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 Factors Shaping the 2020s

Over the next 10 years, the world will revert to a multipolar power structure that will encourage constantly shifting alliances and create a more contentious global system. In the midst of this dynamic change, pockets of economic opportunity will emerge.


Decade

An Overview of the 2020s

<p>As the decade dawns, the world system is moving toward a more &quot;normal&quot; state of affairs, a return neither to the bipolar blocs of the Cold War nor to the brief hegemonic interlude that followed. Rather, we see a return to a world with several competing poles of power, both large and small, with less defined and more fluid alliances and partnerships. Over the decade, the United States and China &mdash; buoyed by their economic, political, military and social power &mdash; will be the most significant poles, with Russia and Europe each playing important, albeit less powerful, roles. Numerous smaller alliances and alignments will emerge, regionally or topically focused, seeking to use their shared interests and pooled resources to better maneuver among the larger powers.</p><p>The United States will remain the single largest power in holistic terms through the decade, but its comparative share of power is waning. China will continue to expand its global role, but domestic issues will limit its overall attention and power. Russia faces increasingly severe demographic and economic challenges, and by the end of the decade, the Russian-Chinese relationship will likely undergo significant strain as the power balance tips in Beijing&#39;s favor. Europe, meanwhile, will struggle to forge a new identity as it grows more apparent that the dream of a pan-national Europe does not match the reality of the differing social, economic and political models spread across the Continent.</p><p>The travails of the European Union, in plain view since the global financial crisis, are a precursor of the future across much of the world. The challenges posed by the spread of technologies, the revival of economic nationalism and stresses over economic expectations will likely lead to an increase in localized and regional conflict. With neither a global hegemon nor a bipolar system to try to force stability, the globe&#39;s shifting allegiances and alliances, changing trade arrangements and flows, and increasing social and political instability will produce a more fluid and contentious world over this decade.</p><p>Amid that volatility, pockets of economic opportunity and growth will emerge. Southeast Asia, East Africa and South America are but some the areas where expanding populations, rising urbanization, infrastructure development and growing social expectations will provide those opportunities. If they are able to capitalize on technology trends, and not be bypassed, these areas are poised to be engines of global growth. They stand in contrast to the global north, where populations are graying and stagnating, or even declining, slowing the rate of consumption and available capital. The demographic dichotomy will invigorate nationalist sentiments, even as migration may be the very thing needed to ease the social burdens in both the north and the south.</p><p>It is a decade where resistance to the ideals of extreme globalization will be even more manifest and where the assertion of national and local self-interest will clash with trends of regionalism and globalism. Amid demographic and economic challenges, the tendency will be to think local and act local, despite the identification of global problems.</p>

Toward a Multipolar World

<p>Without a singular global hegemon, or clearly defined competing blocs, nations will be freer to pursue relationships of benefit to their unique interests, leading to looser alignments, rather than comprehensive alliances. Nations will resist singular political, economic, security and social partnerships, preferring flexibility. It will be more common to have economic ties with one partner and security ties with another, straddling competitors among the larger powers. Despite calls for regional and global solutions, the nation and even subnationalism will be the dominant expression during the decade.</p>

<p>The United States and Europe will continue to diverge as the latter struggles with its own internal cohesion and the former moves to a less interventionist pattern. This will play out not merely in the realm of NATO and military activity, but in trade and taxation models, global climate initiatives, cyberspace policies and other aspects of global governance.&nbsp;</p><p>Meanwhile, during the first half of the decade, Russian-Chinese cooperation will continue to expand in the military, economic and technological realms. But China and Russia remain wary of one another&#39;s strength and motives. Russia will begin to resist China&#39;s initiatives by the latter half of the decade as Moscow prepares for a significant demographic crunch in the 2030s and sees Chinese infrastructure and connectivity stretching through the old Soviet Central Asia and Eastern Europe, through the Indian Ocean Basin and north across the Arctic as a threefold envelopment of its former sphere of influence.</p>

Political Framework: The Limits of Alliances

<p>Demographic, economic and technological developments are creating the pressures and the space for reshaping the global trade patterns that have been the norm since the late 1980s. While globalization will not go away, and complex supply chains will remain, there will be moves back toward more regional and local supply chains, and tighter intraregional trade. Comprehensive multilateral trade agreements have reached their limits due to their complexity and inflexibility, and they will be replaced with bilateral and minilateral trade arrangements. Coupled with surges in economic nationalism, this will prove a more complex environment for large multinational corporations, forcing the navigation of multiple systems or a choice to operate only in one.</p><p>We see a slower overall economic growth over the next decade, as the structures of trade and demographic dynamics evolve, though there will be localized pockets of high growth in less developed areas. The broader economic stagnation will have social implications as expectations of a continual rise in prosperity remain unfulfillable and youths find employment and upward mobility elusive, whether due to population bulges in the south or greying populations in the north not making way for new workers. The U.S. dollar is unlikely to lose its primacy in the international system during the next decade, though its centrality will continue to erode. China is simply not prepared to take on the cost and risk of promoting the yuan as the global reserve currency, and intra-European challenges will continue to weigh down the euro. Where China and Russia may make progress will be in exchange mechanisms, as they build redundancies and bypasses to blunt U.S. sanctions power.</p>

