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Entries in globalization (90)

12:01AM

What China wants, China gets - at a cost to the planet

One of the ways in which China starts getting blamed for all things globalization is the direct impact its consumers can have on global markets - sending them soaring and crashing in a historical heartbeat.

I've talked about China's incredible hunger for various nuts in the past, and how that demand has fundamentally reshaped ag markets in the US.

This NYT story discusses how fishermen off the coast of Mexico are ignoring governmental attempts to preserve an overfished area for sea cucumbers.  Out-of-area guys are slipping into zones being vigilantly guarded by locals and pulling out hauls right under their noses.  This creates a "wild west" atmosphere were towns square off against towns over their precious slices of the pie and every stranger is treated like a would-be criminal.

Until China emerged in its middle-class glory, they wasn't much of a demand, as sea cucumbers aren't really eaten by Mexicans.  But now the demand is such that one guy poaching can claim $700 a day in profit.

So this section of Mexico's coastline is in uproar . . . because Chinese like their sea cucumbers.

There will come a time - soon enough, when virtually everyone in the world who isn't Chinese will be living some version of this story.

A while back, America played that role, and while everyone wanted to please that American consumer, the dynamic created a lot of antipathy too.

And that is what's coming toward China at high speed.

12:35PM

Iraq at ten years

Cartoon found here (in an FT op-ed that fits this post nicely - if orthogonally).

Read through a variety of the tenth-year anniversary reviews, and I thought Thomas Friedman's was the best - despite the weird title (Democrats, Dragons or Drones?).

His basic notion that it takes the next generation to create and shape the subsequent reality is correct.  Friedman pegs it at "9 months and 21 years to develop."

Fair enough. But the question (as he also notes) hinges on that generation's journey.  Done well, it works.  Done badly enough and a vicious spiral ensues.  In truth, the jury remains out on that score.

We won the war - no doubt, and then took a pass on the postwar.  If we hadn't, then questions of "why?" fade away.  In the post-9/11 mood, America possessed the desire to reshape the region and Saddam was the obvious target. Direct causality was not the issue, although Dick Cheney tried to sell that.  Nor was direct threat, referring to the late and frantic oversell of the WMD to Congress.  The purpose - all along - was structural retribution: as in, you reshaped our world, now we reshape yours.  Americans are just deeply uncomfortable admitting that, so we needed a clear and present storyline to drive our revenge-flick dynamics.

The resulting strategic "pre-emption" was oddly symmetrical in ambition but certainly not in cost (and why should it be so between a superpower and a non-state actor?).

So when we take that pass on the aftermath of the war, and basically pretend that what comes next doesn't really matter, we abort the entire regional restructuring ambition (which, if you remember, was on a nice roll for 2-3 years there) and we allow ourselves to be swallowed up (in terms of strategic effort and attention) by an insurgency that was completely foreseeable and completely manageable - if we had bothered to embrace that inevitability.

But instead of embracing it, we did what we always do and called the postwar another war.  And wars yield a singular answer in US military history - called, more firepower.  And then we found that made things worse (go figure).

And then the White House, chastened finally by the 2006 midterms, relabeled the conflict and rebranded the mission - and then we succeeded again.  

But by then the public narrative had already been cast (Bush lied, too many deaths, too much cost).

So ultimately the Bush administration pays the legacy cost for its mistakes, which mostly had to do with stubbornness.  They had their narrative of a successful war and stuck to it - until it hurt so bad that they had to change.

So what are we left with?

In structural terms, I like what the Middle East has become.  The inevitabilities are being processed and Iran is more isolated than ever.  And thanks to larger structural changes in the global economy, the area is coming under new superpower management - inexorably.  None of it is nice, but it was never going to be anything but painful and violent.  The Arab world has an enormous amount of catching up to do WRT globalization, and it will be awful in execution (and with Africa leaping ahead on many fronts, the Middle East and North Africa - or large portions of it - risk becoming globalization's long-term basket case).

If the US had handed off the region still encased in its many dictatorships, China would have a much easier time over the next two decades.  Now, it faces challenges that are likely to alter its own political structure significantly - just like it did to the US.  Some naturally see the "defeat of American empire" in the region, but since empire was never America's goal, that judgment is meaningless.

All that matters is the relative evolutions of the three superpowers of the 21st century:  China, India and America.

America did, per my original Esquire piece, take strategic ownership of the Middle East in a big way.  That ambition was both debilitating and liberating:  we took our shot (badly) and now we're done "owning" things there (besides Iran's nukes).  In that way, Iraq processed our inevitable post-9/11 over-reaching response (we are a democracy) and hurried us along the exhaustion-collapse-rock bottom-recovery-resurrection dynamic that was always slated for us in the post-Cold War world (our inability to handle the success of the "end of history" - aka, the globalization of our economic connectivity model).  We had gotten used to running things, and we weren't going to stop until something made us stop - an unpleasant journey but a necesssary one.

Now, in grand structural terms, the race among my C-I-A trio is well underway.  The Obama administration, needing a switch-over target, sells its Asian pivot.  This is not a good answer, as I have noted frequently - but rather a red herring.  The real struggle in Asia doesn't involve us except in an off-shore balancing role.

Instead, the real struggles of the future involve the very same frontier integration I've been talking about for a decade now.  On that score, we are looking fine enough in our ongoing restructuring of our portfolio, while China's grows frighteningly larger relative to its ability to deliver and manage regions distant from its shores. India is just begining to recognize what responsibilities lie ahead.

