The Next Decade: Where We've Been and Where We're Going

Chapter 13 THE TECHNOLOGICAL AND DEMOGRAPHIC IMBALANCE

This book is about the imbalances of American power in the next decade and the effect of these imbalances on the world. I’ve focused on economic and geopolitical issues and made the argument that imbalances here are transitory and can be corrected. But the book would be incomplete without a consideration of two other major issues impinging on the decade ahead, namely demography and technology.

Economic cycles—boom and bust—can be driven by speculation and financial manipulation, as was the decade just ending. But at a deeper level, economic expansion and contraction are driven by demographic forces and by technological innovation.

During the decade to come, we will see the ebbing of the demographic tide that helped to drive the prosperity of the immediate postwar period. The age cohort known as the baby boom—the children born during the Truman and Eisenhower administrations—will be in their sixties, beginning to retire, beginning to slow down, beginning to get old. As a result, the same demographic bulge that helped create abundance a half century ago will create an economic burden in the years ahead.

In the 1950s, the baby boomers helped create demand for millions of strollers, tract houses, station wagons, bicycles, and washer-dryers. During the 1970s, they began to seek work in an economy not yet ready for them. As they applied for jobs, married and had children, bought and borrowed, their collective behavior caused interest rates, inflation, and unemployment to rise.

As the economy absorbed these people in the 1980s and as they matured in the 1990s, the boomers pushed the economy to extraordinary levels of growth. But during the next ten years, the tremendous spurts of creativity and productivity that the boomers brought to American life will draw down, and the economy will start feeling the first rumblings of the demographic crisis. The passing of the baby boomers throws into sharp relief an accompanying crisis in technological innovation that ultimately may be more salient. As the boomers age, not only will their consumption soar and their production disappear, but they will require heath care and end-of-life care at a level never seen before.

The next decade will be a period in which technology lags behind needs. In some cases, existing technologies will reach the limits of how far they can be stretched, yet replacement technologies will not be in the pipeline. Which isn’t to say that there won’t be ample technological change; electric cars and new generations of cell phones will abound. What will be in short supply are breakthrough technologies to solve emerging and already pressing needs, the kinds of breakthroughs that drive real economic growth.

The first problem is financial, because the development of radically new technologies is inherently risky, both in terms of implementing new concepts and in terms of matching the product to the market. The financial crisis and recession of 2008–2010 reduced the amount of capital that is available for technological development, along with the appetite for risk. The first few years of the next decade will be marked not only by capital shortages but by a tendency to deploy available capital in low-risk projects, with the available dollars flowing to more established technologies. This will ease up globally in the second half of the decade, and sooner in places like the United States. Nevertheless, given the lead time in technology development, the next generation of notable technological breakthroughs won’t emerge until the 2020s.

The second problem in this rate of innovation, oddly enough, lies with the military. In the nineteenth century, the development of the steam engine and the development of the British navy (and its imperial reach) moved hand in hand. In the twentieth century, the United States was the engine of global technological development, and much of that innovation was funded and driven by military acquisitions, and almost all of that had some spin-off civilian application. The development of both aircraft and radios was heavily subsidized by the military and resulted in the subsequent birth of the airline industry and the broadcasting industry. The interstate highway system was first conceived of as a military project to facilitate the rapid movement of troops in case of Soviet attack or nuclear catastrophe. The microchip was developed for use in the small digital computers that guided both nuclear missiles and the rockets needed to put payloads in space. And of course the Internet, which entered public consciousness in the 1990s, began as a military communications project in the 1960s.

Wars are times of intense technological transformation, because societies invest—sometimes with extensive borrowing—when and where matters of life and death are at stake. The U.S.-jihadist war has driven certain developments in unmanned surveillance and attack aircraft as well as in database technology, but the profound transformations of World War II (radar, penicillin, the jet engine, nuclear weapons) and the Cold War (computers, the Internet, fiber optics, advanced materials) are lacking. The reason is that ultimately the conflicts in Afghanistan and Iraq are light-infantry wars that have required extrapolations of existing technologies but few game-changing innovations.

As funding for these wars dries up, research and development budgets will take the first hits. This is a normal cycle in American defense procurement, and growth will not resume until new threats are identified over the next three to four years. With few other countries working on breakthrough military technologies, this traditional driver of innovation will not begin bearing civilian fruit until the 2020s and beyond.

