Ian Bremmer and Nouriel Roubini
This is not a G-20 world. Over the past several months, the expanded group of leading economies has gone from a would-be concert of nations to a cacophony of competing voices as the urgency of the financial crisis has waned and the diversity of political and economic values within the group has asserted itself. Nor is there a viable G-2 -- a U.S.-Chinese solution for pressing transnational problems -- because
Today,
We are now living in a G-Zero world, one in which no single country or bloc of countries has the political and economic leverage -- or the will -- to drive a truly international agenda. The result will be intensified conflict on the international stage over vitally important issues, such as international macroeconomic coordination, financial regulatory reform, trade policy, and climate change. This new order has far-reaching implications for the global economy, as companies around the world sit on enormous stockpiles of cash, waiting for the current era of political and economic uncertainty to pass. Many of them can expect an extended wait.
THE OLD BOYS' CLUB
Until the mid-1990s, the
In 1997, the U.S.-dominated
The recent financial crisis and global market meltdown have sent a much larger shock wave through the international system than anything that followed the collapse of the Soviet bloc. In
But as the economic recovery began, the sense of crisis abated in some countries. It became clear that
As
Meanwhile,
Politicians in Western countries, battered by criticism that they have failed to produce a robust recovery, have blamed scapegoats overseas. U.S.-Chinese political tensions have risen significantly over the past several months.
THE EMPTY DRIVER'S SEAT
There is nothing new about this bickering and inaction. Four decades after the Nuclear Nonproliferation Treaty, for example, the major powers still have not agreed on how to build and maintain an effective nonproliferation regime that can halt the spread of the world's most dangerous weapons and technologies. In fact, global defense policy has always been essentially a zero-sum game, as one country or bloc of countries works to maximize its defense capabilities in ways that (deliberately or indirectly) challenge the military preeminence of its rivals.
International commerce is a different game; trade can benefit all players. But the divergence of economic interests in the wake of the financial crisis has undermined global economic cooperation, throwing a wrench into the gears of globalization. In the past, the global economy has relied on a hegemon -- the
For the past 20 years, whatever their differences on security issues, governments of the world's major developed and developing states have had common economic goals. The growth of
But for the next 20 years, negotiations on economic and trade issues are likely to be driven by competition just as much as recent debates over nuclear nonproliferation and climate change have. The Doha Round is as dead as the dodo, and the
Conflicts over trade liberalization have recently pitted
Before last November's G-20 summit in
Other intractable disagreements include debates over subsidies for farmers in
Asset and financial protectionism are on the rise, too. A Chinese state-owned oil company attempted to purchase the U.S. energy firm
The most important source of international conflict may well come from debates over how best to ensure that an international economic meltdown never happens again. Future global monetary and financial stability will require much greater international coordination on the regulation and supervision of the financial system. Eventually, they may even require a global super-regulator, given that capital is mobile while regulatory policies remain national. But disagreements on these issues run deep. The governments of many developing countries fear that the creation of tighter international rules for financial firms would bind them more tightly to the financial systems of the very Western economies that they blame for creating the recent crisis. And there are significant disagreements even among advanced economies on how to reform the system of regulation and supervision of financial institutions.
Global trade imbalances remain wide and are getting even wider, increasing the risk of currency wars -- not only between
WHO NEEDS TO DOLLAR?
Following previous crises in emerging markets, such as the Asian financial meltdown of the late 1990s, policymakers in those economies committed themselves to maintaining weak currencies, running current account surpluses, and self-insuring against liquidity runs by accumulating huge foreign exchange reserves. This strategy grew in part from a mistrust that the IMF could be counted on to act as the lender of last resort. Deficit countries, such as
Meanwhile, debates over alternatives to the U.S. dollar, including that of giving a greater role to Special Drawing Rights (an international reserve asset based on a basket of five national currencies created by the IMF to supplement gold and dollar reserves), as
In addition, energy producers are resisting policies aimed at stabilizing price volatility through a more flexible energy supply. Meanwhile, net energy exporters, especially
From 1945 until 1990, the global balance of power was defined primarily by relative differences in military capability. It was not market-moving innovation or cultural dynamism that bolstered the Soviet bloc's prominence within a bipolar international system. It was raw military power. Today, it is the centrality of
This is the core of the G-Zero dilemma. The phrase "collective security" conjures up
Beyond
Indeed, because each government must work to build domestic security and prosperity to fit its own unique political, economic, geographic, cultural, and historical circumstances, state capitalism is a system that must be unique to every country that practices it. This is why, despite pledges recorded in G-20 communiqués to "avoid the mistakes of the past," protectionism is alive and well. It is why the process of creating a new international financial architecture is unlikely to create a structure that complies with any credible building code. And it is why the G-Zero era is more likely to produce protracted conflict than anything resembling a new
IAN BREMMER is President of Eurasia Group, the political risk consulting firm, and the author of The End of the Free Market. NOURIEL ROUBINI is Professor of Economics at New York University's Stern School of Business, Chair of Roubini Global Economics, and a co-author of Crisis Economics.
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