Essays on Geopolitics That Matter
Foreword by
Klaus Schwab
A PENGUIN SPECIAL
FROM PORTFOLIO
Published by the Penguin Group
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First published 2012
Copyright © Eurasia Group and International Capital Strategies, LLC, 2012
All rights reserved
ISBN: 978-0-67-092341-0
About the Book
Also by Ian Bremmer
Foreword by Klaus Schwab
About the World Economic Forum
Introduction by Ian Bremmer and Douglas Rediker
Chapter 1
Euro Zone: Can Euro-economics Survive Euro-politics?
By Antonio Barroso
Chapter 2
International Management of Europe’s Financial Crisis: The Role of the “Troika”
By David Gordon and Douglas Rediker
Chapter 3
Watching the Russian Wildcard
By Dmitri Trenin
Chapter 4
The Arab Awakening: What It’s Really All About
By Nader Mousavizadeh
Chapter 5
Divergence: Leading Emerging Markets Are Headed in Different Directions
By Alexander Kliment and Christopher Garman
Chapter 6
Asia Enters the Rapids: A Volatile Moment in a Crucial Region
By Ian Bremmer and Willis Sparks
Chapter 7
Doubling Down on Economic Statecraft: What’s at Stake for the United States and the World America Built?
By Jennifer Harris
Chapter 8
Afghanistan: Yet Again a Grave Geopolitical Risk?
By Nasim Zehra
Chapter 9
A Perfect Storm for Global Governance: The Rise of Regionalism and Regional Institutions
By the Global Agenda Council on Geopolitical Risk
Notes
Contributors
Acknowledgments
EVERY NATION FOR ITSELF:
Winners and Losers in a G-Zero World
THE END OF THE FREE MARKET:
Who Wins the War Between States and Corporations?
THE FAT TAIL:
The Power of Political Knowledge in an Uncertain World
(with Preston Keat)
THE J CURVE:
A New Way to Understand Why Nations Rise and Fall
In the wake of the global financial crisis, we have come to a critical crossroads. We can now reflect on the events of 2008 and 2009 with enough distance to provide perspective—but we remain in a moment of transition as our global systems and institutions face challenges that are both fundamental and fast-moving. The need for a global agenda is beyond dispute. Our most pressing challenges must be addressed collectively if we are to overcome them.
The risk that geopolitical conflict will upset that agenda is more apparent than at any point in recent history. After decades characterized by accelerating globalization, we are now witnessing deglobalization. This dynamic is taking place alongside a broader shift in political and economic power from the developed to the developing world, expressed in the many bonds that connect us politically, economically, and socially. But the fact that globalization is no longer the worldwide norm and underlying driver of growth does not mean our world is any less interconnected. On the contrary, nations are becoming ever more interdependent. Increasingly, we share the same media of communication, seek the same natural resources, and face the same transnational threats, whether from climate change or nuclear proliferation. This divide—between the splintering of global governance and the increasingly hyperconnected world—is at the root of the challenges we face.
What are the implications of this phenomenon? What changes can we expect? We see a new regionalism that, in some cases, sharpens a wide range of international challenges, many of which are the focal points for our Global Agenda Councils at the World Economic Forum (WEF). This trend is both geographic and thematic, as governance, crisis response, and many vital geopolitical and economic questions will continue to receive less attention than they deserve—and will increasingly be addressed in a piecemeal fashion at a regional level.
We can say with certainty that political risk has returned with a vengeance. How we address the system’s failings of today will shape the world order of tomorrow.
The WEF was created in 1971 with a primary guiding principle—the Stakeholder Theory. This concept is based on the belief that a business must ultimately serve the needs not just of shareholders but of all stakeholders of global society. Which means that a business must also be accountable for its choices to employees, members of the supply chain, and anyone whose livelihood is tied to the firm’s continued prosperity.
