Monday's ruling from India's Supreme Court that Novartis could not claim patent protection for an expensive leukemia drug throws a spotlight on India's limited intellectual property (IP) protections and may constrain much needed innovation both in the health industry and the broader economy.
The court's verdict upholds language in India's 2005 patent law that says new forms of a known drug must be significantly more effective in order to win a new patent. The court's move represents a win for India's booming generic pharmaceutical industry, but it may prove a pyrrhic victory as it threatens to fundamentally limit the government's ability to improve Indian healthcare over the long term. Foreign corporations with any IP concerns will now be more careful about operating in India. The ruling could also have the unintended consequence of keeping domestic makers of generic pharmaceuticals at the lower end of the value chain.
The verdict is in fact the latest move by Indian authorities targeting international pharmaceutical firms' IP protections in order to help lower Indian healthcare costs. But, despite the government's hostility toward their business model, research and development-focused pharmaceutical firms such as Novartis are unlikely to exit India entirely. They will, however, proceed slowly and cautiously with the drugs they introduce and the patents they file.
The government's approach will also further box Indian pharmaceutical firms into their role as producers of low-cost, low-margin generic drugs. Over the long term, many Indian companies plan to invest substantially in research capabilities in an effort to develop new treatments and move up the value chain. These firms could become victims of their own lobbying and legal successes. Indian pharmaceutical companies will find it difficult to make the transition to higher value products if their IP protections are limited.
More broadly, the verdict could constrain innovation in other areas of the economy as well. Any firm that depends on IP may find the Indian market either unprofitable or unwelcoming (or both). A clear medium-term risk is that foreign investment in Indian research centers will also probably decline, threatening India's long-term growth. The Indian government can ill-afford to stifle the virtuous cycle of innovation if the country's economy is to provide adequate jobs, healthcare, and social opportunities for a largely disadvantaged population of 1.2 billion.
Sasha Riser-Kositsky is a researcher with Eurasia Group's Asia practice.
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Note: Today is the ninth in a series of posts that detail Eurasia Group's Top Risks for 2013
With slow growth, persistent inflation, and large fiscal and current account deficits, India desperately needs to implement a range of economic reforms. But due to its own shortcomings and a constraining political environment, the ability of the Congress party-led United Progressive Alliance to tackle structural problems is limited -- and will wane further in the run-up to national elections.
Elections are due by May 2014, and the Congress party is scrambling to shore up its popularity in the wake of high-profile corruption scandals. Other coalition members and issue-based supporters, sensing weakness, will try their hardest to extract political concessions from the Congress while the opposition Bharatiya Janata Party (BJP) will likely remain relentlessly obstructionist in its quest to regain power.
Consequently, parliamentary gridlock will persist, with only minor administrative reforms politically feasible in 2013. P. Chimdambaram's return as finance minister in July 2012 has buoyed foreign investor confidence and market sentiment, but he needs to make deep, politically difficult spending cuts to improve India's chance of averting a sovereign credit downgrade to junk status.
And parliamentary elections are not likely to lead to an improved policymaking environment. Like the Congress party, the BJP is in the throes of a prolonged leadership transition and has been largely unable to capitalize on the decline in public support for Congress. This leadership vacuum has enhanced the influence of swing regional and state parties. Elections will likely result in a hung parliament and an even more unstable coalition that will be capable of approving only lowest-common-denominator policies.
Growth will improve in 2013 but India will likely miss its fiscal deficit targets of 5.3 percent of GDP for fiscal year 2012-2013, and 4.8 percent for fiscal year 2013-2014, without substantial subsidy cuts unprecedented in an election year budget.
Expectations for India's performance in 2013 are limited. While it can hope to accomplish just enough on fiscal policy and economic reforms to avoid a sovereign downgrade, India will make negligible progress on structural problems that have long vexed its economy.
On Wednesday, we'll profile Risk #10: South Africa.
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Note: Today is the first in a series of posts that detail Eurasia Group's Top Risks for 2013.
Since the onset of the financial crisis in 2008, investors and companies have focused mainly on risks in developed world markets. But as conditions in the U.S. and Europe continue to improve in 2013, the most worrisome risks will again come from emerging market countries. These countries are fundamentally less stable than their developed world counterparts, and some of their governments used a period of favorable commodities prices and the benefits from earlier reform to avoid the tough choices needed to reach the next stage of their political and economic development.
Some of these emerging market nations face more difficult challenges than others, and much depends on the degree of political capital each leader will have in order to make unpopular but necessary changes. These countries can be divided into three broad categories according to the complexity and immediacy of the risks they face and the longer-term upside they offer.
The first category includes the best bets:
The second category of emerging market economies are at risk of considerable volatility.
Lastly, there are the underperformers, those countries where risks will overshadow returns.
On Friday, we'll profile Risk #2: China vs Information.
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Today, The Call presents our top risks for 2013. Click HERE for Eurasia Group's complete report.
1. Emerging markets -- The era of emerging market abundance is
finished. As the United States and Europe slowly regain their economic footing, the
political risk focus will return to the emerging market world, where
differences among the largest players will become more obvious. Slower growth
and rising expectations from larger and more demanding middle classes will
create public pressure on governments, meaning that emerging markets -- including
the increasingly suspect BRICs -- should no longer be treated as an asset class
for outsized growth. Consideration instead should shift toward which
developing country governments have enough political capital to remain on track
to a more advanced stage of development.
2. China vs. information -- China's new leadership faces many challenges in 2013, most importantly the state's growing inability to control the flow of ideas and information across borders and within the country. Until now Beijing has been largely effective in isolating online discourse to focus on discrete issues without culminating in real challenges to the government's decision-making or policy. But every corruption scandal and example of official malfeasance makes the next event more difficult to navigate, and the risk is that a broad-based social movement for change will gain momentum in China in 2013, distracting the government from its domestic and foreign policy priorities and potentially weakening investor confidence in the stability of the mainland market.
3. Arab Summer -- We are far beyond the Arab Spring, and an Arab Winter, where dictators rebound and consolidate power, has not materialized. Instead we are approaching an Arab Summer, whereby the region will witness radicalized movements -- both sectarian and Islamist -- playing a much more important role. As outside powers look to avoid direct involvement in the region's risks, local powers -- Iran, Turkey, Saudi Arabia and others -- will compete for influence and play out their rivalries. At the center of this lies Syria, whose civil war now has implications that extend far beyond the humanitarian. Syria has become a proxy conflict for Shiite and Sunni powers, as well as a magnet for jihadists, increasing the geopolitical risk overall and sparking further insecurity throughout the region, most notably in Iraq, Jordan, and Turkey.
4. United States -- Every silver lining has a dark cloud. While the fiscal cliff was averted, the process by which the deal was reached casts a large shadow over hopes that the election might create a more conducive environment for cooperation, and dysfunctional American politics will weigh on both the U.S. economic recovery and President Obama's legislative agenda. This is not about a politically induced new recession, let alone a major financial crisis. But political uncertainty over corporate taxes and a series of noisy brinkmanship episodes will generate a modest but real drag on growth.
