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September 12, 2006
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| The J Curve: A New Way To Understand Why Nations Rise and Fall |
Introduction
JOEL ROSENTHAL: Welcome to you all.
This is really a pleasure for me not only professionally, but personally, to
introduce a very good friend of mine and a friend of the Carnegie Council, Ian
Bremmer. I was so excited about this event today that I almost took my tie off,
in Ian’s honor. Maybe I will for the question-and-answer session, depending on
how we do.
Ian is a very unusual personality, who has been a joy to get to know. I’m
just really delighted that we are able to provide this forum for him and his
work tonight. It’s very appropriate.
Before I get into the introduction, I have a bit of breaking news. I heard
today that on the Barnes & Noble list for bestselling books, Ian’s book was
actually first on the foreign policy list. Tom Friedman actually has positions 1
and 2, for The World Is Flat and Beirut to Jerusalem, but
The J Curve is number 3 and closing fast. I want to be the
first to congratulate you, Ian, on that. That is really quite an
accomplishment.
This is actually the first public event where Ian is going to talk about his
work. So we are privileged to provide the venue for this.
I think the Carnegie Council is an especially appropriate venue, not just
because of our personal relationship, but also because of what we do, which is
to focus on ethics. Ethics is always, for me, about the idea that we can do
better; we can develop better choices, better options, and deliver them in terms
of real policies that will make the world a better place.
Ian was just joking before we started that, "Yes, in my spare time, I’m
trying to make the world a better place." I know that that’s just false modesty
on his part. I think it’s part of what he does.
This book was really an eye-opener for me. I always judge books by one
standard—and it’s a pretty high standard—which is that after I read this, do I
see the world differently? Boy, did I see the world differently after reading
this book. It’s a very profound theory, which is easy to put to the test.
That’s what I am presuming Ian will do today and what we can do together in the
question-and-answer. But I did see the world differently after reading this
book.
The other thing I realized, too, is that Ian is a hedgehog. Those of you who
know me know I follow Isaiah Berlin, who always makes the distinction between
hedgehogs and foxes. The hedgehog has one great idea and is able to integrate
and to synthesize what he sees in the world into this great idea. I have
hedgehog envy. I have always wished that I could do that. I see a lot of stuff.
I struggle very hard to integrate those things. As I try to pull it together, it
always scatters, somehow. I have especially high regard for people who can do
this kind of synthesizing and integrating around a very profound
idea.
Finally, I know that Mr. Carnegie himself would be
delighted to welcome Ian here. Mr. Carnegie had a particular view of the world,
and one that was especially sensitive to individual people. He would recognize
Ian as a self-made man, somebody who came to New York and built a business,
somebody with great intellect, with great character, the capacity to work very,
very hard. I know that that was something we bonded over, through our mutual
friend and mentor, James Chace. I used to think that I worked hard, and then I
met these guys.
But they work hard in a certain way. They don’t take
themselves too seriously. They have a great sense of humor.
With all that, I introduce my friend and colleague, Ian Bremmer, who will
talk to us about his new book, The J Curve. Thank you for coming,
Ian.
Remarks
IAN BREMMER: Thank you, Joel.
You see why I wanted to start with Joel here, and the Carnegie. I really love
this guy. I say that with no false modesty. It’s always great to be sharing a
stage with Joel. We don’t do it enough, frankly. We have seen each other more in
the last several months. In fact, if there was only one good thing that came out
of James’s passing—and I can’t think of anything else—it is that it actually
gave us more excuse to work together. I really appreciate that.
It’s nice to be here. It’s nice to be with friends. I have been working on
this book for a couple of years now, and I haven’t really told many people about
it. So now that it’s actually here and a reality, I am ready.
We start the roadshow tomorrow, but before that, Joel said we should do the
first event here at Carnegie. I thought, what a great idea. So I’m delighted.
I’m sorry that you are still wearing your tie, but I’m going to work on you. I
almost never wear a tie, but a particularly more difficult audience is going to
be next Wednesday night, when we do O’Reilly, and I am told that I have to wear
a tie for him.
I also don’t know how I feel about being called a hedgehog, for a couple of
reasons. First, I remember when I first came to New York and the first-ever
press I ever got was in New York Magazine, where they referred to me as
the molodoi amerikanets, "the young American with a hedgehog haircut and
cartoony glasses." Then, of course, having just read Phil Tetlock’s book on
making political prognostications, hedgehogs don’t always come off so well in
that book.
So I don’t know if there is an inside story there.
Finally, I just want to recognize publicly, to everybody, my editor, Alice
Mayhew, who is here from Simon & Schuster, who is well-known as the best in
the business, but also managed to find this manuscript when it was very rough
and in a very early stage and said, "You’re the next Tom Friedman." I said,
"That’s good." So I am working with her and Simon & Schuster, and I’m
delighted. They deserve some credit there.
Let me turn to the book. It’s
called The J Curve: A New Way To Understand Why Nations Rise and Fall.
Before I tell you what the J curve is, let me tell you why the J curve is.
I am a political scientist by training. That’s what I do. Wall Street
doesn’t have a lot of political scientists. In fact, if you go to a bank
nowadays, you see lots of economists, lots of strategists, but no political
analysts. And politics increasingly matters to the global markets. I try to
straddle both of those fields. I try to be a political scientist who also
understands the markets. That is sort of an interesting place, right in between
Washington and New York. It’s sort of Wilmington. That’s the way I think of
myself.
