A GLOBAL INTELLIGENCE BRIEFING FOR CEOS - must read

[refrigeration mafia]

This is a very long read, but a very good one for all business owners. :)

"The only people who can hurt us are ourselves ... If we lose it, there isn't another America ..." - Herbert Meyer

-----

Written for CEO's, but applicable to all of us.

WHAT IN THE WORLD IS GOING ON? A GLOBAL INTELLIGENCE BRIEFING FOR CEOS

By HERBERT MEYER

FOUR MAJOR TRANSFORMATIONS

Currently, there are four major transformations that are
shaping political, economic and world events. These transformations
have profound implications for American business owners, our culture and our
way of life.

1. The War in Iraq

There are three major monotheistic religions in the world:
Christianity, Judaism and Islam. In the 16th century, Judaism and
Christianity reconciled with the modern world. The rabbis, priests and
scholars found a way to settle up and pave the way forward. Religion
remained at the center of life, church and state became separate. Rule
of law, idea of economic liberty, individual rights, human Rights-all
these are defining points of modern Western civilization. These
concepts started with the Greeks but didn't take off until the 15th and 16th
century when Judaism and Christianity found a way to reconcile with the
modern world. When that happened, it unleashed the scientific
revolution and the greatest outpouring of art, literature and music the world has
ever known.

Islam, which developed in the 7th century, counts millions of
Moslems around the world who are normal people. However, there is a
radical streak within Islam. When the radicals are in charge, Islam
attacks Western civilization. Islam first attacked Western civilization
in the 7th century, and later in the 16th and 17th centuries. By 1683,
the Moslems (Turks from the Ottoman Empire) were literally at the gates
of Vienna. It was in Vienna that the climatic battle between Islam and
Western civilization took place. The West won and went forward. Islam
lost and went backward. Interestingly, the date of that battle was
September 11. Since them, Islam has not found a way to reconcile with
the modern world.

Today, terrorism is the third attack on Western civilization by
radical Islam. To deal with terrorism, the U.S. is doing two things.
First, units of our armed forces are in 30 countries around the world
hunting down terrorist groups and dealing with them. This gets very
little publicity. Second we are taking military action in Afghanistan
and Iraq.

These are covered relentlessly by the media. People can argue
about whether the war in Iraq is right or wrong. However, the
underlying strategy behind the war is to use our military to remove the radicals
from power and give the moderates a chance. Our hope is that, over
time, the moderates will find a way to bring Islam forward into the 21st
century. That's what our involvement in Iraq and Afghanistan is all
about.

The lesson of 9/11 is that we live in a world where a small
number of people can kill a large number of people very quickly. They
can use airplanes, bombs, anthrax, chemical weapons or dirty bombs.
Even with a first-rate intelligence service (which the U.S. does not have),
you can't stop every attack. That means our tolerance for political
horseplay has dropped to zero. No longer will we play games with
terrorists or weapons of mass destructions.

Most of the instability and horseplay is coming from the Middle
East. That's why we have thought that if we could knock out the
radicals and give the moderates a chance to hold power, they might find
a way to reconcile Islam with the modern world. So when looking at
Afghanistan or Iraq, it's important to look for any signs that they are
modernizing.

For example, women being brought into the workforce and
colleges in Afghanistan is good. The Iraqis stumbling toward a
constitution is good.

People can argue about what the U.S. is doing and how we're
doing it, but anything that suggests Islam is finding its way forward
is good.



2. The Emergence of China

In the last 20 years, China has moved 250 million people from
the farms and villages into the cities. Their plan is to move another
300 million in the next 20 years. When you put that many people into
the cities, you have to find work for them. That is why China is addicted
to manufacturing; they have to put all the relocated people to work. When
we decide to manufacture something in the U.S., it's based on market
needs and the opportunity to make a profit. In China, they make the
decision because they want the jobs, which is a very different
calculation.

