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HOME THE BOOK Praise for Excerpts About the publisher About the editor Buy the book THE AUTHOR REVIEWS CALENDAR |
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Stephen Watt from the University of Toronto’s Rotman School of Management interviews Ian Bremmer Stephen Watt: What is the J curve, and what can it tell us about global political and economic risk? Ian Bremmer: The J curve is an effort to explain how a country’s stability relates to its openness. It answers the question why it is that countries do or do not fall apart. Why is the J curve relevant to global markets? Many reasons: because of the flow of global energy, because of the economic importance of China, because of the impact of rogue states, organizations and individuals on world markets, and because of the nature of the global balance of power shifting away from the United States and the US-led hegemonic system. All of these things make the stability of countries matter – not just to policy-makers in Ottawa, Washington and London, but to institutional investors and decision-makers in multinational corporations. SW: Eurasia Group, the global political risk consultancy you founded in 1998, has worked with more than 200 multinational clients, including Google, AIG and Goldman Sachs. In this era of globalization, why is it so vital for corporate leaders in particular to develop a refined sense of political risk, as opposed to solely looking at a country’s economic prospects? IB: In a sense, we were the first people that really brought political science to Wall Street. When I first came out to New York after a couple years as an academic, I talked to people in banks and explained why I thought I was relevant. The response was, “That’s all fascinating, but we don’t hire people like you.” They had economists and strategists – they even had physicists, because chaos theory is important for derivatives modeling – but they didn’t hire political scientists. Increasingly, however, there is a recognition that global stability is an important part of understanding risk and balancing portfolios. I would define an emerging market as a country where politics matters at least as much as economics to market outcomes. Take the example of China. Wall Street is very bullish about China, where it sees great economic growth. However, the fact that China is likely to grow does not mean that you as a multinational executive are going to benefit from that growth. You have to focus on the decisions being taken by the Chinese government, the nature of the relationship with state-owned enterprises, who your joint venture partner is, and your regulatory environment, which is increasingly opaque. Even in the context of a growing Chinese economy, politics matter. The more we see China globalizing, the more we see local demonstrations and social discontent. Individual Chinese citizens are able to communicate with each in a way they never did before, and the Chinese government is fundamentally uncomfortable with these political challenges. Over time, the process of economic globalization and political globalization will come head to head. And that’s just China. Look at where energy is coming from. It’s not the Gulf of Mexico or the North Sea: those are mature fields. Increasingly, energy is coming from West Africa, the Persian Gulf and the Caspian Basin, parts of the world where politics really matters. SW: America has long stood for individual rights and freedoms, yet continues to do major business with countries where political pluralism and free expression are generally suppressed. Is this hypocrisy, realpolitik or just good policy? IB: I think it’s all three. The reason it’s hypocrisy is that the United States pretends it has universal values, such as human rights and democratization, that it applies everywhere. In reality, there are different types of interests that need to be balanced. And of course, they are balanced. When the US deals with Pakistan, it not only has to consider human rights and the nature of the relatively authoritarian Mussharif government, but also the nature of Pakistani cooperation with the US on nuclear proliferation. Similarly, the US continues to support Israel, which has, in all likelihood, a couple hundred nuclear weapons. The US also recently supported a nuclear deal with the Indian government. The Iranians have come out and said, “Look, you say you oppose proliferation, but what about this policy with Israel and with India?” The US has different benchmarks in terms of who can and cannot be nuclear on the basis of the nature of those countries, and rightly so. North Korea can’t be trusted to be as responsible with a nuclear weapons program. They proliferate ballistic missile technology, and support drug and human trafficking. It’s much more dangerous to the world to have a nuclear North Korea than it is to have a nuclear India. The US needs to frankly acknowledge that it does not and cannot have a universal policy toward non-proliferation. A universal policy sounds great, but it doesn’t work if you’re a policy-maker. It also doesn’t work, of course, if you’re an investor. One of the nice things about being a political science firm that focuses on the market is you cut through a lot of the ideologically-driven policy speak that comes out of the think tanks in Washington. If you’re a political scientist that focuses on the market, you have the luxury of only having to be right. SW: You argue that attempts by the US government to use sanctions and other isolationist measures to curtail the ruling regimes of Iran, North Korea and Cuba have failed, and in fact, have the opposite of their intended effect. Please explain. IB: The J curve will tell you if you’re a country that is on the left hand side of the curve, you’re stable because you’re closed. Your people do not have access to the international marketplace of ideas, goods and services, and lack the ability to communicate freely with one another. The fastest way for Kim Jong-il to lose power in North