5. JIBs (Japan, Israel, Britain) -- These are the three current global trends that matter most: China is rising, the Middle East is exploding, and Europe is muddling through. Set against a G-zero backdrop, the structural losers of these trends are the JIBs (Japan, Israel and Britain): countries influenced most directly and problematically by changes now underway in the geopolitical order. All three countries are now in a similar position for three reasons: their special relationships with the United States are no longer quite as important; they sit just outside the major geopolitical changes underway, without the means to play a constructive role; and key domestic constraints in all three countries (political, social, historic, and otherwise) make it particularly difficult for them to respond effectively to the challenges posed by a shifting global order.
6. Europe -- There will be no grand implosion, but the muddle-through approach to crisis management carries risks of its own. The eurozone is headed for neither breakup nor resolution, and in 2013 the risks shift from a threat of financial crisis to a loss of momentum in creating the institutional and policy frameworks for a redesigned union. The weak economic outlook and the politics of crisis-fighting will also remain sources of uncertainty. Simultaneously, euro-skepticism is on the rise and resistance to reforms is increasing in the face of protracted austerity and few prospects for an economic turnaround.
7. Asian geopolitics -- In 2013, geopolitical risk will continue growing in East Asia in a new and potentially more dangerous way. Facing increased nationalism in China and Japan, the United States will look to play a larger role, giving oxygen to the hedging strategies of many regional states seeking closer American ties. Territorial disputes over the East China and South China Seas will also create new friction, and at risk overall is East Asia's decades-long distinction as a zone where positive-sum commerce and economics trumps zero-sum geopolitical tension.
8. Iran -- The significant risk in Iran this year is not the one everyone's thinking about. A strike on the country's nuclear program is unlikely, but biting sanctions, other forms of international pressure, and leadership tensions make Iran less predictable and heighten the stakes of an ongoing shadow conflict with Israel and the United States -- one with the potential to rattle markets and put upward pressure on oil prices.
9. India -- India in 2013 will be one of the prime examples of the intrusion of political factors into what had until recently been seen as a long-term economic success story. The country's dysfunctional politics and looming elections feed the risk of an economic shock, and in 2013 the ability of the government to implement robust economic policies will decline even further, perpetuating India's "stalling or falling" outlook.
10. South Africa -- In aggregate growth terms, Africa as a whole looks to be on a trajectory to continue its recent position of positive performance. But in South Africa -- one of the continent's largest and most sophisticated economies -- the outlook is far less rosy. Populism, spearheaded by the ruling ANC party, is on the rise, and it is hard to see any real movement on labor, education, and budgetary reforms. Coming retrenchments in mining will almost certainly spur another bout of labor unrest, which has the potential to spread into other sectors as well. Taken together, all these factors increase the risk of further credit downgrades.
In addition to these, Eurasia Group's red herrings for 2013 include:
The geopolitics of energy -- 2013 isn't the year to get overly concerned about geopolitical risk spiking energy prices. For one thing, most of the Middle East risk in the coming year isn't about energy -- it's about everything else -- and the energy revolution happening in the Western Hemisphere will be a boon for consumers across the globe.
Global protectionism -- The G-20 can afford to agree on protectionism because there's less of a threat here than meets the eye. The trend in fact is toward hints of competitive trade liberalization, especially within the European Union, which is generating a strong internal consensus on the need for a new major transatlantic economic cooperation package.
Radicalism in the developed world -- Many fear the growing gap between rich and poor will instigate class warfare and cause significant instability across the developed world. We think not. For much the same reason that emerging markets are the top risk this year, it's the underlying stability of advanced industrialized democracies that will come through in 2013.
European separatism -- There is no doubt that there are very real separatist pressures building in Catalonia and in Scotland, and national unity remains fragile in Belgium. However -- as much as we all would love to watch Barca field its own team in the World Cup -- there is almost no chance that any of these issues will grow into an actual crisis leading to separation in 2013.
? - North Korea -- Sometimes, you just can't know what's happening, and with North Korea in 2013 that's really the case. In the face of a sudden leadership transition in the world's most totalitarian state -- now run by an untested 28-year-old -- it's almost impossible to assess whether North Korea is becoming more stable. All signs point to the country remaining a perilous bet, but what causes trouble and when? It's hard not to lose sleep over it, but at the same time working harder to assess what exactly is going bump in the night doesn't feel very purposeful. Sorry.
Over the next three weeks, we'll be posting more ideas and information on each of these risks.
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Eurasia Group's weekly selection of essential reading for the political risk junkie-presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
Must-Reads1. "South Korea's Presidential Election: A Homecoming"
Banyan Asia blog, The Economist
On Wednesday, Park Geun-hye was named president of South Korea by a small margin, making her the first woman to hold the post in the nation's history. How will her presidency differ from Lee Myung-bak's? What are the implications for North-South relations?2. "The Importance of Shinzo Abe"
Sanjaya Baru, The Hindu
A much more momentous Asian election took place this past weekend, as Shinzo Abe and the LDP returned to power. Many are focusing on the possible conflicts that the election could provoke between China and Japan, but this piece asks: Are Japan and India the "natural partners in Asia?" In light of the conflict over the Senkaku/Diaoyu islands, it seems Japan is pursuing an ABC policy (Anybody But China). Why not India?3. "Pakistan: Mullahs and Militants Keep Polio Alive"
Sami Yousafzai, The Daily Beast
The eradication of polio has been tantalizingly within reach, as its presence has dwindled to just a handful of countries. But wiping the disease out of Pakistan comes with substantial risks. This piece focuses on the dangers to the anti-polio mission in the wake of Bin Laden's death and the role that vaccinations played in gathering intelligence for the operation.4. "Slavery's Global Comeback"
J.J. Gould, The Atlantic
Another atrocity that hasn't disappeared: human trafficking and forced labor. These are new terms for what Gould still dubs 'slavery.' Even by conservative estimates, there are more people enslaved today than at any point in history. This is an epidemic that needs global attention.5. "The Putin Show"
Brian Whitmore, Power Vertical Blog
If there were a foreign-policy edition of People magazine, Putin would fill the pages. Why all the hype for his most recent press conference? Consider analysis of his performance as our guilty pleasure political risk story.
Longer Reads6. "Utopia for Beginners: an amateur linguist loses control of the language he invented"
Joshua Foer, The New Yorker
This piece is not political per se, but the treatment of language as an art -- communicable and easily repurposed the world over -- has global as well as philosophical implications. Foer follows a man who spent 34 years inventing a language designed to more precisely mirror reality. The story of who ended up co-opting it -- for political purposes no less -- makes for a fascinating read.
By Anjalika Bardalai
On the face of it, India and the US have more differences than similarities: They diverge markedly in terms of income and a host of other qualitative and quantitative indicators. They seem like political opposites as well-one is a two-party presidential system, the other a parliamentary system comprising no fewer than 70 recognized parties (the newest was launched just this week). But Mitt Romney's defeat in the recent US presidential campaign has highlighted several weaknesses of the Republican Party that are mirrored in India's center-right national party, the Bharatiya Janata Party (BJP), which has been the main national opposition party since its spectacular loss in India's 2004 general election.
