Ethics Matter: Top Risks and Ethical Decisions 2014 with Ian Bremmer

January 14, 2014

Introduction

DEVIN STEWART: Hi everyone. I'm Devin Stewart, from Carnegie Council.

If we did start late we could blame Chris Christie, but we're starting just on time.

Welcome to Top Risks and Ethical Decisions with Ian Bremmer. We're looking at the top risks and ethical decisions for 2014. We have done this six years in a row now. Does anyone remember the top three risks from last year? China's rising, Europe is muddling through, and the Middle East is exploding. Those were the big takeaways. Not much has changed, but this year we're moving away from financial risk and more toward geopolitics.

Ian, in the past week or so, has been all over the circuit—CNBC, Wall Street Journal, the Telegraph, Reuters, CNN, the Fareed Zakaria show, and also the Charlie Rose show. So you have a real treat here.

I'm just going to briefly introduce Ian. You all know him. He requires very little introduction. He was previously a trustee here, served a full two terms. He is the president of Eurasia Group. He is the author of several fantastic books, including the bestseller The End of the Free Market. He also received his Ph.D. from Stanford.

With that, I will turn it right over for a discussion with Ian and then we'll moderate a question-and-answer. Please welcome Dr. Ian Bremmer.

Remarks

IAN BREMMER: Thank you, thank you very much.

It is my sixth year. It's the 100th for the Carnegie Council. I'm so delighted. I have been affiliated, attached in various ways to this organization for almost 15 years now. It has been wonderful. I'm really proud to be up here with my dear friend Joel, who has done such a wonderful job of stewardship through all these years—we all so fortunate to have him—and Devin. This is his second stint with the Carnegie Council. Everybody knows when you actually come back after the first time, it's even better.

Let's talk about Chris Christie for a minute. I believe him. I do. I don't think you do a press conference like that for a couple of hours, knowing as much as he does on how politics works, without being literally honest about what he said.

I don't think it matters. I think that the amount of national scrutiny—this guy was a creation of the national media. He was a darling of the national media. Now he's not. I don't think he has the ability to survive that.

I also think that if I were a member of the Port Authority and I got an email that said, "Time for some traffic," that would confuse me, unless I had received emails like that in the past. So I do think we will find a pattern and practice of this form of behavior; lots of other things will show up.

It's just like when you're talking—look, I don't believe that Jamie Dimon knew what "the Whale in London" was doing. I don't think he ordered him to go and ruin billions of dollars of positions. But I do believe that Jamie Dimon's extraordinary arrogance and bullheadedness created a culture in J.P. Morgan that allowed that to be much more likely to occur than if he was running a local mom-and-pop shop or an—I would say an S&L [savings & loan], but that has bad permutations as well.

So, yes, I think culture matters. Was that enough? Was that enough on that? Okay, good, because Christie is not in my top risks for 2014. Lots of other things are, though, so let me go through them.

I'm not going to go through the whole list one to ten. That's not fun. It's going to be much more free-flowing than that, and we'll have plenty of time for questions on wherever you guys want to go.

But let me start with the big point, which is that since 2008—the financial crisis—the big risks have largely been economic. They have followed on from the financial crisis. They have been about U.S. fiscal cliff, debt limit, downgrade; initially, will the banking system implode, all of that—fundamentally economic risks. Europe, the eurozone, will it collapse? Will it crater? Will it disintegrate? You guys know where I've been on that over the last few years: Absolutely hell no. Nonetheless, that has been a big risk that people have talked about. Potential for a Chinese hard landing following the 2008 financial crisis, that they wouldn't be able to grow the way that they have shown that they can still consistently grow year on year—those risks aren't with us in 2014.

There's no one out there that seriously thinks the eurozone is going to implode anymore. There's no one out there that seriously thinks that we're facing a Chinese hard landing. And there's no one out there that seriously thinks that there's going to be a U.S. budgetary crisis in 2014 or that we're worried about a debt limit crisis either.

That is fundamentally good news. It's nice to stand up in front of you and be able to say that some big fundamental issues that we've been struggling with globally for quite a few years now are kind of off our agenda.

Now, to be fair, as a political scientist, over the last few years, the politics have mitigated those risks. Even though the economics looked horrible in Europe, the politics were quite stable. Even though there was immense dysfunction in the United States and in Congress, there wasn't quite so much dysfunction that we went through a debt limit excursion. Even though China was experiencing lots of troubles coming out of the 2008 financial crisis, the government was certainly strong enough to ensure that stimulus got done in a big way and quickly. So the politics have actually worked reasonably well because the places that have been hit with the biggest risks have been comparatively stable.

Now, as we look towards 2014, it's not that I have a new set of economic risks that I'm going to throw out; it's that actually the politics are becoming more significant. The economic risks are receding. The geopolitical risks are becoming more important.

I'd like to take you through, thematically, some of those. I'm going to start with the big one.

Again, those of you who have seen me and heard me in the past know that I am not a declinist. I fundamentally do not believe the United States is in decline. I do not believe the U.S. economy is in decline. It doesn't mean that the U.S. economy is benefiting lots of Americans the way we would like it to. It doesn't mean unemployment is where we want it to be. It doesn't mean the educational system is where we want it to be for most Americans. But I don't believe the U.S. is in decline.

And very importantly, other countries agree with that and CEOs agree with that. We see the investments in the United States. We see the market performance as a consequence. We see the strength of the dollar.

However—and I'm very sorry to say this; I'm very sorry to feel this—I do now believe, for the first time, that U.S. foreign policy is in decline. I know that James Chace would be very unhappy to hear that. I know Joel is unhappy to hear that. But I do believe it. And I think it's true for a lot of reasons. Let me first say that Obama is responsible for some of them, but I don't think I'd give him 50 percent. I think I'd probably put Obama at about a third—his decisions, his lack of decisions, his team, and all of that. So I kind of line up where we are.

