Top Risks and Ethical Decisions 2017

DEVIN STEWART: Hi. I'm Devin Stewart from Carnegie Council, and I'm here today with Ian Bremmer, president of Eurasia Group. Today we're talking about his company's top 10 political risks for 2017 and their ethical implications.

Ian, so good to have you back at Carnegie Council.

IAN BREMMER: Good to see you, Devin.

DEVIN STEWART: Your report is concluding that the world has entered a geopolitical recession. Is it time to panic? Are we going to be okay?

IAN BREMMER: It's time to worry. I'm an upbeat guy, as you know, and I've run the firm for 19 years now. This is, without question, the most negative geopolitical forecast that we have ever given.

Economic recessions happen pretty frequently. We recognize a boom cycle, a bust cycle. Geopolitical recessions are much longer in duration.

DEVIN STEWART: How long?

IAN BREMMER: Well, the last one we had was World War II, and since then we've had the Pax Americana, first by ourselves, then the Cold War, us versus the East Bloc, and then by ourselves again after 1991. It's now over.

It would have come to an end if Hillary had won, but it would have been over a longer period of time and it would have been more gradual. The Americans would have had a role at the table in what it would look like. But, with the victory of Donald Trump, the shock victory of Donald Trump, which I certainly had not expected and I think very few of us did a year ago, this geopolitical recession happens immediately and the world reacts to the unilateralism, the unwillingness of the United States to take on responsibilities of global leadership.

DEVIN STEWART: Is that what a geopolitical recession is, the lack of leadership? And what are the consequences?

IAN BREMMER: The geopolitical recession is the unwinding of the old global order.

DEVIN STEWART: I see. So it's a transition phase?

IAN BREMMER: Yes. It's an interregnum, and it clearly is going to last for some time. But we are in it now.

DEVIN STEWART: Is it a time of great danger?

IAN BREMMER: There are two ways I can answer that. The first is that a global economic recession, as we saw in 2008, really affects everybody's economies. A geopolitical recession clearly affects a lot of countries a lot more than it affects the United States.

We don't have an arms race going on in the Western Hemisphere. We don't have border confrontations or conflicts with Mexico or Canada. We don't have a refugee challenge; we've talked about that before. We don't have a significant terrorist threat the way the Europeans do, the Middle East does; the Asians with border issues, with an arms race—all that kind of thing. So in that regard you can easily imagine that the Dow, which is right now hovering just at 20,000, records almost every day, and all of the enthusiasm for the potential of additional U.S. growth, that is consistent with a geopolitical recession such as we're entering.

On the other hand, if you had asked me at any point in the last 10 years did I think that war between major powers was possible in the near horizon, I would have said no. And I can't say that anymore. I don't think it's going to happen, but it's possible, because of the—

DEVIN STEWART: Between which powers?

IAN BREMMER: First, the erosion of trust between major governments and the dissolution of strength of major multilateral institutions and architecture means that the guardrails are off geopolitically, so that if you have a mistake, if you have a crisis, if you have an accident and it escalates, it's harder to contain it.

DEVIN STEWART: Like a nuclear reaction.

IAN BREMMER: For example, I could see confrontation with North Korea much more likely in this environment, which clearly would have a disastrous economic set of effects.

DEVIN STEWART: Conflict with North Korea or over North Korea?

IAN BREMMER: Either. When Trump tweets that the North Koreans will be stopped from developing nuclear capability to hit the West Coast of the United States, there are only a couple of ways he can accomplish that: he can either directly attack them, or he can put serious sanctions on the Chinese to ensure that they cut the North Koreans off because they are not going to consider it otherwise. Either way—

DEVIN STEWART: What about a trade embargo around North Korea?

IAN BREMMER: We're not going to impose it by ourselves. We would need the Chinese onboard.

DEVIN STEWART: Absolutely.

IAN BREMMER: They're not going to support that.

DEVIN STEWART: It has been floated, though, right?

