[Dialogue] From World Economic Forum '08

Sun May 25 19:44:28 EDT 2008

This article was forwarded to me by a  Republican, conservative friend.  It 
is pretty well written.  We know  most of what he says, but his thoughts are 
well organized and may be worth  reading.

This is a paper  presented several weeks ago by Herb  Meyer at the  World

Economic Forum  in Davos, Switzerland which was  attended by most of  the

CEOs from all  the major international corporations  -- a very  good

summary of  today 's key trends and a  perspective one seldom  sees.

Meyer served  during the Reagan administration as  special assistant  to

the Director of  Central Intelligence and Vice  Chairman of the  CIA's

National  Intelligence Council.  In these  positions, he  managed

production of  the U.S. National Intelligence  Estimates and  other

top-secret  projections  for the President  and his national  security

advisers.

Meyer is widely  credited with being the first  senior  U.S. Government  
official

to forecast the  Soviet Union's collapse, for which  he later was awarded  the

U.S. National  Intelligence Distinguished Service  Medal, the  intelligence

community's  highest honor. Formerly an associate  editor of FORTUNE,  he

is also the  author of several  books.

WHAT  IN THE WORLD IS GOING ON?    

A  GLOBAL INTELLIGENCE BRIEFING FOR  CEOs

by HERBERT  MEYER

FOUR  MAJOR  TRANSFORMATIONS

Currently, there  are four major  transformations that are shaping

political,  economic and world  events. These transformations  have

profound  implications for  American business leaders and owners,  our

culture and  on our way of  life.

1.  The War in Iraq

There are three  major  monotheistic religions in the world:

Christianity,  Judaism and  Islam. In the 16th century, Judaism  and

Christianity  reconciled with  the modern world. The rabbis, priests  and

scholars found a  way to settle  up and pave the way forward.  Religion

remained at the  center of life,  church and state became separate.  Rule

of law, idea of  economic  liberty, individual rights, human  Rights-all

these are  defining point of  modern Western civilization. These  concepts

started with the  Greeks but  didn't take off until the 15th and 16th  century

when Judaism and  Christianity  found a way to reconcile with the  modern

world.  When that  happened, it unleashed the scientific revolution and  the

greatest  outpouring of art,  literature and music the world has ever  known.

Islam, which  developed in the  7th century, counts millions of  Moslems

around the world  who are normal  people. However, there is a  radical

streak within  Islam. When  the radicals are in charge, Islam attacks  Western

civilization.  Islam first  attacked Western civilization in the  7th

century, and  later in  the  16th and 17th centuries. By 1683, the  Moslems

(Turks from the  Ottoman Empire)  were literally at the gates of Vienna . It 
was in  Vienna

that the  climatic battle  between Islam and Western civilization  took

place. The West  won and went  forward. Islam lost and went  backward.

Interestingly,  the date of that  battle was September 11. Since  them,

Islam has not  found a way to  reconcile with the modern world.

Today, terrorism  is the third  attack on Western civilization by  radical

Islam. To deal  with terrorism,  the U.S. is doing two things.  First,

units of our  armed forces are  in 30 countries around the world  hunting

down terrorist  groups and  dealing with them. This gets very  little

publicity.  Second we are taking  military action in Afghanistan and Iraq  

These actions  are covered  relentlessly by the media. People can  argue

about whether  the war in Iraq  is right or wrong. However, the  underlying

strategy  behind the war  is to use our military to remove the  radicals

from power and  give the  moderates a chance. Our hope is that, over time,  
the

moderates will  find a way to  bring Islam forward into the 21st  century.

That's what our  involvement in  Iraq and Afghanistan is all  about.

The lesson of  9/11 is that we  live in a world where a small number  of

people can kill  a large number  of people very quickly. They can  use

airplanes,  bombs, anthrax,  chemical weapons or dirty bombs. Even with  a

first-rate  intelligence service  (which the U.S. does not have), you can't  
stop

every attack.  That means our  tolerance for political horseplay  has

dropped to zero.  No longer will  we play games with terrorists or  weapons

of mass  destructions.