The last year has been tough in foreign policy: Snowden, Syria, the government shutdown, the impact of Obama not going to the APEC summit [Asia-Pacific Economic Cooperation], all of that—the quality of the second-term team. The second-term foreign policy team, broadly speaking, is not the first-term team. John Kerry is not Hillary Clinton. Jack Lew is not Tim Geithner. Not only do you not have the same capacity, but you also don't have the trust from Obama on the foreign policy officials that you did the first time around. I think that is a problem.

But more broadly than that, you also have American allies that are less willing to provide significant support for U.S. initiatives. A Germany-led Europe is harder for the Americans to align with internationally than a Britain- or even a France-led Europe, because the Germans don't do geopolitics. They do geo-economics, and they do them bilaterally, unlike the Brits and the French, whose general world view is more similar, has the same kind of narrative as that which the United States has.

There are more countries out there that are more willing to throw a spanner in the works of U.S. outcomes, like the Russians, like the Chinese—more capable and more interested in doing so than they have been historically.

So I think when you put all of these things together, you get an international environment where the United States is not doing as much, is not interested in doing as much, and is getting a lot of pushback. I think this has big implications for the international marketplace, for international security. It's very clear. Obama said during the United Nations meeting a few months ago that the United States does not want to be the world's policeman. It may well be that the United States wants to be the world's private investigator, but that is even less popular as a role. And that has not gone well.

As I look towards 2014, I see the Americans with certain relationships that can't go anywhere. You look at the Canadians and the Mexicans. They don't have much economic choice but the United States. You look at Japan, Israel, and Britain. They don't have much strategic choice but the United States. You go one step below that, just one, and you've got countries with options—Saudi Arabia, Turkey, Germany, France, Brazil, South Korea, Indonesia. A lot of countries there. Not small countries.

If I'm Raytheon or if I'm Lockheed and I know I'm not going to sell more defense materiel to the Americans because defense budget spending is pretty flat, I really need to be able to sell to a lot of those countries. What happens if the Turks are like, "Actually, I'd rather buy from the Chinese," if the Saudis are like, "Our relationship is broken. I'd rather buy from the French." That's happening, and that's a problem. That's an implication of U.S. foreign policy in decline.

The Trans-Pacific Partnership [TPP], by far the most important U.S. piece of foreign policy affecting the U.S. economy in the world for the past five, ten years, was supposed to get done by the end of 2013. Didn't happen. Now people are saying it's definitely going to get done this year. I don't think it's going to happen. I think it's going to happen in 2015. And that delay matters. That delay slows what would otherwise be more economic opportunity for American firms and for the U.S. economy to orient more trade and capital flows towards the United States. It impacts Asian economies that are aligned with the United States as well.

I think about the ability of Cisco or Google or AT&T to do business internationally, and I know that the Germans and French and Brazilians are now saying, "How do we know where your data is going? We're going to have new regulations in place. We're going to make you ensure that you aren't just in the cloud, that you have local data centers. They're going to be very expensive. It's going to be very onerous. In part, we're doing that because we're really concerned about what you're doing and in part we're doing it because we would like to benefit our own firms."

All of these things are implications of U.S. foreign policy in decline. Some of that can be assuaged and turned around and fixed, but a lot of it can't. I do think that some of this is structural.

So that's the first piece that I want to throw out in front of you as a risk that we're starting to see in 2014 that really hadn't played out historically.

A second big risk: If the U.S. risk is primarily foreign policy and it's not domestic, in 2014 the beautiful thing is, basically nothing happens in the United States domestically, aside from midterm elections. Immigration? Probably not going to happen. Bring the minimum wage up? I can't see Republicans supporting that. Tax reform? With Baucus going to be ambassador to China, I don't think we do tax reform. Trade promotion authority? Maybe in the lame-duck session in November.

But I think very little happens on the upside in the United States domestically, but also very little downside. We've got our budget now in order through 2015. That's actually a big deal.

So on balance, I think this is an environment, 2014, where the U.S. domestic side, not very interesting; U.S. foreign policy side, problematic. The fact that the U.S. domestic side isn't very interesting is, generally speaking, quite positive for U.S. economic growth, the markets, and all the rest.

When I think about China, it's kind of the opposite. China, for the first time in a long time, is really in play domestically. Xi Jinping has done more in terms of reform in the last seven, eight months than we had seen in 20 years in China. That really matters. Those things are overdue.

Anti-corruption, which they are really starting to engage in—no, not his own family; baby steps—seriously, the fact that they are going after folks who run state-owned enterprises, who are involved in the energy complex in a big way, the fact that they are going to squeeze them on capital, the fact that they are going to go around the country and actually make heads of provinces deal with market-based incentives and metrics in terms of the performance reviews and grades they are going to get for their next step in the Communist Party, that's a big deal. The fact that we see a real effort to start opening up the financial sector in terms of the way that oversight is done and wealth management products that don't actually work and shadow lending—they are going to start bankrupting some banks.

Those are important things for the Chinese government to do if they want to restructure their economy towards higher-value, consumer-driven entrepreneurship. It's not going to be easy. It's going to take a long time. But they are starting, in a way that in the Hu Jintao-Wen Jiabao era they weren't really starting.

At the same time that they are doing that, they are creating losers in the Chinese Communist Party. Why had they not been serious about anti-corruption before? Well, because these are powerful people in an anti-democratic state, and you might not want to annoy them, because that could bite you.

So the other thing that Xi Jinping is doing is political reform—not liberalizing reform, but consolidating more power in his hands—creating a national security council that's based a little bit on the American model but, instead of being foreign policy-oriented, it's primarily internal security-oriented. Why would he do that, you ask? Because if these reforms go badly, if they aren't liked, then he has the ability to bring down the hammer. Hence the consolidation.

Why would he make life more difficult for dissidents if he's an economic reformer? Why would he make it harder for The Wall Street Journal and The New York Times and Bloomberg to report? Precisely because he is starting to engage in reform.