Most critically, both parties exhibit a split between a conventionally center-right, business-friendly faction and an overtly religious faction that tries to politicize social issues. In the US, the extremely conservative stance of a few Republicans on issues such as rape and abortion periodically overshadowed the presidential campaign and arguably alienated potential voters who favor the right's economic policies, but who found its social policies abhorrent. The BJP, too, exhibits a fault-line between one faction that is secular, pro-business, pro-economic reform, and (relatively) fiscally conservative, and another wing-the hardline "Hindu-nationalists."
The GOP's hardline stance and rhetoric on immigration reform in the US contributed to an extremely poor showing for the party among Hispanics, the fastest-growing minority group in the US. Similarly, the consequences for the BJP of the Hindutva influence are grave, and will become ever more so as rising incomes inevitably weaken the bonds of religious, ethnic- and caste-based identity in India. For one thing, the BJP's perceived pro-Hindu stance means that it will be all but impossible to make serious electoral inroads among the roughly 15% of India's population that is Muslim.
In addition, the BJP's position is a serious liability in terms of its ability to form alliances with India's myriad regional parties. In an increasingly fractured political system, this could be an utterly debilitating political handicap. As a debate raged this week about whether or not a symbolic parliamentary confidence vote would be held on a the government's recent move to liberalize FDI in the retail sector, the BJP was unable to persuade key parties that are stridently opposed to the reform that they should side with it in a vote against the government. As much as they may fear the recent liberalization, the other parties may fear what they have termed the "communal forces" represented by the BJP even more.
The broader consequences of the BJP's schizophrenic identity are no better. In the absence of a strong, coherent policy platform, the party has relied on sheer obstinacy and obstructionism, preventing the legislature from attending to important legislation (some would argue echoing the behavior of the Republicans in Congress for much of the recent past). The Indian government certainly cannot be absolved of responsibility for the current disastrous policymaking environment, but the main opposition party is behaving irresponsibly.
Finally, the division between the secular and religious right complicates the choice of party leadership. Some analysts argued that with public approval of Obama relatively low and, crucially, the US economy still relatively weak, the presidency was the Republicans' to lose if only the party had been able to muster a stronger candidate than Romney. In India, the BJP has yet to anoint a prime ministerial candidate for the next general election, which is due by May 2014. The man widely hailed as the front-runner is the chief minister of the state of Gujarat, Narendra Modi. Having presided since 2001 over one of India's fastest-growing and most industrialized states, he has developed a sterling reputation for economic management and as such is well-placed to campaign on the main issue of the day: economic revival.
Unfortunately for him, however, he is also one of the country's most divisive figures, with a shadow still hanging over him from communal riots in the state in 2002 in which around 1,000 people-75% of them Muslims-were killed. Even if he prevails in the BJP's internal leadership struggle, this potentially bodes ill for the party's electability in 2014. The BJP urgently needs to reflect on finding a leader who could bring to the table both economic management and political cohesion. Both the Indian BJP and the US GOP have similar lessons to learn from recent history as they attempt to stake out a brighter political future.
Anjalika Bardalai is an analyst in Eurasia Group's Asia practice.
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By David Sloan, Anjalika Bardalai, and Sasha Riser-Kositsky
India's low-key Prime Minister Manmohan Singh has revealed unexpected backbone, but his renewed vigor may come too late to for India to avoid a ratings downgrade or save his unpopular government. After years of limited and haphazard progress on structural changes to the economy, the prime minister, in conjunction with the new Minister of Finance P. Chidambaram, has successfully leveraged the looming threat of a sovereign downgrade to reassume control -- at least for now -- over India's economic policy-making. At the pair's urging, India's Cabinet Committee on Economic Affairs on September 14 approved 51 percent FDI in multi-brand retail, allowed foreign airlines to buy 49 percent stakes in Indian carriers, and raised the FDI cap in broadcasting services from 49 percent to 75 percent. Those long-awaited announcements came just one day after a cabinet committee also approved an unexpectedly large price increase for diesel.
The decision prompted a quick revolt by the second-largest party in the ruling United Progressive Alliance (UPA) coalition. Mamata Banerjee, the firebrand leader of the West Bengal-based Trinamool Congress (TMC), announced on September 18 that the TMC was withdrawing from the government after Singh ignored her demands to roll back both the diesel price hike and FDI liberalization.
But the TMC's departure will not stop those measures from going ahead. The TMC's move leaves the UPA even further from a simple majority in the Lok Sabha, but the government says it still has enough support from other regional parties to survive any possible confidence vote, at least in the near-term. The UPA's ability to maintain the outside support of a number of regional parties -- especially the Samajwadi Party (SP), which holds power in India's largest state, Uttar Pradesh, and has 22 members of parliament in the Lok Sabha -- is crucial to the coalition's future. Although the SP has previously turned down ministerial positions and is likely to do so again in the now-inevitable cabinet shuffle, New Delhi will offer the state government significant financial incentives as an inducement. Still, the SP, along with the TMC a huge winner in recent state elections, expects that early national polls would significantly expand its parliamentary representation.
As such, while the government is likely to survive for now, the TMC's exit underscores the fragility of the Congress-led UPA coalition and increases the chances for early national elections. If the SP and the main opposition Bharatiya Janata Party can resolve their internal leadership squabbles, they might support any TMC initiative to force early national elections. Otherwise, the UPA government is likely to limp along until the end of its five year term in mid-2014.
Despite the political firestorm, the government is unwilling to risk the reputational damage of backtracking again on FDI liberalization, as it did last December after initially approving FDI in multi-brand retail. But the prospects for further reforms have diminished as a result of the political turmoil. Any liberalization of FDI rules in pensions and insurance that would require legislative action is out of consideration, while implementation of the Direct Taxes Code and the Goods and Services Tax, which would require a constitutional amendment, is extremely unlikely. And while the government will move ahead with fiscal consolidation later this month, the window for new and deeper changes closes as national elections approach. Following the election, the prospects for reform are even bleaker as an even more divided, dysfunctional coalition government is likely to assume power.
David Sloan is head of Eurasia Group's Asia practice, Anjalika Bardalai is an analyst in the Asia practice, and Sasha Riser-Kositsky is a researcher in the Asia practice.
By Seema Desai
In early December, India's Minister of Finance Pranab Mukherjee confirmed to parliament that the government would halt current efforts to open up FDI for foreign companies such as Wal-Mart in multi-brand retail. The government is likely to revisit the subject in 2012, perhaps with a reduced FDI limit, but the decision does not signal that the government's limited ability to push economic reforms has eroded any further, or that its survival is in doubt. No major political party, within the ruling coalition or the opposition, is prepared to bring down the government and force a snap election. The current Congress government will continue in power, though there is a possibility that Prime Minister Manmohan Singh may be replaced midway through 2012. Though unlikely, if Singh suddenly resigns in protest against his eroding authority and the cabinet is replaced, it is difficult to visualize the party pushing ahead with any controversial reform.
