Ian Bremmer and David Gordon
The risks that exercise us most usually center on a country, an issue, an event. We worry over political chaos before or after an election, a coup in a fragile regime, or military conflict with a rogue nation. But for the first time since we've been writing, the political risk environment is much broader this year. It's the change in the world order itself that gives us most cause for concern.
Two years after the financial crisis, there's a strong argument to be made for optimism. The American economy is poised for (at least modest) growth and emerging markets are still churning ahead. By that logic, it's high time for governments, captains of industry, banks and citizens to get back to business. Time to leave behind record gold prices and put the trillions of dollars sitting on the sidelines back to work.
But that conclusion implies a level of confidence, if not quite comfort, with where the world is headed. Whatever your expected shape of economic recovery -- a U-curve, V-curve, L-curve or something else -- we're entering an entirely new world order. That means new ways for states to relate with one another both politically and economically. It means new areas of conflict. 2011 looks to be the year that our understanding of how the world works becomes out of date.
This is scary not because it's incomprehensible but because the scale of change is so great that it becomes difficult to manage. Few of us have experienced a transition of this scope. Following the collapse of the
That's not true today. After the financial crisis, the G7 was replaced by the G20. This change brought no challenge to America's global military supremacy. But the rules of the economic road are a different story and the new geopolitical order is shaped not by a military balance but by an economic one. This new world order marks the end of a decades-long agreement on how the global economy should function. This is world-changing indeed, because the dominant economic trend of the last half-century, globalization, now faces a direct challenge from geopolitics.
The rise of this new order will have a profound impact on nearly all of the world's big-picture, long-term trends. A lack of coordinated governance on key economic issues will become entrenched and give rise to lasting international conflict. States and corporations will become more closely aligned in both developed and developing states. Most significantly, we'll see a shift in the highest levels of global conflict to the region where globalization and geopolitics collide with greatest force: for the past twenty years, the sharpest geopolitical tensions were to be found in the
All the risks we're looking at in 2011 -- conflict from the North Korean succession process, the unwillingness of
Surprisingly, and despite all the anxiety these changes have created, there's no name for this new era. We propose the G-Zero. This is the lens through which we'll understand global events in the coming years. It's our top risk for 2011.
1. The G-Zero
In the G-Zero, the world's major powers set aside aspirations for global leadership -- alone, coordinated or otherwise -- and look primarily inward for their policy priorities. Key institutions that provide global governance become arenas not for collaboration but for confrontation. Global economic growth and efficiency is reduced as a result.
It's a new phenomenon in the post-industrial world. For a brief period following the financial crisis, governance of the global economy looked to be handed over to the G20. It was a decidedly messier group than the G7, with a broader agenda and less room for agreement. Still, at least in principle, members shared an overriding interest in the stability of the international system. However much the national interests of members may have differed, G20 leaders shared a willingness to work in concert (or at least to talk the talk) until the world economy stabilized. This was the "rise of the rest" model -- a post-American world to be sure, but one where
G20 cooperation proved a short-lived collective reaction to panic; safety in numbers in the face of imminent disaster. The first indication it wouldn't last came in
In 2011, as the interests of developed and developing states diverge, and as American, European and Japanese lawmakers split over the relative merits of stimulus and austerity, the biggest global plenaries will experience a breakdown of order. This is not simply a lack of coordination and progress; increasingly they will become fora for political posturing at best (this month's Obama-Hu Jintao summit; the world economic forum), conflict at worst (the
No new global alignment sits over the horizon. Why the G-Zero and not bloc-formation where countries pool their influence? Because the default policy response to a breakdown in global economic governance is every man/nation for himself. As demonstrated even in a politically integrated
To be sure, as economic (and related political) conflict grows over time, greater coordination will eventually evolve as a response, first at subregional and then regional levels. And even at the height of the G-Zero not everything on the global stage is up for grabs. There's little capacity to build a nuclear nonproliferation regime in a G-Zero world, but it's not as if the G7 was more effective on that score -- financial crisis or no,
But that's little consolation for the coming year. As geopolitics takes on an increasingly geoeconomic hue, all the G20 pledges to "avoid the mistakes of the past" will not prevent the G-Zero from taking hold and sparking other forms of conflict.