While China is addicted to manufacturing, Americans are
addicted to low prices. As a result, a unique kind of economic
codependency has developed between the two countries. If we ever stop
buying from China, they will explode politically. If China stops
selling to us, our economy will take a huge hit because prices will jump. We
are subsidizing their economic development; they are subsidizing our
economic growth.

Because of their huge growth in manufacturing, China is hungry
for raw materials, which drives prices up worldwide. China is also
thirsty for oil, which is one reason oil is now at $60 a barrel. By
2020, China will produce more cars than the U.S. China is also buying
its way into the oil infrastructure around the world. They are doing it
in the open market and paying fair market prices, but millions of
barrels of oil that would have gone to the U.S. are now going to China.
China's quest to assure it has the oil it needs to fuel its economy is
a major factor in world politics and economics. We have our Navy fleets
protecting the sea lines, specifically the ability to get the tankers
through. It won't be long before the Chinese have an aircraft carrier
sitting in the Persian Gulf as well. The question is, will their
aircraft carrier be pointing in the same direction as ours or against
us?



3. Shifting Demographics of Western Civilization

Most countries in the Western world have stopped breeding. For
a civilization obsessed with sex, this is remarkable. Maintaining a
steady population requires a birth rate of 2.1. In Western Europe, the
birth rate currently stands at 1.5, or 30 percent below replacement. In
30 years there will be 70 to 80 million fewer Europeans than there are
today. The current birth rate in Germany is 1.3. Italy and Spain are
even lower at 1.2. At that rate, the working age population declines by
30 percent in 20 years, which has a huge impact on the economy.

When you don't have young workers to replace the older ones,
you have to import them. The European countries are currently importing
Moslems.

Today, the Moslems comprise 10 percent of France and Germany,
and the percentage is rising rapidly because they have higher
birthrates.

However, the Moslem populations are not being integrated into
the cultures of their host countries, which is a political catastrophe.
One reason Germany and France don't support the Iraq war is they fear
their Moslem populations will explode on them. By 2020, more than half
of all births in the Netherlands will be non-European.

The huge design flaw in the post-modern secular state is that
you need a traditional religious society birth rate to sustain it. The
Europeans simply don't wish to have children, so they are dying.

In Japan, the birthrate is 1.3. As a result, Japan will lose up
to 60 million people over the next 30 years. Because Japan has a very
different society than Europe, they refuse to import workers. Instead,
they are just shutting down. Japan has already closed 2000 schools, and
is closing them down at the rate of 300 per year. Japan is also aging
very rapidly. By 2020, one out of every five Japanese will be at least
70 years old. Nobody has any idea about how to run an economy with
those demographics.

part 1 of 3

[refrigeration mafia]

Europe and Japan, which comprise two of the world's major
economic engines, aren't merely in recession, they're shutting down.
This will have a huge impact on the world economy, and it is already
beginning to happen. Why are the birthrates so low? There is a direct
correlation between abandonment of traditional religious society and a
drop in birth rate, and Christianity in Europe is becoming irrelevant.
The second reason is economic. When the birth rate drops below
replacement, the population ages. With fewer working people to support
more retired people, it puts a crushing tax burden on the smaller group
of working age people. As a result, young people delay marriage and
having a family. Once this trend starts, the downward spiral only gets
worse.

These countries have abandoned all the traditions they formerly
held in regards to having families and raising children.

The U.S. birth rate is 2.0, just below replacement. We have an
increase in population because of immigration. When broken down by
ethnicity, the Anglo birth rate is 1.6 (same as France) while the
Hispanic birth rate is 2.7. In the U.S., the baby boomers are starting
to retire in massive numbers. This will push the elder dependency ratio
from 19 to 38 over the next 10 to 15 years. This is not as bad as
Europe, but still represents the same kind of trend.

