Rising Asia – Projections of the 2020 Project

National Intelligence Council

Rising Powers: The Changing
Geopolitical Landscape
The likely emergence of China and India as new major global players—similar to the rise of Germany in the 19th century and the United States in the early 20th century—will transform the geopolitical landscape, with impacts potentially as dramatic as those of the previous two centuries. In the same way that commentators refer to the 1900s as the “American Century,” the early 21st century may be seen as the time when some in the developing world, led by China and India, come into their own.
* The population of the region that served as the locus for most 20th-century history—Europe and Russia—will decline dramatically in relative terms; almost all population growth will occur in developing nations that until recently have occupied places on the fringes of the global economy (see graphic on page 48). [6]
* The “arriviste” powers—China, India, and perhaps others such as Brazil and Indonesia—could usher in a new set of international alignments, potentially marking a definitive break with some of the post-World War II institutions and practices.
* Only an abrupt reversal of the process of globalization or a major upheaval in these countries would prevent their rise. Yet how China and India exercise their growing power and whether they relate cooperatively or competitively to other powers in the international system are key uncertainties.
A combination of sustained high economic growth, expanding military capabilities, active promotion of high technologies, and large populations will be at the root of the expected rapid rise in economic and political power for both countries.
* Because of the sheer size of China’s and India’s populations—projected by the US Census Bureau to be 1.4 billion and almost 1.3 billion respectively by 2020—their standard of living need not approach Western levels for these countries to become important economic powers.
* China, for example, is now the third largest producer of manufactured goods, its share having risen from four to 12 percent in the past decade. It should easily surpass Japan in a few years, not only in share of manufacturing but also of the world’s exports. Competition from “the China price” already powerfully restrains manufactures prices worldwide.
* India currently lags behind China (see box on page 53) on most economic measures, but most economists believe it also will sustain high levels of economic growth.
Telescoping the Population of the World to 2020
At the same time, other changes are likely to shape the new landscape. These include the possible economic rise of other states—such as Brazil, South Africa, Indonesia, and even Russia—which may reinforce the growing role of China and India even though by themselves these other countries would have more limited geopolitical impact. Finally, we do not discount the possibility of a stronger, more united Europe and a more internationally activist Japan, although Europe, Japan, and Russia will be hard pressed to deal with aging populations.
The growing demand for energy will drive many of these likely changes on the geopolitical landscape. China’s and India’s perceived need to secure access to energy supplies will propel these countries to become more global rather than just regional powers, while Europe and Russia’s co-dependency is likely to be strengthened.
Rising Asia
China’s desire to gain “great power” status on the world stage will be reflected in its greater economic leverage over countries in the region and elsewhere as well as its steps to strengthen its military. East Asian states are adapting to the advent of a more powerful China by forging closer economic and political ties with Beijing, potentially accommodating themselves to its preferences, particularly on sensitive issues like Taiwan.
* Japan, Taiwan, and various Southeast Asian nations, however, also may try to appeal to each other and the United States to counterbalance China’s growing influence.
China will continue to strengthen its military through developing and acquiring modern weapons, including advanced fighter aircraft, sophisticated submarines, and increasing numbers of ballistic missiles. China will overtake Russia and others as the second largest defense spender after the United States over the next two decades and will be, by any measure, a first-rate military power.
Economic setbacks and crises of confidence could slow China’s emergence as a full-scale great power, however. Beijing’s failure to maintain its economic growth would itself have a global impact.
* Chinese Government failure to satisfy popular needs for job creation could trigger political unrest.
* Faced with a rapidly aging society beginning in the 2020s, China may be hard pressed to deal with all the issues linked to such serious demographic problems. It is unlikely to have developed by then the same coping mechanisms—such as sophisticated pension and health-care systems—characteristic of Western societies.
* If China’s economy takes a downward turn, regional security would weaken, resulting in heightened prospects for political instability, crime, narcotics trafficking, and illegal migration.
“Economic setbacks and crises of confidence could slow China’s emergence as a full-scale great power…. ”
The rise of India also will present strategic complications for the region. Like China, India will be an economic magnet for the region, and its rise will have an impact not only in Asia but also to the north—Central Asia, Iran, and other countries of the Middle East. India seeks to bolster regional cooperation both for strategic reasons and because of its desire to increase its leverage with the West, including in such organizations as the World Trade Organization (WTO).
China’s Rise
Projected Rise in Chinese Defense Spending, 2003-2025
As India’s economy grows, governments in Southeast Asia—Malaysia, Singapore, Thailand, and other countries—may move closer to India to help build a potential geopolitical counterweight to China. At the same time, India will seek to strengthen its ties with countries in the region without excluding China.
* Chinese-Indian bilateral trade is expected to rise rapidly from its current small base of $7.6 billion, according to Goldman Sachs and other experts.
Just like China, India may stumble and experience political and economic volatility with pressure on resources—land, water, and energy supplies—intensifying as it modernizes. For example, India will face stark choices as its population increases and its surface and ground water become even more polluted.
Other Rising States?
Brazil, Indonesia, Russia, and South Africa also are poised to achieve economic growth, although they are unlikely to exercise the same political clout as China or India. Their growth undoubtedly will benefit their neighbors, but they appear unlikely to become such economic engines that they will be able to alter the flow of economic power within and through their regions—a key element in Beijing and New Delhi’s political and economic rise.
Risks to Chinese Economic Growth
Whether China’s rise occurs smoothly is a key uncertainty. In 2003, the RAND Corporation identified and assessed eight major risks to the continued rapid growth of China’s economy over the next decade. Its “Fault Lines in China’s Economic Terrain” highlighted:
* Fragility of the financial system and state-owned enterprises
* Economic effects of corruption
* Water resources and pollution
* Possible shrinkage of foreign direct investment
* HIV/AIDS and epidemic diseases
* Unemployment, poverty, and social unrest
* Energy consumption and prices
* Taiwan and other potential conflicts
RAND’s estimates of the negative growth impact of these adverse developments occurring separately on a one-at-a-time basis range from a low of between 0.3 and 0.8 percentage points for the effects of poverty, social unrest, and unemployment to a high of between 1.8 and 2.2 percentage points for epidemic disease.
