Wednesday, 22nd December, 2010
The Shape of the World in 2020
None can foretell the future, and yet the shape of what we face can be shrewdly estimated with enough attention to historical trends; with broad contextual understanding; and with sufficient insight into the character of leaders, their societies, and the structures which define their basis.
These estimates will be tempered by the sudden acts of nature, the sudden emergence of true leadership from unexpected quarters, or key breakthroughs in science. Still, we can hazard reliable views on the shape of the world in, say, a decade - in 2020 - if present trends and characters remain, and on a knowledge of certain baseline levels of wealth and capability which presently exist.
In 2011, the world will probably remain beset by the lingering of the present crisis of currency levels and economic performance. This is essentially a mass psychological crisis, based around the perceptions which create trust, particularly trust in asset values and institutions.
In some respect, historical trends have given populations in modern societies excessive trust in the ability of their institutions to remain operational, untended by their populations. As a result, governments have grown larger and less efficient, and have arrogated to themselves more and more of the resources of societies, thereby inhibiting productivity. At some point, those societies, when beleaguered and impoverished, lose faith in the institutions of governance and leadership succession.
It is possible that the end of the second decade of the 21st Century will see exactly that tipping point, at which faith - a psychological attribute - disappears, and either rigid reaction or anomie and chaos intervene. This forecast is based on the existing performance of most governments of modern economies, but reactions of their societies will vary based on their individual natures, their reserves of wealth, and the degree to which government and leaders can adapt radically to reignite and impart purpose and prosperity to their societies.
At present, in 2010, we see no major societies prepared to take such radical steps to reverse trends of social distrust in systems, and, indeed, the accumulation of laws and customs actually makes such radical action infeasible or unlikely, except in the event of major external threat, such as war.
This trend to inflexibility and resistance to radical change (which would entail discomfort and the removal of personal wealth) has reinforced a "business as usual" attitude. People rarely see the extent of change occurring around them; it is disguised by a continuity of visual references; and the presence of institutions which have not previously failed them.
In fact, it has been said of the modern era that institutions have evolved specifically to disguise change, because change appears threatening. Thus, when systems finally break down under the weight of debt, social change, and reaction, the event appears sudden and unexpected.
Some societies will merely erode into lower expectations of their own domestic and international capabilities, and well-being: many modern societies will allow themselves to decline in "a step of sighs", occasionally rebuilding to some degree, only to resume their downward steps, unless confronted with an existential challenge which forces them to cut away the inhibiting dross of years, and infuses them with the energy to respond.
So, then, the coming decade promises a continuation of the declining fortunes in major modern economies, absent the catalyst to reverse the trend.
And if Western societies falter, will new societies step forward to claim wealth and power? Not necessarily. There is no guarantee of continued growth in the People's Republic of China (PRC), the Republic of Korea (RoK), the Russian Federation, or India. Each has their frailties, and each is dependent on the global wealth to varying degrees.
Indeed, it would be reckless to over-state the resilience of the PRC, Indian, and even Russian economies, bearing in mind their own institutional constraints and their low per capita wealth. Even more important is the fact that each of these societies, again in varying measure, have failed to build the granite base of self-confidence within their societies in the durability and infallibility of their national hierarchies.
We see, as this column has said in the past, the ongoing lack of a global reserve currency, for example, to replace the United States dollar, because neither the PRC's yuan, the Indian rupee, the Russian ruble, nor the euro are yet greeted with true global credibility.
How, then, do we measure wealth, and power, absent a currency yardstick?
This brings up the next factor in sustaining wealth, even wealth abstractly denominated by a currency. Wealth is based on trust in currency which is in turn based on trust in the underlying asset values which support it. In modern societies - those with internationally tradable currencies - asset value has moved from a nominal dependence on gold to a dependence on other physical determinables.
To a great degree, this was, for decades, based on the strength of the manufactures of primary and secondary industry, and also on the demand for - and therefore the "value" of - real estate. The leveraging of real estate as the basis for access to capital has become the basis of Western investment, taxation, and power.
It was this fundamental which was at the heart of the "global financial crisis" of the past two years: the attempt to build real estate values rapidly and artificially [if any aspect of the "value process" can be said to be not artificial; e.g. outside of a real market.]
That bubble burst, and with it much of the ability to amass capital and move it globally. The result will be evident over the coming decade in a reversion to more difficult capital formation; increasing nationalism and resultant bilateralism of trade funding; and so on.
But there are other trends which will help determine outcomes over the coming decade, particularly the suddenness with which changing demographic patterns begin to bite. We can see, for example, the impact which the La Nina floods had in skewing the population dispersal patterns in Pakistan, the country with the highest level of population growth and the highest rate of urbanization. Now, the agricultural productivity of rural areas has been damaged by the flooding and more people have moved to the cities, substantially decreasing the per capita productivity there.
However, in most modern societies the peaking of population growth rates, and the move toward sudden population declines, will occur possibly within the coming decade. Population levels in a number of major nations are presently not sustainable by replacement births, and it may be that we begin to see areas gradually depopulate, reducing the demand for real estate, which has been the modern basis for wealth measurement and currency value.
The last such major depopulation occurred with the great plague which followed the globalization of Genghis Khan in the 12th and 13th centuries, but at that time abstract value - such as portable wealth, expressed in currency - was not so dependent on real estate, and particularly highly-valued urban real estate.
So the world in 2020 could see a significant decline in the availability of capital (in real terms; the availability of printed, inflated money will not be meaningful); in the mobility of societies and their ability to access goods not produced within easy reach. All this will occur unless radical steps are taken to revive real productivity and the self-reliance of societies.
And such radicalism is possible only through leadership. It is that which we await.
Analysis by Gregory R. Copley, for The Global Intelligence Report