A Global Intelligence
Briefing for CEOs!
by: Herbert Meyer (his bio is a
the end)
Currently, there are
four major transformations that are shaping political, economic and world
events. These transformations have profound implications for American business
owners, our culture and 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 points 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 climactic 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 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 workforce 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 $60 a barrel. By 2020, China will produce more cars than the United States.
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 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 post-modern 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 2000 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 regards 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 no t 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 post-modern 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, many
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 -- 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 outsources 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 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 is
over. Increasingly, the generals are saying "No." Why?
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 reckless.
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. The Euro is down. 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 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.
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.
Herbert Meyer
P.O. Box 2089
Friday Harbor, WA
98250
Email: herbmeyer@storkingpress.com
Herb 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.