You'll say that China will do it differently, but the structure of the system will force the same responses: China cannot afford to lose its growing overseas dependencies (much greater than any borne by the US), and so the responses will be mounted.  And when they don't go well (whoever gets it right - right off the bat?), change will double back upon China - to its general benefit (along with the world's).

Iraq was always a means to an end (when in history has great power war ever been anything else?).  During the real-time execution, it seems like everything - as does every war throughout history.  But half a century later?  It looks very different.  It's a stepping stone for superpowers:  some step up and some step down, some step away and some step in.  None of it is exactly what it appears to be in the light of present-day reporting.  Per Zhou Enlai's take on the French Revolution, we will be witnessing the downstream consequences across the century.

8:13AM

China: The hunger = the hate

On a walk last night and I was thinking about what I know about the future that I feel supremely confident about, and the answer that popped into my head is China's coming difficulties.  Not that I wish it any harm - anything but.  It's just that the hubris and the nationalism and the hunger for all things - all completely natural in a rise of this caliber - are combining to create antipathy abroad and extreme anxiousness at home.  The tough times that follow will force China into a scary and dangerous democratization. It happens to the best; it happens to the rest.  There is no Chinese "alternative."

Neat pair of NYT stories to illustrate.

First one (above) is about an Asian art exhibit.  The paper version had the title that caught my eye:

East is East; West is Omnivorous

Exhibit covers the time period of Europe's early global expansion and the apocalyptic views it generated among the conquered in Asia.

The only thing I thought when I saw the title was, now the worm has turned.  Now the West is West and the East is omnivorous.  And that hunger for all things creates the growing hatred of China.

This has a been a prediction of mine since New Map:  China becomes the face of globalization and thus the target of anti-globalization anger in all forms.  I've been saying this in Beijing for almost a decade, and I don't get many takers.  "We are different," I am told. 

But they're not.  The hunger is unbelievable (China adds ANOTHER 300m to its US-sized middle class in the next 6-7 years) and the hate is real and growing.

See Shambaugh's excellent NYT op-ed on global attitudes toward the Chinese:  all downhill.

Meanwhile, the US is in its hibernation phase, and Obama is the perfect hibernation president.  I'm not bitching. We asked and he delivers.

But the regeneration proceeds.

China, however, tops out on all sorts of things - signalling tougher times ahead.  And this is not a system built for tough times.  You may think authoritarianism is, but it ain't.  No ability to "throw the bums out" = building hatred within the system (frustration that finds no relief).

Nothing I describe here happens tomorrow, and it's easy to dismiss.

But I know this with a certainty:  Right now China is perceived to be passing the US and we find that scary.  But between now and 2030 this all gets reversed in a big way, and that will be far more scary for both sides.  

This is why we cannot abide the fear mongers on both sides; they are too dangerous for the world's future.

The outreach must be pursued and eventual partnership revealed - not out of our fear for them but to modulate what will become China's great fears of all things during the difficult times ahead.

12:01AM

Nice side-by-side capture of globalization dynamics (guest post)

From Thomas Frazel of Tulane:

http://online.wsj.com/article/SB10001424127887323478004578303733925078030.html

Heinz Sold as Deals Take Off

"We've been prospecting in the emerging world for a long time, and now they're prospecting here,"Heinz's Mr. Johnson said in an interview. "You're seeing a shrinking world and an equilibrium of wealth creation, and this kind of activity is only going to accelerate over the next five to 10 years."

In the interview, Mr. Johnson said he was surprised that firms from emerging markets would be capable of taking over America's most established companies.  "I didn't see this happening eight weeks ago, let alone five years ago," he said.

 

http://online.wsj.com/article/SB10001424127887324162304578304512387875482.html

First Bud, Now Heinz, Tycoon Grabs Brands

Though Mr. Lemann is a Brazilian business icon, he moved his family to Switzerland more than a decade ago following a kidnapping attempt in Brazil, a stark reminder of persistent problems of crime in the South American nation. Mr. Lemann's family is of Swiss descent. He declined an interview request through an associate, and has denied past requests as well.

Frazel's comment:

It was too perfect to see these things side-by-side — money in the Gap, instability in the Gap.

The more sophisticated read of PENTAGON'S NEW MAP was that the Gap would experience more instability as globalization rapidly improved things.  Change destabilizes.  It's as simple as that.  

The security challenge that results more resembles small-wars than large - thus the call for the SysAdmin force. It's about seeing the world as it is - what really matters in terms of structural change, and staying true to America's several-decade effort to replicate its core dynamics on a global scale.

What did we get for our effort?  Our blood and treasure?

The best and most radically improving period in world history.

Many other powers had their versions of globalization before ours came along.  And they were all far less fair and far more bloody. Ours is hardly perfect, but much like a democratic republic, ours is the best worst version yet.

Our challenge:  China and India will be the shapers of this system in the future - more than us. That is why understanding those two powers and joining with them in co-managing this world is America's number 1 long-term foreign policy objective.

And this is why I find Obama's Asian pivot so idiotically misguided. Scratch that - too harsh. He is ideologically misguided.  He mistrusts US power and does not acknowledge the decades of effort that I cite - nor its success.

THAT America did far more good than harm, but he does see that America.

And so he does trust the future that that America made possible.

9:29AM

Obama's serious movement toward a genuine foreign policy legacy

NYT front-pager yesterday on "Obama's Bid for Trade Pact with Europe Stirs Hope."

Impossible!  I know.

If trade deals are hard in good times, then they must be harder in tough times, right?  I mean, aren't we told by stern-faced national security experts about how the Great Recession is fostering trade wars and currency wars, so this move - amidst all such rising trade protectionism - is IMPOSSIBLE, correct?

