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The World in 2025: Discussing some NIC predictions

Nadir Belarbi,

Sr Business & Innovation Manager http://www.linkedin.com/in/nadirbelarbi

nbelarbi@chicagogsb.edu New York, USA – March 2009

Abstract-This article provides a general analysis of some of the topics mentioned in the last National Intelligence Council report on the World in 2025. A focus is made on China’s potential and its impact on the US leadership with some recommendation to maintain it.

I. Predictions & Accidents The National Intelligence Council (NIC) released its new Global trends report for the world at the 2025 horizon [1]. The 120 pages try to predict the state of the world in 2025 based of current trends. The geopolitical balances are probably easier to predict than weather changes but still, how can we accurately predict the state of the world fifteen years from now? Some predictions seem obvious because of the current trends: • The emergence of a multipolar world with regional

powers like China, India and Russia where China will be the main US rival and a logical shift of Wealth from West to East.

• The decrease of the US dominance and its influence on the world.

• The raise of unprecedented conflicts related to climate change and resource scarcity.

The remaining predictions encompass changes that may strongly reshape the world depending on their magnitude: • Energy transition from Oil and Gas to alternative

energies by 2025. • Extent and intensity of the climate change. • The continuation of Globalization and world trade or

a shift to more protectionism and internal markets. • Domestic Political changes in Chine and Russia. • Nuclear proliferation in the Middle East in general

and Iran in particular. • The resolution of Israel - Palestinian conflict and the

stabilization of Iraq. • The impact of demographic changes on Europe and

Japan.

Predicting the future is a perilous exercise per se as unexpected events may occur and change the context or simply the extent of the consequences may exceed or not reach the predictions. The last financial crisis in 2008 is a good example; even if many financial experts warned markets on risks posed by the multiplication of opaque and complex financial instruments, few imagined the extent of the crisis and its international ramifications in Iceland and Greece. Overall, any unexpected political, social, technological or environmental events may affect the course of history and lead to new balances. Another major Earthquake, an Iranian nuclear test, a conflict between India and Pakistan or a large cyber-attack against vital on-line services, are examples of unexpected events that may have important consequences. The world future is a non-linear system where any small event may have important repercussions. The intent of this article is not to analyze all the details of the NIC report but rather discuss some of key topics highlighted by the documented.

II. The emergence of a multipolar world The emergence of a multipolar world is probably the most significant geopolitical change since the fall the Soviet Union. After nearly 20 years of unchallenged power, the US is confronted with new regional powers that seek a direct control of their geographical surroundings. These new contenders are growing economically and feel the need to strengthen their positions to impose their economical conditions and maintain an internal social and political stability. The list of these contenders is the following and mainly concentrated in the East: China, India and Russia, where China is without a doubt the new US rival. Unquestionably, the underdevelopment of China and India, and at a certain extent Russia, has turned these countries into fertile lands for low cost manufacturing and business investments. Today’s world economy growth largely relies