* The study assessed the probability that none of these developments would occur before 2015 as low and noted that they would be more likely to occur in clusters rather than individually – financial distress, for example, would also worsen corruption, compound unemployment, poverty, and social unrest, and reduce foreign direct investment.
* RAND assessed the probability of all of these adverse developments occurring before 2015 as very low but estimated that should they all occur their cumulative effect would be to reduce Chinese economic growth by between 7.4 and 10.7 percentage points—effectively wiping out growth during that time frame.
India vs. China: Long-Term Prospects
India lags economically behind China, according to most measures such as overall GDP, amount of foreign investment (today a small fraction of China’s), and per capita income. In recent years, India’s growth rate has lagged China’s by about 20 percent. Nevertheless, some experts believe that India might overtake China as the fastest growing economy in the world. India has several factors working for it:
* Its working-age population will continue to increase well into the 2020s, whereas, due to the one-child policy, China’s will diminish and age quite rapidly.
* India has well-entrenched democratic institutions, making it somewhat less vulnerable to political instability, whereas China faces the continuous challenge of reconciling an increasingly urban and middle-class population with an essentially authoritarian political system.
* India possesses working capital markets and world-class firms in some important high-tech sectors, which China has yet to achieve.
On the other hand, while India has clearly evolved beyond what the Indians themselves referred to as the 2-3 percent “Hindu growth rate,” the legacy of a stifling bureaucracy still remains. The country is not yet attractive for foreign investment and faces strong political challenges as it continues down the path of economic reform. India is also faced with the burden of having a much larger proportion of its population in desperate poverty. In addition, some observers see communal tensions just below the surface, citing the overall decline of secularism, growth of regional and caste-based political parties, and the 2002 “pogrom” against the Muslim minority in Gujarat as evidence of a worsening trend.
Several factors could weaken China’s prospects for economic growth, especially the risks to political stability and the challenges facing China’s financial sector as it moves toward a fuller market orientation. China might find its own path toward an “Asian democracy” that may not involve major instability or disruption to its economic growth—but there are a large number of unknowns.
In many other respects, both China and India still resemble other developing states in the problems each must overcome, including the large numbers, particularly in rural areas, who have not enjoyed major benefits from economic growth. Both also face a potentially serious HIV/AIDS epidemic that could seriously affect economic prospects if not brought under control. According to recent UN data, India has overtaken South Africa as the country with the largest number of HIV-infected people.
The bottom line: India would be hard-pressed to accelerate economic growth rates to levels above those reached by China in the past decade. But China’s ability to sustain its current pace is probably more at risk than is India’s; should China’s growth slow by several percentage points, India could emerge as the world’s fastest-growing economy as we head towards 2020.
Experts acknowledge that Brazil is a pivotal state with a vibrant democracy, a diversified economy and an entrepreneurial population, a large national patrimony, and solid economic institutions. Brazil’s success or failure in balancing pro-growth economic measures with an ambitious social agenda that reduces poverty and income inequality will have a profound impact on region-wide economic performance and governance during the next 15 years. Luring foreign direct investment and advancing regional stability and equitable integration—including trade and economic infrastructure—probably will remain axioms of Brazilian foreign policy. Brazil is a natural partner both for the United States and Europe and for rising powers China and India and has the potential to enhance its leverage as a net exporter of oil.
Experts assess that over the course of the next decade and a half Indonesia may revert to high growth of 6 to 7 percent, which along with its expected increase in its relatively large population from 226 to around 250 million would make it one of the largest developing economies. Such high growth would presume an improved investment environment, including intellectual property rights protection and openness to foreign investment. With slower growth its economy would be unable to absorb the unemployed or under-employed labor force, thus heightening the risk of greater political instability. Indonesia is an amalgam of divergent ethnic and religious groups. Although an Indonesian national identity has been forged in the five decades since independence, the government is still beset by stubborn secessionist movements.
Russia’s energy resources will give a boost to economic growth, but Russia faces a severe demographic challenge resulting from low birth rates, poor medical care, and a potentially explosive AIDS situation. US Census Bureau projections show the working-age population likely to shrink dramatically by 2020. Russia’s present trajectory away from pluralism toward bureaucratic authoritarianism also decreases the chances it will be able to attract foreign investment outside the energy sector, limiting prospects for diversifying its economy. The problems along its southern borders—including Islamic extremism, terrorism, weak states with poor governance, and conflict—are likely to get worse over the next 15 years. Inside Russia, the autonomous republics in North Caucasus risk failure and will remain a source of endemic tension and conflict. While these social and political factors limit the extent to which Russia can be a major global player, in the complex world of 2020 Russia could be an important, if troubled, partner both for the established powers, such as the United States and Europe, and the rising powers of China and India. The potential also exists for Russia to enhance its leverage with others as a result of its position as a major oil and gas exporter.
Asia: The Cockpit for Global Change?
According to the regional experts we consulted, Asia will exemplify most of the trends that we see as shaping the world over the next 15 years. Northeast and Southeast Asia will progress along divergent paths—the countries of the North will become wealthier and more powerful, while at least some states in the South may lag economically and will continue to face deep ethnic and religious cleavages. As Northeast Asia acts as a political and economic center of gravity for the countries of the South, parts of Southeast Asia will be a source of transnational threats—terrorism and organized crime—to the countries of the North. The North/South divisions are likely to be reflected in a cultural split between non-Muslim Northeast Asia, which will adapt to the continuing spread of globalization, and Southeast Asia, where Islamic fundamentalism may increasingly make inroads in such states as Indonesia, Malaysia, and parts of The Philippines. The diversion of investment towards China and India also could spur Southeast Asia to implement plans for a single economic community and investment area by 2020.