Except trade deals like this get down EXACTLY during slow times.  Remember when we got NAFTA, because this one will end up being just as big or bigger.  NAFTA was Clinton's signature foreign policy achievement.  I know, I got the grand tour of his library from the director when I gave a speech there years back, and NAFTA was front and center.

If successful (and this will be), then this will be Obama's big achievement - the one history will remember.  Compared to this, the wars and the targetted assassinations will be miniscule, because they just deal with the friction caused by globalization's historic expansion, whereas this will fuel another wave.

10:50AM

Aren't all those Islamists now in power supposed to keep globalization out?

Interesting NYT story on the cotinuing explosion of social media across the Middle East:

The use of social media exploded during the Arab Spring as people turned to cyberspace to express themselves. On the back of that, social media networks, including Twitter, Facebook and LinkedIn, have moved into the region commercially, setting up offices to sell advertising products to companies like Mobily, which has over 200,000 Twitter followers, to capitalize on the growing audience.

In Saudi, social media gets everyone talking to everyone, which is something we just don’t have in the streets here,” said Muna AbuSulayman, a Saudi development consultant and formerly a popular television talk show host, who has over 100,000 followers on Twitter.

It’s a unique opportunity that lets people have conversations in a boundary-less way that wasn’t possible before,” Ms. AbuSulayman said. “In addition to promoting social and political discussion, it carries a powerful economic incentive for businesses, too.”

Well, you know what the experts say:

 

  • The Arab Spring failed - turned to a terrible winter.
  • Globalization is on the retreat- everywhere.  
  • Connectivity is oversold; it doesn't really change all that much.
  • Authoritarianism is resurgent.
  • We lost the Middle East, thank you very much.

 

What's odd to me?  People have no sense of patience anymore and reach for the fatalism in a heartbeat. Meanwhile, everything is moving at such a fantastically high speed in terms of positive change.

9:57AM

Iran's fear - in a nutshell

NYT story:  "Monks Lose Relevance As Thailand Grows Richer."

Per my post yesterday about individualism:  the connectivity afforded by globalization and the wealth creation diminishes the hectoring/exemplary power of religious leaders who, under past harsher times, were better positioned to keep the social peace by encouraging a certain morality.

When globalization comes in, the socio-economic change happens in a heartbeat, and the churches/faithes/religious leaders simply can't respond fast enough.

As one Thai monk is quoted in the piece: 'Consumerism is now the Thai religion."

He's wrong, of course, and he needs to get off his ass and stop whining.  New spiritual challenges naturally follow.

The monks need to summon up their inner Joel Osteen - or just find one quick.

But yeah, this is EXACTLY what Iran's mullahs fear in any genuine opening up to West/globalization.  Better to pretend it's all about the nukes.

10:06AM

The adaptability of people is consistently under-estimated by experts

Pair of NYT stories from earlier in the month.  Both speak to the realities and myths of people's adaptability.

First one is about how Latvia (a place I very briefly visited back in the 1980s when it was still back in the USSR) and it talks about how, during the Great Recession, Latvians were able to handle the harsh austerity (sort of crew cut instead of the usual haircut).  

Second one is about how Russians are already mall fanatics. I remember Zbig Brzezinski saying, when the Wall fell, that it would be decades and generations before Russians figured out markets, etc.  It was all so godawfully patronizing (as only a Pole or Ukrainian might be WRT Russians).

My point in citing them together:  people are amazingly adaptable.  Latvians remember worse days (like your Great Depression parents or grandparents) and so they are unfazed, but Russians have no trouble slipping right into being material boys and girls (as did the Latvians for a while there and as they will again soon).

Americans have this tendency to believe we're the only adaptable people in the world, and it's true on some points:  on religion and "sacred soil," we are freakishly flexible.  If they declared that the US was being moved to Canada next week, most of us would pack up and go, because it's the freedom rule-set that we're most addicted to, with darn near everything else being negotiable.

Yes, the world is still full of traditional cultures wedded to sacred soil and religious identities (like . . . fuh-ever!), but given even the slightest chance, man, will they ever break out of their shells - and I mean everybody.  Sure, it's the kids who always lead the way, but guess what?  Traditional societies are youth-skewed (all that baby cranking) and they often feel the huge need to BE traditional precisely because there are all those young minds that need bending.  And yes, when the change comes, it does seem like the "end of X civilization," just like when Elvis and The Beatles and Stones showed up. And yes, many prices will be paid and much of the culture transformed and made that much harsher by all that individualism (to include the freedom to be miserable), but people really are the same all over - when given the chance.  No, that expression doesn't come in some archetypal "American" way.  At the end of the day, Russians are still Russians and Chinese are still Chinese (go figure!), so the applications are always different. 

It's just that the freedom impulse (far more economic in nature than political) is the basically the same:  I get to do what I want, when I want, how I want, buying what I want, etc.

So no, no 50-year transformations required on the economics.  It's the politics (single-party states in particular) that go slow.

That's what the military and intell people NEVER understand.  They think the politics (aka, intentions) can go like "SNAP!" while the economics will never change (or capabilities change slowly).  

Truth is, it's entirely the other way around. And all that economic freedom is what drives the super-fast technology adaptations (meaning HOW people use tech is nearly always more revolutionary than the tech itself).

Just my 2 cents .....

4:45PM

Time's Battleland: National Security - Just How Intelligent is the National Intelligence Council's Global Trends 2030?

