Tuesday, January 13, 2009

The 21st Century Outlook

We are now 8 years into the new millennium and it is clear that no one nation has established itself as the global economic leader for the 21st Century. There are many contenders vying for the title, so let's take a look and offer up some odds.

1) China - This is clearly the house pick. An enormous population of industrious people, prosperity emerging around every corner and a hunger to reclaim their role as the cultural and economic center of the universe.

Pros:
* Abundant labor
* Rapid development
* Access to capital

Cons:
* Government limitations on everything from Internet access to safety standards.
* Limited innovation
* Questionable quality controls

If we look at the last few economic superpowers - the UK, the US and Japan - they all shared similar characteristics: a curious workforce, extremely hardworking, innovative, high quality standards, etc. China has very few of these characteristics in my judgement. Someone mentioned last night that China was the 2nd biggest economy in the world in 1890 and they are second biggest economy today. I think the market assumes that China is the rightful heir to the US throne, but I'm not convinced. Odds - 5:1

2) India - India has the benefit of a large, educated, English speaking workforce. They are well integrated into the global economy and are playing a major role in many aspects beyond IT and customer support. Major financial firms and major US tech companies have large commitments to India.

Pros:
* Highly skilled affordable labor (although not as cheap as it was 5 years ago).
* A deeply ingrained entrepreneurial spirit

Cons:
* Levels of bureaucracy that are difficult to comprehend
* Widespread corruption (Satyam scanal and Wipro have hurt their image)
* Many infrastructure issues that have yet to be addressed
* Oppressive poverty
* That little problem they seem to have with their nuclear neighbor

India has a chance to escape the clutches of poverty that have weighed so heavily on it for the past century, but the challenges are severe. India has come a long way in a very short time and I think it has a better chance than most, to be the economic superpower it aspires to be. Odds - 4 to 1.

3) The US - Clearly the current economic slowdown and the crushing debt load we are facing will be major hurdles, but no country can innovate, inspire and lead like the US.

Pros:
* Innovative/creative workforce.
* Strong technological background
* Remains the global economic engine

Cons:
* Crushing levels of public and private debt
* Oppressive legal and regulatory environment
* Needs infrastructure upgrades and a national energy policy
* Global confidence in the US has been shaken

I remain convinced that no foreign country can compete with the US when it comes to developing new products and services, inventing new industries and changing the world for the better. However, we face some difficult decisions and need to make some important changes soon. The bookend generations (baby boomers and Gen Y) are going to be problematic. The Boomers are going to cost a fortune in healthcare and Gen Y isn't doing enough to generate taxable income to offset the Boomer costs. If we don't right the troubling demographic trends we will not be the economic superpower of the 21st century. However, I think we are still the favorite (if just barely). Odds - 2 to 1.

4) The longshots:

There is a fairly long list of countries that could leverage their assets to make a move toward becoming an economic superpower. Oil rich countries like Iran, Saudia Arabia, Venezuala or Russia could plow money back into training and reinvent themselves (ok, that's never going to happen). Countries like the UK, Germany, France, Canada, etc will look to innovate, but the lack of a start-up culture hurts their prospects and their population bases are too small to dominate.

Asia ex-India/China. This is a real wildcard, but if I were betting on a longshot it might be on the countries of Asia outside of India and China forming an aliance similar to the EU. The Philipinnes, Indonesia, Vietnam, Thailand, Korea, Taiwan and Japan could form a strong group of states that have many of the traits of an economic superpower. It will be interesting to watch. I always like an underdog (thus my undying allegiance to a certain football team that has gone 13 years without a playoff win) so I'd probaby put my money on a 7 to 1 longshot like an Asian Union.

The good news about long range forecasts is that I'll be long gone before anyone can check to see if I was right or wrong :)

Cheers!

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