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.
"U.S. Blames China's Military Directly for
David E. Sanger, New York Times
For the first time, Barack Obama's administration explicitly accused China's military of responsibility for cyberattacks on U.S. government computer systems. By some estimates, 90 percent of the cyber-espionage in the United States originates in China.
"Russia's Energy Bully Takes a Fall"
Alexandros Petersen, Foreign Policy
Is Russia's coercive use of natural gas exports to bully its neighbors finally unraveling? Will cheaper gas worldwide exacerbate Russia's "reverse dependence" on European markets?
"Japan's leading exporters say the weak
yen is helping them, to a point"
Gwynn Guilford, Quartz
Is Abenomics for real? It certainly had an impact on many exporters' first-quarter bottom line. The weaker yen accounted for 43.2 billion yen of Nissan's 174.4 billion yen operating profit (up almost 50 percent from the same period last year).
"In China, Power Is Arrogant"
Yu Hua, New York Times
In 2001, hospital officials in Shenzhen stipulated that nurses should "show precisely eight teeth when smiling." This piece addresses the "wacky and arbitrary nature" of many Chinese regulations.
"This Is The World's First Entirely
Andy Greenberg, Forbes
What happens when rapidly evolving technologies meet an age-old political debate? Twenty-five-year-old Cody Wilson is utilizing 3-D printers to print guns -- and is sharing the blueprints in downloadable open-source format on his website in a bid to undermine gun control efforts. Here is a disturbing documentary from Vice on the process and its implications.
Note: Today is the seventh in a series of posts that detail Eurasia Group's Top Risks for 2013
East Asia's geopolitical stability will continue to deteriorate this year. Countries such as the Philippines, Vietnam, and Japan will take tougher stances on territorial disputes with China and seek to involve Washington more closely in these issues. But China's new government will find it difficult to compromise and may even take more forceful positions given its need to consolidate internal support and channel growing nationalism. Meanwhile, the US will continue to enhance engagement with Asian partners -- particularly on the economic side -- which will raise skepticism in Beijing.
The most worrying concern during the early part of 2013 will be the Senkaku/Diaoyu islands, claimed by both China and Japan. Tensions surrounding the islands spiked in late 2012 following the Japanese central government's decision to purchase several of them from their private owners. The growing presence of Chinese ships and aircraft in surrounding waters is stoking nationalist sentiments in Japan and increasing the risk of a clash that could quickly escalate and ensnare the world's three biggest economies in an ugly dispute.
In 2013, regional governments will lean toward political considerations more than economic ones. In Japan, a new government led by the Liberal Democratic Party (LDP) Prime Minister Shinzo Abe will become more assertive on foreign policy issues. The LDP was able to capitalize on nationalist sentiments in its campaign, and Abe will carry through with some of his promises in 2013 by establishing a more assertive national security and foreign policy posture. Abe will also bolster the U.S.-Japan security alliance and likely commit Japan to joining the Trans-Pacific Partnership (TPP) negotiations. China will regard such moves as confrontational.
Meanwhile, Beijing's appetite for compromise will be limited. China's political transition will make it more difficult for Beijing to be flexible on foreign policy issues. The country's new leaders will need to consolidate internal support. Moreover, growing middle-class expectations and concern over the state's control of information are expected to encourage a more nationalistic foreign policy. If Beijing faces a foreign policy test, the incoming administration might feel the need to demonstrate its foreign policy mettle and avoid being seen as capitulating to outside interests.
Policies toward Asia from the U.S. will not change much: The rebalancing of its attention toward the region will continue, with more substance on the economic than on the strategic side. In particular Washington's trade negotiators will focus on negotiations for the TPP talks.
The South China Sea will be another hotspot. There has been relatively little tension there in recent months, but that calm is unlikely to continue. Vietnam and the Philippines, in particular, will maintain their aggressive postures toward China. Neither country has an interest in provoking a military conflict, but domestic politics make it difficult to back down without a perceived (even if minor) but unlikely concession from Beijing.
Later this week, we'll profile Risk #8: Iran
GOH CHAI HIN/AFP/GettyImages
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.
SAJJAD HUSSAIN/AFP/Getty Images
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.
Scott Seaman and Ross Schaap
The fight to increase Japan's consumption tax may yet spark significant party system realignment -- something the country needs in order to secure a government that can more effectively address Japan's fiscal challenges and increase economic competition, especially through trade. Any move toward such change is now tied to the next Lower House election, with its timing depending largely on the behavior of former prime minister Yukio Hatoyama.
Hatoyama has returned to the limelight after Prime Minister Yoshihiko Noda managed to secure Lower House approval on June 26 of legislation that will increase the consumption tax. That process prompted a split of the ruling Democratic Party of Japan (DPJ) when Ichiro Ozawa and a group of his followers defected on the vote and formed a new party. Despite fears that Ozawa (nicknamed the "Destroyer" for his habit of creating and then wrecking political parties) would bring down Noda's government by leaving the DPJ with a large contingent of disaffected backbenchers, the DPJ has retained its Lower House majority. But the risk of a no-confidence motion has increased, and Hatoyama may yet snatch away Ozawa's moniker if he decides to defect as well.