Western civilization seems to have forgotten what every
primitive society understands-you need kids to have a healthy society.
Children are huge consumers. Then they grow up to become taxpayers.
That's how a society works, but the post-modern secular state seems to
have forgotten that. If U.S. birth rates of the past 20 to 30 years had
been the same as post-World War II, there would be no Social Security
or Medicare problems.

The world's most effective birth control device is money. As
society creates a middle class and women move into the workforce, birth
rates drop. Having large families is incompatible with middle class
living.

The quickest way to drop the birth rate is through rapid
economic development. After World War II, the U.S. instituted a $600
tax credit per child. The idea was to enable mom and dad to have four
children without being troubled by taxes. This led to a baby boom of 22
million kids, which was a huge consumer market that turned into a huge
tax base.

However, to match that incentive in today's dollars would cost
$12,000 per child.

China and India do not have declining populations. However, in
both countries, there is a preference for boys over girls, and we now
have the technology to know which is which before they are born. In
China and India, many families are aborting the girls. As a result, in
each of these countries there are 70 million boys growing up who will
never find wives. When left alone, nature produces 103 boys for every
100 girls. In some provinces, however, the ratio is 128 boys to every
100 girls.

The birth rate in Russia is so low that by 2050 their
population will be smaller than that of Yemen. Russia has one-sixth of
the earth's land surface and much of its oil. You can't control that
much area with such a small population. Immediately to the south, you
have China with 70 million unmarried men; are a real potential nightmare scenario for Russia.



4. Restructuring of American Business

The fourth major transformation involves a fundamental
restructuring of American business. Today's business environment is
very complex and competitive. To succeed, you have to be the best, which
means having the highest quality and lowest cost. Whatever your price
point, you must have the best quality and lowest price. To be the best,
you have to concentrate on one thing. You can't be all things to all
people and be the best.

A generation ago, IBM used to make every part of their
computer. Now Intel makes the chips, Microsoft makes the software, and
someone else makes the modems, hard drives, monitors, etc. IBM even
outsources their call center. Because IBM has all these companies
supplying goods and services cheaper and better than they could do it
themselves, they can make a better computer at a lower cost. This is
called a fracturing of business. When one company can make a better
product by relying on others to perform functions the business used to
do itself, it creates a complex pyramid of companies that serve and
support each other.

This fracturing of American business is now in its second
generation. The companies who supply IBM are now doing the same
thing-outsourcing many of their core services and production process.
As a result, they can make cheaper, better products. Over time, this
pyramid continues to get bigger and bigger. Just when you think it
can't fracture again, it does. Even very small businesses can have a large
pyramid of corporate entities that perform many of its important
functions. One aspect of this trend is that companies end up with fewer
employees and more independent contractors.

This trend has also created two new words in business,
"integrator" and "complementor." At the top of the pyramid, IBM is the
integrator. As you go down the pyramid, Microsoft, Intel and the other
companies that support IBM are the complementors. However, each of the
complementors is itself an integrator for the complementors underneath
it. This has several implications, the first of which is that we are
now getting false readings on the economy. People who used to be employees
are now independent contractors launching their own businesses. There are
many people working whose work is not listed as a job. As a result,
the economy is perking along better than the numbers are telling us.

Outsourcing also confused the numbers. Suppose a company like
General Motors decides to outsource all its employee cafeteria functions
to Marriott (which it did). It lays off hundreds of cafeteria workers,
who then get hired right back by Marriott. The only thing that has
changed is that these people work for Marriott rather than GM. Yet, the
headlines will scream that America has lost more manufacturing jobs.
All that really happened is that these workers are now reclassified as
service workers. So the old way of counting jobs contributes to false
economic readings. As yet, we haven't figured out how to make the
numbers catch up with the changing realities of the business world.

Another implication of this massive restructuring is that
because companies are getting rid of units and people that used to work
for them, the entity is smaller. As the companies get smaller and more
efficient, revenues are going down but profits are going up. As a
result, the old notion that revenues are up and we're doing great isn't
always the case anymore. Companies are getting smaller but are becoming
more efficient and profitable in the process.

