from WorldEconomicForum Website
based on discussions of the Global Agenda Council on Geopolitical Risk
in Dubai, November 2012.
As the Global Agenda Council on Geopolitical Risk's 2012 report highlighted, the effectiveness of global institutions and the rise of regionalism are overarching themes defining world events.
In 2013, this breakdown of international coordination will go increasingly local: in such a world, governments will focus more on their domestic agendas, which will create new risks in and of itself. Most importantly, the growing vulnerability of elites makes effective public and private leadership that much more difficult to sustain.
Leaders of all kinds are becoming more vulnerable to their constituents, generating more reactive and short-term governance. Whether one looks at the dismal approval ratings of the U.S. Congress or the impact that more open flows of information is having on the Chinese ruling elite, it is clear that people are becoming more and more uninspired by their governments.
When it comes to unemployment, the widening disparity of wealth, or environmental degradation, highly complex or even intractable issues set politicians up for failure in the eyes of their constituents.
States captured by corruption or special interests, or that exhibit a lack of transparency, growing disparity of wealth, or a perceived indifference to the lives of the citizenry, will increasingly fall victim to this 'legitimacy deficit.' Corporate and NGO leaders who act with impropriety can also find the ground shifting beneath their feet, sometimes overnight.
Rapid news cycles and social media can allow dissident movements to arise without warning, creating new challenges for those in charge.
Opportunities could arise from a brighter US outlook and continuity in its government.
A growing awareness of the lack of international leadership may impel political leaders to deal with issues locally, and could result in better crisis response. In addition, there are a host of wildcards - on the downside and upside - that could prove game-changers over the coming year.
A. Overview - The Vulnerability of Elites The challenge
This is the challenge: as their legitimacy gets called into question, political actors struggle to react to instability, crises and opportunities in the most effective manner.
Whether it is the growing disparity of wealth, or the evolving flow of information, several factors are facilitating pushback against existing policies and institutions and making both governments and some private actors across the globe look increasingly fragile.
Among other things, these events show that the spread of the internet and social media has made it much harder for leaders to engage in "damage control."
It has given people a tool to hold their leaders to account and, in extremis, to topple them. Nowadays, even rather innocuous private misdemeanors can end a distinguished political or corporate career overnight.
Governments, companies, even large media organizations, are ill-equipped to handle the "tyranny of real time." More than ever, knowledge is power - and more than ever, knowledge has been democratized. Anyone with an Internet connection can access diplomatic cables revealing inconvenient truths about their rulers.
Growing disenchantment with political leaders may discourage the best and brightest from entering politics in the first place. Instead of imagination, conviction, and leadership skills, a blemish-free past is becoming the real entry criteria for Western governments. While a longer-term generational shift could ease this phenomenon, for the foreseeable future, the trend will likely only worsen.
If a minister, general, or even a president is pushed out, there is a well-rehearsed and accepted process for replacing him or her. In less democratic societies, by contrast, public scrutiny may not burden leaders quite so continuously. But the risks associated with elite vulnerability are considerably higher. Revelations about elite corruption and double standards can galvanize people into street action and even revolution.
From Russia to China, leaders' wealth is increasingly exposed.
Public anger at corruption and disparities of wealth also played a clear role in the 'Arab Spring,' and it remains to be seen whether the region's monarchs will remain protected by tradition or end up having no clothes.
Regimes that are successful in improving living standards and increasing the size of the middle class may subsequently struggle with their aspirations - and the reduced likelihood that they will remain willing to abide by the terms of the previous social contract.
This dynamic was among those at work in the Arab Spring, where GDP growth and a larger demographic cohort of university-educated citizens ultimately expected more from government.
If a leader in an autocratic society is forced out by public outrage, leadership battles that can destabilize the whole political system are likely to ensue. To avoid this, vulnerable leaders often search for distractions and scapegoats.
Take China, for example, where the leadership may focus on quelling transparency into its dealings at the expense of enacting much-needed governance or reform. External enemies are blown up, potential opponents are crushed and sabres are rattled. Vulnerable elites can be unpredictable.
There is no single, overarching risk that could destabilize international politics or derail the global economy. Instead, a myriad of local pressure points exist, from the escalating tensions between China and Japan to the bloodshed in Syria and the ongoing crisis in the Eurozone. Such risks have regional spill over effects but none of them has the capacity to become an 'umbrella' calamity that becomes a global priority.