IAN BREMMER: By the Americans, not by the Chinese.

DEVIN STEWART: They're not going to go along with it?

IAN BREMMER: They're not going to go along with it. So again, we have to look at the art of what's possible. Either he is throwing up a red line that he is going to fail on, like Obama did on Syria, which doesn't seem to be the way Trump wants to go; or he really thinks that he can get this done, in which case there is a greater chance of confrontation.

Now, look, it's possible he just backs down; it's possible that in the worst case the Americans and Chinese still have clear heads, and I think that those things are likely. But all I'm saying is we're in an environment where clearly the geopolitics are far more dangerous. In fact, I would say, for the first time in my career, that I believe that the principal risks to the global economy now for the near-term future are political, which has never been true in my history.

DEVIN STEWART: So for 20 years.

IAN BREMMER: I ran the firm for 19, I've been a political scientist since 1986. That's 30 years. That's a long time. So yeah, that at least feels like a data point.

DEVIN STEWART: It is.

Ian, speaking of Obama and Syria and the red line, it happens also to be the end of the eight years of the Obama administration. Since this is the Carnegie Council for Ethics in International Affairs, let's talk about Obama's moral legacy. How do you assess his legacy from an ethical lens? Think about human rights, think about international norms. On the whole, is it positive, is it negative, is it neutral? How do you look at that?

IAN BREMMER: I think it's a failure. I hate to say that because Obama has held himself to a very high ethical standard professionally and personally with his family, with his business friends and colleagues. We've had virtually no scandals of any sort or conflicts of interest under Obama. I mean the IRS (Internal Revenue Service) scandal is probably the biggest one, in Ohio, that he clearly wasn't aware of himself.

We see a president who cares deeply about the way people are treated, who cares deeply about trying to create more equality and diversity and harmony in the United States and globally. And yet, if you take a dispassionate view of the United States that his legacy leaves, as well as the world that his legacy leaves, what you see is a much more fractured world; what you see is a foreign policy that is largely in tatters where the United States is not only weaker, our alliances are more challenged; and most of his foreign policies leave a failed legacy.

DEVIN STEWART: So this failed legacy has contributed to the geopolitical recession that your report talks about?

IAN BREMMER: I think that there are many structural factors that lead to the geopolitical recession. One is the Trump election, which Obama has some responsibility for, but certainly not most of it. One is the rise of China. One is the willingness of Putin to undermine Obama directly and the United States more broadly. One is the weakness of Europe. One is the implosion of the Middle East.

But clearly, Obama has contributed to that geopolitical recession. You and I have talked in the past about how I believed that his principle positive foreign policy legacy was going to be the pivot to Asia and the successful conclusion of a major multilateral trade deal, the biggest in decades, 40 percent of the global economy, the Trans-Pacific Partnership. He failed.

That has done lasting damage to the ability of the American allies across Asia, and to a degree in Latin America, to look to the United States and say that you can count on this country. I can say that with allies around the world before Trump was elected. That is again a true sadness because Obama is analytically so sharp, and yet it turns out that he's not much of a leader.

And look, it wasn't an easy time. He came in with a massive economic recession, which he was able to help dig the Americans out of in a serious way.

DEVIN STEWART: Obama's analytically sharp.

IAN BREMMER: Obama's analytically incredibly sharp, and yet he's not much of a leader. That has gotten him in massive trouble. The Russians have run rings around him. This is the world's 14th largest economy, smaller than Canada—how could that happen?

The idea that the Russians could engage in systematic hacks to delegitimize the U.S. election, and Obama did nothing because he didn't want to be seen as partisan? I mean I'm sorry, but—

DEVIN STEWART: Too polite?

IAN BREMMER: You know, maybe too polite and too political. But the fact is, if you are leader of the free world and you are head of state, I am sorry, but American national security comes a little bit before the perception of you being partisan on behalf of Hillary Clinton. This was a massive failure. This is, I think, completely on the president—again, someone I personally respect and admire a great deal, and yet ultimately just didn't get it done.