The sense of life or death that should drive technological innovation in the coming decade is the crisis in demographics and its associated costs. The decline in population that I wrote about in The Next 100 Years will begin to makes its appearance in a few places in this decade. However, its precursor—an aging populace—will become a ubiquitous fact of life. The workforce will contract, not only as a function of retirement but as increasing educational requirements keep people out of the market until their early or mid-twenties.

Compounding the economic effects of a graying population will be an increasing life expectancy coupled with an attendant increase in the incidence of degenerative diseases. As more people live longer, Alzheimer’s disease, Parkinson’s disease, debilitating heart disease, cancer, and diabetes will become an overwhelming burden on the economy as more and more people require care, including care that involves highly sophisticated technology.

Fortunately, the one area of research that is amply funded is medical research. Political coalitions make federal funding sufficiently robust to move from basic research to technological application by the pharmaceutical and biotech industries. Still, the possibility of imbalance remains. The mapping of the genome has not provided rapid cures for degenerative diseases, nor has anything else, so over the next ten years the focus will be on palliative measures.

Providing such care could entail labor costs that will have a substantial drag on the economy. One alternative is robotics, but the development of effective robotics depends on scientific breakthroughs in two key areas that have not evolved in a long time: microprocessors and batteries. Robots that can provide basic care for the elderly will require tremendous amounts of computing power as well as enhanced mobility, yet the silicon chip is reaching the limits of miniaturization. Meanwhile, the basic programs needed to guide a robot, process its sensory inputs, and assign tasks can’t be supported on current computer platforms. There are a number of potential solutions, from biological materials to quantum computing, but work in these areas has not moved much beyond basic research.

Two other converging technological strands will get bogged down in the next decade. The first is the revolution in communications that began in the nineteenth century. This revolution derived from a deepening understanding of the electromagnetic spectrum, a scientific development driven in part by the rise of global empires and markets. The telegraph provided near-instantaneous communications across great distances, provided that the necessary infrastructure—telegraph lines—was in place. Analog voice communications in the form of the telephone followed, after which infrastructure-free communications developed in the form of wireless radio. This innovation subsequently divided into voice and video (television), which had a profound effect on the way the world worked. These media created new political and economic relations, allowing both two-way communications and centralized broadcast communications, a “one to many” medium that carried implicitly great power for whoever controlled the system. But the hegemony of centralized, one-to-many broadcasting has come to an end, overtaken by the expanded possibilities of the digital age. The coming decade marks the end of a sixty-year period of growth and innovation in even this most advanced and disruptive digital technology.

The digital age began with a revolution in data processing required by the tremendous challenges of personnel management during World War II. Data on individual soldiers was entered as nonelectronic binary code on computer punch cards for sorting and identification. After the war, the Defense Department pressed the transformation of this primitive form of computing into electronic systems, creating a demand for massive mainframes built around vacuum tubes. These mainframes entered the civilian market largely through the IBM sales force, serving businesses in everything from billing to payrolls.

After development of the transistor and the silicon-based chip, which allowed for a reduction in the size and cost of computers, innovation moved to the West Coast and focused on the personal computer. Whereas mainframes were concerned primarily with the manipulation and analysis of data, the personal computer was primarily used to create electronic analogs of things that already existed—typewriters, spreadsheets, games, and so on. This in turn evolved into handheld computing devices and computer chips embedded in a range of appliances.

In the 1990s, the two technological tributaries, communications and data, merged into a single stream, with information in electronic binary form that could be transmitted by way of existing telephone circuits. The Internet, which the Defense Department had developed to transmit data between mainframe computers, quickly adapted to the personal computer and the transmission of data over telephone lines using modems. The next innovation was fiber optics for transmitting large amounts of binary data as well as extremely large graphics files.

With the advent of graphics and data permanently displayed on websites, the transformation was complete. The world of controlled, one-to-many broadcasting of information had evolved into an infinitely diffuse system of “many to many” narrowcasting, and the formally imposed sense of reality provided by twentieth-century news and communications technology became a cacophony of realities.

The personal computer had become not only a tool for carrying out a series of traditional functions more efficiently but also a communications device. In this it became a replacement for conventional mail and telephone communications as well as a research tool. The Internet became a system that combined information with sales and marketing, from data on astronomy to the latest collectibles on eBay. The Web became the public square and marketplace, tying mass society together and fragmenting it at the same time.