Welcome to 'the new local,' where governments are more shackled by regional concerns and their domestic constituencies - at the expense of tackling larger-scale global issues that need collective leadership to solve. Paradoxically, secessionism is on the rise just as one would expect support for more integrated solutions to increasingly intricate problems.
Many people believe that the global financial and economic crisis has discredited market capitalism. Institutions of global governance look weak. Regional ones are slow to take their place (see our report last year). The Lehman collapse, Abu Ghraib and Afghanistan have all eroded American soft power.
With Europe in deep crisis, the idea that there is a "Western" model that should be followed can no longer easily be sold. Many people in Asia, Africa and elsewhere do not think that democracy is a panacea. Perpetually waiting until after the next election to take action does not seem attractive or efficient.
Even the Arab Spring was not so much about democracy as about transparency and accountability - ingredients that can be supplied to some extent by stable non-democratic systems.
However, autocratic systems tend to be rigid and
therefore likely to crack under pressure. The notion that development and
happiness can come from authoritarian state capitalism hinges on little more
than China's year-on-year growth rates and exceptional experience over the
past decade. Should China break, an entire worldview will likely come to an
The deglobalization of risk exacerbates old problems - and ushers in some new ones. Paradoxically, the fact that spill-overs are not global makes the outbreak of local conflicts more likely.
During the Cold War years, any skirmish between the two Germanys would have escalated to a third world war. Today, China and Japan know that a tit-for-tat over the Senkaku/Diaoyu islands can be pushed much further before it precipitates a broader international response.
This knowledge might make actors more reckless - and cause more damage.
Just look at the drop-off in Japanese exports in
China in the wake of the recent crisis.
B. Key Risks China-Japan
Although pragmatic solutions are conceivable, this conflict is not ultimately about territory. For both countries, it is an opportunity to project power in a region that is in transition. And in both countries, domestic political factors are pushing towards escalation: Japan's government-weakened by economic woes and internal divisions-may want to send a signal that Japan is not a country in terminal decline.
In China, a newly installed leadership may find anti-Japanese nationalism the easiest way of gaining popularity. In a world with vulnerable political elites, China and Japan's leadership may have more cause to shore up their popularity by stoking nationalist sentiment.
Bilateral relations between the two countries are tense and trade is already suffering.
China feels it needs neither Japanese capital nor Japanese technology nowadays, which it can now import from places such as Korea or Taiwan. Japan hopes for US support, including a new treaty that could further align America with Japanese interests.
While it is probably not in a position to prevent an incident between China and Japan, it should be able to forestall a wider conflict. Yet uncertainties about the meaning and commitment of the US "pivot to Asia" have left critical concerns unaddressed.
If the US is not understood by its Asian allies,
how can it avoid misunderstandings with its largest competitor?
While eyes were on Turkey and Lebanon in 2012, they could be on Iraq and Jordan in 2013. Although neither side admits it, the war in Syria is effectively in a stalemate, even if things are changing gradually. Even though Syrian opposition leaders agreed to form a coalition in November 2012 in Doha, a political settlement looks no closer.
What is more, following the intense outside pressure that led to the formation of the coalition, it might now be tainted as the "US council" for Syria, just as NATO seeks to avoid being drawn into the country through its Turkish member.
Even if there is a workable peace deal in Syria, democracy and stability are unlikely to follow. In an interesting repeat of history, the question is again about what happens the "day after."
The possibility of mass revenge killings or territorial fragmentation of the state cannot be ruled out.
The turmoil in Syria is already providing fertile ground for a re-emergence of Al-Qaeda - an organization that has also operated in a 'new local,' splintering its actions into more granular arenas, often working at a sub-regional level. Expect that to continue unabated if a post-Assad power vacuum emerges.
Vladimir Putin is unlikely to give up his opposition to outside interference - even if the other powers on the UN Security Council were to give him much of the credit for 'solving' the Syria conflict. The Chinese government remains on the sidelines, showing limited signs of leadership by issuing a brief forward-looking plan, yet still fearful that any support for the Syrian opposition might encourage a Uighur uprising in Xinjiang province.