DEVIN STEWART: Ian, I want to look at five of your 10 risks and ask you a couple of ethical questions on each one. I want to go through them, counting down from 5 to 1.

Looking at risk 5, you're looking at the role and the impact of technology in the Middle East. Technology is both emancipatory as well as destabilizing, and that's true everywhere. So when you're thinking about technology's impact on the Middle East, I suppose in general and in the world, how do you get your mind around the overall net impact of technology in terms of advancing human rights, advancing liberal values and democratic governance?

IAN BREMMER: Well, you break apart all of the different aspects of technology and you look at what it means to the social contract, you look at what it means for legitimacy of government, stability of states, inequality—all of those issues. It's very clear.

You can do this with globalization, too. Everyone thought for many decades globalization is awesome, it's raising all the boats, "the rise of the rest." That was all true. And yet, what we see in the United States and Europe is that there were very large numbers of American and European citizens who were completely left behind. They can buy cheaper goods at Walmart, but if they don't have jobs they don't really care very much about that. Now, that is a clear failing of leaders to effectively anticipate and react to globalization.

Now, when we talk about technology, you have similar issues. Of course, technology has allowed literally over a billion people to be taken out of poverty globally in the last generation. That's the most extraordinary accomplishment that humanity has achieved in our short period on this planet. So that's great.

DEVIN STEWART: Yes.

IAN BREMMER: But in the Middle East you are not taking people out of poverty right now with technology. In the Middle East you have destroyed their ability to generate wealth through taking oil out of the ground through technology, through fracking technology. Now the swing producer is the United States, not Saudi Arabia, in five years—that's true.

You have a whole bunch of people on the Internet. They're mostly angry. They're mostly very dissatisfied.

DEVIN STEWART: And polarized.

IAN BREMMER: Polarized and very dissatisfied.

DEVIN STEWART: And they can find each other. They're more angry and they can find each other.

IAN BREMMER: I mean in the United States you can get on MSNBC, you can get on Fox, you can get on Breitbart even. But the fact is most Americans are pretty apathetic politically. Whereas in the Middle East if you're not doing Al Jazeera it's because you're with your tribe or you're with your sect, and that is clearly much more destabilizing.

For all of these reasons technology is really driving a lot of instability in the Middle East.

DEVIN STEWART: Is the net impact sort of a balance?

IAN BREMMER: It's overwhelmingly negative.

DEVIN STEWART: Overwhelmingly? Economists always argue that technology is the salvation.

IAN BREMMER: It is a salvation.

DEVIN STEWART: But you're saying on the whole it is destabilizing?

IAN BREMMER: Globally, technology—well, let's put it this way. Technology is a megaphone, it's a multiplier effect. Now, so far, technology has, on balance, been very positive for most people in the world. And yet, there are certain parts of the world that have done incredibly badly as a consequence. The Middle East is the one that you really focus on.

Now, if you talk to people who project technology out 30 to 50 years, on the one hand, you've got folks like Raymond Kurzweil, the trans-humanist who believes that a singularity is coming and we are effectively going to have this rapture as we all merge with artificial intelligence.

DEVIN STEWART: Right. Sounds great.

IAN BREMMER: On the other hand, you've got Stephen Hawking and Elon Musk and others, who believe that this is the end of humanity.

DEVIN STEWART: So you come down on the latter?

IAN BREMMER: No. I'm telling you that technology has always had people who believe that it's progressive and people who believe that it's not. My view is that until we get to the digital outcome—pardon that pun—of zero versus one, right now it's actually a more mixed story. It's on balance more positive than negative, but the negatives in some parts of the world are very significant.

You know, we could have written a top risk about terrorism in Syria and Yemen and all of that. We could have. But those are headlines. I'm more interested with the top risks in helping people understand why is it that the Middle East is falling apart, why is it that the Westphalian system is unwinding. The fact is that technology is speeding these processes up very dramatically in this part of the world. That's why we can't fix it.