The experts also felt that demographic factors will play a key role in shaping regional developments. China and other countries in Northeast Asia, including South Korea, will experience a slowing of population growth and a “graying” of their peoples over the next 15 years. China also will have to face the consequences of a gender imbalance caused by its one-child policy. In Southeast Asian countries such as The Philippines and Indonesia, rising populations will challenge the capacity of governments to provide basic services. Population and poverty pressures will spur migration within the region and to Northeast Asia. High population concentrations and increasing ease of travel will facilitate the spread of infectious diseases, risking the outbreak of pandemics.
The regional experts felt that the possibility of major inter-state conflict remains higher in Asia than in other regions. In their view, the Korean Peninsula and Taiwan Strait crises are likely to come to a head by 2020, risking conflict with global repercussions. At the same time, violence within Southeast Asian states—in the form of separatist insurgencies and terrorism—could intensify. China also could face sustained armed unrest from separatist movements along its western borders.
Finally, the roles of and interaction between the region’s major powers—China, Japan, and the US—will undergo significant change by 2020. The United States and China have strong incentives to avoid confrontation, but rising nationalism in China and fears in the US of China as an emerging strategic competitor could fuel an increasingly antagonistic relationship. Japan’s relationship with the US and China will be shaped by China’s rise and the nature of any settlement on the Korean Peninsula and over Taiwan.
“Russia’s energy resources will give a boost to economic growth, but Russia faces a severe demographic challenge…[with its] working-age population likely to shrink dramatically.”
South Africa will continue to be challenged by AIDS and widespread crime and poverty, but prospects for its economy—the largest in the region—look promising. According to some forecasts, South Africa’s economy is projected to grow over the next decade in the 4- to 5-percent range if reformist policies are implemented. Experts disagree over whether South Africa can be an engine for more than southern Africa or will instead forge closer relationships with middling or up-and-coming powers on other continents. South African experts adept at scenario-building and gaming see the country’s future as lying with partnerships formed outside the region.
The “Aging” Powers
Japan’s economic interests in Asia have shifted from Southeast Asia toward Northeast Asia—especially China and the China-Japan-Korea triangle—over the past two decades and experts believe the aging of Japan’s work force will reinforce dependence on outbound investment and greater economic integration with Northeast Asia, especially China [7] . At the same time, Japanese concerns regarding regional stability are likely to grow owing to the ongoing crisis over North Korea, continuing tensions between China and Taiwan and the challenge of integrating rising China and India without major disruption. If anything, growing Chinese economic power is likely to spur increased activism by Japan on the world stage.
Opinion polls indicate growing public support for Japan becoming a more “normal” country with a proactive foreign policy. Experts see various trajectories that Japan could follow depending on such factors as the extent of China’s growing strength, a resurgence or lack of continued vitality in Japan’s economy, the level of US influence in the region and how developments in Korea and Taiwan play out. At some point, for example, Japan may have to choose between “balancing” against or “bandwagoning” with China.
“…Europe’s strength may be in providing… a model of global and regional governance to the rising powers…”
By most measures—market size, single currency, highly skilled work force, stable democratic governments, unified trade bloc, and GDP—an enlarged Europe will have the ability to increase its weight on the international scene. Its crossroads location and the growing diversity of its population—particularly in pulling in new members—provides it with a unique ability to forge strong bonds both to the south with the Muslim world and Africa and to the east with Russia and Eurasia.
The extent to which Europe enhances its clout on the world stage depends on its ability to achieve greater political cohesion. In the short term, taking in ten new east European members probably will be a “drag” on the deepening of European Union (EU) institutions necessary for the development of a cohesive and shared “strategic vision” for the EU’s foreign and security policy.
* Unlike the expansion when Ireland, Spain, Portugal and Greece joined the Common Market in the 1970s and early 1980s, Brussels has a fraction of the structural funds available for quickly bringing up the Central Europeans to the economic levels of the rest of the EU.
* Possible Turkish membership presents both challenges—because of Turkey’s size and religious and cultural differences—as well as opportunities, provided that mutual acceptance and agreement can be achieved. In working through the problems, a path might be found that can help Europe to accommodate and integrate its growing Muslim population.
Defense spending by individual European countries, including the UK, France, and Germany is likely to fall further behind China and other countries over the next 15 years. Collectively these countries will outspend all others except the US and possibly China [8] . EU member states historically have had difficulties in coordinating and rationalizing defense spending in such a way as to boost capabilities despite progress on a greater EU security and defense role. Whether the EU will develop an army is an open question, in part because its creation could duplicate or displace NATO forces.
While its military forces have little capacity for power projection, Europe’s strength may be in providing, through its commitment to multilateralism, a model of global and regional governance to the rising powers, particularly if they are searching for a “Western” alternative to strong reliance on the United States. For example, an EU-China alliance, though still unlikely, is no longer unthinkable.
Aging populations and shrinking work forces in most countries will have an important impact on the continent, creating a serious but not insurmountable economic and political challenge. Europe’s total fertility rate is about 1.4—well below the 2.1 replacement level. Over the next 15 years, West European economies will need to find several million workers to fill positions vacated by retiring workers. Either European countries adapt their work forces, reform their social welfare, education, and tax systems, and accommodate growing immigrant populations (chiefly from Muslim countries) or they face a period of protracted economic stasis that could threaten the huge successes made in creating a more United Europe.
Global Aging and Migration
According to US Census Bureau projections, about half of the world’s population lives in countries or territories whose fertility rates are not sufficient to replace their current populations. This includes not only Europe, Russia, and Japan, where the problem is particularly severe, but also most parts of developed regions such as Australia, New Zealand, North America, and East Asian countries like Singapore, Hong Kong, Taiwan, and South Korea. Certain countries in the developing world, including Arab states such as Turkey, Algeria, Tunisia, and Lebanon, also are dropping below the level of 2.1 children per woman necessary to maintain long-term population stability. [9]
China is a special case where the transition to an aging population—nearly 400 million Chinese will be over 65 by 2020—is particularly abrupt and the emergence of a serious gender imbalance could have increasing political, social, and even international repercussions. An unfunded nationwide pension arrangement means many Chinese may have to continue to work into old age.
