The 2030 Non-state World

Several weeks ago we started looking at the alternative world scenarios as projected by the National Intelligence Council (NIC). The NIC issues a long-term strategic outlook every five years and projects a forecast from this analysis for the following 15-20 years. In the most recent report, Global Trends 2030, the NIC proposes four alternative world scenarios. We are now turning to the last projected outlook, the Non-state World. Under this scenario non-state actors aided by emerging technologies will have increasing influence, as the importance of traditional nation-states decays. We have covered the worst case scenario, the Stalled Engines, under which conflicts are forecast to rise as the U.S. moves slowly out of the global superpower role. We have also looked at the best case scenario, Fusion, under which the U.S., China and the Eurozone cooperate on a multitude of issues. The third scenario was the rising inequality scenario, the Gini-out-of-the-Bottle, under which the world as a whole gets wealthier but less equal. For an in-depth discussion on the other three scenarios please see our prior geopolitical reports (The 2030 Outlook, 2/4/13; The 2030 Most Likely Best Case Scenario, 2/19/13; and The 2030 Increasing Inequality Scenario, 3/11/13).

We will first look at the NIC forecasts, describing its methodology and outcomes. The NIC bases its outlook on the combination of megatrends in place and the smaller developments that are either expected to emerge or are underway. We will explain the megatrends as well as give a brief description of the four most likely world scenarios. In this report we will analyze the Non-state World scenario, under which non-sovereign power will become increasingly important. As always, we will conclude with the long-term impact on the financial markets.

Review of the 2030 Report

The NIC is the analytic arm of the Director of National Intelligence office. It provides data and analysis for all the intelligence agencies and operates as the Intelligence Council’s main source for long-term strategic analysis. The NIC is represented by all 16 civilian and military intelligence agencies and also taps experts from academia and the private sector. The organization is designed to serve as an unbiased source of information for policy design, whether it conforms to the current foreign policy or not.

We note that the projections made in the report should not be seen as predictions for the future, but probable prospects that are likely given the set of current circumstances. The NIC report is designed to make the intelligence agencies and policymakers aware of a wide range of possible outcomes. We believe that our readership would benefit by understanding the possible scenarios that the government judges to be likely. The NIC reports often affect U.S. foreign policy in the long-run and thus we deem it useful in analyzing global geopolitical and economic trends.

In addition to the input from the aforementioned government intelligence agencies, the NIC has sought out the views of international leaders, think tanks, leading academics and corporate players to determine the current and emerging trends. It ranks the trends according to their expected probability and impact. The NIC forecasts that there are developments in play that are likely to happen under any scenario, and that there are possible game-changers which, although are less likely to happen, would change geopolitics significantly if they occurred. Game-changers should be perceived as low probability, high impact events.

Review of the Megatrends

The NIC emphasizes four tectonic shifts that are ongoing or developing in the near future. These four megatrends are highly likely to shape the future. The first trend is individual empowerment, including poverty reduction, widening of the global middle class and better accessibility to education and healthcare. The global middle class is forecast to become the leading segment of the population in most countries, economically and socially. This is the most important megatrend, since it is either a source or a consequence of most other trends. The expanding global economy, rapid growth of emerging economies and increasing use of technologies will all be closely related to the development of the middle class. Although more people will be wealthier under this scenario, income inequalities, and consequently social unrest, are likely to follow.

The second tectonic shift is the slow loss of an obvious global superpower. The diffusion of power will take place on multiple levels. America has fulfilled the primary security provider role as well as maintained the reserve currency. As the developing world grows, regional powers are likely to become increasingly important on the global political and military scale. It is uncertain whether any specific country would become the leading superpower, but many powers will vie for more regional power. China, India and Brazil will all take on more regional responsibilities. Some smaller, yet still important, regional powers will include Colombia, Indonesia, Nigeria, South Africa and Turkey. At the same time, the role of governments versus the importance of non-state actors becomes important. Under this trend, networks and coalitions are important in balancing the resulting multipolar world. The world will be relatively wealthier, but geopolitical uncertainty will increase with this trend.