In an increasingly interconnected world, looming political challenges must be interpreted in just this way. The interplay between issues that foster conflicts can amplify and perpetuate them, and it is important to recognize the ever-widening scope of countries, companies, institutions, and citizens that are exposed to seemingly isolated threats. In this vein, while this book represents a collection—rather than a comprehensive portrait—of the geopolitical risks we face, I hope that readers will find the connections between the various issues illustrated herein and come away with a broader sense of how these pieces fit together.
The ideas you find here reflect the insightful, forward-looking work of the Global Agenda Council on critical topics, drawing from our 2011 report on the changing world order and expanding on it to illustrate where the world may be headed. In short, this collection of essays is an attempt to gather the most pressing political risks we face “under one roof.”
In fact, this is the WEF’s core goal: to provide a high-level, trusted environment for discussion and informed debate, bringing together the world’s leading thinkers from a wide spectrum of industries. The Network of Global Agenda Councils that we launched in 2008 are a direct result of this initiative; it has become an integral part of our mission to identify key challenges—and to develop new ways of addressing them—in the post-crisis global order. Working with Ian Bremmer, Doug Rediker, and the entire Global Agenda Council on Geopolitical Risk has been a provocative and rewarding experience.
In today’s world, political and business leaders too often simply react to events rather than work to proactively address them. To overcome this, we must learn to better anticipate, mitigate, and respond to what comes next. That is the purpose behind this collection of essays. It goes without saying that this type of risk assessment will inform the WEF’s Annual Meeting agenda in Davos—and I am delighted to share these essays with you here.
Professor Klaus Schwab,
Founder and Executive Chairman,
World Economic Forum
In the last four years, the world has suffered a financial market meltdown and subsequent global recession. The euro is in crisis, the future of Afghanistan remains in question, the Middle East has been in turmoil since the Arab Spring, and shifting Asian economies promise to change the world economy as a whole. Political and economic challenges intertwine now more than ever before, as the demands of local politics and global business grow increasingly complex and conflict in new ways. Facing these new challenges, what will the future hold?
In What’s Next, Ian Bremmer and Douglas Rediker, together with their colleagues from the Global Agenda Council on Geopolitical Risk, address these global issues and provide a forecast for how they will change our world in the next few years. Focusing in on the most volatile, powerful, or misunderstood developments, experts from the council examine the risks to the International Monetary Fund, Russia’s future, the roles of emerging markets, and the future of U.S. foreign policy. They analyze the political roots of the euro zone crisis, discuss the importance of Russia to the global economy, and explain why regional politics are a key factor in both international politics and the world’s economy. Most importantly, they provide a reminder that our world is constantly changing and provide guidance on how to understand some of the key players in the evolving global game.
The World Economic Forum is an independent international organization committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas. Incorporated as a notfor-profit foundation in 1971 and headquartered in Geneva, Switzerland, the Forum is tied to no political, partisan, or national interests.
In the four decades since the European Management Forum, predecessor of the World Economic Forum (WEF), was formed, the increasingly free cross-border flow of ideas, information, people, capital, goods, and services has become the defining foundation of international politics and the global business environment. Multilateralism, transnational governing institutions, the digital revolution, and the rise of nonstate actors, including the WEF itself, have played an ever more prominent role in defining the world order and driving the global economy.
In 2008, the WEF created the Global Agenda Councils to bring together independent thought leadership from members of academia, government, and the private sector around the world on topics critical to global governance in a rapidly changing world. The councils work on topics as diverse as energy security, international trade, human rights, migration, and dozens of other issue areas and, individually and in concert, they monitor key trends, identify global risks, address gaps in knowledge, and create a backdrop to inform discussion and debate at the WEF Annual Meeting at Davos.
The same year that the Global Agenda Councils were launched, the world suffered a financial market meltdown, and the subsequent global recession reminded us that, even in our globalized age, borders still matter— and that traditional geopolitical risk, rather than diminishing in importance, has become more important than ever. World leaders faced increasingly complex sets of political and economic challenges, but many of them turned inward to focus their attention on how global events and responses would affect their domestic agendas. The globalized world began to fragment. The demands of local politics and global business seemed increasingly at odds. And political and business leaders faced challenges more complex than ever.
