The Collapse of the Middle Class

In my last post, I spoke of the dying American upper class.  It is being replaced by a global upper class. As readers discovered, it is not the word “upper” that is no longer useful; it is the word “American”.  The same could be said of national upper classes around the world.  At the end, I asked “Is there evidence of the birth of a global middle class?”

Slowly, painfully, agonizingly, something that looks like a global middle class is beginning to develop. But there is a substantial difference between the global upper class and this “global middle class”.

The problem is understanding that the term “class” is no longer very useful. And “middle income group” provides us with nothing but a numerical range. It tells us nothing about the people included in that range.

Upper class people, by current definition, have the money to meet their peers anywhere, become friends, do business together, and so forth.  Middle class people, again by current definition, do not have that kind of money and typically live without much face-to-face interaction with their peers globally.  That’s a big difference indeed.

I think my fundamental problem with a term like “class” is that it doesn’t really tell us much. In decades past, as I worked in nations all over the world, a word like class was a useful generalization.  You could usually go into a developing nation for example or even a so-called “developed nation” and you could understand why that generalization was being used.  It made sense.  People in the upper and middle classes did share a great deal in common from favorite sports to the food they ate, each according to his or her class.  That kind of generalization is more and more irrelevant for those in the “middle”.

Two Factors

There are many factors that contribute to the collapse of the “middle class” globally. The two that I consider to be the most important, in my experience, have been 1) disposable income and 2) access.  Let’s take a look at the first one.

Disposable Income

Let’s say a poor family in a traditionally poor nation has a monthly income equivalent to $200.  Their daughter gets her high school degree and lands a job at a hotel and brings home another $200, so the family’s monthly income is $400.

You may sit there and thing, “So what? No big deal.  What can you do with that little extra income?”

But when you and your family have spent their lives living on the equivalent of $200, what do you say?  “Wow!  What are we going to do with all this extra money!”  Do they go out and waste it on booze and parties?  A few do, just like everywhere else, but these are people who know how to get by on very little money.  They have a lifetime of experience being thrifty.  Most will save up for the washing machine, the television, or more and more commonly these days, the computer their kids need for school.

Okay, fair enough.  But let’s move it up a little, realistically given what has been happening in many nations over the last couple decades.  Suppose the family monthly income has gone from $2,000 to $4,000?   Now we’re closer to talking “real money” for people in many traditionally wealthy nations (the ones up to their ears in debt and not sure what to do about it).

A recent infographic produced by MoveHub, a global shipping service, helps demonstrate this.  The difference is that they count all income after taxes as “disposable” while I also deduct housing, food, and other basic expenses.  That is not entirely inappropriate though.  Many North Americans and Europeans will be surprised to know that most homes in formerly “poor” nations were built without mortgages, so housing costs are minimal.  Many people in those same nations continue to purchase their food at low-cost markets and directly from farmers as they have for generations.

That is changing, but they are still far from reaching the levels common in the “wealthy” nations.  As I say, they had to be thrifty before and most see no reason to change old habits now.  But I can assure you of one thing.  Twenty years ago, that map would have looked very different.  It would have been far more “red” than it is today.

It makes no difference.  The simple fact is that incomes have risen dramatically in nations as diverse as China and Ghana.  With it, “disposable income” has risen sharply too.

Enough on disposable income, what do I mean by access?

Access

Let me dispose of the first obvious access route that is now open to billions of people – the Internet.  I do not have to tell you how important this has been the people all over the world already. You probably remember when you first went on the Internet.

Recently, I received a report from the Boston Consulting Group on one aspect of the Internet that has had particular impact on the poorest region of the world, sub-Saharan Africa.   If you take two minutes to read the first few paragraphs, you will get my point faster than I can explain it here.  Take a look at Africa Blazes a Trail in Mobile Money,  Based on software, much of it originally developed in Africa, the Net is more than just a way to make or spend money, it is a way to manage money.

But there is another form of access that can be equally important. More than just the Information Revolution, there is the Transportation Revolution and it has nothing to do with speed.

To have any substantial adult memories of the Cold War, the collapse of the Soviet Union, and the opening of China to the outside world, you pretty much have to be 50 or older today.  Suddenly (or so it seemed) a third of the planet opened to the rest of us.  Visiting Moscow or Beijing, or a thousand other places in that part of the world,  was no longer a nightmare of bureaucracy and “guided” tours that took you where they wanted you to go, not you.  And that was if you could get in at all.  If you were middle-income, forget it.

If you are 20, 30, or 40 years old today, you probably know that, but you don’t care.  You still need to buy a ticket, probably get a visa, and drag your bags around with you, but the world is open to you as never before in human history.  Access to places is every bit as important as access to information.

Why does this mean the middle class is collapsing?

In my experience when both disposable income and access increase substantially in a nation, the first phase is that, after people have purchased the items they have long wanted, they look for interesting things to do.  They tend to move together.  Unused to having disposable income and access, they don’t want to waste it, so it’s important to know whether something is worth the money before paying it.  The social media, Facebook, Twitter and all the others, play a major role too, especially with young adults.  So if they hear that something is “worth it”, they do it too.  It makes sense.

But once they have done that for awhile, they change their approach without really thinking about it.  They look for what interests them, not someone else, and take a chance.   This new “middle class” begins to slowly crumble.  People go on generalizing about them, but they begin to specialize.  They begin to choose their own direction, sometimes in surprising ways.

Here in Panama, Cesar Melendez is a good example of what can happen.  From the rural area far from Panama City, Carlos got his university degree and a job as a computer programmer (a Panamanian with disposable income).  But he wanted to be back home, so he took a job there and met an expatriate who lived there (a Canadian with access to places) and introduced him to a sport Carlos had never heard of before – rock climbing.  That was the beginning of this young man’s shift from a “safe” job to becoming Panama’s first professional rock climber and entrepreneur, very nicely shown in this video (access to information).

Carlos’ story has been and is being repeated millions of times all over the world.  It is an “old story” to many of us from North America, most of Europe, and the wealthier nations of Asia, but a new and expanding story everywhere today.

