DECADE FORECAST - DECADE THROUGH 2005
GLOBAL INTELLIGENCE UPDATE
stratfor.com
December 24, 1994
The decade ending 2005 will be marked by two contradictory trends. On
one hand it will be a period of unprecedented global economic prosperity
and growth. On the other hand, it will become a period of increasing
fragmentation and tension in the international system. As in the period
prior to World War I, prosperity and instability will go hand in hand.
This is a contrarian view, of course. The predominant belief is that
prosperity tends to stabilize the international system. We disagree.
Paradoxically, increased prosperity and integration tends to increase
political instability. Prosperity leads to greater economic integration and
dependency resulting in greater insecurity by increasing the importance of
international economic relationships and therefore increasing the
opportunities for friction. This, in turn, leads to greater insecurity.
As economic integration increases, more of what is important to a nation
falls under the influence of foreign powers. Each nation seeks levers by
which to influence and control those foreign powers. The greater
U.S.-Japanese integration, for example, the greater the need on the part of
each nation to control the other's behavior. Political means are employed
to control economic relationships. This leads to increased political friction
in the international system. Prosperity and instability--as we saw from
1900-1914--frequently go hand in hand. Thus, the paradox of the next
decade will be that increased global prosperity will lead to increased
global instability.
In our view, the basis for global prosperity is demographic. The advanced
industrial powers, with declining birth rates and post-war baby booms,
have aging populations. Younger populations, particularly those
experiencing dramatic increases in family formation, tend to have surges in
consumption and borrowing. This increases the utilization of existing
industrial plants while suppressing capital investments. Such economies
tend to become increasingly inefficient, with resulting high interest rates,
inflation and unemployment. This was the process we saw during the
1970s--global stagflation.
As a population grows older, its tendency to consume first declines
dramatically and then begins to increase. The first is conditioned by the
fact that young families--borrowed to the limit--tend to limit their
consumption. The second is conditioned by the fact that as families
mature, constraints ease and deferred consumption tends to increase until,
as children leave the home, discretionary income increases dramatically.
At the same time, as a population ages, the debt to savings and debt to
asset ratio tend to improve. That places an upward limit on interest rates
and brings more money into the stock markets.
We are, therefore, seeing two processes at work simultaneously. On the
one hand, substantial funds are available on a global basis for investment in
capital plants. New efficiencies and new products are constantly being
fueled by new money seeking satisfactory returns. On the other hand,
these aging investors will retain sufficient cash for consumption items. This
demand decreases the risk of investment and guarantees high levels of
utilization. Increased wealth creates further investment and further
consumption, in a cycle that will intensify until about 2010, when this
generation passes into retirement and beyond.
Thus, the decade 1995-2005 will be seen as a golden age, comparable to
the last century's turn--and for many of the same reasons. However,
obviously not all nations will benefit equally:
The United States is by far in the best financial and demographic
position to capitalize on this tendency. Interestingly, the national
deficit, which is declining as a proportion of GDP, has not had the
effect feared. The primary problem of the deficit--that it crowds out
private borrowers and raises interest rates--has simply not
happened and it will not happen. What it has done is cripple the
Federal government's ability to finance new social initiatives. The
key structural issue -- the U.S. deficit with East Asia -- is primarily
a political rather than economic problem, and will be dealt with as
such.
The European Union's enjoyment of this period will be limited
somewhat by Germany's ongoing digestive problems--absorbing
the old East Germany--and an inability to create a Monetary Union.
On the one hand, the reluctance of major powers to abdicate
sovereignty to Brussels makes negotiations difficult and subject to
collapse and breakdown. On the other hand, the fact that the EU
contains both net creditor and debtor nations makes the creation of
a single, integrated fiscal policy--the precondition for monetary
union--difficult to imagine. The idea that Greece or Portugal and
Norway or the Netherlands will share fiscal strategies is a bit
difficult to imagine. As the EMU frays, European integration in
general will be questioned. The great reversal of 1997 will resonate
through the next decade.
Japan will share least in the new prosperity. The follies of the
1980s, when Japanese corporations sacrificed profits to market
share in order to maintain cash flow and pay enormous debt
service, will continue to haunt Japan. Promises of recovery will
come and pass away. In the meantime, pressures on Japan from
other East and Southeast Asian economies will whittle away at
Japan's comparative advantage, while the U.S. will continue to
dominate in the areas of technical innovation. Increased
unemployment, unfulfilled promises of prosperity, a sense of
opportunities missed, will increase social instability in Japan. To
understand Japan in the next decade, look at Japan during the
1920s, rather than at Japan in the 1980s.
We strongly feel that the last decade's surge in East Asian
economies will be peaking early during the 1996-97 cycle. Korea
and Taiwan are both reaching climaxes, marked by surplus cash
fleeing the country, searching for safe havens. The current Korean
investment boom, followed closely by Taiwan's, represents a
peaking--followed by substantial economic problems. China itself is
facing deep structural problems, particularly a shortage of skilled
labor and falling rates of return on investments. We find it extremely
unlikely, political considerations not withstanding, that China's
current growth spurt will continue.
We find the economic prospects for the Indian Ocean basin
particularly interesting. India's own growth possibilities, coupled
with growth in South Africa, Malaysia, Singapore and Indonesia,
hold open the possibility of a powerful growth surge in the region.
This will particularly be true if Islamic CIS nations orient themselves
to the south rather than to Moscow.
The worst is over for the Third World. Increased global prosperity
has placed a floor under mineral and agricultural prices. While we
do not foresee a return to the shortages of the 1970s, which were
the result of structural deficiencies that no longer exist, we will
experience short term cyclical increases as well as some spot
shortages, particularly in agricultural products.
