In the year before the millennium, Dutch journalist Geert Mak traveled through Europe in a small van furnished with a mattress and a hotplate, on one of the world’s most thoroughly depressing journeys. His lively yet erudite account of the continent’s preceding century of wars, genocides, and gulags, and of its subsequent recovery, originally published in daily installments in the pages of Holland’s NRC 

newspaper, has become a bestseller across Europe.

The chapter titles trace Mak’s itinerary of grief and misery. He commemorates World War I at Ypres, Verdun, and Versailles, and World War II at Dunkirk, St. Petersburg, Vichy, Stalingrad, Monte Cassino, Dresden, and Auschwitz. To mark the 20-year truce between those two wars against German ambition he visits Guernica, Mussolini’s birthplace at Predappio, Hitler’s holiday spot in Berchtesgaden, and Winston Churchill’s country house at Chartwell. At each stop Mak digs up historical documents, conducts interviews, and makes his own shrewd observations,producing a rumination that blends diary, travelogue, and popular history.

In recalling the Cold War, Mak unaccountably avoids Yalta, scene of the 1945 meeting of Churchill, Joseph Stalin, and Franklin Roosevelt, where the contours of postwar Europe began to congeal. Instead, he visits the scenes of the three doomed revolts against Soviet domination—East Berlin in 1953, Budapest in 1956, and Prague in 1968—and then the Gdansk shipyards, site of the Polish Solidarity movement’s formation, with happier results, in 1980. Then on to Chernobyl and Srebrenica and Sarajevo, where the history of Europe’s suicidal 20th century comes full circle. In one of those coincidences too remarkable for anything but real life, the century of European disaster that began with the assassination of the Austrian archduke Franz Ferdinand in Sarajevo in 1914 ended in the 1990s with the Serbs’ dreadful siege of that same city. In the intervening years, Europe had changed beyond recognition. “European unification was—and is—above all a unique peace process,” Mak writes. More than that, it has become an economic miracle, spreading prosperity along with peace wherever the paternalistic arm of the European Union bureaucracy may reach. In his travels of 1999, Mak was struck by the poverty of much of Eastern Europe as it underwent the transition from communist inefficiency. Seven years of growth later, the old Warsaw Pact lands are enjoying a boom. Having joined the European Union with a per capita income that was less than a third the EU average, these countries have incomes now above 60 percent of the average and rising fast.

In fact, today’s Europeans live rather well. “Europe still cannot hold a candle to the dynamism, flexibility, and energy of American society,” Mak notes, “but when it comes to quality of life the average citizen of the Old World—particularly its western regions—has quietly left his American cousin in the dust.” Citing such yardsticks as life expectancy, vacation time, social security and retirement, public health, and transportation, he concludes that America “is no longer Europe’s shining example.” But Mak’s review of Europe’s self-inflicted disasters leaves him nervous about the future. He cites the forebodings of veteran Luxembourg premier Jean-Claude Juncker, who mourns the way the British, the French, and others have managed to block the EU from becoming a single federal superstate. “I don’t think the generation after us will be able to put together all those national biographies in such a way that the EU will not be split back into its national components—with all the dangers that entails,” Juncker has said. And in much of Europe, Mak fears, democracy is “a fairly recent phenomenon and hardly to be taken for granted.” Further, “there is no European people.

There is no single all-embracing community of culture and tradition that binds together . . . the Northern-Protestant, the Latin-Catholic, the Greek-Orthodox, and Muslim-Ottoman.” And so Mak returns us to the importance of Sarajevo. Europe proved incapable of resolving the Balkan conflicts of the 1990s; once again, the United States had to intervene to settle a European war. And instead of signaling an end to wars of European nationalism, the siege of now predominantly Muslim Sarajevo from 1992 to 1996 may have been the opening salvo of a new confrontation between traditionally Christian Europe and the surging rival faith of Islam. As Mak reports, today the most popular name for newborn boys in Amsterdam, his hometown, is Mohammed.

"In Europe: Travels Through the Twentieth Century"

 by Geert Mak, translated by Sam Garrett, Pantheon, 2007. 

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Martin Walker on Geert Mak's European travels. 

A Road Trip Through History

At some point in the last few years, that overworked phrase “the post–Cold War world” fell out of fashion, and has yet to be replaced. It was neither a satisfactory nor a popular way of describing the strange and somewhat anomalous time after the Gorbachev reforms and the subsequent collapse of the Soviet Union rearranged the geopolitical furniture. Some preferred to describe the 14 years after the fall of the Berlin Wall as America’s unipolar moment, the period when it was the sole and unquestioned hyperpower, uniquely and unprecedentedly dominant in the military, economic, technological, and even cultural realms.

That brief era was ended by the wretched mismanagement of what seemed at the time to be the unipolar power’s finest hour, its whirlwind defeat of the Iraqi army in 2003. But neither the military nor the civilian administrators were capable of managing the aftermath of the war. Now, with its alliances weakened, its finances in grievous disrepair, its cultural and political appeal tarnished by Abu Ghraib and Guantánamo, America’s magnificent military machine has been checked and humbled by a ragtag assortment of insurgents, terrorists, and roadside bombers, and the political will of the American people to sustain the mission has been subverted.

So what should we call the troubling era we now all inhabit? Historians may look back and question whether 9/11 was a decisive moment, at least in global terms, despite its dramatic impact on Americans’ psychology, including their sense of invulnerability. They may even give the end of the Cold War second place in importance to the rise of China and ­India.

In the grand sweep of history, the triumph of globalization has been one of the greatest achievements of the human race. The new world economy has quickly hauled hundreds of millions of people out of abject poverty. They have jobs and savings, and can think about investing in the future of their own children, even about a more comfortable old age for themselves. They can afford to have dreams as well as possessions and to think about the years to come with some confidence rather than ­dread.

Heady projections of current trends suggest that within 20 years the Chinese economy will surpass that of the United States, and in another 10 or 15 years after that India’s economy will have outdone them both. ­Maybe—­many pitfalls lie ahead for both countries and their teeming, ambitious peoples. But it seems close to certain that, having accounted for well over half of global economic output in the last 50 years, the areas that constituted the developed world in the 20th century (North America, Europe, and Japan) will soon be contributing a third or less. Already, more than half of global economic growth is occurring in emerging ­markets.

In its speed and impact, the surging growth of the world’s two most populous countries is so powerful that it will be a rather odd historian who does not describe the period of the last two decades as the Age of Globalization. Chinese manufacturing and Indian software, footloose money and soaring stock markets, the separate revolutions of the Internet and the mobile phone, have combined to transform not simply the way we live and make our various livings, but also the pecking order of global wealth. It is now a commonplace to marvel at the $1.33 trillion ­foreign-­exchange reserves China has amassed, which are growing at a rate of $50 billion a month. That is almost small change compared to the $4.1 trillion that the Arab oil exporters have accumulated in their own sovereign investment funds and financial holdings overseas, according to an estimate released by Hedge Fund Research this past ­May.

Sums such as these, along with the economic forces propelling China and India out of mass poverty and toward the hope of prosperity, suggest, however, that simply to call the last few years the Age of Globalization is not entirely satisfactory. We are also witnessing the transfer of economic ­power.

In its speed and impact, the surging growth of the world’s two most populous countries is so powerful that it will be a rather odd historian who does not describe the period of the last two decades as the Age of Globalization.

When we consider the history of the globalization process, it appears that it has gone through at least two phases since its origins more than a century ago. Some historians argue that the true first phase occurred in the 19th and early 20th centuries, ending with World War I. Such historians point to the massive waves of migration, with Europeans moving by the tens of millions to the Americas and Australia, and to the fact that, by 1914, Britain was routinely exporting capital equivalent to nine percent of its gross domestic product (GDP) and amassing overseas holdings worth 140 percent of its own annual economic output. Above all, these historians point to the growth in world trade, as cheap food from the Americas and the Ukraine came to a Western Europe that was busily exporting manufactured goods, and suggest that trade amounted to as much as 10 percent of global GDP. That period might well be called Globalization 1.0. It came to a crashing halt after the 1914–18 war, when financially hobbled Britain, the country that had invented and largely financed Globalization 1.0, proved incapable of bearing the burden of managing the system, and no other nation could or would fill the ­gap.

The long hiatus in globalization lasted until 1944, when the victorious British and American allies, represented by John Maynard Keynes and Harry Dexter White, respectively, planned a new postwar world economy. During three weeks in the New Hampshire mountains at Bretton Woods that July, Keynes and White dreamed up Globalization 2.0, the institutions that would revive, manage, and foster world trade. They devised and planned mechanisms to fund the crucial institutions that created the structures through which globalization revived and flourished, beginning with the World Bank and International Monetary Fund (IMF). Others, such as the International Organization for Standardization and the Organization for Economic Cooperation and Development, would emerge later. Most important of all was the GATT, the General Agreement on Tariffs and Trade, which was the forerunner of today’s World Trade Organization (WTO) and which steadily dismantled the tariffs and other obstacles to world trade that had made the Great Depression of the 1930s so much worse than it might have ­been.

With the leadership and investment of the United States, this postwar period saw the recovery of Western Europe through the Marshall Plan. A similar magic was worked in Japan through the funding that made that country the industrial base for the Korean War during the early 1950s. It is not widely known, but through the Pentagon’s Special Procurements budget American taxpayers of the immediate postwar period financed the roads, ports, railroads, shipbuilding yards, and even the Toyota assembly lines that fueled Japan’s ­reconstruction.

Globalization 2.0 might have spread more widely but for the Soviet Union’s failure to ratify the IMF’s Articles of Agreement. And when the Soviet Union and its client states in Eastern Europe were invited to join and share in the benefits of the Marshall Plan in return for an embrace of an “open door” for trade, the Czechs initially expressed interest, until reined in by Moscow. Soviet foreign minister Vyacheslav Molotov spoke for many later critics of globalization when he justified the rejection of the ­offer:

We would probably live to see the day when in your own country, on switching on the radio, you would be hearing not so much your own language as one American gramophone record after another. . . . On going to the cinema, you would be seeing American films sold for foreign consumption. . . . Is it not clear that such unrestricted applications of the principles of ‘equal opportunity’ would in practice mean the veritable economic enslavement of the small states and their subjugation to the rule and arbitrary will of strong and enriched foreign firms, banks, and industrial corporations? Was this what we fought for when we battled the fascist invaders?

