Global trends underscore the role of innovation.

It may be surprising to many of you that one of the nation's oldest organizations, the U.S. Coast Guard, is leading the way in making innovation a key tenet in its day-to-day business. In the Coast Guard, there is a growing understanding that innovation is not just about replacing capital assets but it's also about doing things differently and making better use of capabilities they already have.

Innovation, in other words, will be requisite for survival in a world with finite resources.

What we face is not a pretty picture, according to Erik R. Peterson, senior vice president of the Global Strategy Institute, whose mission is to provide world leaders with strategic insights and solutions to emerging global challenges. The institute is funded by the Center for Strategic and International Studies, a nonpartisan think tank based in Washington, D.C.

Peterson addressed the Coast Guard's annual Innovation Symposium and Exhibition in San Diego last month, which was organized by NDIA. The challenges we face, says Peterson, can be summarized in what he calls "Seven Revolutions." He describes each one as follows:

Population. Currently at 6.30 billion, the total world population will grow by almost two billion by 2025. Eighty percent of the world's population will be in countries least capable of supporting further population growth. Although the populations of many developed countries will actually be smaller in 2025, by then, the developing world will experience an enormous youth bulge.

Resource Management. The combined effects of population increase and income growth are expected to double global food consumption in the next 30 years. Water and energy also are core resources at issue.

The most serious resource challenge in 2025 will be the scarcity of water.

Reliance on hydrocarbons is not likely to change significantly, but the geopolitics of energy, however, will change. There will be a significant concentration of production in the Persian Gulf, and drastic increases in demand will come from the developing world, Asia in particular.

Technology. The three major and simultaneous drivers of technological change during the next 25 years are computation, genomics and nanotechnology. If you have children or grandchildren under the age of 10, the introduction of genetic medicines and therapies could help many of them live to be 120 years old, maybe older. IBM has just produced, with organic molecules, a computer circuit so small that 200 billion of them could fit on a thumbnail.

Knowledge. Economists have traditionally pointed to three factors of production: land, labor and capital. In the information economy that is materializing, all of these will be overshadowed by a new and primary factor: knowledge. Increasing dependence on information flows also means increasing vulnerability. Hacking, identity theft and cyber-stalking are all forms of destructive, predatory behavior that can be done with relatively little know-how and few tools.

Economic Integration. Advances in technology have not only increased the scope, speed and efficiency of business operations worldwide, but they also have brought down the costs of distance by gradually eliminating the burdens of communication, geography, transportation, language and even time. The result has been globalization--a staggering increase in the cross-border flow of goods and services.

But the obstacles to economic development are tremendous. A staggering 2.8 billion people live on less than $2 a day. In fact, 1.2 billion live on less than $1 a day. The evidence suggests that these income gaps are widening, not dosing. The accumulated wealth of the 225 richest individuals in the world is equivalent to the combined annual revenue of 2.7 billion people at the bottom of the income ladder.

Conflict. In the future, the year 2001 will be remembered for the formal arrival of asymmetric warfare in the United States. The 9/11 attacks started an era in which organizations, with the determination to cause great destruction, will seek to use weapons of mass effect--nuclear, radiological, biological and chemical. Another threat looming over nations is cyber-warfare. Armed with the tools of cyber-warfare, sub state, non-state or even individual actors are now powerful enough to destabilize targeted states and societies.

During the next 25 years, it is expected that the lines among lawlessness, crime, disorder, terrorism and war will become increasingly blurred, a development that will challenge governments to the limits in terms of managing and containing threats.

Governance. Of the world's 100 largest economic entities, 42 are now corporations, not countries. In 2002, General Motors earned revenues making it the 24th largest economic entity in the world. New demands are emerging on corporate governance. Companies face the challenge of juggling a triple bottom line from shareholders, management and the public at large. Revenues of the Wal-Mart Corporation in 2002 totaled $246 billion, making it the 19th largest economic entity in the world.

This global view of where we may be heading is highly relevant to the U.S. defense industry, which increasingly has become globalized and less able to control what happens outside our borders. While the nation's annual spending on defense reaches the $500 billion mark, there are signs that point to a potentially devastating fiscal crunch that will force the government--especially the Defense Department--to make tough decisions about how to allocate dwindling resources.

Although no one can predict the future precisely, it is virtually certain that the U.S. government will need to slow down discretionary (non-entitlement) spending in the years ahead. The comptroller general of the United States, David Walker, repeatedly has issued sobering messages about the escalating cost of health benefits and other mandatory expenditures, and the inevitability that agencies with discretionary budgets--such as the Defense Department will face cutbacks.

The Coast Guard, for its part, is confronting serious fiscal predicaments, as its largest-ever modernization program, the Integrated Deepwater Systems, faces significant budget cuts. Coast Guard leaders at the conference in San Diego made it dear that, in this environment, innovation, especially that associated with better integration of existing capabilities, is the way forward.

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