02/03/2005
2020...The Global Economy
Every five years the National Intelligence Council takes a look at the future of the world, a global outlook covering everything from terrorism to the economy. Headquartered at the CIA, but independent of it, the council seeks to combine the views of all 15 of the nation’s intelligence agencies. I thought the following comments, limited to the economy, would be of interest.
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Report of the National Intelligence Council’s 2020 Project
[On the emergence of China and India and other thoughts]
Most forecasts indicate that by 2020 China’s gross national product will exceed that of individual Western economic powers except for the United States. India’s GNP will have overtaken or be on the threshold of overtaking European economies.
Because of the sheer size of China’s and India’s populations – projected by the US Census Bureau to be 1.4 billion and almost 1.3 billion respectively by 2020 – their standard of living need not approach Western levels for these countries to become important economic powers.
Barring an abrupt reversal of the process of globalization or any major upheavals in these countries, the rise of these new powers is a virtual certainty. Yet how China and India exercise their growing power and whether they relate cooperatively or competitively to other powers in the international system are key uncertainties. The economies of other developing countries, such as Brazil, could surpass all but the largest European countries by 2020; Indonesia’s economy could also approach the economies of individual European countries by 2020.
By most measures – market size, single currency, highly skilled work force, stable democratic governments, and unified trade bloc – an enlarged Euro will be able to increase its weight on the international scene. Europe’s strength could be in providing a model of global and regional governance to the rising powers. But aging populations and shrinking work forces in most countries will have an important impact on the continent. Either European countries adapt their work forces, reform their social welfare, education, and tax systems, and accommodate growing immigrant populations (chiefly from Muslim countries), or they face a period of protracted economic stasis.
Japan faces a similar aging crisis that could crimp its longer run economic recovery, but it also will be challenged to evaluate its regional status and role. Tokyo may have to choose between “balancing” against or “bandwagoning” with China. Meanwhile, the crisis over North Korea is likely to come to a head sometime over the next 15 years. [Ed. no kidding!] Asians’ lingering resentments and concerns over Korean unification and cross- Taiwan Strait tensions point to a complicated process for achieving regional equilibrium.
Impact of Globalization
We see globalization – growing interconnectedness reflected in the expanded flows of information, technology, capital, goods, services, and people throughout the world – as an overarching “mega-trend,” a force so ubiquitous that it will substantially shape all the other major trends in the world of 2020. But the future of globalization is not fixed .Some aspects of globalization – such as the growing global interconnectedness stemming from the information technology (IT) revolution – almost certainly will be irreversible. Yet it is also possible, although unlikely, that the process of globalization could be slowed or even stopped, just as the era of globalization in the late 19th and early 20th centuries was reversed by catastrophic war and global depression.
Barring such a turn of events, the world economy is likely to continue growing impressively: by 2020, it is projected to be about 80 percent larger than it was in 2000, and average per capita income will be roughly 50 percent higher. Of course, there will be cyclical ups and downs and periodic financial or other crises, but this basic growth trajectory has powerful momentum behind it. Most countries around the world, both developed and developing, will benefit from gains in the world economy. By having the fastest-growing consumer markets, more firms becoming world class multinationals, and greater S&T stature, Asia looks set to displace Western countries as the focus for international economic dynamism – provided Asia’s rapid economic growth continues.
Yet the benefits of globalization won’t be global. Rising powers will see exploiting the opportunities afforded by the emerging global marketplace and the best way to assert their great power status on the world stage. In contrast, some now in the “First World” may see the closing gap with China / India, and others as evidence of a relative decline, even though the older powers are likely to remain global leaders out to 2020. The United States, too, will see its relative power position eroded, though it will remain in 2020 the most important single country across all the dimensions of power. Those left behind in the developing world may resent China and India’s rise, especially if they feel squeezed by their growing dominance in key sectors of the global marketplace.
The greatest benefits of globalization will accrue to countries and groups that can access and adopt new technologies. Indeed, a national level of technological achievement generally will be defined in terms of its investment in integrating and applying the new, globally available technologies – whether the technologies are acquired through a country’s own basic research or from technology leaders. The growing two-way flow of high-tech brain power between the developing world and the West, the increasing size of the information computer-literate work force in some developing countries, and efforts by global corporations to diversify their high-tech operations will foster the spread of new technologies. High-tech breakthroughs – such as in genetically modified organisms and increased food production – could provide a safety net eliminating the threat of starvation and ameliorating basic quality of life issues for poor countries. But the gap between the “haves” and “have-nots” will widen unless the “have-not” countries pursue policies that support application of new technologies – such as good governance, universal education, and market reforms.
Those countries that pursue such policies could leapfrog stages of development, skipping over phases that other high-tech leaders such as the United States and Europe had to traverse in order to advance. China and India are well positioned to become technology leaders, and even the poorest countries will be able to leverage prolific, cheap technologies to fuel – although at a slower rate – their own development.
*The expected next revolution in high technology involving the convergence of nano-, bio-, information and materials technology could further bolster China and India’s prospects. Both countries are investing in basic research in these fields and are well placed to be leaders in a number of key fields. Europe risks slipping behind Asia in some of these technologies. The United States is still in a position to retain its overall lead, although it must increasingly compete with Asia to retain its edge and may lose significant ground in some sectors.
More firms will become global, and those operating in the global arena will be more diverse, both in size and origin, more Asian and less Western in orientation. Such corporations, encompassing the current large multinationals, will be increasingly outside the control of any other state and will be key agents of change in dispersing technology widely, further integrating the world economy, and promoting economic progress in the developing world. Their ranks will include a growing number based in such countries as China, India, or Brazil. While North America, Japan, and Europe might collectively continue to dominate international political and financial institutions, globalization will take on an increasingly non-Western character. By 2020, globalization could be equated in the popular mind with a rising Asia, replacing its current association with Americanization.
An expanding global economy will increase demand for many raw materials such as oil. Total energy consumed probably will rise by about 50 percent in the next two decades compared to a 34 percent expansion from 1980-2000, with a greater share provided by petroleum. Most experts assess that with substantial investment in new capacity, overall energy supplies will be sufficient to meet global demands. But on the supply side, many of the areas – the Caspian Sea, Venezuela, and West Africa – that are being counted on to provide increased output involve substantial political or economic risk. Traditional suppliers in the Middle East are also increasingly unstable. Thus sharper demand-driven competition for resources, perhaps accompanied by a major disruption of oil supplies, is among the key uncertainties.
China, India, and other developing countries’ growing energy needs suggest a growing preoccupation with energy, shaping their foreign policies.
For Europe, an increasing preference for natural gas may reinforce regional relationships – such as with Russia or North Africa – given the interdependence of pipeline delivery.
[Source: cia.gov]
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Hott Spotts will return Feb. 10.
Brian Trumbore
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