Molotov’s rejection of the Marshall Plan may have been the single decision that doomed the Soviet Union to defeat in the Cold War. While the West boomed on the revival of world trade, it was able to afford both guns and butter while the Soviet Union could not. The growth of world trade has been the handmaiden of world economic growth. In 1950, the world’s total GDP had a value of just over $1 trillion, and world trade amounted to $130 billion, or about 13 percent of output. By 1970, global GDP had surpassed the $3 trillion level and world trade was at $650 billion, around 20 percent of output. By 1990, the value of world output was more than $20 trillion, and that of world trade $7 trillion, or 35 percent of output. Last year, with global output near $48 trillion, world trade reached $24 trillion, or 50 percent of ­output.

In building the West as an economic and trading bloc (and a military alliance) during the Cold War, the United States and its partners dominated the finances, the technology, the trade, and the media of this burgeoning global prosperity, with its mass education, its mass middle class, its mass consumption. And thanks to the baby boom and modern medicine, the West was falling only slightly behind in demographic ­terms.

But now all that has changed. The West no longer leads the world in capital accumulation and as a result no longer dominates global investment and finance. With its space program, its proven ability to shoot down satellites, and its new ­JIN-­class ­nuclear-­powered ballistic missile submarines, China is already a serious technological contender. The ability of Indian corporations such as Tata Steel and Mittal Steel to absorb Europe’s two great steel combines, Corus and Arcelor, along with the striking successes of Indian firms in software, demonstrates that country’s commercial and technological prowess.

There are other telling signs of the tectonic shifts now taking place in the global balance of economic power. The West is not only losing its traditional dominance of its own internal markets; it is within sight of the day when China and India will possess the two largest consumer markets in the world. Having accounted for nearly a quarter of the world’s population in 1950, the West now accounts for barely 15 percent, and declining birthrates suggest that this share will shrink further. Fewer people of working age mean fewer producers and fewer consumers. Thanks to ­al-­Jazeera and ­al-­Arabiya and China’s ­English-­language news channel CCTV, and to the rapid spread of the Internet in India and China, plus the growth of India’s Bollywood, Nigeria’s Nollywood, and the soap opera powerhouses of Mexico and Brazil, the West no longer dominates the world’s media.

The West no longer leads the world in capital accumulation and as a result no longer dominates global investment and finance. With its space program, its proven ability to shoot down satellites, and its new ­JIN-­class ­nuclear-­powered ballistic missile submarines, China is already a serious technological contender.

This is the new era, and we might as well call it Globalization 3.0. It is the time when the West can no longer set the rules for world trade, since each of the 151 ­member ­states has an equal vote in the WTO. Indeed, if we can identify a single moment when the ­Western-­dominated Globalization 2.0 gave way to Globalization 3.0, it may have been when China acceded to WTO membership on December 11, 2001. A number of disparate events that year hinted at the scale of change that was gathering momentum. A symbolic role was played by the terrorist attacks of September 11, which overnight transformed the United States from a status quo power fundamentally content with the world into a nation whose government was determined to change the world, from invading Afghanistan and Iraq to promoting democracy throughout the Middle East. But the traditional solidarity of the West under U.S. leadership had begun to erode long before 9/11, over policy disputes on issues as varied as the Kyoto Protocol on Climate Change, the Comprehensive Nuclear Test Ban Treaty, and the International Criminal Court. With the European Union enlarging to 27 members and its new euro currency challenging the dollar’s traditional dominance, European leaders felt less dependent on U.S. support than they had when the Soviet Union’s Red Army was poised at their ­borders.

Whatever the triggers for the shift from globalization’s second to its third stage, one critical development has been the new status of the United States as the world’s leading debtor nation. The United States finds it increasingly difficult to impose its political will on those countries on whom it now depends for savings and investments. The U.S. Commerce Department reported that the ­current­-­account deficit for 2006 was a record $812 billion, a sum nearly equal to the GDP of Mexico, the 14th largest economy in the world. This money must be borrowed. Harvard economist Kenneth S. Rogoff, who is also a former IMF chief economist, notes that “U.S. borrowing now soaks up more than ­two-­thirds of the combined excess savings of all the surplus countries in the world, including China, Japan, Germany, and the OPEC states.”

Traditional ­Western-­dominated international financial institutions such as the World Bank and IMF find it increasingly difficult to persuade countries, even those in deep crisis, to accept the hard medicine of these institutions’ orthodox economic policies. Such countries now have other remedies. The financial markets have proved remarkably forgiving of defaults on sovereign debt, such as Argentina’s decision in 2005 to repay only a third of its defaulted debt, in a controversial restructuring. This has encouraged some remarkable followers of the Argentine lesson. Ricardo Patino, who was briefly Ecuador’s finance minister earlier this year, called in Argentine consultants for advice on debt default strategies, then declared that they had told him to postpone any such move, at least until he had borrowed a great deal more money. But such new attitudes did not stop the financial markets from pumping more than $1 trillion in private capital into emerging markets during the past two years, according to the Institute of International ­Finance.

This weakening of the authority of the ­Western-­backed international financial institutions has been accompanied by two parallel developments. The first is the emergence of alternative sources of financing, including ­non-­Western institutions. The second is the birth of what may be the first serious ideological rivalry since the end of the Cold ­War.

Traditional ­Western-­dominated international financial institutions such as the World Bank and IMF find it increasingly difficult to persuade countries, even those in deep crisis, to accept the hard medicine of these institutions’ orthodox economic policies. Such countries now have other remedies.

Emerging countries are no longer financially dependent on the World Bank and the IMF. For instance, China, which has become one of sub-Saharan Africa’s biggest customers, had invested $12 billion in the continent even before this year’s annual meeting of the African Development Bank was held in Shanghai. China’s ­Export-­Import Bank then promised another $20 billion over the next three years in loans, on top of China’s new $5 billion development fund for ­Africa.

In November 2004, China’s president, Hu Jintao, pledged investments of $100 billion in Latin America over the next 10 years in the course of a long tour of the region. China’s two major oil firms, the China National Petroleum Corporation and the China Petroleum & Chemical Corporation (Sino­pec), had hitherto led the country’s investment in Latin America, with purchases of oil interests in Ecuador, Colombia, Vene­zuela, and Bolivia, and partnerships with Brazil’s nation­al oil corporation. (Both Chinese oil firms are majority owned by the state.) These developments should be kept in perspective: Venezuela accounts for only about five percent of China’s oil imports, far less than China’s main suppliers, Angola, Saudi Arabia, and ­Iran.

Beyond providing its own money, the ­non-­Western world is now developing its own international institutions. Some, such as ASEAN (the Association of Southeast Asian Nations), Latin America’s Mercosur, and the Economic Cooperation Organization, founded by Iran, Pakistan, and Turkey in 1985, have been in business for decades. Others, such as the African Union, the East Asia Summit, and the Shanghai Cooperation Organization (SCO), are relatively new. But these institutions are becoming ­important.

The SCO, for example, brings together China, Russia, and several of the former Soviet republics of Central Asia. Iran, India, Pakistan, and Mongolia have observer status. One of the organization’s first objectives (not wholly met), to remove foreign bases from member states’ territory, was clearly aimed at the U.S. military bases established in Central Asia since the Afghan war began in 2001. The member states have agreed to build road and rail links across the region, including energy pipelines, a ­north-­south road, and an energy grid linking Russia and South Asia via Iran. Top ministers and officials of the SCO countries meet regularly, and the organization maintains a secretariat in Beijing. Trade among the members is on track to quadruple between 2002 and 2010, reaching $80 billion.

But not all is clear sailing. Even though the SCO members have a common interest in discouraging those Western nongovernmental organizations whose pro-democracy activities helped foment the Rose Revolution in Georgia and the Orange Revolution in Ukraine, there are tensions between China, with its primarily economic vision for the SCO, and Russia, whose security interests lead it to view the organization as a means to maintain its regional ­influence.

The East Asia Summit, an annual ­pan-­Asia forum launched in Kuala Lumpur in December 2005, also illustrates how the new regional institutions can generate fresh geopolitical tensions. First proposed by then–prime minister Mahathir Mohamad of Malaysia in the early 1990s, the project was blocked by the United States as exclusionary. When it finally got under way, the summit emerged from ASEAN. It included ASEAN’s 10 members and, because of East Asia’s growing economic links with them, China, Japan, and South Korea. It became known as ASEAN Plus Three, with the purpose of addressing regional issues ranging from trade to avian flu. Japan and some ASEAN members lobbied hard for India, Australia, and New Zealand to be included in the summit process, but as the inaugural meeting opened, China strove to formally relegate the three newcomers to a peripheral status. Japan and India, both hoping for a counterbalance to China’s influence, held out for full inclusion. The final compromise turned the summit into an adjunct of ASEAN, with meetings held immediately before the annual ASEAN gathering. Whether the United States will be able to join the summit process, as Japan has proposed, and whether the summit will accept the U.S. proposal for an ­Asia-­Pacific Free Trade Area, is for the moment unclear. Beijing seems to prefer to keep the East Asia Summit an essentially Asian institution, as part of its ­long-­term strategy of reducing the United States’ traditional role as the predominant Asian ­power.

Beyond its obvious economic and geopolitical dimensions, there is a more profound dynamic at work in the coming of Globalization 3.0 that seems to contain the prospect of new rivalry between ideologies. The erosion of Western power has been accompanied by the erosion of the authority of the grand institutions of Globalization 2.0 which sustained that power by enforcing the implicit rules of Western economic orthodoxy. In the years after the Cold War, those rules were made explicit in the form of the “Washington Consensus,” a term coined in 1989 by John Williamson of the Peterson Institute for International Economics in Washington, D.C. As originally formulated, it stated the almost obvious: that the IMF, the World Bank, and the U.S. Treasury broadly agreed on the policies required to help Latin America out of the debt crisis of the 1980s. These policies included fiscal discipline and cuts in budget deficits; tax reform; ­market-­determined interest rates; competitive exchange rates; liberalization of trade and inward investment; privatization of ­state-­owned enterprises; deregulation; secure property rights; and the redirection of public spending away from subsidies and into more useful areas such as education, primary health care, and ­infrastructure.