Hatoyama is a DPJ stalwart, having helped found this party and lead it to victory in the 2009 general election. But as a backbencher he voted against the consumption tax hike and continues to criticize Noda's decision to pursue it. If Hatoyama were to defect along with 13 or more other Lower House members, Noda would not survive a no-confidence motion backed by a united opposition.
Despite stressing that he doesn't want to leave the DPJ, Hatoyama continues to speak out against Noda and has hinted that he may intensify efforts to challenge the party leadership if the Upper House fails to dilute the tax hike legislation (though he isn't clear about what he actually wants). Hatoyama will probably stay put when the Upper House passes the hike into law, likely in August without any major changes. If he defects and brings Noda's government down, Hatoyama could lose in the subsequent election. (The opposition Liberal Democratic Party is preparing to run a popular Olympic speed skater against him.)
If Hatoyama remains in place, Noda is likely to weather the current political storm and work to delay any snap election until after he secures reelection as the DPJ president in September. Such an outcome would slow any move toward restructuring of Japan's party system, which will likely advance fastest if elections occur that shake up representation in the Diet. There are other scenarios that could result in early elections, including other defections from the DPJ or an opposition refusal to help approve legislation to issue bonds to fund the budget, but they are less likely.
As a result, the odds are increasing that an election (and any resulting political party realignment) will not occur until mid-fall or later -- perhaps even next summer. A later election would allow Noda more time to position the DPJ and canvass potential allies and prepare the way for mergers or the formation of a formal coalition with reform-minded elements of the LDP and other parties. But if Hatoyama is appeased or cowed and the tax hike row dies down, pressure for an election will wane and Japan's gridlock would likely persist.
Ironically then, any hope for more rapid reforms in Japan would be best served at this point by Hatoyama jumping ship after the Upper House passes the tax hike, likely forcing Noda to call an election and potentially setting a broader realignment process in motion. For Hatoyama, replacing Ozawa as Japan's "Destroyer" by helping to dissolve the DPJ could end up being his most lasting contribution to Japanese politics.
Scott Seaman is an analyst with Eurasia Group's Asia practice; Ross Schaap is the director of the Eurasia Group's Comparative Analytics practice.
YOSHIKAZU TSUNO/AFP/Getty Images
By Scott Rosenstein
Contamination reports out of Japan have prompted more than just Jeremy Piven to second-guess their consumption of sushi and other Japanese delicacies. With many countries including the United States, Hong Kong, Australia, and Singapore banning selected food imports from Japan, fears of a global food supply riddled with radioactivity have been on the rise. The World Health Organization has characterized the situation as "serious." As a result, Japanese food is suffering from a burgeoning branding crisis.
Continued contamination revelations, including recent reports of plutonium in the soil around the Fukushima Daiichi Nuclear Power Station and trace amounts of radioactive cesium and iodine reaching the United States, will likely exacerbate the situation. For Japan, the resulting economic dislocation will be a small (agriculture only constitutes 1.1 percent of the country's GDP) but notable addition to the long list of challenges it faces.
But should we all stop eating food associated with Japan? When it comes to food safety, emotion sometimes trumps reality. The United States, for example, imports less than two percent of its seafood from Japan. The Food and Drug Administration is now monitoring those imports closely, and many restaurants have already halted whatever remaining food orders they have with Japan. France, Germany, India, China, and South Korea have announced similar measures. These are prudent steps to take. But whether they reassure consumers remains to be seen. Even if none of the food on diners' plates is from Japan, ongoing fears could dent the popularity of Japanese-style cuisine worldwide.
Either way, the risk of elevated trade tensions remains low. As long as the import bans are temporary and not perceived as blanket restrictions intended to favor domestic producers, it is unlikely that conflict will arise. China, for example, consumes a significant proportion of Japan's food exports -- much of which is sold at a premium to high-end consumers with promises of quality and safety. Beijing will need to appear proactive for the sake of public opinion at home, but it won't be easy to replace Japanese imports domestically, making the government less likely to do anything drastic. China probably also wants to maintain good trade relations with its neighbor in order to increase exports of Chinese-made food into Japan, particularly if food shortages there worsen or if consumer confidence in Japanese food takes a serious hit. (Considering China's poor record on food safety, however, confidence in Japan would need to plunge considerably for the latter scenario to play out.)
To be sure, health concerns about the issue are not unfounded. The majority of illness stemming from the Chernobyl accident in 1986 resulted from contaminated dairy consumption. Simply instructing children not to drink milk from affected areas in Chernobyl would have drastically reduced the suffering there. Continued monitoring of the situation in Japan therefore remains critical. But we are still very far from Chernobyl levels of contamination. And as the headline risk about food safety in Japan continues to rise, so too does the possibility that much more immediate emergencies in Japan will receive proportionately less international attention.
Scott Rosenstein is an analyst in Eurasia Group's Global Health practice.
TED ALJIBE/AFP/Getty Images
By Damien Ma
In the midst of strident declarations that the global nuclear renaissance is over, it is worth pointing out that in China at least, the rebirth of nuclear power is for all intents and purposes a done deal, especially now that Japan's nuclear crisis seems to have turned a corner. Many thought Beijing's immediate announcement of a safety review and a freeze on new approvals meant the industry was effectively on life support. But that's not true. Nuclear power features prominently in the 12th Five-Year Plan (FYP) as an essential base-load alternative to coal. And because there are no easy substitutes, nuclear power is a key part of achieving China's clean energy goals.