In other words, I think this is real, but I don't think this is uniformly positive. It is destabilizing. There's volatility. The Chinese are embarking on the next step of an unprecedented historical experiment. It has never been done this quickly on this kind of scale. They may succeed. We all hope they do. But if they start to fail, we have no idea what the effects of that are going to be. That creates big risk internally in China.

I think the China-U.S. relationship is, on balance, moving in a better direction. How does that comport with the fact that I just said U.S. foreign policy is in decline? Actually, senior Chinese leaders like this new Obama administration. Hillary is gone. Kurt Campbell is gone. There's no more pivot. There's no more economic statecraft. This is a group that they think they are not going to get punished by. The hardliners on China, like them or don't like them, are basically out.

Kerry talks about rebalancing, not a pivot. Pivot—you have one foot here, the other foot you move. Rebalancing is kind of going like this (sways back and forth), which, if you think about his Israel-Palestine trips—there have been about 10 of them—that's kind of what he's doing. We're not moving anywhere. We're just rebalancing. That's where we see that going.

I think that the China relationship, these are guys, in the context of a more difficult economic environment domestically with more challenges, who would like the U.S.-China relationship to be relatively stable. So they announce a bilateral investment treaty that they want to engage in with the United States. The United States has been trying to get them to do that for a long time. A multilateral trade and services agreement they are willing to be a part of, for example.

They are willing to go after Japan, but they are only doing it because they think that they can drive a wedge between the United States and Japan. So far they have been somewhat successful in doing that. The American response to Prime Minister Abe's visit to the Yasukuni war shrine, Vice President Biden's response to the air defense identification zone in the East China Sea—very clearly differentiated from what Japanese Prime Minister Abe is doing. That's interesting.

A little worried about Japan-China in that regard—maybe more than a little worried. I think that the U.S.-Japan-China relationship is in many ways becoming analogous to the U.S.-Israel-Iran relationship. Do I really mean that? Yeah, in the sense that we like Israel more than anyone else in the Middle East—it's the closest relationship—but we're much more concerned, on balance, about a stable relationship with Iran right now. That's the priority. We want to fix that. And while we're worried about Iran, the Israelis are much more worried about Iran than we are.

What does that sound like? We like the Japanese, but we see the China issue as more important and more potential downside that we want to avoid. So we try to balance. We worry about China, but Japan worries about China a lot more.

Historically, in that dynamic in the Middle East, that's when the Israelis start to actually provoke a little more, because they're like, "Oh, the Americans are going to forget about us, so we need to ensure that we actually continue to chest-beat a little bit."

Might that be happening in Japan a little bit? Could be. Interesting. Throw that out there.

So that's the China situation.

I'll go through a couple more things.

Emerging markets: Broadly speaking, everyone that's a big emerging market that could be having an election in 2014 is pretty much having an election in 2014. China doesn't have elections. Russia doesn't really have elections. Everyone else is pretty much having an election. You've got the Indian elections. You've got the South African elections. You've got Brazil, you've got Colombia, you've got Turkey. All over the place, we've got big elections. Not much policy gets done when elections occur. The policy that does happen tends to be populist—throw a lot of money that you don't necessarily have.

The emerging-market growth rates right now and the developed-market growth rates—the difference between the two is smaller than we've seen in well over a decade. They're the smallest. You get rid of China, you take China out of the equation—and we shouldn't consider China an emerging market. It's the second-largest economy in the world. It's going to be the first in relatively short order. It's larger than Brazil, Russia, India, and South Africa, the other BRICS, all put together. You take China out as the over-performer, suddenly those rates look really, really close indeed. And it's not because the developed markets are knocking the cover off the ball; it's because the emerging markets have really slowed down.

In that environment you have to really think carefully about which emerging markets you want to bet on, which ones you don't want to bet on. Coming out of these elections, some are positioned to do relatively well, some are not. I'm much more of a believer in Colombia, much more of a believer in Indonesia. I think Brazil will do okay. Mexico—no elections this year, but generally the politics are in the right direction, and Mexico is likely to become the world's next developed state, just in the same way that Chile or South Korea or Taiwan have. I'm a very strong believer in the Mexican economy and their trajectory going forward.

But there are other countries that are not set up well. Turkey—very badly. That's too bad, given everything they have going for them. But Erdoğan's willingness to undermine the legitimacy of established political institutions is quite significant. He's becoming a leader in the sort of fashion of Cristina Kirchner, in the fashion of Vladimir Putin, and that's clearly affecting the way we think about the trajectory of that economy, particularly because he's next to Europe, which is performing relatively poorly, he's next to a Syrian war, which, of course, is leading to lots of refugees across the border, he's having a hard time keeping a Kurdish ceasefire in place, and big investments in places like Iraq and the Middle East look a little bit less attractive than they did when Turkey was starting that. So Turkey's not what you want it to be.

India—you have the potential. Everyone's very excited about Narendra Modi, the BJP [Bharatiya Janata Party] nominee for the upcoming elections. He is pro-investment. He is, generally speaking, reasonably pro-West, a technocrat. People love him. He has a good chance of winning. But he's not going to win by himself. It's going to be a relatively fragmented coalition government that will not be able to actually pass useful economic policy. It won't be able to reform, won't be able to move on infrastructure or telecom or banking or retail consumer. All of that is done in a very decentralized fashion and it's not going to change. India will continue to underperform.

So that's where I see the major emerging markets.

Two other quick points I'll raise. A lot of people ask about the taper. Am I worried about the taper? Quantitative easing, we're starting to back off of it. Last year, when there was noise about the prospects of a taper from quantitative easing, suddenly the emerging markets took a real dive. That was not because of the taper. That was because of uncertainty around when and how the taper would hit.