The third megatrend is the global demographic shift. Economic growth will be faster in the “younger” developing countries and will slow in the “aging” developed countries. In addition to the organic population growth, migration and growing urbanization will also affect not only the economy but could also put a strain on resources. The global population is expected to reach about 8.3 billion by 2030, up from the current 7.1 billion. This rapid growth combined with the expected spike in urbanization rates will push the volume of urbanization up enough for the new urban construction volume to equal the volume of urban construction that has taken place in all of history. This trend could, at least initially, increase social tensions.

The fourth megatrend is the significant growth in demand for natural resource s as the global population surges, including food, water and energy. The first megatrend, the increase in the global middle class, will worsen the scarcity of resources as new wealth creates more demand for resources. It is projected that the U.S. could reach energy independence by 2030, as advances in new technologies expand domestic production possibilities. The increasing scarcity of resources could also increase international and regional tensions.

The NIC also points out a handful of smaller and less certain trends. These trends are important and will apply globally, but are less likely to occur than the megatrends. We will not list them all, but will briefly describe the overall developments. The global economy is expected to slow and remain crisis-prone. High sovereign debt levels and general over-leveraging will magnify volatility. Although the East and the South are expected to be the main global growth motors, these regions are likely to see slowing growth and increasing social tensions. Overall, intra-state conflicts are likely to rise during the balance of power struggles as sovereign powers give way to non-state actors.

The impact of new technologies should, at least initially, be positive as more manufacturing and automation efficiencies are achieved. However, once the majority of manual labor jobs have been automated, unskilled workers will face job scarcity, increasing social tensions, especially between labor and capital. Additionally, as new technologies provide new sources of oil, the Middle East will have to diversify its economy away from oil production. Given the rigidity of regional political processes, the course really depends on the governments’ decisions. The NIC predicts that the Middle East will slowly move toward democracy, but the path will be a volatile one.

Furthermore, the NIC provides a list of game-changers, very low probability but high impact events. The Council believes that policymakers should be aware of these trends. We will list them, as it is constructive to see the possible extreme cases that the government would be willing to put in print. Most of these could have far reaching negative impacts on global stability, but some are deemed positive for geopolitics. First, a severe pandemic could develop that would kill more than 1% of its victims. Second, an unforeseen and rapid change in climate could disrupt already stretched natural resources. Third, the collapse of the Eurozone and/or the EU in its entirety could cause a disruption to the financial markets eight times as large as the Lehman Brothers collapse1. Fourth, China could either become democratic or collapse entirely, adding to uncertainty. Fifth, Iran could reform and become more liberal as it suffers under current sanctions or it could become even more radical. Sixth, a sudden U.S. disengagement in international security would cause an extended period of disorder as there is no obvious leading power to take over from the U.S. Seventh, a nuclear or WMD attack by either a nation or a non-state actor would disrupt global stability. Finally, the increasing incidence of solar geomagnetic storms could knock out power grids, satellites or electronic devices. A disruption could have far reaching consequences given the world’s dependence on electricity.

The Non-state World

This week we present the last scenario, the Non-state World. In this ultra-globalized hybrid world, non-state actors will dominate the social, economic and geopolitical dynamics.

The non-state actors include non-governmental organizations (NGOs), multinational businesses, academic institutions and wealthy individuals, as well as subnational units, such as megacities. Rather than uniting under a national government, the public will join groups that directly align with their interests, creating substantial and powerful opinions. These interest groups will likely affect policy and will be more fluid and swift in forming around issues. These groups do not always have to align on issues like many established political groups do.

Conventional sovereign powers project their influence through population size, total wealth and military power. The new groups will sway geopolitical dynamics with their networks, capability to amass public opinions and ability to move rather abruptly. Removing the traditional rules of engagement between countries and groups of people will make the geopolitical landscape progressively more difficult to navigate.