The recently ratified 12th FYP contains binding targets to have non-fossil fuels account for 11.4 percent of China's primary energy mix and for a carbon intensity reduction of 17 percent by 2015. Those goals are likely to be reached only by meaningfully expanding nuclear power because renewables alone (including hydro) are unlikely to be sufficient in offsetting coal and meeting the plan's objective. Nuclear capacity is expected to quadruple from the current 10.8GW to around 40GW by 2015. The State Council has reportedly already approved 34 plants totaling 36.9GW, with work on 25 of those projects (totaling 27.7GW) having already started. Even if the new regulatory review delays construction of the remaining nine projects on the drawing board, China's nuclear power capacity would eventually still be just shy of 40GW.
The review process will have some effect though. Yet-to-be approved projects may be shelved. Existing projects and those yet to break ground could temporarily see delays or receive more scrutiny to determine whether they need to be retrofitted. But decommissioning reactors seems unlikely. China's fleet of reactors is relatively young, compare to the 40-year-old ones in Fukushima. Siting future plants in interior China, such as in Chongqing and Hunan, may also be reconsidered because of their proximity to notable quake zones. It is also worth noting that though China stated in 2010 that it is aiming for 70GW-86GW of installed capacity by 2020 (with some proposing total capacity as high as 100GW), that figure could ultimately err on the conservative side once Beijing reassesses its energy needs for the 13th FYP. But even at 70GW, China would be one of the largest nuclear markets in the world.
The support for nuclear energy reflects the political strength of its champions in the Chinese government. Top energy officials, such as former National Energy Administration (NEA) head Zhang Guobao and current NEA chief Liu Tienan, have publicly stated in recent days that China needs to develop its nuclear industry, with safety as a prerequisite. Other officials from the environment ministry, which has a hand in managing the nuclear sector, have also argued that China needs nuclear power to ensure energy security amid growing demand. Indeed, energy security and clean development have been invoked as compelling arguments. The head of the China National Nuclear Corp., one of the country's two nuclear giants, recently pointed to data indicating that China's existing nuclear capacity reduced annual emissions (67 million tons less of CO2 and 250,000 tons less of SO2) compared to equivalent coal-fired capacity.
Yet the effusive support elides legitimate concerns about whether China can produce a sufficient number of properly trained operators and managers that can keep up with the expansion of plants. (The Chinese obviously would prefer technicians like those handling the Fukushima crisis.) And the Japanese crisis has lent ammunition to some critics of the pace and scope of China's nuclear pursuit, with some likening it to a "great leap forward." The episode could perhaps inspire a more open debate about China's nuclear trajectory. It is also possible that bottom-up populism, particularly in a more "progressive" province such as Guangdong, could fight local governments over future plant sites. But ultimately, a sudden reversal of the civilian nuclear program that began in earnest 20 years ago seems unlikely.
Damien Ma is an analyst in Eurasia Group's Asia practice.
2009 Getty Images
By Ross Schaap
The devastation in Japan, the enormous human suffering, and the rising anxiety over ongoing problems in the country's nuclear facilities are well-documented. But assuming the nuclear crisis remains localized with no direct impact on economic activity in Tokyo, here are a few reasons for (cautious) confidence in Japan's resilience.
In 1995, when an earthquake struck the important industrial city of Kobe, many observers forecast that the impact of the disaster on Japanese production would last for many years. Yet, economic activity in the affected area reached 98 percent of pre-quake levels within 18 months, and the cleanup was largely complete within two years. This is a reminder that the seismic magnitude of a quake is a less reliable indicator of long-term economic damage than the strength and resilience of the country in which it occurs.
Long-term damage to Japan's economy is limited by the reality that the country's industrial core lies outside the region most badly damaged by the earthquake, the tsunami, and the nuclear emergency.
Japan's economy has excess manufacturing capacity on most fronts and, in time, will adjust.
As Robert Madsen and Richard J. Samuels have written, the disaster has temporarily secured Prime Minister Naoto Kan's government. For the moment, no one within his Democratic Party of Japan (DPJ) is willing to risk a party split or is strong enough to launch a leadership challenge. Further, the Japanese public will have no tolerance for attempts to oust the DPJ government or for a national election in a time of such crisis.
As a result, Kan should now finally be able to pass budget-related legislation that will authorize the debt issuance needed to execute the government's budget.
Reconstruction will spur industrial activity and long-term investment in housing, commercial and industrial infrastructure. That's a source of long-term economic stimulus.
The magnitude of the government response will be driven by need, not by fear that markets will constrain it. Gross debt has surpassed the 200 percent of GDP threshold, but net government debt is at about 110 percent of GDP. That's high, but it's not above the level managed by other countries in the past. Government notes are mostly held domestically, and Japan has a healthy external balance, with a net international investment position of $2.8 trillion.
Japan, a country already treated in much of the international media as a fading economic power, now faces a crisis of enormous proportions. But it is a mistake to underestimate the country's ability to meet the challenges it now faces.
