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Ethics Matter: Top Risks and Ethical Decisions 2013 with Ian Bremmer

January 15, 2013

Introduction

DEVIN STEWART: I'm Devin Stewart from the Carnegie Council. Today I have the great pleasure of introducing Ian Bremmer, who will talk about his company's top risks for 2013 and the ethical implications of those risks. Ian has released these risks every year for about a decade after he started the Eurasia Group. It is our fifth year of having the pleasure of hosting him here.

To give you a sense of how prescient Ian is, right here at Carnegie Council about a year ago, actually in January, Ian predicted five things for 2012: (1) there would be no hard landing for China’s economy; (2) we would not see the breakup of the euro zone; (3) the U.S. economy would see some improvements; (4) worldwide transitions in 2012 throughout the world would be pretty smooth; and the fifth one is most interesting: he predicted, crazily, there would be no Mayan Apocalypse. He was right about all five points. The last one was quite easy, because if he were wrong, he’d have no one to answer to.

For me, the release of Ian’s top risks has become something like an annual event, something very exciting that people anticipate, kind of like the drop of the ball in Times Square. It has become almost like a holiday to reflect on what’s coming ahead. Or maybe it’s like making a New Year’s resolution.

Each January, Ian and his company's top risks are featured on places like MSNBC, Financial Times, The Brian Lehrer Show, and tonight he will be on Charlie Rose.

The New York Times, as you probably know, about a month ago, in December, declared that "politics have made a comeback in business." That’s pretty close to Ian's company’s motto. They concluded that and because of that, Ian’s insights have become more valuable than ever.

You’ll see Ian on TV, you’ll see him on all these various outlets. But tonight's speech is special and it's unique, because at Carnegie Council we’re asking him to help us think about the ethical implications of this year's coming risks. As you all know, that really basically comes down to a very simple but profound question: For organizations, for companies, for countries, for individuals, what is the right thing to do in 2013?

Now, briefly about Ian's amazing life story. The real version is actually much more interesting, but, rather than embarrass him, I'm going to stick to the data points.

Ian founded the Eurasia Group in 1998, after getting his Ph.D. from Stanford in political science in 1994, and he served as a researcher to several think tanks, including the World Policy Institute here in New York. He is now president of Eurasia Group, professor at Columbia University (maybe another university in the future), and he has been a great trustee here at the Carnegie Council for the last six years.

He is also widely published. Last night, when he did the Nouriel Roubini/Ian Bremmer Show, they noted that Ian Bremmer has written around eight or so books—an incredible amount. He does this in his spare time. I don't know how that works. The most recent book is the one you probably are all familiar with. It’s called Every Nation for Itself: Winners and Losers in a G-Zero World.

With that, it's a great pleasure to open up for Ian Bremmer. Thanks for coming.

Remarks

IAN BREMMER: Thank you, Devin. Thank you, guys. I'm delighted to be here.

It is a privilege always to address Carnegie Council. I have been honored to be a trustee for six years. I am so no longer, because we get two terms and then we're out; that is the bylaw. But you're still having me here, and that implies that I have residual influence as an ex-trustee, which is good.

It is the tenth year of running this, which is funny, because we do a lot around the top risks. Charlie Rose, I just taped with him a couple hours ago. We usually do this every year, but he has never really asked me how we do them. He just gets right into the substance. This year he decided in the first five minutes he's going to ask me, "So how do you do these things?"

I said, "When you first had me on, I just kind of wrote. It was just me, right?"

There was no methodology. It has become more of a methodology over time. It’s a pretty big enterprise. It takes months. We've got 150 people working on it. It's long and it's good when it gets done.

If you want to go through all of the risks, you’ve got the report. And Charlie, god bless him, went through every single one in order over 30 minutes. I think we got into a lot of detail.

I am not going to do that here, and I'm not going to do it for two reasons. First, I'm not going to do it because this is a cozy group that was hand-selected.

The second point is that I do want to actually talk about whether this is a good thing or not, whether the world is heading in a better direction or not. That’s not something I spend most of my time thinking about. I usually just say, "I’m an analyst, I’m a political scientist. You guys figure out the implications." I'll try to sort that out a little bit and give you some ideas of what I think. I started the firm back in '98. One of the reasons I started the firm was because it seemed obvious at the time that, while there was no private sector path for political scientists with advanced degrees, there were many things happening in the world over time that were going to make politics more relevant to the private sector.

There was this big piece in The New York Times a couple weeks ago that talked all about the firm and what we did and all that stuff. People have come up to me and they say, "Wow, you know, the world has really moved in your direction. You think about 9/11 and you think about the financial crisis and how much politics really matters now."

I say to these people, "Not true. You have not begun to see the world move in our direction yet. The world will start to move in our direction when China becomes the world’s largest economy, when the world’s largest economy is an authoritarian country, a state capitalist economy, is poor, is under extraordinary domestic and international pressure. Then we will start to see politics truly move in our direction. That’s when people are going to pay real attention to this."

They're not yet. Oh, they’re kibitzing about it. The chattering classes think it's interesting to talk about politics. No one is taking this stuff seriously yet. They will. That’s good for us.

But there's something that’s good for us actually more broadly which is related to this, which is: How hard is it to convince Americans that they should care about what happens in the rest of the world? This is fundamental to what we do here at Carnegie Council. How hard is it to convince Americans they need to learn another language, they need to travel, that it should matter what’s happening in terms of globalization or Europe or the Middle East or China? We don't need to care because we're too big to fail. It's not the banks that are too big to fail. There's only one too-big-to-fail really out there: it's the United States. We’ve benefited from that in a very serious way.

One of the great things about the way the world is changing is that we Americans will be forced to care. We haven't even started to.

We've got Fareed Zakaria’s show on the weekend—I know. People in this room, a lot of us, read The Economist—I get it, right? You come to these events on international affairs.

But the vast majority of Americans believe they don't need to care about what’s happening in the rest of the world, because "If they haven’t wanted to follow our way historically, screw them." We can dictate how it works. We can dictate the economic institutions, the political institutions. That will not be true going forward.

The wonderful rejoinder to that is we Americans will need to understand and engage as a country. Now, the challenge will be: Is that going to be a knee-jerk nationalist and populist reaction, or is that going to be a longer-term engaged, understanding, analytically more sensible reaction? Both are possible. I know where I'm rooting. I know where all of us are. But I think that’s an interesting point to start this entire talk with.