IMPLICATIONS OF THE FOUR TRANSFORMATIONS

1. The War in Iraq

In some ways, the war is going very well. Afghanistan and Iraq
have the beginnings of a modern government, which is a huge step
forward. The Saudis are starting to talk about some good things, while
Egypt and Lebanon are beginning to move in a good direction.

A series of revolutions have taken place in countries like
Ukraine and Georgia. There will be more of these revolutions for an
interesting reason. In every revolution, there comes a point where the
dictator turns to the general and says, "Fire into the crowd." If the
general fires into the crowd, it stops the revolution. If the general
says "No," the revolution is over. Increasingly, the generals are
saying "No" because their kids are in the crowd.

Thanks to TV and the Internet, the average 18-year old outside
the U.S. is very savvy about what is going on in the world, especially
in terms of popular culture. There is a huge global consciousness, and
young people around the world want to be a part of it. It is
increasingly apparent to them that the miserable government where they
live is the only thing standing in their way. More and more, it is the
well-educated kids, the children of the generals and the elite, who are
leading the revolutions.

At the same time, not all is well with the war. The level of
violence in Iraq is much worse and doesn't appear to be improving. It's
possible that we're asking too much of Islam all at one time. We're
trying to jolt them from the 7th century to the 21st century all at
once, which may be further than they can go. They might make it and
they might not.

Nobody knows for sure. The point is, we don't know how the war
will turn out. Anyone who says they know is just guessing.

The real place to watch is Iran. If they actually obtain
nuclear weapons it will be a terrible situation. There are two ways to
deal with it. The first is a military strike, which will be very
difficult. The Iranians have dispersed their nuclear development
facilities and put them underground. The U.S. has nuclear weapons that
can go under the earth and take out those facilities, but we don't want
to do that. The other way is to separate the radical mullahs from the
government, which is the most likely course of action.

Seventy percent of the Iranian population is under 30. They are
Moslem but not Arab. They are mostly pro-Western. Many experts think
the U.S. should have dealt with Iran before going to war with Iraq. The
problem isn't so much the weapons, it's the people who control them. If
Iran has a moderate government, the weapons become less of a concern.

We don't know if we will win the war in Iraq. We could lose or
win. What we're looking for is any indicator that Islam is moving into
the 21st century and stabilizing.

part 2 of 3

[refrigeration mafia]

2. China

It may be that pushing 500 million people from farms and
villages into cities is too much too soon. Although it gets almost no
publicity, China is experiencing hundreds of demonstrations around the
country, which is unprecedented. These are not students in Tiananmen
Square. These are average citizens who are angry with the government
for building chemical plants and polluting the water they drink and the air
they breathe.

The Chinese are a smart and industrious people. They may be
able to pull it off and become a very successful economic and military
superpower. If so, we will have to learn to live with it. If they want
to share the responsibility of keeping the world's oil lanes open,
that's a good thing. They currently have eight new nuclear electric
power generators under way and 45 on the books to build. Soon, they
will leave the U.S. way behind in their ability to generate nuclear power.

What can go wrong with China? For one, you can't move 550
million people into the cities without major problems. Two, China
really wants Taiwan, not so much for economic reasons, they just want it.
The Chinese know that their system of communism can't survive much longer
in the 21st century. The last thing they want to do before they morph into
some sort of more capitalistic government is to take over Taiwan.

We may wake up one morning and find they have launched an
attack on Taiwan. If so, it will be a mess, both economically and
militarily. The U.S. has committed to the military defense of Taiwan.
If China attacks Taiwan, will we really go to war against them? If the
Chinese generals believe the answer is no, they may attack. If we don't
defend Taiwan, every treaty the U.S. has will be worthless. Hopefully,
China won't do anything stupid.