The same constituency that brought retail reform to near-completion after years of consultation with stakeholders will likely revive the push in 2012. The measure's backers include Minister of Commerce Anand Sharma, senior cabinet members, and various sections of industry. The Congress Party built its case for in support of FDI in multi-brand retail over the past five years but rushed the final announcement, angering party and coalition members.
The bungled announcement has, however, put a fresh political dynamic into play within the Congress Party and its alliance members. The party's senior leadership is not against the retail FDI policy, but the government is also acutely aware of the political dangers posed by the faltering Indian economy. The party will have to address dissenters' concerns and work extra hard to secure support from coalition members. Neither the Dravida Munnetra Kazhagam nor the Trinamool Congress is willing to exit the coalition or face fresh elections, but they felt slighted by not being informed properly about the Nov. 24 policy announcement.
Despite the overblown media commentary, this policy reversal does not materially change the progress of internal economic reforms. Next year, the government is likely to secure legislative approval for some reform legislation, including mining, land acquisition, and direct tax bills. The retail FDI fiasco has not altered the outlook for these internal reform measures, and the political dynamics and probability of these reforms being enacted are unaltered.
There have been structural obstacles for reform since mid-2009, including a lack of real drive from the Congress party leadership. In addition, the likely internal leadership transition and the risks it poses to reformist policymaking will accelerate and grow over 2012. The exceptionally antagonistic relationship between the two main national parties, the Bharatiya Janata Party and Congress, has also made reform even more difficult over the past five years. This dynamic will continue to cast a shadow over reforms in the future unless relations improve.
Still, there continues to be movement on policy announcements that are not contentious (such as infrastructure policy), do not require parliamentary approval (the National Manufacturing Policy), or have been making their way slowly through the system over the past decade (the Goods and Services Tax).
Seema Desai is an analyst with Eurasia Group's Asia practice.
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By Eurasia Group's Asia practice
Next in our series of regional outlooks is Asia, where most economies not named Japan are enjoying quicker and stronger recoveries than in other regions. Asian states have also gained new weight within the G-20 and the Bretton Woods institutions. But traditional strategic rivalries persist, and China's growing economic clout and North Korean belligerence are likely to generate most of the headlines in 2011.
Across the region, Chinese demand is a central driver of other countries' economic growth, and for many Asian countries, China is the top trade partner. In the coming year, China will boost its role at the center of a growing web of economic and financial connections that are gradually, but inexorably, integrating East Asia. Beijing will also strengthen its economic ties across South Asia, notably in Pakistan, Sri Lanka, Bangladesh, and even India, with a focus on investment in infrastructure. China-centric free trade agreements have proliferated. Beijing has also adopted its own standards in some areas of information and communications technology and will try to have them adopted internationally. China will continue to try to reshape the region's trade and investment architecture, largely on a pan-Asian basis and without the United States.
But Beijing's long-term strategic intentions inspire deep anxiety, and its foreign and defense policies have rattled its neighbors. Beijing will suffer consequences in 2011, as India, South Korea, Japan, Indonesia, Vietnam, Malaysia, Australia, and others strengthen their defense ties to the United States. Joint exercises, drills at sea, and weapons sales will periodically raise tensions. So too will trade conflicts, as debates over China's industrial policies at home and investments abroad mix commercial worries with national security fears.
Traditional geopolitical risks in Asia, including China-Japan and India-Pakistan frictions, should be manageable in 2011, but North Korea remains a wildcard. Pyongyang continues to make succession arrangements for an ailing Kim Jong-il, and the regime has used military action in the past to bolster its domestic legitimacy.
Further North Korean provocations are highly likely. We could see a third nuclear test in 2011, but additional conventional attacks would rattle markets with greater force. Significant military escalation is unlikely, however, unless Pyongyang strikes U.S. assets -- like ships participating in joint exercises -- or launches conventional strikes at peninsular South Korea. The former would prompt U.S. retaliation. The latter could lead to counterstrikes on peninsular North Korea, though an innately conservative Seoul will try to modulate its response to avoid an escalation of violence.
This post was written by analysts in Eurasia Group's Asia practice.
By Roberto Herrera-Lim
Western governments recently cheered Aung San Suu Kyi's release, but don't expect any major changes to their Myanmar (formerly known as Burma) policies in the near term. By contrast, Asian countries will probably increase their level of engagement, no matter what the country's politics, because they want access to its natural resources. So what does this all mean for Myanmar's relations with the East and West?
Divining the intentions of Myanmar's generals is never easy, especially their calculations around the release of the country's most famous dissident. It could be an act of economic desperation, the result of a power play between the old guard and relatively more moderate factions within the military, or simply the regime's efforts to achieve some form of normalization. Regardless of the motives, however, the effects are clear: While the West remains distrustful of recent moves, other Asian countries will increase their dealings and investments with Pyinmana, giving these governments greater leverage with the generals who effectively run the country (albeit in civilian clothes). In other words, there will a widening gap between how the West and Asia deals with the Burmese regime, for the next year at least.
The current U.S. administration, whose priorities in Asia lie elsewhere, will not expend much political capital on the country. Influential pro-democracy constituencies in Washington can easily find arguments for continued sanctions and against engaging with the country's nominally "civilian" leadership. While the country held its first general election in 20 years on Nov. 7, it was not free, fair, nor credible. Furthermore, most Myanmar watchers are mindful of May 2003 when, barely a year after Suu Kyi's first release from detention, an armed group apparently recruited by the regime's front, the Union Solidarity and Development Association (USDA), attacked her convoy, killing about 100 people. Senior generals seen as responsible for the attack are now in the new parliament as part of the government-sponsored majority belonging to the Union Solidarity and Development Party (USDP), the successor of the USDA. ??
Meanwhile, many countries in Asia (including China, India, and Thailand) will continue to pursue policies toward Myanmar based on their economic interests and a sense that the country is an arena for strategic competition with rivals. China is already Myanmar's de-facto regional patron. Other countries are now pursuing postures more similar to Beijing's than to Washington's, which, in turn, eases the environment in Asia for further Chinese pursuit of Burmese resources such as natural gas. This year, for instance, CNPC started construction for its oil and gas pipeline projects from Arakan (Rakhine) state off the Andaman Sea to the southern Chinese province of Yunnan. The gas pipeline will draw its supply from the Shwe fields off the Arakan coast in the Bay of Bengal and transport it to Kunming and Nanning in China. The oil pipeline, meanwhile, will transport oil offloaded by tankers from the Middle East at Ramree (Maday) Island in Kyaukphyu to Ruili in China's Yunnan province; it will be able to carry roughly 10 percent of China's imports from the Gulf. For Thailand, meanwhile, Myanmar supplies about a fourth of Thai gas needs, and the amount is expected to increase by 2013, based on new agreements by Thai state energy company PTT.