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on the Indian and Chinese markets; the western ones being saturated with weak growths. With currently 36% of the world population, China and India are catching up with the western world, reaching the US GDP respectively in 2036 and 2050 [2] [3]. The size of the Chinese and Indian population, the large differences between the income levels of their workforce with those of the developed countries will continue to attract foreign investments, sustain outsourcing and fuel an organic growth. The state capitalism followed by these players will probably continue to control their resources and insure a domestic stability. Beside Russia, the social structures of China and India in particular are very complex. The fast economic growth mainly concentrated in large cities will have a lower impact on rural areas leading to growing social tensions and income disparities among the population [4]. China and India are living in a compressed time frame, their own post industrial revolution eras. Half of a century is a very short period of time compared to the two centuries that Europe had to absorb these changes. China, India and at certain extent Russia, are raw economic and military powers that enjoy a steady growth because of their relative political stability and their cheap labor force. With its large oil and gas resources, Russia has a relatively important advantage compared to India and China, which need to fuel their growing economies with large energy supplies. This geopolitical balance of the region will rely on the relationships established among these protagonists. While Russia has to face an aging population, the steady growth of the Indian and Chinese economies will face a structural problem. At the long term, outsourcing to China and India will reach its limits. Revaluation of the Chinese Yuan, increases in the labor force compensations as in Bangalore and the likely increase of shipping costs with the raise of oil prices will reduce arbitrage benefits. Other underdeveloped countries as Indonesia, Philippines or Vietnam will be become more attractive destinations for outsourcing but they will nevertheless not offer the same structured and stable environments as in China or India. Conversely, the Chinese and Indian large internal markets will continue to offer enough room for organic growths through their internal consumption. While most of the world economies, including Russia, strongly contracted in 2009, India and China achieved respectively a 7% and 8.7% growth. This accelerated growth is already creating significant social tensions in China that will challenge the central political authority of Beijing. In India the social tensions have already morphed into political grievances where states like Telangana seek more independence [5]. China remains nevertheless the most interesting protagonist in the region and in the world. While India economy is heavily relying on agriculture and services industry, China

is massively investing in advanced manufacturing, high tech and education to sustain fundamental research. The recent Indian achievements in the space launch technology and satellites is more of a psychological step to confirm the country new international status and a signal to its neighbors that it is powering up its ballistic missile defenses rather than a consequence of a broad development strategy. "If you don't plan for the future, you will be distracted by what happens in the short term," said Lu Yongxiang, president of CAS, the Chinese Academy of Sciences at a news briefing in 2008 when China announced its next scientific strategy for the next 50 years. The roadmap covers 18 domains including agriculture, ecology and environment, human health and ocean science [6]. Energy is probably the most important sector that China wants to secure in order to sustain its fast growth. The oil consumption grew by an impressive 11.9% in 2008 where the country produced an average of 3,795,000 bbl/day while its consumption was nearly the double at 7.999 million bbl/day [7]. This discrepancy is the Red Dragon Achilles’ heel shaping most of its foreign policy and explains the different trade agreements and diplomatic initiatives conducted in Africa. Theoretically, China has a week of reserves in case of an interruption of oil imports. In parallel, China is also massively working on a new generation of nuclear plants using an advanced pressurized water reactor (PWR) with a 55% localized part production, planned to be in production by 2013. In 2001, the strong willingness of global western corporations to access large foreign markets, lead the World Trade Organization to negotiate new agreements which allowed China to become its 143rd member. As a result and ten years after, the world economy has totally changed with a brutal rebalance of economic powers from the West to the East. With $2,399.2B in foreign currency reserves and $894.8B of US Treasury Securities, China is unequivocally the biggest winner of the last decade. Unlike for the post second world war period, it's the free trade not the military balances that shaped this new world. But as the economic crisis lingers and the unemployment rates are expected to remain high in most of the western economies, for the next 3 to 4 years, the free trade conditions and consequences will become unbearable. Social pressures will weigh on political campaigns requesting more protectionism and isolation from the world affairs but at the same time, leading the populations to support military actions when they will be the unique option to regain an economic sovereignty. Interestingly, the next world on the rise is likely to be shaped again by military conflicts allowing to void an unacceptable economic situation and a heavy financial burden. In this context, military power will remain an

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important deterrence factor even for economic and financial negotiations. III. The decrease of the US dominance and influence on