3. Demographics

Europe and Japan are dying because their populations are aging
and shrinking. These trends can be reversed if the young people start
breeding. However, the birth rates in these areas are so low it will
take two generations to turn things around. No economic model exists
that permits 50 years to turn things around. Some countries are
beginning to offer incentives for people to have bigger families. For
example, Italy is offering tax breaks for having children. However,
it's a lifestyle issue versus a tiny amount of money. Europeans aren't
willing to give up their comfortable lifestyles in order to have more
children.

In general, everyone in Europe just wants it to last a while
longer. Europeans have a real talent for living. They don't want to
work very hard. The average European worker gets 400 more hours of
vacation time per year than Americans. They don't want to work and they
don't want to make any of the changes needed to revive their economies.

The summer after 9/11, France lost 15,000 people in a heat
wave. In August, the country basically shuts down when everyone goes on
vacation.

That year, a severe heat wave struck and 15,000 elderly people
living in nursing homes and hospitals died. Their children didn't even
leave the beaches to come back and take care of the bodies. Institutions
had to scramble to find enough refrigeration units to hold the bodies until
people came to claim them.

This loss of life was five times bigger than 9/11 in America,
yet it didn't trigger any change in French society. When birth rates
are so low, it creates a tremendous tax burden on the young. Under those
circumstances, keeping mom and dad alive is not an attractive option.

That's why euthanasia is becoming so popular in most European
countries. The only country that doesn't permit (and even encourage)
euthanasia is Germany, because of all the baggage from World War II.

The European economy is beginning to fracture. The Euro is
down. Countries like Italy are starting to talk about pulling out of
the European Union because it is killing them. When things get bad
economically in Europe, they tend to get very nasty politically. The
canary in the mine is anti-Semitism. When it goes up, it means trouble
is coming. Current levels of anti-Semitism are higher than ever.
Germany won't launch another war, but Europe will likely get shabbier, more
dangerous and less pleasant to live in.

Japan has a birth rate of 1.3 and has no intention of bringing
in immigrants. By 2020, one out of every five Japanese will be 70 years
old. Property values in Japan have dropped every year for the past 14
years. The country is simply shutting down.

In the U.S. we also have an aging population. Boomers are
starting to retire at a massive rate. These retirements will have
several major impacts:

Possible massive sell-off of large four-bedroom houses and a
movement to condos.

An enormous drain on the treasury. Boomers vote, and they want
their benefits, even if it means putting a crushing tax burden on their
kids to get them. Social Security will be a huge problem. As this
generation ages, it will start to drain the system. We are the only
country in the world where there are no age limits on medical
procedures. An enormous drain on the health care system. This will also
increase the tax burden on the young, which will cause them to delay
marriage and having families, which will drive down the birth rate even
further.

Although scary, these demographics also present enormous
opportunities for products and services tailored to aging populations.
There will be tremendous demand for caring for older people, especially
those who don't need nursing homes but need some level of care. Some
people will have a business where they take care of three or four
people in their homes. The demand for that type of service and for products to
physically care for aging people will be huge.

Make sure the demographics of your business are attuned to
where the action is. For example, you don't want to be a baby food
company in Europe or Japan. Demographics are much underrated as an
indicator of where the opportunities are. Businesses need customers. Go
where the customers are.

4. Restructuring of American Business

The restructuring of American business means we are coming to
the end of the age of the employer and employee. With all this
fracturing of businesses into different and smaller units, employers
can't guarantee jobs anymore because they don't know what their
companies will look like next year. Everyone is on their way to
becoming an independent contractor. The new workforce contract will be,
a show up at the my office five days a week and do what I want you to do,
but you handle your own insurance, benefits, health care and everything else.

Husbands and wives are becoming economic units. They take
different jobs and work different shifts depending on where they are in
their careers and families. They make tradeoffs to put together a
compensation package to take care of the family. This used to happen
only with highly educated professionals with high incomes. Now it is
happening at the level of the factory floor worker. Couples at all
levels are designing their compensation packages based on their
individual needs. The only way this can work is if everything is
portable and flexible, which requires a huge shift in the American
economy.