The big change from 2012 to 2013—there is a little bit of a tipping point. I'm going to be in Davos next week, and everyone’s asking me this week "What's it going to be like there? What are people going to talk about this year?"

I know what I'm going to talk about. I'm going to talk about the fact that we've finally kind of put the financial crisis in the rear-view mirror. For four years, all of the risks that we have been talking about have been firmly in the context of post-financial crisis. You kept hearing those sentences: post-financial crisis the euro zone is imploding; post-financial crisis the U.S. has gotten downgraded, and are we keeping our banks in order, and will there be a double-dip recession and Debtmageddon, and even fiscal cliff; post-financial crisis the Japanese have this extraordinary debt burden, and can they make it through in a third loss decade, and Fukushima, they're going to get washed into the sea post-financial crisis.

There's something interesting about that entire conversation. It all involves developed states; it all involves advanced industrial democracies. The interesting thing about that is every single one of those political risks have been overstated in the media—every single one.

I do political risk. I should be the one that's overstating political risk. I shouldn't be the one saying "This stuff doesn't matter." And yet, you look at the fiscal cliff and the craziness of the fiscal cliff in the United States in the last couple of months, and everyone is saying "We’re going over, it's going to hell." No.

Euro zone: The Economist has run—I counted—eight covers in 2012 that showed the euro exploding, bursting into flames, fragmenting, falling off a precipice. Didn't happen. Not only did I say that last January, I said no Greek exit. I got in a lot of trouble for that in the FT. No Greek exit. A third point, one of our clients did real well on no Greek exit last year. I wish more people listened to that story.

But the point is the developed world is more resilient. These aren't great stories. I'm not pretending that the U.S. has nothing wrong with it, that Europe has nothing wrong with it, that Japan has nothing wrong with it. We can talk about that. But the point is that developed states are fundamentally more resilient, they're fundamentally more stable.

In fact, many of you have probably heard of Nassim Taleb’s book Antifragile, the notion of antifragility being that a candle will be extinguished by wind but fire will expand with wind, and things that are fragile get better when they are shaken. In my view, Europe, the EU, the euro zone, is antifragile. It is precisely because of the level of shock that they have taken over the course of the last four years that they are finally moving on a fundamental problem that they had, which is absence of fiscal union connected to currency union. They are moving on that, they are dealing with their bloated public sectors, they are creating more competitiveness of their labor rates, and the likelihood of euro zone collapse in my view is near zero in 2013. That is antifragility at work.

The problem in the United States—we're even more antifragile than Europe in my view—is that we haven't faced the crisis yet. The safe haven has a safe haven curse. I mean, we had our financial crisis, it scared us for a little bit, and right after we put the money to make sure that the banks and everything was taken care of, we then spent a year on health care. You don't spend a year on health care if you’re facing a crisis. Nobody believed we were facing a crisis at that point. And facing the fiscal cliff we weren't facing the crisis. Now we are staring into the teeth of sequestration and debt limit. It might go badly. I don't feel as optimistic about those talks as I do about the fiscal cliff, not at all.

But I will certainly say that I think the implications of not getting it right for the U.S. government are not recession, they are not people stopping investing in Treasuries, they're not the U.S. dollar losing its reserve currency status. The United States may be antifragile, but we're also not getting seriously pushed.

So I think the interesting thing about 2013, as the post-financial crisis year, the first year that really we're talking about "Okay, where are we today?", is that the developed states may be overstating the risk but in the emerging markets we are systematically understating the risks.

Go back to the U.S. election in November. How many times did you see people on news, in the newspapers, did you see people in the media, say that corporations were keeping trillions of dollars on the sidelines in the U.S. from the U.S. because they did not know what was going to happen with the elections? There was so much profound uncertainty with Obama vs. Romney that they were keeping trillions of dollars on the sidelines. First of all, I never believed it was true.

But leave that aside. How many times have you heard that corporations were leaving trillions of dollars, or even billions of dollars, on the sidelines because they did not understand how unstable or uncertain the future for China was going to be? Has anyone ever said that? They just put money in. Why? Because it’s growing. "Do we care about the uncertainty? That's fine."

I was on one show last year with the CEO of Yum! Brands. Yum! Brands has basically two companies: they have a horrible company in the U.S. and they have a company that has been until very recently minting money in China. He was telling me why he trusts the Chinese, why it's wonderful over there, why he's doing great. He was selling me hard. I'm like, "Who are you talking to? Have you been to this country?"

And again, these aren't bad people. I'm not trying to disparage the Chinese at all. I have incredible respect and admiration for everything they've done. I want them to succeed. We all should want them to succeed. That does not mean that they will succeed.

I was talking to Joel Rosenthal [Carnegie Council president] about ethical realism when we were upstairs in his office just before here. It is unethical to not be realistic about China's trajectory and the uncertainty around it. It is unethical not to understand that climate change is coming. It is unethical not to be short on Maldives right now and figure out what we're going to do about it. It's unethical.

It's unethical not to say that global climate summits continue to fail and will continue to fail. That doesn't mean I want climate change to occur, it doesn’t mean I'm happy about that state of events. But it's unethical.

I think that when we talk about a world where two-thirds of the growth presently comes from emerging markets, and by 2020 it’s going to be three-quarters, and China by itself—we talk about the BRICS. Everyone loves to talk about the BRICS —Brazil, Russia, India, China; and, just for fun, South Africa. The size of the Chinese economy is larger than Brazil, Russia, India, and South Africa all put together. So let’s stop talking about BRICS.

Let's understand that when we talk about the level of uncertainty in emerging market growth going forward, even though Brazil looks better than it did before, we're talking about China. And that uncertainty is huge. If you look at our top risks from one to ten across the board in 2013, the big things we're worried about are largely emerging market risks.

Again, I'm not going to go through all of them. Let me do two other things. One is just to talk about three big things I think happening in the world right now which are kind of interesting. Then I'll talk very briefly about what I think is going on structurally that's good, what I think is going on structurally that's bad. Then we'll play, then we'll talk.

In the world going forward right now there are three big things happening:

• One is China is rising. That is the single biggest. It's by far the most important in any of our lifetimes. That's the biggest thing that's happening. They will be the world's largest economy. It's hugely important. We don't appreciate it yet.