I believe political risk matters—in fact, I believe it matters increasingly
over time—for a number of reasons:
• Because dangerous technologies are becoming more diffuse. Rogue
states, rogue organizations, and rogue individuals, can cause more danger
to the global markets, even us, in terms of oil prices and in terms of homeland
security and all of these sorts of things—such as our pensions.
• Because global energy increasingly comes from relatively opaque and
unstable parts of the world.
• Because China and the BRICs in general—Brazil, Russia, India, China, and
the emerging markets—are the most exciting places for foreign direct investment
because that is where the global economy is growing. But those are countries
that are fundamentally different from the United States or Western Europe.
They are emerging markets. I would define an emerging market as a country where
politics matters at least as much as economics to the markets. If you find a
country where that is true, it is an emerging market. When that is no longer
true, it has emerged. It has become investment-grade. Mexico is going through
that process.
• Of course, the fact that we are moving from a U.S.-led unilateral, unipolar
system to a more multipolar system, but the multilateral architecture that
exists was built for a geopolitical time that no longer exists. Whether you are
talking about the G7 or the G8 or you are talking about NATO or the Security
Council, those geopolitical conditions no longer hold today.
So if political risk matters, how do you think about it? There are two
components of political risk that matter. One is stability and the other is
shock. If political risk is how politics affect the global economy, you need to
understand if a country is relatively stable, and then whether or not a shock is
going to hit it. A shock can be anything. It can be a tsunami off of Indonesia.
A shock can be a political assassination. It can be an oil spike. It can be an
earthquake. It’s very hard to predict a lot of shocks. So if you are a
corporation or if you are the U.S. government, you have a hard time getting your
hands around shocks.
But stability you can get your hands around. Stability is much simpler to
think about. Stability, if I had to define it, is the capacity and the
willingness of a government or set of leaders to implement stated policies in
the incidence of shock. So here you are: You are dealing with a country—you can
be a government, you can be a corporation, you can be an individual—and you have
certain policies. You have a certain policy environment that affects you.
Suddenly something changes. There has been a shock. Does that context still
exist? The more that you can count that it will, the more stable the country
is.
For example, I want you to imagine for just a second that there is a country
where there is an election for a head of state. The results of that election are
considered fraudulent by a majority of the constituents. I want you to just
imagine this for a second. Then I want you to further imagine that the ultimate
decision of who becomes the head of state in that country is determined by what
is considered to be a polemic determination of the top judicial organ of that
country.
I can see around the room that a lot of you recognize that this is actually
something that has been happening in Mexico over the last several months.
[Laughter] It is also something that happened in Ukraine, with the Orange
Revolution. It is also something that happened in Taiwan, with President
Chen. It’s also, of course, something that happened in the United States in
2000.
A lot of my friends from all of these countries’ emerging markets around the
world will tell me, "You are such hypocrites. You talk about democratization and
the way we should run our countries. Look at what you do in your own
nation."
I say, "You miss the point. It’s the very fact that you can have
something that is such a fundamental political FUBAH [fouled up beyond all
hope] that has no impact on social instability, no impact on the credit
markets, no impact on foreign direct investment." It implies that America is
fundamentally stable. The shocks are the same. It happened in Taiwan. The
markets went down 7.5 percent the next day. They had to close them. Everyone was
concerned. It happened in Ukraine. The country fell apart.
It’s happening in Mexico, and there is social instability, but the peso
stayed the same. I would argue that Mexico looks more like the United States in
terms of stability than it does like Ukraine. Ultimately, we will find that the
presidential election in Mexico, as "bosh" as it was, actually does more to help
Mexico explain its stability to the world than if it hadn’t happened. That’s a
controversial statement, but I believe it.
So that’s my set-up for all of this. I know I can’t do this in the media, but
I am giving you why I think stability matters. If stability is what you want to
get a handle on, how do you understand whether or not a country is going to be
stable? This is what the J curve addresses. The J curve shows the nonlinear
relationship between stability and openness. If you want to think about this
visually, you have a vertical axis that describes how stable a country is; you
have a horizontal axis that describes how open it is. The relationship is
nonlinear. It looks like a J—indeed an italicized J, so you draw more attention
to it.
The reason that that is important is that there are some countries that are
stable because they are open: the United States, France, increasingly Mexico,
Japan. There are some countries that are stable because they are closed: North
Korea, Turkmenistan, Cuba, Burma. The left-hand side of the curve, stable and
closed, is steeper than the right-hand side of the curve, stable and open,
showing that it is easier to close your state off quickly through martial law
than it is to open it quickly and become stable through building civil society
and open institutions over time.
If you believe that, if you accept my basic premise that this is the J curve,
that sounds fundamentally buyable. The Economist did this review last
week, which I was delighted with. They said that books on graphs are very
important. First you had The Tipping Point
and then you had The
Long Tail, and now you have one graph that describes, arguably, The
Economist said—the most important geopolitical notion out there: What makes
states move up and down? One graph with a J curve.
You all get that, right? I am hoping you’re going to tell everybody, and
suddenly tomorrow The J Curve will beat Friedman. That is the intention.
I know, it is laughable, but I’m working on this.
If you buy that, it has some fairly striking implications for what you think
about policy. Let me throw a couple out.
First of all, leaders of closed authoritarian states have good reason to keep
the rest of the world out. The United States does a much better job as the
world’s policeman than it does as the world’s parochial school. The North
Koreans have been misbehaving badly, and the United States responds to North
Korea by saying, "If you continue this, we will punish you," like children, "We
will isolate you." Condi Rice has said this, Cheney has said this, Bush has said
this. The Clinton administration used to say this, "We will isolate you. We will
send you to your corner."
What they don’t recognize is that if the intention is regime change, the
North Korean government wishes to be isolated. In fact, they need isolation.