The erosion of Western power has been accompanied by the erosion of the authority of the grand institutions of Globalization 2.0 which sustained that power by enforcing the implicit rules of Western economic orthodoxy.

The Washington Consensus became the wider policy consensus of much of the West, and with the end of the Cold War it was popularized as the secret of growth through liberal capitalism. Moreover, in that heady period when Francis Fukuyama was claiming that the triumph of liberal democracy heralded “the end of history,” the economic prescriptions were conflated with a political spin, so that capitalism and democracy were said to go hand in hand. This was not an outlandish proposition. Globalization 2.0 had seen West Germany and Japan, two martial nations accustomed to authoritarian rule, transformed into sleekly prosperous and stable democracies. South Korea and Taiwan, which had been authoritarian states in the early years of Globalization 2.0, had become recognizable ­free-­market democracies by the 1990s. It seemed, in America’s unipolar moment, that the philosopher’s stone had been found. Prosperity and democracy for all seemed to be just a Washington Consensus away, and the essence of the new formula was freedom: free markets and free trade, free press and free ­institutions.

Despite setbacks to this grand design in Russia, Africa, and Latin America, and despite the Asian currency crisis of 1997, which cast doubt on the wisdom of unfettered and often speculative capital movements, the Washington Consensus became something close to a political creed. Its influence can be clearly and tragically discerned in the policies inflicted on Iraq after the fall of Saddam Hussein in 2003. By then, for many in the emerging markets and the developing world, and among many Western liberal critics, the Washington Consensus had become notorious as a way for Western multinationals to buy and bully their way into poor countries, to impose Western rules and values, and to conduct a form of soft imperialism, disguised as the distilled and disinterested wisdom of the West. In his address to the United Nations General Assembly in September 2006, Venezuelan president Hugo Chávez put the case most pungently when he denounced President George W. Bush as “the devil” who had come to the UN to “share his nostrums, to try to preserve the current pattern of domination, exploitation, and pillage of the peoples of the world.”

There is now, in the new era of Globalization 3.0, an alternative to the Washington Consensus of free markets and free institutions. It has been described as the Beijing model of state ownership, ­state-­led industrial strategy, currency controls, and authoritarian politics. It is a model that includes political prisoners, press and Internet controls, and restrictions on religious freedom, yet China has managed to avoid much of the kind of opprobrium that damaged the image of the Soviet Union. The Beijing model’s attraction lies in its crude message that countries can prosper and grow without any bothersome democratic baggage such as a free press or free elections, and it includes breathtaking levels of corruption and a docile judicial system. China invests in Sudan while turning a blind eye to the genocide in ­Darfur—­and develops economic relationships with many other unsavory ­regimes—­under the argument that it has no right to interfere in another sovereign country’s internal affairs. The model’s seductive appeal to a certain kind of political elite in the developing world needs little elaboration, and China’s dramatic record of economic growth is its own best ­advertisement.

There is now, in the new era of Globalization 3.0, an alternative to the Washington Consensus of free markets and free institutions. It has been described as the Beijing model of state ownership, ­state-­led industrial strategy, currency controls, and authoritarian politics.

Influenced by the Washington Consensus, successive U.S. presidents since George Bush the elder have maintained that economic growth in China will lead eventually to political freedom, and that a new middle class will start to demand a say in national affairs. Its members will want to protect their savings against rapacious governments, dishonest legal systems, corrupt banks, and manipulated markets, and they will demand a free press to inform them of official misdeeds. During his 1998 visit to China, President Bill Clinton expressed the conviction that economic and social change would lead to democracy in China. “Political freedom, respect for human rights, and support for representative government are both morally right and ultimately the best guarantor of the stability in the world of the 21st century,” he said. “Nations will only enjoy true and lasting prosperity when governments are open, honest, and fair in their practices, and when they regulate and supervise financial markets rather than direct them.”

It remains to be seen whether that presidential confidence, articulated at the high tide of Globalization 2.0, will hold good as momentum builds toward the new balance of power represented by Globalization 3.0. It is important to remember that China is not alone in propelling that surge. India, the world’s largest democracy, with a free press and an independent if laboriously slow judiciary, offers a different model again. Nor should any sober commentator underestimate the capacity of the U.S. economy to reinvent itself and change ­everything.

In 1961, brimming with pride and confidence as the Soviet Union put the first man into space, Nikita Khrushchev pledged to the ­Twenty-­Second Communist Party Congress that within 20 years the Soviet Union would outproduce America in coal, steel, cement, and fertilizer, the sinews of a modern industrial economy. He turned out to be right. In 1981, the Soviet Union produced more of each of these items than the Americans, but by then the United States was living in a different kind of economy altogether, in which plastics, silicon, and services had fundamentally changed the rules of economic growth. In the 1990s, with a productivity surge riding on the back of the personal computer revolution, the United States did it again. In the coming revolutions of biotechnology, nanotechnology, artificial intelligence, and mechanisms to tackle climate change, America and the old West have an opportunity to redefine the terms of future trade and ­development.

Yet the United States and the West as a whole appear to be losing that self-confidence and belief in growth and ­never-­ending progress that sustained them in the golden years. It was perhaps inevitable that in the shift from a ­Western-dominated Globalization 2.0 to the more anarchic version 3.0, many in the West would question whether globalization was still working to their benefit. One sign of this is the lack of agreement in the Doha round of WTO negotiations on the rules of world trade. Another is the growth of protectionist sentiment in Europe and the United States, combined with political and public opposition to immigration and to the acquisition of European and American companies by buyers from developing countries. The U.S. Congress blocked the $18.5 billion purchase of Unocal by the China National Offshore Oil Corporation, which is 70 percent ­state ­owned, and it pushed Dubai Ports World to give up ownership of six U.S. ports it had obtained when it bought Britain’s P&O (the Peninsular and Oriental Steam Navigation Company).

Former U.S. Treasury secretary Lawrence Summers has warned in the 

 that ­anti-­globalization sentiment is increasing because of “a growing recognition that the vast global middle is not sharing the benefits of the current period of economic ­growth—­and that its share of the pie may even be shrinking.” Harvard professor of government Jeffrey Frieden has pointed out that America’s public and its political elites were prepared after 1945 to endorse a ­free-­trade system that would benefit other countries (and breed competitors) as part of the grand strategy of the Cold War. But the national security argument is no longer ­self-­evident, and in the case of China, which may be a strategic as well as economic rival, the logic of national security may even argue against further globalization. Concern about climate change and the worry that economic growth has harmful environmental consequences is another weight in the balance against continued Western support for free trade. Unless it can swiftly become carbon light where Globalization 2.0 was carbon heavy, Globalization 3.0 may thus be sowing the seeds of its own ­collapse.

But even if 3.0 collapses, some of its characteristics are likely to endure. National markets are being transcended, as corporations start to focus on markets that are regional or global, transnational and cultural, such as Islamic consumers or the Chinese and Indian diasporas, or the global rich, with their credit cards and business- and first-class tickets and their taste for globally marketed luxury goods. The real question is whether the changes in the nature of globalization will continue to allow the global poor to clamber out of their despair and into opportunity.

The way in which Globalization 3.0 develops will engage much of the attention of a new generation of leaders who are coming onto the world stage, from France’s Nicolas Sarkozy and Britain’s Gordon Brown to the eventual successors of presidents George W. Bush and Vladimir Putin. Yet their impact, like that of China’s Hu Jintao and India’s Manmohan Singh, will be limited because deeper forces of public opinion and sentiment are at work. Psychologically, while India and China have cultivated a mindset for growth, many in the West now prefer to think in terms of sustainability, and they panic at the thought of the stresses that Chinese and Indian economic expansion will exert on the biosphere. Western societies can no longer raise their children secure in the knowledge that they will have a better future than their parents. That dream is now the prerogative and the defining feature of those rising peoples who have been empowered and enriched by the globalization that the West built, but which is now coming under new management. Compared to all that, the Cold War and America’s subsequent unipolar moment were but a ­sideshow.

, a senior scholar at the Wilson Center, is senior director of A. T. Kearney's Global Business Policy Council. 

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A new era of globalization dawned in December 2001, with the West passing the torch to China and India. 

Globalization 3.0

The seas have traditionally been the highways of trade, enabling the prosperity that tends to follow. From ancient times, the Mediterranean Sea facilitated the exchanges that nurtured the precocious civilization of Greece and fed Rome, then carried the Crusaders abroad and enriched Venice and Genoa. Later the Atlantic became the great highway of trade that fed the explosive growth of North America, and more recently trade across the Pacific has become the most lucrative of all. Now there are signs that the Indian Ocean is taking its place in this maritime and commercial tradition, and also in the strategic rivalry that usually accompanies the generation of the wealth and resources that trade brings.

The Indian Ocean laps the coasts of Africa and India, of Southeast Asia and the Persian Gulf states, of Indonesia and Australia. It flows into two of the great choke­points of world commerce: the Red Sea, and thus the Suez Canal, and the Strait of Malacca, off Singapore, through which pass a thousand ships each week. Thanks to the thirst of China, Japan, and South Korea for the oil the tankers bring, the strait hosts close to a quarter of all world trade.

The Indian Ocean is not new to the trading game. There are potent and even somber historical memories along its shores, from the Arab slave trade down the East African coast to Zanzibar and beyond, to the celebrated 15th-century oceanic explorations of the Chinese admiral Zheng He during the Ming dynasty. He was far from the first to exploit the Indian Ocean’s potential. Some 1,500 years ago, Chinese pilgrims brought back Buddhist scriptures and sutras from India, and the Muslim explorer Sa’ad ibn Abi Waqqas, an uncle of Mohammed, reached China and established the first mosque there in the seventh century. China exported its porcelain and tea to the Arab world, and the small ports of what we now call the Persian Gulf sent pearls and gold to the markets of India and China.

Flows of money and investment are now binding the Indian Ocean nations and China into a potential new hub of the global economy. 

We might call it CHIMEA — China, India, the Middle East, and Africa.