2011 will be a year of growing uncertainty for
The core eurozone countries, led by
These dynamics in the periphery will then impact both "core
All of which leads to the real danger here: that the eurozone countries big enough to matter in global finance,
3. Cybersecurity and geopolitics
For the past decade, increasingly technologically capable hackers and organized crime organizations have elevated cybersecurity as a business risk, but not as a political risk. The centralization of data networks, both in energy distribution (the move to the smart grid) and information technology more broadly (the shift to cloud computing) are now metastasizing the cyber risk, and governments are becoming more directly and actively involved in playing both offense and defense in cyberspace. The primary involvement of states in cybersecurity, as both protagonists and principal targets, fundamentally changes the nature of the risk.
The new roles of governments and their antagonists bring geopolitics and cybersecurity together in three different ways:
First, offensive cyber capacity is a new way to project power in a world where direct military strikes are both domestically and internationally constrained (cyberattacks for power). The almost-certainly state-sponsored Stuxnet attacks on
Second, the growing and high-stakes conflict between government-supported economic entities and multinational corporations are providing a serious home court advantage for state capitalists (cyberattacks for profit).
Third, there is the coming backlash from Wikileaks, with like-minded info-anarchists unleashing attacks on governments and the corporations that support them (cyberattacks for the people, if you will). The almost certain comeuppance of Wikileaks' Julian Assange is the beginning, not the end, of coordinated cyberattacks against major government and supporting corporate institutions.
The scale and scope of this retaliation is probably the biggest "known unknown" of 2011. The principal cybersecurity concern of governments has shifted from al Qaeda and
With a sluggish global recovery, especially in the industrialized countries where unemployment remains high, the
Despite mounting political pressure,
In the past,
Nearly ten months will pass before the next G20 in
In 2011, the North Koreans are likely to take provocative steps against the south despite reasonably strong pressure from
Some pundits worry that
Meanwhile, the South Korean political landscape is among the most polarized in
Further North Korean escalation is likely to provoke a response, particularly if
6. Capital controls
The risk is rising that a number of countries, including those that resisted the urge last year, will impose capital controls in 2011. This trend is driven by a combination of the divergence in economic recovery between emerging markets and industrialized countries and the increasingly dim prospects for a coordinated G20 strategy to tackle current account imbalances. The latter is perhaps the most significant immediate manifestation of the G-Zero, with strong incentives for unilateral responses and where the lack of global governance creates major market uncertainties.
A wall of money, driven by expectations of higher long-term growth rates, is headed into emerging markets and developing economies. This trend is generating upward currency pressure on those economies open to capital inflows, hurting domestic firms by making exports more expensive and intensifying import competition.