Is Carlos middle class?  Are you?  There is a reasonably probability that Carlos, you, and I could all agree that we are middle class.

But what does that really mean?  Nothing.

The upper class just changed its adjective from American, Canadian, French, Japanese, Brazilian, Indonesian, and so on  to “global”.  They now have so much in common with each other, even language, and they have the opportunities to meet and get to know each other well that form the basis for future cooperation that they really are a “class”.

There is nothing wrong with that.  If we had those opportunities, we would almost certainly do the same.  But we do not.  This is not the result of some kind of conspiracy.  We simply do not have the resources that allow us to do what the global upper class does.

So while the various national upper classes are melding into one global upper class, the various national middle classes are breaking up into many different groups with goals very different from each other.   The term, “middle class”, has become a box into which we are all packed.

For the media, the politicians, and the global upper class, this is convenient.  They can talk about us without knowing us.  We are “the commoners” – good people, but not that bright.  We can be discussed ad nauseum, as if we were off to one side, waiting for someone to help us live our lives, too simple-minded to be directly involved in their “debate” as to our futures.

But in reality, the box is empty!  We don’t live in that box.  We are just told we live in that box.  Our mistake is to believe it, accept it, and let it shape our lives.

If you want to use “middle class” as a synonym for “middle income” on some scale you create, fine, but we are not a global class of people, interconnected and working together as is true of the global upper class, but simply people with disposable income, but typically different goals and aspirations.  Perhaps it would be better just to call us The Middle, between the rich and poor, and be done with it.

We of The Middle make this world work.  We supply the money for the upper class and the hope for the poor that there is something more than poverty in their futures.  We build homes, we teach students, we manage businesses, we do a wide variety of things and have a wide variety of skills, but we should not allow ourselves to be trapped in a box or class that treats us as if we were all alike.  We are not defined only by our incomes.

There are many people I have met and known who have incomes far higher than mine, but we are all part of The Middle.  When I talk about the global upper class, I am not talking about income levels alone.  Yes, those people have money, lots of it commonly, and that has allowed them to become so involved with each other that they have lost contact with the rest of us, as I explained in my last post.  Someone with a lot of money does not have to do this, but it is easy to get sucked into it.  We could find ourselves doing exactly the same thing if our income level rose high enough to allow us this gilded isolation.

Attacking people on the basis of their income level is no more useful than attacking them on the basis of their race, gender, nationality, sexual preference, body type or any other single factor.  It is thoughtless and eventually dangerous to their own well-being.  We need to do more thinking and less attacking.  But those who are isolating themselves need to hear clearly that the rest of us are losing patience.  It really is for their own good, as well as ours.

People sometimes ask me for an example of the isolation of the global upper class and the negative results that can come from that.  It is so easy to respond.  For 70 years, the “elites” of Europe have built a house of cards called the European Union and, more recently, a second even more fragile house, the eurozone.  We can watch and see what happens when The Middle decides, enough is enough.  Unfortunately, when emotions run as high as they do in much of Europe now, the result of an angry Middle can be just as damaging as the arrogance on their part of the global upper class.  Watch…and learn.

The ultimate question remains the same.  So what?

In the last post and this one, I have attempted to provide a perspective on the growing global upper class that goes beyond income alone.  In this post, I have introduced the idea that the “middle class” is not a class, but a box or a label that trivializes us to everyone’s detriment.

The answer to “So what?” will become too obvious in the next ten to fifteen years.  There are trends so strong that they will not be stopped, but if they are not understood, accepted, and dealt with intelligently now, we will not have to watch our brothers and sisters in Europe.  We will have more than enough to watch in our own nations, all of them.  The whole “class” system will collapse.  It will be an interesting time.

And that will be our focus in the next post.  Until then, thank you for joining me on this journey.

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This is a personal blog, more of a personal notebook, unadvertised and without promotion. I try to post on a weekly basis. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses. Rest assured, yours will be kept private. You are welcome to make comments, if they are on topic and polite. I have no time or space for insults, foul language, or anything I judge to be offensive to readers.

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The Death of the American Upper Class

The American upper class is rapidly disappearing and in a generation will probably be too small to concern us anyway or have died out. How can this be true? It’s obvious from all the income and wealth figures that we see that the upper class is alive and well in the United States of America.  It is a major source of socio-political controversy.

Call it a play on words if you like, but I think of a “social class” as a specific type of group traditionally found in the United States and elsewhere. Certainly, there is a very large upper income group in the United States as there are in other nations, but they are no longer a class in my mind.

The old American upper class typically lived in the same cities in the United States, spoke the same language, went to the same universities, created businesses in the US, cooperated with each other professionally in the US, and otherwise functioned as a real class. Indeed, they often intermarried. Here is your trivia question for today. When future four-term President Franklin D. Roosevelt married Eleanor, what was Eleanor’s maiden name? Trust me, you know it well. Bonus trivia question: since Eleanor’s father was dead at the time of her marriage, who took her place to “give her away” at the wedding? I will leave it to you to find the answers. It will not be difficult, but it will help make my point.

Yesterday’s American upper class is becoming part of a new global upper class. The upper income group in the United States still exists, of course, but they are no longer really an American social class. They have been thoroughly globalized.

Given the collapse of the Soviet Union, the opening of China, the rise of new emerging markets, and other changes, the wealth-creation opportunities available to them greatly increased. However, the same was true for the upper classes in other nations as well. So you could not do it from the US alone, you had to hit the road. And they did!

In five decades of working in economic development, both as an employee and as a consultant, I have personally witnessed the dramatic growth of the new global upper class.  They are citizens of one nation or another, but they live everywhere, travel everywhere, do business everywhere, and profit (or not) everywhere.  They have a shared language now, English, and its impact is undeniable.  These days, seemingly no matter where you go if it’s a major city, there are modern airports, major hotel chains, a variety of upper-end restaurants, big shopping malls, and a whole raft of services and products available that twenty years ago, even ten, were not available.  Many of the nations I worked in barely had anything recognizable as an “upper class”, beyond a tiny number of families.  In most of the world, that is now history.