Migration has the potential to help solve the problem of a declining work force in Europe and, to a lesser degree, Russia and Japan and probably will become a more important feature of the world of 2020, even if many of the migrants do not have legal status. Recipient countries face the challenge of integrating new immigrants so as to minimize potential social conflict.
* Remittances from migrant workers are increasingly important to developing economies. Some economists believe remittances are greater than foreign direct investment in most poor countries and in some cases are more valuable than exports.
However, today one-half of Nigerian-born medical doctors and PhDs reside in the United States. Most experts do not expect the current, pronounced trend of “brain drain” from the Middle East and Africa to diminish. Indeed, it could increase with the expected growth of employment opportunities, particularly in Europe.
The Contradictions of Globalization
Whereas in Global Trends 2015 we viewed globalization—growing interconnectedness reflected in the expanded flows of information, technology, capital, goods, services, and people throughout the world—as among an array of key drivers, we now view it more as a “mega-trend”—a force so ubiquitous that it will substantially shape all of the other major trends in the world of 2020.
“[By 2020] globalization is likely to take on much more of a ‘non-Western’ face…”
The reach of globalization was substantially broadened during the last 20 years by Chinese and Indian economic liberalization, the collapse of the Soviet Union, and the worldwide information technology revolution. Through the next 15 years, it will sustain world economic growth, raise world living standards, and substantially deepen global interdependence. At the same time, it will profoundly shake up the status quo almost everywhere—generating enormous economic, cultural, and consequently political convulsions.
Certain aspects of globalization, such as the growing global inter-connectedness stemming from the information technology revolution, are likely to be irreversible. Real-time communication, which has transformed politics almost everywhere, is a phenomenon that even repressive governments would find difficult to expunge.
* It will be difficult, too, to turn off the phenomenon of entrenched economic interdependence, although the pace of global economic expansion may ebb and flow. Interdependence has widened the effective reach of multinational business, enabling smaller firms as well as large multinationals to market across borders and bringing heretofore non-traded services into the international arena.
Yet the process of globalization, powerful as it is, could be substantially slowed or even reversed, just as the era of globalization in the late 19th and early 20th centuries was reversed by catastrophic war and global depression. Some features that we associate with the globalization of the 1990s—such as economic and political liberalization—are prone to “fits and starts” and probably will depend on progress in multilateral negotiations, improvements in national governance, and the reduction of conflicts. The freer flow of people across national borders will continue to face social and political obstacles even when there is a pressing need for migrant workers.
“India and China probably will be among the economic heavyweights or ‘haves.’”
What Would An Asian Face on Globalization Look Like?
Rising Asia will continue to reshape globalization, giving it less of a “Made in the USA” character and more of an Asian look and feel. At the same time, Asia will alter the rules of the globalizing process. By having the fastest-growing consumer markets, more firms becoming world-class multinationals, and greater S&T stature, Asia looks set to displace Western countries as the focus for international economic dynamism—provided Asia’s rapid economic growth continues.
Asian finance ministers have considered establishing an Asian monetary fund that would operate along different lines from IMF, attaching fewer strings on currency swaps and giving Asian decision-makers more leeway from the “Washington macro-economic consensus.”
* In terms of capital flows, rising Asia may still accumulate large currency reserves—currently $850 billion in Japan, $500 billion in China, $190 billion in Korea, and $120 million in India, or collectively three-quarters of global reserves—but the percentage held in dollars will fall. A basket of reserve currencies including the yen, renminbi, and possibly rupee probably will become standard practice.
* Interest-rate decisions taken by Asian central bankers will impact other global financial markets, including New York and London, and the returns from Asian stock markets are likely to become an increasing global benchmark for portfolio managers.
As governments devote more resources to basic research and development, rising Asia will continue to attract applied technology from around the world, including cutting-edge technology, which should boost their high performance sectors. We already anticipate (as stated in the text) that the Asian giants may use the power of their markets to set industry standards, rather than adopting those promoted by Western nations or international standards bodies. The international intellectual property rights regime will be profoundly molded by IPR regulatory and law enforcement practices in East and South Asia.
Increased labor force participation in the global economy, especially by China, India, and Indonesia, will have enormous effects, possibly spurring internal and regional migrations. Either way it will have a large impact, determining the relative size of the world’s greatest new “mega-cities” and, perhaps, act as a key variable for political stability/instability for decades to come. To the degree that these vast internal migrations spill over national borders—currently, only a miniscule fraction of China’s 100 million internal migrants end up abroad—they could have major repercussions for other regions, including Europe and North America.
An expanded Asian-centric cultural identity may be the most profound effect of a rising Asia. Asians have already begun to reduce the percentage of students who travel to Europe and North America with Japan and—most striking—China becoming educational magnets. A new, more Asian cultural identity is likely to be rapidly packaged and distributed as incomes rise and communications networks spread. Korean pop singers are already the rage in Japan, Japanese anime have many fans in China, and Chinese kung-fu movies and Bollywood song-and-dance epics are viewed throughout Asia. Even Hollywood has begun to reflect these Asian influences—an effect that is likely to accelerate through 2020.
Moreover, the character of globalization probably will change just as capitalism changed over the course of the 19th and 20th centuries. While today’s most advanced nations—especially the United States—will remain important forces driving capital, technology and goods, globalization is likely to take on much more of a “non-Western face” over the next 15 years.
* Most of the increase in world population and consumer demand through 2020 will take place in today’s developing nations—especially China, India, and Indonesia—and multinational companies from today’s advanced nations will adapt their “profiles” and business practices to the demands of these cultures.
* Able to disperse technology widely and promote economic progress in the developing world, corporations already are seeking to be “good citizens” by allowing the retention of non-Western practices in the workplaces in which they operate. Corporations are in the position to make globalization more palatable to people concerned about preserving unique cultures.