The next few months will be critical for Myanmar's political and economic trajectory. In the days after her release, Suu Kyi was understandably vague about her plans. She did, however, emphasize "national reconciliation" and flirted with the line that Western sanctions might need to be rethought. Increasingly, Suu Kyi will likely test the limits of the government's tolerance and willingness to pursue political reform. But she'll have to be careful, as the generals will probably be assessing whether their experiment of releasing Suu Kyi succeeds -- and they'll recalibrate as necessary. If they sense that increased instability is the likely outcome of her freedom, the leadership will likely revert to old practices, including increasing the military's role in maintaining order and possibly finding an excuse to again arrest Suu Kyi. On the other hand, if Myanmar's leaders believe their gamble has paid off -- and that the economic and diplomatic gains from her release outweigh the risks to their control over the country -- the pro-democracy movement could be given some breathing room. In this case, if the regime can claim it has fulfilled former prime minister Khin Nyunt's seven-step roadmap (announced in 2003), then a more significant, though slow, thawing of ties with the West becomes more likely. This process will, of course, take time. But if the momentum generated by Suu Kyi's release is sustained, some change might become a more realistic expectation within a couple of years.
Roberto Herrera-Lim is a director in Eurasia Group's Asia practice.
Almost as soon as the midterm elections ended, President Barack Obama set off on a 10-day Asia swing. He's found friendly footing abroad so far: a receptive India looking for a general counterweight to China and a rapturous day in Indonesia, where Obama spent several formative years as a child. Next came a G20 summit hosted by South Korea, a strengthening U.S. ally, and then he'll hit Yokohama for an APEC summit and to commemorate the fiftieth anniversary of the U.S.-Japan alliance. But this happy-go-lucky itinerary doesn't even hint at an overarching foreign policy. Which got me thinking, is Obama ever going to come up with one?
Plenty of commercial and defense deals were delivered during the India visit, which shows how that relationship is improving. There were high hopes for a breakthrough in Seoul on the U.S.-Korea trade agreement, though that now seems unlikely (at least for now). The Japan visit should include broad agreement on Tokyo moving ahead (along with the United States) with a trans-Pacific partnership (TPP). But these are all small things.
What's the big picture?
I was thinking about this while listening to Undersecretary of State Bob Hormats around-the-world speech at the World Affairs Council in Washington last week. I couldn't help but compare it with a similar speech from Secretary of State Hillary Clinton a couple months before. They both talked about the necessity of focusing on issues of bilateral cooperation with China, on Japan as the lynchpin of U.S. policy in the region, on the necessity of promoting free trade, the determination to stay focused on fighting terrorism, and to continue to support democracies around the world. There was talk about not neglecting traditional U.S. allies in Europe. And then, at the end, both emphasized the need to maintain strong commitments with America's key allies in the Western hemisphere, Canada, and Mexico.
I also thought about a speech I had heard from then Secretary of State Colin Powell in 2005. How different were the speeches? How much had the basic precepts of U.S. foreign policy changed over the course of the last two administrations, and during the past five years? To be charitable, I'd say 2 percent. Maybe. Primarily, the difference is that Asia is now taking up a little more attention, Europe getting slightly shorter shrift. Yet in that same period of time, the world has clearly changed more than 2 percent.
I'd say the world has hit a decisive inflection point, even more profound than after the collapse of the Soviet Union. The fall of the wall produced a new global security balance, to be sure -- the United States emerged as the sole hegemon. But in terms of the global economic and policy order, the world basically moved from the G7 to the G7+1. And to be blunt, the +1 sped up the process of globalization, but it did not reflect a new world order. Once the financial crisis hit, by contrast, the G7+1 became the G20. And that, however unworkable, is indeed a completely new ordering principle. It means different types of countries and governments vying for influence, power, and preference on key issues of global governance-from trade to currency to the politics of austerity, on climate, and on conventional and cyber security.
Yet there's a stark disconnect between our drastically changed world and US foreign policymaking. Over the past few decades, foreign policy has been the preserve of presidents, successful or not (think about the Carter, Reagan, Clinton, and Bush "doctrines"). But two years and a Nobel Peace Prize into the Obama administration, there's no sign of an Obama doctrine. This U.S. president has handled foreign policy primarily by managing conflict as it arises (stepping in directly when absolutely required), and otherwise making small, incremental policy gains on fronts with momentum. Obama has shaped America's foreign policy apparatus accordingly, with a strong and relatively autonomous Secretary of State in Clinton, a series of senior, competent special envoys in the State Department to handle intractable, longstanding foreign concerns, and loyal but comparatively weak, non-strategic national security advisers (namely, Jim Jones and now Tom Donilon, who primarily serve to coordinate policy communication and untangle disputes, not to leverage the National Security Council as a mechanism for executive policymaking.
The biggest new idea that the Obama White House flirted with, albeit briefly, was the prospect of a G2 -- a notion that the new world order could be jointly managed by the United States and China. But that concept was essentially stillborn as the first efforts to realize it came to an embarrassing naught at the Copenhagen climate summit last December. Since then, U.S-.China relations have steadily deteriorated on most fronts. For the world at large, that means a growing disconnect on global architecture -- think Gondwanaland, inexorably splitting into continents while the old government still embraces a single state. But faster.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations?
JIM WATSON/AFP/Getty Images
By Maria Kuusisto
While Barack Obama's travels are focusing international media attention on India this week, rival Pakistan is on the brink of major political change. Increased violence, this summer's flooding, and the aftermath of the global recession has left most Pakistanis feeling increasingly insecure, and President Asif Ali Zardari's government has done little to ameliorate these anxieties.
Now it seems that just two years after the fall of former president (and general) Pervez Musharraf, the military may once more intervene. Only don't expect a coup like the one that brought Musharraf to power in 1999. Despite a long history of meddling in Pakistan's politics, the army is likely to stay behind the scenes this time and force the government to improve governance or face significant reshuffling.
The evidence pointing to intervention is unusually strong at the moment. Pakistan is beset by problems-political, economic, social, and security-related. Zardari's ruling Pakistan Peoples Party (PPP) is distracted by its battle with a hostile supreme court and largely disinterested in governing. The government has been unwilling and unable to introduce urgently needed financial reforms, which are necessary to bring the country's runaway fiscal deficit under control. Zardari has also failed to increase revenue collection by introducing a value-added tax. Instead, Islamabad has been resorting to a variety of quick-fixes, such as borrowing from the state bank, to finance its growing spending commitments. These moves are undermining the economy, hindering recovery, and fuelling inflation.
Meanwhile, social tensions-always a threat in this fractious, multiethnic country-are running high. People feel abandoned by the government: They're struggling to support themselves economically and afford basic food stables and services. These frustrations are manifesting themselves in protests, violence, crime, and terrorism. The law-and-order situation is particularly volatile in Karachi, the largest city and commercial capital. More than 1,200 people have been killed in the city's recurring waves of politically motivated clashes between rival groups and targeted killings this year. Hence, more and more of the public feels that the PPP's lassitude is leading to anarchy and undermining Pakistan's national interests.
The country's elites are looking for someone -- anyone -- to get them out of their current fix. Neither the PPP nor the opposition Pakistan Muslim League-Nawaz (PML-N) are up to the job of challenging and replacing Zardari. The president is highly skillful in intimidating his enemies and incentivizing his allies within the PPP, making it hard to form a united front inside the party against him. Moreover, the PML-N is more comfortable in being an opposition force and remains reluctant to take over the responsibility of running the country. That leaves the army as the only viable challenger. Pakistan's elites have begun calling on the military to intervene for the sake of national interest, before it's too late.