Maintaining an isolated state, for North Korea, is absolutely critical to Kim
Jong-il staying in power. They call it "the hermit kingdom." Their official
ideology is Juche, the notion of self-reliance. These are not people that
want the U.S. setting up an embassy. They are not people that want foreign
direct investment. They are not people that want tourism. They want the world
out. They would like money, and they are prepared to do lots of things to get
it, whether it requires selling illicit materials or blackmailing international
countries or just taking humanitarian aid. But fundamentally they want to be
left alone.
That’s an important point. The recognition that, as long as they remain
isolated, they will remain relatively stable, and that that stability is going
to be difficult to challenge, is important for U.S. policy.
That’s the first point.
The second point is that there are a number of states out there for whom it
is advantageous to try to close themselves off, and they have a relatively
limited time to do it. The status quo is not sustainable for them. This is the
notion that Fareed Zakaria, Jack Snyder, and others have talked about, liberal
democracies. Democracy is not the same as openness. You will have a number of
leaders in governments around the world. They get elected by more or less free
elections. You see this in Gaza. You see this, to a certain extent, in Lebanon.
You certainly saw it in Algeria. You saw it in Iran. In Iran, they bring a
government in, lead by Ahmadinejad. He is voted in on a popular mandate. His
intention is to try to close that country down. It is to get rid of the
reformists. It is to get rid of the independent media. It is to get rid of a
relatively open and diffuse and more local judiciary. He is prepared to actively
provoke an international conflict to make that happen.
There is a big difference between Iran and North Korea. The North Koreans
have largely wanted to be left alone, and as long as they are paid off, that’s
fine. The Iranians actively see that because Iran is a relatively open state
compared to North Korea, their present situation is probably not sustainable for
them. If you were to ask me over the course of the last ten or twenty years to
look around the Middle East and say which countries are relatively most open in
terms of civil society, treatment of women, in terms of independent judiciary,
openness of media and NGOs, number one is clearly Israel; number two is Lebanon;
number three, until very recently, was probably Iran. This Iranian government
recognizes that if there are democratic elections that continue over time,
especially given demographic trends and their inability to manage the economy,
they will get voted out. They don’t intend to be voted out.
I would argue that's part of the reason that they are making the claims that
they are, that Israel should be removed from the map, that they should be moved
to Europe (which, I suppose, in context, is a softening of their position), that
the Holocaust didn’t exist, and the red lines they continue to cross in terms of
the nuclear issue. Let's face it: The United States had very little credibility
in terms of weapons of mass destruction on Iraq. They had very little political
capital. Yet they managed to build a surprisingly durable coalition over the
last six months against Ahmadinejad. It’s not because Bush has done such a great
job on this. It’s because the Iranian regime has been provoking a conflict. We
need to recognize that there is a domestic reason for them to do so. It is
rational, for many of these leaders in Iran, to provoke a conflict.
We can talk in great detail about Iran, because I am very concerned about the
likelihood of escalation, which I consider highly probable, in the near-term
future. But let me leave it at that for now.
Third, China. I think China is one of the most interesting places out there.
According to the J curve, it is important to recognize that the same things that
make China wealthier, the same practices of globalization that make China grow
and be more attractive for multinationals to go in and invest and invest and
invest, also create greater political instability within the Chinese system. The
Chinese government thus far has shown very little tolerance for that. We are
seeing harder-line reactions to social discontent within the country. We are
seeing killings of demonstrators for the first time since Tiananmen Square, in the last twelve months. We are seeing
crackdowns on scientists that are working on avian flu that are at least at the
levels as, and possibly more than, when they were working on SARS.
The Chinese government, I think, is making a bet. One thing I didn’t tell you
about the J curve is that the entire curve shifts up or down on the basis of the
economic capital that is available to you. For example, if North Korea were
suddenly to strike oil, the country, on every single point along the curve,
would go up. If oil goes down to $15.00 from $70.00 or $65.00, the entire curve
for Saudi Arabia goes down. That makes an awful lot of sense.
So the Chinese are basically making a bargain. I have discussed this with the
Chinese ambassador in Washington. It was an interesting conversation. Hu Jintao, of
course, is an engineer by training, and he is trying to engineer a fix in the
Chinese system. He is hoping that he can push the J curve up sufficiently far
through economic growth that the instability that comes from political openness
won’t break apart the Chinese communist system.
He might be right. He might be wrong. On balance, I think he’s probably
wrong, and the political instability will grow, for reasons we can talk about.
But here is one point: The Chinese system cannot afford—cannot afford—a sudden
significant economic slowdown. In other words, God forbid that it is suddenly
found that avian flu starts to have significant human-to-human transmission. It
doesn’t need to be particularly virulent. It doesn’t need to kill a lot of
people. Suddenly the World Health Organization ups their threat level from 3 to
4. It doesn’t mean a lot, except for the fact that you start getting travel
restrictions. God forbid, because of the level of opacity in China, that there
are travel restrictions. Suddenly growth isn’t 11 percent, but it’s 4
percent.
What happens if North Korea tests a nuclear weapon? The Japanese, with Abe as
prime minister, decide that they are going to change the constitution and
develop an army. Anti-Japanese social discontent in China grows out of control
Japanese foreign direct investment pulls out. Suddenly there is real concern
about investment in China, and suddenly Chinese growth isn’t 11 percent; it’s 4
percent.
What happens if there are strikes on Iran and oil prices aren’t $65.00, but
they are $130.00, and China desperately needs that oil to continue to power its
growth? Suddenly Chinese growth isn’t 11 percent; it’s 4 percent. Instability in
the Chinese system, political instability, will grow dramatically. That is a
very interesting point, in my view.