If you are not familiar with the growth of the global upper class, I could supply plenty of personal experiences, but that takes too much space.  For an idea of how things have gone, I recommend you download the latest annual report from Knight Frank, a large global real estate firm that focuses on “high net worth individuals”.  Reading through the report, even scanning, will give you an idea of the truly “global” nature of this new upper class.  You can download The Wealth Report here.   Their numbers will include all qualifying people who reside in a given city, foreign residents as well as citizens.  The fact that they have identified 11 individuals with wealth ranging from $100 million to a billion, plus another 103 between $30M and $100M, and an estimated 4,700 between a million and $30M (nearly double what it was in 2007) in my current city of residence, Panama City, Panama, comes as no surprise at all.  The link to the complete report is found near the bottom of that page.

So the upper class is now global, so what?

This is not something amenable to statistics, charts and graphs, but it is something I have seen happening in my work all over the world, especially in the last two decades.  The nature of consulting in economic development typically requires working with members of national upper classes, among others.  They are the ones who either make the decisions because they are also the leadership, or whose influence directly impacts their leadership’s decisions.

For the first three decades of my work, I found that the upper classes of nations other than the wealthiest were very isolated and knew it.  Not only were they wealthier, they were much better-educated, much better-informed globally, and much more traveled.  They often sought me out for informal dinners or conversations, if only to have the opportunity to speak with someone who, despite being middle class in his own society, shared enough in common with them to make for good conversation, the kind of conversation they simply could not have with 99% or more of the people surrounding them at home.  For all their money, there was something often a little pathetic in their sense of isolation and, although a few were not the finest people I have met, I couldn’t help but feel a little sorry for them.  It has been years since that last happened.

I first really noticed this in 1995 when I re-visited Accra, the capital of Ghana in West Africa where I had lived and worked in prior years.  The city had new hotels, far better than anything there before, and they were packed with businesspeople from all over the world looking for opportunities, something you never saw in the 70’s and 80’s.  In talking to Ghanaian friends, I found they were far better off now and far more likely to have had real experience outside Ghana.  In addition, they were much more comfortable talking to these foreigners who were filling the hotels.  Their sense of connection with the “outside world” had dramatically improved, but they were not yet part of a global upper class.

In the two decades since, that experience has become rare indeed.  Today, upper-income people from every nation are linked together as never before and the pace continues to accelerate, regardless of the North Atlantic and its “crises”.

As money has become available to more and more people everywhere, life has changed.  National upper classes grew in size and in wealth.  The foreign upper classes started arriving in their search for investments and the national upper class did the same in the opposite direction. They found each other.  And wherever they go, they find other people much like themselves with whom they now have more in common than they do with the great majority of the folks back home.  They mix, meet, and do business so continuously that they may have different traditions and customs, but they now understand and can deal with those whose traditions and customs are quite different. They “speak the same language” in more ways than one.

The upside of all this is that they no longer feel isolated, either in their home nations or abroad.

The downside of all this is that they are so thoroughly interconnected that they spend nearly no time with the rest of us.  They are losing contact with the middle class, even the upper-middle class.

For a very long time, I have received newsletters written by people who oversee a lot of money and who are wealthy themselves.  In decades past, they focused on their own nation or those similar to it, the so-called First World.  They talked about their national politics and their own people of all classes, understanding that these people were the source of much, if not all, of their wealth and that the decisions their fellow citizens made would directly impact on them and their wealth in a very real sense.

Today, I read the same kind of newsletter, sometimes from some of the same people, and they run along lines like this, “I had a very interesting visit at the conference in London last week when I spoke with A, B, and C (people of their global class).  I am having a great time here in Jo’burg where I spoke with two members of the National Assembly and the Minister of Economic Development and I will leave on Saturday for a conference on global economics  in Tokyo, stopping for a couple days to visit government officials in Mumbai.”  That sort of thing.

Sometimes they “lighten it up” by mentioning that they spoke to the owner of a restaurant where they had lunch or with their taxi driver on the way to the airport or with a barber who cut their hair, and will share a few comments these gentlemen made as some kind of profound insight into the feelings of the common people.

They will share a half-dozen graphs and charts of economic statistics for a given nation, and nothing from opinion polls on related topics in that nation (they all have polls, even Afghanistan) that are the only “voice” most of the rest of us have that might catch their attention.  They have lost touch with the rest of us. They are a global class now and more than sufficient in number to fully consume each other’s time and attention.

Life is not just economic.  It is, at the very least, social, economic, and political.  Their “analyses” are much too limited and short-sighted.  I can tell you this.  When I was hired to do an economic analysis in any nation, I always included sections on the social and political environment, and then weave them together to get a full picture.  I was expected to do this, by myself as well as by my clients.  It only made sense.   It still does.

You know, to be honest, when I read these flawed analyses from people who are, themselves, part of the global upper class, I can’t help but think three things.  They are too often 1) the people who created, implemented, marketed, or at least encouraged the very policies that brought on the global financial crisis that has yet to conclude and 2) did little or nothing of any substance to warn the rest of us or demand changes in policies from their fellow global upper-class friends when that was still possible, but 3) seem to have benefited from it all.  It wasn’t just the bankers who ran the crazy mortgage schemes who got off with only a reprimand and a brief period of negative publicity before getting back to making money off their own failures.  Most of these analysts got off a lot easier than that. But those who listened to them? Maybe not so much.

So, do I hate the global upper class?  No, not at all.  Their behavior was and is human behavior.  Let he who is without sin cast the first stone.  However, professionally, much of it has been distinctly unimpressive, if not downright stupid, but humans are humans.  However, this doesn’t mean I appreciate their inability to see what is happening to them now and, as a result, how that is affecting their high-priced analysis of the world the rest of us live in.  If they screw up again, which is entirely possible, they better move along to other things or they may end up at least ignored or, if what comes is bad enough, hated.  If they are genuine analysts, they will figure this out for themselves.