In the old days, everyone in Pakistan knew what this meant: a coup and a military government. After all, a military government has run Pakistan for more than half of its history. This time, however, Chief of Army Staff Ashfaq Pervez Kayani knows that stepping in directly would damage the military's domestic and international reputation, which he has carefully rebuilt since Musharraf's resignation in 2008, and could trigger a backlash. More importantly, Kayani knows that the military can't afford to jeopardize the aid it gets from Washington -- money (to the tune of $7.5 billion over five years in civilian assistance and $2 billion in military assistance) that the United States has linked to Pakistan's ongoing democratic process. The military's resources are already strained by its counterterrorism operations and flood relief efforts and it desperately needs those dollars from Washington.
Yet Kayani also knows he can't just sit and watch Pakistan's deepening crisis from the sidelines. He's under increasing pressure from others in the military and the country's influential elites -- who comprise his political power base -- to do something. In Pakistan, it is often said, only half-jokingly, that the country doesn't have a military, the military has a country. Now, the army's leadership is becoming worried that it may not have a country for long if it lets the political, economic, and security situation further deteriorate. As a result, expect Kayani to begin putting pressure on the PPP to improve governance, but from behind the scenes. The general, unlike his predecessor, will carefully evaluate the political mood (both domestically and internationally) and follow constitutional processes in challenging the current political set-up.
So change is coming to Pakistan, and the military may soon be sitting in the director's seat. But expect less drama than in its past performances; most of the action will stay behind the scenes for now.Maria Kuusisto is an analyst in Eurasia Group's Asia practice.
By Maria Kuusisto and Seema Desai
Twenty months after the Mumbai terrorist attacks put Indian-Pakistani relations on ice, last week's much-anticipated meeting of the nuclear-armed neighbors' foreign ministers ended without a breakthrough. A contentious press conference held by Pakistani Foreign Minister Shah Mehmood Qureshi and his Indian counterpart S.M. Krishna underlined the reality that it will take more than time to heal the wounds inflicted by the attacks and their aftermath.
But beyond the outcome of any one meeting, there are four main obstacles to a stronger relationship. First, there's the ongoing risk of terrorism. Pakistan's foreign minister does not reflect the militant groups based inside his country that would like to launch more attacks on India. (And when he did speak during the press conference that followed last week's meeting, it was to condemn Indian accusations of Pakistani complicity in the Mumbai attacks.) With another attack in the Indian city of Pune in February, Indian security agencies also say they've foiled several planned strikes on high-profile government and commercial targets in large cities.
The terrorist risk will remain high for the foreseeable future, and another attack linked to Pakistan-based groups would trigger public pressure on India's government to respond with military force-with aerial attacks on suspected terrorist camps and infrastructure inside Pakistan, for example. Aware of the risk that escalation could spiral beyond either side's full control, Delhi would work hard to resist these pressures. But Indian leaders won't take military threats off the table for fear of emboldening militant organizations like Lashkar-e-Taiba, the group that India blames for Mumbai.
There's also a political dimension to the terrorism problem. Under Indian and American pressure, Pakistani security forces briefly detained Lashkar-e-Taiba leader Hafiz Saeed. In June, a Pakistani court released him. Indian officials continue to insist that progress in Indian-Pakistani relations depends on Pakistan's willingness to bring those responsible for Mumbai to justice. Pakistani officials counter that better relations should have no precondition. And since Pakistan's foreign and security policy is managed by the country's military, not its civilian government, there is little that Pakistani negotiators can credibly promise their Indian counterparts on this issue at this time.
Second, there is Kashmir. This perennial flashpoint, which has triggered three wars between India and Pakistan, is off the negotiating table for the moment. Things had been improving in the region. Local elections last year in Indian-controlled Kashmir featured high voter turnout and little sign of violence. But in recent weeks, clashes between security forces and demonstrators have killed 15 civilians in the provincial capital of Srinagar, and Indian officials have placed the blame squarely on Lashkar-e-Taiba. A military confrontation remains unlikely for the moment, but the unrest makes clear that Kashmiri violence is not a thing of the past.
Third, there is Afghanistan. The Obama administration plans to begin a U.S. withdrawal from the country next year, leaving India and Pakistan at cross-purposes as each prepares for a post-American power vacuum. Pakistan wants an allied government in Kabul, and elements of the Pakistani military and security services are pushing for a power-sharing deal between Afghan President Hamid Karzai and Sirajuddin Haqqani, leader of an al Qaeda-linked militant network and Islamabad's traditional regional ally.
Delhi sees this Pakistani maneuvering as a direct threat to Indian national security, since it could allow the Taliban to resume support for terrorism in Kashmir and provide sanctuary for anti-Indian militants. India will look to boost its own influence in Afghanistan through anti-Taliban elements, including the Northern Alliance.
Finally, there is water. India plans to build several hydropower projects on rivers that cross the border to irrigate 80 percent of Pakistan's agricultural land and fuel 50 percent of Pakistan's hydropower capacity. Islamabad worries that India could use hydropower projects to trigger a flood or a drought -- and the economic crisis that either might provoke. This fear reached new heights in August 2008, when India withheld a considerable amount of water from the Chenab River and stored it in a local dam, worsening already serious problems for Pakistan's farming sector. Pakistan claims that India's projects violate a 1960 treaty that governs the use of water resources in the Indus River System. India says they do not.
Given the complexities of their shared history, it's little wonder that Qureshi and Krishna could agree last week on little more than the value of meeting again. That's why, if every journey begins with a single step, Indian and Pakistani diplomats should pack for a long trip.
AAMIR QURESHI/AFP/Getty Images
By Ian Bremmer and David Gordon
Asia is still a morass in 2010, but the U.S. troop surge has given Obama some
will produce bigger and bigger domestic headlines, but not much will actually
change until the United States reaches (or, more likely, is forced to reach) a
decision point. For now, that's 2011 at the earliest.
Having said that, there's a broader South Asia risk developing this year. The decision by Pakistan to go after terrorists domestically provides Islamic extremists with powerful reasons to expand asymmetric attacks on Pakistan's urban centers and to try to reignite Indian-Pakistani conflict. That's easy enough to do. Pakistan's extremist groups have increased in sophistication and consolidated their capacity, both by joining together and by forging closer links to al Qaeda in the region. In Pakistan, a significant proportion of the population continues to believe that terrorist attacks against the population originate in India. Pakistani networks operating in India haven't gotten much attention, however, and represent a weak link on the counterterrorist front.
This means that the likelihood of attacks in India and against Indian targets in the region is increasing, a particular worry given the nature of the potential targets (government facilities and densely populated urban areas). The Indian government is aware of the threat and has sought to improve its counterterrorist response -- including via increased ground-level coordination in Delhi and Mumbai with American and British counterterrorist organizations. But progress has been slow, and India's counterterrorism capacity remains underdeveloped, badly coordinated, and vulnerable.