So that’s three.
Number four, Israel. I hit some controversial states. As I said, I consider
it to be the most open country in the Middle East, defined in terms of legally
enshrined protections for Israeli Arabs—you won’t find those sorts of
protections for minority populations throughout the Middle East—the press,
foreign investors, the independence of the judiciary—all very important. They
all guarantee these rights. But there are a lot of factors that are undermining
Israeli stability. We see them in terms of the fact that Hezbollah militants now
have weapons that can increasingly get deep into Israeli territory.
What happens if Hezbollah gets to the point that they can hit Tel Aviv? What
happens if Israeli bankers start spending three or six hours out of every day in
safe houses as opposed to doing their business? What happens when the Arab
population trends in Israel—having not completed a unilateral disengagement
because they can’t afford it—what happens at that point, when we start to see
that the relatively open and fragmented Knesset has an
Arab political party that can vote to swing the government one way or the other?
What will the Israelis do?
The Israelis are on the right side of the curve. They are reasonably stable.
But unless they make some serious choices relatively soon about unilateral
disengagement and get it done, they are going to need to become either
considerably less stable or more authoritarian. It is going to be tough for the
Israelis, especially with the economic pressures that they are presently facing.
I think that’s a real concern.
The last point, before I open it up for questions and Joel takes his tie off,
concerns the United States and the members of the European Union. We all benefit
from the stability of strong and resilient political institutions. There are
some things that the United States and the Europeans do extremely well. As I
said at the beginning, we can screw up a lot and we maintain stability, because
the curve is not steep on the right. It is entrenched, it is established with
institutions, and people won’t react as quickly as they would in an emerging or
pre-emerging market.
By the way, that very entrenchment also makes it very difficult to suddenly
make a change in a system that you really need. If you are China and you want to
build infrastructure and you want to get rid of a village so that you can build
a highway or, more importantly, if you want to change your coal-dependent
economy and start building nuclear plants with abandon, so that you can get
through what might eventually be $120.00 oil prices, you can do it. In the
United States, you can’t build a wind farm off of Massachusetts because wealthy
people in Martha’s Vineyard don’t want to see it from their houses.
So that level of stability can create a certain stickiness in terms of
dealing with some of these big infrastructure issues that can hurt you.
But the thing that does concern me over time is that the trends in the United
States that we are beginning to see—and this is probably where O’Reilly beats me
up next week, so I won’t talk about it—the trends that we are starting to see
about closing borders, the potential replacement of neoconservatism with
neo-isolationism (on the right with Buchanan, on the left with Dobbs)—that you
start thinking about protectionism, that you start closing off borders in the
United States, making it more difficult for foreign direct investment, with the
CFIUS [Committee on Foreign Investment in the United States] legislation, for
example, making it harder for the best and the brightest immigrants to come into
the United States—has the potential over time to undermine stability.
You certainly see this in Europe, with the likelihood, given anti-Islamic
sentiment, which is growing far faster in Europe, on the continent, than it is
in the United States, that Turkey is not going to become a member of the EU
anytime soon. They might pull themselves out of that process. If that
happens—the EU needs the labor, but this bargain between homeland security and
economy could start to ebb away, over time, at the stability that has been
grown.
So there is a reason why the United States and Europe are very firm in their
stability, but it’s also important to recognize that we are, perhaps—with sort
of notions of a gated community—making a series of decisions that over the long
term could move us in a direction we don’t want to see. That is probably the
most commonsensical of all the points that I bring up, and it’s probably the
most political and controversial. But it’s nice to end with the United
States.
Again, I want to thank all of you for welcoming me here. In the next four to
six weeks, we are going to see if we can get this thing to really pick up in the
United States and globally.
With that, let me open it to all of you.
JOEL ROSENTHAL: Thank you, Ian. I don’t think I have ever heard a
presentation that was more suggestive in terms of questions. I am just going to
go right to the floor.
Questions and Answers
QUESTION: Ian, you have spent a lot of time over the past few
years at the Eurasia Group, promoting dialogue
and activities with the United States and Russia, and the West and so on.
Recently, you indicated in an interview with the New York Sun that you
weren’t quite as optimistic there. How would you place Russia on the J curve
today?
IAN BREMMER: That’s a very good question. I didn’t talk about Russia,
it’s true. As someone who cut his teeth on the former Soviet Union, back when I
was an academic, it’s something that is close to my heart. I lived there for a
while.
It was very clear in the early 1990s that the United States and IMF-branded
notion of shock therapy and democracy and openness did not go well in Russia. It
went well, though with pain, in Eastern Europe, in many countries—Poland and
Hungary and the Czech Republic. It did not go well in Russia. In terms of the
inability to deal with mass poverty, in terms of mass privatizations that made a
very small number of those extremely well-connected to the Kremlin billionaires
overnight, in terms of corrupt privatizations, and all that, the average Russian
saw, "If this is democracy, if this is openness, if this is the West, I don’t
want it."
Putin today is sitting on 78 percent approval ratings. He is also sitting on
$66.00 oil. Since Putin has become president, he has taken a number of steps
that have made Russia more stable, but, definitively, more closed. Governors,
for example, are no longer elected directly. They are appointed by the Kremlin.
That is increasingly true in terms of the centralized judiciary. The
"supergovernors" which oversee this have created a Kremlin-dominated
bureaucracy, which is able to push rules down, as opposed to a more federal
system.
In terms of foreign direct investment, whether you talk about YUKOS and Mr.