The West, for its part, is torn between moral values and a lack of hard interests justifying boots on the ground. While it seeks to avoid profound involvement, it is also concerned with not losing its diplomatic hold on the situation.
Often their initiatives are aimed at containing each other, rather than at stopping the bloodshed.
Moreover, Turkish businesses - many of which support Erdogan's government - are against military intervention, fearing the economic turmoil that would inevitably follow.
The Kurds are keen to consolidate their gains in terms of autonomy and economic independence (some oil companies now prefer to sign deals with Erbil than with Baghdad) and the Sunnis are aggrieved because they believe they may have given up arms too fast as they have not gained sufficiently from power sharing and compromise.
Both are spoiling for a fight. Sectarianism is turning into a self-fulfilling prophecy.
If Iraq erupts into civil war, Iran would
certainly be drawn in.
There might even be an opportunity for a major diplomatic initiative.
But a new, more conciliatory president could change the mood music in Iranian-American relations, particularly if the US seeks to constructively seize this opportunity.
Some have rumored the possibility of a secret Nixon-like deal. Yet the Kissinger-designed overture of 1972 was made possible only by carefully concealed groundwork of the like precluded by today's levels of real-time transparency.
However, Washington might not be able to negotiate such a deal.
American politicians have demonized Iran to such an extent that anything that does not look like 'complete surrender' might be impossible to sell politically at home. The US may therefore demand that Iran first comply with all international requests regarding its nuclear program before wider negotiations may start. Iran would reject such terms.
But the leadership in Tehran may even think that a limited number of attacks would help it consolidate its grip on power - it might be just what they need to deflect domestic anger toward an exogenous threat.
Insofar as Israel realizes this - and outspoken security personnel embed it into popular opinion - it could minimize the chance of strikes.
A currently tamed discussion might emerge over whether Iran's nuclear status in itself matters most or whether a deeper rethinking of the country's regional relations is needed.
On the upside, Afghan leaders may realize that they now need a settlement, and one that includes the Taliban. Afghanistan's neighbors may take a stronger and more responsible role in seeking a settlement, fearing the power vacuum that would follow an implosion in Afghanistan.
The ability of the Afghan national forces to guarantee security is yet to be tested. The Najibullah regime collapsed in the early 1990s as soon as the Soviet Union stopped supplying arms. There are doubts whether the regime of Hamid Karzai can survive without US and NATO support. The risk is that of a return to a pre-2001 landscape. The risks to Afghanistan's transition lie in the complex militia structures that dominate the region, and the Taliban's continuing ability to be vastly destructive.
Increased Pakistani involvement in the country is likely as all players gear-up for of a post-2014 political environment.
As relations between India and Pakistan are already strained - although not, by any metric, to the extent that they have been in the past - any further terror attacks or hijackings in India (which would be blamed on Pakistan) could lead to conflict, which would further divert New Delhi's attention from an important but lagging domestic agenda (itself marked by the red thread of anti-corruption and elite vulnerability).
India's frustration with its neighbor's reaction
to its involvement in Afghanistan may be underestimated.
Eurozone crisis response
After two years of successive bailouts, governments in Germany, Austria, Finland and the Netherlands cannot ask their parliaments to agree to the sums that would be necessary to stabilize large countries such as Italy and Spain.
Further requests for ever larger bailouts could drive voters into the arms of euro-skeptic or nationalist parties, such as the True Finns in Finland or Austria's Freedom Party (in Germany, no euroskeptic party has emerged so far).
Political elites are well aware of the impact that public frustration can have in the voting booth - and on the streets.
Support for the fascist Golden Dawn in Greece reached 14% in November 2012. The populist 'Five Star' movement of Pepe Grillo in Italy is coming out on top in some polls. Separatist forces are gathering momentum in Spain.
The announcement of the ECB's OMT (open market transactions) program for buying government bonds and reducing borrowing costs calmed markets in the second half of 2013 - but the Eurozone's increasing reliance on the ECB itself creates growing risks in 2013.
Central banks are neither democratically legitimized nor democratic. Those countries, like Spain, that hope for ECB action to avoid a financial crisis want the ECB to act swiftly, decisively and predictably. Germany and other countries with orthodox views on central banking are deeply concerned about the central bank's expanding remit.