They cannot participate in it, pontificate on it, and profit from it, without taking their share of responsibility for it.

My next commentary will attempt to answer another related question.  Is there evidence of the birth of a global middle class?

——-

This is a personal blog, more of a personal notebook, unadvertised and without promotion. I try to post on a weekly basis. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses. Rest assured, yours will be kept private. You are welcome to make comments, if they are on topic and polite. I have no time or space for insults, foul language, or anything I judge to be offensive to readers.

Posted in Global analysis, Investing | 3 Comments

Waves of the Future – Ripples of the Past

My post last week on the Third Iraq War, resulting from Stratfor’s report based on anonymous Defense Department sources, was followed by the DOD discussing the initial preparations in a little more detail. It’s a start, but hardly enough. At least the subject is beginning to get more attention. Again, I am not calling for support of, or opposition to, this Third Iraq War.  I only ask that whatever is done, is done well.  We owe that to the men and women of all nationalities and backgrounds who must put their lives on the line.

And the public deserves to be kept informed as well.  We don’t need to know the details, but we do need to know what is being done in our name.  I have no love of these Islamo-fascists at all, but this administration at least has a responsibility to provide some transparency for its efforts. The prior administration did a far better job of that.  How sad.

The Islamic State is not a wave of the future, it is a ripple of the past, the distant past.  They offer nothing constructive to the rest of us or their own people, only pain and misery.  Future Brief is focused on the future, particularly the rest of this decade and the next.  I will be looking carefully at the major global trends that will affect all of us, very likely far earlier than most of us think.

But there are at least two other “ripples of the past” that are causing damage today and threatening more in the very near future that warrant mentioning here as they take our eyes off a future we need to contemplate now.

The first is Vladimir Putin’s Russia.  Leader of a nation with a declining population, a variety of foreign and domestic problems, and a struggling economy (thanks to Mr. Putin in great part; he is his own worst enemy), his attempt to create a pale imitation of the last century’s Soviet Union is nothing short of pathetic, another ripple of the past.

Lost in the present, fearful of the future, Putin is doing what we all sometimes do at times like that.  To borrow from the late Marshall McLuhan, “We look at the present through a rear-view mirror.”  That is no way to drive a car, but that is a pretty good way to set up a crash.  This approach will not succeed for Putin either, but it will force us to keep an eye on him, just like the Islamic State, when we have far more important things warranting our attention.

The second is much more of a concern.  The European Union.  Past names like “Common Market” and “European Economic Community” made sense to me in general, but “European Union” never made sense to me.  The idea that any one of its 28 members is allowed to veto a foreign or security policy supported by the other 27 is ludicrous and was reason enough to reject “union” as a noun too far.

In its early stages following World War Two, this experiment was often called a “United States of Europe”.  Well, I feel sure if any single US state government had had the power to veto any federal foreign or security policy, the US would not have survived for long.

Worse yet, Europe’s idea of setting up a single currency to be overseen by a European Central Bank “cooperating” with (currently) nineteen national central banks was and remains an open invitation to fiscal and monetary chaos.  In case anyone doubted that at the time, the last half-dozen years serve as a lesson.

I will not go into this in any detail today.  That has been done elsewhere and often.  But there is a basic point that unfortunately needs to be made.  Europe’s leadership seem determined to turn their former wave of the future into a ripple of the past on their own.  As the years come and go since the financial crisis of 2009, Europe seems incapable of coming to grips with reality.

It reminds me of the victim who is offered two ways to die.  He can be slowly strangled or he can be shot in the back of the head.  The former will be very painful, but allows for the possibility that someone might come to his rescue, no matter how unlikely.  The latter is fast and as painless as possible, but eliminates the hope of rescue.  The EU has chosen strangulation and, frankly, I have no idea who they expect to come to their rescue.

But what makes this different than the victim who chooses strangulation is that the EU, including its eurozone, had and still has a third alternative.  Their leadership can sit down and recognize that the EU and euro have been hugely successful in many ways, but obviously terribly damaging in others.  They need to restructure both and fast.  Like the old English saying, “You don’t want to throw out the baby with the bath water”, European leaders should focus on saving the baby and getting rid of the bath water, but they just cannot do it.  And they cannot do it because the EU is not a “union” and they have no commitment to it that can overcome their commitment to themselves and their immediate political careers.

Yet this melodrama cannot go on forever.  If their leaders can’t do it, the European public will have no choice but to intervene.  The results of that could be very counter-productive.  In that event, it will not be the leadership “elite” who decide or the poor, it will be the European middle class.  They are intelligent and well-educated, but they demand leadership.  The failure of their current elite to provide it is forcing them to look elsewhere.  Therein lies the threat to both the Union and its “zone”.  The elite knows that, but they are still paralyzed.  If that continues, future historians will not look back on them kindly, and neither will we.

The Stratfor report on the plans for a Third Iraq War provided a segue to today’s discussion of Putin’s Russia and the EU/eurozone.  In turn, they provide a segue to the focus of this weblog in the weeks to come.  I will be discussing this old 20th century term, “middle class”.  It remains a useful generalization sometimes, but, more and more often, it is what I call a “glittering generality”, a term that sounds right because it is common and we think we know its definition, but a term which is in the process of quietly being redefined by the very people it pretends to describe.

The shift of “middle class” from useful generalization to glittering generality is not an event, it is a process that is already underway and will continue to unfold over time, but far less time than we might like.  It offers great potential, but that leaves us with a question – potential for what?   There is more than one possible answer to that question now, but there will be a final answer soon enough and it will have a massive impact on every one of us.  That answer, that “wave of the future”, is my focus here at Future Brief.

If you would like to join me on this journey, feel free.  I will be walking it anyhow, but congenial company is always welcome.

——-

This is a personal blog, more of a personal notebook, unadvertised and without promotion.  I try to post on a weekly basis. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses.  Rest assured, yours will be kept private.  You are welcome to make comments, if they are on topic and polite.  I have no time or space for insults, foul language, or anything I judge to be offensive to readers.

