There is an article flying around the interent right now by Herbert Meyer who served during the Reagan administration as special assistant to the Director
of Central Intelligence and Vice Chairman of the CIA's National Intelligence
Council. I wont make any comments on the transcript, it is pretty heavy reading and I dont agree with all points, but he makes a compelling argument.
Global Intelligence
Briefing For CEO'sby Herbert Meyer
Currently, there are four
major transformations that are shaping political, economic and world events.
These transformations
have profound implications for American business owners, our culture and 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 points 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
Muslims 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 Muslims (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
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 workforce 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 $60 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 Muslims.
Today, the Muslims
comprise 10 percent of France
and Germany, and the percentage is
rising rapidly because they have higher birthrates.
However, the Muslim
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 Muslim 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 post-modern 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 2000
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
regards 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 post-modern 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, many 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.
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 - 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 outsources 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 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 is over.
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 Muslim
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. The
Euro is down. 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
sell-off 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.