DEVIN STEWART: Especially the Middle East. So on the whole, very dangerous for the Middle East?

IAN BREMMER: Yes.

DEVIN STEWART: Let's go to risk number 4. Ian, you talk about little incentive for governments to reform, for a variety of reasons. This is in all regions of the world.

IAN BREMMER: Yes.

DEVIN STEWART: If governments are going to do nothing, essentially, don't they risk fostering more populism, or even backlash against their own regimes?

IAN BREMMER: In some cases, the reason countries don't do much is precisely because they feel like they need to support populism. So Merkel has been this great advocate of austerity in Germany and more broadly, but with her election coming up, she feels like she has to be looser around that. We know in the United States that when you have an election period for the last 9, 12, sometimes 18 months nothing gets done. So there's that.

There are also some leaders who are just too damn weak to get anything done. They don't have the political capital.

And in some cases, frankly, they have done an awful lot and now they are digesting, in the case of India and in the case of Mexico. The foreign process in Mexico around telecom, around energy, fiscal reform, political reform, actually is pretty breathtaking. They failed on education, but generally speaking they have done a really solid job. But now, his popularity has gone way down and that's it for a while, at least until the next round of elections in 2018.

DEVIN STEWART: In your report you are saying that when governments don't do a lot of reform, investors don't know what to do with their money. I guess what I'm asking is, is there a more dangerous political outcome that could happen from governments sort of resting on their laurels?

IAN BREMMER: It does mean that countries start looking less sustainable long term. When governments that need to reform don't have the political capital to do so, they tend to take tactical, short-term decisions, which means they tend to eat their seed crops as opposed to investing in longer-term growth. What that means is that the longer-term outlook—again not a surprise in a period of geopolitical recession—starts looking more fractious, more unstable.

DEVIN STEWART: Now, you mentioned Merkel, who happens to be risk number 3. You're assuming or predicting—

IAN BREMMER: She will win.

DEVIN STEWART: —probably she is going to win.

IAN BREMMER: Yes.

DEVIN STEWART: We're pretty sure this is going to happen.

IAN BREMMER: Because they don't have the economic hollowing-out of the middle class that the United States and the other Europeans do. It's the structure of the European Union that really makes populism less of an issue in Germany.

DEVIN STEWART: Sure. What I found interesting is Merkel sort of reminded Trump that the U.S.-German relationship is built on values.

IAN BREMMER: Values, yes.

DEVIN STEWART: So do you think that a weakened Merkel can defend liberal values in the face of illiberal regimes?

IAN BREMMER: No. If anything, 2017 is much more volatile for me from a geopolitical risk perspective. But from the perspective of the Carnegie Council, 2017 has to be truly dispiriting because it is precisely the death of the liberal international order that we are now seeing. This country has just elected a president who believes that American exceptionalism is not a thing. That is why he is prepared to build a relationship with Russia, because it's transactional, he just wants to get a deal done.

The Germans reacted to that. Merkel did not congratulate Trump and say, "Hey, I'm your buddy." It wasn't like Abe flying over and giving him a golf club from Japan. In Germany, it was, "I will look forward to working with you as long as you continue to uphold the common values that have mattered for our mutual relationship over the decades." The fact is that that's a very unusual welcome for the German chancellor to the most important ally. But it shows you just how far the United States has moved.

DEVIN STEWART: It is dispiriting. But we have our work cut out for us.

Risk number 2 is kind of conflated with risk number 1.

IAN BREMMER: Yes, it is.

DEVIN STEWART: Risk number 2 is the possibility of China overreacting to a number of triggers that could possibly take place. Those include the Trump China policy, conflict over Taiwan, South China Sea, North Korea obviously. Do you think that interdependence between China and the United States could have a pacifying effect and kind of control the level of conflict that could take place?