Economic Framework: The Limits of Globalization

<p>Attempts by the United States to shift from counterterrorism to a focus on peer and near-peer competition will be only partially successful over the next decade, as terrorism, whether inspired by global ideals or local issues (or more often than not a combination of the two), will not fade away. But even the United States has finite resources, and prioritization will have to be made. We expect the United States, actively or by default, to encourage local and regional actors to take up security responsibilities, with Washington intervening only occasionally where deemed strategically important. Europe will see a continued evolution of its security role beyond the confines of NATO. A shift in U.S. posture on the Middle East and South Asia, and the ripple implications into Central Asia, will ultimately pull Russia and China to take a more active approach, compelling Beijing to finally break from its reticence to use its military forces abroad.&nbsp;</p><p>Technological advances will distribute capabilities, reducing the military dominance of the &quot;big powers.&quot; Automated systems, information operations, cyber actions with kinetic consequences and advances in communications will facilitate actions by even smaller states and nonstate actors. First- and second-tier powers will accelerate competition for space dominance, and long-anticipated advanced systems, including hypersonic and energy weapons, will reach operational stages. Following North Korea&#39;s example, we also see a further erosion of nuclear containment this decade.</p>

Security Framework: The Limits of U.S. Power

<p>The existing international system is built on the back of a North Atlantic consensus &mdash; effectively among the United States, Canada and Western Europe. The basic economic, political and security architecture was put in place when this represented the bulk of global trade and economic activity and military and political power. But the world has changed substantially since the end of World War II, and particularly in the post-Cold War era. The rest of the world is now staking its claim to shape global norms, regulations and standards, and their champion is China. This trend will only accelerate over the decade.</p><p>Competition over global governance isn&#39;t just about the relation between nations, it is about trade and technology. China has expanded its position in global regulatory and standards-setting bodies and will continue to take a more active role. Coupled with China&#39;s sheer size and market, this can have lasting impact on the development and deployment of new technologies, from electric vehicles to artificial intelligence, telecommunications infrastructure and the internet of things.<br />&nbsp;</p>

<p>The spectrum of differences is seen particularly in areas where social, economic and national security considerations overlap (telecommunications), but also in places as varied as agriculture policy and phytosanitary standards, and conflicting desires for global standards and national independence. In this, we see continued divergence not only between the United States and China, but also between each of them and Europe. While there are many areas of cooperation between or among these three, the decade will see a further fracturing of global consensus, and the emergence of competing but not completely divergent standards and regulations.</p><p>One large question for the decade is the role of the United Nations, and more specifically that of the Security Council. The council&#39;s five permanent members are no longer representative of the distribution of global power and influence, and as competition for global norms and standards heats up, reform of the Security Council is likely to be a contentious issue in the decade. Similar questions of relevance will dog the World Trade Organization, driven by the continuing shift away from multilateral trade arrangements.</p>

Reshaping Global Norms

<p>Containerization revolutionized the shipping industry, driving major new investments in ports and ship design and even requiring alterations in physical geography, including the expansion of the Panama Canal. But the growth of global containerized shipping may be nearing its limits, and while it will not necessarily decline, even a slowdown to that growth could create economic difficulties for the numerous new or expanded port facilities built over the past few decades.<br />&nbsp;</p>

<p>Rising labor costs will reduce China&#39;s role as the center of global manufacturing. Few other locations can singly fill the huge space it currently occupies. Instead, the sector will become more distributed, much of it to nearby Southeast Asia. But if overall trade patterns begin to contract, the space for these countries to take advantage of their growing labor pools to move up the value chain will shrink.</p><p>A combination of shifts in technology, purchasing and labor patterns, climate awareness, and rising economic nationalism will contribute to a further reformation of global trade patterns, with growing levels of regional trade versus continued expansion of long supply chains. Further disruptions will stem from shifts in energy and commodity trade patterns, the expansion of new sea and land routes (driven by China&#39;s Belt and Road Initiative), and economic nationalism. Breakthroughs in additive or advanced manufacturing could compound the contraction of complex global supply chains.</p>