Khodorkovsky or whether you talk about my friend Bill
Browder and Hermitage, the Russians have absolutely no problem. The
biggest hedge fund has existed in Russia, though they have lost a lot of money
recently and I’m not sure that’s still true. The Russian government is prepared
to do basically what they want in terms of international norms and local
openness.
What is interesting is that Putin has maintained the popularity for it—again,
democracy not equating to openness.
It’s a problem for the United States. U.S. policy has certainly become more
close to a number of countries over the course of the last couple of years.
Japan-U.S. relations are probably better now than they have been at any point
since the end of World War II. U.S.-India relations are also doing very well.
U.S.-Russian relations are probably at their worst point right now than at
any point since Kosovo. This is after Bush and Putin looked each other in the
eyes in Slovenia, and there was this deep and meaningful relationship. Putin
doesn’t think he needs the United States. He doesn’t see the benefits. The fact
that he gets a seat at the G8 doesn’t mean as much as it did to him anymore.
Again, we should not take away the fact that oil at $66.00 makes a
difference. It’s a very interesting thought experiment: What happens if oil hits
$20.00, if oil hits $30.00? Is that better or worse for the world? It’s better
for the Asian economies. It’s better for the United States. in certain places.
It’s worse for the oil companies. It certainly is problematic for Putin. But I
think he has a lot of political capital built up.
A lot of people are very concerned about the upcoming 2008 elections in
Russia, as creating instability. I don’t. I think Putin, if you look at the
history—everyone wants to know who he is going to select. He has already made it
very clear that he is going to select the next president, even though there will
be elections. I think it’s not going to be Mr. Medvedev, the deputy prime
minister. It’s not going to be Mr. Sergei Ivanov. It won’t be someone really
well-known. It will be someone that he feels he can control. That person we
probably don’t know. If you look at Fradkov as prime minister—a relative unknown
before. If you look at Mr. Miller, in charge of gas—a relative unknown before.
Putin has a history of choosing loyal incompetents before he chooses disloyal
competents. I think that’s very likely.
I think that what we need to worry about is not 2008. I think the electoral
period will be fine. I think it’s 2009, 2010. Russia has a term for it, dva
polnomochiya, “two powers.” Russia has never done well when it has been led
by more than one head. It was true in the Time of
Troubles. It was true in the mid-1990s, when Yeltsin was nowhere to be seen.
It will be true again.
We need to recognize that Russia has a president; it doesn’t have a
presidency. Russia has plenty of laws; it doesn’t have rule of law. The fact
that we have a very strong Kremlin, but suddenly Putin is going to be out—he is
going to put someone weak in—eventually, Russia is big enough that that’s going
to cause some friction. There are fights that happen within the Kremlin. You
have fights between Transneft, the pipeline network, for example, and Gazprom or the
Ministry of Railways, which is moving 1.5 million barrels a day of oil by rail.
It’s incredibly expensive. It has never been done anywhere in the world before.
It’s really good for them. They make a lot of money. But Transneft doesn’t want
that.
So what happens when they continue to get these benefits from Putin and
suddenly the head of the Russian pipelines goes to the new president and says,
"Can you help me out here? I could really pay you off?" That’s going to happen
at some point.
So when it is rule of individual and not rule of institution, you can put
someone weak in, but at some point this is going to bite you you-know-where. I
think that’s going to happen, but it is not 2008.
QUESTION: First of all, congratulations on an incredible first speech.
May all our careers get off to such an auspicious start.
You talk about the J curve. It’s interesting. You certainly highlighted some
fairly incendiary parts of the world. What I was captivated by was this notion
that it can move up or down, depending on the economic infusion into any of
these economies.
When do you know that you are at the dip? We were talking about that a little
bit earlier. There is the concept of a J curve in the capital markets as well.
If you are monitoring an asset, you really want to capture the trough before it
rebounds. But you don’t know that you are going to get it there or you don’t
know what direction it is going to take, when. So that’s one question. Looking
at it from an outsider’s perspective, is there any way we can analyze a given
country’s predicament and assess that that is somewhere near an inflexion point?
The other question is, how do these curves intersect with each other? If you
look at a static country-by-country analysis of what each country’s J curve
might look like, you have even mentioned some countries that interplay with each
other. You have Israel; you have Iran; you have Russia. There is oil; there are
geopolitical issues; there is religion, obviously.
If you could touch upon each of those points, I would appreciate it.
IAN BREMMER: Those are two very good questions. Let me deal with the
first one first: How do you know that you are in the dip?
It’s a lot easier to recognize that a county is in the dip when it’s doing
relatively poorly economically than when it’s not. You can mask it. That’s the
point. My argument would be that China is actually closer to the dip than they
think.
The point is that if you really get close to the dip, there tends to be a lot
of volatility when you are not doing, economically, very well. This is clearly
true in Afghanistan today. I would identify Afghanistan as being real close to
the dip, close to falling apart. Why? Because they are completely dependent on a
relatively small amount of international aid, soldiers and just general
intellectual and material support.
In the case of Saudi Arabia, at $65.00 oil, I will guarantee you that there
is not going to be a serious threat to that country for the next few years. It’s
just not going to happen. Suddenly you bring oil down to $20.00, and it changes.
It changes fairly significantly. There are other things that are going to make
Saudi Arabia more unstable—the fact that they can’t get their population growth
under control. No matter what happens with the economy, if you continue to have
5.3 children per woman—not per family, per woman, which in Utah and Saudi Arabia
are two different things—that, over time, is going to create more instability.