Meanwhile, any new attacks would put serious pressure on India to take a tougher line on Pakistan. India's Congress Party leadership is loath to escalate military tensions with Pakistan. But following a quieter line after the Mumbai attacks in late 2008, it made strong demands on Pakistan to take decisive steps against extremist networks with ties to India. Successful large-scale attacks would undermine the Congress Party's credibility on the issue, leading the Indian government to take outsized steps in raising the military posture toward Pakistan. That, in turn, means Pakistan shifting its focus away from the tribal areas and, as importantly, changing its strategic view on taking on further operations -- a shift that would sit comfortably with much of Pakistan's senior military command, who still see rising India as Pakistan's main strategic challenge.
Indian-Pakistani relations, which had been quietly improving during the final years of the Musharraf regime, have already deteriorated somewhat under President Asif Ali Zardari, and it will prove harder for both sides to back away from any high-level military alert. Meanwhile, in both Delhi and Islamabad, Obama's pledge during his Afghan speech to begin U.S. troop withdrawals in 2011 is being read as a signal that the United States is minimizing its long-term commitment to the region. This feeds the already powerful views in both capitals that they should plan for continuation of their long-term strategic rivalry. Worst case, should there be a series of terror attacks in India, we could see Indian efforts to secure international sanctions against Pakistan -- and potentially surgical strikes by India against military training camps inside Pakistan. In short, for the first time in nearly a decade, there are serious factors pushing the Indian and Pakistani governments back toward confrontation.
Next stop: Eastern Europe.
Ian Bremmer is president of Eurasia Group, and David Gordon is the firm's head of research.
ASIF HASSAN/AFP/Getty Images
By Eurasia Group analyst Seema Desai
After the Congress party received a strong mandate in May 2009, investors hoped that India's unfinished reform agenda would resume. Without the left parties, which held back many market-oriented reforms during its previous term, they thought that the Congress party would be able to power ahead without opposition. The new government fed the euphoria, promising to implement a wide range of policies that would cheer investors -- including disinvestment in state owned enterprises, tax reforms, banking, and insurance reforms, and a move toward market pricing of fuel. The party also planned to institute policies that would improve the condition of farmers, develop better infrastructure (e.g., roads, transport systems, and electricity), free up energy markets, promote job growth, and push forward judicial reforms.
But the government's first 100 days, completed in late August, have been disappointing. Much of the progress so far has been on tax and fiscal policies that are essential to narrow the fiscal deficit which, at more than 10 percent of GDP, has reached alarming proportions. In other areas, such as banking and financial reforms, the government is moving slowly in the wake of the global financial crisis. Moreover, there has been no movement on reforms in the agriculture and energy sectors largely because of the complex vested interests involved.
Since the early 1990s, India has had successful reformist episodes in which the government has been able to prevail over vested interests, but these periods have typically occurred after an economic or financial crisis, or because the top leadership believed in reforms and fought off internal political opposition to them. Now, however, the leadership's mantra of inclusive growth clearly indicates a focus on redistribution -- high taxes for high welfare spending, with a focus on programs to uplift the disempowered in rural and urban areas.
While the overall prognosis for economic reforms during the rest of the
government's term is not particularly promising, there will be important
progress in certain areas. A new fiscal responsibility law, implementation of
tax reforms, and disinvestment in state owned enterprises will happen in 2010
and 2011. Incremental policy changes in the finance and banking sectors are
also likely. Kamal Nath, the new minister of roads and highways, is trying to
start transport infrastructure building, though he has been inexplicably slow
in announcing changes to the public-private partnership framework. None of
these are areas will face major political opposition.
In contrast, freeing up agricultural markets and allowing the private sector to trade directly with farmers would mean challenging powerful rural vested interests, which the Congress party is unlikely to do. Facilitating an organized retail sector presents the same obstacles, as does allowing foreign direct investment in the retail industry. Fuel subsidies have long been a drain on India's public finances, but this government is unlikely to be brave enough to remove them and sustain free market prices for any serious length of time.
The best period for reform is between now and 2011, after which the government's focus will shift to the next general election, as well as the upcoming leadership change from Prime Minister Manmohan Singh to Rahul Gandhi, son of party leader Sonia Gandhi. Important state assembly elections (particularly in the battleground state of Uttar Pradesh in 2012) will also make the Congress party even more risk averse than it is now.
NARINDER NANU/AFP/Getty Images
By Eurasia Group analyst Sean West
Earlier this month, the G8+5, the world's leading industrial states plus some other important developing states, committed to finishing the Doha Round of trade talks by the end of 2010. U.S. and Chinese officials paid lip service to finishing Doha this week during the inaugural bilateral "Strategic and Economic Dialogue." World Trade Organization chief Pascal Lamy will likely cite both announcements as cause for celebration. Healthy skepticism is in order.
Overblown fears of oncoming protectionism were all the rage just weeks ago. But as Ian Bremmer wrote in this space back in March, the financial crisis need not trigger as many new trade barriers as some feared. Still, the global liberalization envisioned by a completed Doha Round by the end of next year is likely a bridge too far.
Pledges aside, there's not much reason to be optimistic that a deal can be concluded in the near future. Personality conflicts may have receded, as both Susan Schwab and Kamal Nath -- who banged heads last year -- no longer represent the United States and India respectively. But domestic conditions in the wake of the financial crisis won't help much with trade liberalization. While there's ample reason to be skeptical that neither China nor the EU are any more ready conclude an agreement than in the past, all other countries can play wait-and-see unless and until the United States shows serious leadership.
Obama has yet to lay out a clear strategy for the Doha Round. U.S. Trade Representative Ron Kirk has said several times that the United States considers Doha completion as critical, but there's no evidence yet that he'll have the political support he needs to set policy and to bargain. Comments from Obama himself on Doha have been ambiguous at best, warning of an "imbalance" in potential trade-offs on the table in current negotiations. It's also not yet clear how much political capital Obama will put at risk at a moment when he needs the support of organized labor for a host of other domestic priorities. And in a nod to agricultural interests, he allowed his budget proposal to cut farm subsidies -- a critical sticking point in the Doha negotiations -- to die on arrival.
Real movement on trade policy remains on hold until the president explains publicly how trade policy fits into his administration's broader agenda -- a speech he might give in advance of the September G20 meeting in Pittsburgh. But he'll have to use that speech to persuade an anxious American public -- and many trade skeptical US lawmakers -- that trade deals can spur growth without killing jobs. Obama has an advantage. His history suggests that he believes in the benefits of trade, and in a Nixon-goes-to-China way, he can spend political capital earned on the campaign trail to bring trade-wary Democrats along with his initiatives. But he has so far provided no indication that he's ready to accept the political risks that come with the push needed to get Doha done within 18 months.
RABIH MOGHRABI/AFP/Getty Images
By Ian Bremmer
Moisés Naím wisely warns us in his latest FP column that transnational problems are pressing just at a moment when multinational consensus on solutions has become nearly impossible to achieve. If 20 countries produce 85 percent of global GDP, 20 countries generate three-quarters of global greenhouse gasses, just 21 are directly concerned with nuclear non-proliferation, and 19 account for almost two-thirds of AIDS deaths, limiting negotiations over collective action to the smaller number of states needed for workable solutions makes good sense. But in today's geopolitical environment, 20 is still a very big number.