 

Posted in Global analysis, Global politics | Leave a comment

Preparing for the Third Iraq War

As I work on a more comprehensive, global forecast for the next ten to fifteen years, I try to avoid spending time on matters of immediate media interest. The war in the Ukraine is an example.  I will make an exception today as the topic is simply too important to ignore – war in Iraq.

When I wrote a guest editorial on the second Iraq War for Barron’s in June of 2004, Talking the Talk – Communication is the real failure in Iraq, my first paragraph pointed the finger at the person responsible for that war.

“Who’s being blamed for failure in Iraq? The list is long. George Bush. Dick Cheney. Donald Rumsfeld. Colin Powell. Paul Bremer. An assortment of generals and diplomats. Europeans. Iraqis. Other Arab leaders. And let’s not forget Saddam Hussein, without whose lunatic regime none of this would have been possible.”

Well, the Islamic State has replaced Saddam Hussein.  Saddam used to love to pretend as if he was the innocent victim of American lies.  Fortunately, in a perverse way, the IS has left no doubt as to its real nature. They have the YouTube videos to prove it and so do we.

Okay, but what “preparations” am I talking about?  For those like myself, who follow events in Iraq on a daily basis, this is no surprise, but it will be for many people.  Making my job much easier, Stratfor provides a brief, but excellent, overview of this coming Third Iraq War.  My comments from hereon will assume you have taken the five minutes necessary to read their summary.  Please do that.  It is worth it.

Okay. Do I need to explain that this could be a genuine catastrophe if they blow it?  I don’t think so.  I can’t say I blame the anonymous source at DOD for “leaking” this info to Stratfor.  They must be beside themselves with anxiety.  After all, if it fails, they will take a hit, and the potential for failure is clear.  The “coalition” they have to work with is totally unlike the two they worked with in earlier wars.  In the past, we never had to worry about our coalition partners fighting with each other, much less killing each other.

I am not going to waste space and my time discussing the political consequences in the US.  Let it suffice to say that if this occurs prior to November of 2016, as is clearly planned, then the coming campaign season will be an interesting one indeed.

Let me be clear.  I have no doubt that, unless there is an internal break-down within the IS, there will be a war.  They want a war, as Graeme Wood explains so well in his Atlantic article, What ISIS Really Wants, and they will get it.   It’s already underway, if on a small scale compared to what we are discussing here.  And there is no question that Mosul, Iraq’s second-largest city, must be taken away from the Islamic State.  I do not favor war, but I do understand that it is almost a certainty at some point and that we cannot wait for two years.  But if we are going to do it, we have to win it.

My fears are simple.

First, although there hasn’t been a census in more than a decade, Mosul and the nearby cities surrounding it represent roughly 3,000,000 urbanites.  This will be an urban war and there will be plenty of civilian casualties under the best of circumstances. This will not be a pretty war in any way.

Second, and even worse, those lives may be lost in our defeat, not the defeat of IS, if we are not prepared.  I am sure you remember that one major criticism of the G.W. Bush administration was that they had not prepared a sufficiently powerful force to successfully complete what they were contemplating.  But I can barely imagine what a disaster it would have been if Bush had depended on a coalition of the Shi’a, the Kurds, disgruntled Sunnis, and the Iranians without any American “feet on the ground”.  That kind of scheme would never have gotten Senate approval at that time and for very good reason.  But make no mistake about it.  Perhaps the US could claim not to be a belligerent in this war, but it will provide the leadership, try as we may to hide that obvious fact.  None of our “coalition partners” could possibly take that role.  We will hold responsibility.

Third, failure is not an option.  Even a long, drawn-out battle for Mosul that stretches over many months is not an option.  It must succeed or the consequences will be too many and too negative to contemplate right now.  This war cannot “get out of hand”.

One thing that definitely must be dealt with is securing the support of the American people.  Thanks to the IS and its public thuggery, the foundation is in place as is shown by this list drawn from a Gallup report of two weeks ago.

https://i0.wp.com/content.gallup.com/origin/gallupinc/GallupSpaces/Production/Cms/POLL/-cz-bhaj_eqrdh4jazm-eq.png

That foundation may be sufficient to support current bombing raids, but its strength is very questionable for something far more dramatic and far more dangerous.

I will leave it at that for now.  There is much more to be said and to be heard on this topic.  And no doubt about it, it will be said and it will be heard. At the very least, we should be prepared.

——-

This is a personal blog, more of a personal notebook, unadvertised and without promotion.  I write when time and spirit allow. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses. I already have too many in my “address book”. Rest assured, yours will be kept private.  You are welcome to make comments, if they are on topic and polite.  I have no space for insults, foul language, or anything I judge to be offensive to readers.

Posted in Global analysis, Global politics, US politics | 6 Comments

Jay Ogilvy on “Mind the Gap”

I am republishing the following essay by Jay Ogilvy of Stratfor, with Stratfor’s permission. I will very rarely do this, but I will today because I think it is a very intelligent and thoughtful essay, related to much of my own thinking. By adding it here to my “notebook”, I will be able to refer to it quickly and easily as needed in the future. In addition, I hope you will find it interesting too.

Mind the Gap
By Jay Ogilvy

The Charlie Hebdo attack and its aftermath in the streets and in the press tempt one to dust off Samuel Huntington’s 1996 book, The Clash of Civilizations and the Remaking of World Order. Despite the criticisms he provoked with that book and his earlier 1993 article in Foreign Affairs, recent events would seem to be proving him prescient.

Or was he?

While I am not about to deny the importance of religion and culture as drivers of geopolitical dynamics, I will argue that, more important than the clashes among the great civilizations, there is a clash within each of the great civilizations. This is the clash between those who have “made it” (in a sense yet to be defined) and those who have been “left behind” — a phrase that is rich with ironic resonance.