the world The US has without a doubt, the strongest brand image in the world, associated with power and success. The influence of the US culture and way of life will continue in the next decades, largely thanks to a powerful entertainment industry, ambassador of the country all over the world. This intangible value, represents a goodwill which will continue to attract talents to the US, foster startups and innovation and position the country as technological leader among the developing countries. The economic crisis and the slow recovery will nevertheless slow the investments, keep the employment rates high and hinder the consumption which represented in 2009, 71% of the of the United States Gross Domestic Product. As discussed in the previous section, the distribution of powers in the current world is largely due to a new economic balance created by the free trade. The public debt and the federal burdens carried by the country will definitely limit the renaissance of the economy and the US influence in the world. A scenario where the triple A credit of the US would be demoted by Moody’s Investors Service is unlikely but it is sending the wrong signal to the world [8]. Since end of 2008, the image of the US abroad took a hit, showing for the first time that the colossus is vulnerable. The soft diplomacy of the current US administration is unfortunately accentuating this perception by the way which the Iranian and Chinese issues are tackled. Diplomacy is perceived as a weakness and countries like Brazil do not hesitate now to publicly oppose US policies as recently on Iran. The US will certainly remain the major military force for the next decades but its reach will be limited by the economic situation of the country. Large military operations and deployments will face more public resistance and may experience budget limitations. The choice to withdraw 90,000 US troupes from Iraq by December 2011 to focus more on the war against Al Qaeda in Afghanistan is a sign that supporting two fronts is too complex. Moreover, nuclear weapons have changed the nature of military balances. Today it's probably more important for most emerging powers to have nuclear deterrence capabilities than an organized and structured military force. Iran’s race to build a first nuclear weapon is a race to secure its regime rather than develop a thorough nuclear program. Large conflicts between nuclear powers have almost disappeared and conflicts have become short and localized involving state military forces and/or small and disseminated guerrilla groups. In this aspect, the US old two wars doctrine is not applicable anymore, as many enemies

need to be simultaneously engaged and US forces need to be present in several hot spots around the world. Human and technical intelligence techniques associated to an increased use of unmanned aerial vehicles will allow targeted strikes supporting tactical operations. The ability of the US military forces to exhibit both traditional large-scale deployments and small mobile tactical interventions in a very short lapse of time is essential to maintain the US superiority and influence. Conversely, sustaining a worldwide influence exclusively with military capabilities is unrealistic in this globalized economy. Developed countries represent economic nodes that attract talent, capital and innovation. They are able to finance technologic breakthroughs and stay ahead of the curve. In terms of deterrence, technology plays a major role in designing the next weapons and systems that can provide a superiority advantage to any nation. The Chinese and Indian economies are benefiting from temporary economic arbitrage situations. Massive outsourcing programs to these countries by western companies has fueled their economies with a capital that enabled them to invest in different research programs to acquire and produce new technologies. The aggressive intelligence collection by the Chinese organizations through economic or cyber espionage has accelerated this transmutation and allowed Beijing to quickly catch up with the western standards [9]. The large Chinese Diaspora present worldwide and the different University exchange and common scientific programs have also “legally” sustained this trend. In this perspective, a large and thorough cyber policy is critical to protect US assets and intellectual capital. But besides only protecting the countries assets, it is essential for the US to continue to lead innovation. During the last decade, the shift of the mass production to the East and the transformation of China in the world workshop lead western economies to focus more on financial services. But the recent financial crisis showed the limits of such specialization and the risks of heavily relaying on non-tangible economic assets. If manufacturing goods with the current means of production costs less in China and India then there are only two ways to maintain the US superiority over these emerging powers. Either design enhanced manufacturing techniques to allow lower production costs than in Asia and/or manufacture new products that Asia can’t manufacture because of technical limitations. In both cases, innovation is the key concept to maintain a competitive advantage. To enable that national innovation programs combining government and private interests need to initiate profound changes in the way the country produces cars, planes, electronic devices, etc. In a nutshell, Detroit needs to be converted to a Silicon Valley. The landscape of the workforce will need to be gradually changed with more workers specialized in advanced