But the trade that is now flourishing across the Indian Ocean is altogether different, in scale and in range of products, and in its economic and strategic implications. It is different above all in the flows of money and investment that are now binding the Indian Ocean nations and China into a potential new hub of the global economy. We might call it CHIMEA, for China, India, the Middle East, and Africa.

Like all of the great surges of trade in history, the explosion of Indian Ocean commerce is based on mutual needs. China and India need energy supplies from the Persian Gulf states and oil and raw materials from Africa, and Africa needs the financial resources that the gulf states are accumulating in unprecedented quantities. And now that India has become a net food importer once again, China and India and the Middle East all have an interest in developing African agriculture as perhaps the last great untapped food resource of a world whose population looks set to grow from today’s 6.5 billion to 9.1 billion by 2050.

More than half of the world’s population now lives in the CHIMEA countries, and if current demographic trends continue, the region will by 2050 account for two out of every three people on the planet. By then, according to Goldman Sachs projections, India could be the world’s largest economy and China the second largest. Certainly, the current 11 percent of global gross domestic product produced by the CHIMEA countries will have grown dramatically.

The combination of Middle Eastern energy and finance with African raw materials and untapped food potential and Indian and Chinese goods and services looks to be more than just a mutually rewarding three-way partnership. Wealth follows trade, and with wealth comes the means to purchase influence and power. Just as the great centers of Europe clustered first around the Mediterranean Sea until the greater trade across the Atlantic and then the Pacific produced new, richer, and more powerful states, so the prospects are strong that the Indian Ocean countries will develop greater influence and ambition in their turn. In the emergence of CHIMEA as a new factor in global commercial affairs, we may also be seeing the future contours of the world’s geo­political system.

Moreover, if one considers most of the projected growth rates for India and China, the CHIMEA connection appears likely to strengthen throughout this century. It could become the catalyst that finally hauls Africa from underdevelopment and poverty. Indeed, the surge of economic growth in sub-Saharan Africa, running more than five percent annually in the past several years, owes a great deal to Chinese, Arab, and Indian trade and investment. We are finally seeing that expansion of South-South commerce that has been the dream of developing-world economists and political leaders—wary of the implicit ex­ploitation they suspected would come from the North-South relationship—since the 1955 Asian-African summit at Bandung, Indonesia, in the early days of decolonization.

Each year, the United Nations Conference on Trade and Development (UNCTAD) publishes 

, an authoritative study of the patterns of investment that flow through the global economy in much the same way—and as vitally—as blood flows through the human body. The UNCTAD conferences of the 1970s provided the most prominent forum for complaints about North-South capital flows and the need for more ­South-­South cooperation, so there was a discernible note of satisfaction in the most recent UNCTAD report. It found that ­South-­South foreign direct investment (FDI) “has expanded particularly fast over the past 15 years. Total outflows from developing and transition economies (excluding offshore financial centers) increased from about $4 billion in 1985 to $61 billion in 2004; most of these were destined for other developing or transition economies. In fact, FDI among these economies increased from $2 billion in 1985 to $60 billion in 2004 [flowing] primarily from Asia to Africa.”

Although the United States, Japan, Britain, France, and Germany are home to 73 of the world’s top 100 transnational corporations, those based in the developing world are also making their mark. In 1990, only 19 transnational corporations from developing countries were among the Fortune top 500 global firms, but 47 were in 2005.

If one considers most of the projected growth rates for India and China, the CHIMEA connection appears likely to strengthen throughout this century.

It could become the catalyst that finally hauls Africa from underdevelopment and poverty.

This change has come with remarkable speed, fueled by the sudden collision of two separate but connected trends—­the acceleration of economic growth in China and India and the surge in energy prices that followed the onset of the Iraq war. The oil and gas export revenues of the Organization of the Petroleum Exporting Countries (OPEC) member states more than tripled in four years, from $210 billion in 2002 to a record $649 billion in 2006. And just over $505 billion of OPEC’s swollen 2006 revenues went to the organization’s Arab members. Saudi Arabia alone earned $194 billion from petroleum exports, according to OPEC’s 

. This was the period when China crept up on Japan as the world’s second-biggest oil importer, after the United States. The Chinese appetite more than doubled, while India’s imports of crude oil tripled. In four brisk years, China and India alone increased global oil demand by 150 million tons, or 1.1 billion barrels.

With that kind of extra demand, prices naturally soared, and Arab revenues grew in consequence. The result, according to the Hedge Fund Research Group, is that the potential Middle Eastern capital available for investment is more than $4 trillion—close to the total size of Japan’s annual economic output. Much of this money is under direct state control, rather than in private hands, although the boundaries between private family wealth and state holdings tend to be blurred in Arab countries such as Saudi Arabia and the United Arab Emirates. The Abu Dhabi Investment Authority is almost certainly the largest single investing entity; this sovereign fund is worth $875 billion, according to the investment bank Morgan Stanley.

Most of these Arab funds are invested in traditional Western vehicles such as Citibank and Airbus. Some, such as P&O Ports, have been bought outright. Vast sums are also invested at home. The current Saudi state budget, for example, calls for outlays of $665 billion over the next three years. Six new cities are under construction. The largest, King Abdullah Economic City, on the Red Sea coast near Jeddah, will have a new port equivalent in size to Rotterdam, 150,000 new dwellings, universities, industrial parks, and a financial center. Even if these ambitious projects are successful, they will barely make a dent in the explosive growth of the labor force, which, on the strength of births already registered, will more than double, to 15 million males of working age, by 2020.

But a careful analysis of recent Arab investment decisions reveals a new trend: a striking willingness to invest in Asia and, in particular, in other CHIMEA countries. Arab money is pouring into Asia, especially into predominantly Muslim countries, where Arab capital has been heavily committed to the development of banks that comply with Islamic law’s prohibitions against interest payments. Arab companies have also been prominent in the energy sector, property investments, and mobile telephony, three fields where they have considerable experience.

Trade and investment between India and the Arab countries has more than trebled, from $7.5 billion in 2001–02 to $24 billion in 2005–06, and is expected to reach $55 billion by 2010. This excludes the oil trade as well as the annual $20 billion sent home in remittances from the four million Indian workers in Saudi Arabia and the gulf states.

During a state visit to India last year by King Abdullah, Prime Minister Manmohan Singh opened the door to Saudi capital for Indian infrastructure projects. Now the fourth-largest recipient of Saudi oil, after Japan, the United States, and China, India secured a Saudi commitment to ­co-­finance a refinery project with India’s ­state-­owned energy firm. India’s Reli­ance Group will, in turn, invest in a refinery and petrochemicals project in Saudi Arabia. The king signed an ambitious “Del­hi Declaration” that amounted to a broad stra­tegic partnership stressing energy and economic cooperation as well as joint efforts to fight terrorism.

The Saudi monarch flew to India directly from China, where he had signed an energy cooperation agreement providing for joint investment in oil, natural gas, and mineral deposits, and invited Chinese investors to take advantage of his country’s privatization program and invest in the growing Saudi private sector. Already building—with Kuwait and other OPEC members—an $8 billion refinery complex in Guangzhou, the Saudis have held regular political consultations with Beijing since 2004, when Sinopec, the Chinese state energy company, was given rights to explore for gas in Saudi Arabia’s vast Empty Quarter. Although nervous about separatist movements in its western provinces, China agreed that the Saudi Development Bank could fund a large urban development project in the traditionally Muslim city of Aksu.

The Arab investment in Asia is logical, given Asia’s stunning growth rates. The real surprise is elsewhere. The ­Asia-­Africa Business Forum meeting in ­Dar ­es Salaam early in 2006 symbolized a new investment interest in Africa. Dubai Ports World has spent $2 billion to buy Cape Town’s port and waterfront, and is investing another $1 billion in further developments. Deals announced in the past year included a $500 million investment by Mobile Telecommunications in the Republic of Congo and another $500 million property venture by Dubai Ports World in Kinshasa.

India, with a diaspora of 2.8 million ethnic Indians in Africa, is taking advantage of these historic connections and its British Commonwealth links to strengthen its ties and to negotiate new energy supplies. It helped establish Nigeria’s military academy, and almost all senior officers of Ghana’s military have attended Indian training courses. As they look increasingly outward, the big Indian corporations, such as the Tata Group, Reliance, and Ranbaxy Laboratories, have mostly focused on other countries that once knew British ­rule—­South Africa, Nigeria, Egypt, and Kenya. These are also countries where the products of India’s Bollywood film industry, dubbed into English, are popular.

On the whole, India has a far better reputation in Africa than China, which has been criticized for using predominantly imported Chinese labor in its African projects and for a cavalier attitude toward the human rights records of the regimes it deals with. But despite admirable measures, such as a pledge to develop a project to link remote African schools and medical centers to Indian institutions via the Internet, India could easily lose its superior reputation by succumbing to temptations such as a potential mining deal in Zimbabwe, home to one of the continent’s least savory regimes.

After India brought 300 African delegates to New Delhi for an economic partnership conference in 2006, the Confederation of Indian Industry claimed that the event kicked off negotiations on $17 billion in new deals in fields ranging from oil exploration to hotel construction. “We want to learn from India’s experience,” Amadou Dioffo, managing director of Sonidep Petrol and Gas Company of Niger, told the closing press conference. “Like us, India also has a colonial past. We want to know how and why it is doing so much better now.”

India’s commitment to Africa, however, is dwarfed by that of China, whose trade with the continent has grown from $10 billion to $56 billion since 2000. In that period, China has invested $12 billion in Africa and built more than 100 food and raw material processing plants, 3,500 miles of highways, 1,600 miles of railways, eight power stations, and three ports. More than 800 Chinese companies are currently operating in Africa, which now provides 28 percent of China’s oil.

Last year, China hosted the annual meeting of the African Development Bank in Shanghai, where it announced new credit and investment funds of $3 billion and $5 billion, respectively, and wrote off $10 billion in bilateral debts. China will train thousands of African professionals and double the number of scholarships awarded to African students while sending more agriculture experts and youth volunteers to work on the continent.

India’s commitment to Africa, however, is dwarfed by that of China.