Before I make my argument, I warn that the point I’m trying to make is fairly subtle. So, in the interest of clarity, let me lay out what I’m not saying before I make that point. I am not saying that Islam as a whole is somehow retrograde. I am not agreeing with author Sam Harris’ October 2014 remark on “Real Time with Bill Maher” that “Islam is the mother lode of bad ideas.” Nor am I saying that all religions are somehow equal, or that culture is unimportant. The essays in the book Culture Matters, which Huntington helped edit, argue that different cultures have different comparative advantages when it comes to economic competitiveness. These essays build on the foundation laid down by Max Weber’s 1905 work, The Protestant Ethic and the Spirit of Capitalism. It is only the “sulfuric odor of race,” as Harvard historian David Landes writes on the first page of the first essay in Culture Matters, that has kept scholars from exploring the under-researched linkages between culture and economic performance.

Making It in the Modern World

The issue of the comparative advantages or disadvantages of different cultures is complicated and getting more so because with modernity and globalization, our lives are getting more complicated. We are all in each other’s faces today in a way that was simply not the case in earlier centuries. Whether through travel or telecommunications or increasingly ubiquitous and inexpensive media, each and every one of us is more aware of the cultural other than in times past. This is obvious. What is not so obvious are the social and psychological consequences of the inevitable comparisons this awareness invites us to make: How are we measuring up, as individuals and as civilizations?

In the modern world, the development of the individual human, which is tied in part to culture, has become more and more important. If you think of a single human life as a kind of footrace — as if the developmental path from infancy to maturity were spanning a certain distance — then progress over the last several millennia has moved out the goal posts of maturity. It simply takes longer to learn the skills it takes to “make it” as an adult. Surely there were skills our Stone Age ancestors had to acquire that we moderns lack, but they did not have to file income taxes or shop for insurance. Postmodern thinkers have critiqued the idea of progress and perhaps we do need a concept that is forgivingly pluralistic. Still, there have been indisputable improvements in many basic measures of human progress. This is borne out by improved demographic statistics such as birth weight, height and longevity, as well as declining poverty and illiteracy. To put it very simply, we humans have come a long way.

But these historic achievements have come at a price. It is not simple for individuals to master this elaborate structure we call modern civilization with its buildings and institutions and culture and history and science and law. A child can’t do it. Babies born into this world are biologically very similar to babies born 10,000 years ago; biological evolution is simply too slow and cannot equip us to manage this structure. And childhood has gotten ever longer. “Neoteny” is the technical term for the prolongation of the period during which an offspring remains dependent on its parent. In some species, such as fish or spiders, newborns can fend for themselves immediately. In other species — ducks, deer, dogs and cats — the young remain dependent on their mothers for a period of weeks. In humans, the period of dependency extends for years. And as the generations and centuries pass, especially recently, that period of dependency keeps getting longer.

As French historian Philippe Aries informed us in Centuries of Childhood, “in medieval society, the idea of childhood did not exist.” Prior to modernity, young people were adults in miniature, trying to fit in wherever they could. But then childhood got invented. Child labor laws kept children out of the factories and truancy laws kept them in public schools. For a recent example of the statutory extension of childhood known as neoteny, consider U.S. President Barack Obama’s announcement that he intends to make community college available for free to any high school graduate, thus extending studenthood by two years.

The care and feeding and training of your average human cub have become far greater than the single season that bear cubs require. And it seems to be getting ever longer as more 20-somethings and even 30-somethings find it cheaper to live with mom and dad, whether or not they are enrolled in school or college. The curriculum required to flourish as an adult seems to be getting ever longer, the goal posts of meaningful maturity ever further away from the “starting line,” which has not moved. Our biology has not changed at anywhere near the rate of our history. And this growing gap between infancy and modern maturity is true for every civilization, not just Islamic civilization.

The picture gets complicated, though, because the vexed history of the relationships among the world’s great civilizations leaves little doubt about different levels of development along any number of different scales of achievement. Christian democracies have outperformed the economies and cultures of the rest of the world. Is this an accident? Or is there something in the cultural software of the West that renders it better able to serve the needs of its people than does the cultural software called Islam?

Those Left Behind

Clearly there is a feeling among many in the Islamic world that they, as a civilization, have been “left behind” by history. Consider this passage from Snow, the novel by Nobel Prize-winning Turkish author Orhan Pamuk:

“We’re poor and insignificant,” said Fazul, with a strange fury in his voice. “Our wretched lives have no place in human history. One day all of us living now in Kars will be dead and gone. No one will remember us; no one will care what happened to us. We’ll spend the rest of our days arguing about what sort of scarf women should wrap around their heads, and no one will care in the slightest because we’re eaten up by our own petty, idiotic quarrels. When I see so many people around me leading such stupid lives and then vanishing without a trace, an anger runs through me…”

Earlier I mentioned the ironic resonance of this phrase, “left behind.” I think of two other recent uses: first, the education reform legislation in the United States known as the No Child Left Behind Act; the second, the best-selling series of 13 novels by Tim LaHaye and Jerry Jenkins in which true believers are taken up by the Rapture while the sinners are “left behind.” In both of these uses, it is clearly a bad thing to be left behind.

This growing divide between those who have made it and those who are being left behind is happening globally, in each of the great civilizations, not just Islam. To quote my fellow Stratfor columnist, Ian Morris, from just last week:

Culture is something we can change in response to circumstances rather than waiting, as other animals must, for our genes to evolve under the pressures of natural selection. As a result, though we are still basically the same animals that we were when we invented agriculture at the end of the ice age, our societies have evolved faster and faster and will continue to do so at an ever-increasing rate in the 21st century.

And because the fundamental dynamics of this divide are rooted in the mismatch between the pace of change of biological evolution on the one hand (very slow) and historical or technological change on the other (ever faster), it is hard to see how this gap can be closed. We don’t want to stop progress, and yet the more progress we make, the further out the goal posts of modern maturity recede and the more significant culture becomes.

There is a link between the “left behind” phenomenon and the rise of the ultra-right in Europe. As the number of unemployed, disaffected, hopeless youth grows, so also does the appeal of extremist rhetoric — to both sides. On the Muslim side, more talk from the Islamic State about slaying the infidels. On the ultra-right, more talk about Islamic extremists. Like a crowded restaurant, the louder the voices get, the louder the voices get.