The portable computer and the analog cell phone had already brought mobility to certain applications. When they merged together in the personal digital assistant, with computing capability, Internet access, and voice and text messaging, plus instant synchronization with larger personal computers, we achieved instantaneous, global access to data. When I land in Sydney or Istanbul, my BlackBerry instantly downloads my e-mail from around the world, then enables me to read the latest news as the plane taxis to the gate. The revolution in communications has reached an extreme point.

We are now at an extrapolative and incremental state in which the primary focus is on expanding capacity and finding new applications for technology developed years ago. This is a position similar to the plateau reached by personal computers at the end of the dot-com bubble. The basic structure was in place, from hardware to interface. Microsoft had created a comprehensive set of office applications, wireless connectivity had emerged, e-commerce was up and running at Amazon and elsewhere, and Google had launched its search engine. But it is very difficult to think of a truly transformative technological breakthrough that occurred in the past ten years. Instead of breaking new ground, the focus has been on evolving new applications, such as social networking, and on moving previous capabilities to mobile platforms. As the iPad demonstrates, this effort will continue. But ultimately, this is rearranging the furniture rather than building a new structure. Microsoft, which transformed the economy in the 1980s, is now a fairly staid corporation, protecting its achievements. Apple is inventing new devices that make what we already do more efficient. Google and Facebook are finding new ways to sell advertising and make a profit on the Internet.

Radical technological innovation has been replaced by a battle for market share—finding ways to make money by introducing small improvements as major events. Meanwhile, the dramatic increases in productivity once driven by technology, which helped in turn to drive the economy, are declining, which will have a significant impact on the challenges we face in the decade ahead. With basic research and development down and corporate efforts focused on making incremental improvements in the last generation’s core technology, the primary global growth impetus is limited to putting existing technologies into the hands of more people. Since the sale of cell phones has reached the saturation point already and corporations are reluctant to invest in unnecessary upgrades, this is a problematic prescription for growth.

This is not to say that the world of digital technology is moribund. But computing is still essentially passive, restricted to manipulating and transmitting data. The next and necessary phase is to become active, using that data to manipulate and change reality, with robotics as a primary example. Moving to that active phase is necessary for achieving the huge boost in productivity that will compensate for the economic shifts associated with the demographic change about to hit.

The U.S. Defense Department has been working on military robots for a long time, and the Japanese and South Koreans have made advances in civilian applications. However, much scientific and technological work remains to be done if this technology is to be ready when it will be urgently needed, in the 2020s.

Even so, relying on robotics to solve social problems simply begs another vexing question, which is how we are to power these machines. Human labor by itself is relatively low in energy consumption. Machines emulating human labor will use large amounts of energy, and as they proliferate in the economy (much as personal computers and cell phones did), the increase in power consumption will be enormous.

Questions of powering technological innovation in turn raise the great and heated debate about whether the increased use of hydrocarbons is affecting the environment and causing climate change. While this question engages the passions, it really isn’t the most salient issue. The question of climate change raises two others that demand astute presidential leadership: first, is it possible to cut energy use? and second, is it possible to continue growing the economy using hydrocarbons, and particularly oil?

There is an expectation built into public policy that says it is possible to address the issue of energy use through conservation. But much of the recent growth of energy consumption has come from the developing world, which makes solving the problem by cutting back wishful thinking at best.

The newly industrialized countries in Asia and Latin America are not about to cut their energy use in order to solve energy issues or prevent certain island nations from being inundated by the rising waters of warmer seas. From their point of view, conservation would relegate them permanently to the Third World status they have fought long and hard to escape. In their view, the advanced industrial world of the United States, western Europe, and Japan should cut its energy use in order to compensate for over a century of profligate consumption.

In 2010 there was a summit in Copenhagen to address the question of energy use, or, more precisely, carbon dioxide emissions. The proposal was made to cut emissions. At a time when energy consumption is growing, cutting emissions at all poses a significant challenge. Except for a dramatic new source of energy, that sort of cut can be reached only by substantial decreases in fossil fuel consumption. Riding your bicycle to work and careful recycling will not do it.

The Copenhagen initiative collapsed because it was politically unsustainable. None of the leaders of the advanced industrial world could possibly persuade the public to accept the significant cuts in standard of living that reducing fossil fuel use would have required. For people to balk is not irrational. They are measuring a certainty against a probability. The certainty is that their lives would be significantly constrained by such reductions in consumption, which would lead to widespread economic dislocation. The probability—which is questioned by some—is that climate change will occur, with equally devastating results. That the change in the climate will be harmful rather than beneficial might well be true. But the question is whether the probable or possible effects on children and grandchildren outweigh the certainty of immediate consequences. This may be an unpleasant fact, but it explains the outcome of the Copenhagen and Kyoto meetings on climate change that failed to successfully develop strategies for reducing greenhouse emissions.