In response, policymakers in many nations have turned toward currency management, in the form of direct market interventions, to protect local players. Should these upward pressures continue even in the face of market interventions, governments will begin to look more seriously at capital controls as a way to counter appreciation. This is more likely given the qualified legitimation of capital controls given by both the IMF and the G20 last year. Already, a handful of countries --
Decisions to enact capital controls will be intensely political. Among the key questions shaping individual responses: 1) Are governments confident enough in the perceptions of the investment climate in their country to undertake them? For
The countries most likely to enact capital controls this year should appreciation pressures continue are
7. U.S. gridlock
Strong governance is generally considered good for emerging markets, where new policies are needed to make the trains run on time; while gridlock is a fine outcome for developed states, allowing markets and businesses to prosper undisturbed. But gridlock can be problematic even in industrialized nations when decisive action is needed, especially in a sluggish economy. That's the principal political risk facing
The conventional wisdom is that political risk in
First is the risk that there will be no movement on policies that the markets and business leaders want to see. Most important here is housing finance reform. The Obama administration will chart its course in the coming weeks. Democrats and Republicans are not far apart on potential solutions, but the tough issues of winding down
Second, for the last two years, headline risk was dominated by the problem that the administration made major policy proposals it didn't intend to fight for. In 2011, headline risk will be driven by both parties loudly promoting priorities for which there is no path forward. The Republicans want to substantially revise the Dodd-Frank financial regulation bill, but they don't have the power to do it, even if they threaten to hold up funding for the
Third is the risk that a road-blocked
The risk in the subcontinent this year isn't
Further social and ethnic dislocation and conflict in "mainland"
In even the best-case scenario,
2011 promises to be a very challenging year for
Military and federal police forces generated important arrests and deaths of cartel members, as well as significant seizures of drugs, cash and arms in 2010. The cartels are now on the defensive, and government efforts show no signs of letting up. Relations between
But the government's security operations produce negative results as well. Fragmentation of the leadership of the cartels increases the likelihood of deadly conflict within and among these organizations. Surviving traffickers try to ward off municipal and state cooperation with federal security efforts, increasing the likelihood of assassination of local officials. And with steady demand for narcotics in
More broadly, the political consensus in
In the medium-to-long term the Mexican government remains equipped to tackle its security woes, but a serious spike in violence this year, especially in high-level assassinations, is likely to erode investor confidence and have negative consequences for the Mexican economy.
10. Emerging markets
The dramatic increase in the flow of capital into emerging markets has lifted all boats. But there are very different risk profiles among emerging markets, and not all are going to perform well this year. The risks facing these countries include both a range of negative economic policies (fiscal imbalances in some, premature austerity in others) as well as more purely political risks (elections, political violence). As these risks play out in 2011, they will contribute to poor investment outcomes, ranging from adverse regulatory changes to asset bubbles to weak stock market performance.
The most notable underperformers:
Finally, investor confidence in
A few pieces didn't quite make it here. Hizbullah in
Still, there's rather more than we'd like to worry about this year. And so it's good to end on a positive note. There are quite a few -- the red herrings.
Seriously? Seriously. It's not exactly a good news story, given that the Iranians are still going nuclear, and there's very little chance that we're going to see a diplomatic breakthrough. But the sanctions regime is sufficiently serious that
There's a lot of worry about
Despite a great deal of (legitimate) hand-wringing,
A tense election year will pit northerners against southerners, including inside the ruling PDP. But we expect incumbent
Available at Amazon.com:
- Top Global Risks of 2011
- China and United States Need Overarching Concept for Interaction
- China's Growing Military Might Poses Many Policy Questions
- Britain and China: Then and Now
- How Repressive Regimes Use the Internet to Keep Power
- Islam's Hijackers and Hijackees
- WikiLeaks: Diplomacy as Usual
- Africom: Soft Power Warriors
- Nigerian Elections: Levelling the Playing Fields
- Nigerian Elections: Changing of the Old Guard?
- Sudan: Beyond Southern Sudan
- Afghanistan: Deadly Addiction
- The Euro: Until Death Do Us Part
- Russia: Rewriting History
- Gulf States Should Take a DIY Approach With Iran
- Back to 'Normal' in the Middle East
- America: Uneasy Engagement
- America: Flying Into Turbulence
- Obama and Human Rights: Continuity and Change
- Western Economy on Suicide Watch?
- South America Enters Middle East Quagmire
- The Political Power of Social Media
- West Is Best? Why Civilizations Rise and Fall
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- Less Than Zero: Bursting the New Disarmament Bubble
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- The Dangers of a Nuclear Iran
- Plan B in Afghanistan
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- The Empty Chair
- North Korea: The World's Problem Child
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- For Middle East Peace, Israel Must Prepare for Nuclear War
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- Taiwan's Shadow
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- French Demonstrations Tell a Familiar Tale
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- Nestor Kirchner's Death May Mark End of an Era
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Copyright 2011 William Pfaff; Distributed by TRIBUNE MEDIA SERVICES, INC.