US will still be #1 economy in 25 years: Analyst
Investors who want a peek at the global future need to ask a global expert.
George Friedman is the founder of Stratfor, a geopolitical intelligence firm and author of two books about the global future: "The Next Decade" and "The Next 100 Years," New York Times bestsellers.
CNBC sat with Friedman for a Q&A to get his thoughts on the world in 25 years, especially what he foresees for America's future relationships with China, the Middle East and Mexico.
Looking 25 years down the road, economically what country do you think will be the world's largest?
The United States is clearly going to be the leading economic power. We have one tremendous advantage over other advanced industrial countries. Where the Japanese have over 200 people per square mile, the United States happens about 35, not counting Alaska. There're tremendous amounts of room to grow, to increase population, so that while other countries will have declining populations, the United States will actually have increasing population.
We also have a very balanced economy. We have minerals, we have agriculture, we have industrial power. We are still a tremendous industrial power. And when you take a look at all of those things and the fact that we have a massive middle class, I mean, we are in a unique position to grow, and this really began in 1880. It is a trend line. It is the monster trend line that shows no sign of stopping.
The Middle East has been a powder keg for generations. Is that going to change in the next 25 years?
I think what's going to change is American behavior. The United States set a very low threshold for intervention. Its solution for problems in the Middle East has been to use military force first. What is happening now, and it's really going to happen under all administrations, is the bar is going to be set much higher.
There will still be conflicts in the Middle East, between nations. Many countries on the outside will meddle and interfere. But basically, the model that we've had since 1991 and Desert Storm, I think that model is dead, and we're going to be going to a much more hands-off approach in the region.
Military intervention will be the last resort, not the first resort. But also we have to remember that something very important is happening in the American energy markets, which is that we've had a revolution in energy. Our dependence on imports, particularly from the Middle East, has declined. The kind of pressure we felt when Saddam Hussein invaded Kuwait just simply isn't there anymore.
What is China's future in the next 25 years?
Well, let's begin with an understanding that China is an extraordinarily poor country. About 600 million Chinese, according to Chinese statistics, live in households earning less than $2 a day. Another 400 million live in households earning between $2 and $4 a day. That means 1 billion Chinese live in abject poverty. The China we think of, the China where people are earning more than $20,000 a year, well, that China's maybe 60 million people.
It's large, it's the size of France, but it is a tiny fraction of China. And the reality is that China has entered a period of uneven development again where the coastal region—which is far more linked to Wal-Mart than it is to the rest of China—has done relatively well. The interior of China really hasn't participated to a great extent. And more to the point, China's hostage to its customers.
It's an export-oriented economy, and if Wal-Mart isn't buying, if Carrefour isn't buying—the Chinese really can't sell those products in the interior. So China's a country that has had a tremendous bounce—of course, because it bounced back from Maoism where China was shattered. It has done magnificently well in the past 30 years, recovering.
Now it's hitting the hard part. And that hard part is going to mean a lot of internal tensions, much slower growth, and we shouldn't criticize China for this. They're just returning to being a normal country, like Japan did before them.
What about Mexico? You've talked about it being a rising economic force.
Well, Mexico's become the 13th- or 14th-largest economy in the world. The area north of Mexico City has boomed like nothing you've ever seen. Go down to the town Aguascalientes and you'll be stunned that you are in a vast industrial economy. Many Americans have missed this. They've focused on in the drug dealers along a strip in northern Mexico. They think of Mexico as they did 30 or 40 years ago. It was a backward country.
Mexico has become a place that no longer exports workers to the United States. That's yesterday's news. There are plenty of jobs in Mexico. They're actually drawing in immigrants from Guatemala. They have their own immigrant problem. It is an important thing to understand that the traditional American understanding of Mexico and the one we've developed in the past years of the drugs wars is utterly insufficient. Not wrong, just insufficient.
So one of the ways to really think about Mexico is as an industrial powerhouse. Because right now, Mexican labor costs less than Chinese. The second thing that you have to think about is it does have energy. It is sorting through how to monetize it, how it's going to be organized socially and politically, whether it's even needed in the context of Canada and the United States.
Mexico also has an area south of Mexico City that is truly Third World, where as China becomes too expensive for low-level production, Mexico becomes very attractive. And it can export to the United States. So I see a very balanced economy developing there. It has some political decisions to make, some political stability issues, but Mexico is in much better condition than China was in 1980.
—By CNBC's Ted Kemp, with reporting by Michelle Caruso-Cabrera.
Editor's note: This feature is part of a series of articles and additional coverage that CNBC will be rolling out over the year as the network celebrates its 25th anniversary by looking ahead to the next 25 years.