Now we know—we have Janet Yellen as the next Fed chief, who pretty much is in line with Bernanke. Bernanke has already started talking about what the taper will look like. Yellen has been a part of that policy. It is very, very incremental on the back of U.S. growth. There is much more certainty around what that's going to look like. It's also happening in an environment where we're generally going to see lower energy prices. Put that all together, the macroeconomic environment for emerging markets is not horrible—not great, but not horrible.

So in other words, I don't see the same level of headwinds structurally that we have been concerned about over the last couple of years. It's really going to have much more to do with how these governments and these countries do internally themselves.

There's one big category that's the exception, and that is the petrostates, the countries that rely on getting oil and virtually nothing else—and gas—out of the ground and into the markets. Everyone knows about the energy revolution in the United States. It's not being slowed by the Obama administration, not at all. That's going to continue to exceed expectations this year, as the entrepreneurship and the technology continue to improve on a daily basis across the country.

There was a lot of violence in the Middle East. Despite that violence, Iraqi production is going up. Despite that violence, Libyan production is going up. Economic growth is only okay-ish globally. In that environment the pressures on energy are downward, not upward. We're entering an environment of more energy abundance as opposed to more energy scarcity. That is before we get to an Iran deal. There is a reasonably decent chance that we have a deal on Iran this year. When that happens, Iran is going to start pumping more and more and more. In other words, it's very hard for OPEC [Organization of the Petroleum Exporting Countries] to stay together in a nominal way in that environment.

Lots of pressure on the Venezuelans and the Nigerians and the Saudis and the Russians in that environment, folks that really don't have their economies together, aside from just pumping energy. This is a real shift in the way we think about stability around the world.

It also really benefits the U.S.-China relationship, because China will increasingly look to North America and the United States as a place that they want to secure supply. After the 2008 financial crisis, with the U.S. economy in disarray and no energy revolution to speak of, the Chinese were saying, "We want to diversify. We want to get out of the United States. The U.S. model is horrible."

Now, there may still be some people that are saying that publicly in China, but if you look at the way they're acting, what are they doing? They're spending money to get into the U.S. market. They're buying assets like Smithfield. It's not because they need pork processing technology. It's because they believe in the U.S. market as a good place to throw cash.

So the Americans will have to make decisions. Do they want to allow the Chinese to invest a lot more? Do they want to allow the Chinese to buy energy directly from the United States, or is it a relationship that's going to be more driven by cybersecurity, by intellectual property issues, and the like, which aren't going to improve between American companies and China? The Americans and the Chinese are not enemies. They're not allies. They're frenemies. It's a relationship that has generally been getting structurally worse over several years now. It will continue to get structurally worse in many ways because of the size of China and because China's values and systems are very different from the United States.

But in terms of the economic relationship, there are some structural parallels that are developing between the Americans and China that actually create some opportunities in 2014 that we haven't seen before. That is interesting. That is worth real discussion. It's new. So I throw it out there.

A final point before we go to questions. There are lots of other risks, but I can't go through them.

Russia: We've got Sochi coming up on February 6. They spent $51 billion on Sochi. That is more than the last five Winter Olympics combined. The corruption in Russia is breathtaking. Putin just took $20 billion out of the Russian pension system and gave it to Ukraine. There is no other person in the world that could do that. There's no other person in the world that would want to do that if they could do it. So we have this unique inflexion of capability and volatility which exists in one guy.

He's not happy. His popularity ratings are lower now than they have been at any point since he was elected in 2000. There were a lot more heads of state that went to Mandela's funeral than are going to Sochi. I'm not saying Putin's Mandela. I wouldn't make that comment. I'm just saying that usually the Olympics kind of bring them in. This time the Olympics—they're staying out. Lots of issues, demonstrations, security issues. You've got a major terrorist organization that said they're going to bomb Sochi, God forbid. I hope they do nothing of the sort. But they've already had two bombs in Volgograd recently, and the Russians don't accept security support from other countries.

The Greeks do. They're like, "We can't do it ourselves. We need help. Come on in." The Russians are like, "We've got it. We're fine."

So number one, I probably wouldn't go. Just me. But number two, I don't think things are going to go well. These Olympics are geopolitically interesting. Those are not words you want to hear attached to the Olympics. The last ones that were geopolitically interesting? Moscow, 1980. What is it with the Russians and the Olympics?

I'm worried about that. I'm not excited about the Russian market. I'm not excited about Putin. I think that that's not going well. We'll see where that goes.

Clearly the Middle East continues to explode. There's no question about that. But we do know that Syria is becoming less of a risk—not to the Syrians; Syria is a problem for the Syrians. But for the rest of us, how much do we care? We all care individually. How much do we care as countries? Apparently not at all. You've got 130,000 dead. You've got about 2 million to 3 million refugees. You've got about 5 million to 7 million displaced.

The country only has 20 million people. It's not a country anymore. But Assad's ability to stay in power, to consolidate power, is actually fairly significant right now, because he understands that the rebels are not getting support. The rebels get that, too. They are actually cutting deals with the Syrian military. In many places, local ceasefire. So I think the violence subsides in Syria a little bit.

In Egypt, General Sisi is going to run for president. You've got Salafists recently, the Nour Party, that have come out and said, "Muslim Brotherhood, supporting violence. We support the constitution." They understand they're not going to get support internationally, so they're coming back and supporting the military.

Even in Iraq, we have all sorts of Sunni tribal leaders that are saying, "Al-Qaeda? Not our gig. We'll stick with Maliki, thank you very much."

That doesn't mean governance is working in the Middle East. It's not. Certainly the Arab Spring we shouldn't even mention anymore. And it doesn't mean that we're not going to see violence in these countries. We are. But if you ask me do these governments look a little bit more stable in the near term—not sustainable, but stable—right now, in 2014, I would say yes, not in the way we like, but in a way that will allow the Americans to play less of a role in the Middle East—yes, especially if a deal gets done on Iran.

Who's the real loser here? The Saudis. The Saudis really don't want a deal done on Iran. What do the Saudis want? They want continued sanctions forever on Iran. They want a weaker Iran. A sectarian problem for them everywhere—Syria, Iran, Hezbollah, and the rest.

