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The World by 2030

The world is heading towards 2030 with much greater uncertainty as epochal trends and paradigm shifts are playing out. That's according to the latest report by the Washington D.C -based National Intelligence Council - "Global Trends 2030: Alternative Worlds" dated December 2012.

The report admits that global economic power is definitively shifting to the East and the South, reversing the historic rise of the West since 1750.

By 2030, the developing world will account for over 50% of the world's economy with China displacing the United States as the largest economy.

Power will become more diffused in a multipolar world, including individuals and other non-state actors, characterised by unprecedented urbanization, rise of the middle-class, new, disruptive, or lethal technologies, resource constraints, more aging populations, and risks of more crises and conflicts.

America will lose its global dominant position but is likely to remain primus inter pares amongst all nations. By all accounts, a great re-balancing of the world will be taking shape, perhaps not dissimilar to the European "long peace" set in motion by the Congress of Vienna in 1815, which was also a mutli-polar period of rapid social, economic, technological and political change. However, many a black swan could change the game along the way.

According to the report, how America will navigate this changed world is likely to shape its fate, including that of the United States itself, for better or for worse. 

The full NIC report follows.

Download National Intelligence Council - Global Trends - Alternative World - November 2012

Extracts of the most salient tabular summaries are here.

Download Extracts - National Intelligence Council - Global Trends - Alternative World - November 2012

The NIC report may be put into better perpective with reference to the so-called soaring EAGLEs (Emerging and Growth-Leading Economies) here

Or when read in conjunction with the latest World Bank Report "China 2030: Building a Modern, Harmonious, and Creative High-Income Society", which was undertaken jointly with the Development Research Centre of the State Council. Click here

The following China-centred dynamics are also relevant  -

(a)  According to Goldman Sachs, by 2050 the top ten economies in the world will be, in descending order, China ($70 trillion), US (about $38 trillion), India (about the same as the US), Brazil (barely over $10 trillion), Mexico (just under $10 trillion), Russia, Indonesia, Japan, United Kingdom, and, lastly, Germany (about $5 trillion). Only four of the G7 would thus remain on this list. Except the US, the other three G7 countries, Japan, UK, and Germany, would fall to the bottom. The combined economic weight of the six so-called Emerging and Growth-leading Economies (EAGLEs), what may be called the E6, would be over two and half times more than the remaining G4. Amongst the EAGLEs are the so-called BRICS (Brazil, Russia, India, China and South Africa), of which China's economy is bigger than the rest of the BRICS combined.

(b) According to Huang Renwei, Vice President of Shanghai Academy of Social Sciences, compared with a rising China, the relative strategic power of the United States is declining due to-

(i) its mounting debt exceeding sustainable limits, threatening the status of the US Dollar as the world's dominant currency;

(ii) its increasingly constrained financial capacity is likely to reduce its military capacity, its R & D expenditure and hence its ultimate technological lead;

(iii) the American-dominated global alliance may come apart in a decade or two if the United States becomes less and less able to provide most of the public goods holding such alliance together; and

(iv) geopolitics are giving way to geo-economics where China is building a China-centric regional economic infrastructure (read regional production and supply chain) reinforced by such economic alliance as ASEAN-China Free Trade Area, the largest in the world by population.This is happening while the West, including Japan, struggles to re-start their weakened economies by one form of quantitative easing or another (read money-printing).

See Huang's remarks (in Chinese) on Xinhuanet on 20 December 2012 here

(c) Rapidly being ""internationalized", the RMB, though remaining non-convertible on the capital account, is already ipso facto "eclipsing" the U.S. Dollar as the world's "reference currency". Click here

(d) according to “World Intellectual Property Indicators 2012” released by the Switzerland-based WIPO (World Intellectual Property Organization) on 11 December 2012, China tops the world in 2011 patent applications. China also leads head and shoulders in trademark applications as well as industrial design. As a developing country, China is therefore well on track to overcome the Middle Income Trap. Click here

(e) As the world is increasingly becoming eco-conscious, China is starting to lead in a number of renewable energies, including solar, wind and hydro. In particular, China is pushing for the rapid development of electric cars, through heavy state subsidy towards private ownership and intensive research and development, including green battery technologies. This promises to revolutionize the world's entire auto industry.

(f) Shale gas is set to change the shape of the world of energy. Click here for "The Golden Age of Gas" In addition, the widespread use of abundant shale gas in America and China will weaken the strategic clout of the Middle East and other oil-producing countries, with all that implies. As the world's leading energy consumer for a long time to come, China is well poised to benefit from America's expected shale gas bonaza and her own vast shale gas reserve, the world's largest, provided problems of water scarcity, groundwater pollution and lack of advanced fracking technologies can be overcome.