Most of the  instability and  horseplay is coming from the Middle  East.

That's why we  have thought that  if we could knock out the radicals  and

give the  moderates a chance to  hold power, they might find a way  to

reconcile Islam  with the modern  world. So when looking at Afghanistan  or

Iraq, it's important  to look  for any signs that they are modernizing.

For example,  women being  brought into the work force and colleges  in

Afghanistan is good. The  Iraqis  stumbling toward a constitution is good.

People can argue  about what the  U.S. is doing and how we're doing  it,

but anything  that suggests  Islam is finding its way forward is  good.

2.  The Emergence of  China

In the last 20  years, China has  moved 250 million people from the  farms

and villages  into the cities.  Their plan is to move another 300  million

in the next 20  years. When you  put that many people into the cities,  you

have to find  work for  them.  That's why China is addicted to  manufacturing;

they have to put  all the  relocated people to work. When we decide  to

manufacture  something in the  U.S., it's based on market needs and  the

opportunity to  make a profit.  In China , they make the decision because  
they

want the jobs,  which is a  very different calculation.

While China is  addicted to  manufacturing, Americans are addicted to  low

prices. As a  result, a unique  kind of economic codependency  has

developed  between the two  countries. If we ever stop buying from China  ,

they will  explode politically.  If China stops selling to us, our  economy

will take a huge  hit because  prices will jump. We are subsidizing  their

economic  development; they are  subsidizing our economic  growth.

Because of their  huge growth in  manufacturing, China is hungry for  raw

materials, which  drives prices  up worldwide. China is also thirsty  for

oil, which is  one reason oil is  now at $100 a barrel. By 2020,  China

will produce  more cars than the  U.S.   China is also buying its way  into

the oil  infrastructure around  the world. They are doing it in the  open

market and  paying fair market  prices, but millions of barrels of  oil

that would have  gone to the  U.S. are now going to China  China's  quest

to assure it has  the oil it  needs to fuel its economy is a major  factor

in world  politics and  economics.

We have our Navy  fleets  protecting the sea lines, specific ally  the

ability to get  the tankers  through.  It won't be long before the  Chinese

have an aircraft  carrier  sitting in the Persian Gulf as well.

The question is,  will their  aircraft carrier be pointing in the  same

direction as  ours or against  us?

3.  Shifting Demographics of  Western  Civilization

Most countries  in the Western  world have stopped breeding.

For a  civilization obsessed  with sex, this is remarkable.  Maintaining  a

steady  population requires a  birth rate of 2.1  In Western Europe ,  the

birth rate  currently stands at  1.5, or 30 percent below replacement.  In

30 years there  will be 70 to 80  million fewer Europeans than there  are

today.  The  current birth  rate in Germany is 1.3. Italy and Spain are  even

lower at 1.2. At  that rate, the  working age population declines by 30 
percent in  20

years, which has  a huge impact  on the economy.  When you don't have  young

workers to  replace the older  ones, you have to import them.

The European  countries are  currently importing Moslems. Today,  the

Moslems comprise  10 percent of  France and Germany, and the percentage  is

rising rapidly  because they  have higher birthrates. However, the  Moslem

populations are  not being  integrated into the cultures of their  host

countries, which  is a political  catastrophe. One reason Germany and  France

don't support  the Iraq war is  they fear their Moslem populations will 
explode on them.  By

2020, more than  half of all  births in the Netherlands will be  non-European.

The huge design  flaw in the  postmodern secular state is that you need  a

traditional  religious society  birth rate to sustain it. The  Europeans

simply don't  wish to have  children, so they are dying.  In Japan ,  the

birthrate is  1.3. As a result,  Japan will lose up to 60 million people  over

the next 30  years. Because  Japan has a very different society than Europe,  
they

refuse to import  workers.  Instead, they are just shutting down.  Japan

has already  closed 2,000  schools, and is closing them down at the  rate

of 300 per year.  Japan is  also aging very rapidly. By 2020, one out  of

every  five  Japanese will  be at least 70 years old. Nobody has any  idea

about how to run  an economy  with those demographics.