• Number two, the Middle East is exploding, it is continuing to explode. Sixty-thousand-plus Syrians dead—that war is metastasizing across its borders into Iraq, into Jordan, into Lebanon; it's even causing some instability in Turkey. Our position has been clear: you can kill Syrians but do not use chemical weapons.

Do I really believe that we feel that way? No, of course not. Do I believe that we are prepared to do something to stop it short of that? No. The evidence is obvious. When I say "us," I am not speaking of America. I am speaking globally. And that's just Syria. Don't need to get to Iran, don't need to get to Mali.

It turned out Romney was prescient about something back in those debates. He got Mali right. Everyone said, "Why is he talking about Mali?" "Oh, going to be there eventually." Failed state. It’s moving quickly.

Lots of these issues, and those exploding.

• The third thing is Europe is muddling through—not muddling in place. The U.S. is muddling in place, Japan is muddling in place. The Europeans are muddling through. There is forward motion, which is why we won’t see those Economist covers in 2013.

So three things: China rising, Middle East exploding, Europe muddling through. Those are the things that truly matter, in the sense that they have potentially very different kinds of trajectories and outcomes depending on where they go. The United States is fairly uninteresting from a geopolitical perspective right now.

The interesting thing about those three things is that there are actually three countries in the world that are losers as a consequence of that. They happen to be the most important allies of the United States and the three regions of the world that are most important to us: Japan, Israel, and Britain. I think that is interesting.

It's not because we don't care about them, but structurally there are a lot of countries out there that are unnerved and unsettled by China's rise, but it is there are some goods, there are some bad.

For Japan, China's rise is a bad thing. It is a problem, it is a threat, it is economically deleterious. They have lost a lot of influence. It is likely to get worse. They must be very careful not to fall further into that trap. Abe's government is in a dangerous predicament as a consequence, something we can talk about.

Israel: You probably saw that Obama came out and made some tough statements against Egyptian President Morsi and some of the stuff he said against Israel recently, just said that today. The Egyptians, the Jordanians, the Turks, many others, their willingness to use populism as a sop to attack the Israelis, to worsen their relations, to cut their relations, because it's an easy thing to offer populations that are restive, where you don't have a lot of other good things to say to them, that is structural. That is a serious problem for Israel. It is not getting better.

And Britain: As the euro zone muddles through—and they are muddling through—and the euro zone ultimately has stronger and more cohesive governance, Britain will not be a part of it. In fact, you recently saw George Osborne, the chancellor, a couple of days ago say that if Europe didn’t fundamentally change the way it was behaving that the Brits would have no part of it, they'd have to change the way of engagement with the broader euro zone or they'd leave. He doesn't have a route now, but the fact is that the conservatives that voted for him in the last election and voted for Cameron, 21 percent of them just polled said that if there was an election today they would vote for the UK Independence Party, which is a fringe, somewhat wacko, not politically established group. But nonetheless, the Tories understand in Britain that if they want to stay in power they’re going to have to play ball. It’s becoming very difficult. The Brits are in an impossible situation.

So America's three special allies actually are geopolitically very troubled in this environment.

Can we help? On the margins we can. Can these countries take steps that can improve the situation they are in? Yes, I think they can.

Is it also true the United States needs to refocus some of the countries they’re spending time on? Absolutely. Is Germany more relevant to the U.S. than Britain going forward? Without any question. Do we understand that, are we acting that way? Not yet. That’s an interesting point.

Would I want us to spend more time on Canada than Israel? Probably. We might be actually right now. We may be getting that one right.

Japan is Japan, because, given China, we're going to have to spend a lot more time on Japan than we have historically.

So that's that. That’s just an interesting kind of point I thought I’d bring up.

In terms of whether I see the world moving in a better or a worse direction, let me just go through a quick list of all of the things that we see in the risk report—what's good, what's bad; where do I come out.

Good:

• No surprise to anyone here, U.S. stability. The fact of the matter is that an increasingly large share of the world's energy, the largest producer of the world's food, the critical technologies that are being developed, happen to be in the world's largest economy, but also happen to be in a place that is very stable, that has rule of law, that is wealthy. That is an advantage. Increasingly, the world’s largest supplier of energy isn't in a place that is internally unstable and isn't in a place where foreign powers are going to be grabbing and competing over each other for it. That's a useful thing. American stability matters, even as Washington gridlock upsets and unnerves us.

• Second big positive: Africa, 1.2 billion people in a land mass that's much bigger than India and China combined. They're getting it right. They're not getting it right usually quickly, but they're getting it right. Most of the African governments are improving in their governance. Fifty percent of the African continent is urbanized. Only 20 percent of growth in GDP comes from commodities. That's a very positive story. It's only going to get much more positive going forward. Not without extraordinary hardship and corruption and famine and warfare—certainly, it’s Africa, it's poor—but it is not the lost continent, it will not be the lost continent again.

• Relatedly, rise of the middle classes across the world, the extraordinary reality that we have increasingly so many folks from very different backgrounds, very different kinds of education, that can be an active part of the global economy, not just as consumers but also in helping to come up with solutions to global problems. That is an enormous amount of international talent that largely will alleviate poverty and largely will be a force for good and needs to be seen as such, even if the American middle class is shrinking. American boats will be risen by the rise of the global middle class as global challenges require global solutions.

• Technology: Productivity, progress, absolutely; but also more people with information in their hands and more diffusion away from large concentrated areas and individuals being able to affect change. You look at a place like India or Indonesia and you see how individuals in local areas are able to band together, learn about local corruption, do something about it, overturn an official that has been a kleptocrat or a nepotist, or most likely both. Those are very positive developments in terms of technology. I'll get back to technology in a second because there’s a lot of downside.

• The final upside that I found was conflict aversion. I was with "Dr. Doom" last night, my buddy Nouriel Roubini. He is fundamentally more dour about stuff than I tend to be. So I always have to think of what I'm going to say that ultimately is going to trump him. What ultimately trumps him is that the desire of most people involved in intractable conflict at the end to go one extra mile to try not to go to war tends to win out over time.