GETTY IMAGES

Every half-decade, the National Intelligence Council’s “Global Trends” series produces a roughly 20-year predictive analysis of the world’s evolution – an analysis considered to be the best long-range geopolitical forecasting conducted by the U.S. government. These multi-year efforts involve consultations with hundreds of experts from around the world (the last two drills have featured interviews and presentations from yours truly.) The NIC also conducts global “road shows” to collect feedback for great powers like RussiaChina and various European states.

Simply stated, the biggest problem with this year’s Global Trends 2030: Alternative Worlds is the lack of internally consistent logic throughout each of the worlds presented.

Read the entire post at Time's Battleland blog.

12:02AM

Chart of the day: globalization vastly improves death

NYT story.  Simply fascinating.

There's no arguing this:  over the last 20 years, or the apogee of globalization's rapid expansion, more babies live into childhood, more children live into adulthood, and adults live longer.

So much for globalization impoverishing everyone and making their lives more miserable.

Check it out:  communicable yields to lifestyle diseases.

The tough work for any global progressive effort is already done.  Now it's all about living that much longer - primarily - because we'll eat that much healthier.  Obesity feeds all the major lifestyle diseases.

Overall, striking evidence that globalization has improved lives the world over:

The shift reflects improvements in sanitation, medical services and access to food throughout the developing world, as well as the success of broad public health efforts like vaccine programs. The results are striking:infant mortality declined by more than half from 1990 to 2010, and malnutrition, the No. 1 risk factor for death and years of life lost in 1990, has fallen to No. 8.

At the same time, chronic diseases like cancer now account for about two out of every three deaths worldwide, up from just over half in 1990. Eight million people died of cancer in 2010, 38 percent more than in 1990. Diabetes claimed 1.3 million lives in 2010, double the number in 1990.

“The growth of these rich-country diseases, like heart disease, stroke, cancer and diabetes, is in a strange way good news,” said Ezekiel Emanuel, chairman of the department of medical ethics and health policy at the University of Pennsylvania. “It shows that many parts of the globe have largely overcome infectious and communicable diseases as a pervasive threat, and that people on average are living longer.”

The truth is good.

 

12:27PM

Nice post (full of data) about India in Africa

Find it here.

Posted by old friend (or is it demon?) Tyler Durden at Zero Hedge.

Best bit:

Parallels are often drawn between India and China’s African “safaris.” Indeed, their trade with Africa has grown at similar rates; India’s at a compounded annual growth rate of 24.8% and China’s at 26.3%. More importantly, access to natural resources and especially oil is the main driver of both Asian giants’ engagement of the continent.

There are important differences though.  For one, India’s footprint in Africa is small compared with that of China. Take their role in Africa’s trade for instance. In 2011, India accounted for 5.2% of Africa’s global trade compared with China’s 16.9%. Besides, unlike China’s investment in Africa, which is led by state-owned companies, Indian investment is mainly driven by the private sector. In another contrast with Chinese companies, India hires local laborers while many Chinese companies bring Chinese laborers to their projects in Africa.

Indian officials admit that China’s aid-for-oil strategy, which involves extension of soft loans for massive infrastructure projects in return for African oil, used to impress them as it helped Beijing secure deals in its favor, according to the MEA official. This prompted India to follow the Chinese strategy in some countries where it was seeking oil deals.  However, India was unable to match the aid the Chinese offered. It underscored the need for an approach that built on India’s strengths, which ultimately resulted in India focusing on capacity building in Africa.

Worth reading.  

Obtained from Craig Nordin.  He got it from Sudha Ramachandran at The Diplomat.

12:30PM

Big GM investment in China

 

GM reached out to China's auto firm SAIC in the late 1990s, and the fruits of that JV continue to pile up, according to the WSJ last Thursday:

General Motors C. and Chinese joint-venture partners agreed to build a third commercial vehicle factory in southwest China to meet growing demand and protect GM's status as the largest auto maker by volume in the country.

$1b plant looking to crank 400k vehicles by 2015, giving GM and its partners a total capacity of 2m vehicles. China's light vehicles market will top 20m next year, while the US remains around 15m.  600 or so new dealerships planned across China, bringing the volume to 3500 total.

Nothing marks you more fully as globalization's demand center than to have the car market.  That was America in the 20th century, and it's China in the 21st.

 

 

11:06AM

No-fault separatism thanks to globalization

Old argument of mine:  globalization comes in and all manner of divorces ensue.  Typically it's a fake state in the Gap that's coming apart at the artificial seams, but the larger point is, the more overarching multinationalism you have, the lower the cost of divorce/remapping.  You're going to be together anyway (you still have the "kids" of the union), but why stay together if you don't have to?

Europe demonstrates this:  the more integrated it becomes, the more states appear.

Great FT one-pager on "long-simmering separatist movements . . . gaining strength."  You might think it's the Eurozone troubles that is responsible, but that's the proximate opportunity - not the ultimate enabler.  Real federalism is coming, so why not get out of your unhappy marriage in the bargain?

Here's the counterintuitive part: it's often the most competent and richest that want out.  The better want to leave behind the worse.

So this isn't about suffering.  This is about ambition.

8:38AM

The long-term threat of debt

Interesting FT column by Satyajit Das.

Two important factoids:

 

  • By 2008, $4-5 of US debt is required to create $1 of GDP growth; and
  • China now needs $6-8 of credit to do the same.

 

There was a time for both countries (US in 1950s and China at end of Cold War) where $1-2 of debt would do.