Europe and  Japan, which  comprise two of the world's major  economic

engines, aren't  merely in  recession, they're shutting down. This  will

have a huge  impact on the world  economy, and it is already beginning  to

happen. Why are  the birthrates  so low? There is a direct correlation  
between

abandonment of  traditional religious society and a drop in birth rate,  and

Christianity in  Europe is  becoming irrelevant.

The second  reason is economic.  When the birth rate drops  below

replacement, the  population  ages. With fewer working people to  support

more retired  people, it puts a  crushing tax burden on the smaller group  of

working age  people. As a  result, young people delay marriage and having  a

family. Once  this trend starts,  the downward spiral only gets  worse.

These countries  have abandoned  all the traditions they formerly held  in

regard to having  families and  raising children.

The U.S. birth  rate is 2.0,  just below replacement. We have an  increase

in population  because of  immigration. When broken down by ethnicity,  the

Anglo birth rate  is 1.6 (same  as France) while the Hispanic birth  rate

is 2.7.  In the U.S. ,  the baby boomers are starting to retire in  massive

numbers. This  will push the  elder dependency ratio from 19 to

38 over the next  10 to 15  years. This is not as bad as Europe , but  still

represents the  same kind of  trend.

Western  civilization seems to  have forgotten what every  primitive

society  understands-you need  kids to have a healthy society.  Children

are huge  consumers. Then they  grow up to become tax payers. That's how  a

society works,  but the  postmodern secular state seems to have  forgotten

that. If U.S.  birth rates of  the past 20 to 30 years had been the  same

as post-World  War II, there  would be no Social Security or  Medicare

problems.

The world's most  effective  birth control device is money. [I love  this

line!!]  As  society  creates a middle class and women move into the 
workforce, birth  rates

drop. Having  large families is  incompatible with middle class  living.

The quickest way  to drop the  birth rate is through rapid economic

development.  After World  War II, the U.S. instituted a $600 tax  credit

per child. The  idea was to  enable mom and dad to have four  children

without being  troubled by  taxes. This led to a baby boom of 22 million  
kids,

which was a huge  consumer  market. That turned into a huge tax  base.

However, to  match that  incentive in today's dollars would cost  $12,000

per  child.

China and India do  not have  declining populations. However, in both

countries, there  is a  preference for boys over girls, and we now  have

the technology  to know which is  which before they are born. In China  and

India, families are  aborting  the girls. As a result, in each of  these

countries there  are 70 million  boys growing up who will never  find

wives. When left  alone, nature  produces 103 boys for every 100 girls.  In

some provinces,  however, the  ratio is 128 boys to every 100 girls. I  have

read that this  creates a  potentially explosive situation.  You have to  keep

all these  potential sources of  political instability contented.  One way,  
historically

often used, is  war.

The birth rate  in Russia is so  low that by 2050 their population will  be

smaller than  that of Yemen.  Russia has one-sixth of the earth's  land

surface and much  of its oil.  You can't control that much area with  such

a small  population.  Immed  iately to the south, you have China with  70

million  unmarried men who are a  real potential nightmare scenario for 
Russia  

[See my comment  above.]

4.  Restructuring of American  Business

The fourth major  transformation  involves a fundamental restructuring  of

American  business. Today's  business environment is very complex  and

competitive. To  succeed, you  have to be the best, which means having  the

highest quality  and lowest  cost. Whatever your price point, you  must

have the best  quality and  lowest price. To be the best, you have  to

concentrate on  one thing. You  can't be all things to all people and  be

the  best.

A generation  ago, IBM used to  make every part of their computer.  Now

Intel makes the  chips,  Microsoft makes the software, and someone  else

makes the  modems, hard drives,  monitors, etc. IBM even out sources  their

call center.  Because IBM  has all these companies supplying goods  and

services cheaper  and better  than they could do it themselves, they can  make

a better  computer at a lower  cost. This is called a fracturing of business. 
When  one

company can make  a better  product by relying on others to perform

functions the  business   used to do itself, it creates a complex  pyramid

of companies  that serve  and  support each other.

This fracturing  of American  business is now in its second  generation.