It doesn't always win out, and we know the historical examples. But when I think about when I was a Ph.D. student listening to Essence of Decision, Graham Alison talking about the Cuban missile crisis and Kennedy saying that there was a one-in-three chance that we were going to have global thermonuclear war, I never bought it. I didn't buy it because we weren't talking about when push really had come to shove, and Khrushchev would have given it a second and a third and a fourth thought before he pushed that button. And, god forbid he pushed it, it wasn't automatic that Kennedy was going to respond. Kennedy would have been thinking about what he was doing and the implications and what that meant for him, and he was gone anyway.

We're not theory, we're not computer programs, we're human beings, and ultimately that's probably the only good reason to truly be an optimist over the long term. But it's a damn important one. So I throw that out there.

What do I see as downside?

• Well, it shouldn't surprise you, the single biggest piece of downside is China—again, not because China is evil, but because the level of uncertainty of China is enormous, because the needs of the Chinese government and its system as they grow will be immensely disruptive from a climate perspective, from a resource consumption perspective, from a territorial insecurity perspective, and also because they do not have similar political or economic systems or values as the advanced industrial democracies, and therefore they will be disruptive with the way the global order is formed. That's number one.

• Number two, generally, inequality—the rise of inequality across the world in many, many countries of course, but here I’m talking specifically about the U.S. and about Europe. The reason for that is because, absent being addressed, even though the U.S. and Europe is a good story, you're going to have a larger number of people that do not believe that globalization benefits them. If they have a voice and they're empowered by technology, as they will be, then you will have political forces that rise up and represent them and take advantage of that. That is likely to lead to policymaking that moves against engagement internally and against globalism, instead moves toward fragmentary decision-making that is much more problematic for economic harmony.

• Related to that is the illegitimacy of political elites across the world. A big trend that we see is that incumbents don't do very well. Merkel is a very interesting exception, and the support for rule of law and political process in Germany is something we should all be proud of. I actually thought Merkel would have been a better choice for Time Person of the Year this year, especially because the maintenance of the eurozone is so strongly on her shoulders, with about 70 percent approval ratings right now, despite having bailed out the shiftless Greeks and the lazy Spaniards. Just three weeks ago, I saw in Germany 47 percent of Germans supported additional bailout funds for Greece, and only 42 percent opposed it. You’ve got to give her a lot of credit for that.

But generally, the illegitimacy of political elites is growing, and of course we see this. As the euro zone gets stronger, the strength of political elites in the peripheral European economies is deteriorating dramatically. We're seeing this with, of course, Italy and Greece and Spain and Portugal and the like. You see this with 14 percent approval ratings for Congress in the United States, and probably dropping as I speak, certainly over the course of this year. You see this not only in the Arab summer, but also in places like Russia and China.

• Technology, the downside of technology. The first billion people that got their hands on the Internet were generally folks that were really interested in advancing, at least passively, liberal causes, liberal democracy and the rest. I don't mean liberal in the U.S. sense; I mean more in the classical sense. The next billion people getting their hands on the Internet are poor, many are more disenfranchised, the next billion after that even more so. The Internet, like everything else involved in technology, is a magnifier, it is an amplifier, it takes what you have and it gives it to you in a bigger way.

You give someone the right to vote, they will let you know more effectively what their interests are. You give them a modem, you give them a smartphone, they will let you know more effectively what their interests are. If their interests are sectarian, if their primary identity is sectarian, they will let you know much more effectively how to implement that. That will cause more conflict in those areas. So in many cases the growth of the Internet will lead to much more nationalism, much more populism, much more sectarianism, much more violence. I think that's something we have to be aware of. It's not just against political elites, but also person on person, neighbor on neighbor, community on community.

I also worry on the technology front about how, even though the information revolution empowers individuals, the data revolution does not. The data revolution empowers collectives, corporations, and increasingly states. Those organizations are likely to use that information in ways that encroach on personal liberty. In the case of some countries, they will likely do it in a way that enhances their own collective security at the direct expense of their citizenry. That is absolutely not a move towards a world wide web; it is a move away from a world wide web.

I saw Zuckerberg a few months ago, when he got his 1 billionth user. They said, "What’s your goal?" He said, "I want to have 7 billion users. We have 7 billion people. I want all of them connected," which is a wonderful idea, but it's enormously outdated because in 2015 you’ll have 800 million Chinese users that will have absolutely no interest in Facebook. That is appropriate. If I were Chinese, I would not want to have Facebook in my country. They have entirely too much data and influence. I wouldn't want my country and my government to have that information. That's going to change the way we think about information in the world wide web.

So information versus data is one that should give us a bit of pause before we jump on the "technology/progress equals unmitigated good" for the short period of time.

• Finally, I talked about the structural upside being conflict aversion in humanity. I think the structural downside, not surprisingly, is the G-zero, the idea that we are in this period of geopolitical creative destruction, the absence of global leadership, where the U.S. isn't doing it but no one else will either.

Syria is the poster child for the G-zero. But think about what Obama said just last week. He said, "We're going to start focusing on building our own nation for a while." He should have been holding up my book, called Every Nation for Itself— that's the name of the book. I mean after World War II, could you imagine the United States saying, "We're going to focus on building our own nation for a while"? Inconceivable, because we had to build Europe, we had to build Japan, we had to create a new order.

Well, the challenges facing the world are no less serious today, and yet we are focused overwhelmingly on our domestic society. Now, I am not blaming Obama for this, let us be clear. If Romney were the president, he would be doing the same thing. They had a foreign policy debate. You remember the foreign policy debate, right? You'll never get that hour-and-a-half back. It's gone, those of you that saw it.

I remember the day that Romney and Obama agreed on three things in the foreign policy debate. They agreed that they both loved drones, they agreed on that. They both loved teachers—that's good; I don't know what relevance it has to a foreign policy debate. But they also agreed that they both love avoiding questions on foreign policy. That is really where we are right now.

Romney got the nomination in Charlotte for the Republican candidacy as Obama was losing a war in Afghanistan that under this administration there had been a troop surge. He did not mention Afghanistan; didn’t mention it. It's because he had no better answers and because it's not an issue that is of enormous concern to the vast majority of Americans right now.

To get back to the beginning of my talk, global issues will become more important to us. That is a place that you want to be. Gravitationally it is coming to us, there is no question, but we’re not there yet. As long as we're not there, this is absolutely a negative. And it's not just us; it's everybody else out there.