The list of deals is long. ­Thirty-­one percent of China’s offshore contractor and engineering projects are based in Africa. That figure will soon rise if a deal to provide $2.3 billion to Mozambique for a new ­hydro­electric dam on the Zambezi River is completed. This is likely, not only because Chinese prices are low but, as President Hu Jintao has declared, “China’s aid comes without strings.” This policy has been appreciated in Sudan and Zimbabwe, to name but two of the most egregious human rights offenders. But there are signs of backlash against China’s investments, notably in Zambia, where the opposition Patriotic Front made inroads in the 2006 elections by campaigning on an ­anti-­Chinese platform. Its leader, Michael Sata, says the Chinese are “exploiting us, just like everyone who came before. They have simply come to take the place of the West as the new colonizers of Africa.”

Nonetheless, the infrastructure that China has already built will benefit Africa for years to come, and has played a major role in what is starting to look like Africa’s takeoff into ­self-­sustaining growth. For once, Africa seems to be generating wealth without digging for it in the ground. Ghana, which has an English-speaking population and lower wages than India, was one of the first African countries to capitalize on the offshoring trend in business. The American outsourcing company ACS set up shop in Accra in 2000, employing 60 people. The work force has since grown to 1,800. Among other things, Ghanaians now process parking tickets for New York City’s local government.

At current growth rates, poverty levels in Africa could halve by 2015, and if China and India are excluded, ­sub-­Saharan Africa is experiencing faster economic expansion than the rest of Asia. Investors have benefited dramatically. Between 1995 and 2005, African stock markets showed an average compound annual growth of 22 percent, and torrid growth continues.

Impressive results are not confined to the financial sector. Nollywood, Nigeria’s booming film industry, is the world’s third-largest producer of feature films, after Bollywood and Hollywood. In 13 years, it has grown from nothing into a $250 million-a-year industry building on Nigerian entrepreneurship and digital technology. The industry now boasts some 300 filmmakers, who produce their films on digital cameras, using common ­computer-­based systems for editing. In many cases, these auteurs peddle DVDs directly to customers in the marketplace. Nollywood films are popular across ­English-­speaking Africa, aired on African satellite television networks and even on stations in Britain.

Privatization has transformed the ­loss-­making ­state-­owned airline industries, crucial to a continent with poor roads and communications systems so locked into colonial patterns that phone calls and travelers between neighboring countries often had to be routed via Paris or London. All of this is changing fast. Kenya Airways, partially privatized in 1995 after years of troubles, is now the most profitable major airline in Africa. Upstarts Virgin Nigeria, South ­Africa–­based Kulula, and Kenya’s Flamingo Airways are opening new routes and catering to a newly empowered middle class. Nairobi airport is becoming a ­pan-­African hub and a magnet for growers and other export ­enterprises—­or was, until the recent outbreak of violence in the wake of the country’s disputed elections. Even if a lasting political settlement is secured, higher energy costs are a threat to Kenya’s exports, as well as those of other African countries.

An important factor in Africa’s new growth has been the mobile phone industry, now worth close to $10 billion a year. With subscriber growth across Africa running at 40 percent annually, prospects are so inviting that mergers and acquisitions have been commonplace. Kuwait’s Mobile Telecommunications paid $2.8 billion in 2005 to buy ­Dutch-­registered Celtel, which serves 15 African countries. In Kenya and Tanzania, mobile operators have swiftly become the biggest companies and largest taxpayers.

An important factor in Africa’s growth has been the mobile phone industry, now worth close to $10 billion a year.

Mobile phones help small farmers, since access to ­real-­time market prices means that intermediaries can no longer charge different rates or manipulate local markets. The phones have cut the need for costly and time-consuming travel and allowed farmers and contractors to deal directly with customers. Africa is far ahead of the United States in implementing the use of cell phones for banking tasks such as making payments and managing microcredit accounts and remittances from family members abroad. Applications such as these lower costs and attract new users; for instance, local surveys suggest that 50 percent of all bank accounts in South Africa will be administered via cell phones by 2011.

China may yet come to reconsider the way its investments have helped create future competitors. In many African countries, factory productivity in ­low-­end manufacturing, particularly textiles, has risen close to Chinese levels. In Kenya, Tanzania, and Senegal, productivity in textile plants is running at 80 percent of Chinese levels, and 90 percent of Indian levels. And African wages are currently less than half of those in Guangdong. The “total factor productivity” (including purchasing, selling, and distribution) of African firms is still much lower than that of competitors in China and India, but given decent management, African companies could catch up ­fast.

Africa’s Silk Road: China and India’s New Economic Frontier

, World Bank economic adviser Harry Broadman noted that exports from Africa to Asia had tripled since 2002, turning Asia into Africa’s third-largest trading partner (27 percent), after the European Union (32 percent) and the United States (29 percent).

“China and India each have rapidly modernizing industries and burgeoning middle classes with rising incomes and purchasing power,” Broadman wrote. “These societies are demanding not only natural resource–extractive commodities, agricultural goods such as cotton, and other traditional African exports, but also diversified, nontraditional exports such as processed commodities, light manufactured products, household consumer goods, food, and tourism. Because of its labor-intensive capacity, Africa has the potential to export these nontraditional goods and services competitively to the average Chinese and Indian consumer and firm.”

There are still severe constraints on Africa’s growth potential, from the ravages of the HIV/AIDS epidemic to a legacy of poor governance, from the ominous threat of climate change and water shortages to a lack of education. UN figures suggest that 46 million African children—nearly half the school-age population—have never set foot in a classroom. But Kenya, Malawi, Mozambique, Tanzania, Ethiopia, and Ghana are among countries that recently abolished fees for children to attend school.

There are still severe constraints on Africa’s growth potential. UN figures suggest that nearly half of Africa’s school-age population have never set foot in a classroom.

HIV still rages, but not as fiercely as it did. A decline in HIV prevalence among young women in Uganda has been under way since the mid-1990s. In Kenya, infection levels are dropping in urban centers in response to targeted intervention policies. Tanzania and Malawi have seen rates decline slightly or stabilize. Aid organizations have used the response to HIV as a way to rebuild a basic public-health system in much of Africa, reaping a variety of positive changes. With all of its challenges, Africa is in better shape to face the future.

What is building around the Indian Ocean is far larger than simply Africa’s future, and larger than Asian-African trade. The flowering of a commercial system is under way, a new form of that infamous triangular trade that helped finance Britain’s 18th-century industrial revolution, with cheap British beads and mirrors being sold in West Africa for slaves, who were shipped to the Americas, and the proceeds used to ship tobacco and sugar back to Britain. The new triangular trade of the Indian Ocean sees the Middle Eastern countries export oil to Asia, then use the proceeds to export capital to Asia and Africa. Asia sends cash, consumer goods, and remittance workers to the Middle East, and investment capital, skills, and aid to Africa, which in turn sells oil and agricultural products to Asia, investing some of the proceeds in new industries, from mobile phones to Nollywood films.

What is budding around the Indian Ocean is larger than simply Africa’s future or Asian-African trade. 

The flowering of a commercial system is under way.

But the rivalry for resources is intense. The Indian Ocean is also witnessing the beginnings of an arms race, with China building ports that can also serve as naval bases at Gwador, Pakistan, which is near the mouth of the Persian Gulf, and at Sittwe in Myanmar, on the Bay of Bengal. Alarmed by China’s ambitions, India has been boosting its own forces with a new fleet of French­built Scorpene stealth submarines, a program to build three aircraft carriers, and development of the Agni-3 missile, which could, in theory, carry a nuclear warhead to Shanghai.

The economic promise of CHIMEA is dazzling, but the geopolitical and strategic implications are sobering. As the Mediterranean, Atlantic, and Pacific proved in their own periods of surging trade growth, commercial highways can easily become battlegrounds in their turn. And with the CHIMEA nations poised in this century to become the globe’s center of gravity, the stakes in the Indian Ocean promise to become very high ­indeed.

, a senior scholar at the Wilson Center, is director of A. T. Kearney's Global Business Policy Council. His latest novel is 

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The Atlantic and Pacific now dominate the world's politics and trade, but the Indian Ocean is emerging as a new locus of power that increasingly unites China, India, the Middle East, and Africa. 

The Indian Ocean: Nexus of the 21st Century

Something dramatic has happened to the world’s birthrates. Defying predictions of demographic decline, northern Europeans have started having more babies. Britain and France are now projecting steady population growth through the middle of the century. In North America, the trends are similar. In 2050, according to United Nations projections, it is possible that nearly as many babies will be born in the United States as in China. Indeed, the population of the world’s current demographic colossus will be shrinking. And China is but one particularly sharp example of a widespread fall in birthrates that is occurring across most of the developing world, including much of Asia, Latin America, and the Middle East. The one glaring exception to this trend is sub-Saharan Africa, which by the end of this century may be home to one-third of the human race.

The human habit is simply to project current trends into the future. Demographic realities are seldom kind to the predictions that result. The decision to have a child depends on innumerable personal considerations and larger, unaccountable societal factors that are in constant flux. Yet even knowing this, demographers themselves are often flummoxed. Projections of birthrates and population totals are often embarrassingly at odds with eventual reality.

In 1998, the UN’s “best guess” for 2050 was that there would be 8.9 billion humans on the planet. Two years later, the figure was revised to 9.3 billion—in effect, adding two Brazils to the world. The number subsequently fell and rose again. Modest changes in birthrates can have bigger consequences over a couple of generations: The recent rise in U.S. and European birthrates is among the developments factored into the UN’s latest “middle” projection that world population in 2050 will be just over 9.1 billion.

In a society in which an average woman bears 2.1 children in her lifetime—what’s called “replacement-level” fertility—the population remains stable. When demographers make tiny adjustments to estimates of future fertility rates, population projections can fluctuate wildly. Plausible scenarios for the next 40 years show world population shrinking to eight billion or growing to 10.5 billion. A recent UN projection rather daringly assumes a decline of the global fertility rate to 2.02 by 2050, and eventually to 1.85, with total world population starting to decrease by the end of this century.

Despite their many uncertainties, demographic projections have become an essential tool. Governments, international agencies, and private corporations depend on them in planning strategy and making long-term investments. They seek to estimate such things as the number of pensioners, the cost of health care, and the size of the labor force many years into the future. But the detailed statistical work of demographers tends to seep out to the general public in crude form, and sensationalist headlines soon become common wisdom.