The companies  who supply IBM  are now doing the same thing -  outsourcing

many of their  core services and  production process. As a result,  they

can make  cheaper, better  products. Over time, this pyramid continues to  get

bigger and  bigger. Just when  you think it can ' t fracture again, it  does.

Even very small  businesses can  have a large pyramid of corporate

entities that  perform many of  its important functions. One aspect  of

this trend is  that companies  end up with fewer employees and  more

independent  contractors.   This trend has also created two new words  in

business,  integrator and  complementor. At the top of the pyramid, IBM is  
the

integrator. As  you go down the  pyramid, Microsoft, Intel and the  other

companies that  support IBM are  the complementors. However, each of  the

complementors is  itself an  integrator for the complementors underneath  it.

This has several  implications,  the first of which is that we are  now

getting false  readings on the  economy. People who used to be  employees

are now  independent contractors  launching their own businesses. There  are

many people  working whose work  is not listed as a job. As a result,  the

economy is  perking along better  than the numbers are telling  us.

Outsourcing also  confused the  numbers. Suppose a company like  General

Motors decides  to  outsource all its employee cafeteria functions  to

Marriott (which  it did).  It lays off hundreds of cafeteria workers,  who

then get hired  right back by  Marriott.  The only thing that has changed is  
that

these people  work  for  Marriott rather than GM. Yet, the media headlines  
will

scream that  America has lost  more manufacturing jobs.

All that really  happened is  that these workers are now reclassified  as

service workers.  So the old way  of counting jobs contributes to  false

economic  readings. As yet, we  haven't figured out how to make  the

numbers catch up  with the  changing realities of the business  world.

Another  implication of this  massive restructuring is that  because

companies  are getting rid  of units and people that used to work  for

them, the entity  is smaller. As  the companies get smaller and  more

efficient,  revenues are going  down but profits are going up. As a result, 
the old  notion

that revenues  are up and we're  doing great isn't always the  case

anymore.  Companies are getting  smaller but are becoming more  efficient

and profitable  in the process  ..

IMPLICATIONS  OF THE FOUR  TRANSFORMATIONS

1.  The War in Iraq

In some ways,  the war is going  very well. Afghanistan and Iraq have  the

beginnings of a  modern  government, which is a huge step forward.  The

Saudis are  starting to talk  about some good things, while Egypt  and

Lebanon are beginning  to move  in a good direction.  A series of  revolutions

have taken place  in countries  like Ukraine and Georgia 

There will be  more of these  revolutions for an interesting reason.  In

every  revolution, there comes a  point where the dictator turns to  the

general and  says, "fire into  the crowd."  If the general fires into the  
crowd,

it stops the  revolution. If the  general says "No," the revolution  
continues.

Increasingly,  the generals are  saying No because their kids are in  the

crowd.

Thanks to TV and  the Internet,  the average 18-year old outside the  U.S.

is very savvy  about what is  going on in the world, especially in  terms

of popular  culture. There is a  huge global consciousness, and  young

people around  the world want to  be a part of it. It is  increasingly

apparent to them  that the  miserable government where they live is  the

only thing  standing in their  way. More and more, it is the  well-educated

kids, the  children of the  generals and the elite, who are leading  the

revolutions.

At the same  time, not all is  well with the war. The level of violence  in

Iraq is much worse  and doesn't  appear to be improving. It's  possible

that we're  asking too much of  Islam all at one time. We're trying  to

jolt them from  the 7th century  to the 21st century all at once,  which

may be further  than they can  go. They might make it and they might  not.

Nobody knows for  sure. The  point is, we don't know how the war will  turn

out. Anyone who  says they know  is just guessing.

The real place  to watch is Iran  . If they actually obtain nuclear  weapons

it  will be  a terrible  situation. There are two ways to deal with  it.

The first  is a military  strike, which will be very  difficult.

The Iranians  have dispersed  their nuclear development facilities and  put

them  underground. The U.S. has  nuclear weapons that can go under  the

earth and take  out those  facilities, but we don't want to do  that.