Also, the Iranians, sanctions off, no nukes, Iran produces oil. Why would the Saudis want that? They don't.

The U.S.-Saudi relationship is broken. There are lots of countries that have relationships with the United States right now that are broken for bad reasons—Brazil, Germany, France, to get back to the point. The Saudi relationship with the U.S. is actually broken for good reasons. The alignment between these two states just no longer holds. The Americans and the Saudis, if they take an honest look at each other, should no longer get along. That is, if I were advising the Saudis, I'd be like, "Sorry." And we get it. We will not be honest with each other, because we're diplomats. But the reality is that.

I think that's going to cause problems for these guys. I start to worry in a much more significant way in the short to medium term that we might start to see more instability in the kingdom itself.

The other places that will get hurt as a consequence of this are the places that rely on the Saudis and the Qataris and the other major oil producers for largesse—so Lebanon. Are they going to have the same cash to throw to the Lebanese that they have historically? I don't think so. Are they going to have the same interests? Probably not. That's going to be a challenge.

Anyway, that's a little tour of the world, where we see 2014. Go anywhere else you want. Say I'm wrong. It's not a problem. But that's kind of where we are.

Thank you very, very much.

Questions

DEVIN STEWART: I did a lot of research watching you on TV. You said if you take out China, it evens out the discrepancy between growth rates. Similarly, if you take out China and Korea, if they didn't have a vote, Japan would be the most popular country in the world. That's true, right?

IAN BREMMER: Yes.

DEVIN STEWART: I think I saw you say something like the Japan and China relationship is one of the most dangerous relationships on the planet. How would it work, the danger? Give us a story.

IAN BREMMER: Six percent of the Chinese say that they have a favorable view of Japan, and 5 percent of the Japanese say they have a favorable view of China. I have never met these people. I don't know who they are. But apparently there are some. So there's still hope in the relationship.

There's no trust whatsoever between these two countries. The Chinese, I believe, understand two things. First, they actually understand that if they have problems domestically and they want to harness nationalism and channel it in a way that is maximally useful for themselves, the country that you do that against is Japan. Certainly Xi Jinping, in his initial foreign policy moves, has reflected that, and Xinhua, if you read the Chinese media, reflects that.

At the same time, the Japanese do have a guy who is prime minister who feels very strongly that China is not only not to be trusted, but can't really be worked with—much more strongly than not only other previous prime ministers, but even people in his own administration. Keep in mind that Abe's grandfather had been a war criminal and was then seen as so important that they had to take him out, the Americans. They worked with him, and he became a minister in Japan.

Abe's personal constituency is absolutely with veterans. Abe's personal feelings are very strongly about commonality of values and the rest, and he has always believed that the Japanese constitution stunts and does not allow Japan to pursue a normal relationship, for not only its national security, but also the safety and well-being of the Japanese nation.

So he believes this, and he's a very strong leader. His popularity is real. "Abenomics" is working. It's going to continue to work, in my view, through 2014. But he's not going to give up on these issues. [Editor's note: Check out Devin Stewart's 2013 article about Abe's reelection and "Abenomics."]

In other words, both countries have reasons to go at each other. Furthermore, I think the Chinese understand that they have a fairly limited window. As they get bigger, the Americans are going to see them as more of a threat from a security perspective, and if a big deal between the U.S. and China isn't cut, Americans will come back and be harder-line in the region, in the same way that they understand that right now you have an Obama administration foreign policy that's particularly willing to overlook the security environment in the region.

What does it look like? What might conflict look like? When you have all of these incidents on a regular basis—scrambling of fighters. I think the Japanese scrambled their fighters 346 times or something like that last year, which is a record. And it was almost all oriented because of China. Before, Russia was the country that they would scramble most against, with the Northern Territories.

What happens if there is an incident, an accident? What happens if you've got a fishing boat and the pilot's drunk, or whatever it happens to be? These things happen. Without trust between the two governments, without a hotline between the two governments, without any—Abe hasn't planned a trip to China, and they are not going to have one—you end up with some folks dead and then you have demonstrations and then you have trade sanctions and you have cutting-off of exports, and Toyota's sort of getting destroyed in China. Suddenly the economic relationship between the world's second- and third-largest economies is in relatively parlous shape. I worry about that.

So in terms of direct bilateral geopolitical conflict, clearly there are many other places that are at war, there are many places that could be at war, that have much more fractious relations, but in terms of impact on the world—so likelihood of occurring, near-time occurrence, and size of impact—you put those three things together, clearly Japan-China is number one. Nothing else is remotely close.

That's the way I would respond to that. Tough question.

QUESTION: James Starkman.

Two observations. Where there has been dictatorship recently, in places like Ukraine, even Thailand, Russia, there have been protests, even violent protests—and Egypt, continuing, against the army, etc. On the other end of the scale, in Brazil, for example, there has been such a sharp tilt to the left, virtually ruining great companies like Petrobras. What do you think is the tipping point where you will actually throw the rascals out in socialist-leaning countries—in France, too, for that matter?

IAN BREMMER: Brazil, of course, was a country that everyone thought was never going to succeed, was too slow, and then suddenly, with Cardoso and with Lula, picked up quite a bit economically. Yes, there's definitely a leftward-leaning government, but also the entire political spectrum in Brazil has consolidated quite a bit.

From your question I'm guessing, I'm imputing, that it's consolidated rather more to the left than you would like. I don't have a normative bent on this, but I would say that there were, of course, well over a million Brazilians on the street concerned about, in this past year, lack of infrastructure improvements, about lack of effective education, about lack of local security. They were not anti-Dilma Rousseff demonstrations. They were anti-political class. This is as the Brazilians are developing a middle class. The demands that they have are different than just job security. The demands are much more about state service provision. They want more accountability.