IAN BREMMER: It certainly should. Let's put it this way. I am happy that the likeliest place of confrontation for Trump on becoming president is not a country like Russia or Iran, where you could imagine them really upsetting the applecart, because they're not as interdependent with the United States, than a country like China, where the Chinese will be highly aware that they are.

Now, let's keep in mind Trump is an enormously unorthodox individual to be the president of the United States and he has shown on multiple occasions, and with appointments, that he is prepared to give the Chinese the what-for on strategic issues and economically. While China this year has a very big leadership transition—every five years the Party Congress in the fall—and so, if there is ever a time when Xi Jinping must show strength in responding to a threat domestically or internationally, it's this year.

Now, that does mean that there is likely to be a level of confrontation between these two countries. We've seen a taste of it already in China's reactions, military and economic, to some of Trump's statements as president-elect.

DEVIN STEWART: Wouldn't it also be possible that Xi Jinping might want to especially avoid risk or conflict during this time?

IAN BREMMER: Yes, he'd like to avoid it unless he's pushed, and he is going to be pushed.

DEVIN STEWART: Do you think his leeway is wider now?

IAN BREMMER: No, I think his leeway is more limited. I think, in other words, that this is a time when Xi Jinping absolutely would not be looking to cause trouble with the United States. But if trouble finds him, he's going to hit back hard.

DEVIN STEWART: He's going to be forced to.

IAN BREMMER: He can't show weakness.

I think that there is a possibility that Trump gets himself in trouble—he raises a bunch of economic issues against the Chinese; he takes measures to hit Chinese companies, hit Chinese currency, that kind of thing; he gets aggravated on North Korea. The Chinese hit him back. There's a big market hit to both countries. And then Trump finds religion, recognizes, "Hey, this is a bad idea," and the Chinese are strong enough and mature enough after the leadership transition that they are prepared to reach out.

Now, Trump is the kind of guy, like Nixon, who could actually make a move to China. You could actually see a G2 after a crisis, longer term, with Trump. It's possible. In other words, one of the interesting things about Trump—

DEVIN STEWART: The so-called condominium is not dead.

IAN BREMMER: The breadth of potential outcomes under Trump over the medium term is vastly greater than they would have been under Hillary.

DEVIN STEWART: True.

IAN BREMMER: There's much more downside, but there's also surprising upside. But in the near term, 2017, which is what this report is about, clearly U.S.-China is going to be more poorly managed. That's the most important bilateral issue in the world.

DEVIN STEWART: Absolutely.

Let's finally get to risk number 1, which is "Independent America." You mentioned this possibility in your 2015 book, Superpower, as a possible outcome, an America that kind of looks within and builds itself back up, and could possibly even lead by example. That's the positive way of looking at it.

IAN BREMMER: Yes.

DEVIN STEWART: You also mention that it's a shift away from liberal values toward the core American values of independence and autonomy.

I sense that your views might have evolved over time about this possibility of an American foreign policy looking more as an independent one. Whatever the case, might it not be so bad after all—I mean, is there an upside? And then, on the other side of the coin, what's the worst-case scenario?

IAN BREMMER: Yes, there is a potential upside, absolutely. The potential upside is largely for the United States.

The reason why I never liked "Independent America," but nonetheless I eventually recommended it—it was my least-favorite of my options for the United States for foreign policy.

DEVIN STEWART: The least-bad.

IAN BREMMER: Least-favorite, but in some ways least-bad, because I believed in a world where Americans increasingly were discontented with globalization, were discontented with the global sheriff role, and in a world that was becoming more G-zero-like because of Europe getting weaker, Russia and China moving in a different direction, the Middle East falling apart, that I thought that "Independent America" was the foreign policy that we were most likely to be able to articulate and execute on, where we've seen under Obama that Obama can articulate indispensability but cannot execute on it. That's not purely his fault.

DEVIN STEWART: Was that moneyball, was that the middle-road Obama?