I use this expression, those who have “made it,” because the gap in question is not simply between the rich and the poor. Accomplished intellectuals such as Pamuk feel it as well. The writer Pankaj Mishra, born in Uttar Pradesh, India, in 1969, is another rising star from the East who writes about the dilemma of Asian intellectuals, the Hobson’s choice they face between recoiling into the embrace of their ancient cultures or adopting Western ways precisely to gain the strength to resist the West. This is their paradox: Either accept the Trojan horse of Western culture to master its “secrets” — technology, organization, bureaucracy and the power that accrues to a nation-state — or accept the role of underpaid extras in a movie, a very partial “universal” history, that stars the West. In my next column, I’ll explore more of Mishra’s insights from several of his books.

Mind the Gap is republished with permission of Stratfor.

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This is a personal blog, more of a notebook, unadvertised and without promotion. It is where I jot down thoughts that are important to me and may potentially be used in other commentaries for general publication. I write when time and spirit allow. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses. I already have too many in my “address book”. Rest assured, yours will be kept private.

Posted in Global analysis, Global politics | Leave a comment

Time to get out of The Box

Most people call it futurism.  I call it “futures analysis”, the plural indicating that there are many different possible futures.  Whatever you call it, we all do it in one form or another.  Do I get married?  Should we have children now?  Should I quit and look for a new job?  The list is endless for all of us.  And some of us do it professionally.

In analyzing and forecasting ahead, there is a need for focus or the analysis becomes so complex, it is impossible to judge.  But focus can unwittingly become tunnel vision and that is an even bigger problem.

Recently, the Boston Consulting Group published the first of a series of reports on a subject of real interest to me.  Well-written, thoughtful, and with statistics unavailable elsewhere, they discussed the simple fact that although money, goods, and services can move more quickly around the world than ever before, labor cannot.

As a result, there are “aging nations” that will face labor shortages in the next fifteen years, but there are also nations that will face growing numbers of unemployed workers.  BCG emphasizes the need to deal with this and soon or there will a high price to pay for both types of nation.  By their estimate, it may cost us as much as $10 trillion in lost GDP if not confronted.  I understand their point well and have seen this develop over the nearly five decades that I have worked in nations all over the world.

But when I was finished, I was unsatisfied. I also read many analyses that focus on something else – automation.  I am told that millions of jobs have already been lost to automation and tens of millions more will be lost during the same fifteen years.  How does this factor into the BCG analysis?

I expect BCG to tackle this question in their remaining reports in this series, but it helps make a point.  It is getting harder and harder to make recommendations for the future based on a trend that may be trumped by another trend gaining strength at the same time. And heaven help you if there is more than one.

Let me give you a much more modest example from the nation where I live as an American expatriate – Panama.  In recent months, there has been a lot of talk regarding a new canal proposed for Nicaragua, the so-called “Grand Canal”.  As someone who provides economic and investment analysis to those interested in investing in Panama, I am frequently asked if we are afraid that this canal will seriously damage the future of the Panama Canal.  The short answer is, “No.”

Given fifteen or twenty minutes, I can go through a list of serious potential problems with its execution.  The presence of some rather odd Chinese investors makes no difference at this point. There are sufficient problems in Nicaragua, regardless of who provides the money.  This is not the first time we have been through this.  In 2011, it was a Chinese proposal to build a “dry canal” (a railroad) across Colombia.  No one talks about that anymore.

However, if I am speaking with a client with patience and no time limitations, I explain the real “threat” to the Panama Canal.  A little over 40% of Panama Canal tonnage is to and from Asia and North America’s Atlantic coast, or to and from Europe and North America’s Pacific coast.  Here the Canal’s real competitor is not the route around the tip of South America.  It is the US itself.  Freight can be unloaded on either coast of the US and moved by truck to the other side of the country.  That sounds faster, so why isn’t that normal?  The problem for shippers is sometimes port congestion, but the primary problem is trucking.

There is a perennial shortage of truckers.  It costs a lot to recruit new drivers, keep them, pay costs resulting from accidents, pay for insurance and more.  The long-haul trucking system, as it is now, is hard-pressed to meet its obligations currently.  It therefore often pays to have your goods shipped through the Canal to the opposite side of the US or Canada and avoid transcontinental trucking completely.

But there is a new trend, one that has great potential impact on shipping of all kinds.

We all know about Google’s self-driving cars.  Well, rest assured that this is of great interest to trucking firms.  Removing the majority of truckers and their associated costs from the equation will dramatically reduce costs and increase the efficiency of the trucking system.  Having your truck on the road 24/7, other than maintenance, will dramatically impact both your bottom line and your pricing.

Mercedes-Benz already has proposed its first prototype of a self-driving semi. Mercedes assumes the truck will not be practical until 2025, ten years from now. Well, perhaps, but it’s impossible to predict this trend’s commercial fulfillment. In any case, 2005 was not that long ago and you know how much changed in just the next five years.

That isn’t the only line on the corporate cost spreadsheet, but it is an important one that the Panama Canal will have to deal with.

Is that all?  No, there is a second competitor coming along – 3D printing.  This new industry has amazing potential and that’s no secret. Just look what the Chinese have already done with it.

3D-printing a house is pretty impressive, but ships typically carry much smaller things. Toys for Christmas by the tens of millions is just one example of many. In the future, to be able to print your own goods, toys among them, rather than order and wait for them to be shipped to you is exciting, You will download designs from the Web and print them out at home. Until then, I expect stores to arrive in communities where we can go, make an order, and pick it up when it’s finished.

Each year, 3D printing will become more sophisticated and more useful to more people.  Like personal computers not so long ago, it may not be obvious how an individual or even a small business can profit from the technology as it is today, but tomorrow is another story and tomorrow will probably be here far sooner than many of us expect. And with it will come a challenge to every canal, every trucker, and a lot of other people who ignore it as “trivial” or “far in the future” today.