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technologies as IT, Nanotechnologies and Biotechnologies for example. If the country is able to produce better goods at lower prices, the attraction for outsourcing will decrease and the flow of capital to China and India will follow. The regeneration of the US industry as a high tech focused industry will stimulate the financial systems and boost stock markets as these new technologies will offer tangible present values with understandable risks compared to complex finance products. The key factor to enable this transformation of the US into a knowledge society is education. U.S. data indicate that college-educated workers are three times as productive, and a high school graduate is 1.8 times as productive, as a worker with less than a ninth-grade education [13]. Since 1998, China is following an aggressive education state sponsored program that lead in the four years to 165% increase in high education enrolments and 152% increase in students studying abroad. This continuous trend may add up 6 percentage points to the country's annual economic growth rate. The last years, several report confirmed the decline of the US in several international education rankings done by the Organisation for Economic Cooperation and Development (OECD). In a survey done in 2006, the US ranked 21th, behind countries like Croatia, the Czech Republic, and Liechtenstein, and ahead of just five other OECD countries [10]. A tremendous effort has to be made to enhance the public educational system and make private universities more affordable.

IV. The raise of unprecedented conflicts related to climate change and resource scarcity.

For the next decades, oil will remain the main source of energy on earth. The steady increase in worldwide consumption is likely to be offset by new oil fields discoveries as in the Gulf of Mexico or Uganda and the exploitation of untapped reserves in Iraq, Iran, Russia and at a lesser extent, Alaska and the Arctic Circle. Moreover, as the oil prices will continue to increase with economic recovery, the use of oil shale reserves will become a viable financial alternative. About two thirds of the oil consumed in the US is used by the transportation sector. This trend will be gradually and partially offset by the introduction of new hybrid electric and hydrogen engines. Pre 2008 summer scenarios on the impact of hybrid sales on the US oil consumption were at best showing 2.5% decrease for 1 million hybrid cars predicted to be sold by 2025. In fact, this number was reached in February 2009 for the combined Toyota Prius and Lexus hybrid cars sales in the US [11]. The inevitable increase of the world oil demand mainly driven by China, fostered by financial markets speculations, will certainly

lead oil prices to cross again the $100 threshold and maintain this trend. According the NIC report, only six countries: Saudi Arabia, Iran, Kuwait, the UAE, Iraq (potentially), and Russia are projected to account for 39 percent of total world oil production in 2025. Five of these countries are located in the Middle East, reinforcing the feeling that oil supplies will increasingly originate from a region with high degree of political instability. A nuclear Iran neighboring an instable Iraq with continuous guerilla operations orchestrated by ex-members of the Baath party, Shia factions, Al Qaeda and other players in the region may be a potential source of disruption for the oil world supply. Moreover, the nationalization trend observed of oil and gas production companies will spread, increasing the possibility of having these countries using these resources as an economic and political weapon. In this perspective, seeking new oil and gas reserves as well as alternative energies will be critical for the US to maintain an economic independence and an internal stability. On the climate changes impacts, interestingly the NIC report only analysis long-term effects of the global warming with potential water supply shortages and new lands and waterways resulting from an increase of temperatures. Nevertheless at the short term, regular abrupt climate changes are already disturbing the world economy with different extent. As an example, the bad weather in Europe during the 2005, 2006, 2007 and 2008 summers had important impacts on the price of the wheat with consequences on the price of the milk and of dairy products. A report prepared by the FAO in 2008, showed that that the world cereal production fell by 3.6 percent in 2005 and 6.9 percent in 2006 due to bad weather in major producing countries [13]. As consequence, stock levels in 2007/08 reached their lowest level in three decades. More recently, record-breaking snows which fell across the U.S. East Coast in January and February 2010, may have shaved as much as 2 percent off all sales which nevertheless grew by 4.1% in February. In the next decades, unexpected and short-term climate changes will definitely have an impact on local economies through decreases in production, consumption and increases in the amount of damages caused by floods and hurricanes. By 2030, the world food demand is predicted to increase by 50% challenging low agricultural prices policies and pushing for an increased use of genetically modified crops. At this scale, any climate effect on a local food production may have global consequences on the world supplies.

