Global Trends 2030

This is my Perspective column from this week’s Fund Strategy magazine.

What will the world look like in 2030? A recent report on the subject written by American intelligence analysts should also be of interest to investment professionals.

Global Trends 2030 was produced by the National Intelligence Council. The organisation’s mission is to provide strategic thinking for the America’s intelligence community including such institutions as the Central Intelligence Agency and the Federal Bureau of Investigation.

Naturally such organisations are guarded about information they release to the public. There is no classified material on, say, Iran’s nuclear capacity or America’s military vulnerabilities. Nevertheless it gives some indications about where American experts see the world heading.

The time scale is sensible too. Looking more 30 years in the future is more-or-less pure guesswork. It is hard to imagine many analysts back in 1983 predicting accurately what the world looks like in 2013.

But a time scale of about two decades has the advantage of forcing people to look beyond everyday events. Too much discussion in the investment community focuses on what happened today or yesterday. Market watchers anxiously wait for the latest monthly or quarterly figures to come out even though they seldom reveal much of use.

Global Trends 2030 is in three main parts. It starts by identifying what it describes as four “megatrends”: individual empowerment, the diffusion of state power, demographic patterns and resource demands.

Much of this will be familiar to those who follow such discussions. Indeed reports by financial organisations such as Goldman Sachs and the McKinsey Global Institute are among the sources for the discussion. Nevertheless it is interesting to see how all the themes are fitted together.

The report sees individual empowerment as perhaps the most important megatrend. It includes a reduction in poverty, the rise of a global middle class, increased demand for consumer goods and wider access to education.

It also predicts a diffusion of global power between different countries. Not only are developed countries likely to decline in relative importance and China to rise but other currently middle tier countries are likely to rise too. These include the likes of Egypt, Indonesia, Iran, South Africa and Turkey.

As would be expected the report also forecasts an ageing global population and increasing strain over natural resources. However, it does include interesting material on different technologies that could be used to increase productivity.

These mega-trends are then seen as interacting with six “game-changers”. Whereas the former are more akin to objective developments the later depend more on how countries, companies and individuals react. These include the potential for crisis in the global economy, a governance gap between how people are ruled and what they want, the potential for increased conflict, the scope for regional instability, the impact of new technologies and the changing role of America.

Global Trends 2030 ends by sketching four plausible scenarios for how the world could look. These range from the most negative, where America and Europe turn inward, to a positive one in which America and China cooperate closely. In between are a world that is wealthier but more unequal and a scenario in which “non-state actors” play a much greater role. The latter category includes a vast range of institutions from companies and wealthy individuals to universities and terrorist organisations.

Probably the most useful aspect of the report is the framework itself. It is not necessary to agree with all or even most of its conclusions to use it as a starting point for thinking about the future.

It is also has the merit of explaining what it means by particular terms. For instance, the phrase “middle class” is used to refer to household expenditure per head of $10 – $50 a day at purchasing power parity. Essentially that means living beyond basic subsistence but far below what would be considered comfortable in the West.

The main weakness of the report is that it underestimates that extent to which the intellectual climate can influence the reaction to particular developments. For example, if inequality is seen as the result of an elite systematically restraining the rest of the population it can provoke a violent response. It, on the other hand, it is seen as a natural consequence of how hard people work it is likely to be accepted.

There is also a tendency to assume that the poorer countries are struggling to catch up with a culturally superior developed world. Western countries are seen as largely democratic and pluralistic whereas many poor countries are seen as locked in tradition.

Although this is a common perception it is one-sided. There are many ways in which western countries have become less democratic than they were in the past. A lot of the more traditional thinking in poorer countries is also a reflection of ideas developed in the West.

Global Trends 2030 is far from perfect but it should help to resist presentism. Rather than seeing society as locked into its current set-up it is important to consider how things could be different in the future.