The other way is  to separate  the radical mullahs from the  government,

which  is  the most likely  course of action.  Seventy percent of  the

Iranian  population is under 30.  They are Moslem but not Arab. They  are

mostly  pro-Western. Many  experts think the U.S. should have dealt with  Iran

before going to  war with Iraq  The problem isn't so much the  weapons,

it's the people  who control  them. If Iran has a moderate government,  the

weapons become  less of a  concern.

We don't know if  we will win  the war in Iraq We could lose or  win.

What we ' re  looking for is any  indicator that Islam is moving into th  e

21st century and  stabilizing.

2.  China

It may be that  pushing 500  million people from farms and villages  into

cities is too  much too soon.  Although it gets almost no publicity,  China

is experiencing  hundreds of  demonstrations around the country, which  is

unprecedented.  These are  not students in Tiananmen  Square.

These are  average citizens who  are angry with the government  for

building  chemical plants and  polluting the water they drink and the  air

they  breathe.

The Chinese are  a smart and  industrious people. They may be able to  pull

it  off and  become a very  successful economic and military  superpower.

If so, we will  have to learn to  live with it. If they want to share  the

responsibility  of keeping the  world's oil lanes open, that ' s a good  
thing.

They currently  have eight new  nuclear electric power generators under way  
and

45 on the books  to build. Soon,  they will leave the U.S. way behind  in

their  a  bility to  generate nuclear power.

What can go  wrong with China?  For one, you can't move 550 million  people

into the cities  without major  problems. Two , China really wants  Taiwan,

not so much for  economic  reasons, they just want it. The Chinese  know

that their  system of communism  can't survive much longer in the  21st

century. The  last thing they  want to do before they morph into some sort  of

more  capitalistic government is  to take over Taiwan.

We may wake up  one morning and  find they have launched an attack  on

Taiwan.  If so,  it will be  a mess, both economically and  militarily.

The U.S. has  committed to the  military defense of Taiwan If China  attacks

Taiwan, will we really  go to  war against them? If the Chinese generals  
believe

the answer is  no, they may  attack. If we don't defend Taiwan,  every

treaty the U.S.  has will be  worthless. Hopefully, China won't do  anything

stupid.

3.  Demographics

Europe and Japan  are dying  because their populations are aging  and

shrinking. These  trends can be  reversed if the young people start

breeding.  However, the  birth rates in these areas are so low it  will

take two  generations to turn  things around.  No economic model exists  that

permits 50 years  to turn things  around. Some countries are beginning  to

offer incentives  for people to  have bigger families. For example,  Italy

is offering tax  breaks for  having children. However, it's a  lifestyle

issue versus a  tiny amount of  money. Europeans aren't willing to give  up

their  comfortable lifestyles in  order to have more  children.

In general,  everyone in Europe  just wants it to last a while  longer.

Europeans have a  real talent  for living. They don't want to work  very

hard. The  average European  worker gets 400 more hours of vacation  time

per year than  Americans. They  don't want to work and they don't want to  
make

any of the  changes needed to  revive their economies.

The summer after  9/11, France  lost 15,000 people in a heat wave.  In

August, the  country basically  shuts down when everyone goes on  vacation.

That year, a  severe heat wave  struck and 15,000 elderly people living  in

nursing homes  and hospitals  died. Their children didn't even leave  the

beaches to come  back and take  care of the bodies. Institutions had  to

scramble to find  enough  refrigeration units to hold the bodies  until

people came to  claim  them.  This loss of life was five times bigger  than

9/11 in America,  yet it didn't  trigger any change in French  society.

When birth rates  are so low, it  creates a tremendous tax burden on  the

young. Under  those  circumstances, keeping mom and dad  alive is not  an

attractive  option. That ' s why  euthanasia is becoming so popular in  most

European  countries. The only  country that doesn ' t permit (and  even

encourage)  euthanasia is  Germany , because of all the baggage from  World

War  II.

The European  economy is  beginning to fracture. Countries like Italy  are

starting to talk  about pulling  out of the European Union because it  is

killing them.  When things get  bad economically in Europe , they tend  to

get very nasty  politically. The  canary in the mine is  anti-Semitism.