Then an almost Marxian critique:

Debt became a mechanism for hiding disparities in the wealth distribution within many societies.  Increased credit availabiliby allowed lower income groups to borrow and spend, encouraging housing booms, in order to deal with the underlying problem of stagnant real incomes.

A bit skewed in its causality.  Credit has always been the mainstay of growth in a capitalist society.  Reducing its function to "hiding disparities" is a very narrow view.

The stagnant real incomes problem is hardly universal in this current era of globalization.  It is felt primarily in the West, where jobs easily cordoned off from global competition now suffer it greatly.  This is the "cost" of letting so much of the world into the global party called globalization.  We can decry this, but the cost of our privilieged standard of living in the past was the vast exploitation/disconnection of much of the world, or the have/have-not divide that Europe begat in its previous extension of colonial-globalization.

Is it worth to me to live in a far more just world to suffer this income stagnation?  

As a Christian who believes I'm not just here to hoard and tell others to go f#$K themselves, yes, it is worth it.

Did we get addicted to cheap debt in the vast transaction strategy we ran with the world so as to spread the international liberal trade order already deeply embedded in these United States (this multinational economic union)?  

We sure did.

Will we eventually run out of new sources of cheap labor in the global economy?  

Absolutely.  Within my life.  But that will be a better problem than today's.

So where do find growth in the future?

The rise of the global middle class - the best thing to ever happen on this planet - will force magnificent resource utilization revolutions.  This will dovetail with new environmental challenges (or the exacerbation of old ones). Again, these will constitute our best problems yet.

But massive adjustments must be made to protect the vulnerable amidst globalization's continued rapid expansion.  And great investments must be made to bootstrap our national economy into a more realistically competitive shape for the struggles to come.

And that's why higher taxes are coming for the rich in this world.  We enter a length redistributionist phase so as to avoid political tumult.  It is capitalism's great genius - in combination with democracy - to recognize these moments in history and to address them head-on.  Once the oncoming global progressive era works its necessary magic (and no, those ideas and leaders are - by and large - yet to emerge), such a burden for the rich will be less necessary.

But to pretend that tax cuts are the answer now, amidst the populist anger spreading across this planet and in particular this country, is to stay pointlessly dogmatic.  There is no one economic theory that rules throughout time.  There are seasons for each.

A foolish consistency is the hobgoblin of little minds.    

- Ralph Waldo Emerson

9:49AM

Global inequality: before America ruled and when America ruled

No question we're heading for a globalized "progressive era" to match what America experienced at the end/turn of the 19th/20th centuries.  Been talking that one for about five years now, and it was THE major theme of "Great Powers" back in 2009.  Now the Economist joins in.

But this historical chart is interesting.  Note the rising inequality across Europe's long colonial age (let's say 1800 to 1950) and then look at what happens when US-style globalization kicks in (1950-now):  It slows, despite the ginormous wealth creation globally, and even flattens out and peaks across the period of its truest expression (1990-now).

To be sure, the 1% are slicing off too much wealth - just like during America's Gilded Age, thus my long-standing prediction of a necessary progressive era on a global scale led by coastal megacities (like NYC led ours and re-attempts to do so today with Bloomberg). But an interesting difference between how Europe ran the world and how we've managed to do it.

12:01AM

Interview at Casey Research conference

Thomas Barnett: American-Style Globalization Will Win the Day

caseyresearch.com / October 10, 2012

During a break in the recently concluded Casey Research/Sprott, Inc. Navigating the Politicized Economy Summit, Alex Daley sat down with acclaimed military analyst Thomas Barnett to discuss how his consulting firm, Wikistrat, assesses global events.

Dr. Thomas P.M. Barnett is the author of a New York Times best-seller, The Pentagon's New Map: War and Peace in the 21st Century. He was one of 28 presenters at the recent Casey Research/Sprott, Inc. Navigating the Politicized Economy Summit, which featured a plethora of investment strategies from some of the most successful speculators in the world. You can hear every word of their actionable investment advice, as well as all of the recorded conference presentations, with the Summit Audio Collection, available in CD or MP3 format.

TRANSCRIPT:

Interviewed by Alex Daley

Alex: Hello, I'm Alex Daley. Welcome to another edition of Conversations with Casey. Today our guest is Dr. Thomas Barnett, a famed author and chief analyst at Wikistrat, a massively multiplayer online consulting firm that specializes in bringing war games to public and private clients alike. Thank you, Tom. Can you tell us a little more about your work?

Thomas: Well, Wikistrat is a startup out of Australia by way of Israel. The fact that it comes through Israel is indicative of its focus on taking a product – a service line – and globalizing it rather quickly, early in the process. If you know anything about the startup culture in Israel, it immediately embraces that sort of globalizing ambition.

It's an attempt to create a global community of strategists from around the world and give clients the opportunity – the option – to crowdsource their strategy, rather than have that really tiny group within the organization – and you see this throughout the national security establishment in the United States. If you're in a globalized world, do you want to have two or three white guys sitting in a room, trying to think through China's perspective, India's perspective, Iran's perspective?

[Think of] All the complexity, all the iatrogenic unintended consequences that come from decisions you make in national security or as the head of a corporation. Would you rather have some of your ideas, your strategies, vetted through a much broader lens, a much wider global perspective?

We find that this is a huge cost saver. In many ways, we put together in the Hollywood model temporary teams of analysts from around the world. We war-game in two or three weeks online, 24/7: global community, or whatever strategic concept you want to look at. So we can do it cheaply compared to the classic "butts in seats" model of the consulting firms – the big ones like Booz Allen Hamilton and whatnot – but we can do it fairly rapidly.

