Stratfor - Decade through 2005


December 24, 1994

The decade ending 2005 will be marked by two contradictory trends. On one hand it will be a period of unprecedented global economic prosperity and growth. On the other hand, it will become a period of increasing fragmentation and tension in the international system. As in the period prior to World War I, prosperity and instability will go hand in hand.

This is a contrarian view, of course. The predominant belief is that prosperity tends to stabilize the international system. We disagree. Paradoxically, increased prosperity and integration tends to increase political instability. Prosperity leads to greater economic integration and dependency resulting in greater insecurity by increasing the importance of international economic relationships and therefore increasing the opportunities for friction. This, in turn, leads to greater insecurity.

As economic integration increases, more of what is important to a nation falls under the influence of foreign powers. Each nation seeks levers by which to influence and control those foreign powers. The greater U.S.-Japanese integration, for example, the greater the need on the part of each nation to control the other's behavior. Political means are employed to control economic relationships. This leads to increased political friction in the international system. Prosperity and instability--as we saw from 1900-1914--frequently go hand in hand. Thus, the paradox of the next decade will be that increased global prosperity will lead to increased global instability.

In our view, the basis for global prosperity is demographic. The advanced industrial powers, with declining birth rates and post-war baby booms, have aging populations. Younger populations, particularly those experiencing dramatic increases in family formation, tend to have surges in consumption and borrowing. This increases the utilization of existing industrial plants while suppressing capital investments. Such economies tend to become increasingly inefficient, with resulting high interest rates, inflation and unemployment. This was the process we saw during the 1970s--global stagflation.

As a population grows older, its tendency to consume first declines dramatically and then begins to increase. The first is conditioned by the fact that young families--borrowed to the limit--tend to limit their consumption. The second is conditioned by the fact that as families mature, constraints ease and deferred consumption tends to increase until, as children leave the home, discretionary income increases dramatically. At the same time, as a population ages, the debt to savings and debt to asset ratio tend to improve. That places an upward limit on interest rates and brings more money into the stock markets.

We are, therefore, seeing two processes at work simultaneously. On the one hand, substantial funds are available on a global basis for investment in capital plants. New efficiencies and new products are constantly being fueled by new money seeking satisfactory returns. On the other hand, these aging investors will retain sufficient cash for consumption items. This demand decreases the risk of investment and guarantees high levels of utilization. Increased wealth creates further investment and further consumption, in a cycle that will intensify until about 2010, when this generation passes into retirement and beyond.

Thus, the decade 1995-2005 will be seen as a golden age, comparable to the last century's turn--and for many of the same reasons. However, obviously not all nations will benefit equally:

This happy economic picture does not face an equivalently happy political and military picture. That is not to say that this decade will experience a systemic, convulsive war like the Napoleonic Wars, World War I or World War II. Nor will it see a singular systemic confrontation, the Anglo-French confrontation of the 18th Century or the Cold War. These will happen, but not in this time frame. Rather, the next decade will be a period of increasing disharmony both between nations and within nations. Underneath it all will be a singular political question: how will the international system cope with the growing power of the United States, and what will the United States do with its growing power?

The end of the Cold War has made the United States the world's only superpower--the only power able to project its forces globally. The first expression of a post-Cold War foreign policy was the New World Order doctrine. Its basic assumption was that the institutions created by the United States to contain the Soviet Union would continue to function and would continue to administer a relatively united world. Desert Storm was the first, last and only manifestation of this doctrine. The weakness of the New World Order doctrine was relatively simple: It forgot that a host of issues divided the free world and that they had been put aside because of the Soviet threat. Once that threat was gone, there was no longer any reason to put those differences aside--unless the U.S. was prepared to use its power to compel everyone to put them aside. The problem was that the level of risk and assertion needed to compel recalcitrant allies to toe the line simply wasn't worth it. Put differently, none of the issues confronting the United States was worth the risk of intervention if that intervention would cost lives.

For the United States, the most important issue is the maintenance of the balance of power in Eurasia; preventing any single power to dominate it and harness its resources. The U.S. intervened three times in Eurasia this century. The first time, World War I, to prevent dominion by Germany; the second time, World War II, to prevent dominion by Germany and Japan; the third time, the Cold War, to prevent dominion by the Soviet Union. In each intervention American strategy was to maneuver allies into a position of carrying the brunt of the fighting with American logistical, technical support paramount, and manpower secondary.

Today, no single power threatens hegemony. We expect Russian power to emerge, but over the next decade, it will be focused on retrieving lost portions of its empire. Until that takes place, no Eurasian hegemony can be threatened. This means that for the next decade, the Eurasian balance of power will maintain itself. Therefore, the United States can and will withdraw, increasingly, from direct exposure to risks in maintaining that balance of power.

The United States will, we think, revert to a blue water strategy, maintain its naval power to the edge of Eurasia, but, as far as possible, avoid engagement on the mainland beyond attempting to maintain the balance of power through political and economic means. Behind this naval wall, the United States will experience unprecedented levels of prosperity, returning to a psychology redolent of the interwar and pre-World War I period. The growing prosperity will marginalize the global dimensions of the U.S. economy, allowing it the illusion of autarky.

We expect Eurasia, therefore, to become increasingly fragmented and tense, because no overarching outside power is in a position or inclined to intervene to maintain the balance of power. Key areas of instability will include:

The key to understanding the next decade will be to understand that the international system is in massive disequilibrium. One power-the United States--has an overwhelming economic and political advantage. Ordinarily, it would be in the interest of such a power to impose a Pax on the world. However, because of geography-the location and size of the United States--the costs of imposing such a pax substantially outweigh the benefits. Any given intervention in Eurasia carries with it a higher cost than the benefits. The only exception to this might be interventions in the Persian Gulf, where the economics of oil occasionally make intervention beneficial.

This means that except in specialized situations like the Persian Gulf the world's leading power will lack the motivation to impose order. To be more precise, the short term costs of intervention are certain, as are the potential benefits. The long-term benefits of such interventions are substantially less clear, and therefore are unlikely to take place. The United States will rely increasingly on indigenous forces to create and maintain a balance of power. While political suasion might be used, military intervention will become more and more rare during this coming decade.

As a result, regional hegemons will emerge through Eurasia. Most will be contained by regional balances of power. Russia, for example, will almost certainly reassert itself. However, constrained as it will be by forces within the former Soviet Union, as well as surrounding states such as Germany, Turkey and Japan, its ability to project power globally will be severely limited. Other regional hegemons--Germany, Turkey, Iran, India--will all be contained by regional forces.

The main exception to this will be Japan. Economically Japan is a global power; in politico-military terms, it is a regional power. Japan's global interests are dictated by imports of raw materials, and the need to assure them, and exports and the need to maintain them. The next decade will see persistent weakness in the Japanese economy and a continued emphasis on exports. China will be the focus of these exports. If, as we expect, China will disintegrate in the early part of the 1995-2005 decade, Japan will be seeking to export into a chaotic situation. The temptation to manipulate and control that chaos will be irresistible. Japan will return to the great game it abandoned in 1945. In due course, it will become a major player in the Western Pacific and elsewhere. At that point--toward the end of this period-the United States will seek to contain Japan, setting the stage for conflicts in the next decade.

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