posted on 24 January 2017
-- this post authored by Reva Goujon
I'm standing in line waiting to place a coffee order. A group of young customers are ahead of me, necks crooked 45 degrees, eyes glued to their phones, index fingers flying through Twitter feeds filled with post-inauguration memes. "We should call our band 'This American Carnage,'" one says, looking up from his phone for a reaction. "Sign of the times, right?" I look down at the dollar bill I've been holding to put in the tip jar. A steely-eyed George Washington stares back at me, and I half expect his eyebrow to arch in response to the comment. But when I flip the bill over, a detail on the Great Seal catches my attention. Below the Roman numerals bearing the date of the Declaration of Independence are the words "Novus Ordo Seclorum" - A New Order of the Ages.
Charles Thomson, one of the lesser-known Founding Fathers at the Continental Congress, curated these words (derived from a poem written in the first century B.C. by Virgil) and was the principal designer of the Great Seal. Letters between Thomson and Washington reveal a particularly close bond between the two men. Thomson even escorted Washington from Mount Vernon to New York to be inaugurated as the first president of the United States in 1789. Thomson hand-delivered the Great Seal to Washington himself the same year.
I imagine Thomson and Washington had a number of spirited discussions about what this New Order of the Ages signified, and what it would bring. They knew that something truly exceptional had been born in America. As Washington said in 1783, "The foundation of our Empire was not laid in the gloomy age of Ignorance and Superstition, but at an Epoch when the rights of mankind were better understood and more clearly defined, than at any former period." The ideas of the Enlightenment were born an ocean away and had taken root in the soil of the New World. This would be a land where personal freedoms would be protected by law and where the power of the people would be measured and moderated in a representative republic that would carry its own checks and balances to guard against absolutism.
Thomson, Washington and the rest of the Founding Fathers could only hope that the system of democracy they had designed would endure and spread throughout the world. And though it has faced its challenges, from civil war at its infancy to world war at its adolescence, the Republic has indeed persevered.
But with turmoil building, it may feel like America and the world at large have entered another New Order of the Ages. To say that the new order has come because Donald Trump now presides over the Republic would give him too much credit - our politicians are merely the outward symptoms of a much deeper condition affecting the organs of the state.
Leaving Some Workers Behind
Instead, the new world order is rooted in the evolution of three interlocking forces: global trade, technology and demographics. Global trade has evolved dramatically over the past couple of centuries. From the invention of the steamship in the early 1800s to the rise of containerized shipping in the 1980s, the cost of moving goods across borders has fallen drastically. The cost of moving ideas followed suit with the advent of the information technology revolution in the 1990s. Looking ahead, future advances in telerobotics technology mean the geographic barriers to human-to-human interaction will be the next to fall, enabling a variety of jobs in one part of the world to be performed in another without requiring labor pools to migrate. And as the cost of moving between multiple production and consumption centers worldwide has dropped in recent decades, knowledge and technology have spilled over from the rich world to the developing world. As a result, many emerging countries have been able to latch on to a node in a globe-spanning supply chain, producing anything from wire harnesses for airplanes to semiconductor chips for smartphones, paving their own path toward economic prosperity in a tightly integrated worldwide network.
China has been the face of this economic evolution for the past three decades. Capitalizing on the large, cheap labor pool located on its coast, China rapidly grew into the world's factory for the production and assembly of light manufactured goods. Commodity exporters fed off China's voracious appetite for raw materials, while high-end manufacturers and investors positioned themselves around Beijing's ongoing economic rebalancing act - a shift away from low-end exports and public investment-driven growth and toward a growing services sector, the production of more valuable goods and more sustainable consumption-driven growth. This shift is a slow work in progress, but each economic ripple it creates within China amounts to a tidal wave of change for the global economy.
As China's economy ebbs after a decadeslong swell, the protracted slowdown is cutting into the bottom lines of economies in both the developed and developing world. Commodity exporters that benefited from heavy flows of Chinese public investment aimed at driving resource-intensive construction booms are undergoing painful readjustments at home, and not all have the political foundation to cope with those stresses. Advanced economies, meanwhile, have to worry about China's growing competitiveness in manufacturing more of the intermediate parts - semiconductors, transistors and LCDs, for instance - that it used to import from the United States, Japan, Taiwan and South Korea. And as China tries to wean itself off its dependency on export markets, Beijing intends to ensure that more of those sophisticated goods are sold in the Chinese market. Combined, all of these forces explain why the collapse in global trade growth since the Great Recession is not merely cyclical; deep structural changes in the world's economy are underway and will stay with us for decades to come.
China's story also exposes how the familiar model of using labor-intensive, low-end manufacturing as an engine for growth is fading. Technology lies at the base of this new paradigm. Productivity is a key driver of economic growth, and investments in technology that can raise output and lower costs are critical to a country's competitiveness. But the dilemma for politicians is that the technological advancement and innovation that have come with robotics and advanced manufacturing, and that have made industry more efficient over the past two decades, have not left much room or opportunity for the unskilled or low-skilled working class. Manufacturing can no longer be counted on as a major creator of jobs. Those without the skills to move into higher-end work - to program and maintain the robots that have displaced human workers, for example - have had to resort to low-paying and part-time services jobs to get by. At the same time, the automation of routine services jobs and advances in computerization will continue to change the types of jobs made available and the skills needed to fulfill jobs where human innovation and creativity is not as easily displaced by computers.