If you have an idea, we can put it out, jury-rig it on top of the Wiki; and then we have analysts creating dozens, hundreds, thousands of scenarios if you let it run long enough and have a big enough crowd. You'll get ideas that you just hadn't thought about or considered. So it's fast, it's cheap, and it gets beyond the notion of relying on two or three great minds within your organization to somehow figure out all the complexity on the planet.

Alex: With a network like that, you must get a really interesting perspective on global politics and power and the problems the world is concerned with today. Will you give us some of the examples, some of the insights that you guys have gleaned through your work?

Thomas: Well, we did a war game – or a planning exercise, if you will – on Israel attacking Iran this summer. We came up with a lot of counterintuitive concepts. The further the war goes, for example, the more likely it is that you're really looking at a strategic pivot from that whole dynamic which has dominated American foreign policy the last five, six years, to Turkey sort of running the show in the Middle East. That's because you see an Arab Spring empowering Sunnis throughout the region. You see Iran being threatened by that, acting out more and more, using the whipping boy of Israel to justify its reach for the bomb, when it's really concerned about American regime-change ambitions, rightly or wrongly.

Well, that dynamic can play itself out. We can pitch it all in terms of nuclear proliferation and Shia versus Sunni, or Iran versus Saudi Arabia, or Iran versus Israel and Israel's right to exist, the Palestinian question and all that. That whole thing can blow out in a fairly substantial war. You [end up] looking at, to the surprise of many people, a Middle East once again dominated by an Islamist but yet secular democracy in Turkey. You have Iraq turning in that direction, very possibly Syria falling under Turkey's purview and influence... same with the Muslim brotherhood in Egypt.

We are looking at a very tectonic shift amidst all these things. Our fascination now is on "Is Iran going to get the bomb or not?" We are probably looking at something that's going to take that dynamic, and its centrality in American foreign policy, and just push it off the table. You'll be looking at a Middle East really led by an Islamist Turkey, and that will be a huge shift in the way we view things. That wasn't what we were looking for going into the war game. We weren't naturally assuming we were looking at a strategic shift of players and key influences in the region from what we were used to in terms of Saudi Arabia, Iran, Israel, to Turkey, Iraq, Egypt, Syria. That was something that came out because we didn't structure the war game in such a way that we only had one or two outcomes planned. We really threw it out to a global community of several hundred analysts. As you often find with crowdsourcing, people surprise you with the ideas and the creativity and the ingenuity they display.

Alex: It sounds like it's a Middle East based less on religious fundamentals and more on economic power, if Turkey's going to lead. Does that have any implications on American foreign policy? Are we making the wrong decisions out there? Should the Pentagon be changing its direction, or is the Pentagon well ahead of us and your work?

Thomas: Well, I like my private sector smarter than my public sector. In the public sector I like my politicians smarter than my military. In the national-security community, I like my military smarter than my intelligence. So counterintuitively, I like my intelligence – my spies – kind of dumber compared to everybody else, because if the spies are smarter than the military, it looks like Pakistan. If the military is smarter than the politicians, it looks like the Soviet Union, 1985. If politicians are smarter than the private sector, God help you. It looks more like Europe in terms of its creativity. The situation that they've got there now with the fight over the federal project, as opposed to an America that's led by its private sector…

So, I would say, if I'm looking at the planet, I'm looking at globalization. I'm much more comfortable with the view from America's private sector, for example, on how they view China. I would cite GM's relationship with Shanghai Automotive Industrial Group, SAIC, as probably the model that the US government should be following in its relationship with China. They partnered up with SAIC fifteen years ago. They're trying to grow it in such a way that it becomes a shared partnership. As a result, GM is the biggest seller of cars in Asia. But lo and behold, SAIC wants to grow kind of bigger and out of that partnership. That's a great analogy for the United States and China at this point in history.

Are we getting that from the Pentagon? Absolutely not. We're getting a search for a budgetary floor for the big war force, maybe, and air force, in this new "air-sea battle concept." That's basically taking an old Cold War construct: the Fulda Gap (in Germany) air-land battle. We were going to take on Russian tanks in Germany, and now they have us taking on Chinese submarines and missiles in the South China Sea. Underlying all that is really a seabed contest. If you talk to businessmen, they'll tell you they're going to have to split the difference – they're all going to have to invest. It's going to be massively capital intensive. If you want Shell or anybody to go in there and actually get the hydrocarbons at the bottom of the ocean, even CNOOC or Sinopec (Chinese companies), you can't have people shooting off missiles at each other, arresting fishermen, and having spy trawlers bumping into submarines, and stuff like that.

I think we're at a point in history where the complexity and the spread of American-style globalization – which I think is very much modeled on these United States… We went from a sectional to a continental economy in the late 19th century. I think we are seeing a repeat of a lot of that history, right down to the populism, the angry populism we see around the world today, [which was] very much evident in the United States of the 1880s and 1890s. I think business has a more comfortable, comprehensive, systematic take on what's going on in all that complexity than the politicians or the military types do.

Alex: Is this driven by the fact that businesses really don't care about national borders – they're going to go wherever they can find growth, wherever they can find revenue?

Thomas: It is a function of that, because businesses are more interested in getting transactions, customers, getting the investment in. They like security. They're more willing to split the difference. You layer that spreading reality of all the economic activity and financial flows with what happens to traditional societies when globalization comes in. This is a major theme in my books and in my work throughout my career.