I think that’s the issue. In the places where you really want to invest
because they are doing relatively well economically, the dip can sometimes be
extremely difficult to identify. The way you really try to get at it is, if
suddenly there is a little hiccough, how much volatility do you see? If there is
a little bit of a shock, if things get a little bit worse, given expectations on
the ground, do things start to really fall apart? In India they don’t. India is
not near the dip. Why not? India just had a lot of terrorist activity in Mumbai.
Not only did the markets go up 3.5 percent the next day, because people weren’t
concerned, but the Indians didn’t do anything with Pakistan. They delayed their
relationship at the highest level. They said, "We’re not going to talk to them
right now." But the mid-level relations that have been going on cross-border,
the sharing of security information and so forth, to make sure that you don’t
suddenly inadvertently pick off a general with a mortar round to start some real
problems—that didn’t stop.
That implies to me, given the hiccough of the terrorist bombings, that India
is not near the dip.
But if there isn’t a shock, you can go along for quite some time. Ukraine
went along for quite some time near the dip without a shock. Then a shock
hit—boom, a lot of people got hurt.
So that’s kind of my answer to that question.
In terms of interplay, I could answer that any way I want, how things come
together. Let me tell you one thing that interests me. You asked about interplay
and you talked about the Middle East. I do see the Middle East as a place where
there is a lot of interplay. I think we need to recognize that the Iranian
situation has the possibility of metastasizing. People say that Iran has a
difficult time playing the oil card. Condoleezza Rice said they can’t play the
oil card; it will hurt them as much as it hurts us. No.
First of all, the Iranians have been playing the oil card. There is a reason
oil was up to $75.00. It was because they were playing the oil card. They were
talking it up. They were testing advanced torpedoes in the Strait of Hormuz.
That’s not playing the oil card? What do you think they’re doing?
But aside from that, you have a state of emergency in Basra, in a Shia area.
The Iranians helped to provide security on the ground, through training and
arms, to ensure that oil infrastructure that is in very densely populated parts
of the Shia territory in Iran—not like in Saudi Arabia, where it’s isolated and
it’s easy to defend. What if they stopped doing that? Suddenly 1.1 million
barrels a day coming out of the south of Iraq might be more problematic. They
can play that oil card.
What about Shia-Sunni demonstrations and tensions? What about the fact that
after the Iranian-led Hezbollah flame, with them providing weapons for militants
in Hezbollah—I’m not suggesting that they actually made an order and said,
"Please, take these two soldiers," but they certainly provided the weaponry to
make the possibility of some shock that would then escalate the tensions, so
they could then be seen as the good guys and try to put it all together. They
certainly were involved in that.
After that happened, we started to see serious Sunni-Shia tensions in places
like Bahrain, where suddenly—there’s a Shia majority in Bahrain, but it’s run by
a Sunni monarchy—you had the Shia opposition party splinter and a group that
said that they were going to participate in upcoming parliamentary elections in
December saying, "We’re not going to. We want more rights. We want autonomy.
Change the constitution or there’s violence."
So I am very concerned that Iran escalates, and it’s not just Iran. I think
those interplays—I will tell you one more, since I get to talk about anything,
one more Middle East one.
There are a number of actors right now in the Middle East that, I would say,
all want to get away from the status quo. They are not well-coordinated
politically, but they play off of each other. Number one is the existing Iranian
regime. Number two is the militant wing of Hezbollah, not the political
leadership that has been elected in the Lebanese parliament. Number three is the
intelligence and military wing around Bashar Asad’s
government, not Bashar himself, in Syria. Number four is Muqtada al-Sadr
and the Mahdi Army in and around Baghdad in Iraq.
I would say all four of these players see the opportunity, by provoking
conflict in the region, to change what they consider to be a status quo that
won’t serve them well over the long period, to make it more beneficial for them.
They are absolutely playing off of each other.
The concerns are that that hurts the United States and Britain, which already
have degraded political capital because of what has been happening in Iraq. It
makes Israel less sustainable over the long term, economically. Look at the fact
that the Israelis had to call up 50,000 additional reservists—50,000 able-bodied
young Israeli men and women to serve in the military. Their economy cannot
afford that, but they had to do it.
So there is an interplay—of course there is—between all of these countries.
As the world is more globalized, there’s an interplay, too—I am going to give
you one more, which is outside the Middle East, just because it’s fun.
One of the things I find interesting by being in my position, where I am a
political scientist that also deals with the markets, is that I get to go to
Washington and I get to go to New York. You talk to people that only look at one
and not the other. So you get to be much brighter than you normally deserve to
be, because you have stuff that people don’t talk about.
I remember giving a briefing at the White House. I was talking about North
Korea. There were a lot of people there that had forgotten more about North
Korea than I could ever learn—you know that old saw. I was talking about what
might happen in the context of nuclear testing. One of the fellows—I don’t want
to say who it was, because he’s still around—said, "A nuclear test, at the end
of the day, in North Korea"— this was a couple of years ago—"wouldn’t be a bad
thing, in the sense that the Chinese and the South Koreans and everyone else
would suddenly realize that the North Koreans were playing for keeps, that they
were completely intransigent, so they have to support the United States."
Everyone was talking about this for a while. I said, "What about the South
Korean economy?"It was as if I had said something that no one had ever thought
of. They said, "What?" I said, "What about the South Korean economy? What
happens when the North Koreans test a nuclear weapon and the South Korea equity
markets and currency crash the next day?" That’s the one thing that every hedge
fund client that we talk to—and there are many—are concerned about in terms of
their investments on the ground. What do you do about that?
You know what they said then? They said, "Will you write us a paper on that?"