Ross Schaap is director of comparative analytics at Eurasia Group and an analyst of Japanese politics.
ROSLAN RAHMAN/AFP/Getty Images
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.
This week's U.S.-South Korean trade agreement fills Japan's political leaders with envy. The latest reports of North Korean belligerence fill them with dread. Suspicions that a record-breaking Chinese high-speed train was built with Japanese technology fill them with anger.
It's not easy finding good news in Japan. Following two decades of economic inertia, dynamic growth feels like ancient history. At nearly 200 percent of GDP, Japan's gross government debt has reached dangerous levels. The population is aging, and a third of Japanese young adults don't have jobs. China's shadow is lengthening across East Asia. Americans once worried that Japan was buying the U.S. economy. Today they fear the U.S. will repeat Japan's mistakes.
Yet, Japan's beleaguered leaders have three important advantages.
First, the Democratic Party of Japan (DPJ)-led government and the country's business elite are finally realizing that they have to work together. The DPJ won control of government in 2009 after a half century in the wilderness during the nearly uninterrupted rule of the Liberal Democratic Party (LDP). The DPJ's longstanding ties with trade unions and its leaders' anti-business rhetoric have badly damaged the party's credibility with Japan's industrial elite.
But the LDP won't be staging a comeback in the near future. To accomplish much of anything, the DPJ government needs the business elite to succeed. The business community, in turn, needs much better relations with the government. The two sides seem now to recognize that they have no choice but to build stronger, more durable ties. That's a foundation for better days ahead.
Second, China's rise -- and a growing appetite in Beijing for confrontation with Tokyo -- has accomplished something that U.S. and Japanese diplomats haven't. It has put the U.S.-Japanese relationship back on track. Once Washington and Tokyo stop bickering over placement of U.S. military bases, they can make progress on more serious security issues.
None of these issues could be more important than a renewed push for progress on the Trans-Pacific Partnership (TPP), a multilateral free trade pact that might one day integrate many of the Pacific Rim's largest economies. Washington is already negotiating to join. Japan's government has finally begun to show interest. In part that's because, with the DPJ in power, Japanese farmers won't have a veto over the pact as they did with the LDP in charge. It's also because China's expansion has Japan (and others in the region) looking to balance Beijing's growing weight by strengthening its ties with the United States.
Most importantly, Japan's leaders can count their blessings that angry large-scale demonstrations aren't common in Japan. Despite 20 years of economic malaise, Japanese leaders don't face the kind of public outrage we've seen this year in Europe. There's no Japanese tea party. Japanese students aren't as in to property damage as their South Korean counterparts. And unlike China, rising unemployment poses no threat to the survival of Japan's government.
And if its luck really begins to turn, perhaps Japan can get its economy back on track ... just in time to host the World Cup in 2034.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations?
YOSHIKAZU TSUNO/AFP/Getty Images
The good news in Europe is that they've finally realized the seriousness
of their fiscal woes. The bad news is that it may be too late. The good news in
the United States is that we have considerably more fiscal rope to hang
ourselves with. The bad news is that we seem intent on not using it. The good
news in Japan... Well, there really hasn't been much good news in Japan lately.
But last week might be a start. The resignation of Prime Minister Yukio Hatoyama and perhaps more importantly, the sidelining of Ichiro Ozawa, secretary-general of the Democratic Party of Japan (DPJ), was widely expected, but not quite so early. Their departure, and the passing of the upper-house election in July, now finally allows the new government to focus on policy rather than politics. It also gives the DPJ a three-year window before another national election will be required.
It will be a long road before Japan gets its act together. But the policymaking process will probably be less self-destructive under new Prime Minister Naoto Kan, benefiting from greater popular support (the DPJ grabbing a sudden 15-point lead over the liberal democratic party following the shakeup), a likely coalition shakeup after the upper-house election that makes new coalition partners better aligned with the DPJ available, and collaboration between the cabinet and the professional bureaucrats (some of the world's most competent and hard-working), who have been essentially left out in the cold for about a year.
Does it make me positive on the yen? I wouldn't go that far. For putting the budget back on a sustainable path? It's a step in the right direction. But with DPJ leadership change improving the likelihood of coherence in Japanese policymaking, I'm less overtly negative. And for Japan right now, that's saying something.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations?
YOSHIKAZU TSUNO/AFP/Getty Images
There are several fascinating elections due this year. Next month, we can look forward to Britain's most unpredictable outcome in 100 years. In Poland, former Prime Minister Jaroslaw Kaczynski has become a presidential candidate in hopes of succeeding his twin brother Lech, killed in a plane crash earlier this month. Japan's ruling DPJ faces a referendum on its first turbulent months in power with upper house elections this summer. In November, recession-weary Americans will go to the polls to elect a new congress.
With all that going on, you probably haven't thought much about next month's local elections in North Rhine-Westphalia, Germany's largest state. Eager to institutionalize a post-bailout era of greater fiscal discipline, the German government is preparing to push for a major revision of eurozone rules in the form of a new European Union treaty. The aim is to build momentum behind a drive for fiscal consolidation and greater powers to enforce rules across the currency union.