Shifting Trade Patterns

<p>We expect a further fragmenting of global communications and information infrastructure over the next decade. These systems sit at the intersection of matters of national security, information sovereignty, business continuity and personal freedom. Europe, the United States and China represent differing approaches to creating a balance among these interests, and as each creates differing regulatory environments, it will prove more difficult for companies to operate freely across all three, leading to reshaped technology supply chains. Over the decade, these trends can compound to create differing spheres of technology infrastructure.</p><p>Economic competition, differing regulations and national security concerns will also affect research and development initiatives, making it more difficult for ideas to freely flow between the private and state sectors and across geographies. Developments in artificial intelligence and other big data projects will diverge&nbsp;based on regulations over the collection and storage of data. Fragmentation will increase the pace and scope of cyberespionage in the private and state sectors.</p>

<p>Despite fragmenting systems, the low bar for entry will leave the cyberdomain vulnerable to state and nonstate actors conducting theft, espionage, disruption and information operations. States will struggle with managing information technologies that facilitate organization and mass movements within and across borders. The expansion of applications for the internet of things increases the likelihood that cyber actions will more frequently have kinetic implications. Should a major disruption to power, communications or financial systems occur, government responses will lead to further tightening of cybersovereignty.</p>

Cyber Fragmentation

<p>Technology is a massive bucket, but for this forecast, we will focus on three key areas: information systems, power generation and manufacturing.</p><p>The expansion of information systems can create educational opportunities, allowing distributed instruction and adaptable training and reducing the overconcentration of educational opportunities in key cities. In effect, this growth can redistribute opportunity, potentially slowing the pace at which developed economies are hollowed out and increasing access in developing nations. But the pace of technological change also requires rapid adaptability, and some areas will struggle to keep pace, particularly in the global south, where rising populations and limited government resources may leave them playing catch-up in training and adoption.</p>

<p>Advances in alternative energy production, large-scale energy storage and smart grid technology may do for energy production and distribution what cellular services did for telecommunications. These technological developments will allow the construction of smaller scale localized transmission grids that could, by the end of the decade, facilitate a rapid expansion of rural electrification, bringing new educational, health and employment opportunities to more places. This will have significant effects on social and political patterns, bringing disruption along with opportunity to areas of India, Central Africa, Southeast Asia and Latin America where such connectivity had previously not been viable.</p><p>Advanced manufacturing techniques will facilitate the further near- or onshoring of manufacturing after decades of labor arbitrage. Advanced and additive manufacturing can reduce material and storage costs, facilitate just-in-time on-demand manufacturing, and allow smaller scale distributed facilities. While we do not expect a wholesale shift in manufacturing patterns over the decade, we do see experimentation that blends techniques such as 3D printing with on-demand purchasing and delivery services such as those offered by Amazon.com &mdash; an expansion of existing on-demand book printing to other simple tangibles. If such production were to grow faster than expected buoyed by advances in materials science and the expiration of key patents, it could undermine the opportunity for developing nations to move up the value chain as centers of manufacturing for global consumption.</p><p>A final feature of the decade will be the acceleration of the space race, with states, private industry and hybrids of the two competing over launch technologies, telecommunications systems and experimental space-based manufacturing. Since satellite systems fill critical roles in communications and information infrastructure and national security, as the space race heats up, so will the militarization of space.</p>

Technology Impacts

<p>Over the next decade, the most significant physical impacts of climate change will be an increasing volatility of extreme weather events, along with more acute water stress, shifts in maritime foodstuff resources and evolving accessibility to the Arctic. But the most immediate impacts will be felt at the political and social levels. Shifting energy production and transportation priorities will drive changes in the energy, automotive and infrastructure sectors. Europe will be the test bed of the economic effects of taking more aggressive measures to change the energy and transportation mix, but this may also exacerbate national and regional differences.</p><p>Increasing weather volatility, including shifting monsoon patterns, and expanding urbanization, with its attendant increase in animal protein consumption and concentrated water usage, can be expected to create several spreading agricultural challenges, punctuated by acute short-term crises. The developing world remains far behind the developed world in per capita meat consumption, but reduced poverty is driving rising rates, compounding water and land demand for food production. Water stresses can limit urbanization initiatives and strain hydropower production. In places like India and Central Asia, we expect water stress to have significant social and political ramifications over the decade.</p>