For the developing world, this shift in developmental cycles means that low wages must increasingly intertwine with advanced technologies to drive growth, making it more dependent on the political will and economic incentives of wealthier countries to invest overseas and bring their technology and know-how along. And for India, which uniquely skipped over development on its way to becoming a manufacturing powerhouse and fueled its growth through a less labor-intensive services industry instead, a bigger challenge lies ahead. New Delhi is now trying to absorb a massive and still-growing working class with a new manufacturing push, at a time when automation is reducing the need for large, unskilled labor pools.
In the United States, and in many parts of the developed world that have seen manufacturing industries hollowed out by shifts in technology and global trade over the past two decades, the middle class is at risk and contracting. This matters a great deal since middle-class families are typically the biggest drivers of consumption, which, in turn, fuels economic growth. (Consumption accounts for more than two-thirds of economic activity in the United States.) At the same time, middle-class families still benefit from the lower cost of consumable goods made possible by global trade and automation.
The Pursued and the Tired
F. Scott Fitzgerald told a story of dream and disillusionment amid the rush of America's industrial revolution in his 1925 novel, The Great Gatsby. The protagonist, Nick Carraway, narrates, "A phrase began to beat in my ears with a sort of heady excitement: 'There are only the pursued, the pursuing, the busy, and the tired.'" Though Nick was obsessing over the social drama in his life, his words in many ways also describe the global labor market. Only, as the years go by, the number of tired will grow and the pursued will become those with advanced skills trying to survive in a rapidly evolving job market.
The world's population is getting older and smaller. This is both a universal and unprecedented trend that is unlikely to reverse as medical progress extends average lifespans and birth rates continue to decline. The reasons behind this trend are quite basic but have profound implications. Large families were an asset for agrarian-based economies that needed many hands to work the land, but they are a liability in the urban world of tight spaces and high living costs. Women who have the opportunity to advance their education and build their careers tend to put off having kids until their later years, when their fertility rates are also declining, resulting in smaller family sizes overall. In the developed world and in China, the average number of children born per woman ranges from 1 to 2. The developing world varies more widely, with average birth rates ranging from 3 to 6 children per woman. But when it comes to the aging trend, the developing world is only a couple of generations behind and it, too, will see its birth rates decline in the coming decades. Once those rates hit 0-1, the average couple will not be producing enough offspring to replace themselves. As a result, by 2050, the number of people over 60 years old will outstrip, for the first time in human history, the number of children aged 0-14.
South Korea, Taiwan, Japan, China, Portugal, Spain, Greece, Germany and Canada are among those at the leading edge of this global aging. With an older labor force comes declining labor productivity and slower growth. The dip in productivity will drive further technological advances to offset the costs of an aging society and increase efficiency, but it will again come at the political and social cost of leaving low-skilled workers in a lurch. The pensions needed to support a rapidly growing pool of retirees will have to be drawn from a smaller tax base, putting great strain on younger generations trying to advance themselves economically without burying themselves in debt. And for countries like China that are still developing and expect offspring to care for their elders, the clock is ticking. Beijing will need to find a way to generate real wealth more quickly and sustainably if it wants to survive the coming demographic crunch.
Building on Old Promises
This global picture places a heavy responsibility on the shoulders of today's politicians. America's Founding Founders set an expectation that basic rights would be awarded to hard-working families and that upward mobility from generation to generation would shape the American dream. The European Union vowed that an integrated bloc of nation-states would temper sovereign differences and sustain economic prosperity. The Communist Party of China pledged to further the Chinese dream of national rejuvenation through collective effort, socialism and glory. When promises are broken, politicians and the establishment of the old order will take most of the blame. But they are also the ones endowed with the duty of navigating their troubled masses through the turbulent waves.
It may be tempting to adopt a nationalistic stance during such trying times and argue for old-fashioned self-sufficiency as a means of restoring national glory. After all, nobody likes the feeling of losing control, and history has shown that anxiety is an especially potent emotion that politicians can channel. Influxes of immigrants will make shrinking populations feel as if their national identities are slipping from their grasp. Automation and global trade integration will make workers feel as if their livelihoods are being wrenched from their hands. A resurgence of nationalism in stressful economic times is natural, and it will be a significant force unraveling the European Union and reshaping the United States' interactions with allies and adversaries alike. But the self-sufficiency approach ignores the reality of the global economy and the unrelenting force of technological and demographic change. Greater demand for skilled workers amid shrinking labor pools will require more vocational training in the developing and developed world to fill 21st-century services and manufacturing jobs. Technological advances could also address some of the most fundamental social challenges we face today. The transfer of technology and know-how across borders will persist and likely grow with advances in telerobotics technology. Low-wage workers in the developing world can be trained to remotely operate machines and perform services in richer countries, potentially tempering the pressure to emigrate. And technology that allows individuals to fully participate in the work-life of the office remotely could make it easier and more affordable for parents to raise children without sacrificing their careers.
Countries that can weather the political pain of structural reform, overhaul financial systems to match their demographic outlooks, and apply the necessary capital and technology to drive innovation from a diverse talent pool will be the best equipped to adapt to the New Order of the Ages. But there is still much work to be done and sacrifices to be made along the way. The Founding Fathers were not so presumptuous to believe that their young Republic's hardest days were behind it. In designing the Great Seal, Thomson placed the words "Novus Ordo Seclorum" beneath a pyramid of 13 steps to represent the 13 colonies that laid the foundation of American democracy. By Thomson's design, the pyramid is unfinished, leaving it not only to the statesmen at the helm but also to the people of the Republic to continue the strenuous work in shaping a "more perfect union."
"A New Order of the Ages" is republished with permission of Stratfor.
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