For the next decade, the assumption must be that energy use will continue to surge, and thus the issue is not whether to cut fossil fuel consumption but whether there will be enough fossil fuels to deal with rising demand. Nonfossil fuels cannot possibly come on line fast enough to substitute for energy use in the short term. It takes well over ten years to build a nuclear power plant. Wind and water power could manage only a small fraction of consumption. The same is true of solar power. For the decade ahead, whatever long-term solutions might exist, the problem is going to be finding the fuel for rising energy use while, ideally, restricting increases in carbon output.

Energy use falls into four broad categories: transportation, electrical generation, industrial uses, and nonelectrical residential uses (heating and air-conditioning). Over the next decade, energy for transportation will continue to be petroleum-based. The cost of shifting the existing global fleet to another energy source is prohibitive and won’t happen within ten years. Some transportation will shift to electrical, but that simply moves fossil fuel consumption from the vehicle to the power station. Electrical generation is more flexible, as it accepts oil, coal, and natural gas. The same is possible for industrial uses. Home heating and air-conditioning can be converted, at some cost.

There is talk of global oil output having reached its historic high and now being in decline. Certainly oil production has moved to less and less hospitable areas, such as the deep waters offshore and shale, which require relatively expensive technology. That tells us that even if oil extraction has not reached its peak, all other things being equal, oil prices will continue to rise. Offshore drilling has cost and maintenance problems. As we saw with the recent BP disaster off the coast of Louisiana, an accident happening a mile under water is hard to fix. But even apart from environmental damage, wells are very expensive. Shale installations are expensive as well, and when the price of oil falls below a certain point, extraction becomes uneconomical and the investment is tied up or lost. But leaving aside broader questions of peak prices, the increased energy consumption we will see over the next decade cannot be fueled by oil, or at least not entirely.

That leaves two choices for the ten years ahead. One is coal; the other is natural gas. Widespread conservation sufficient to reduce energy consumption in absolute terms is not going to happen in the United States, let alone the world as a whole. The ability to produce more oil is limited, and the vulnerabilities in an oil economy to interdictions by countries such as Iran make it a very risky proposition. The ability of alternative energy sources to have a decisive impact in this decade is minimal at best. No nuclear power plant started now will be operational in five or six years. But a choice between more coal and more natural gas is not the choice the president will want to make. He will want a silver bullet of rapid availability, no environmental impact, and low cost. In this decade, however, he will be forced to balance what is needed against what is available. In the end, he will pick both, with natural gas having the greater surge.

The application of hydraulic fracturing, or fracking, to the production of natural gas opens the possibility of dramatic increases in energy availability. What this technology does is to recover natural gas from up to three miles beneath the earth’s surface, where it is contained in rock so compressed that it does not release the gas. Fracturing the rock allows the gas to pool and be recovered, but this method, like all energy production on earth, carries environmental risks. Its virtue for the United States is that there are ample domestic supplies, and thus reliance on this source of energy reduces the chance of war. Natural gas readily substitutes for many uses of petroleum and in many cases at relatively low cost. This reduces the need to import oil, which in turn reduces the possibility that a foreign power will blockade the oil, thus triggering a war.

Fracking technology also makes it possible to get at enough quantities of natural gas in a short enough period of time to control the cost and availability of energy during this decade. We would expect other technologies to become available fifty or sixty years from now, but in the next ten years, the options come down to coal and gas.

This will be a time for addressing problems that have not yet turned into crises and for searching out solutions that do not yet exist. Consider the problem of water availability. Increased industrialization, along with a still-growing population enjoying higher standards of living, is already creating regional water shortages. These depletions have sometimes created political confrontations between nations that might well mature into wars. Add to this the possibility that climate change might alter weather patterns and that those changes might reduce rainfall in populated areas, and the problem could become a crisis.

There is, of course, no water shortage. The water is simply mixed with salt and inconveniently located, but it exists in staggeringly vast quantities. The technology needs improvement, but we do know how to desalinate water. We also know how to transport water in pipelines. The problem is that desalination and water transportation are both hugely expensive and require enormous amounts of energy. That sort of energy will not be found in available solutions. As I said in The Next 100 Years, we will need space-based solar generation or other very radical approaches to increase available energy by orders of magnitude.