When it goes up,  it means  trouble is coming. Current levels of

anti-Semitism  are higher than  ever.

Germany won't launch  another  war, but Europe will likely get  shabbier,

more dangerous  and less  pleasant to live in.  Japan has a birth rate  of

1.3 and has no  intention of  bringing in immigrants. By 2020, one out  of

every five  Japanese will be 70  years old. Property values in Japan  have

dropped every  year for the past  14 years. The country is simply  shutting

down.  In  the U.S. we also  have an aging population. Boomers  are

starting to  retire at a massive  rate. These retirements will  have

several major  impacts:

Possible massive  selloff of  large four-bedroom houses and a movement  to

condos.

An enormous  drain on the  treasury. Boomers vote, and they want  their

benefits, even  if it means  putting a crushing tax burden on their  kids

to get them.  Social Security  will be a huge problem. As this  generation

ages, it will  start to drain  the system. We are the only country in  the

world where  there are no age  limits on medical procedures.

An enormous  drain on the health  care system. This will also increase  the

tax burden on  the young, which  will cause them to delay marriage  and

having families,  which will  drive down the birth rate even  further.

Although scary,  these  demographics also present enormous  opportunities

for products and  services  tailored to aging populations. There will  be

tremendous  demand for caring  for older people, especially those  who

don ' t need  nursing homes but  need some level of care. Some people  will

have a business  where they take  care of thr ee or four people in  their

homes.  The  demand for  that type of service and for products  to

physically care  for aging  people will be huge.

Make sure the  demographics of  your business are attuned to where  the

action is. For  example, you don  ' t want to be a baby food company  in

Europe or Japan  . Demographics  are much underrated as an indicator  of

where the  opportunities  are.  Businesses need customers. Go where  the

customers  are.

4.  Restructuring of American  Business

The  restructuring of American  business means we are coming to the  end

of the age of  the employer and  employee. With all this fracturing  of

businesses into  different and  smaller units, employers can't  guarantee

jobs anymore  because they don't  know what their companies will  look

like next year.  Everyone is on  their way to becoming an  independent

contractor.

The new  workforce contract will  be: Show up at the my office five  days

a week and do  what I want you  to do, but you handle your own  insurance,

benefits, health  care and  everything else.  Husbands and wives  are

becoming  economic units. They  take different jobs and work  different

shifts depending  on where they  are in their careers and families.  They

make tradeoffs  to put together  a compensation package to take care  of

the  family.

This used to  happen only with  highly educated professionals with  high

incomes. Now it  is happening at  the level of the factory floor  worker.

Couples at all  levels are  designing their compensation packages  based

on their  individual needs. The  only way this can work is if  everything

is portable and  flexible, which  requires a huge shift in the  American

economy.

The U.S is in  the process of  building the world's first 21st  century

model economy.  The only other  countries doing this are U.K. and

Australia. The model is  fast,  flexible, highly productive and unstable

in that it is  always fracturing  and re-fracturing. This will  increase

the economic gap  between the  U.S. and everybody else, especially  Europe

and Japan  

At the same  time, the military  gap is increasing. Other than China,  we

are the only  country that is  continuing to put money into  their

military. Plus,  we are the only  military getting on-the-ground  military

experience  through our war in  Iraq We know which high-tech weapons  are

working and  which ones aren't.  There is almost no one who can take  us

on economically  or  militarily.

There has never  been a  superpower in this position before.  On the  one

hand, this makes  the U.S. a  magnet for bright and ambitious people.  It

also makes us a  target. We are  becoming one of the last holdouts of  the

traditional  Judeo-Christian  culture. There is no better place in  the

world to be in  business and  raise children. The U.S. is by far the  best

place to have an  idea, form a  business and put it into the  marketplace.

We take it for  granted, but it  isn't as available in other countries  of

the world.  Ultimately,  it's an issue of culture. The only people  who

can hurt us are  ourselves, by  losing our culture. If we give up  our

Judeo-Christian  culture, we  become just like the Europeans.

The culture war  is the whole  ballgame. If we lose it, there  isn't

another America  to pull us  out.

____________________________________

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