<p>Changing ocean temperature patterns are already affecting the location and robustness of stocks of fish and other marine foods. These resources are particularly significant both to the Asia-Pacific as a key source of animal protein and among&nbsp;localized areas elsewhere. As marine resource concentrations migrate, they cross artificial borders and contribute to clashes over territorial seas and maritime resources. We expect greater competition over maritime resources to strain relations not only along the Asia-Pacific rim&nbsp;but also along the Arctic and Antarctic frontiers.</p><p>Climate shifts have created the most profound and immediate changes in the Arctic, with sea ice patterns now effectively altering geography as much as human-made canals did in the past. With growing technological capabilities, competition over future resources and strategic concerns, the Arctic will be a focal point for great power competition, for challenges to global governance and norms, and for testing the limits of cooperation over climate mitigation with competition over resources and strategic advantage.</p>

Climate Issues

<p>As climate change&nbsp;and economic and technological advances drive shifts in energy production and storage, hydrocarbon-based power will wane in overall significance &mdash; but it is unlikely to be surpassed by other methods over the decade. Neither will demand for oil peak before 2030. The continued expansion of liquefied natural gas infrastructure will shift global energy trade flows, as it offers new ways of being both green and diversifying suppliers for energy security.<br />&nbsp;</p>

<p>Competition over strategic minerals for new energy applications will open investment opportunities and geopolitical competition in South America, Africa and along the Arctic fringe. Frontier locations, such as seabed mineral extraction, will draw continued interest but are unlikely to reach significant economic viability during the decade. However, they will reopen debates over global governance in the Arctic and Antarctic, with implications toward future developments in space exploration.</p><p>Shifting technology priorities risk driving boom-or-bust cycles in key new resource commodities, and rising economic security concerns will lead to increased political competition over key producer regions. The exploitation of new energy resources is unlikely to lead to development patterns driven by a concentration of easy access to a commodity in high demand akin to those experienced in the Middle East. But opportunities will emerge for nations able to exploit and retain control over in-demand mineral resources.</p>

Beyond Hydrocarbons

<p>Much of the developed north is already facing graying populations and stagnating or declining natural population growth. The impacts of this trend will be felt keenly over the next decade. The financial burden will begin to strain social safety nets, and underfunded pension systems will force governments to further increase retirement ages, reducing space for entry to younger workers and making it harder for those wishing to exit the labor pool to afford retirement. As retirees move from storing up savings to spending on basic needs, the amount of available capital in the banking and finance system will begin to shrink. These challenges will be most pronounced in Europe, Japan and South Korea, though the United States will not remain unscathed.&nbsp;</p><p>In the global south, aside from China and soon India, populations are still growing, creating pools of available labor and, when paired with urbanization, rising consumption rates. These growing populations, with rising expectations, may prove a mixed blessing. If countries can harness the available labor, they can become pockets of economic growth and consumption. But if they are unable to meet expectations, they are vulnerable to social disruption and political turmoil. The contrast of demographic trends between the &quot;north&quot; and &quot;south&quot; is already playing into political and economic nationalism in Europe and the United States, often characterized as anti-immigrant. But by the end of the decade, this may shift to competition for select immigrants to counter demographic declines.</p>

<p>Technological advances have the potential to exacerbate or ameliorate these challenges. If advanced manufacturing techniques, lower energy costs and shorter transportation routes (or politically motivated economic policies) lead to more near- or onshoring, many of the countries poised to step into the low- and mid-end manufacturing and arbitrage their large labor pools may find themselves bypassed. But advances in telecommunications connectivity that provide significant decreases in lag time could begin to open a new space for outsourcing control of physical manufacturing without needing to move factories. In either case, the challenge of technological change against the current demographic backdrop will be one of reskilling &mdash; and the countries most adept at this will have the advantage.</p>

Demographics

<p>In part, health care advances, the increasing percentage of women in the workforce, smaller families and poverty alleviation efforts over the past half-century will drive the demographic shifts in the coming decade. Populations are skewing older because people are living longer. Birth rates have dropped in part because there is less expectation of high child mortality rates.</p><p>With less poverty and longer lifespans, the demand for resources will increase, including energy, agriculture, available land and clean water. Within countries, this can strain government resources and, if poorly managed, increase social instability. Among countries, the competition for resources or global attempts to shape conservation and climate mitigation initiatives can stir contention and accusations of imperial unfairness.<br />&nbsp;</p>

<p>Reduced poverty, improved nutrition and preventative health care have also contributed to a global increase in societal expectations, whether for access to jobs, housing and education, or government social services. Rising expectations can drive economic intervention or nationalism, as governments seek to provide more and better quality domestic jobs. It also creates challenges for governments as the rising middle class becomes more politically active. This is even more pronounced as communication technologies allow rapid coordination of like interests, and greater access to alternative ideas, information and expectations. As more challenges are made to the political order, the likelihood that efforts toward building greater national digital sovereignty and security to reduce information flow will increase.</p>

DECADE FORECAST: 2020-2030

Factors Shaping the 2020s

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