Because of this bastardization of knowledge, three deeply misleading assumptions about demographic trends have become lodged in the public mind. The first is that mass migration into Europe, legal and illegal, combined with an eroding native population base, is transforming the ethnic, cultural, and religious identity of the continent. The second assumption, which is related to the first, is that Europe’s native population is in steady and serious decline from a falling birthrate, and that the aging population will place intolerable demands on governments to maintain public pension and health systems. The third is that population growth in the developing world will continue at a high rate. Allowing for the uncertainty of all population projections, the most recent data indicate that all of these assumptions are highly questionable and that they are not a reliable basis for serious policy decisions.

 of London reported that in the previous year Muhammad had edged out Thomas as the second most popular name for newborn boys in Britain, trailing only Jack. This development had been masked in the official statistics because the name’s many variants—such as Mohammed, Mahmoud, and Muhamed—had all been counted separately. 

 compiled all the variants and established that 5,991 Muhammads of one spelling or another were born in 2006, trailing 6,928 Jacks, but ahead of 5,921 Thomases, 5,808 Joshuas, and 5,208 Olivers. 

 went on to predict that Muhammad would soon take the top spot.

On the face of it, this seemed to bear out the thesis—something of a rallying cry among anti-immigration activists—that high birthrates among immigrant Muslims presage a fundamental shift in British demography. Similar developments in other European countries, where birthrates among native-born women have long fallen below replacement level, have provoked considerable anxiety about the future of Europe’s traditionally Christian culture. Princeton professor emeritus Bernard Lewis, a leading authority on Islamic history, suggested in 2004 that the combination of low European birthrates and increasing Muslim immigration means that by this century’s end, Europe will be “part of the Arabic west, of the Maghreb.” If non-Muslims then flee Europe, as Middle East specialist Daniel Pipes predicted in 

, “grand cathedrals will appear as vestiges of a prior civilization—at least until a Saudi-style regime transforms them into mosques or a Taliban-like regime blows them up.”

The reality, however, looks rather different from such dire scenarios. Upon closer inspection, it turns out that while Muhammad topped Thomas in 2006, it was something of a Pyrrhic victory: Fewer than two percent of Britain’s male babies bore the prophet’s name. One fact that gets lost among distractions such as the 

 story is that the birthrates of Muslim women in Europe—and around the world—have been falling significantly for some time. Data on birthrates among different religious groups in Europe are scarce, but they point in a clear direction. Between 1990 and 2005, for example, the fertility rate in the Netherlands for Moroccan-born women fell from 4.9 to 2.9, and for Turkish-born women from 3.2 to 1.9. In 1970, Turkish-born women in Germany had on average two children more than German-born women. By 1996, the difference had fallen to one child, and it has now dropped to half that number.

These sharp reductions in fertility among Muslim immigrants reflect important cultural shifts, which include universal female education, rising living standards, the inculcation of local mores, and widespread availability of contraception. Broadly speaking, birthrates among immigrants tend to rise or fall to the local statistical norm within two generations.

The decline of Muslim birthrates is a global phenomenon. Most analysts have focused on the remarkably high proportion of people under age 25 in the Arab countries, which has inspired some crude forecasts about what this implies for the future. Yet recent UN data suggest that Arab birthrates are falling fast, and that the number of births among women under the age of 20 is dropping even more sharply. Only two Arab countries still have high fertility rates: Yemen and the Palestinian territories.

In some Muslim countries—Tunisia, the United Arab Emirates, Bahrain, Kuwait, and Lebanon—fertility rates have already fallen to near-European levels. Algeria and Morocco, each with a fertility rate of 2.4, are both dropping fast toward such levels. Turkey is experiencing a similar trend.

Revisions made in the 2008 version of the UN’s 

 make it clear that this decline is not simply a Middle Eastern phenomenon. The report suggests that in Indonesia, the country with the world’s largest Muslim population, the fertility rate for the years 2010–15 will drop to 2.02, a shade below replacement level. The same UN assessment sees declines in Bangladesh (to 2.2) and Malaysia (2.35) in the same period. By 2050, even Pakistan is expected to reach a replacement-level fertility rate.

Iran is experiencing what may be one of the most dramatic demographic shifts in human history. Thirty years ago, after the shah had been driven into exile and the Islamic Republic was being established, the fertility rate was 6.5. By the turn of the century, it had dropped to 2.2. Today, at 1.7, it has collapsed to European levels. The implications are profound for the politics and power games of the Middle East and the Persian Gulf, putting into doubt Iran’s dreams of being the regional superpower and altering the tense dynamics between the Sunni and Shiite wings of Islam. Equally important are the implications for the economic future of Iran, which by midcentury may have consumed all of its oil and will confront the challenge of organizing a society with few people of working age and many pensioners.

The falling fertility rates in large segments of the Islamic world have been matched by another significant shift: Across northern and western Europe, women have suddenly started having more babies. Germany’s minister for the family, Ursula von der Leyen, announced in February that the country had recorded its second straight year of increased births. Sweden’s fertility rate jumped eight percent in 2004 and stayed put. Both Britain and France now project that their populations will rise from the current 60 million each to more than 75 million by midcentury. Germany, despite its recent uptick in births, still seems likely to drop to 70 million or less by 2050 and lose its status as Europe’s most populous country.

In Britain, the number of births rose in 2007 for the sixth year in a row. Britain’s fertility rate has increased from 1.6 to 1.9 in just six years, with a striking contribution from women in their thirties and forties—just the kind of hard-to-predict behavioral change that drives demographers wild. The fertility rate is at its highest level since 1980. The National Health Service has started an emergency recruitment drive to hire more midwives, tempting early retirees from the profession back to work with a bonus of up to $6,000. In Scotland, where births have been increasing by five percent a year, Glasgow’s 

Muslim birthrates are falling around the globe, and Iran is experiencing what may be one of the most dramatic demographic shifts in human history.

In 2007, France’s national statistical authority announced that the country had overtaken Ireland to boast the highest birthrate in Europe. In France, the fertility rate has risen from 1.7 in 1993 to 2.1 in 2007, its highest level since before 1980, despite a steady fall in birthrates among women not born in France. France’s National Institute of Demographic Studies reports that the immigrant population is responsible for only five percent of the rise in the birthrate.

A similar upturn is under way in the United States, where the fertility rate has climbed to its highest level since 1971, reaching 2.1 in 2006, according to the National Center for Health Statistics. New projections by the Pew Research Center suggest that if current trends continue, the population of the United States will rise from today’s total of some 300 million to 438 million in 2050. Eighty-two percent of that increase will be produced by new immigrants and their U.S.-born descendants.

By contrast, the downward population trends for southern and eastern Europe show little sign of reversal. Ukraine, for example, now has a population of 46 million; if maintained, its low fertility rate will whittle its population down by nearly 50 percent by mid-century. The Czech Republic, Italy, and Poland face declines almost as drastic.

In Russia, the effects of declining fertility are amplified by a phenomenon so extreme that it has given rise to an ominous new term—hypermortality. As a result of the rampant spread of maladies such as HIV/AIDS and alcoholism and the deterioration of the Russian health care system, says a 2008 report by the UN Development Program, “mortality in Russia is 3–5 times higher for men and twice as high for women” than in other countries at a comparable stage of development. The report—which echoes earlier findings by demographers such as the Woodrow Wilson Center’s Murray Feshbach—predicts that within little more than a decade the working-age population will be shrinking by up to one million people annually. Russia is suffering a demographic decline on a scale that is normally associated with the effects of a major war.

A very large question mark must be placed on the future of Russia, whose population of working-age men looks set to decline by half.

It is important to consider what this means for the future of the Russian economy. Identified by Goldman Sachs as one of the BRIC quartet (along with Brazil, India, and China) of key emerging markets, Russia has been the object of great hopes and considerable investments. But a very large question mark must be placed on the economic prospects of a country whose young male work force looks set to decrease by half.

The Russian future highlights in exaggerated fashion another challenge facing the European countries. Even absent Russia’s dire conditions, the social and political implications of an aging population are plain and alarming. At a 2004 conference in Paris, Heikki Oksanen of the European Commission’s Directorate-General for Economic and Financial Affairs noted that the European social model of generous welfare states is facing a crisis because the number of retirees is rising while the number of working-age people is declining. “People are aware that there is a problem, but they do not know how serious it is and [what] drastic reforms are necessary,” he said.

Oksanen went on to describe the dire implications for European tax systems. A pay-as-you-go pension scheme would take “only” 27 percent of wages if Europeans had replacement-level fertility, retired at age 60, and lived to 78. But if fertility decreased to 1.7 while longevity increased gradually to 83—close to where Europe is now—the tax would rise to 45 percent of the wage bill. Because of its low birthrate, Germany’s problem is particularly acute. It currently has about four people of working age for every three dependents. Under one scenario for 2050, those four working-age Germans would be required to support five dependents.

But these sorts of projections don’t capture the full picture. There are at least three mitigating factors to be considered, which suggest that the German welfare state and others in Europe might not have to be dismantled wholesale.

The first is that the traditional retirement age of 60 in Italy, France, and Germany is very early indeed, especially considering that life expectancy is approaching 80 and that modern diets and medicine allow many elderly people to continue working well into their seventies. An increase of the retirement age to 65, which is being slowly introduced in France and Germany, would sharply reduce the number of nonworkers who depend on the employed for support, as would more employment for people below the age of 20. A retirement age of 70 in Germany would virtually end the problem, at least until life expectancy rose as high as 90 years.

Second, the work force participation rate in Germany (and much of continental Europe) is relatively low. Not only do Germans retire on the early side, but the generous social welfare system allows others to withdraw from work earlier in life. An increase in employment would boost the revenues flowing into the social security system. For example, only 67 percent of women in Germany were in the work force in 2005, compared with 76 percent in Denmark and 78 percent in Switzerland. (The average rate for the 15 “core” EU states is 64 percent; for the United States, 70 percent.)

David Coleman, a demographer at Oxford University, has suggested that the EU’s work force could be increased by nearly a third if both sexes were to match Denmark’s participation rates. The EU itself has set a target participation rate of 70 percent for both sexes. Reaching this goal would significantly alleviate the fiscal challenge of maintaining Europe’s welfare system, which has been aptly described as “more of a labor-market challenge than a demographic crisis.”