Smaller and more agile countries will be able to operate more efficiently in this new world order compared to the large and more established countries. Emerging countries may have an advantage given the lack of established networks, which will allow them to adopt the latest technologies. All countries, even the democratic ones, will find it hard to balance the new environment without the centralization of power under sovereign powers. The new system will also have a certain psychological appeal in the U.S. as Americans embrace bringing power back to the people and away from the centralized powers, viewed as support for personal liberties. It is important to note that in the pre-Civil War era, the debate on state vs. Federal power remained fluid. A return to a looser Federation is possible, especially if the U.S. forgoes its superpower status. The success of the U.S. in this new world depends on the ability of the government to harness the synergies between the non-state and the state actors. The U.S. also has an advantage as many of these non-state interest groups originated there. Europe will also thrive as it uses its soft powers and established global networks.

Authoritarian systems will find it almost impossible to stop support for these independent groups and will find the new order hard to align with authoritarian rule. These countries will either have to become more democratic or will have to completely crack down on private liberties. In our view, the authoritarian systems will not survive in the long run (beyond 2030). As the population becomes wealthier they will demand more freedoms. Currently it seems that the “democratization threshold” is around $15,000 GDP per capita. China is quickly approaching this threshold and will have to rebalance its economy to continue growing.

Even the larger democratic countries that lack social or political cohesion will find it hard to navigate the new environment as the goals of the population may be too diverse.

Although India is democratic, it faces a multitude of difficulties, including civil rights, safety and equality. India really has the potential to become a major global power, but it has to allow its private sector to develop without excessive regulation.

Sovereign positions and relations will be upset as political powers will be out-maneuvered by expertise, influence and responsiveness. Although this movement will bring power closer to the people, it does depend on the elites to initiate, organize and lead the newly founded organizations. These elites have been educated in global schools and more importantly have an international network that allows them to swiftly approach any objective.

Managing the global public opinion on a variety of topics will become increasingly important. Issues can range from poverty reduction, the environment, anti-corruption and the rule of law. Private domestic and international philanthropy will slowly become more important than official development assistance.

Urbanization and the spread of technology will also play a major part in global developments. Many of these new interest groups are no longer associated with a specific country, but have become international due to the ease of communication.

Additionally, bringing the power closer to the people will assure a timelier and more appropriate response, cutting out much of the bureaucracy. However, these new groups might find the traditional power centers, the sovereign governments, opposing their movement partially due to the changing nature of power. Governments do not disappear, but their role becomes one of regulating the coalitions. The government institutions that do not adjust their approach will become redundant.

Governments should regulate these new entities, especially access to lethal and disruptive technologies by these smaller groups, which could enable the groups to cause disproportional damage. Additionally, terrorist groups could take advantage of this power shift to launch attacks.


Sovereign governments will find it hard to create and conduct policies in this new world of diverse power centers, with the natural state’s importance declining. The new interest groups are becoming more international, without associating themselves with a single country, leading to a question of jurisdiction and policy regulation. Due to the ease of communication via new technologies, these groups could easily move countries if a sovereign power over-regulated its activities. Although many of the new groups will be working on making a positive impact through poverty reduction and social change, it also opens opportunities for extremists to more easily form groups and use their international powers to cause harm. The interest groups are able to react faster than sovereign powers, which generally will be good, but could also introduce unanticipated severe outcomes.

Although total global wealth will increase under this scenario, geopolitical uncertainty increases. A long-term investor is best served by including a moderate exposure to commodities and emerging countries in addition to equities and fixed income.

Bill O’Grady and Kaisa Stucke

April 22, 2013

This report was prepared by Bill O’Grady and Kaisa Stucke of Confluence Investment Management LLC and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

1National Intelligence Council, Global Trends 2030: Alternative Worlds, 2012, page vi

© Confluence Investment Management

© Confluence Investment Management

Read more commentaries by Confluence Investment Management