There is a plethora of opinion about the current state of Buddhism globally, ranging from wildly optimistic "Buddhism is growing like never before" to less optimistic views of the Dharma having been in sharp decline for a long time and Kali Yuga being imminent.
I don't hold either of those views, although I also don't see them as diametrically opposed either. Yes Buddhism is spreading and Dharma is becoming available to lots of people, but at the same time it has been damaged quite severely by unhealthy political and economic trends. Capitalism and Communism have both damaged Asian Buddhism immensely. In Cambodia nearly all monks and nuns were executed by Pol Pot and the Tibetan situation is ongoing. Capitalism, combined with Western cultural imperialism has also severely damaged Asian Buddhism.
There are lots of theories about why there would be a general decline in the Dharma. I say Dharma as opposed to the instituion(s) of Buddhism as this is something more worrying. As long as there is an ordained Sangha and continuation/transmission of the teachings, the Dharma will remain. However the dillution of it may erode it from within.
The way rituals are performed, the way the ordained Sangha dress and behave, how shrines are set up and all manner of other things will change. Change is a key concept in Buddhist doctrine. However when people start to say they are practicing Dharma with no mention of cause and conditions (Karma), the things are looking bleak.
Karma doesn't stop simply because it's inconvenient. I'm not going to go into a massive rant about how intent is central to Buddhist morality or how the doctrine of karma is extremely complicated, yet is often summarised as "do good and good happens, and vice versa", my point is rather one of karma needing to be a much more central issue than it often seems to be.
The internet and the Western Buddhist world is full of people who seem only interested in practicing the 'highest' teachings. However practicing without a solid understanding, and more importantly mindfulness of ones actions seems insane.
"Although my view is higher than the sky,
My respect for the cause and effect of actions is as fine as grains of flour." Padmasambhava
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Buddhism in Japan, like other places in Asia, has been severely damaged by social and consumer trends as well as the vast majority of priests not observing their precepts. If you ask a Japanese person what they think of Buddhism they'll usually respond something about funerals. Dig a little deeper and you'll probably discover they're materialists too who deny rebirth. I've met priests here in Japan who reject rebirth, break most of their basic precepts and think nothing of it. Unfortunately there are some materialist views within Japanese Buddhism and naive westerners find justification for their rejection of karma and rebirth because some Japanese guy also holds the same view. It is really unfortunate.
I'd say the current state of Buddhism in the world is generally okay for the moment, but there are so many obstacles. The big one is that as time goes on youth in Buddhist cultures will be increasingly exposed to western materialism which completely undermines Buddhist ethics. If people start rejecting karma and rebirth they'll see little relevance in supporting a sangha or meditating.
I think you're also correct about the highest teachings being popular while the basics are conveniently ignored. I'm guilty of this myself, though I've come to see how essential the basics are and have went back to the very basics as a result. We all wants enlightenment right here, right now and don't tell me that it takes several lifetimes.
In East Asian Buddhism (in East Asia as opposed to transplanted versions in the west), however, people are a bit more patient and see Bodhisattvahood as a kind of distant goal to work towards. I've never met anyone that expected to become fully enlightened in this life. In Theravada as well I think most people would recognize that before you're an Arhat you gotta be a stream entrant. If you manage to get stream entry this lifetime, you still have several more lifetimes to go.
The result is a more casual faith-based approach to practise. Donations, service to the temples and monastics, morality and such. Meditation and the higher teachings are left to the monks and nuns.
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