V. Demography, pandemics and others. Some regions of the world are aging faster than others. Europe, Japan, Russia will face a major challenge in

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financing their pensions and avoiding immigrants to feed their labor force. As a consequence, the European percentage contribution to global GDP is predicted to plummet from 21% to 5%, in a generation [12]. Yet Europe prospects of a better life will remain a strong attraction for the large and young African unemployed population. In such less favorable economic context, the European countries like France, Spain and Italy will face serious challenges in assimilating African populations and avoiding social troubles. Interestingly, Japan will face a serious dilemma between accepting more immigrants and preserving its national identity. Tough economic and cultural choice will have to be made to encourage parents to have more children. Finally, the last bird flu and H1N1 pandemics had fortunately limited consequences on the world economy and the number of victims. But the possibility of a global and virulent pandemic remains present. The absence of an adequate vaccine and the general lack of immunity may trigger a hundred of millions of contamination that may result in tens of millions of deaths [1]. More than ever, science and medicine performance will be critical to find a cure in a short time frame while keeping populations alert. VI. Conclusion The different challenges raised by the latest NIC 2025 Global Trends report underline more then ever the need for the US to address some real issues that are pending since several years. Priorities will have to be made and tough decisions will be necessary. But above all, a large consensus and national unity will be necessary around the new elected president to enable this positive transformation; a necessary change to offer better tomorrows for our children.

References

[1] Global Trends 2025: A Transformed World, National Intelligence Council, 2008. [2] Goldman Sachs, Economics paper No 99, Dreaming With BRICs: The Path to 2050, 2003. [3] Goldman Sachs, Economics paper No 152, India’s Rising Growth Potential, 2007 [4] Social Unrest in China, CRS Report for Congress, Thomas Lum, May 8 2006. [5] India Telangana separate state protests turn violent, BBC News, 20 January 2010. [6] China issues 50-year science strategy, SciDevNet, July 6, 2009. [7] CIA Online Factbook: China, cia.gov, march 7, 2010. [8] Analysis: Greek financial crisis coming to America? By Niall Ferguson, FT.com, February 12, 2010. [9] Capability of the People’s Republic of China to Conduct Cyber Warfare and Computer Network Exploitation, Prepared for The US-China

Economic and Security Review Commission, Bryan Krekel ,October 9, 2009. [10] PISA 2006: Science Competencies for Tomorrow’s World, OECD briefing note for the United States, December 4th 2007. [11] "Toyota and Lexus Hybrids Top One Million Sales in the U.S.". The Auto Channel. 2009-03-11. http://www.theautochannel.com/news/2009/03/11/453029.html. Retrieved 2010-03-07. [12] $123,000,000,000,000: China’s estimated economy by the year 2040. Be warned, Robert Fogel, Foreign Policy, Jan/Feb 2010. [13] High food prices: Impact and recommendations, Paper prepared by FAO, IFAD and WFP for the meeting of the Chief Executives Board for Coordination on 28-29 April 2008, Berne, Switzerland. Nadir Belarbi received a Master Degree in Networks and Telecommunications from Paris V University & Sup Telecom Paris, France (1994), studied 3 years of studies and research on Intelligent Networks during a PhD program (1997) and received an Executive MBA from the Chicago University, Booth Graduate School of Business, USA (2008). He has worked for IBM, Air France, Groupe Danone. He currently leads Business & Innovation projects at Dannon. Nadir Belarbi’s research has spanned a large number of disciplines, emphasizing information technology and telecommunications with a focus on emerging technologies. As a manager with multi-cultural skills speaking five languages, he worked in an international environment where he specialized in the coordination and lobbying of global organizations. His political and social experience ranges from heading the corporate work council to participating in political and geopolitical organizations and think tanks. With a major interest in Intelligence, Technology & Energy roles in Geopolitical, Military & Security issues, he is now managing a LinkedIn group on Business, Innovation & Geopolitics.