I see two large global trends unfolding in the 2010s: 1) developing countries trying to move their population out of poverty and 2) developed countries trying to prevent their people from falling into poverty.

Let’s start with the wealthy countries.

Right now OECD nations are running huge deficits, trying to restart their economies. I see deficits as the electrical engine that starts the combustion engine. If you run them for too long your battery dies and your engine never starts. Most countries are trying to restart their engines since the ’08 crash, but some are doing better than others. The outcome of their Keynesian policies will have a big impact on what happens this decade. Some will stall and have a flat 10 years. Some will grow. In Europe, a North and South bifurcation is unfolding with Northern Europe looking better prepared for this decade. Southern Europe is stalling. Spain is a case in point. Even though Spain has been running 11% deficits, Spain’s only achievement so far has been to stop shrinking, with unemployment stuck at an abysmal 20%. I see Spain running out of battery and in desperate need to implement reforms. But I also see populist Zapatero unable to freeze government salaries, for example, for fear of not being reelected. As a result, markets are losing trust in Spain. Same is true of Portugal and Greece. Italy has similar problems but with the unusual circumstance that the Italians are surprisingly willing to buy their own debt.

I see a big split between Northern and Southern Europe in policy making, with Northern Europe having done the labor reforms that are needed to stay competitive and grow over this decade, and Southern European populist leaders unable to implement these changes. Germany is an interesting case as it has a huge savings rate and started a smart program of subsidizing companies to retain workers as it figured out that that was cheaper than paying them unemployment benefits. In Germany, unemployment has stayed at reasonable levels. Germany’s export led economy stands to benefit the most from Asian growth this decade.

As far as the US is concerned, the key challenge of the decade is to reduce deficits. I see military spending as the low hanging fruit, and sooner or later Obama will get that. Greece, btw, exploded because they spend 4% of GDP on the military with this absurd fear of Turkey. This is completely out of line with the rest of Europe and is what made them go under. Spain spends 1.8%. So a Greece that tries to create a European style welfare state, plus spend 4% of GDP on the military, goes bust. The key to Europe’s welfare has been to spend what the USA spends on the military in education and health. You can’t have US style military spending and a welfare state. But the US most likely will get into a Clinton like balance-the-budget mentality during this decade, get its house in order and continue to grow at 3% rates. That will help the world. US companies will also continue to benefit from the ever rising global middle class.

In this decade, China will continue to grow because the Chinese still have as many people as the USA and Europe put together – say 700 million – to bring into the middle class. Their neighbors, Korea and Japan, did it in the ’60s and ’70s: while they brought most of their population into the middle class, these countries grew tremendously then slowed. I think that China has 30 years of growth left. Countries like Brazil, Argentina and other food exporters have grown thanks to China. China will continue to provide growth to the rest of the world and will do so with rising importance. We are lucky to have them. China has a long way to go until all of China is, say, like Hong Kong or Taiwan. I also think the Chinese will not destabilize the world as the Americans do, they don’t particularly pick fights nor do they respond to them like the USA does when provoked. The Chinese are pragmatists. They keep their cool. They are able to deal with nut cases like the North Koreans and the Iranians in ways we can’t. They call their bluff. They don’t feed the trolls as we say in the internet. Instead, the Chinese get what they want out of them. In the case of the Iran oil and an export market. Yes, the Chinese have their own absurd problems, like Falung Gong. These are mystifying. But they don’t lose their calm over them. And they are smart about not invading Taiwan and getting what they want over time. Paradoxically it helps that their leaders stay in power for generations as they can think of the consequence of their actions in generations. Yes, China could become a trouble making military power like USA if it stopped growing and Communists wanted to preserve themselves through nationalism a la Argentine military in the ’80s. But I give that a 10% in the next 10 years.

And then there are India, Brazil, Mexico, Russia, and the rest of the Asian tigers put together.

As a group, in size and policies, I see them as a second China. They all have the majority of their population living in sub par conditions and they all adopted the Chinese formula of inequitable fast growth. These countries have a tolerance for injustice that Europe and even USA do not have and therefore can grow without building a welfare state, something that would slow them down. I see this group of countries adding a few hundred million to the middle classes of the world.

Lastly, there is the issue of highly disruptive events.

I give the chance of any of the ones in the list happening 10%. Of each one less than 2%. Here are some depressing yet realistic examples of what may happen this decade:

-nuclear or bio terrorist attack by Muslims in the US, Russia or China. Interestingly, all three powers suffer from Islamic terrorism.

-nuclear missile fired against Israel, or Israeli Muslim conflict with nuclear weapons.

-Sunni Shia conflict with nuclear weapons.

-India Pakistan war.

-restart of the Korean war with nuclear weapons.

-a US credit type bubble in China that stalls the economy.

-virus pandemic.

-climate change created natural tragedy.

So my summary is that we have a 80% chance of the 2010s being a decade of global growth fueled by hundreds of millions escaping poverty and creating markets for everyone else very much like the ’00s. We have a 10% chance of things going seriously wrong with the global economy, probably starting in China, and also we have 10% chance of things going seriously wrong because of terrorism or other conflict.

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Gerard Cunningham on May 9, 2010  · 

I’m betting you mean a climate change created natural tragedy that affects a rich country. Somehow the news of yet more flooding on an unpronounceable foreign shore doesn’t seem to matter so much.

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Martin Varsavsky on May 9, 2010  · 

Climate change related tragedy anywhere but of big proportions is what I meant. But in general I think that the 2010s will be the decade in which growth in LDCs saves DCs.

Aldo on May 9, 2010  · 

Paul Krugman kindly disagrees with your views. Nobel Prize in hand.

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Martin Varsavsky on May 9, 2010  · 

Aldo that is interesting because I will soon spend a day with him. Will ask him where he disagrees. Thanks for alerting me.

Polac on May 9, 2010  · 

In addition to your disruptive events, let me add the volcanic nightmare category to your list.

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federico on May 9, 2010  · 

i usually think you are way to optimistic. but i totally agree with you this time
me salio la frase muy teen yankee creo je saludos desde argentina
the future is in biotechnology and russia. russia has land resources money and brains.
i like india and australia also

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Jordi Vallejo on May 10, 2010  · 

Great work! Interesting to see that you talk more about China than any other country/area in the World. Don’t you think there is an increasing risk of internal un-stabilization in China? Even thought China growth is still astonishing for the west people are loosing their jobs at the high development areas and being forced to go back to their remote villages, the feeling of prosperity is now getting harder to maintain by the gov even with their complete control of the media. BTW I’m hopping to be wrong.

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