Economists look at middle classes and they say, "Here are places that we can sell more shoes to." Political scientists look at middle classes and say, "Here are people that are going to be much more demanding of their governments." That will be true whether they are democratically elected or authoritarian. It's true for the Chinese, too. It's true for the Russians, too.

But I certainly don't think that the Brazilian people are anywhere close to throwing the rascals out in that regard, because again I think the parties are actually pretty close in what they are trying to accomplish, and the demonstrations have been against most of them.

In terms of throwing the rascals out in France—oh, we're very close to that. Hollande has been a disaster. He has done nothing—nothing.

Well, actually, apparently he has been busy. I don't understand how you call—if you have a girlfriend and then you have a second girlfriend, why is the second girlfriend a mistress? That must be an American formulation. I think he has two girlfriends. I think that's it. I think that's what he has.

But certainly from a policy perspective he has done nothing. He's the least popular president we've had in the Fifth Republic in over 50 years in France. I think the likelihood that Sarkozy could come back is not small. Hollande has been a political disaster.

When you say throw the rascals out, I assume you mean vote. When you are talking about Thailand, of course, then it's a little different. When you talk about China or Russia, it's not a vote we're talking about. It's about, might they rise up in a more significant fashion? In Russia that's not happening. Twenty billion dollars, any dissent? Not much. He just allowed Pussy Riot out of jail; Khodorkovsky, after 10 years, out of jail. Why? Because he can. He's not stupid. It doesn't affect him. There's no effective meaningful opposition in this country. "Let them eat cake," that's the perspective.

I think Putin has a problem internationally. He's not helpful for his own people, but in terms of where we would see instability, it's not Russia domestically; it's Russia internationally.

I guess what I'm saying is these are different countries. I caution against trying to draw huge lessons from what's happening in Egypt as opposed to what's happening in Brazil.

Clearly one of the big things that's happening across the whole world is that technology is becoming much more diffuse, and it's made it much easier for people to start revolutions. You can start a revolution very quickly in Tunisia or in Egypt. That is very different from being able to follow through on a revolution. Everyone with a cell phone can agree, "We don't like Mubarak," but these guys with cell phones can't agree on, "This is what we want after." Because what do cell phones do? They allow everybody to express their personal identities. Well, if those identities are much more narrowly defined demographically on sectarian lines or Islam versus secularism and all the rest, when those guys come out and say, "Here's what we want," it's not going to be easy.

I think that does not bode well for the Middle East. My projections on the Middle East are god-awful. I wish it was different. I hope Turkey is not a part of that, but they might be. And the United States is saying, "We'd like to get out, thank you very much." Eighty-two percent of Americans in a recent CNN poll said they were opposed to the war in Afghanistan. If those numbers are to be believed, that's the highest anti-war vote of any war since surveys have been taken on these issues in American history. Horrible for the Afghans, but the Americans? How much do we care?

QUESTION: Richard Davis.

Speaking of the Middle East, would you agree that if there is an agreement with Iran, it will include an implicit acceptance that Iran will be a nuclear power? And if it is, what will that effect be, if it crosses the line and becomes a nuclear power in the Middle East?

IAN BREMMER: There will certainly be explicit acceptance that the Iranians have the right to engage in nuclear enrichment, low-level, for civilian energy purposes. That does not imply that there would be acceptance of Iran as a nuclear weapons power, which is precisely why that's what the deal would be.

I'm the guy that came up with the G-Zero. [Editor's note: Check out Bremmer's 2012 talk on the G-Zero.] I'm someone who believes that there's an absence of global leadership right now. But Iran is an exception. Iran is a place where the Americans, under the Bush administration and the Obama administration, have carefully, over many years, built a strong international coalition to destroy the Iranian economy unless they are willing to actually give up on their nuclear pursuits. I think that has so far been somewhat effective. We will see in the next months, six-plus, whether that continues to be effective. We'll see.

On balance, if you asked me to make a bet right now, I think a deal is going to happen. But it's close. It's very close. There are lots of things that could make a deal not work. We'll see.

QUESTION: Ali Mazarra, with the State University of New York.

What do you see about risks related to North Korea, besides more basketball games?

IAN BREMMER: I was with a friend of mine today—I'm not going to identify him, but he's in a position to be intelligent on this—over lunch, I asked him what he believed the likelihood was that Rodman is talking to the CIA. He said 100 percent. My view is 80. It's 100 percent that Rodman is talking to someone who's CIA, but he's not aware of that. That's 100 percent. The question is whether he is actually proactively helping.

As much of a buffoon as he is and as much of a—and I liked him, there's no question, more as a basketball player. That's true of so many people. Frank Bruni—I was thinking today I liked him so much when he did food reviews. And what happened? It's very sad, because he was so good and now he's a disaster. He is.

But what I think about Rodman—we have no information on this country, and here's a guy that somehow has managed to go regularly in and talk to the leader. Any American that knows anything in intelligence would want him to keep doing that, there's absolutely no question, not only by himself, but now with other people who might actually be able to say something coherent. That's good.

I found it really interesting. Just a weird thing. One of the guys that went with Rodman is this Columbia neuroscience professor. Did anyone see that? I haven't had a chance to check this out yet. I have no idea if that guy is crazy or not. But I will tell you one thing: There is a group in the CIA, and all they do is try to assess, on the basis of tapes and all the rest, on the basis of how people look and how they act and everything, whether or not they have actual mental impairments and emotional impairments. I want to know why this guy went on that trip. I find that interesting.

I'm saying these things because we know so little. This is a place where, yes, the uncle was executed and there are now rumors that the aunt, Kim Jong-il's sister, has suddenly had a heart attack. We don't know if they are true or not. The fact is that this is a guy who is doing lots of things that do not comport well with his continuing to be able to rule a totalitarian state. Sudden implosion in North Korea is not something that anybody actually is looking forward to.