IAN BREMMER: No. I think that Obama was talking a great game on all of these things—that Assad must go, that Russia must leave Ukraine, and we're going to build the Middle East after the Arab Spring, and democracy is going to bloom. And of course none of it worked.

DEVIN STEWART: So he wanted to be indispensable?

IAN BREMMER: He wanted to be indispensable, and he was incapable of doing it, and the people weren't behind him, and the international environment was too hard.

The funny thing is a lot of what Trump says on foreign policy—like is NATO really fit for purpose if they don't want to pay for it—that's something we can execute on. The idea that the United States' pivot to Asia is ultimately not sustainable because China is going to be a lot larger is also something I get.

Here's the problem with Trump—

DEVIN STEWART: Here's the worst-case scenario.

IAN BREMMER: No, it's not the worst-case scenario. The worst-case scenario is war. But the likely scenario is that Trump has a problem leading by example, that he does all of the international "Independent America" stuff. But what's critical for "Independent America" working is that other countries see that the United States is such a model as a country itself that it aspires to be like the United States. Well, that implies a really professional and competent cabinet, and he has appointed some people of whom that is true. He has appointed some who are literally the worst and most unfit that have ever been in these positions.

It implies a United States which internally celebrates its diversity, celebrates all of the values that America was truly made great by. That wasn't about "Let's disparage Mexican immigrants as rapists and murderers." It's not about "We think the Muslims have a problem in terms of their religion." America was the great melting pot. Trump is not leading by example in that regard.

And the conflict of interest that we see through keeping the Trump Organization, that feels more like South Korea, or even China, than it feels like the United States, which was entrepreneurship and free market, not "Your companies have to be patriotic and so does your media."

So I worry that, even though he has managed to tap into a deep-seated populism with very legitimate reasons behind it on America's role in the world, his ability to get it done in the United States is an open question.

My final point on this: Let's keep in mind that he does have a Republican House and Senate and he is clearly someone who wants to use his bully pulpit to create jobs. Now, if we get a big infrastructure bill and we reduce corporate taxation and he gets corporations to put a lot of jobs in the United States, even though he himself is a very damaged leader, it could well be that America as an economy is much more attractive going forward. If that's true, ultimately the U.S.-China relationship won't deteriorate so much because the Chinese will be pragmatic and say, "Hey, you got to bet on these guys."

DEVIN STEWART: Right.

IAN BREMMER: But there's a lot of risk around that. That's the point.

DEVIN STEWART: The final question, Ian, looking to the future—big question, big-picture thing: You've been looking at political cycles all around the world for 30 years. Basically, I think you put it the liberal global order is dead and we're seeing the rise of illiberalism.

IAN BREMMER: Right, and many other things.

DEVIN STEWART: And many other things.

IAN BREMMER: A hybrid.

DEVIN STEWART: Many other things. Very complicated.

Will liberalism make a comeback? Is it a pendulum? Will it come back?

IAN BREMMER: I don't know, and I don't know, in part, because of the role of technology globally. I mean globalization was created, and its supply chains and its immigration patterns, because the global marketplace was about labor making capital work. With technology, that is going away. We are going to not need global supply chains anymore, and you are going to focus much more on your domestic markets and your domestic consumption because you'll have automation and artifical intelligence (AI) and 3D manufacturing, and all this stuff just completely changes.

So it is not clear to me in that environment to what extent states are empowered and can be more authoritarian, or individuals are empowered, and we end up with more decentralization and more engagement of people.

I think that there is a lot to play for there. On the one hand, politics have never been in our lifetimes so dangerous. On the other hand, technology has never given us tools that are so empowering. That provides an awful lot of uncertainty, and it makes a lot of people fearful.

DEVIN STEWART: Ian, thank you so much for coming back to Carnegie Council and sharing your report with us. Hope to see you again next year.

IAN BREMMER: Yes. Good seeing you.