The ongoing economic meltdown has accelerated the inevitable transition from a G7 to a G20 world. Gone are the days when the United States, UK, France, Germany, Italy, Japan, and Canada could credibly claim global political and economic leadership. Today, no institution that excludes China, India, Russia, Brazil, and a few other emerging heavyweights can fully address the biggest international challenges.
But it's not simply that it's tougher to forge compromises with 20 negotiators at the table than with seven. It's that some of the new players have fundamental disagreements with the established powers on some very big questions -- like what role government should play in an economy. Agreements on managing transnational health crises, nuclear proliferation, regional security, or greenhouse gasses and global warming will involve complex policy solutions with direct impact on domestic economies.
Second, the new governments at the table are preoccupied with problems much closer to home-issues that can be addressed on a (relatively) more modest and manageable scale. China's political leadership, an increasingly indispensable player on several transnational problems, is far more concerned with domestic than with international challenges. Much of its foreign policy is intended to fuel the continuation of explosive domestic economic growth-and the millions of jobs it creates. Its rhetoric may be global, but its focus is more often regional. The governments of India, Russia, and Brazil are likewise intent on managing the impact of the global recession on their domestic economies and advancing their political interests within their immediate neighborhoods. That's why much of the forward movement on transnational issues will come from regional groupings like the European Union, the Gulf Cooperation Council (GCC), and the Association of Southeast Asian Nations (ASEAN).
Some respected observers of international politics have called for a G2, a meeting of US and Chinese minds for the ultimate in minilateralist institutions. There are many reasons why this won't happen anytime soon-if ever. The Chinese leadership may enjoy such talk, but its most seasoned policymakers know well that China cannot yet afford to shoulder such burdens. Nor are Washington and Beijing likely to agree on how to solve many of these problems. And to reduce international consensus to two countries is to ignore the growing importance of many others.
In other words, Moisés is correct that 20 is a much more manageable magic number than 200. But these 20 are unlikely to accomplish big things for the foreseeable future.
by Ian Bremmer
Globalization has created unprecedented opportunities for new investment in education within dozens of emerging and frontier-market countries -- by providing new generations of students with the information and resources they need to compete in the global economy.
As with everything else related to globalization, there's a downside. Upwardly mobile elites in volatile developing states often choose to apply what they've learned in the more lucrative job markets of the West. In many countries, this chronic problem discourages state spending on education: Why commit substantial capital for a long-term investment in people who may simply take their gifts elsewhere -- especially when near-term results can be achieved by spending on something more tangible? Yet, failure to invest in education lowers the arc of a country's development.
For a glimpse of the future of a state's economic growth and its political stability, a look at its education system can provide useful insights.
global standards, particularly in higher education, is becoming one of the
biggest advantages for Persian Gulf states. Governments
throughout the region have devoted much more time and resources to it in recent
years-Saudi Arabia, Dubai, and Abu Dhabi especially-both in terms of building
infrastructure, attracting top talent, and leveraging partnerships with other
institutions of higher learning. But the most important change comes in the
form of new opportunities for young women, empowering a massive untapped
resource. At the same time, we're likely to see a growing development gap
within the United Arab Emirates as the less developed emirates-Ajman, Ras
al-Khaimah, Sharjah, etc-are burdened with well-entrenched elites who fiercely
resist the social liberalization that comes with radical improvements in
The Gulf stands in marked contrast with most of North Africa, where government policy reflects the preferences of an older generation that still sets the curriculum and rejects western-style training in favor of a focus on nationalist and, in some cases, socialist principles. Budgets are also a problem. That's a particular issue in Egypt, where younger urban lower and middle classes are increasingly frustrated with the quality of local schools. Growing emigration rates for the most talented young people create risks of increasingly brittle economic growth.
In sub-Saharan Africa, top students traditionally studied in public boarding schools. Strong economic growth has generated rising demand for better educational standards, but state governments haven't been able to keep up. To fill the vacuum, the private sector is stepping in to build private day-schools, which are located in neighborhoods that can afford them-unlike the boarding schools, which mix students from different class and tribal backgrounds. As a result, the private sector is giving a generation of Africans a much stronger sense of tribalism-with fewer opportunities to meet students from different cultural and socioeconomic backgrounds. These changes will help to heighten long-term risks of increased tribal and ethnic polarization.
India and Brazil have similar structural challenges and proposed solutions. To overcome lagging local education spending, they're bringing in the private sector and foreign direct investors to bridge the gap. Brazil is likely to have more success with this strategy, in part because the political system is more centralized and the country is less culturally diverse than India, where more than two dozen languages are each spoken by at least one million people. The most useful parts of a program that works in one area-like special schools sponsored by Embraer, an enormous Brazilian aircraft manufacturer, with advanced science and engineering-can be implemented in other regions of the country. In India, charter schools tend to function like special economic zones. They're effective, but their programs aren't easily transferable to another region of the country where different languages are spoken and cultural values respected.
In Russia, government has reinserted itself into school systems in a big way, both in terms of textbook content (in history and social sciences), as well as a broad effort to improve the quality of military training. Spending on culture and the hard sciences has lagged considerably. Combined with the extraordinary demographic crisis looming in Russia (with 0.5% negative population growth annually, Russian demographics are unmatched globally in any country not ravaged by war or famine), the longer-term trends look especially worrisome.
As with so many social developments, China's educational problems create competing internal pressures. The Chinese government has long been committed to vastly improved education standards for an enormous (and largely illiterate) rural population. It has succeeded. To maintain social order, Beijing must now create jobs for many more graduates than it did a few years ago. More than 20 percent of Chinese university graduates today are unemployed, while Chinese stimulus spending continues to focus mostly on energy-intensive (and not high-value, labor-intensive) industry. That's a problem that's likely to increase over time, in part because of the skepticism of Chinese leaders over more intangible non-industrial production, and in part because of the top-down, more rote nature of education in the Chinese system.
Then there's the leadership's strategy of nurturing nationalism in Chinese universities. The state has invested in the promotion of party loyalty within many institutions, including by creating so-called 50-cent gangs, students who receive small payments for each positive posting they write on behalf of the Communist Party on university web bulletin boards. A point of related tension: Increasing numbers of foreign students (including a growing number of Americans) are attending universities in China's fast-growing, increasingly prosperous eastern cities. Thus far, they've been relatively isolated from the general student population, but that's likely to spark conflict in coming years.
On the subject of education and nationalism, Western European schools have dramatically scaled back the teaching and promotion of national identity in recent years. But with growing immigration from Eastern Europe, the Muslim world, and elsewhere -- and a sharp economic downturn -- these governments are now struggling to cope with the rise of new ethnic, religious, and regional enclaves within their states. As a result, we're likely to see a serious backlash toward conservative state-sponsored promotion of national identities-some of which will be exclusionary, fueling intensified domestic social tensions.
The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.