This happy economic picture does not face an equivalently happy political
and military picture. That is not to say that this decade will experience a
systemic, convulsive war like the Napoleonic Wars, World War I or
World War II. Nor will it see a singular systemic confrontation, the
Anglo-French confrontation of the 18th Century or the Cold War. These
will happen, but not in this time frame. Rather, the next decade will be a
period of increasing disharmony both between nations and within nations.
Underneath it all will be a singular political question: how will the
international system cope with the growing power of the United States,
and what will the United States do with its growing power?
The end of the Cold War has made the United States the world's only
superpower--the only power able to project its forces globally. The first
expression of a post-Cold War foreign policy was the New World Order
doctrine. Its basic assumption was that the institutions created by the
United States to contain the Soviet Union would continue to function and
would continue to administer a relatively united world. Desert Storm was
the first, last and only manifestation of this doctrine. The weakness of the
New World Order doctrine was relatively simple: It forgot that a host of
issues divided the free world and that they had been put aside because of
the Soviet threat. Once that threat was gone, there was no longer any
reason to put those differences aside--unless the U.S. was prepared to
use its power to compel everyone to put them aside. The problem was
that the level of risk and assertion needed to compel recalcitrant allies to
toe the line simply wasn't worth it. Put differently, none of the issues
confronting the United States was worth the risk of intervention if that
intervention would cost lives.
For the United States, the most important issue is the maintenance of the
balance of power in Eurasia; preventing any single power to dominate it
and harness its resources. The U.S. intervened three times in Eurasia this
century. The first time, World War I, to prevent dominion by Germany;
the second time, World War II, to prevent dominion by Germany and
Japan; the third time, the Cold War, to prevent dominion by the Soviet
Union. In each intervention American strategy was to maneuver allies into
a position of carrying the brunt of the fighting with American logistical,
technical support paramount, and manpower secondary.
Today, no single power threatens hegemony. We expect Russian power
to emerge, but over the next decade, it will be focused on retrieving lost
portions of its empire. Until that takes place, no Eurasian hegemony can
be threatened. This means that for the next decade, the Eurasian balance
of power will maintain itself. Therefore, the United States can and will
withdraw, increasingly, from direct exposure to risks in maintaining that
balance of power.
The United States will, we think, revert to a blue water strategy, maintain
its naval power to the edge of Eurasia, but, as far as possible, avoid
engagement on the mainland beyond attempting to maintain the balance of
power through political and economic means. Behind this naval wall, the
United States will experience unprecedented levels of prosperity, returning
to a psychology redolent of the interwar and pre-World War I period.
The growing prosperity will marginalize the global dimensions of the U.S.
economy, allowing it the illusion of autarky.
We expect Eurasia, therefore, to become increasingly fragmented and
tense, because no overarching outside power is in a position or inclined to
intervene to maintain the balance of power. Key areas of instability will
include:
The Russian borderlands where Russia will seek to reassert itself,
meeting resistance at various points from Germany, the Islamic
countries and China, each of whom will, for their own reasons,
support breakaway elements.
China itself where we expect growing instability, including the
strong possibility of fragmentation and civil war, between the
interior and coastal regions.
Western Europe where non-military political competition between
the UK, France and Germany will result from their differing
perspectives on the role of the EU in stabilizing Europe's--and
Germany's--eastern frontiers.
East Asia where Japan's growing politico-military power, coupled
with economic stringency, will prompt more aggressive policies, will
become a scene of increasing U.S.-Japanese competition.
The key to understanding the next decade will be to understand that the
international system is in massive disequilibrium. One power-the United
States--has an overwhelming economic and political advantage.
Ordinarily, it would be in the interest of such a power to impose a Pax on
the world. However, because of geography-the location and size of the
United States--the costs of imposing such a pax substantially outweigh the
benefits. Any given intervention in Eurasia carries with it a higher cost than
the benefits. The only exception to this might be interventions in the
Persian Gulf, where the economics of oil occasionally make intervention
beneficial.
This means that except in specialized situations like the Persian Gulf the
world's leading power will lack the motivation to impose order. To be
more precise, the short term costs of intervention are certain, as are the
potential benefits. The long-term benefits of such interventions are
substantially less clear, and therefore are unlikely to take place. The
United States will rely increasingly on indigenous forces to create and
maintain a balance of power. While political suasion might be used,
military intervention will become more and more rare during this coming
decade.
As a result, regional hegemons will emerge through Eurasia. Most will be
contained by regional balances of power. Russia, for example, will almost
certainly reassert itself. However, constrained as it will be by forces within
the former Soviet Union, as well as surrounding states such as Germany,
Turkey and Japan, its ability to project power globally will be severely
limited. Other regional hegemons--Germany, Turkey, Iran, India--will all
be contained by regional forces.
The main exception to this will be Japan. Economically Japan is a global
power; in politico-military terms, it is a regional power. Japan's global
interests are dictated by imports of raw materials, and the need to assure
them, and exports and the need to maintain them. The next decade will
see persistent weakness in the Japanese economy and a continued
emphasis on exports. China will be the focus of these exports. If, as we
expect, China will disintegrate in the early part of the 1995-2005 decade,
Japan will be seeking to export into a chaotic situation. The temptation to
manipulate and control that chaos will be irresistible. Japan will return to
the great game it abandoned in 1945. In due course, it will become a
major player in the Western Pacific and elsewhere. At that point--toward
the end of this period-the United States will seek to contain Japan, setting
the stage for conflicts in the next decade. |