Where do I come out as a consequence of this? Interestingly—I gave this a lot of thought this weekend—I come out more positive. I had to ask myself, "Do I come out more positive because I'm just kind of a relentlessly optimistic person, because generally that is true about my own sense of self?" It's rare that I write something or I think about something analytically and I question my own biases in a serious way. I had a hard time with it.

I think there was a little bit of that, but I still—I'm being very honest with you—came out thinking I was on balance slightly more optimistic, though with the serious rejoinder that there's a lot more uncertainty and volatility going forward in whether or not it is a more positive or more negative direction globally than we've seen before.

But I came out a little bit more positive because the big negative trends that I focused on, and those that go with them—I didn't really talk about climate, but climate of course is linked to the G-zero; I could have gone on for ages with this, but we don't have time—but on many of the negative trends it's easier to see the way that they might actually start to change. It's easier to see over the next five years how, despite all of our concerns about China, the top leaders of the Chinese government will see that this is a real problem and will have a Gorbachev moment. It's easier to see how that is possible.

It is harder to see how in the next five years U.S. resilience will fundamentally go up in flames.

It is easier to see bold decisions made by American policymakers and European policymakers that start to actually redress inequality and move in a different direction than it is to see how Africa is going to just no longer grow and not develop. It's harder to see that.

It is easier to see how political elites can regain some of their legitimacy, even though that's not my baseline case, than it is to see how the middle classes around the world will stop aspiring and growing.

It's even easier to see an end to the G-zero than it is to see an end in the fundamental conflict aversion and ultimate desire to strive and get better of us.

So for that reason I end up a little bit more positive.

Questions

DEVIN STEWART: Thank you, Ian.

Looking back at "The Rise of the Rest," which we used to do here in this room for a while—Ian Bremmer was a key player in this ongoing series that David Speedie [Carnegie Council program director] and I put together over several years—what does the rise of China mean for international affairs? I think everyone can pretty much believe that China is rising, your first point. You and I were both attacked for different reasons because we're both annoyed by this expression of "the Asian century."

I was attacked for it because I posted a very provocative piece on Huffington Post a few weeks ago, where I said, "It's just incoherent, it doesn't make any sense." I made also the provocative conclusion that a lot of it has to do with an idea for the state and for values around the world. I think the West does offer something like universal values. It was the last fragment of the last sentence of my piece—the rest of the piece was about something else—but that's where everyone jumped on me.

What does the rise of China mean for universal values, generally speaking? Kishore Mahbubani was here recently and he alluded to his next book, which is called The Great Convergence. He is basically saying this giant middle class that you're talking about, they don't all have the exact same tastes that we do and they don't all have the same backgrounds and thinking. So how does that shape the way we think about ethics in international affairs, just generally speaking, and does it help the cause of universal values, or is that just some kind of chimera myth? It's a tough one.

IAN BREMMER: Yes, it is a very hard question.

The reason I was attacked on the Chinese century was a lot easier. I just said we don't do centuries anymore. [Laughter] We don’t, right? I mean you get 10 years, maybe, if you’re lucky, and then something else comes along nowadays. We don't do centuries anymore.

Even the Chinese don't do centuries; they're becoming more short term. They have to. They’re trying to build an information economy without having an information society. That doesn't work. You don’t get 100 years that way.

I am challenged by the notion of American values as universal. I certainly believe that there are some values that are universal, sure. This is not a philosophical conversation and I'm going to try to avoid having it devolve into one.

The one thing I can say very clearly is that the United States is, thankfully, at a stage of development that we are able to articulate and promote values that have largely been better for the majority of the world citizens than those that would have been promoted by most, though not all, other countries in the world. I suspect if you had written your article and talked about universal Canadian values, as opposed to American values, you might have done a little better, for example. If I think about where we are on gay rights in the United States right now, for example, or even on women’s rights in the United States (for example, maternity issues and equal pay and all of that), the U.S. is moving. But there are certainly other countries that I think we would say if you wanted to be universalist, you might have a different argument of course. If you wanted to be a universalist and you were in Saudi Arabia, even as a woman, you might take some offense with some of those concepts.

I don't believe, as an American, in going around and lecturing people about the universalism of our values. I do believe that, because we are in a position that we can actually do good, it is really important that we exercise more humility around where we screw up. It hurts if you're the guy talking about human rights when you consistently do things that upset the apple cart there. It hurts when you do them outside your country because it's legally expedient. Even though I know the reasons for that, the point is that American exceptionalism gets you into trouble when you do that.

As someone who does political risk, it hurts just as much when you talk about the universalism of America as a free market economy and then you have the financial crisis or Madoff or the Enron scandal and WorldCom and all the rest. It hurts.

One thing I believe we need our kids to better understand is why it is that folks from different countries believe that our system is corrupt. We do not believe that we are as corrupt as any emerging market out there; we don’t believe it. And yet, many emerging markets would look at the system that has been set up, which is legal in the United States, would look at the role of money in the election, look at the Supreme Court ruling on treating corporations as individuals, look at all of this stuff and would say that our system is corrupt.

I am not suggesting that we should agree with them—I don't believe that—but I think we need to understand them. I think we get ourselves in trouble.

Hilary Clinton has done a fantastic job, by any accounts the most effective member of cabinet of the first Obama administration. But when the Egyptians mobbed the American embassy after that crazy, senseless video was put out about Mohammad and Islam, Hilary Clinton's response was that that was senseless. Every American stood up and said, "Yes, that was senseless."

From an American perspective it's senseless. From an Egyptian perspective—and I don"t mean a few wacko Egyptians; I man the overwhelming majority of the Egyptian population—and these are not Muslim fundamentalists—they would actually say that it wasn't senseless, it was thoroughly sensible, and it was sensible because, first of all, if it was put out, that means the U.S. government must have been okay with it, because that's the way it would have worked in Egypt; secondly, they don't support the idea of free speech in any account, especially if it involves desecration of their religion; and thirdly, they have lived through a history of the United States and other Western powers supporting Mubarak, who they believe was a brutal dictator, incredibly corrupt, we provided lots of money and military aid, and now they’re telling us that this was "senseless" when they express some indignation? Who the hell are we?