* New or expanding corporations from countries lifted up by globalization will make their presence felt globally through trade and investments abroad.
* Countries that have benefited and are now in position to weigh in will seek more power in international bodies and greater influence on the “rules of the game.”
* In our interactions, many foreign experts have noted that while popular opinion in their countries favors the material benefits of globalization, citizens are opposed to its perceived “Americanization,” which they see as threatening to their cultural and religious values. The conflation of globalization with US values has in turn fueled anti-Americanism in some parts of the world.
“…the world economy is projected to be about 80 percent larger in 2020 than it was in 2000, and average per capita income to be roughly 50 percent higher.”
Currently, about two-thirds of the world’s population live in countries that are connected to the global economy. Even by 2020, however, the benefits of globalization won’t be global. Over the next 15 years, gaps will widen between those countries benefiting from globalization—economically, technologically, and socially—and those underdeveloped nations or pockets within nations that are left behind. Indeed, we see the next 15 years as a period in which the perceptions of the contradictions and uncertainties of a globalized world come even more to the fore than is the case today.
An Expanding and Integrating Global Economy
The world economy is projected to be about 80 percent larger in 2020 than it was in 2000 and average per capita income to be roughly 50 percent higher. Large parts of the world will enjoy unprecedented prosperity, and a numerically large middle class will be created for the first time in some formerly poor countries. The social structures in those developing countries will be transformed as growth creates a greater middle class. Over a long time frame, there is the potential, so long as the expansion continues, for more traditionally poor countries to be pulled closer into the globalization circle.
What Could Derail Globalization?
The process of globalization, powerful as it is, could be substantially slowed or even stopped. Short of a major global conflict, which we regard as improbable, another large-scale development that we believe could stop globalization would be a pandemic. However, other catastrophic developments, such as terrorist attacks, could slow its speed.
Some experts believe it is only a matter of time before a new pandemic appears, such as the 1918–1919 influenza virus that killed an estimated 20 million worldwide. Such a pandemic in megacities of the developing world with poor health-care systems—in Sub-Saharan Africa, China, India, Bangladesh or Pakistan—would be devastating and could spread rapidly throughout the world. Globalization would be endangered if the death toll rose into the millions in several major countries and the spread of the disease put a halt to global travel and trade during an extended period, prompting governments to expend enormous resources on overwhelmed health sectors. On the positive side of the ledger, the response to SARS showed that international surveillance and control mechanisms are becoming more adept at containing diseases, and new developments in biotechnologies hold the promise of continued improvement.
A slow-down could result from a pervasive sense of economic and physical insecurity that led governments to put controls on the flow of capital, goods, people, and technology that stalled economic growth. Such a situation could come about in response to terrorist attacks killing tens or even hundreds of thousands in several US cities or in Europe or to widespread cyber attacks on information technology. Border controls and restrictions on technology exchanges would increase economic transaction costs and hinder innovation and economic growth. Other developments that could stimulate similar restrictive policies include a popular backlash against globalization prompted, perhaps, by white collar rejection of outsourcing in the wealthy countries and/or resistance in poor countries whose peoples saw themselves as victims of globalization.
Most forecasts to 2020 and beyond continue to show higher annual growth for developing countries than for high-income ones. Countries such as China and India will be in a position to achieve higher economic growth than Europe and Japan, whose aging work forces may inhibit their growth. Given its enormous population—and assuming a reasonable degree of real currency appreciation—the dollar value of China’s gross national product (GNP) may be the second largest in the world by 2020. For similar reasons, the value of India’s output could match that of a large European country. The economies of other developing countries, such as Brazil and Indonesia, could surpass all but the largest European economies by 2020. [4]
* Even with all their dynamic growth, Asia’s “giants” and others are not likely to compare qualitatively to the economies of the US or even some of the other rich countries. They will have some dynamic, world-class sectors, but more of their populations will work on farms, their capital stocks will be less sophisticated, and their financial systems are likely to be less efficient than those of other wealthy countries.
China’s and India’s Per Capita GDPs Rising Against US
Continued Economic Turbulence. Sustained high-growth rates have historical precedents. China already has had about two decades of 7 percent and higher growth rates, and Japan, South Korea, and Taiwan have managed in the past to achieve annual rates averaging around 10 percent for a long period.
Fast-developing countries have historically suffered sudden setbacks, however, and economic turbulence is increasingly likely to spill over and upset broader international relations. Many emerging markets—such as Mexico in the mid-1990s and Asian countries in the late 1990s—suffered negative effects from the abrupt reversals of capital movements, and China and India may encounter similar problems. The scale of the potential reversals would be unprecedented, and it is unclear whether current international financial mechanisms would be in a position to forestall wider economic disruption.
When China’s and India’s GDPs Would Exceed Today’s Rich Countries
“Competitive pressures will force companies based in the advanced economies to ‘outsource’ many blue- and white-collar jobs.”
With the gradual integration of China, India, and other developing countries into the global economy, hundreds of millions of working-age adults will join what is becoming, through trade and investment flows, a more interrelated world labor market. World patterns of production, trade, employment, and wages will be transformed.
* This enormous work force—a growing portion of which will be well educated—will be an attractive, competitive source of low-cost labor at the same time that technological innovation is expanding the range of globally mobile occupations.
* Competition from these workers will increase job “churning,” necessitate professional retooling, and restrain wage growth in some occupations.
Where these labor market pressures lead will depend on how political leaders and policymakers respond. Against the backdrop of a global economic recession, such resources could unleash widespread protectionist sentiments. As long as sufficiently robust economic growth and labor market flexibility are sustained, however, intense international competition is unlikely to cause net job “loss” in the advanced economies.
* The large number of new service sector jobs that will be created in India and elsewhere in the developing world, for example, will likely exceed the supply of workers with those specific skills in the advanced economies.
* Job turnover in advanced economies will continue to be driven more by technological change and the vicissitudes of domestic rather than international competition.