The third mitigating factor is that the total dependency ratios of the 21st century are going to look remarkably similar to those of the 1960s. In the United States, the most onerous year for dependency was 1965, when there were 95 dependents for every 100 adults between the ages of 20 and 64. That occurred because “dependents” includes people both younger and older than working age. By 2002, there were only 49 dependents for every 100 working-age Americans. By 2025 there are projected to be 80, still well below the peak of 1965. The difference is that while most dependents in the 1960s were young, with their working and saving and contributing lives ahead of them, most of the dependents of 2009 are older, with more dependency still to come. But the point is clear: There is nothing outlandish about having almost as many dependents as working adults.

Population growth on a scale comparable to that which frightened pundits and demographers a generation ago still exists in 30 of the world’s least developed countries. Each has a fertility rate of more than five. With a few exceptions—notably, Afghanistan and the Palestinian territories—those countries are located in sub-Saharan Africa. Depending on the future course of birthrates, sub-Saharan Africa’s current 800 million people are likely to become 1.7 billion by 2050 and three billion by the end of the century.

One striking implication of this growth is that there will be a great religious revolution, as Africa becomes the home of monotheism. By midcentury, sub-Saharan Africa is likely to be the demographic center of Islam, home to as many Muslims as Asia and to far more than inhabit the Middle East. The non-Arab Muslim countries of Africa—Niger, Mali, Burkina Faso, and Senegal—constitute the one region of the Islamic world where birthrates remain high. In several of these countries, the average woman will have upward of five children in her lifetime.

Christianity will also feel the effects of Africa’s growth. By 2025, there will be as many Christians in sub-Saharan Africa—some 640 million—as in South America. By 2050, it is almost certain that most of the world’s Christians will live in Africa. As Kenyan scholar John Mbiti writes, “The centers of the church’s universality [are] no longer in Geneva, Rome, Athens, Paris, London, New York, but Kinshasa, Buenos Aires, Addis Ababa, and Manila.”

But awareness of Africa’s religious revolution is usually overshadowed by the fearful possibilities raised by the continent’s rapid population growth. By 2050, the national populations are expected to more than double in the Democratic Republic of the Congo and Uganda, reaching 147 million and 91 million, respectively. Smaller countries—such as Liberia, Niger, Mali, Chad, and Burundi—are expected to experience growth of 100 to 200 percent. These are the countries with the weakest state institutions, the least infrastructure, the feeblest economies, and thus the poorest health and education systems. They also face daunting problems of environmental degradation—and the lesson from Darfur and the Rwanda genocide is that disaster can follow when population growth strains local environments so badly that people cannot feed themselves.

The various demographic changes I have described arrived with remarkable speed. At the turn of this century, the conventional wisdom among demographers was that the population of Europe was in precipitous decline, the Islamic world was in the grip of a population explosion, and Africa’s population faced devastation by HIV/AIDS. Only a handful of scholars questioned the idea that the Chinese would outnumber all other groupsfor decades or even centuries to come. In fact, however, the latest UN projections suggest that China’s population, now 1.3 billion, will increase slowly through 2030 but may then be reduced to half that number by the end of the century.

The global demographic transformation now unfolding is going to make the world look a lot more like Europe.

Because there are so many assumptions embedded in it, this forecast of the Chinese future could well be wrong. There is one area, however, in which demography relies on hard census data rather than assumptions about the future, and that is in mapping the youth cohort. All of the teenagers who will be alive in 2020 have already been born. So a strong indication of the eventual end of China’s dominance of world population statistics is apparent in the fact that there are now 372 million Indians under the age of 15, but only 270 million Chinese. This gap will grow. India seems very likely to become the world’s most populous country by 2030 or thereabouts, but only if nothing changes—China maintains its one-child policy and India does not launch the kind of crash program of birth control that Prime Minister Indira Gandhi so controversially attempted in the 1970s.

There is another development that could affect future Indian and Chinese birthrates: the use of sonograms to ascertain the sex of a fetus. Wider availability of this technology has permitted an increase in gender-specific abortions. The official Chinese figures suggest that 118 boys are now being born in China for every 100 girls. As a result, millions of Chinese males may never find a mate with whom to raise a conventional family. The Chinese call such lonely males “bare branches.” The social and political implications of having such a large population of unattached men are unclear, but they are not likely to be happy.

Gender imbalances are not limited to China. They are apparent in South Korea, Taiwan, Pakistan, Bangladesh, and increasingly in India, particularly among the Sikhs. Valerie Hudson of Brigham Young University and Andrea den Boer of Britain’s University of Kent at Canterbury calculate that there 90 million “missing” women in Asia, 40 million each in China and India, six million in Pakistan, and three million in Bangladesh.

In a recent paper Hudson and den Boer asked, “Will it matter to India and China that by the year 2020, 12 to 15 percent of their young adult males will not be able to ‘settle down’ because the girls that would have grown up to be their wives were disposed of by their societies instead?” They answered, “The rate of criminal behavior of unmarried men is many times higher than that of married men; marriage is a reliable predictor of a downturn in reckless, antisocial, illegal, and violent behavior by young adult males.” Resulting cross-border “bridal raids,” rising crime rates, and widespread prostitution may come to define what could be called the geopolitics of sexual frustration.

The state’s response to crime and social unrest could prove to be a defining factor for China’s political future. The U.S. Central Intelligence Agency asked Hudson to discuss her dramatic suggestion that “in 2020 it may seem to China that it would be worth it to have a very bloody battle in which a lot of their young men could die in some glorious cause.” Other specialists are not as alarmed. Military observers point out that China is moving from a conscript army to a leaner, more professional force. And other scholars contend that China’s population is now aging so fast that the growing numbers of elderly people may well balance the surge of frustrated young males to produce a calmer and more peaceful nation.

China is also a key site of another striking demographic change: the rapid growth of the global middle class, perhaps the fastest-growing discrete segment of the world’s population. While the planet’s population is expected to grow by about one billion people by 2020, the global middle class will swell by as many as 1.8 billion, with a third of this number residing in China. The global economic recession will retard but not halt the expansion of the middle class—nobody expected growth without interruption.

The lower the birthrate, the greater the likelihood that a given society is developing—investing in education, accumulating disposable income and savings, and starting to consume at levels comparable to those of the middle classes in developed societies. Absent a shock factor such as war or famine, a society with a falling birthrate tends to be aspirational: Its members seek decent housing, education for their children, provision for health care and retirement and vacations, running water and flush toilets, electricity and appliances such as refrigerators and televisions and computers. As societies clamber up the prosperity chain, they also climb the mobility ladder, seeking bicycles, motor scooters, and eventually cars; they also climb the protein ladder, seeking better, more varied foods and more meat.

This pattern is apparent in China, India, and the Middle East. China’s new middle class, defined as those in households with incomes above about $10,000 a year, is now estimated to number between 100 million and 150 million people. Some put the figure in India as high as 200 million. But it is apparent from the urban landscape across the developing world—whether in Mumbai or Shanghai, São Paulo or Moscow, Dubai or Istanbul—that a growing proportion of consumers seek to emulate a Western-international lifestyle, which includes an air-conditioned house with a car in the garage, a private garden, satellite TV, and Internet access, along with the chance to raise a limited number of children, all of whom will have the opportunity to go to college. Whether the biosphere can adapt to such increases in consumption remains a critical question.

Perhaps the most striking fact about the demographic transformation now unfolding is that it is going to make the world look a lot more like Europe. The world is aging in an unprecedented way. A milepost in this process came in 1998, when for the first time the number of people in the developed world over the age of 60 outnumbered those below the age of 15. By 2047, the world as a whole will reach the same point.

The world’s median age is 28 today, and it is expected to reach 38 by the middle of the century. In the United States, the median age at that point will be a youngish 41, while it will be over 50 in Japan and 47 in Europe. The United States will be the only Western country to have been in the top 10 largest countries in terms of population size in both 1950 and 2050. Russia, Japan, Germany, Britain, and Italy were all demographic titans in the middle of the 20th century. Today, only Russia and Japan still (barely) make the top 10. They will not stay there long. The world has changed. There is more and faster change to come.

, a senior scholar at the Woodrow Wilson Center, is senior director of A. T. Kearney’s Global Business Policy Council.

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Neither the immigrants nor the Europeans are playing their assigned roles.

The World's New Numbers

In the 19th century, as history was transformed from a vocation to an academic pro­fession, historians began to specialize. Constitutional and diplomatic historians; economic, social, and military specialists; and historians of ideas emerged, then philosophical schools. Some historians preferred the ­top-­down view from the throne, others the ­bottom-­up perspective from the gutter or the plow. But some­thing was lost in the separation of history into these various specialties. Two recent books demonstrate just how fruitful it can be when scholars combine the findings and approaches of different academic ­disciplines.

In bringing economics into assessments of military history, Jurgen Brauer and Hubert van Tuyll also bring illumination. Cost efficiency isn't top of mind when we gaze on the ruins of some imposing medieval castle. But the analysis is clear. Kings and barons built castles because, however expensive, these fortifications were a great deal cheaper than the alternative of maintaining a large standing army. Moreover, castles provided a refuge for a suddenly vulnerable or beleaguered owner; standing armies, by contrast, often presented a threat to their commander. (The authors do not apply their calculus to ­non-­Western armies, but the example of China’s Great Wall or medieval Arab fortifi­cations suggest that similar factors may well have been at work.)

In our own day, the same analysis suggests that France developed nuclear weapons not simply to augment its prestige, but because doing so was cheaper than raising, training, and maintaining large conventional forces. Nuclear arsenals require a relatively high initial investment in science and technology (which can bring useful spinoffs to the wider economy), but thereafter tend to be cheaper to keep up than armored divisions and fleets of warships. In the 1960s, thanks in part to its nuclear weapons, France felt comfortable cutting 470,000 men from its armed forces.