Korea is to suddenly allow international investment into his country, and let the North Koreans actually see what they’re missing, and how badly they’re really doing. The government maintains complete control of its borders, and doesn’t allow travel outside the country, or any communication with the outside world. When the United States says they’re going to punish the North Koreans by isolating them, that’s like threatening a drowning man with a life boat. That’s true of North Korea; it was true of Afghanistan under the Taliban; it was true of Iraq under Hussein; it’s increasingly true of Iran under [President Mahmoud] Ahmadinejad and [Supreme Leader Ayatollah Ali] Khamenei; and it’s been true of Cuba under Castro. A few years ago, when the Clinton administration made an effort to reduce sanctions against Cuba, the Cuban government responded by shooting down an American aircraft. The response was the Helms-Burton act, which tightened sanctions, and the result was that the Cubans were happy again. These are countries that need isolation to maintain stability. SW: Thomas Friedman of The New York Times famously argued that globalization has triumphed and the world has become ‘flat’? What’s your view? IB: The world has become flatter, there is no question. What Tom Friedman was talking about was the supremacy of economics and the global markets after collapse of the Soviet Union. Yet we need to recognize that politics is mattering increasingly to the markets, and that is a fundamentally different paradigm. It’s a logical consequence of the reduction in US power, and the growth of importance of countries like China or India. Other factors include the threats presented by rogue states, individuals and organizations to the global markets, the nuclear proliferation of Iran and North Korea, the increasing instability in the Middle East, and the potential lack of viability of the Chinese political system over the long term – all of these things mitigate the flatness of the world. If the Eurasia group and The J Curve accomplish anything with regard to making people focus on political risk, it’s to demonstrate the increased level of obstacles that exist to Friedman’s paradigm. SW: The J Curve makes a persuasive case that, when it comes to the foreign policy decisions of the US and its allies, an entirely new direction is needed. What hope do you have that your book will have a real impact on foreign affairs internationally? IB: I’ve received some very strong input and interest from 10 Downing Street, the Japanese government and some governments in the Middle East, who have asked me to come and talk to them at a much higher level than I would have initially expected when I put the book out. The timing is right. Things are going sufficiently badly in a number of areas of the world that people are looking for a new way of thinking about these issues. But the timing is not perfect. At the end of the day, the United States is not prepared to accept less of a role globally. You see this with the Baker Study Group on Iraq, which was just as unilateral, in terms of dealing with US interests in the Middle East, as was the Bush administration in deciding to go to war. The study group wasn’t really interested in engaging with America’s Middle East allies or with the British – it was interested in finding a way, unilaterally, to withdraw. As long as the Unites States continues to think what is important is finding a way to pursue its interests and is unprepared to actually engage internationally, it is going to have real problems. Unfortunately, it’s the same problem whether you’re talking about the proliferation paradigm and the fact that the Non-Proliferation Treaty is completely broken, or global warming and the world’s complete inability enforce the Kyoto Accord. The international architecture of today was created to deal with the geopolitical environment of the Cold War, and that architecture is not going to change until a crisis hits. There will have to be a disaster or near-disaster, whether it’s global warming or a massive terrorist attack: hopefully it will be a near-miss as opposed to a hit. Sooner or later it will be necessary to take a dramatically different path. The question is how much pain do we have to endure before we get there. SW: Unfortunately, a severe crisis of the type you describe might arouse a more severe and unilateral response, rather than one that is nuanced and multilateral in nature. IB: If it does, and I warn about that in the conclusion of my book, then it’s only going to hasten the American decline. The good news about the United States is that its stability was created over generations, and can’t be easily disturbed. The US had a presidential election in 2000 that was considered by a majority of the population to be stolen, and you know what? It didn’t matter. It didn’t affect American credit ratings or foreign direct investment, and it didn’t lead to riots in the streets. You find the same stability in Canada, Europe and a number of other countries. The problem is, when it comes time to make a real change, when there is a real threat, countries that are very stable often take a long time to move. That’s why it’s so critical to enjoin the debate now. When life gets difficult and the choice really has to be made, there are people out there who must have alternative ways of thinking. Ian Bremmer is president of Eurasia Group, the world’s largest political risk consultancy. He has written for Financial Times, the Harvard Business Review, The Wall Street Journal, the Los Angeles Times and The New York Times, and has authored or edited five books. His latest book, The J Curve: A New Way to Understand Why Nations Rise and Fall (Simon and Schuster, 2006), was selected by The Economist as one of the best books of 2006. He is a columnist for Slate, a contributing editor at The National Interest, and a political commentator on CNN, Fox News and CNBC. He lives in New York City and teaches at Columbia University. |
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