Mobility and Laggards. Although the living standards of many people in developing and underdeveloped countries will rise over the next 15 years, per capita incomes in most countries will not compare to those of Western nations by 2020. There will continue to be large numbers of poor even in the rapidly emerging economies, and the proportion of those in the middle stratum is likely to be significantly less than is the case for today’s developed nations. Experts estimate it could take China another 30 years beyond 2020 for per capita incomes to reach current rates in developed economies.
* Even if, as one study estimates, China’s middle class could make up as much as 40 percent of its population by 2020—double what it is now—it would be still well below the 60 percent level for the US. And per capita income for China’s middle class would be substantially less than equivalents in the West.
* In India, there are now estimated to be some 300 million middle-income earners making $2,000-$4,000 a year. Both the number of middle earners and their income levels are likely to rise rapidly, but their incomes will continue to be substantially below averages in the US and other rich countries even by 2020.
* However, a $3,000 annual income is considered sufficient to spur car purchases in Asia; thus rapidly rising income levels for a growing middle class will combine to mean a huge consumption explosion, which is already evident.
Widening income and regional disparities will not be incompatible with a growing middle class and increasing overall wealth. In India, although much of the west and south may have a large middle class by 2020, a number of regions such as Bihar, Uttar Pradesh, and Orissa will remain underdeveloped.
Moreover, countries not connected to the world economy will continue to suffer. Even the most optimistic forecasts admit that economic growth fueled by globalization will leave many countries in poverty over the next 15 years.
* Scenarios developed by the World Bank indicate, for example, that Sub-Saharan Africa will be far behind even under the most optimistic scenario. The region currently has the largest share of people living on less than $1 per day.
If the growing problem of abject poverty and bad governance in troubled states in Sub-Saharan Africa, Eurasia, the Middle East, and Latin America persists, these areas will become more fertile grounds for terrorism, organized crime, and pandemic disease. Forced migration also is likely to be an important dimension of any downward spiral. The international community is likely to face choices about whether, how, and at what cost to intervene.
“…the greatest benefits of globalization will accrue to countries and groups that can access and adopt new technologies.”
The international order will be in greater flux in the period out to 2020 than at any point since the end of the Second World War. As we map the future, the prospects for global prosperity and the limited likelihood of great power conflict provide an overall favorable environment for coping with the challenges ahead. Despite daunting challenges, the United States, in particular, will be better positioned than most countries to adapt to the changing global environment.
As our scenarios illustrate, we see several ways in which major global changes could begin to take shape and be buffeted or bolstered by the forces of change over the next 15 years. In a sense, the scenarios provide us with four different lenses on future developments, underlining the wide range of factors, discontinuities, and uncertainties shaping a new global order. One lens is the globalized economy, another is the security role played by the US, a third is the role of social and religious identity, and a fourth is the breakdown of the international order because of growing insecurity. They highlight various “switching points” that could shift developments onto one path or the other. The most important tipping points include the impact of robust economic growth and the spread of technology; the nature and extent of terrorism; the resiliency or weakness of states, particularly in the Middle East, Central Asia, and Africa; and the potential spread of conflict, including between states.
On balance, for example, as the hypothetical Davos World scenario shows, robust economic growth probably will help to overcome divisions and pull more regions and countries into a new global order. However, the rapid changes might also produce disorder at times; one of the lessons of that and the other scenarios is the need for management to ensure globalization does not go off the rails.
The evolving framework of international politics in all the scenarios suggests that nonstate actors will continue to assume a more prominent role even though they will not displace the nation-state. Such actors range from terrorists, who will remain a threat to global security, to NGOs and global firms, which exemplify largely positive forces by spreading technology, promoting social and economic progress, and providing humanitarian assistance.
The United States and other countries throughout the world will continue to be vulnerable to international terrorism. As we have noted in the Cycle of Fear scenario, terrorist campaigns that escalate to unprecedented heights, particularly if they involve WMD, are one of the few developments that could threaten globalization.
Is the United States’ Technological Prowess at Risk?
US investment in basic research and the innovative application of technology has directly contributed to US leadership in economic and military power during the post-World War II era. Americans, for example, invented and commercialized the semiconductor, the personal computer, and the Internet with other countries following the US lead.a While the United States is still the present leader, there are signs this leadership is at risk.
The number of US engineering graduates peaked in 1985 and is presently down 20 percent from that level; the percentage of US undergraduates taking engineering is the second lowest of all developed countries. China graduates approximately three times as many engineering students as the United States. However, post-9/11 security concerns have made it harder to attract incoming foreign students and, in some cases, foreign nationals available to work for US firms.b Non-US universities—for which a US visa is not required—are attempting to exploit the situation and bolster their strength.
Privately funded industrial research and development—which accounts for 60 percent of the US total—while up this year, suffered three previous years of decline.c Further, major multinational corporations are establishing corporate “research centers” outside of the United States.
While these signs are ominous, the integrating character of globalization and the inherent strengths of the US economic system preclude a quick judgment of an impending US technological demise. By recent assessments, the United States is still the most competitive society in the world among major economies.d In a globalized world where information is rapidly shared—including cross-border sharing done internally by multinational corporations—the creator of new science or technology may not necessarily be the beneficiary in the marketplace.
a “Is America Losing Its Edge? Innovation in a Globalized World.” Adam Segal, Foreign Affairs, November December 2004; New York, NY p.2.
b “Observations on S&T Trends and Their Potential Impact on Our Future.” William Wulf (President, National Academy of Engineering). Paper submitted to the Center for Strategic and International Studies (CSIS) in support of the National Intelligence Council 2020 Study, Summer 2004.
c “Is America Losing Its Edge?,” p.3.
d Global Competitiveness Report 2004-2005, World Economic Forum, http://www.weforum.org. October 2004.
Counterterrorism efforts in the years ahead—against a more diverse set of terrorists who are connected more by ideology and technology than by geography—will be a more elusive challenge than focusing on a relatively centralized organization such as al-Qa’ida. The looser the connections among individual terrorists and various cells, the more difficult it will be to uncover and disrupt terrorist plotting.