The founders of the WEF understood two generations ago that political and economic stability are increasingly intertwined and that political and business decision makers do not always have an adequate understanding of one another’s philosophies, motivations, and assumptions. Today, it is at the intersection of politics and business that forum members bring about lasting, positive change. The creation of a Global Agenda Council on Geopolitical Risk provides the forum with ideas and insights that underpin virtually all other councils’ agendas and that simply cannot be captured in any other way.
With the obvious growth in importance of geopolitical risk over the past five years, our council has sought to provide a foundation on which to build understanding of virtually all other aspects of the forum’s work—through other councils, at the annual meeting in Davos, and elsewhere. As chair and cochair of the Global Agenda Council on Geopolitical Risk for this past year, we spearheaded efforts to explore topics that will be important political and economic drivers for 2013 and in years to come. These areas can serve as the backdrop/foundation for all other areas of the forum’s work.
This e-book is intended as a survey. The essays that follow are not meant to cover every aspect of contemporary geopolitical risk or even to serve as a summary of our work. Instead, they are a reminder of the backdrop against which the world is now changing and as a caution that leaders in business and government must look beyond the headlines and short-term fixes to ensure that events are not misread and improperly addressed. First, Antonio Barroso looks at the delicate political balance beneath the euro zone’s crisis of confidence. David Gordon and Doug Rediker then highlight the vital (and poorly understood) risks that Europe’s troubles pose for the International Monetary Fund and its troika partners. Dmitri Trenin reminds us that Russia’s longer-term future is as important for global politics as it is unpredictable. Nader Mousavizadeh identifies what the Arab Spring represents and what it does not. Alexander Kliment and Christopher Garman explain why not all emerging market powerhouses are created equal. Ian Bremmer and Willis Sparks detail the complex interplay of forces shaping Asia—and, by extension, the future of the global economy. Jennifer Harris looks at a potentially game-changing innovation in U.S. foreign policy, and Nasim Zehra explores the future of Afghanistan and its importance for the wider region. Finally, all of the members of the 2011–2012 Global Agenda Council on Geopolitical Risk present a report on the growing importance of regional dynamics for international politics and the future of the global economy.
Neither the ongoing work of the Global Agenda Council on Geopolitical Risk nor this book is intended to serve as an immediate call to some form of specific action. Rather, we hope that these essays will serve as a reminder that today’s international environment and the geopolitical risks they create will help shape the ability of every other council within the WEF to break new ground in their respective subject areas—and, in keeping with the WEF mandate, to make the world a better place.
Ian Bremmer and Douglas Rediker
October 2012
As the euro zone enters its third year of turmoil, it has become ever more obvious that politics, not economics, is driving the current uncertainty. Think of the euro crisis as a disease. Last year, the patient survived an acute crisis. At the moment, it feels more like he is suffering from a chronic condition. But the potential for a full-blown crisis still exists, and political radicalization could become a primary source of infection.
In coming months, governments in peripheral countries will struggle to implement new austerity measures, and their populations will continue to suffer the pain of spending cuts and rising unemployment. Pressure will build on politicians to veer off the reformist path prescribed by European institutions (mostly the European Commission and the European Central Bank), other euro zone states (mostly Germany) and the markets. Simultaneously, leaders in core countries will face criticism at home for financing weaker countries. The next two years are likely to provide the most fertile ground for populism that the European Union has ever experienced.
How governments and political parties respond to this challenge will determine the future not only of the common currency but of the entire European project. Political scientists frequently talk about “critical junctures,” or short periods in history where there is a high probability that the institutions that have shaped political systems (like political party systems) are modified. Looking at the current course of events, the euro crisis could well constitute one of those moments that undermine the political foundations of European democracies for years to come, and not necessarily for the better.