You know, we're seeing traditional societies [facing a] very liberating construct. Basically: "Hey, women should go to school, women should go to the workplace. Maybe you should expect more divorces and less control over women in society if you want to develop and rise as an emerging power." We've seen that time and time again; it's all about liberating women, educating them, putting them into the workforce, delaying sex and pregnancy and marriage, getting a "demographic dividend." There's your economic miracle, repeated time and time again. China's just the latest to do it.

When that comes in, it creates social tumult. When men no longer control women in society, man, you get blowback. You get insurgencies, you get fundamentalists of all stripes rejecting that. That's what’s going on. That's what the politicians see, that's what the military sees and that's what we saw with 9/11. But underlying all that is the transaction growth and the network growth being propagated by the business types. When they come to the South China Sea, they look at it and say, "You know what? This is not a fight about where we draw the line. This is: 'Who's got the money? Can we get enough security? Can we get the investment? Can we access the resources? Will you get a proper profit-sharing model here?'" Well, if it's China rising, Japan's sort of fearful of that. All sorts of social and economic tumult going on. The politicians – it becomes very Manichean in their worldview.

So we have a disjuncture between a business network connectivity that is vast – that really defines globalization – and a time lag in understanding between that universe and what's happening in the political and military realm. There, we're still talking in 20th-century nationalism, "this is my border" kind of stuff. We're still seeing a lot of, I would say, earlier than 20th-century responses in the form of Al Qaeda and other types of fundamentalists who fear the essential liberating mode that is globalization, when it comes to traditional societies.

Alex: So the tumult we're seeing across the Middle East and Asia these days is really just a symptom of these countries following America down the path to prosperity and a growing middle class?

Thomas: It's a symptom of globalization coming to parts of the world that have been off-grid for a long time. Our transactional relationship with the Middle East for the last thirty years has been really pretty bare bones. We give you cash, you give us oil, and we really don't interact a whole lot beyond that.

[Think of it as being like] an American south, pre-Civil War, that dominates cotton markets like the Persian gulf dominates oil markets. The more you come in and allow that connectivity – and it comes in all sorts of networking forums, Facebook, the Internet and all that stuff that we've seen drive a lot of the Arab Spring dynamics to a stunning degree. I mean, no one's in charge – who's making these things happen? We're not quite sure. It's just unfolding. We're seeing a lot of young people move into a kind of strongly oppositional mode against what has been the traditional hierarchies in that part of the world. But at the same time it's frightening to us, because those traditional hierarchies have been maintained largely by suppressing religion and identity. And the conundrum for us is realizing as globalization comes into a traditional place like the Middle East, you're going to see more religion, more nationalism, people are going to want to hold on to identity. Why? Because Facebook and the Internet and social networks and globalization and foreign direct investment and all these things are coming in and transforming societies that have been pretty stable in their social structures for hundreds and hundreds of years.

Alex: Big implications for the world. How can America stay on top in a world like this? Do you think it's realistic that we can continue to maintain our position in the global economy with huge populations now coming into these sort of American-style markets?

Thomas: I think you've got to remember that even though we are a young country, we are the world's oldest and most successful and thus most experienced multinational union. What's going on, on a global scale, we practiced and pioneered on a continental scale in the United States in the latter half of nineteenth century. We went from a Civil War package to an America that dominated the whole continent and had 48 states, roughly, or 45 by the end of the century. That process, all the things that went in to it – the railroad building, the insurgencies, the private security firms, doing stuff on the frontier, the religious revivals – that whole package that we see in America in the latter decades of the nineteenth century, we're watching that experiment writ large on the globe. [That's] primarily because we spent the last seven decades trying to make that economic international liberal trade order come about, defending it and encouraging it. But what that does to us now – in Thomas Friedman's language – is create a level playing field. That means our privileged position [is going to be challenged.] The notion of the American dream in the 1950s came off the weird situation where America was still strong and powerful, and the rest of the world was either underdeveloped or decimated by World War II. We got into this mindset that said, "high school degree, blue-collar, middle-class existence."

Well, that dream started disappearing within twenty years of its formation in our minds. It is really gone now, to the point where we've experienced an economic boom over the last ten to fifteen years that really didn't, for the first time in history, include income growth for the middle class. If you look at American history, we are democratic, open, and tolerant whenever middle-class incomes are rising. We are intolerant, nondemocratic, and pretty nasty to ourselves and others whenever middle-class incomes stagnate.

India is rising despite a massive Maoist insurgency across the interior. China is booming on the coast, but stagnating in many ways, not developing, still kind of holding to a collectivist mindset in the interior. What's going on between red states, blue states, Tea Party, all that kind of populist anger in America. We're seeing a lot of these same dynamics that we saw in the late 19th century in America. The rise of the global middle class, much like the rise of the American middle class at that time frame – it's a tumultuous process. It's a democratizing process. But anybody who expects that the spread of globalization to bring immediate peace, stability, tranquility – everybody's getting along in a Kumbaya kind of fashion… I mean, that's why I called my first book The Pentagon's New Map. There's going to be tumult and violence, most of it subnational, transnational. Globalization, American-style globalization, is pure social economic revolution.

Alex: That's an incredible change for the world. Does that mean that the next few years are probably going to look a lot more like the last few years then they are the earlier days of American history where we were the one growing economy around the world?