I am not suggesting we should agree with that perspective. I do not believe we should. I'm not suggesting I agreed with that perspective. I don't. It doesn’t matter. I'm suggesting that we are moving into a world where not to understand that perspective and engage that perspective will hurt our self-interest. And that's not just unethical, that's assertively stupid. We can get beyond the Carnegie with that one.

So I don't know if I really answered your question, but I hope I gave you at least a little context of how I try to think about those sorts of things.

QUESTION: James Starkman.

I think too little is taken into account of Chinese history and culture in forecasting the likely outcome economically/politically going forward. There are many aspects. This was an agrarian culture, it was not an aggressive culture; there is admiration for the elderly and taking care of them. I think that’s one factor.

I would just put it to you, if China were a stock and the United States were a stock, and taking all the risks that you have outlined here, which would you invest in?

IAN BREMMER: I think there's no question at all. If I was forced to choose between one or the other, I would choose the United States, and I'd do it all day long. Now, I do that, in part, because I'm risk-averse, I’m fundamentally risk-averse. My own money is in Treasuries and real estate. Owning Eurasia Group is more than enough risk for me, thank you very much.

Nassim Taleb actually says that he doesn’t believe you should talk about anything unless you've got skin in the game, meaning unless you're directly investing. I want to have this conversation with him. I like Nassim. Having just finished his book, which I think is brilliant, for me, having direct investment skin in the game creates analytical bias, and I start to then start rooting for that thing to happen in a way that I think impacts my ability to talk about what happens if it's changing. I think that there are good people that are better at this than others. I may just be bad at it. I'm prepared to accept that. But that’s enough skin in the game for me.

I'm risk-averse. So understand the fact that partially my response to you here is coming from an intuitive/psychological/emotional bias that's not a rational place. Beware of it. You should be honest about what you think your biases are. You can be wrong, but be aware of it.

But beyond that, there are too many things in China that can go very badly wrong, and some of them can go badly wrong soon.

Look at Beijing this week. You couldn't see it. These are smart people in Beijing. These are not people who are in the third world anymore. They want accountability from their country.

Here's the fundamental problem I have with China. We used to talk about the average Chinese—the average Chinese was happy about the Chinese government, the average Chinese was happy with growth, the average Chinese needs 8 percent growth.

Increasingly, there are two Chinas. There is a China that is rural or urban poor, and they really are perfectly fine with the government such as it is, unless someone directly treads on them, and they just want more growth and more redistribution. That's what they want. So China can keep doing exactly what they have done for them.

But then you have Chinese that are actually in the information economy, they’re working in front of a computer all day long. They're urban. They've got a Weibo account, they're microblogging. Those people are less affected by growth. Those people are much more affected by, "What’s the product safety, and can I breathe outside, and is my government lying to me, are they accountable to me?" These things fundamentally matter as they're getting up the value chain. These things don’t get easier, they get harder.

Now, that would imply that if you want to govern China effectively, you need a system that is somewhat more federal. You need a system that, just like you’ve got red state/blue state in the United States and we have different policies on whether it's gay marriage or legalization of marijuana or what have you, and Colorado is different from Alabama. Should not surprise us. I mean San Francisco municipal codes, until recently you could walk around nude. Last thing I noticed, you couldn't do that in Savannah.

But the point of China is that if there's one thing this government is showing absolutely no capability or willingness of doing, it is actually fundamentally differentiating their policy approach those two Chinas. Now, that may change. But everything I have seen about the leadership transition—nine to seven, Hu Jintao stepping down from his military post faster, Li Keqiang, the prime minister, being elevated from number three to number two—all of these things are about consolidation of these seven guys that all seem to be very, very focused on ensuring that no nail is sticking up—that fundamentally worries me.

So when you get to that, my response is, do I really want to make big bets on China? Of course it's a more complex question than that, and there are many places that you can make enormous amounts of money in China. Those investments are smart, and I would never tell people who invested there, "No, you should take all of your money out." That's crazy.

But you asked me a simple question, so I'm trying to make it more black and white. I know what side of the coin I end up on there.

QUESTION: Robin van Puyenbroeck.

You mentioned the word "food" once. My question is related to the issue of water and food security. How do you assess the risks going forward medium and long term between countries, but also between corporations and countries, if it comes to access to food and water?

QUESTION: Anne Phillips.

You spoke about the Cuban missile crisis. The way you put it was you said there was this terrible danger of a catastrophic event occurring and you didn’t buy it. You said one of the reasons you didn't was because the people involved, Khrushchev and Kennedy were human beings, so you knew it would come out alright. Are you suggesting that there will not be catastrophic conflicts in this world because good will supersede evil instincts in human beings?

Second one is, you seem to suggest that the reason the United States is turning inward now is for some esoteric thought or some reason now about fixing our infrastructure—"We come first." But isn't it actually because there was a dire need to help other countries after World War II? We had destroyed these other nations. They had to survive. We did it. We weren't decaying the way we are now. So perhaps the reason is really simply a very practical, pragmatic reason, that we are going to fix our infrastructure, hopefully?

QUESTION: I'm Valéria Silva from NYU.

I would like to know, because you mentioned the rebalance of power at the global level toward emerging markets is moving, the tendency is to move slowly, and I would like to know what is determining this pace. Like the emerging markets, is there a failure of those countries to move faster in getting more power at the international level, or is it also determined by the developed countries that are currently in power? At least in my field of research, I see that developed countries are now moving out of the institutions that they created before because they don't benefit so strongly from them.

IAN BREMMER: It's not failure of the emerging markes. There are basically four fundamental reasons why we're in the sort of geopolitical fix we are in right now:

• Number one, too many countries. It’s just harder to coordinate when you have lots of countries that matter. Simple coordination.

• Number two, these emerging market countries are different. They have different values, different preferences. They are poor. They have different political and economic systems. They're not bad, but it's not the rise of the rest, it's the rise of the different. They don't agree with us, and so it's harder to put things together.

• Number three, these emerging markets do not have the capacity or the experience—not because they failed; they’ve just never done global before. They're new. I love this one statistic: India with 1.1 billion people has as many diplomats as New Zealand. We never expect New Zealand to do anything for global trade. We expect the Indians to. They literally don't have the capacity.

We keep hearing about Qatar being involved in the Middle East. They have 250,000 people. If they're giving money to the Syrians, you think they have the people that can actually figure out who they should give it to?