The good news, if you call this good news, is that he's such a wildcard—and he has gone after this uncle that the Chinese were working in an okay way with—the Chinese have gotten annoyed and U.S.-China relations on North Korea have actually been a little bit more constructive of late.

So were there to be implosion, the potential that the Americans and the Chinese would be able to not be at each other's throats over this issue is not high, but it's a little higher than it was. That's good.

The problem I have is, I'm trying to advise people that have massive exposure to South Korean electronics manufacturing and outsourcing, and I don't know what to tell these people. If North Korea implodes, you've got a problem there. Yet a lot of these firms, like Samsung, are making things that you couldn't easily re-repurpose or resource into other countries. So it's hard to actually figure out what to do with your South Korea exposure.

I don't have a good answer. I'm giving you lots of color, so it's at least an amusing answer to your question. It's not a very useful answer to your question. This is coffee house conversation.

QUESTION: My name is Dorothy Manevich. I'm an international relations student at SUNY.

The Obama administration has talked a lot about income inequality being one of the next big issues that American society needs to face. American society hasn't been the only society in which income inequality has gotten significantly worse. I was wondering if you saw that as an internal destabilizing factor in the long term.

IAN BREMMER: I posted on my Twitter account I think a day or two ago—there was this amazing map that was produced by the National Geographic that shows the entire world in black, and then it has different colors reflecting income all over the world. It has people and then density of people for how bright it is in different colors. You look and you realize that America, the richest in the world, is blue. It's not like West Virginia isn't blue. It's not like Mississippi isn't blue. It's either no population in some parts of the United States or it's the richest you can be, compared to other countries in the world. This is this huge splotch of blue.

We can talk about income inequality all you want, but the poorest Americans are rich. The poorest Americans are comfortable. I'm not saying that because I don't care about them. I'm not saying that because I think we can just sort of leave them alone. But the fact is that global poverty, true crushing poverty, has been halved in the last 20 years, and you might be able to get rid of it in the next 20. That's an extraordinary story. In many ways, it's a more important story and a more destabilizing story. What happens when these people now have Internet and the rest and move into cities?

It used to be that we don't have to worry about al-Shabaab and organizations like that because they don't have the ability to cause trouble. What happens when all of a sudden they have the ability to have denial-of-service attacks against Americans and their cards from Target? That is a great brand to have a cyber-attack against.

I want to focus the conversation that way. The other reason I focus the conversation that way is because who talks about Occupy Wall Street anymore? I haven't gotten a question on that for a very long time. I'm the one that keeps bringing it up, to say that nobody talks about it.

Obama can talk about income inequality until he's blue in the face. So can Republicans. It doesn't matter. We're not doing anything. There's no legislative impulse in the United States to make a meaningful difference on this. I'm not saying it will never happen. I'm just saying we're so close to it being urgent. And that's sad, because the opportunities that exist for Americans have been narrowed for large portions of the population. That's not the country that immigrants from all over the world historically came to America for. That's a story that's kind of sad.

Yet we still are by far the richest country in the world. Not only that, but we are now the largest energy producer. We're the largest food producer. We've got the entrepreneurship and the technology. We're the country that everybody wants to bet on, in a bigger way than they did before the 2008 financial crisis.

So it's really hard to have people get up there and say, "We've got to do something about our poor 50 percent." It's just not urgent.

I wish I had a better answer for you.

QUESTION: Ben Homer. I'm a grad student at the New School for international affairs.

I'm curious if you can expand on your views on the role of OPEC and perhaps its decline, especially in light of—there has been discussion that perhaps the United States should be exporting oil, which I don't think is going to happen. But between that and—Iran is obviously probably a pretty big winner out of the Iraq War—it seems like these could have really destabilizing effects on the region and Gulf countries. Do you think that's something that could long-term become something that the United States would then have a need to be involved in down the line?

IAN BREMMER: Be involved in?

QUESTIONER: I guess my question is, do you think that if oil prices continue to decline, that's going to have a destabilizing effect—

IAN BREMMER: In the Middle East. Okay, I get it.

I'm generally with you that the United States should not be exporting oil, but the reason for that is because the United States has the ability to make it a value-added product. Countries that export oil are countries that can't do anything with the oil. If you can actually take the oil and refine it and make it into petrochemical processes and all the rest, build industrial complexes around that clustering effect, and then export that—I want value-added. Everybody does. There's no question in my mind that that's where the United States will go.

But having said that, do I believe that it might be useful for the relationship between the United States and Japan, which pays an enormously high price right now for gas, that, as Japan, joins the TPP, this massive free trade agreement that will happen in 2015, should the United States be willing to export LNG [liquified natural gas] to Japan? I would probably be willing to do that.

So for strategic purposes, sort of selected reasons, I think there might be some movement there, and there have already been some exceptions that have been made by the Obama administration explicitly making that kind of thing feasible.

Do I think the United States will ever be sucked back into these conflicts? Of course I do. The United States is the only country in the world that has a global blue-water navy. The United States is the only country in the world that can provide a defense against piracy, for example. The Chinese are going to need lots and lots of energy from the Middle East, but they will not have the ability to provide the kind of public service protection that the United States can.

The question will be, what kind of a deal does the United States cut for that? How does the United States do that? If I were advising Obama on this issue, going over the next few years, I would say, "Wow, China, we could do a lot of this for you and with you"—multilaterally, but the Americans would do the lifting—"but what we'd really like in return is for you to join some multilateral security arrangements in Southeast and East Asia. That would work for us. Then we wouldn't have to pivot. Then you would actually respect and create some understandings of what security looks like, and we'd all be better off. How does that work for you? You would have to renounce some of your claims from a security perspective, but, hey, you won't have to worry as much about energy. Would that be okay?"

The point is not that the United States won't do this stuff. The point is that the United States won't do this stuff without asking for anything. The United States will increasingly say, "Why are we doing this?" If there is a reason, the United States will do it.

That means some kinds of conflicts the United States will get involved in, but a lot of kinds they won't. So the United States will look more French or more colonial or what have you in their foreign policy. The United States will be much less willing in going global for human rights through democracy.