Thomas: Well, we were the China of the late 19th century. And we scared people like China scares people now, and we were kind of a rough, rowdy, corrupt, jingoistic democracy, pretty warlike. And we still have that warlike image in a lot of people's minds, because we've played leviathan to the global system for quite some time. We've been very successful in that. We haven't seen any great power in war across the system for close to 70 years. Part of that's nukes, part of that's America basically saying, "I'm not going to allow that." Well, that role that we've played in the last six, seven decades has given us kind of a privileged sense that we run the world. The problem is, our strategy – our open-door strategy, if you will, of encouraging trade and investment to lead to connectivity, to hopefully, over time, lead to democracy – our success in doing that has created so many rising great powers out there that we're no longer able to boss people around. That creates a certain crisis of confidence in our ability to manipulate the world around us. It forces us to kind of look inward and recognize that there are some big parts of our society and economy that don't work particularly well: health care, education that's still structured in an industrial-era model – that really needs to be revamped if we are going to compete with not just the other players out there in the West but a global middle class that is ravenous in its demands. I mean, changing the resource-utilization models across the planet, but giving us a chance to sell to massively larger numbers of consumers than we've ever had in this world.

It's a great time for us to reinvent ourselves. I look to a future that's in my mind logically, say, 2030 and beyond, dominated by a China, India, and America. I call it my "CIA model of the future," kind of three great superpowers. We are more likely to get to 2030 in great shape, compared to a China that has to democratize and create an environmental movement to really deal with the way it's raping its own ecosystem and using up its water tables. Same for an India that has to deal with all sorts of tumult and a caste system that still residually exists throughout.

We've processed populist anger in America three or four times throughout our history. As much as we like to demean our own democracy, we're actually pretty good at dealing with this kind of change. I give us much better odds than India or China, especially when you realize that compared to them we are chock full of cheap energy.

The fracking revolution reminds us and gives us that possibility again. And then we are, frankly, the OPEC of food, which is an unknown in most people's minds here in America. We are the source – North America writ large – of 70% of the world's moveable feast in terms of poultry, pork, the major grains, beef as well. We are an immense player in that realm; and when you layer on climate change, which is mostly going to be an equatorially centric phenomenon – massive droughts, much more difficulty with water shortages – we have a fairly long-term bright future. We're going to be able to grow food. We're going to have cheap energy. We've got an innovative economy. We've just a couple small things to fix, relative to India and China: health care and education.

We get some serious political leaders willing to do that – which to me probably involves the boomers retiring from politics, because they've proven to be just about the worst political generation we've had in a century – and I think most of these things are quite fixable. We're looking at a major industrial renaissance in America. We're looking at a rebound that will put us back up on top, to the point where I think you can legitimately argue a second American century, very likely. Not the same package we had in the second half of the twentieth century. We won't get to rule by default, but I think there are attributes to this system that put us in a great leadership potential situation for the next five or six decades, easy.

Alex: That's a fascinating insight on the way the world is working, and quite an interesting picture for America, which I think is different than many people paint today. I want to thank you for giving us your unique perspective on the world.

Thomas: Thank you.

Find this whole package at http://www.caseyresearch.com/cdd/thomas-barnett-american-style-globalization-will-win-day

11:15AM

Chart of the day: globalization - that great reducer of fertility

From great Gerald Seib WSJ column.

Islam, hugely fertile throughout history (a sign of high infant/child mortality), starts losing fertility big-time once globalization kicks in.

You know my Core-Gap map.  You're looking at the Gap highlighted there and numbers are dropping rapidly as globalization creeps in.

Discard the Nordic and US references.  Those are tiny numbers in absolute terms.

Point is, Islam responds to global connectivity/globalization/ modernity like everybody else: fertility drops.

Remember that when somebody tells you that Muslims are going to take over the world because of their incredible fertility.

12:19PM

Cancer to go global - along with globalization and the rising income reality it creates

 

From FT story about advances in cancer treatment.

Me?  I see a fairly scary map that says higher cancer frequency is sure to spread rapidly over next couple of decades as massive global middle class comes online in emerging and developing markets.  

What this map tells me is high rates of cancer come with economic advance, meaning we're looking at a vast global industry within a generation.

11:18AM

Chart of the day: World greatest aid flow keeps getting greater

WSJ story noting that:

Migrant workers abroad sent more money to their families in the developing world last year than in 2010, and they are expected to transfer even more cash home this year despite the economic uncertainly gripping the globe.

You can see the divot created by the financial crash in 2008, but note how the trajectory resumes like it never even happened.

The number is staggering:  $372B last year.  World Bank predicts almost half a trillion will flow in 2014.

Key bit:

Remittances remain a key source of hard currency for developing countries, often outstripping foreign direct investment and foreign aid.

It can "immunize" your country from downturns, so sayeth a new WB book on the subject.

Both intra- and inter-regional flows are rising in same manner, with key technological enabler being how cheap it is for ordinary people to wire money.  

One of the biggest players in this realm at about 1/7th of global market?  Western Union.

How's that for a frontier metaphor?  Back then it was all about telegraphs.  Now it's all about remittances.

12:02AM

US ag industry: the greatest force for stability on the planet

Pick out the world's biggest exporter of wheat from this chart.

It's the US, which is also the biggest exporter of corn, soybeans and food aid.

Guess what got devastated this year?  Corn and soybeans (where the US just lowered its forecase of yields for the 3rd time), but somehow the US pulls off a slight increase on wheat.  Problem is, everybody else is down.  From the WSJ story (which provided the chart above):

The weather troubles, if they continue [read, winter wheat], risk pushing wheat back to the fore of global concerns about soaring food prices.  Wheat is a staple food around the world and a major source of basic nutrition for the poor, and prior price spikes in recent years contributed to political unrest.

Like the doubling of bread prices in Egypt in the months leading up to Mubarak's fall.

I say this in presentations all the time: the biggest force for global stability right now is the U.S. farmer.