They don't have the actual people, they don't have the experience, they don't have the background, they don't have the institutions. It's not because emerging markets are failed. They're small and they're new and they're poor. There’s no shame in that. We had those structures ourselves, but we've had some time to get through that. So have the Canadians, so have the Japanese. It's a different story.

Then, the fourth reason, the final reason, is that the developed world is really focused internally for lots of different reasons. The euro zone is focusing on itself for good reasons. The U.S. focuses on itself for good reasons.

To get to Anne Phillips's question, you say why are we doing all this internal stuff. Is it just because we have to fix this stuff?

Well, first of all, if we were going to fix it, that would be a good reason. Of course we are not, so it's a less good reason. But let's assume we were. Is that why we’re doing internal?

We're doing internal for a bunch of reasons, but certainly a large part of it is that unemployment is really high and we need to address it. And the debt is something we're talking about. Even though we don't need to address it soon, and we won't, we feel like we do need to at least pretend we're addressing it and talk about it and take it seriously. So we're doing that. Then we also have these other things, like infrastructure crumbling and education that isn't working and all of the rest.

But having said that, does the United States have the capacity to do that but to also actually play a much more assertive role internationally? Yes, we certainly do.

Does that mean that we need to be the world's policemen? No. But does it mean that we can actually have real foreign policy planks, doctrine, proactively engage with the Europeans, all of this? Can we do much more in international aid than we do? Can we look more like the Canadians or the Danes? Absolutely we can. These are realities.

So I personally think the U.S. can do a lot more in terms of global leadership than it's presently doing. That's my view.

Will it be global leadership? No. Could we be doing more on Israel-Palestine right now, even if it doesn't help? Yes, we could. I believe that.

So catastrophic risk—do I believe that we will not see any more catastrophic risk in the world because humans are fundamentally good people? Okay, you know the answer to that question, so I don't even need to answer it. We all know our history. We understand that bad things can happen both to good people and even to bad people.

My point is that we tend to overestimate risk and we overestimate catastrophic risk frequently, because we look at our models and we don't actually incorporate the personality factor, the human factor, which is fundamentally more oriented towards progress and optimism. I think we actually should.

I think that the Cuban missile crisis—we could have annihilated ourselves, you're right. Of course we could have. Was it one in three? No way. The number of people who have told me the likelihood of war with Iran is—I was on with Fareed [Zakaria] last weekend, and Anne-Marie Slaughter said "60 percent in 2013." Don’t know what she's smoking. Love you, Anne-Marie.

What worries me is I'm not sure if the reason she said that—see, I like her too much and respect her too much to believe that she actually thinks that. I don't think she does. So I wonder if the reason she's saying it is because she feels like if she says there's no chance of it happening, then that means that the Iranians get a free pass.

First of all, that enormously inflates the role that you would think that you would have if you were Anne-Marie Slaughter on Fareed Zakaria, number one—or Ian Bremmer, or anyone else; I'm just picking on Anne.

I don't think bluffs that we don’t follow through on are necessarily useful. Furthermore, with Iran we're not bluffing. We are destroying their economy. Those sanctions are real. We're pushing them hard. The Iranian government doesn't need us to say, "We might attack." It's pretty bad if you're Iran right now. So I don't think we need to fake them out on we might attack them. Actually we're not going to do it. I think let's just play ball.

The likelihood of actual strikes against Iran are not 60 percent. They're really quite small in 2013, and for many reasons that I could spend hours talking about. Our analysts do with many of our clients and it works out nicely for both.

The food and water security issue is long and I can’t really get into it. Water is not a global issue; water is a local issue. So, as a consequence, to really talk about water, you have to talk a lot about where those conflicts are, whether it's the Nile Delta, or Middle East, or China, Himalayas, and all the rest, different time frames, and the rest.

The likelihood that we will see new rounds of nationalism, including nationalizations, like what we saw with decolonization and nationalization of oil patches and oil firms—the likelihood we will see that for large swathes of land that's being bought up by China, South Korea, Saudi Arabia, and others in the Horn of Africa, sub-Sahara, and South East Asia, that's clearly coming. I think that is a very important area of future analysis because it's going to be a problem.

QUESTION: My name is Ao Kong. I work with the United Nations and I am an average Chinese. It has been fascinating—I've been going to different forums and hear about the topics, about China’s growth and our average citizen's development. I feel that there are two points that I want to respond to.

First, last year when I was in China, and also during the past years, I felt a huge amount of insecurity among people. The Chinese are people who don't reveal our doubts and fears to the outside world. So when everyone thinks the country is sewed up tight and the economy is well, people are really doubting that, how long it can last, and all the risks, and the inequality in the country.

This year I think actually things are changing. Actually, people are very happy about their new leadership, because a lot of political reforms are happening. The middle class, who have the economic power, are actually trying to reform in a way that is subtle, that doesn't hurt anyone’s interest, but going towards democracy. I think the middle class in China actually has a closer value to the so-called universal values of the Western world because they are more exposed to what is going on nowadays.

IAN BREMMER: I agree.

QUESTIONER: And they are economically empowered. That's my response.

My question is about the aging issue. How do you think the population aging will impact the world economy?

QUESTION: Sondra Stein.

Talking about the effects of technology and income disparity, it seems to me—I'm asking you—that as technology—robots and artificial intelligence—takes more and more jobs, where Foxconn has a million people and they said they have robots that can take 900,000 of those jobs, can we have enough jobs for people with technology?

QUESTION: Julian Harper, Franklin Templeton.

Where do you think Pakistan will be in five years politically?

QUESTION: Paul Hastings, Japan ICU Foundation.

I’ve been reading your book on G-zero. It seems to me that part of this idea is assuming that there was a G20 that was effective, or a G7 that was potentially effective for a bit, and that seems to be maybe perhaps not entirely true, and that the United States really never let there be an effective international community of leaders. So I’m wondering moving forward if our hand is forced now, and how do we encourage other countries to take on more leadership?

IAN BREMMER: How can we get other countries to take more leadership? First of all, we have to focus on things they can do and we have to make the asks much more directly applicable. So they're not going to be big global asks.

How do we get countries to get involved more and how do we get China to get involved in global climate change agreements? We don't.

