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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 then,
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 destruction
.
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 drive 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, specifically 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
year 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 taxpayers. 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. 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.
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. Immediately to the south,
you have China with 70 million unmarried men who are a real potential
nightmare scenario for Russia .
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 the 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 ability 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 sell-off 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 a 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 three 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.