But it's hard to imagine that Chancellor Angela Merkel's government will get what it wants. Irreconcilable differences remain among key European states, and Germany doesn't have the political power it held a generation ago in the run-up to introduction of the euro. Today's union is much larger, and the perceived benefits of convergence are worth less. The contentious debate over a new treaty will unfold just as the battle is heating up to replace Jean-Claude Trichet as president of Europe's Central Bank.
The immediate concern is that Standard & Poor's lowered Greece's debt rating to junk on Tuesday and Portugal by two steps. The big longer-term worry for Europe is that politicians locked into tough deflationary programs (in Greece and beyond) will take the once-taboo step of pushing for debt restructuring. We're not talking about the break-up of the eurozone, no matter how much apocalyptic rhetoric we hear in days to come or how many pundits write articles this fall with titles like "Who killed Europe?" But the less dramatic risks for European fiscal policy are plenty serious.
That's where Germany's local elections come in. The balloting in North Rhine-Westphalia, home to more than 20 percent of Germany's citizens, will provide a real test of Angela Merkel's center-right government. A bad result would jeopardize Germany's shot at tax reform. More to the point, it would weaken the entire eurozone by undermining support for fiscal discipline at the heart of Europe.
A return of the German left, even a modest one, will generate much more expansionary policy than we saw during the grand coalition period between 2005 and 2009. That will create stronger institutional support for German labor demands, driving a rebalancing within the eurozone as German labor costs begin to rise. That will undermine European competitiveness at a delicate moment in the union's recovery from recession. Over the longer term, it's hard to imagine Europe's fiscal woes improving in that environment. That's why I believe strongly in the eurozone, but not in a strong eurozone.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)
AXEL SCHMIDT/AFP/Getty Images
I'm seeing a lot of Russians in Davos this year, but surprisingly little Russia. It's hard to say if it's a conscious decision by the Russian government, but if so, it strikes me as a pretty sound strategy. After all, Russia as a topic generally comes across as a negative in global circles--revisionist geopolitics, resource nationalism, and strongly authoritarian (albeit charismatic, in a fashion) domestic leadership. Instead, there are a healthy number of Russian executives going about their business, presenting on panels along with colleagues from other countries, and generally integrating well. It's probably their best Davos in a good long while.
The Russians have nothing on the Japanese execs, who are here in serious force. Though absolutely none of whom are actually talking about Japan. Indeed, the only attendee I could find giving a bullish Japan story is Pepsi CEO Indra Nooyi, who apparently is making money there cans over fist. For everyone else, it's a story of a dwindling population and flat consumption, but world-class technology, strong regulatory structure, and top-notch management. Japan's model apparently is to become a bigger Singapore.
Speaking of Singapore, a sad piece of trivia I just heard: after lots of lobbying and prodding, an Armenian friend of mine (full disclosure: my mum's also Armenian) recently got Singaporean minister and mentor Lee Kuan Yew to spend three days in Armenia. But the Armenian government initially didn't want to meet with him because they didn't know who he was. Land-locked, no resources to speak of, and apparently they don't read the paper. Oy.
Ian Bremmer will be blogging from Davos this week sending reports and commentary from inside the World Economic Forum.
PIERRE VERDY/AFP/Getty Images
Dubai may be a no show, but Japan's here and not doing much. General thoughts from my conversations here:
1) The Democratic Party of Japan (DPJ) doesn't look like it's going to win a clear majority in upper house elections this summer. A precipitous change of events from a few months ago ... but indecisiveness and scandal has crippled Japanese Prime Minister Hatoyama, who was on the Davos programme, but cancelled last minute. Hmm.
2) DJP kingmaker Ozawa is locked in a battle to the death with independent prosecutors. consensus Japanese view in Davos: a) Circumstantial evidence shows Ozawa's guilty as sin; b) Prosecutors are operating above the law, with no countervailing force to stop them, and the Japanese media is out of control; c) Careers are at stake for both sides, with no backing down. Surprisingly enough, there's a growing belief that Ozawa is forced out. But the timeline (weeks, months, or more) is completely unclear. More hmm.
3) U.S.-Japan foreign policy is heading for trouble given what looks like a scuttled military base deal ... but nobody's worried very much in the context of broader Japanese policy woes. Plus, Japan doesn't really have foreign policy (and China, as we're seeing, does). Dangerous trumps ineffectual; advantage Japan. No hmm at all.
Ian Bremmer will be blogging from Davos this week sending reports and commentary from inside the World Economic Forum.
Kiyoshi Ota/Getty Images
By Ian Bremmer and David Gordon
What happens when the ruling party loses power in a one-party state? You get a zero-party state. That has effectively happened in Japan, and it's hard to overstate the importance of the sweeping political change -- indeed it's unprecedented for a major industrial democracy. The new Democratic Party of Japan's (DPJ) efforts to limit the influence of bureaucrats and industrialists are creating higher policy risk, especially after upper house elections in the summer.
Currently Prime Minister Yukio Hatoyama is holding back on that
agenda given coalition and electoral constraints. But indications are that the
DPJ would stick with its electoral mandate and not continue its present more
cautious policy positions if it gains control of the upper house. Given Japan's
extraordinary fiscal constraints, that's going to be tough to pull off,
particularly since the sidelining of senior technocrats makes it much more
difficult to put flesh on the bones of DPJ policy goals.