* One of our scenarios—Pax Americana—envisages a case in which US and European consensus on fighting terrorism would grow much stronger but, under other scenarios, including the hypothetical New Caliphate, US, Russian, Chinese and European interests diverge, possibly limiting cooperation on counterterrorism.
“The US will have to battle world public opinion, which has dramatically shifted since the end of the Cold War.”
The success of the US-led global counterterrorism campaign will hinge on the capabilities and resolve of individual countries to fight terrorism on their own soil. Efforts by Washington to bolster the capabilities of local security forces in other countries and to work with them on their priority issues (such as soaring crime) would be likely to increase cooperation.
* Defense of the US Homeland will begin overseas. As it becomes more difficult for terrorists to enter the United States, they are likely to try to attack the Homeland from neighboring countries.
A counterterrorism strategy that approaches the problem on multiple fronts offers the greatest chance of containing—and ultimately reducing—the terrorist threat. The development of more open political systems, broader economic opportunities, and empowerment of Muslim reformers would be viewed positively by the broad Muslim communities who do not support the radical agenda of Islamic extremists. A New Caliphate scenario dramatizes the challenge of addressing the underlying causes of extremist violence, not just its manifest actions.
* The Middle East is unlikely to be the only battleground in which this struggle between extremists and reformers occurs. European and other Muslims outside the Middle East have played an important role in the internal ideological conflicts, and the degree to which Muslim minorities feel integrated in European societies is likely to have a bearing on whether they see a clash of civilizations as inevitable or not. Southeast Asia also has been increasingly a theater for terrorism.
Related to the terrorist threat is the problem of the proliferation of WMD and the potential for countries to have increased motivation to acquire nuclear weapons if their neighbors and regional rivals are doing so. As illustrated in the Cycle of Fear scenario, global efforts to erect greater barriers to the spread of WMD and to dissuade any other countries from seeking nuclear arms or other WMD as protection will continue to be a challenge. As various of our scenarios underline, the communications revolution gives proliferators a certain advantage in striking deals with each other and eluding the authorities, and the “assistance” they provide can cut years off the time it would take for countries to develop nuclear weapons.
How the World Sees the United States
In the six regional conferences that we hosted we asked participants about their views of the role of the United States as a driver in shaping developments in their regions and globally.
Participants felt that US preoccupation with the war on terrorism is largely irrelevant to the security concerns of most Asians. The key question that the United States needs to ask itself is whether it can offer Asian states an appealing vision of regional security and order that will rival and perhaps exceed that offered by China.
US disengagement from what matters to US Asian allies would increase the likelihood that they would climb on Beijing’s bandwagon and allow China to create its own regional security order that excludes the United States.
Participants felt that the rise of China need not be incompatible with a US-led international order. The critical question is whether or not the order is flexible enough to adjust to a changing distribution of power on a global level. An inflexible order would increase the likelihood of political conflict between emerging powers and the United States. If the order is flexible, it may be possible to forge an accommodation with rising powers and strengthen the order in the process.
Sub-Saharan Africa
Sub-Saharan African leaders worry that the United States and other advantaged countries will “pull up the drawbridge” and abandon the region.
Participants opined that the United States and other Western countries may not continue to accept Africa’s most successful “export,” its people. The new African diaspora is composed overwhelmingly of economic migrants rather than political migrants as in previous eras.
Some participants felt that Africans worry that Western countries will see some African countries as “hopeless” over the next 15 years because of prevailing economic conditions, ecological problems, and political circumstances.
Participants feared that the United States will focus only on those African countries that are successful.
Latin America
Conference participants acknowledged that the United States is the key economic, political, and military player in the hemisphere. At the same time, Washington was viewed as traditionally not paying sustained attention to the region and, instead of responding to systemic problems, as reacting primarily to crises. Participants saw a fundamentalist trend in Washington that would lead to isolation and unilateralism and undercut cooperation. Most shared the view that the US “war on terrorism” had little to do with Latin America’s security concerns.
Latin American migrants are a stabilizing force in relations with the United States. An important part of the US labor pool, migrants also remit home needed dollars along with new views on democratic governance and individual initiative that will have a positive impact on the region.
US policies also can have a positive impact. Some participants said the region would benefit from US application of regional mechanisms to resolve problems rather than punitive measures against regimes not to its liking, such as that of Fidel Castro.
Middle East
Participants felt that the role of US foreign policy in the region will continue to be crucial. The perceived propping up of corrupt regimes by the United States in exchange for secure oil sources has in itself helped to promote continued stagnation. Disengagement is highly unlikely but would in itself have an incalculable effect.
Regarding the prospects for democracy in the region, participants felt that the West placed too much emphasis on the holding of elections, which, while important, is only one element of the democratization process. There was general agreement that if the United States and Europe can engage with and encourage reformers rather than confront and hector, genuine democracy would be achieved sooner.
Some Middle East experts argued that Washington has reinforced zero-sum politics in the region by focusing on top Arab rulers and not cultivating ties with emerging leaders in and outside the government.
Although the Middle East has a lot to gain economically from globalization, it was agreed that Arabs/Muslims are nervous that certain aspects of globalization, especially the pervasive influence of Western, particularly American, values and morality are a threat to traditional cultural and religious values.
Europe and Eurasia
Participants engaged in a lively debate over whether a rift between the US and Europe is likely to occur over the next 15 years with some contending that a collapse of the US-EU partnership would occur as part of the collapse of the international system. Several participants contended that if the United States shifts its focus to Asia, the EU-US relationship could be strained to the breaking point.
* They were divided over whether China’s rise would draw the United States and Europe closer or not.
* They also differed over the importance of common economic, environmental, and energy problems to the alliance.