Brauer and van Tuyll, who teach economics and history, respectively, at Augusta State University in Georgia, also turn their interdisciplinary lens on the mercenary arrangements of Renaissance Italy; the wars of Marlborough, Frederick the Great, and Napoleon; Grant’s campaigns in the Civil War; and the strategic bombings of World War II. The results are invariably stimulating. For example, in their analysis, the medieval drama of kings versus barons can be explained by the fact that, at the end of the ­12th ­century in England, a basic stone keep could be built for £350 and a ­state-­of-­the-­art version with curtain walls and gate houses for £1,000. While the king’s income never fell below £10,000 a year, only seven barons drew more than £400, and the average was about £200. That is why it took an alliance of barons to force King John to sign the Magna Carta in 1215. Within another 200 years, the relative power of the monarchy increased again, as the castles of even the richest and strongest barons could not withstand the cannon of the royal artillery train. Fortresses, in short, were central not only to the imposition of Norman power over England and Wales but also to the emergence of the centralized monarchy and nation-­state.

David Anthony’s book is a masterpiece. A professor of anthropology, Anthony brings to­gether archaeology, linguistics, and rare knowledge of Russian scholarship and the history of climate change to recast our understanding of the formation of early human society. 

 begins with perhaps the greatest unanswered question of ­pre­history: How, when, and why did the ­Indo-­European family of languages emerge and spread to dominate Eurasia from the Atlan­tic to the Indian ­Ocean?

A couple of insights from Anthony’s remark­able book may give some of its flavor. DNA studies show that all the world’s domestic horses developed from at least 77 ancestral mares, but quite possibly from a single stallion. A relatively docile stallion would have little hope of reproducing in the wild, as he would have to compete with violent and dominant males, but he would appeal to people looking for a manageable breeder for a domestic bloodline. In Anthony’s perceptive summation, domestication meant that “from the horse’s perspective, humans were the only way he could get a girl. From the human perspective, he was the only male sire they wanted.”

The strong likelihood of one sire for the world’s entire population of horses suggests a single point of origin for the ­horse-­dependent nomads of the ­steppes. A person on foot with a dog can herd about 200 sheep, Anthony observes, but on a horse can manage about 500. That is half of the key to the growth and spread of the steppe peoples. The other half is that once they had wheels, they could carry their own supplies and thus stay on the move indefi­nitely, fighting where they chose or running away if necessary. They could roam from the steppes above the Black Sea east into Siberia and west into Europe, and when warm and cold periods made the climate untenable for the early agrarian and urban settlements of the Mesopotamian region, the people of the steppes moved in. Language followed the ­carts.

is a senior scholar of the Wilson Center and senior director of A. T. Kearney's Global Business Policy Council. 

"Castles, Battles, and Bombs: How Economics Explains Military History"

 by Jurgen Brauer and Hubert van Tuyll, University of Chicago Press, 2008, and 

"The Horse, The Wheel, and Language: How Bronze-Age Riders from the Eurasian Steppes Shaped the Modern World"

 by David W. Anthony, Princeton University Press, 2008. 

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Martin Walker considers the forces that shape history. 

Making History

Like many other disappointed politicians, Ali Allawi turned to the consol­ations of philosophy and religion. The result is a re­markably thoughtful and engag­ing assessment of the current state and future prospects of the world of Islam. Allawi is the nephew of the Iraqi exile leader Ahmed Chalabi, who was briefly the darling of Washington’s neoconservatives. When Chalabi returned to Iraq upon the toppling of Saddam Hussein in 2003, Allawi followed, leaving his life as an Oxford don to serve as minister of trade and defense and then as minister of finance in the first transition ­governments.

Chastened and disillusioned by the experience, Allawi is now a visiting fellow at Princeton. His 2007 book 

 is by far the best descriptive analysis of the disasters that unfolded when American hopes met Iraqi realities. His new book joins the increasingly crowded debate over the fundamental question of whether Islam can be reconciled with the modern capitalist ­world.

His answer is a cautious and conditional “yes.” He believes that the capitalist West is being forced to change as its citizens recog­nize that environmental constraints have foreclosed the era of limitless material growth, and that personal ambition should operate within the broader context of the common good. “The rugged, autonomous individual so beloved by liberal philosophers and by Hollywood movies simply cannot exist outside the virtuous community,” he writes. “And Islam would add that neither the individual nor the society can be whole if they are not infused with the sense of the transcendent.”

But Islam has yet to reconcile with the better aspects of the ­post-­Renaissance and ­post-­Enlightenment West: intellectual freedom, the questioning of tradition, a commitment to education and the scientific method. Islam’s attempts to embrace modernity have taken false and essentially political paths, Allawi argues, whether through Arab nationalism, state socialism, the crazed jihadism of 9/11, or what he condemns as the “legal trickery” of so much modern Islamic finance (which allows some religious figures to line their pockets by certifying that particular investments comply with Islamic law). Allawi has little respect for “the Gulf countries’ exuberant embrace of a frantic ­hyper­modernity only scantily garbed in Islamic idioms,” and even less for the ­anti-­intellectual Wahhabism he blames for the implosion of Islamic cultural life and ­creativity.

Allawi overstates the deleterious effect of Wahhabism, which came along centuries after the Mongols and Tamerlane crushed the first great flowering of Islamic civilization. But he is right to point out disparities between what the Islamic world once was and what it is today. “The creative output of the 20 or 30 million Muslims of the Abbassid era [ad 750 to 1258] dwarfs the output of the nearly one-and-a-half billion Muslims of the modern era,” he comments sourly. The Muslim countries of the Organization of the Islamic Conference, a 57-member voting bloc in the United Nations, “have 8.5 scientists and technicians per 1,000 population, compared to a world average of 40.7 and a ­developed-­world figure of 139.3.”

Allawi devotes much of the book to the intellectual civil war within Islamic theology, asking whether “a modern society, with all its complexities, institutions, and tensions, [can] be built on a vision of the divine.” He finds a possible answer in the work of Syed Naquib ­al-­Attas. Born in 1931 in Java, ­al-­Attas attended Sand­hurst, the British military academy, and served as an officer in the Malay regiment before becoming a philosopher and teacher. He sought to create an institution to breed “the complete man, . . . a Muslim scholar who is universal in his outlook and is authoritative in several branches of related knowledge.” In Malaysia in 1987, he founded the International Institute of Islamic Thought and Civilization, which taught in English and quickly became an important center for a generation of Islamic scholars who questioned the traditional Arab dominance of Muslim ­thought.

But in 2004 ­al-­Attas was forced to retire, and his school was merged into an Islamic university dominated by Saudi-­funded rivals. Allawi sees ­al-­Attas as a victim “of an ongoing war, within the world of higher education in Malaysia and the wider Muslim world, around the issue of the meaning of the Islamization of knowledge and of the functions and purposes of an Islamic university.” Behind the conflict lies the relentless drive of Wahhabists with unlimited funds who seek to dominate Islamic intellectual life with their ­tradition-­based puritan approach. For Allawi, their mission represents “the closing of the Islamic mind.” Wahha­bism’s triumph is not final, he concludes, but for the moment its success means that “the ­much-­heralded Islamic ‘awakening’ of recent times will not be a prelude to the rebirth of an Islamic civilization; it will be another episode in its decline.”

 is a senior scholar at the Woodrow Wilson Center and senior director of A.T. Kearney's Global Business Policy Council.

 by Ali A. Allawi, Yale University Press, 304 pp, 2009.

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Reviewing a new study of Islam and the modern world.

A Modern Problem

The economist, historian, and diplomat John Kenneth Galbraith coined the phrase “private affluence and public squalor” in his 1958 book 

 to capture a paradox of contemporary American life. Throughout most periods of civilization, the greatest share of investment and adornment went into structures that served an essentially public purpose, from temples to palaces, government offices to banks, barracks to transport terminals. Most people, however, lived in considerably humbler and even squalid surroundings. The coming of the mass middle class and widespread prosperity began to change this pattern, particularly in the United States. The private home and its furnishings, the vacation home and its associated toys, became the focus of the great shift from public to private consumption.

In the 25 years from 1983 to 2008, this process entered a new and even extreme phase. For several decades after World War II, private consumption measured as a share of gross domestic product had remained within a range of 61 to 63 percent. But in 1983 consumption began a steady rise, peaking at 70 percent in 2007. Initially, this increase was fueled by the erosion of private savings, which declined from nine percent of GDP in 1982 to nearly zero in 2005. The rate change is explained by the fact that homeowners were cashing in on the assumed increase in the value of their homes; by the end of the period, Americans were taking out some $500 billion annually in home equity loans.

But the collapse of private savings was not the only distinguishing feature of this extraordinary period. Public investment, particularly in essential infrastructure, also declined. A report by the American Society of Civil Engineers puts the deficit in infrastructure investment at $2.2 trillion this year, up from $1.7 trillion in 2007. The report assigned a grade to each of 15 essential public services, including transit, bridges, and schools. The highest was a C plus, for solid waste disposal. Eleven of the 15 services rated a D, with drinking water, roads, inland waterways, and levees the worst, each graded D minus.

The United States in recent years has taken Galbraith’s paradox of private affluence and public squalor not simply to an extreme, but almost to an absurdity. Like the grasshopper in Aesop’s fable, who played as if the happy days would never end while the industrious ant prepared for the future, Americans stopped saving and stopped investing as they consumed on credit. The Great Recession has put an end to this. The personal savings rate has bounced back to almost six percent of GDP and personal consumption is declining, while President Barack Obama is committing more federal money to infrastructure and other public investments.

Saving money is good for individuals but grim for the economy when millions of others do the same thing.

The decline in U.S. consumption is tough for everybody. It hurts American businesses and thus increases unemployment. It also hurts exporters from China and other countries who have grown accustomed to the ever-open maw of the American consumer, whose heroic appetite hauled the world economy out of the recessions of 1980–82, 1991–92, and 2001. One of the key questions hanging ominously over the global economy is whether Americans will permanently lower their consumption level toward the norm of other developed economies, which on average consume 60 to 63 percent of their GDP (basically, America’s pre-1983 range).

Some key American business leaders believe that the change is permanent. Steve Ballmer of Microsoft says it represents “a fundamental economic reset,” a theme echoed by Jeffrey Immelt of General Electric. “If you think this is only a cycle, you’re just wrong. . . . There are going to be elements of the economy that will never be the same, ever,” Immelt noted this year. “We’re going to come out of this in a different world.”