The real power in the DPJ regime is long-time party boss Ichiro Ozawa, who, himself tainted by scandal, remains outside the cabinet and so behind the formal policy scene. It's quite possible that Hatoyama won't last the year. He's not a skillful campaigner nor an effective decision maker, and has a scandal of his own around his neck. Insiders are already looking to someone like Deputy Prime Minister Naoto Kan or even the more youthful and policy-savvy Kazuhiro Haraguchi to take Hatoyama's place -- even before the upper house elections.
If so, regardless of the merits of the actual successor,
the DPJ will appear to be simply a continuation of the post-koizumi era
succession of weak governments, but this time without the benefit of a strong
unified bureaucracy to guide policy and with a much more worrisome economic
situation. Meanwhile, uncertainty over how 2010 will play out for the DPJ and
the party's less favorable disposition toward the business community is likely
to harm financial confidence, deepening economic woes.
Some pundits worry that the United States will replicate Japan's lost decade. For 2010, the greater risk is that Japan might be starting another one.
Next up: The battle over climate change.
Ian Bremmer is president of Eurasia Group, and David Gordon is the firm's head of research.
EVERETT KENNEDY BROWN/AFP/Getty Images
By Jun Okumura and Ross Schaap
The conventional wisdom in U.S.-Japanese relations is that things were largely fine until the Democratic Party of Japan (DPJ) upset the apple cart by winning control of Japan's government. Security policy observers appear to accept the idea that the DPJ has strained the close relationship that Japan's former ruling party, the Liberal Democratic Party (LDP) had developed with the United States over the past several decades. A show of bilateral solidarity during President Obama's one-night stand in Tokyo last week has done little to change these opinions. The conventional wisdom has it wrong.
The source of this mistaken belief centers on the DPJ's electoral promise to review the 2006 U.S.-Japanese agreement that would move the bulk of a US Marine base out of the center of Ginowan, a city of nearly 100,000 in Okinawa, to Guam. The remainder -- a large contingency of helicopters-would relocate to a more remote location near Nago, also within Okinawa. The DPJ's indecision on whether to move ahead with construction of a new airfield above a coral reef near Nago seems to have thrown a wrench in the works, but the real difference between the DPJ and the LDP is simply in the visibility of its reluctance to give Washington what it wants.
The disconnect here is in overestimation of cooperation from the LDP. The long history of this redeployment headache gets left out of most accounts of the current controversy. The initial U.S. force redeployment deal was agreed in 1996, and the new airfield and redeployment were supposed to be completed by 2004. Instead, after seven years without progress, both sides went back to the bargaining table, a process that eventually yielded the 2006 agreement. Yet, more than three years of LDP rule later, authorization of construction at the airfield still falls to the new DPJ government. In other words, the LDP agreed to give the United States what it wanted ... and then did virtually nothing to make it happen.
So what has changed? The DPJ, not to mention its coalition partner the Social Democratic Party of Japan, is much more openly antagonistic to the 2006 agreement. The visibility of that reluctance has moved the US to respond publicly on an issue that slid by without action on a much lower profile during the Bush years. Unusually blunt public statements from US Defense Secretary Robert Gates, insisting on quick implementation of the 2006 agreement, generated headlines -- and much chatter on bilateral strains. Though the Obama administration appears to have taken a step back, agreeing to set up a joint working group on the Ginowan issue, it continues to reject the one alternative that the Japanese Foreign Minister has been pursuing on his own -- moving the Marine helicopters to Kadena Air Base, an idea which the locals also reject.
That the United States started from a position of intransigence on renegotiation isn't remarkable. But this doesn't mean that's where the issue will end. The U.S. side has waited 13 years; it has no practical reasons to reject a technically and politically viable alternative even if it means a few more years of delay. In fact, further delay is the next likely course of action/inaction. The two sides have been stuck on the status quo conundrum for 13 years for reasons we can only guess at, but likely include operational requirements that leave little or no room for a non-Okinawa solution, while no other viable Okinawa alternative is in sight.
That said, the DPJ's political links to the anti-U.S. military presence in Okinawa, the SDP presence in the coalition, and the unfortunate political calendar, including a mayoral election in January in Nago and an Upper House election in the summer of 2010, are making it exceedingly difficult for the DPJ leadership to make up its mind to accept the lesser evil and give the go-ahead to construction work at Nago.
All this dictates the continuation of the status quo. But then, such a turn of events -- or the lack of one -- should not come as a surprise. In reality, history shows that for U.S.-Japanese relations, there's much less difference between the DPJ and LDP than meets the eye -- in principle or in practice.
Jun Okumura is a senior adviser to Eurasia Group and Ross Schaap is Director of Comparative Analytics.
ISSEI KATO/AFP/Getty Images
By Eurasia Group senior adviser Jun Okumura and analyst Ross Schaap
The Democratic Party of Japan's (DPJ) huge victory last Sunday will bring considerable domestic policy change. That's where the DPJ's focus will remain for the foreseeable future. Ironically, though, the first policy crunch on a specific issue may come on national security, an area where the Liberal Democratic Party's (LDP) efforts to brand itself as the party most capable of protecting Japan from North Korea, terrorists and pirates fell mostly on deaf ears.
