost them a generation of potentially very large, demographically driven dividends and left them no cushion when their boomers hit retirement age over the next fifteen years.
These changes, and the varied responses of different societies, are sending shock waves through the economies and daily life of every region and country. In Japan and across most of Europe, the baby bust is beginning to shrink their labor forces; and unless robotics produces a new cyber-labor force, that factor alone will drive down savings, investment, and overall economic growth over the next fifteen years. In most other major nations, the number of new workers will continue to expand, but more slowly than before, producing some of the same effects in milder form. Between now and 2020, for example, America’s baby bust will be largely cushioned by the effects of two generations of high immigration. Across China, most of South and Southeast Asia, and perhaps India—all among the fastest-aging countries in the world—great strides in health care and burgeoning market economies will enable more people to work both longer and more productively, containing many of the national costs of their baby busts. Whether a country’s labor force expands or contracts in coming years will also have huge social effects as its boomers grow older. The elderly populations in all of these countries will expand by 35 to 60 percent over the next fifteen years, forcing governments nearly everywhere to expand their public spending and raise taxes—or run huge deficits—to pay for basic medical care and retirement. Where a shrinking taxpayer base and slow growth drives down national wealth, these demands will likely polarize the public debate and ultimately produce intense and nasty political conflicts.
A New Economic Landscape
Large and deep changes in the way the world’s major economies operate is a second historic force shaping everyone’s near future. For the past thirty years, trade and investment between countries has expanded twice as fast as the total growth and investment of all individual countries, creating a new global landscape. By 2020, most of what Europeans, Americans, and Asians drive, use, operate, and consume—the vast majority of manufacturing and many business and personal services—will be made or provided in factories and office complexes of fast-developing, lower-wage countries—not just China, but also places such as Bangladesh, Malaysia, Indonesia, Mexico, Brazil, Poland, Romania, Tunisia, and Ghana. Today, Renault, Daewoo, and DaimlerChrysler all produce cars in Romania. In the same small country, Vodafone and Qualcomm manufacture electronics, Hewlett-Packard and IBM produce computer parts, and Procter & Gamble, Colgate, and Coca-Cola produce their brands there as well. Goodyear tires, Procter & Gamble soaps and toiletries, and Coca-Cola that Americans and Europeans use and consume may have come from Morocco; while Pioneer Foods’ StarKist tuna, Kaiser and Alcoa aluminum, and Coca-Cola are all also produced today in Ghana.
Pundits and politicians first began talking about globalization in the 1990s; but in its current form, globalization really began in the 1970s, when it morphed out of the centuries-old dynamics of international trade. One reason for the change was the unilateral decision by the United States in 1971 to end the regime of fixed exchange rates established after World War II. For the first time, western companies could exchange the profits they earned abroad for their currencies at market exchange rates that shifted little by little, day to day. Just as important, OPEC tripled the price of oil at roughly the same time. Every large company scrambled to cut other costs and began looking more closely at the most successful developing countries, where everything but energy was a lot cheaper than in the West. On the heels of these changes, foreign investments shot up. U.S. and Japanese companies expanded their foreign operations and business relationships in the developing world, especially in Asia, where the demographic shifts and local improvements in health and education were creating a large, relatively skilled yet low-wage labor force. By the end of the 1970s, western multinationals were transferring technologies and building plants across East Asia. The United States, Europe, and Japan began losing manufacturing jobs, and the miracle of the “Asian Tiger” economies took off.
Even then, there was still no real global economy to speak of. Most economic relations between countries occurred within the two great geopolitical blocs, and almost never between them. The first, reasonably dubbed the “free world,” took in non-socialist, developing countries of Asia, Latin America, and southern Africa, nations that exported commodities like oil, minerals, and food—principally to the advanced economies of Europe, Japan, and the United States, which also exported more sophisticated finished goods mainly to each other. The second bloc comprised the Soviet Union, Eastern Europe, China, India, and Cuba, and involved similar patterns of trade. The two blocs faced each other in the long cold war, and for fifty years had little to do with each other economically.
These separate political and economic blocs suddenly dissolved in the 1990s, changing the basic shape of international economy. First, the Soviet Union collapsed in 1989, ending the separate, socialist economic bloc. For the first time, companies in America, Europe, and Japan gained access to the huge labor forces and resources of China and, to a much lesser extent, India, which themselves had been busily educating a slice of their own demographic bulges. The pool of potential workers available in some way to western companies expanded by hundreds of millions of people in less than a decade—an event unprecedented in economic history—all ready to work for a fraction of the wages earned in the West, or even in the Asian Tigers or Latin America.
