The geostrategic consultancy firm Wikistrat, where I’m a contributing analyst, is running a simulation about China’s future right now with an emphasis on everything that could inhibit the country’s growth rates. The aging population factor was raised by Nicholas Kokkinos who points out that, “The effects on labor supply of a reduced workforce will drive up wages, leading to shifts in demographics and urbanization, as firms move inland or elsewhere in Asia and Africa.”

Already, labor costs in China are rising fast, compelling foreign manufacturers to move production elsewhere. If, in the absence of an extended safety net, the current generation of workers has to spend even more on the care of their parents and grandparents in the near future, they will demand higher salaries, making them all the less competitive if their level of skill doesn’t keep up.

But wait, there’s hope! (For China’s economy anyway, definitely not its seniors.) According T. Michael Lutas and Matthew Garcia, who blogs at Hydro-Logic, pollution could take care of this problem.

Put very simply, if you’re sick from the air you breathe, the water you drink and the food you eat, the chances of you fulfilling your potential decline.

“If the race is for China to get rich before it gets old, pollution is an unacknowledged competitor,” they write.

Cynical? You bet. It may be difficult to gauge the exact effect that pollution has on the life expectancy of Chinese seniors but there’s little doubt that effect it has.

As always, there’s a tradeoff. “Those still growing up while the pollution is at its worst will suffer the damage of a shortened life span.” So the very group that it supposed to finance China’s elderly in the future could be reduced as well. Which takes us back to where we started.

Russia’s reluctance to intervene in Kyrgyzstan was emblematic of the problems Russia faces in Central Asia — problems which it created in the 1920s and 1930s when it defined the borders of these republics which do not at all correspondent to ethnic realities on the ground. This was intentional. Joseph Stalin kept the peoples of the steppes divided and preoccupied with nationalist sentiments lest they challenge Soviet hegemony. Violent demarcation disputes followed the collapse of the Soviet Union in 1991. Separating the five now independent states are Soviet borders; linking them are Soviet roads, pipelines and power grids.

You have in the region fairly authoritarian states and unstable democracies that may be susceptible to Russian influence but aren’t exactly the sort of stalwart allies Moscow that needs if it is to recapture some of the prestige it lost in 1989/1991. There could be more trade though and that’s what Putin is hoping for too.

In the European Union section, two policy options stand out. One is timid and allows Europe to be reasonably sure of success if it plays it safe and seeks self-sufficiency. The other is more bold but it has the potential of establishing Europe as a leader in twenty-first century energy.

The objectives of the two options are the same — achieve energy independence (especially of Russia), reduce costs and protect the environment. The way to get there can be very different though.

Marinko Bobic, Lorenzo Nannetti and Ralph Schoellhammer were the main contributors to the “Play It Safe” option. They write that Europe should invest in clean energy sources and shale gas while implementing policies aimed at energy conservation. “Investing in environmentally friendly technology may provide a chance for countries such as Spain and Greece to grow out of their financial problems in the mid to long term,” they add.

It will be an expensive undertaking for governments though. “Benefits would only be felt in the long term.” If shale proves to be shallow, the continent has only proven green energy, including wind, at its disposal (environmentalists would oppose more nuclear) which is heavily subsidized. In the worst case, the authors point out, it would drive Europe back into Russia’s arms.

Gabor Bolgar and Daniel Kowalski, both Wikistrat researchers, have an alternative: “Playing Catch up.” They point out that Europe has shale gas reserves that are as large as America’s but that European fracking technology is outdated. “By attracting foreign capital and expertise, the European Union can speed up its learning curve,” they write. “Investors will be attracted by significantly higher gas prices in Europe, if EU regulations allow their operations.”

I’m instinctively drawn to this option because it relies on markets not government. Unfortunately, the majority of the European populace doesn’t share my enthusiasm for market forces so, “key for a European fracking boom is to convince the public that potential economic gains outweigh environmental concerns.” Good luck!

France has already banned fracking. Eastern European countries including Poland the Ukraine are leading the way which isn’t surprising given their reliance on Russian gas imports.

If Russia loses this critical wedge, “it may become more antagonistic toward Europe and turn to other means in order to stop it from becoming insignificant,” write Bolgar and Kowalski.

They’re also worried that because the process of harmonizing regulation across the European Union is so protracted, “investors might be hesitating given different regulations in different countries.” I’m not convinced. Regulatory competition between countries is a good thing. There’s a role for the EU if projects cross borders but national governments should be quite capable of keeping out of the way.

In Russia today, it’s also the downtrodden that are attracted the ideologies — communism and nationalism — that promise a return to the good old days that really weren’t. Putin tells them that economic integration across the former Soviet empire is the solution. He champions freer trade and economic modernization. This, he says, will curb migration from neighboring states and improve the lot of ordinary Russians at the same time.

He’s probably right but it sounds an awful lot like the europhile promises of politicians who see the duel specter of populism and protectionism rise in Europe at a time of crisis. They’re not succeeding and probably won’t until the continent experiences growth and prosperity again.

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