Yukio Hatoyama, the DPJ prime minister to be, has vacillated on the continuation of the refueling operations in the Indian Ocean in support of the NATO effort in Afghanistan. His current position is that Japan will terminate the operation when the current authorizing law expires in January but that he will offer President Obama something better on Afghanistan.
Logic tells us that there are three options: put a substantial number of non-combat personnel on the ground; pay a lot of money; or opt for some combination of the first two. Some DPJ members -- most prominently Ichiro Ozawa -- have long wanted to take the first road and assist the Afghan effort with people on the ground. But that's a risky proposition given the risk-averse Japanese public and the poor conditions there that, moreover, show few signs of improvement any time soon.
Besides, Japan put up a lot of money ($13 billion) for the Gulf War and was widely disparaged for its "checkbook diplomacy"; nobody wants to repeat that painful experience. The refueling operations are a highly effective way for Japan to maintain its seat at the table with minimal financial cost and physical risk. In fact, there have been indications in the recent past that Hatoyama wouldn't mind seeking an extension on his own. The LDP will, of course, be happy to oblige him; which is precisely why this will be such a politically painful course of action for the new administration. Whichever course Hatoyama decides to take, he must make up his mind and take action during the autumn Diet session. Current refueling operations are authorized through January but renewed authorization needs to come in well before that deadline for the Maritime Self-Defense Force to manage deployments.
And besides the refueling operations, it appears the issue of US troop redeployment within Japan will also hit the new government early on. As much as it might prefer to focus on domestic political change, foreign policy matters that have to be addressed will remain a draw on the new cabinet's time.
TORU YAMANAKA/AFP/Getty Images
By Eurasia Group analyst Courtney Rickert
Amid headlines that the global economic crisis has stabilized, an important question arises: Which countries' economies will recover most quickly, and which recoveries will be the most sustainable? The key to finding an answer lies in understanding how countries were exposed to the global downturn and assessing their policy responses. Countries that choose to adjust to the changed global economic environment will come out on top in the long term.
While all internationally integrated economies have suffered growth declines, some economies entered the recession in a better position than others. Part of this divergence is a result of the quality of government policies, such as balanced fiscal positions and low inflation. Other key factors in determining a country's exposure to the crisis are trade imbalances and overinvestment in select sectors, such as real estate, in the period leading up to the global financial crisis.
Countries that had persistent trade deficits -- such as the US-financed them by borrowing heavily from abroad. Frequently, international borrowing fed domestic consumption far more than investment. This excess consumption contributed to bubbles during the boom years -- notably in financial assets and real estate-that have since popped. These economies have been slower to stabilize, but the housing and retail markets are naturally adjusting as home prices fall, banks become more prudent, and consumers buy less. In these cases, there is little need for long-term adjustments to macroeconomic policies.
On the other hand, government policy choices will play an important role in countries that sustained trade surpluses, such as China, Germany, and Japan, because these surpluses were a result of government policies that promoted exports. Their economies have been hard hit by declining global demand-particularly in the US. Although government stimulus spending has propped up their economies in the short term, China, Germany, and Japan will face a fundamentally different global market in the long term -- one that is unlikely to revert to the pre-crisis status quo levels of global demand. Governments in these countries will have to choose whether to reorient their economies away from export dependence or try to muddle through and hope for a return of foreign demand.
Effective policy responses in all countries have required crisis stabilization, the cleanup of sectors that experienced overinvestment, and adjustment to the rapidly shifting global flow of funds and goods. Even the best-run governments will face difficulty managing these activities smoothly, but many are demonstrating the ability and willingness to do so. Below are snapshots of policy responses in the four largest economies: the United States., Japan, China, and Germany.
The United States had a large trade deficit during the expansionary period, allowing it to adjust relatively easily to declining global demand. However, as a result of international capital inflows, it also had significant overinvestment in financial assets and real estate. The Obama administration responded relatively aggressively to the crisis by taking action to clean up the financial sector and implementing a $787 billion fiscal stimulus plan, but spending has been slow to materialize. The US economy is forecast to contract by 2.6% in 2009 and show only minimal growth in 2010, as individuals and firms paying down their debts remain a drag on economic growth. But compared to the major trade surplus countries, the United States' relatively fluid economy will likely to adjust to the new global environment more smoothly and rapidly.
Japan's exposure to the current crisis has been exacerbated by its efforts to sustain trade surpluses, but its economy had already been adjusting before the crisis began, with production increasingly moving overseas. Moreover, when the global decline in demand hit, Japanese firms decreased production and rapidly leveled off at much lower output. In addition, the 30 August elections are expected to displace the long-ruling Liberal Democratic Party (LDP), bringing to power a government that is more interested in protecting the interests of consumers rather than producers. This situation is reducing Japan's dependence on exports, providing a more stable base for growth.
The global slowdown has hurt demand for Chinese goods and threatened the vitality of China's export-oriented economic growth. While exports are unlikely to return to their previous levels in the near to medium term, Beijing's massive stimulus spending, relaxed monetary policy, and export promotion will partially counter the collapse in demand. If China is to secure long-term growth, however, efforts to rebalance the economy toward greater domestic consumption -- by putting more income in workers' pockets-must be considered.
