George Friedman holds up a recent Fortune magazine, his face a portrait in incredulity. The cover declares that China is buying everything, much as the Japanese were doing nearly two decades ago. The inside story is titled “It’s China’s World. (We just live in it.)”
“If China is so healthy, why is everyone there not investing in China?” he asks.
“The obvious question is: Why are they doing this? Fortune doesn’t remember that we saw this before. It’s called capital flight.”
Mr. Friedman, the founder and prime mover at Stratfor, goes on to point out some basic facts about the size of the U.S. economy relative to China. While we bemoan the loss of industrial capacity in the United States, for instance, we still manufacture more than China and Japan combined. And the United States still produces 25 percent of the world’s output. And our output is larger than the combined gross domestic products of the next three largest economies, Japan, China and Germany.
We simply don’t know our own strength.
“If we grow at 2.5 percent a year, China would have to grow at 8.2 percent just to keep the absolute gap steady. It will take generations for the Chinese to catch up,” he says.
Nor do we understand the deep poverty of China. He points out that China has a population of 1.3 billion people. But of that number, 600 million have an income under $1,000 a year. Another 440 million have incomes of $1,000 to $2,000 a year. Only 60 million people have incomes of $20,000 a year or more.
“In the U.S. we have ignored the numbers. So we say all industry has left the United States. That’s rubbish,” he declares.
Stratfor, which is short for “Strategic Forecasting,” is a rapidly growing international intelligence-gathering organization in Austin, Texas. Its growth, based on subscription revenue and Internet-distributed content, dramatically underlines the failure of international news reporting by conventional media. Stratfor is growing as news bureaus disappear around the globe.
The Stratfor approach does not involve collecting disingenuous quotes from politicians and finance ministers. Instead, it is tough, geopolitical and rooted in history. More important, it starts from the premise that conflict is a constant. That pragmatism is also the foundation for his most recent book, “The Next 100 Years” (Doubleday, $26).
Here are some of the major, and surprising, messages in the book, which is written with the immediacy of a thriller novel:
- Al-Qaida has made its move and lost. While we worry about how the war in Iraq or Afghanistan will end, the blunt reality is that the Middle East continues to be fragmented. Keeping it so has been the major goal of U.S. policy. The real victory isn’t in winning the declared wars; it is in frustrating the radical Islamists’ hope of restoring a united jihadist region.
- China is not the threat it is made out to be. It has an Achilles’ heel of bad debt. Both its employment and output depend on external demand. Worse, it has the same kind of demographic issues Japan has. The difference is that Japan is having its population decline now while China will have its population decline later.
- Declining birth rates will create something unique in history---a shortage of labor. This will hit first and hardest in the industrialized world. Capital--- as an example he points to the likely decline of land values in a less populated Europe--- will be in surplus. We will be encouraging immigration and competing with other nations. The United States has a better history of doing this than most other nations. It will be virtually impossible for Japan, for instance, to offset the decline of its working population.
- The same need for immigration will also sow the seeds for a conflict with Mexico. This will happen late in the century as the growing Mexican population of the borderland states makes it more difficult to define where Mexico ends and the United States begins, official border notwithstanding.
Although it reads with the ease of a Tom Clancy page-turner, peace-and love-seeking idealists are likely to have a tough time with the unrelenting machination at the heart of Friedman’s worldview. For them I suggest two things. First, get over it. Second, a companion reading of William J. Bernstein’s “A Splendid Exchange” covering the tumultuous history of trade over the last 3,000 years will build a solid foundation for understanding why Friedman is likely to be one of the few futurists with accurate vision.