The U.S. is in the process of building the world's first 21st
century model economy. The only other countries doing this are U.K. and
Australia. The model is fast, flexible, highly productive and unstable
in that it is always fracturing and re-fracturing. This will increase
the economic gap between the U.S. and everybody else, especially Europe
and Japan.

At the same time, the military gap is increasing. Other than
China, we are the only country that is continuing to put money into
their military. Plus, we are the only military getting on-the-ground
military experience through our war in Iraq. We know which high-tech
weapons are working and which ones aren't. There is almost no one who
can take us on economically or militarily. There has never been a
superpower in this position before.

On the one hand, this makes the U.S. a magnet for bright and
ambitious people. It also makes us a target. We are becoming one of the
last holdouts of the traditional Judeo-Christian culture. There is no
better place in the world to be in business and raise children. The
U.S. is by far the best place to have an idea, form a business and put it
into the marketplace. We take it for granted, but it isn't as available
in other countries of the world.

Ultimately, it's an issue of culture. The only people who can
hurt us are ourselves, by losing our culture. If we give up our
Judeo-Christian culture, we become just like the Europeans. The culture
war is the whole ballgame. If we lose it, there isn't another America
to pull us out.

HERBERT MEYER

Herb Meyer served during the Reagan administration as special
assistant to the Director of Central Intelligence and Vice Chairman of
the CIA's National Intelligence Council. In these positions, he managed
production of the U.S. National Intelligence Estimates and other
top-secret projections for the President and his national security
advisers. Meyer is widely credited with being the first senior U.S.
Government official to forecast the Soviet Union's collapse, for which
he later was awarded the U.S. National Intelligence Distinguished
Service Medal, the intelligence community's highest honor. Formerly an
associate editor of FORTUNE, he is also the author of several books.

[slimwoodie]

interesting ...

[MadeinUSA]

interesting ...You would have to say that. Now I am forced to read this long diatribe.

[AIR PRO]

Good read, most of it is 100% accurate as far as I am concerned.

[beenthere]

Long winded document.

[nonknowitall]

Thst seems to be the problem with the American people these days......they wany everything short and sweet!!!:)

[MadeinUSA]

If I am reading this right, it seems people all over the world can not find the hole. :D

[jmac00]

an interesting diatribe.

The author, however, seems to have one MAJOR OMISSION. he completely failed to mention education?

The Chinese may be moving millions of people to there cities, but they are uneducated. Japans population maybe dwindling, but they are some of the best educated people on the planet.

Our business maybe "fracturing" but WE ARE employing the rest of the world.

At some point, overpopulation is going to be a huge problem. You can only fit "X" number of people on a boat (the 'boat' being earth) someone needs to feed all these people. Right now we have 1% of the population feeding 99% of population, that figure is simply going to get much worse, in the next 30 years.

Anyone less than 50 years old today, had better find a "nest egg" to live on, in 20 years. Because in 15 to 20 years SS isn't going to be there, so you better start planning now.

Good luck to all of us, we're going to need it

[sarge]

I was on a 15 hour drive yesterday and I heard similar talk all over the AM dial, Coast to Coast Overnight or something like that. Stuff you don't hear everyday.

[Tool-Slinger]

Thanks for posting that.

[skippedover]

What this says is that everything we do is related to something else in the world. If you hire an educated or educatable immigrant, you're helping our society deal with the world. But frankly, I'm not sure how my little HVAC company fits into this picture. Should I convert all my employees to subcontractors? Does that help? Does it make my company more suvivable as a company? Lots of food for thought.

[absolute air]

This really makes you think...good read.

[Tool-Slinger]

I agree. I especially find the demographics issue disturbing. I do not understand how that can be fixed. I may not agree with the enirety of the post, but is very good information.