The people working on North Korea in Washington are dealing with proliferation.
They are dealing with security issues. They are not dealing with the markets.
So there is another interplay that is very important, which is the interplay
between politics and economics globally—more importantly, the interplay between
politics and markets globally, which is fundamentally different than just
politics and economics. I think that is something the J curve has a lot to talk
about.
QUESTION: First of all, congratulations on the success of the
book.
There was an editorial in The New York Times called "Closing of the
American Book." It stated that, for the first time in history in America, 50
percent of people across the board—rich, poor—were not reading. One of the
conclusions was that this was serious on a political level because people were
pulling back, isolating within themselves. They weren’t proactive. The author of
the editorial—this was what it was about.
The other thing is, I read just the other day that $3 billion or something
like that is spent a month in our war. In terms of nations rising and falling,
does this indicate a serious fall, potentially, in the United States, or even
currently? How would these issues, if at all, fit into the J curve?
IAN BREMMER: I appreciate the point that the United States—still, the
average American does not spend as much time thinking about global issues as
they probably should, given the growing importance of them, given the growing
danger of the international environment, given the responsibility that the
United States has and, increasingly, that the rest of the world has, the rest of
the developed world has especially, in trying to manage those challenges.
But I would also say, it’s September 12 today. Yesterday was not easy for
anyone here in this room. It wasn’t easy for me. I think about the effect that
9/11 has had on all of us. I am not talking about the towers coming down. I am
thinking about the way it has affected our world, the way it has affected the
Middle East, the way it has affected Afghanistan, the way it has affected the
way we all think about how we live together. There is not much that you can say
out of any of that that is positive in any way, but there is one thing you can
say that is positive, which is that it makes Americans think much more about
what’s happening outside.
I tell you, Tom Friedman, love him or hate him, was not read five years ago
or ten years ago the way he is today. I think that The Economist didn’t
have the subscription rates, and Foreign Affairs didn’t have people going
to it.
It’s funny. The Economist said—I can’t remember the exact term—that
this left you a bit depressed in terms of all the challenges. But I am a pretty
optimistic guy. I talk about political risk all the time. Economics is the
dismal science. Political science shouldn’t just be about sticking your head in
the sand. It should also be about what the opportunities are.
I have talked about a lot of risks. I think we need to recognize that there
are countries that have been emerging successfully. I was just in Brazil last
week. I was there right before elections, coming up in three weeks’ time. The
last time Lula was running, the markets said, 'This guy is going to nationalize
property. He’s going to default on debt, and we have to head for the hills."
Today, politically, Brazil looks like Switzerland. I think they are going to
have microeconomic reform. They are engaging in political reform. They are
moving towards political centrism, all the different parties. Lula is doing
well, but he is also bringing in reformist-oriented individuals. They are making
a difference.
I could point to lots of things like that.
Unfortunately, war sells, so people are going to ask me about Iran and North
Korea and all of that. But there are good stories out there.
The second question was about Iraq. Let me just say, briefly, no. It has
potential impact long-term. But at the end of the day, does Iraq itself make the
United States today markedly less stable? Not by itself. It takes a lot of these
hits. Unfortunately, there have been a lot of these hits. It’s not just Iraq.
It’s Iraq, it’s Iran, it’s overstretch of the military, it’s the dangers of
protectionism, it’s some economic decision-making that has not been ideal, in
terms of relations with China and others. You add all these things up, together
with mounting deficits and everything else—I am not the economist here. It takes
a lot of those hits; ultimately you are going to start hurting your position.
But the good news is that we can make more mistakes than the others can. We
really can. That’s fortunate, because we do.
QUESTION: You will have to pardon my intransigence, but I would like
to briefly preface my question by revisiting the Economist review, which
seemed to me not to suggest the grand monumentality of graph books, but rather
their common failure to match empirical observation with equally shrewd
prescriptive analysis. This, I guess, would be my challenge, and the
Economist’s as well, to the J curve, which is not that your regression is
incorrect, but rather that your suggestions for how one shifts from the left
side to the right side—those being by having the West attempt to create openness
in these societies by doing a Radio Free Europe, if you will, of media
projection, of bringing societies into the global economy. Where has this been
successful, save for, perhaps, Estonia? How, given the "nuclearity" of Iran, or
North Korea, can we afford to have those societies dip into the basin of the J
curve as we attempt to bring them out into the right side?
IAN BREMMER: I think that’s a very good question. I certainly viewed
the Economist’s as a very positive review. God help me if I can have the
failure of The Tipping Point. I’d love to get panned like that. That will
work for me.
But to answer the serious question that you asked—though I like
intransigence; as a political scientist, I do this—I would say that you have two
points. One is, you have policy recommendations, and two is, you have how things
work. I am not suggesting to you that the thing that you want to do is
destabilize North Korea today. That is a question of policy. We can debate that.
I could have a good discussion with you.
I am suggesting that it is common fact that the U.S. policy is to get rid of
the North Korean regime as it stands today. If that is your policy, then going
about it by trying to isolate it is counterproductive. There is nothing to
debate on that. That is a fact. The question is then, do you want to do that or
not?
My issue with the Bush administration is not really about their goals. At the
end of the day, the Bush administration’s goals are laudable. At the end of the
day, the Clinton administration’s goal were laudable. They all want to live with
liberty and freedom and happiness and economic growth and prosperity, first for
the United States, but then for everybody else. I believe they really want that.
I’m not just making this up. I believe that, fundamentally, their goals are
good.