What does that mean for things like ethics in international affairs? Global ethics are breaking down. Global ethics over the last half a century were based on U.S.-created international institutions. Global ethics were American ethics. If you didn't like it, sorry, you weren't a part of it. We created all the institutions—the International Monetary Fund, the World Bank, the UN, the World Trade Organization, Bretton Woods. They're all American institutions. It's really nice when the global environment happens to be yours. It makes it easier. You can just say, those are the ethics.

Now that there are other countries out there that are saying, "You know what? We would like the ethics to be radically different. We'd like the values to be radically different," then what you see is a breakdown. That's what's going to happen. That is a challenge. But it will make this space very interesting. It's fluid. There will be studies around it. We're experiencing a creative destruction of the global ethics space, and we don't know what's going to replace it yet. That's interesting.

QUESTION: My name is Cathryn Smith.

This is a long-term question concerning India and China. China has an aging population, but a high male-versus-female birth ratio. India has a very high male-versus-female ratio of birth as well, but has a tremendous number of young people coming up. Do you see in the long term that they will go to war?

IAN BREMMER: I certainly don't like societies where we're going to see huge imbalances male over female. The potential for pretty basic levels of dissatisfaction goes up a lot in that environment. I would think that, personally. So there's that.

The thing that worries me more than just demographics in these countries is technology. We talk about how unemployment is higher in the United States because it's taking jobs out of the economy. But again, we're rich. Our unemployment levels are relatively low. We have a very developed service sector. We've gone through the high-end manufacturing. There are lots of things that people can do, and we can be creative about it.

In China they are going through this period from middle-end to higher-end manufacturing. That's where they expect their value. They are going to use technology for that. Who's going to employ these people? Who's going to employ these 2.5 billion people? I have no idea. And that comes much faster than demographics, in my view. With demographics, you're talking a generation-plus. With technology, you could be talking five, ten years. I just don't know what happens. The people I talk to that know this stuff don't have any good answers around this stuff.

I think that could cause a lot of instability—less in India because India is decentralized. India is more democratic and decentralized, and the people can be closer to power as a consequence. It may not be very effective, but they can change it and alter it in ways that will be more useful for them locally, where China—this whole system is going to be made very problematic by that.

By far the biggest question mark in the world is China over the next 10 to 20 years. What kind of a country is it? Does it make it? Can it reform? Can it make it through this historic process? It's going to be the world's largest economy. What kind of a country is it going to be? I don't know. They don't know.

QUESTIONER: If we leave Afghanistan and the Taliban starts moving to help the Uighurs, is that a potential instability with China as well?

IAN BREMMER: A little bit. But the fact is that the average Chinese hates all Uighurs. The average Russian hates all Chechens. The Chinese are going to completely destroy this place if you start to see that, and that will be a call for nationalism in China. You're not going to see Han Chinese saying, "Oh, my god, you're disrespecting the rights of these Uighurs." You wouldn't have seen that in the United States either when we were at that level of economic development, to be fair. It's not because China is evil. It's because they are poor.

The problem we have is that China is going to become—I've said this a lot, but it's worth reiterating almost every time I go and talk—China is going to be the world's largest economy and it's still going to be poor. That is our problem. That is the single biggest problem, because therefore it is more unstable, therefore it's more inward-focused, therefore its political and economic institutions are less developed, it's less capable and willing of doing something internationally. These are huge problems.

You just raised another one, demographics. But I could talk about air quality and water quality and product safety and technology and all these other things. How are they going to get resolved? We don't know. It's a problem.

DEVIN STEWART: Final remarks, Ian?

IAN BREMMER: The most interesting thing that's happening in the world today is that the geopolitics are truly in play. When I start with U.S. foreign policy in decline, we're talking about countries that are moving. We had this horrible financial crisis. We need to get out of it. But in a sense, that's kind of cyclical. We have these economic crises. We have these recession and boom/bust periods. We have bubbles that occur that pop. We get through them. This was a particularly pernicious one, so it felt pretty bad. But it's still cyclical.

This issue of the geopolitical breakdown and not knowing what the new world order is going to look like, that is very discomfiting to a lot of people. I don't think we're in the middle of it; I think it's actually just starting. Anyone that thinks, "Oh, my god, this is uncertainty, but I just hope that in another couple years we're going to get"—no, no, no. China is still not big yet. People say China is growing. What happens if China flattens out?

Wait a second. If China grows from its size today at 7.5 percent, that has a lot greater impact on the world market than when they were growing at 11 percent, but were half as big or a quarter as big. The marginal impact that China is having on everything on a month-to-month basis is so much greater.

This hasn't started yet. We haven't begun to get this issue. But we're going to. We're all going to get to live through this soon. And that's really interesting. It gives us an opportunity to shape the world in a way that historically we have not been able to. Those presumptions on how the world looked—those were in place. Those were done by our fathers and our forefathers and our grandfathers. Now all of us will play a role in this evolving world. I think that's really interesting. It's historically interesting. I love being in this space. I'm sure all of you can tell that. But it's great to be in dialogue on these sorts of things so we can talk about this.

DEVIN STEWART: Before you go to Davos, we are very appreciative that you stopped by our place.

I just want to mention a little plug for the Carnegie Council. We're turning 100 in February. We don't look a day over 50. One hundred is the new 50 or something like that.

Ian mentioned the evolution of global ethics, the fluidity of global ethics. Our centennial chair, Michael Ignatieff, and I are traveling around the world—it's a terrible job, but someone's got to do it—and we're talking to various communities all around the world. I'll be going to Los Angeles tomorrow to interview various immigrant communities, the LAPD, and all kinds of interesting people on how people are grappling and understanding the evolution of human ethics.

We'll be producing some really interesting stuff. We have about 10 to 15 products that we're producing.

Let's give a huge thank-you to Ian Bremmer.

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