In sum, provided China continues to maintain an even keel in the run-up to 2030 (though that is by no means a foregone conclusion), the country, together with or in addition to America, is set to influence, if not shape, global dynamics much more than the National Intelligence Council report seems to imply.

Where will Abe be leading Japan? - TV interview with Aljazeera English

TV discussion on Inside Story with Aljazeera English on 17 December 2012 with Okubo Takuji, chief economist at Japan Macro Advisors and Arthur Stockwin, a fellow and professor, and former director of the Nissan Institute for Japanese Studies at University of Oxford.

Click here

An American new era beyond the fiscal cliff

While America is in the grips of the so-called “fiscal cliff”, a more fundamental question beckons about what kind of America people want in a looming new era beyond 2012.

As the latest National Intelligence Council report “Global Trends 2030: Alternative Worlds” shows, the world as the West has known for the past two centuries has been dramatically transformed.

Download National Intelligence Council - Global Trends - Alternative Worlds - November 2012

According to Jeffrey Sachs, Director of the Earth Institute and Professor of Health Policy and Management at Columbia University (“The Price of Civilization – Economics and Ethics after the Fall”, The Bodely Head, London, 2011) , “It is fair to say that more than two hundred years of North Atlantic dominance of global politics is coming to an end.” (P.89).

“Two thirds or more of Americans describe themselves as “dissatisfied” with the ways things are going in the United States,” up around from one-third in the late 1990s. A similar proportion of Americans described the country as “off track.” (p.11).

“America has vastly more land and natural resources per person than Europe does.” “The real point for us is that …….it has ended up with a lower average quality of life than in northern Europe. Yes, America’s GDP per capita is higher, but it is not bringing widespread benefits for the society.” (pp.225-226)

“……much of America’s higher GDP reflects higher healthcare costs, longer working hours and less leisure time, longer commutes, more military spending, and a higher proportion of income at the very top of the income curve.” (p. 225)

“Washington was still unable to come up with any long-term , serious responses to America’s waning competitiveness, instead turning again to the very same policy mix that had failed previously: easy money, tax cuts, large budget deficits, and starting in 2011, cuts in government outlays on education, infrastructure, science, and technology, the very areas in which the United States needs to regain its long-term competitiveness.” (p.103)

“Just when the government was needed to chart a course through the twists and turns of globalization, it went AWOL” in a “Rigged Game” of “America’s corporatocracy, a political system in which powerful corporate interest groups dominate the political agenda.” (p.105)

“In fiscal year 2011, the federal government covers 39% of its spending , roughly $1.4 trillion of 3.6 trillion, by borrowing”. “Today, we spend 1.5% of GDP to pay the interest. By 2015, it could be around 3.5% of GDP. By 2020, it could reach 4% of GDP or more”. (p.209).

Sachs advocates achieving fiscal responsibility and a healthier economy through savings, of say3% of GDP, by cutting waste, bloated costs, and non-essential expenditure. These comprise-

(a) implementing the cuts recommended by the National Commission on Fiscal Responsibility and Reform - amounting only to 0.5% of GDP;

(b) true healthcare reform in curbing excessive costs – 1% of GDP; and

(c) reducing the military budget to avoid excessive expenditure – scrapping Iraq and Afghanistan occupations – 1% GDP; reducing unneeded military procurement and outlay including more nuclear weapons and extended military bases - - 1.5% of GDP.

In return, Sachs urges that “we must add back another 3% of GDP in spending to increase the supply of public goods”. These include (p. 220) –

• Job training (0.5% of GDP)
• Primary and secondary schools (0.3% of GDP)
• Higher education (0.4% of GDP)
• Childcare and early childhood development (0.5% of GDP)
• Modernisation of infrastructure (1% of GDP)
• Research and development (0.3% of GDP)
• Diplomacy and foreign assistance ((0.5% of GDP)

He also points out that it’s “time for the rich to pay (a fairer share of) their due” (p. 229) to “regain prosperity” (Chapter 10) and to create a more “Mindful Society” (Chapter 9).

However, Sachs rightly warns that his proposals “assume that defence outlays as a share of GDP can be reduced by half of the current level, from 5% to 2.5% (of GDP), an approach that will certainly be resisted by the Pentagon and many key interest groups.” (p.221)

At the end of the day, GDP is not everything. Sacks refers to the Gross Happiness Index (GHP) initiated by Bhutan which quantitatively measures national happiness in terms of (pp. 206-7) –

• Psychological well-being
• Time use
• Community vitality
• Culture
• Health
• Education
• Environmental diversity
• Living standard
• Governance

For “Our Ultimate Economic Goals” (pp. 205-6), Sacks quotes Robert F Kennedy, Jr.,

“Yet, the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play; it does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit or our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything in short except that which life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”

As America confronts the fiscal cliff, it is never more opportune to grasp the nettle to put America back on track beyond the brink in a new era of competitiveness and prosperity.

May God bless America.  