The hitch was that, in 1990, most of those low-wage, skilled workers worked in state-owned monopolies that couldn’t produce much of anything that Westerners would buy. But with the spectacular failure of communism in its founding place, market economics became the only national or global economic strategy left standing. So, in the early 1990s, the world’s leading market economies, headed by the United States, led the global negotiations to establish the new World Trade Organization (WTO). Technically, the WTO simply replaced the old General Agreement on Tariffs and Trade (GATT) that countries had used for fifty years to negotiate cuts in tariffs and quotas. From its beginning, the WTO has had more far-reaching ambitions, with an operating creed that channeled the beliefs of America and its president, Bill Clinton, in the benefits and inevitability of global investment, global technology transfers, and global markets for everything.
On January 1, 1995, seventy-four countries joined up, including every advanced economy and scores of developing nations from Brazil and Korea to Bangladesh and Kenya. With most of the world’s significant economies on board, the WTO began negotiating and writing the rules that every country would have to follow to be part of global capitalism, covering most major aspects of a country’s economic life. Countries have to agree to gradually roll back national laws and regulations that restrict foreign imports, sector by sector, from furniture and semiconductors to government procurement and telecommunications. They also have to agree to revise barriers that go across sectors, such as restrictions on foreign ownership or domestic competition. The bottom line is that countries that want to be part of globalization, WTO style, have to roll back subsidies and protections they’ve used for decades or centuries to support their own domestic industries.
Developing countries like China and India have faced the biggest shocks: They’ve had to junk their state monopolies and, sector by sector, open themselves up to western investment, joint ventures with western companies, and their own domestic competition. Of those two, China has carried through more extensively and deeply than India, and become a powerhouse in ways that India probably won’t match for more than a generation. Still, as these two huge countries, along with scores of smaller ones, generally opened their economies to markets, the lightning spread of new information technologies intensified the pace of change by giving American, European, and Japanese businesses much more capacity to shift their money and operations across continents and cultures, and keep track of their suppliers, subcontractors, and customers across the developing world.
The combination of these factors turbocharged the action in two different ways. It increased the ability of many developing countries to attract the capital to build modern factories and assemble modern business organizations. It also increased the ability of western companies to transplant their technologies and ways of doing business. Early western investors in China, such as IBM and the global water valve maker, Watts Water Technologies, didn’t make much profits from their initial joint ventures of the 1990s—labor was cheap but unreliable, transport was primitive, government officials chose their suppliers from their cronies, and the Chinese business practices of the time clashed with their modern methods. Gradually, each side learned what the other needed—and not only in China, but also across much of the rest of Asia and much of Eastern and Central Europe. By the year 2000, for the first time in history, companies with state-of-the-art technologies and business methods operated legally and efficiently in countries with virtually unlimited numbers of reasonably skilled workers ready to work for a small fraction of the average global wage.
With every major nation in the world on board, the new global economic terrain will help shape the path and fate of every one of them. By 2020, major heavy manufacturing will substantially disappear in the advanced economies, and the production of most autos and steel, appliances and electronics—regardless of their western brand names—will shift forever to the developing world. Heavy goods that are expensive to ship will be made in developing economies close to advanced-nation markets. For instance, China and Indonesia will produce heavy goods for the Japanese market, Turkey and Romania for the European market, and Latin America for the American market. Global producers of worldwide commodities will always keep a production foothold in their major Western markets, so American, European, and Japanese auto and computer plants will not disappear entirely from the their own and each other’s countries. Nevertheless, by 2020, most current American, European, and Japanese jobs in industries that compete directly with China and other modernizing, low-wage countries will be gone.
If there’s any doubt about the power of these changes to destroy jobs, consider that the United States lost more manufacturing jobs in the three years from 2001 to 2004—some 2.8 million of them—than during the “Rust Belt” deindustrialization years, from the late 1970s to the early 1990s. And, during the recent years of strong American growth from 2003 to 2005, electronics and electrical equipment makers, auto and transportation equipment producers, and industrial and computer equipment manufacturers closed more than six hundred U.S. plants. American or European politicians and their parties cannot turn back these forces, whatever they promise, and bring back tire or big machinery manufacturing to Toledo or Liverpool. At best, they can affect how their countries respond to those forces. Copyright © 2008 by Robert J. Shapiro. All rights reserved.