Walker's World: Looking ahead to 2013

By MARTIN WALKER, UPI Editor Emeritus  |  Dec. 31, 2012 at 12:03 AM
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PARIS, Dec. 31 (UPI) -- The new year isn't beginning well. The arc of instability now runs all along the Asia-Pacific coastline from Japan through the Indian Ocean and up the Persian Gulf and Red Sea into the Mediterranean.

Alarming games of strategic chicken are under way in the islands between China and all its maritime neighbors; Japan, the Philippines, Malaysia and Vietnam.

The Arab Spring is turning wintry in Egypt as the simmering Sunni-Shiite conflict combines with new horrors in Syria and new rumors of Israeli military strikes against Iran.

It is no comfort to say that such confrontations have become familiar, part of the background noise of geopolitics, downgraded to inside pages along with African coups and the grinding endgame in Afghanistan.

We are learning once again the lesson of the 1930s, that politics and international stability are hugely dependent on the underlying economics. The rising tensions in the Middle East and in the seas around China and not simply important political events in themselves but they are also symptoms of much deeper, almost tectonic movements in the global economy.

These go beyond the obvious shifts in the international pecking order of economic power: the decline of Japan, the rise of China, the stagnation of Europe and the fiscal crisis in the United States. These changes are but one aspect of much larger and more disruptive transition whose duration is uncertain and whose outcome is unclear.

We know parts of the puzzle. We know that the demographic shock that is hitting the world's advanced economies, of declining birth rates and increasing longevity, will force a change in the social contract. The traditional welfare states and Social Security systems will have to change in order to adapt. In China as well as in the West, people will be working into their 70s and still have to shoulder more of the burden of providing for their pensions and healthcare in old age.

We know also that the swollen levels of public and private debt must be reduced, whether by growth, inflation or default. And this must be done at a time when central banks in their desperation to fend off a deeper recession have driven down interest rates to levels that no longer reward thrift. This isn't a healthy trend. It also makes it much harder to finance the pensions of the swelling numbers of retired people.

The prolonged political standoff in Washington over the "fiscal cliff" is but the most prominent example of the real world impact of these two trends. And those unforgettable photos of sea water lapping the runways of New York's JFK and La Guardia airports during Hurricane Sandy should remind us of the likely costs of the third trend that will shape the future; the efforts that must yet be made to withstand extreme weather events and climate change.

The fourth trend is one we are just beginning to comprehend; that we are losing the happy combination of cheap food and full employment that has underpinned the decades of growth and prosperity since 1945.

The latest data from the Bureau of Labor Statistics indicate that in 1980, about 20 million manufacturing employees in the United States produced about $800 billion worth of goods. Today, 12 million workers produce almost $2 trillion worth. This is good for the economy but not so good for employment.

In 1955, General Motors produced 4,477,000 cars and trucks in U.S. factories with 555,000 employees, or eight cars for every worker. In 2009 GM sold 2,084,000 cars in the United States with 77,000 employees, or 27 cars per worker. Toyota produces almost 50 cars per employee and the new Hyundai plant in Beijing is aiming at a 100 cars per worker.

All this amounts to one of those historic convulsions that presage revolutionary socio-economic change like the Great Depression of the 1930s or the Long Depression of the late 19th century. So far it has no name but the trends described above give a sense of its dimension and implications.

How we tackle this challenge, while producing enough extra food from limited supplies of arable land and clean water, is going to be a defining issue of the world economy for a long time after 2013. Without food and jobs, the geopolitics of the Middle East and China's rise and Europe's stagnation are going to be a lot more difficult to deal with.

And without the kind of economic growth that has lots of well-paid people paying reasonable taxes, it's not easy to see where the savings will come from that will pay for the massive new investments in infrastructure and education and sustainability that we're going to need.

Happy New Year.

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