When we look at the major problems we have to solve, such as aging population, contracting workforce, and lack of water, we find a consistent pattern. First, the problem is emerging in this decade, but it will not become an unbearable burden until later. Second, the technologies to deal with it—from cures for degenerative diseases to robotics to desalination—either exist or can be conceived of, but are not yet fully in place. Third, implementing almost all of them (save the cure for degenerative diseases) requires both a short-term solution for energy and a long-term solution.

The danger is that the problem and the solution will become unbalanced—that the problem will get to the crisis stage before the technical solutions come on line. The task of the president in addressing these issues in the next decade is not dramatic. It will be to facilitate short-term solutions while laying the groundwork for longer-term solutions and, above all, to do both rather than just one. The temptation will be to look at the long-term solution and pretend that the problem will wait or that the solution will arrive faster than it can. Long-term solutions are more attractive and cause much less controversy than short-term solutions, which will affect people who are still alive and voting. The problem that presidents in this decade will have is that the crisis won’t happen on their watch but in the decade that follows. The temptation to punt the issue will be substantial. This is where another drop of wisdom from Machiavelli becomes especially important: successful rulers want to do more than rule, they want to be remembered for all time. John Kennedy didn’t have time to do much, but we all remember his decision to go to the moon.

In the short term, the most crucial problem is to lay the groundwork for the energy requirements of the next decade. To do this, two things must happen. The president must choose the balance between the two available fossil fuels, coal and gas. Then he must tell the people that these are the only choices. If he fails to persuade the public of this, there will not be energy for the technologies that will emerge in the next decade. He must, of course, frame his argument within the context of global warming, climate change, and the desire to protect all species. The environmental movement has supported Obama, and every president must maintain his political base. But while appealing to his green constituents, he must make the case for enhanced natural gas and coal use for the generation of electricity. He may well be able to frame his appeal in terms of more electric cars, but however he makes it, this is his task. Otherwise, he will be seen as having neglected a crisis that he could foresee.

At the same time he must prepare for long-term increases in energy generation from nonhydrocarbon sources—sources that are cheaper and located in areas that the United States will not need to control by sending in armies. In my view, this is space-based solar power. Therefore, what should be under way, and what is under way, is private-sector development of inexpensive booster rockets. Mitsubishi has invested in space-based solar power to the tune of about $21 billion. Europe’s EAB is also investing, and California’s Pacific Gas and Electric has signed a contract to purchase solar energy from space by 2016, although I think fulfillment of that contract on that schedule is unlikely.

However, whether the source is space-based solar power or some other technology, the president must make certain that development along several axes is under way and that the potential for building them is realistic. Enormous amounts of increased energy are needed, and the likely source of the technology, based on history, is the U.S. Department of Defense. Thus the government will absorb the cost of early development and private investment will reap the rewards.

We are in a period in which the state is more powerful than the market, and in which the state has more resources. Markets are superb at exploiting existing science and early technology, but they are not nearly as good in basic research. From aircraft to nuclear power to moon flights to the Internet to global positioning satellites, the state is much better at investing in long-term innovation. The government is inefficient, but that inefficiency and the ability to absorb the cost of inefficiency are at the heart of basic research. When we look at the projects we need to undertake in the coming decade, the organization most likely to execute them successfully is the Department of Defense.

There is nothing particularly new in this intertwining of technology, geopolitics, and economic well-being. The Philistines dominated the Levantine coast because they were great at making armor. To connect and control their empire, the Roman army built roads and bridges that are still in use. During a war aimed at global domination, the German military created the foundation of modern rocketry; in countering, the British came up with radar. Leading powers and those contending for power constantly find themselves under military and economic pressure. They respond to it by inventing extraordinary new technologies.

The United States is obviously that sort of power. It is currently under economic pressure but declining military pressure. Such a time is not usually when the United States undertakes dramatic new ventures. The government is heavily funding one area we have discussed, finding cures for degenerative diseases. The Department of Defense is funding a great deal of research into robotics. But the fundamental problem, energy, has not had its due. For this decade, the choices are pedestrian. The danger is that the president will fritter away his authority on projects such as conservation, wind power, and terrestrial solar power, which can’t yield the magnitude of results required. The problem with natural gas in particular is that it is pedestrian.

But like so much of what will take place in this decade, accepting the ordinary and obvious is called for first—followed by great dreams quietly expressed.