The export orientation of the German economy and tight integration with the wider European economy limits the government's ability to stimulate domestic demand. Moreover, liabilities in the banking sector are worrying. While the government has fiscal room to maneuver, focus on the upcoming election and fears about the cost of potential interventions in both the real and financial sector have constrained Berlin. Most importantly, the government is averse to policies that would lead to a structural change in the country's export orientation. While this could begin to erode after the 27 September elections, any shift in German policy will be limited by concerns about government debt levels.
YOSHIKAZU TSUNO/AFP/Getty Images
By Ian Bremmer
The international conflict over North Korea's nuclear program has been locked in stalemate for years. The United States and Japan fear that Pyongyang will sell nuclear weapons and material to rogue regimes and/or terrorist groups or stumble its way into a shooting war. China and South Korea worry that North Korea will collapse, flooding Chinese border regions with sick and starving refugees and leaving South Korea with a reunification project that will cost a fortune and last a generation. This problem has allowed Kim Jong Il to periodically saber-rattle his way into fresh supplies of cash, food, and fuel. It's all been entirely predictable.
But the Dear Leader's illness has changed the game. His government has been unusually belligerent lately, even by North Korean standards. Following the latest missile tests, they haven't made new demands for talks or aid and insist they will not return to six-party talks until others at the table accept North Korea as a nuclear state. Its government has since sentenced two US journalists to 12 years of hard labor for "hostilities against the Korean nation and illegal entry." Especially provocative have been a series of cyber-attacks on US and South Korean government websites, which officials in both countries believe originated from North Korea. This more reckless North Korean behavior suggests that senior civilian and military officials, increasingly unsure how the coming power transition will go, are trying to secure some extra room for maneuver.
For the moment, North Korean actions are aimed at an internal, not an international, audience. That makes their actions less predictable -- and increases the risk of accidental confrontation.
The Obama administration, aware that bad things happen when all sides are in escalation mode at the same time, has stepped back from the tougher rhetoric of weeks past. There's been little mention of sanctions. For the imprisoned journalists, Secretary of State Clinton is now asking for mercy rather than demanding justice.
But if North Korea really is moving into political succession mode as Kim Jong Il's health heads downhill, those who will be left behind are making a much-faster-than-planned move to shore up support for his recently designated successor, third son Kim Jong Un. It will be easier for them to maintain national unity at a time when the country stands on the brink of war.
Until the North Korean leadership feels confident enough to return to the established patterns of negotiation and extortion, its actions will remain much more difficult to predict. That problem, in turns, elevates the risk of miscalculation -- and a confrontation that no one wants.
AUM JUNG-SEOK/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
This week's headlines have painted a dire picture of the state of Japan's economy. GDP contracted by 4 percent over the first three months of 2009, the worst quarterly performance on record. Year on year, Japan's economy shrunk by more than 15 percent, the steepest such decline in more than half a century. But my latest visit to the country has convinced me that there's already light at the end of Japan's dark economic tunnel. Instead, it's the political situation we ought to be worrying about.
Despite the alarming headlines, I was pleasantly surprised to see the beginnings of a turnaround in economic sentiment. The prevailing gloom I felt in talks with Japanese business leaders earlier in the year has given way to cautious optimism that a recovery in China is about to lift the rest of Asia out of its malaise. Executives had lots of questions for me on threats to stability in Pakistan (mostly because President Asif Ali Zardari visited Tokyo last month asking for money), on Venezuela (because Japan has signed a deal with Hugo Chavez to build an energy partnership), and even a surprising curiosity about opportunities in Iraq. In other words, Japanese investors have resumed their shopping.
Japan's political situation, on the other hand, has only gotten murkier. Prime Minister Taro Aso and the ruling Liberal Democratic Party (LDP) have managed to climb their way out of single-digit approval ratings, but numbers in the low 30s still leave the party facing likely defeat in an election that must be called by early September. And the LDP's recent recovery took place at a time when the unpopular, scandal-ridden, and ailing Ichiro Ozawa still ran the opposition Democratic Party of Japan (DPJ). Now that he's announced his resignation, public focus will return to the country's dire economic performance -- and the LDP's inability to turn it around. Recovery is coming, but not fast enough to bail out the ruling party, and Aso has neither the track record nor the temperament to reverse his fortunes as the far more talented Junichiro Koizumi managed to do four years ago.
So what will the next Japanese government look like? When my turn arrived to ask questions of knowledgeable friends in political and business circles, I got some very interesting answers. More than one well-informed source warned me that Japan is about to have a centrist third party, one comprised of disgruntled factions from within the LDP and DPJ. How successful the new party will be is open to question, but the plans are well underway -- one of the LDP's leading politicians and a younger DPJ maverick (referred to as a "rising star" by one official) have been busy raising cash for the new party (to be announced right after elections) from senior Japanese executives.
The risk is of political paralysis. In other words, it's starting to look like Japanese politicians will be fully occupied with sorting out their new alliances and rivalries over the next couple of years just as China resumes its rise, the Obama administration works to build ties with Japan on new ground, and gradual economic recovery offers opportunities for much-needed structural economic reforms. That's bad news -- for Japan and for its friends in Washington.
The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.