In our Eurasia workshop, participants agreed that the United States has only limited influence on the domestic policies of the Central Asian states, although US success or failure in Iraq would have spillover effects in Central Asia. Countries in western Eurasia, they believed, will continue to seek a balance between Russia and the West. In their view, Ukraine almost certainly will continue to seek admission to NATO and the European Union while Georgia and Moldova probably will maintain their orientation in the same direction.
“A counterterrorism strategy that approaches the problem on multiple fronts offers the greatest chance of containing—and ultimately reducing—the terrorist threat.”
On the more positive side, one of the likely features of the next 15 years is the greater availability of high technology, not only to those who invent it. As we try to make clear in our Davos World scenario, the high-tech leaders are not the only ones that can expect to make gains, but also those societies that integrate and apply the new technologies. For example, our scenario points up the beneficial effects of possible new technologies in Africa in helping to eradicate poverty. As we have noted elsewhere in this paper, global firms will play a key role in promoting more widespread prosperity and more technological innovation.
The dramatically altered geopolitical landscape also presents a huge challenge for the international system as well as for the United States, which has been the security guarantor of the post-World War II order. The possible contours as several trends develop—including rising powers in Asia, retrenchment in Eurasia, a roiling Middle East, and greater divisions in the transatlantic partnership—remain uncertain and variable.
* With the lessening in ties formed during the Cold War, nontraditional ad hoc alliances are likely to develop. For example, shared interest in multilateralism as a cornerstone of international relations has been viewed by some scholars as the basis for a budding relationship between Europe and China.
As the Pax Americana scenario suggests, the transatlantic partnership would be a key factor in Washington’s ability to remain the central pivot in international politics. The degree to which Europe is ready to shoulder more international responsibilities is unclear and depends on its ability to surmount its economic and demographic problems as well as forge a strategic vision for its role in the world. In other respects—GDP, crossroads location, stable governments, and collective military expenditures—it has the ability to increase its weight on the international stage.
“For Washington, dealing with a rising Asia may be the most challenging of all its regional relationships.”
Asia is particularly important as an engine for change over the next 15 years. A key uncertainty is whether the rise of China and India will occur smoothly. A number of issues will be in play, including the future of the world trading system, advances in technology, and the shape and scope of globalization. For Washington, dealing with a rising Asia may be the most challenging of all its regional relationships. One could envisage a range of possibilities from the US enhancing its role as regional balancer between contending forces to Washington being seen as increasingly irrelevant. Both the Korea and Taiwan issues are likely to come to a head, and how they are dealt with will be important factors shaping future US-Asia ties as well as the US role in the region. Japan’s position in the region is also likely to be transformed as it faces the challenge of a more independent security role.
“A key uncertainty is whether the rise of China and India will occur smoothly.”
With the rise of the Asian giants, US economic and technological advantages may be vulnerable to erosion.
* While interdependencies will grow, increased Asian investment in high-tech research coupled with the rapid growth of Asian markets will increase the region’s competitiveness across a wide range of economic and technical activity.
* US dependence on foreign oil supplies also makes it more vulnerable as the competition for secure access grows and the risks of supply-side disruptions increase.
In the Middle East, market reforms, greater democracy, and progress toward an Arab-Israeli peace would stem the shift towards more radical politics in the region and foster greater accord in the transatlantic partnership. Some of our scenarios highlight the extent to which the Middle East could remain at the center of an arc of instability extending from Africa through Central and Southeast Asia, providing fertile ground for terrorism and the proliferation of WMD.
Realization of a Caliphate-like scenario would pose the biggest challenge because it would reject the foundations on which the current international system has been built. Such a possibility points up the need to find ways to engage and integrate those societies and regions that feel themselves left behind or reject elements of the globalization process. Providing economic opportunities alone may not be sufficient to enable the “have-nots” to benefit from globalization; rather, the widespread trend toward religious and cultural identification suggests that various identities apart from the nation-state will need to be accommodated in a globalized world.
The interdependence that results from globalization places increasing importance not only on maintaining stability in the areas of the world that drive the global economy, where about two thirds of the world’s population resides, but also on helping the poor or failing states scattered across a large portion of the world’s surface which have yet to modernize and connect with the larger, globalizing community. Two of our scenarios—Pax Americana and Davos World—point up the different roles that the United States is expected to play as security provider and as a financial stabilizer.
Eurasia, especially Central Asia and the Caucasus, probably will be an area of growing concern, with its large number of potentially failing states, radicalism in the form of Islamic extremism, and importance as a supplier or conveyor belt for energy supplies to both West and East. The trajectories of these Eurasian states will be affected by external powers such as Russia, Europe, China, India and the United States, which may be able to act as stabilizers. Russia is likely to be particularly active in trying to prevent spillover, even though it has enormous internal problems on its own plate. Farther to the West, Ukraine, Belarus, and Moldova could offset their vulnerabilities as relatively new states by closer association with Europe and the EU.
Parts of Africa share a similar profile with the weak states of Eurasia and will continue to form part of an extended arc of instability. As the hypothetical Davos World scenario suggests, globalization in terms of rising commodity prices and expanded economic growth may be a godsend where good governance is also put in place. North Africa may benefit particularly from growing ties with Europe.
Latin America is likely to become a more diverse set of countries: those that manage to exploit the opportunities provided by globalization will prosper, while those—such as the Andean nations currently—that do not or cannot will be left behind. Governance and leadership—often a wild card—will distinguish societies that prosper from those that remain ill-equipped to adapt. Both regions may have success stories—countries like Brazil or South Africa—which can provide a model for others to follow. The United States is uniquely positioned to facilitate Latin America growth and integration stemming the potential for fragmentation.
In that vein, the number of interstate and internal conflicts has been ebbing, but their lethality and potential to grow in impact once they start is a trend we have noted.
* While no single country looks within striking distance of rivaling US military power by 2020, more countries will be in a position to contest the United States in their regions. The possession of chemical, biological, and/or nuclear weapons by more countries by 2020 would increase the potential cost of any military action by the United States and its coalition partners.
* Most US adversaries, be they states or nonstate actors, will


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