How do we get China to get involved in Doha, the new trade round? We don't. Can we do a global trade round? No, we can't. We're doing TP [Trans-Pacific Partnership]. Am I okay with that? Yes. Smaller trade groups. It will be 40 percent of the world's GDP. It's going to involve a smaller number of countries that actually do like the sorts of things we're supporting on free trade. That's okay.

If I think about what the U.S. is asking, I’m worried about the pivot, in part because the American pivot towards Asia, a lot of it is about security. Ultimately, that won’t work very well because our allies are not going to want to contribute very much. So we're not going to want to do as much. We're going to be in a sense like NATO. It's going to work if we end up having the pivot to Asia focus much more on economics or economic statecraft, where they can actually bring things to the table.

So those are the two ways I'd focus on that.

Pakistan is—you know, what can I say? Large swathes of the country will be ungovernable. Radicalism will grow. Having said that, there are an awful lot of smart Pakistanis that are living in urban centers, that are university educated, that know how to make money in difficult environments, and they will continue to.

Do I think the country is going to explode? No. Do I think the military will be able to continue to hold on to their nuclear weapons? Yes, I do, on balance. That doesn’t mean there won't be an accident. That doesn't mean that someone won't get something out of it. But generally speaking, the military, the ISI [Inter-Services Intelligence], will stay in charge and they will avoid being seen as taking over too many things that will make them look bad. It's a little like Egypt. It's not the best outcome, but it's not a horrible outcome. We can deal.

It's a much bigger problem for China and India than it is for the United States. There are many things in the world that would be true of.

Syria—really bad things happening in Syria. Much worse for lots of other countries, not so much the United States. That's a challenge. It's like how do you convince the Americans to do this stuff, as opposed to how do you convince other countries to do something? The bigger question is, how do you convince the Americans to do it? That's actually going to be more challenging, especially because many of the things that are happening that are really problems in the world are going to happen outside of the Western Hemisphere.

The Western Hemisphere is actually geopolitically a pretty calm place. You look at our top risks, the geopolitical risks, what's happening in the Western Hemisphere? Chávez, and not having much impact across his borders either, not anymore.

Tech jobs—we're going to lose jobs, yes, sure. Do I worry about that? I worry about it more for China, much more for China, because in China you've got state capitalists who are going to have a real problem if they don't keep high employment. They're not going to be able to robotize because it's going to cause them enormous instability locally. So they're going to be much more resistant to robotics, which will make them more inefficient over time. Never mind the fact the demographics are going to make them more expensive.

In Japan there's one factory I read about recently, a Panasonic-linked factory but standalone. They make 42-inch flat screens. They've got 15 people, they've got three shifts of eight hours, so 45 workers a day make 20 percent of the world's 42-inch flat screens. They think it's going to be 30 percent within 12 months. That's astonishing. That's happening in America too. It happens in Europe.

It's not happening as much in China. I know that Foxconn is getting more robotized and automated. But that's a serious problem. China is a state capitalist country. But all state capitalist countries succeed economically because they take advantage of cheap local resources. It can be agriculture in the case of Argentina in the early 20th century. It can be oil in the case of Saudi Arabia or Russia. In the case of China, it's people—cheap, cheap labor. Your question talking about robotics is telling you how China’s state capitalist advantage is going away fast—another reason why I don't bet on that model. I worry about that.

Is it a problem or us? Yeah, but we can work through ours over time. We can improve our education. There are things we can do to respond to that. It's much harder to do in other places.

Do I believe that we're going to get it fixed? No. Do I believe we’re going to have structurally higher unemployment in the near term, for the next five years, in the U.S. than we’re used to historically? Yeah, of course I do, of course I do. Will that be a structural problem that will rip apart the American fabric? It absolutely will not. No one even bothered to ask me about Occupy Wall Street. They just had their one-year anniversary, paper anniversary. I didn't even give them a gift. Typical guy, typical man. [Laughter] We don’t even talk about this stuff.

Aging issue, we talked a little bit about that as well in terms of robotics and in terms of demographics with China, so I don’t think I need to touch on that as much.

But I will touch on your point about democracy. You are not an average Chinese, and you know that [Laughter]. Any Chinese that's going to ask me and say that they believe that folks increasing in the middle classes are sharing American universal values, that is not an average Chinese.

Now, having said that, I actually accept the fact that in the middle classes you increasingly have people in China that support rule of law, that support an independent judiciary, that support intellectual property rights.

I said at the beginning I was ultimately more optimistic because I could see more ways over time that China would be able to actually change its model and take some of the risk out than I saw the U.S. falling apart. It may be more optimistic. One of the biggest reasons for that is precisely because the middle classes are moving in that direction.

Look, I said before—last year I remember saying this, but I'm going to go further—last year I said that for me China is a big car with a huge engine going down a really long road really, really fast, and there's a brick wall at the end and a huge turn. We just don't know if they have steering.

So your question is: What's going to happen when they finally get to that wall? Well, there are really only three choices.

One choice is they keep going really fast and they turn out—surprise!—to have amazing steering. Zing! Fantastic!

The second choice is they get really close to the wall, start getting really scared about their steering, and slow down dramatically, and then they kind of take the corner really, really carefully, and it's not as exciting a story, and there’s a lot of difficulty. But eventually they kind of get there.

The third choice is they think they have fantastic steering and they go straight into the wall.

The problem is that I don’t know what they're going to do when they get there. You don't either. None of us do.

If you asked me to put a likelihood on the good outcome in China, that the middle class gets it right, is able to truly convince the Chinese leadership in a peaceful and harmonious way that they need to start fundamentally opening their political system and dismantling state capitalism in a way that makes it more efficient and deals with robotics and all the rest, what is the likelihood they will do that in the next 10 years? At best it’s 50/50. At best it's "I can’t get there." And in the next five years, with the existing leadership—a year ago I didn’t know. I now know, and it’s a hell of a lot less. I might put it at 10 percent, given who they are and what they're doing, and the way they reacted to the initial demonstrations against censorship we saw early on.

I mean you talk about the Chinese middle classes having more universal values. I've got to tell you, the average Chinese leader worth over $1 billion I do not believe shares those universalist values. I don’t. And I’m not even saying that they're the right values. But, whatever they are, they ain't sharing them.

That might be an interesting way to close it up. So I thank all of you very, very much.

DEVIN STEWART: Thank you.

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