The euro zone crisis is not a purely economic or a purely political problem: it is the interaction between the two that is dangerous. When things are going well in Europe (as in the decade preceding the Great Recession), good economics breed positive politics and stability. For now, that trend has reversed, creating a negative feedback loop: bad economics provokes fractious politics, which, in turn, exacerbates economic problems.
Nothing better illustrates this problem than the fate of incumbent governments since the start of the Great Recession. Since 2010, the crisis has claimed the heads of no fewer than six euro area premiers, either through elections (Greece, Ireland, Portugal, Spain, and France) or through technocratic arrangements reached under extreme market pressure (Italy). In the current context, newly elected prime ministers can count on just two things: (a) that their popularity will significantly decrease as they implement their policies and (b) that the probability of being reelected at the end of their terms will be extremely low. As Jean-Claude Juncker, chief of the Eurogroup, the euro area’s finance ministers, said in 2005: “We all know what to do; we just don’t know how to get re-elected after we’ve done it.”
Moreover, the incumbency curse does not seem to spare ideologies. A recent study by Josep Colomer and Pedro Magalhães of Georgetown University showed that governing parties of both the left and the right have lost elections in equal proportion since the crisis started. As the authors bluntly put it, the crisis is leading voters to show a strong willingness to “fire the coach” for the poor performance of their economies, even if citizens know that current governments are not fully responsible for the economic problems facing their countries. Voters are angry, and elections are their best opportunity to express that anger.
So far, incumbents in peripheral countries have reluctantly swallowed austerity prescriptions, knowing than the costs of inaction (i.e., being remembered as the prime minister that drove his or her country out of the euro) outweigh the costs of implementing unpopular policies (i.e., political suicide in the next election). Governments in Ireland, Portugal, and Spain are pushing for fiscal and economic reform programs that have been explicitly or implicitly imposed by European institutions. And the main opposition parties in these countries have remained relatively constructive in their criticism, though not necessarily supportive, of the policies of their rivals.
But the risk that populism will infect mainstream politics is rising, especially as bottom-up pressure continues to build. For instance, in Greece, the new conservative prime minister, Antonis Samaras, repeatedly refused to support the bailout program and forced early elections that subsequently led to political stalemate and a significant surge in the popularity of Syriza, a (then-small) leftist party that has campaigned against the rescue package, austerity, and the political status quo.
However, it is not just peripheral countries that are vulnerable to political radicalization. In France in 2012, the two main presidential candidates proposed policies that ranged from removing the country from the Schengen Agreement to establish tighter controls on illegal immigration to implementing a 75 percent tax rate on the highest-income earners. In the Netherlands, the government recently lost its majority in parliament when far-right leader Geert Wilders—a staunch advocate for leaving the euro—decided not to support further fiscal retrenchment, triggering early elections. The virus of populism is spreading, and very few countries seem immune to it.
The Great Recession is largely to blame for populism’s growing appeal. The crisis has made evident two realities of the current economic and political system in Europe. First is the rediscovery of globalization. Second is the realization that Europe’s democracies are more deeply flawed than previously believed. These hard truths provide an excellent opportunity for once-irrelevant parties to return to the forefront of their respective political systems.
Learning How the Economy Works
For the first time in more than a decade, many citizens (and probably several politicians) have learned bitter lessons about “the markets,” or more specifically, that their governments and banks depend on financing from creditors to continue operating. Because the lack of financing could lead to a sovereign default and increase the risk of a euro breakup, the response of the euro zone—fundamentally shaped by Germany—has been to force austerity in order to reduce budget deficits and regain the trust of investors. The recession has also provided a powerful reminder that European countries compete in a global economy and that uncompetitive economies are bound to suffer a difficult fate. Europe has opted for promoting the adoption of structural reforms in countries with competitiveness problems, often as a precondition for receiving crisis financing. This is coupled with market pressure, which core countries continue to think is the ultimate “discipline enforcer” for profligate peripheral economies.