A new era of manufacturing sans frontiers

A November 2012 McKinsey Global Institute report “Manufacturing the future: The next era of global growth and innovation” identifies the following global dynamics of manufacturing  -

• 16% share of global GDP
• 70% share of global trade
• advanced economy manufacturing jobs have dwindled from 62 million in 2000 to 42 million in 2010
• 30-55% share of service jobs in manufacturing
• 19 cents service input for every dollar of manufacturing output
• 3 of 5 global manufacturing groups where China leads while 2 where United States leads
• $342 billion in advanced economies’ trade deficits in labour-intensive goods
• $726 billion advanced economies’ trade surplus in innovative goods

In particular, the report points out that manufacturing contributes disproportionally to global exports, innovation and productivity growth (Exhibit E2) – 

• 70% of exports (2010)
• 77% of private sector R & D (2008)
• 37% to productivity growth (1995-2005)
• 16% to value-added (2010) and 20% to value-added growth (2000-10)

But manufacturing employment in advanced economies registered minus 24% from 1996-2006, when it represented only 14% of employment.

Download MGI- Manufacturing the future - Full report, Nov 2012

Five global manufacturing groups are identified – 

1. Global innovation for local markets (34% of global value-added)

     Motor vehicles, trailers and parts
     Other transport equipment
     Electrical machinery
     Machinery, equipment, appliances    

2. Regional processing (28% of global value-added)

    Rubber and plastic products
    Fabricated metal products
    Food, beverage and tobacco
    Printing and publishing

3. Energy-Resource-intensive commodities (22% of global value -added)

   Wood products
   Refined petroleum, coke, nuclear
   Paper and pulp
   Mineral-based products
   Basic metals

4. Global technologies/ innovators (9% of global value-added)

   Computers and office machinery
   Semiconductors and electronics
   Medical, precision and optical

5. Labour-intensive tradables (7% of global value-added)

   Textiles, apparel. Leather
    Furniture, jewelry, toys, other

The McKinsey study concludes that the distinction between manufacturing and services is becoming blurred. The whole manufacturing process is becoming granular, each input to be considered in a global matrix of total factor performance “across the full range of factor inputs and other forces that determine what it costs to build and sell products.” “An exciting era of global manufacturing is ahead –driven by shifts in demand and by innovations in materials, processes, information technology and operations.” “These innovations include new materials such as carbon fibre components and nanotechnology, advanced robotics and 3-D printing, and new information technologies that can generate new forms of intelligence, such as big data and the use of data-gathering sensors in production machinery and in logistics (the so-called “Internet of Things”.

On the indentified five manufacturing groupings, what the report has not stressed, however, is that –

(a)  Products and items in one group may be imbedded in another.  For example, wood, rubber and metals are an integral part of motor vehicles and machinery and equipment are essential in the energy-resource-intensive commodities group.

(b) Technology, creativity, and brands run through and between the groupings so that advantages in one group can be embedded in another group or groups.

(c) The global value chain without borders ensures that value migrates to where it can best be created, almost anywhere in the world. This translates into a breaking up of the finance, design, production and back-up services of a single product.

(d)  Therefore, the reference to China leading in three groups and the United States in two groups is at best relative.  For example, Lenovo, which has acquired IBM computers, and Huawei Technologies are becoming China’s global leaders in their own right in various computer sectors, while the largest profits in the textiles, apparel and leather sectors, a grouping where China is supposed to lead, are reaped by the world’s top luxury brands in advanced economies.

(e) The highest profit margins of manufacturing are captured by proprietary technologies, patents and brands. As China has found to her own cost, “labour-intensive tradables” may be reaching their sell-by dates. As a nation develops to a certain level, reaching the so-called "Lewis Curve Turning Point", rising wage and other rising input costs will become no longer commensurate with the relative low prices of products fetched. As a result, the country has to upgrade, innovate, and acquire patents and brands to survive. This is exactly what China is trying to do. As the latest “World Intellectual Property Indicators 2012” (11 December 2012) shows, China has now become, for the first time in a century, the first developing country taking the baton from Germany, Japan and the United States as the world’s top patent filer. Click here

The Mckinsey report, nevertheless, is instructive that in a rapidly changing and increasingly inter-connected and inter-dependent world, businesses and policy makers need to be agile and adaptive in honing new ideas, technologies, and talent to stay globally competitive, as a new era of manufacturing emerges that promises to know no rigid groupings and geographical or national borders.

IEA World Energy Outlook 2012

An Executive Summary released on 12 November 2012 follows.

Download IEA World Energy Outlook 2012 - Executive Summary

Latin American growth hooked on China

BBVA research dated December, 2012.

Download Latin American growth hooked on China - BBVA Research December 2012

 

"Who's Who: China's New Leaders"

The Financial Times article of 15 November 2012 features an user-friendly guide here