As for the folks in Nicaragua, even if the tens of billions of dollars are spent and a canal of some sort is in operation in a decade or so, it will open deeply in debt and just in time to run head on into the new competition.

Down here, I am not losing sleep worrying about the Panama Canal.  The Panama Canal Authority is one of the most impressive institutions I have ever seen in operation. They know how to compete with alternatives. And if, in the future, their contribution to the national economy begins to shrink, the nation can handle it.  Panama’s economy has been growing rapidly for more than a decade and is far more diversified than it was in 1995 or even 2005.  While the rest of the world focuses on the Canal’s expansion, the story of Panama’s diversification has been overlooked too frequently.  Panama will find its way through these changes.

But this essay is not about canals.  They just provided me with a familiar (to me) example.  I’m writing about futures analysis. Many of us grew up during the Cold War.  Those were very complex times too, but you could depend on most nations, if not all, looking to Washington and Moscow before making an important decision.  That certainly didn’t make those decades easy or simple to analyze, but at least it provided a structure and I think too many of us who remember that period have never completely recovered from its loss.  Its end was a true blessing, but it makes futures analysis much more difficult today.

So read predictions and forecasts for 2025, 2050, even 2100, and accept them as food for thought, but don’t believe them.  They are all wrong, we just don’t know how wrong yet or why.

Today, too many analysts are still warm and comfy thinking inside that simpler 20th century box. It’s so much easier than stepping outside the box, into the real world of the 21st century.

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This is a personal blog, more of a notebook, unadvertised and without promotion. It is where I jot down thoughts that are important to me and may potentially be used in other commentaries for general publication. I write when time and spirit allow. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses. I already have too many in my “address book”. Rest assured, yours will be kept private.

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You can’t build a successful community without a middle class

First it was Thomas Piketty with his call for a global wealth tax. Now it’s Oxfam with a 7-point program that is as unlikely to be adopted as Piketty’s global tax. A socialist approach (it would have to be government-mandated to have any chance of working), it would require a level of international cooperation far in excess of any treaty on climate change. And pigs will fly. It is not going to happen and it shouldn’t.

When I hear people come up with such unrealistic global “solutions” that require nations as different as Iran, China, the US, Italy, Jamaica, Singapore, and Nigeria to agree to a sweeping reduction in their sovereignty to meet the needs of the fading elite of the North Atlantic, I suggest they first go to school.

The classroom is Europe. When and if the European Union (sic) and its eurozone are able to work out a common policy on financial matters and implement it successfully, that will still not be enough to guarantee adoption of a global policy, but at least it can be called a “proof of concept”. Until then, these calls for global action are just a means of gaining publicity and maybe funding. Well, that’s the free market in ideas at work. I have no problem with that, but it won’t work and it doesn’t confront a fundamental problem.

I also am very unhappy with this concentration of vast wealth in the hands of a small minority too. It is dangerous and such an extreme imbalance has a very bad track record. A similar situation seemed to require a massive global intervention in the 19th century and some people (Karl Marx comes immediately to mind) could only see it as a conflict between their definition of “capitalism” and their definition of “socialism”. Terms like “private enterprise”, “market economy”, and “mixed economy” never occurred to them and, as a result, their simplistic views collapsed in the face of changes beyond their comprehension. They did not create the new world of the 20th century. A rising middle class with a sense of being “stakeholders” in their community did the real work, regardless of the ideological outcome.

Don’t worry about the folks at Davos. Whatever their ideological perspective, they are totally globalized. The wealthy can afford to “go global” and they have done so with great enthusiasm as the collapse of the Soviet Union and the opening of China to the outside world have allowed.

Unexpectedly, the poor have become more globalized as well. In search of employment or relief from authoritarianism, many of them have more experience living in nations other than their home nations than is true of most Americans.

If the wealthy face problems, they can buy their way around them. If the poor face problems, they have organizations (like Oxfam) to represent their interests.

The missing element in this emerging global community is a globalized middle class. I say “globalized” because without experience outside their home nations, they won’t fully appreciate the need for change or feel any stake in seeking it. Addressing wealth disparities does not benefit from either the fiat of governments or foreign NGOs. It will come from a middle class that insists on it from its own experience, and it is far more likely to be balanced and successful as well. The proof of concept lies in the histories of many economically successful nations with far less of an imbalance in wealth today.

Through neither fiat nor design, we are developing a “global community”. It does not require a world government and will not. In nearly five decades of work in economic development, frequently for NGOs like Oxfam, in nearly as many nations that included interaction with politicians at every level, I never met one who was the least bit interested in turning over their authority, at whatever level, to some distant “world government”. Forget it, they’re not interested. If Europe can’t do it, the world isn’t even thinking about it.

If you believe, as I do, in the growth of a sense of global community (the need to work together for a common human cause) than focus on the middle class. Many of them are willing to relocate. I have written twice on this topic for Barron’s with statistics demonstrating that desire in the US and others have done the same for other nations. Once again, look to Europe and you will see it in action.

Although money can move freely across borders and goods and services can now move far more easily across borders, middle class people still face major obstacles. They don’t have to be forced to “go global”, they want to and by personal decision, not by fiat. Yet from visas and work permits to moving their personal effects, they face major problems without the money to get around them easily or the special interest groups to plead their case.

Many of these problems have solutions that aren’t obvious to newbies, but there are substantive things that can be done to make the transition easier and acceptable to the host nation’s people too. But no one gives the middle class any help, they have no global advocate, so we lose many who never even visit, convinced that it won’t work. It can work and it does.

For those who think the middle class can be ignored while this nascent global community is being built around them, I can only say what I have said before.

Watch Europe.

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This is a personal blog, more of a notebook, unadvertised and without promotion. It is where I jot down thoughts that are important to me and may potentially be used in other commentaries for general publication. I write when time and spirit allow. Should you stumble across it and wish to be notified of new posts, just enter your email address at the upper-right of this page. I have no other use for email addresses. I already have too many in my “address book”. Rest assured, yours will be kept private.

Posted in Global analysis, Global politics, migration/relocation | Leave a comment