But I also believe that you can get fired for bad execution, especially Bush,
who said, when he first came in—who remembers this? Devin [Director, Global
Policy Innovations, Carnegie Council] reminded me just a couple of moments ago
that he wanted to be a CEO president. You get fired as CEO for executing that
badly. Everybody wants to get their stocks to the moon. But I tell you, you look
at the execution on Iraq—you can argue whether it was moral or immoral to get
rid of Hussein, but no one can argue that the execution has been horrific.
This is my point on Iran today and on North Korea today and on Iraq today. By
the way, North Korea goes well before the Bush administration. It goes to
Clinton as well. The execution has been systematically bad. Part of the reason
for that is because they have misunderstood how the J curve works.
So that is the way I would answer that. We can talk about policies and what
my policy recommendations might be for different places. But I actually don’t
think that is the fundamental point of the book.
QUESTION: Just one point of disagreement. Rumsfeld would argue that
they’re doing a great job. Not everybody thinks it’s bad. Very few bodies do. I
want to ask you about Venezuela and Chávez’s way of looking at the world and
whom he is buddying up with—Bolivia and Cuba and so forth. What does that say
about your thinking on the subject?
IAN BREMMER: Even Rumsfeld was looking real defensive in his public
speeches a couple of weeks ago.
A little anecdote on Rumsfeld. I used to get in trouble for this in Europe
whenever I did it. I used to always say in the early days, when Iraq was just
starting in terms of the war, that I thought that Rumsfeld was one of the most
effective secretaries of defense the United States had ever had, in terms of
looking well ahead of the curve and understanding that the military needs to be
transformed, which the generals were strongly opposed to, understanding that the
threats were going to come from rogue organizations and not the traditional
army-versus-army. He got that, and he was disliked for it.
Unfortunately, he was also possibly the worst secretary of state the United
States has ever had. He tried to do both jobs. That was to our peril. That was
to our peril.
So that’s my quick view on Rumsfeld.
In terms of Venezuela, I think we need to recognize that the reason the
Venezuelans have been as intransigent as they have, in part, is because they
also have money, and they feel that they can get away with it. They are playing
with the Russians. They are building Kalashnikovs, getting a license for it.
They are exporting to Colombia. They are destabilizing there. They are buddying
up with Bolivia and Evo Morales, and the coca plants and growing—and who is
nationalizing gas. The Venezuelans are prodding them.
At the end of the day, U.S.-Venezuela relations aren’t really that bad. They
are bad at the rhetorical level, but not much has happened. I would argue that
that is for two very simple reasons—mutual dependency. The Venezuelans have a
lot of oil that they actually need to export. Nobody has the refining capacity
to deal with that heavy, dirty Venezuelan crude. The Chinese can’t do it. They
have to sell to the United States.
It also just takes a long time to get those tankers over to other places, and
it’s problematic for them.
So from an economic perspective, if you are Chávez,
you can go against local landowners that are part of the old nobility and so
forth, but you don’t really want to come after nationalizing big U.S. assets,
because you don’t want to irritate them too much.
The United States needs that oil. The United States relies on that. So they
don’t want to make this relationship really crash.
So at the end of the day, it’s one of these places where everyone complains,
"Chávez is a pain," but I’m not that worried about it.
There are so many headlines. Political risk is very sexy now. Everyone wants
to talk about political risk. You get to talk with everybody. But a lot of the
stuff is noise; it’s red herrings. Ted Galen Carpenter writing about the coming
war with China over Taiwan—no way. One million Taiwanese businessmen are living
in the mainland. They voted with their feet. They are making good money. That’s
the reason why Chen is going down. That’s the reason why, ultimately, China
wins, because they have integrated Taiwan. That’s why they can be so patient,
because they know they are winning.
That doesn’t mean there aren’t going to be market blips around the Beijing
Olympics 2008, for lots of reasons. It doesn’t mean Taiwan won’t say vitriolic
things that will cause trouble. But at the end of the day, Taiwan is fine. I
would worry if I had a deal with a Taiwanese company to do business in China,
using the good offices of my Taiwanese to help me, because they are so
"preferenced' in China, because suddenly, when they are not needed as much, you
could get really hurt there. That would bother me. That’s a political risk. But
it’s not the coming war with China, at least not over that. Over Japan and North
Korea, that’s a different story. But that’s not what he talks about.
QUESTION: You haven’t mentioned the expanded European Union. A very
great difference between the stable core of countries, which may or may not be
as stable as they have been, and the newcomers from the former Soviet Union,
East and Central Europe. What do you think?
IAN BREMMER: I think that the incredible economic and institutional
pull of the EU accession process actually has done a great deal of service to
create real stability in these East European countries. That is most obvious in
the first round of accession with Poland and so forth, which feels pretty much
like a European country, at least to the extent that Portugal feels like a
European country. But it is even getting there with places like Croatia and
Bulgaria and the rest.
I don’t think Ukraine makes it, frankly. People used to talk about Russia
eventually in the EU. They don’t talk about that anymore. They barely talk about
the joint Russia-NATO Council, which still exists but is a dead letter.
You did mention former Soviet states. Of course, the Baltics are a different
story. They are very small. They were only in the Soviet Union from the Molotov-Ribbentrop Pact until the demise, so they didn’t have
the same level of Russian imperialism and colonialism that a number of other
economies did. They were also very small, and they had the historical and
economic ties with the Scandinavians, which made a difference—linguistic and so
forth.
But in terms of the rest of the former Soviet states, they have largely not
cut it. That’s unfortunate.
But I think the EU shows great success in terms of the model of
institution-building over time, with hardship, on the ground in a lot of these
countries.
JOEL ROSENTHAL: Thank you. It has been a wonderful hour.
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