Both sides may look for ways of subjecting the ECB to stronger political oversight. Calls for its minutes to be made public come from the same vein of transparency that has, for better or for worse, created the vulnerability of established elites elsewhere.
This could make it increasingly difficult for
the ECB to act.
C. Wildcards Eurozone exit
The most pressing wildcard in 2013 would be a Eurozone exit - while unlikely, it cannot be ruled out. If a government collapsed in one of the countries relying on EU bailouts, reforms there would stall and further aid would not be forthcoming, given the restive mood in the donor countries. For example, if Greece's fragile coalition government unraveled, the country may yet be forced out of the Eurozone.
The threat of a domino effect throughout the periphery is a wildcard of the first order.
It could lead to the creation of a new class of "formerly rich" nations in what has been one of the most stable areas of the world for decades. It would also contribute to making supra-national decision-making even more rare in a context where the EU has already lost its status as "global do-gooder."
New anti-establishment parties pay noticeably
little attention to foreign policy, focused as they are on rewriting
A massive cyber attack is certainly possible in 2013, whether on a corporation's intellectual property, a country's critical infrastructure, or a government's secrets. In a world of vulnerable elites, the latter could have unanticipated impact, particularly in more authoritarian regimes.
Many governments not only cannot protect their critical infrastructure from cyber attacks - they admit they are not even equipped to measure the full scope of their infrastructural vulnerabilities. An attack could be damaging in and of itself.
The knock-on effects could have far-reaching geopolitical, economic or security implications. It would also demonstrate the seriousness of the threat that emanates from cyber crime.
Just as the use of drones is rapidly being democratized with dangerous consequences for the monopoly of political violence, the lesson of cyber weapons may be that "you reap what you sow."
Hopefully, a cyber Cuban crisis will lead to a code of conduct before we run into a cyber Pearl Harbor.
Could the Gulf region, Jordan, or Morocco be the next area affected by uprisings? What happens if China experiences its own version of Wikileaks?
The temporary disappearance of Xi Jinping in September 2012 caused confusion enough, despite being a non-event. In that vein, a new Green revolution in Iran is a possibility, as is a third intifada. The assassination of a leader in Afghanistan, India or Pakistan could have calamitous impact on the tensions in the Af-Pak region.
Can Nigeria maintain its unity? If not, what would this mean for the power projection of Africa's largest peacekeeper?
The risk of jihad-ism and organized crime
developing more stable cooperative relations in the Sahel Zone is growing,
with the potential to destabilize Mauritania or Niger.
To an extent, Myanmar's impressive opening to the world was one such case in 2012. Looking ahead, while the situation in China-Japan is likely to deteriorate, the dispute over the islands might also bring certain opportunities: China and Japan may agree to intensify their exchange to minimize the risk of conflict.
The comeback of Shinzo Abe in Japan may enable China and Japan to make a deal over the Diaoyu/Senkaku disputes, as Abe's conservative background gives him more leeway - just like what he did in 2007 over the Yasukuni Shrine debacle.
In China, the revelation of major scandals involving officials and the ensuing public outcry (mostly via the internet) could even force the new leadership to adopt new measures to increase the supervision of governments and officials, thus pushing forward institution-building. A bright wildcard could be the possibility of Russia and the US (and perhaps China) agreeing on a common post-Assad peacekeeping mission in Syria, or a common UNSC initiative to that effect.
An Israeli Prime Minister could take the lead in
a surprisingly vivid peace process. An Iranian overture could come from
either side of the Atlantic.
The deglobalisation of risk
Since risks are not global, world powers, most notably the US, are less likely to get engaged militarily. Knowing this, local actors may assume more responsibility for solving conflicts that affect them directly, rather than waiting for outsiders to step in.
In lieu of international solutions that could misinterpret the nuances of the situation or mistakenly institute a cookie-cutter approach to disparate problems, we could instead see local resolutions that are more handcrafted to the specific issues in play.
The re-election of Barack Obama as American president promises a certain amount of continuity in US foreign policy. This should be a stabilizing factor globally.
At the same time, new appointments in leading positions might help to bring movement to established problems, for example, by offering a diplomatic initiative for Iran or indeed North Korea (of course, there is always a risk that the reverse could prove true).
A global approach may no longer be taken for granted, but that need not lead to a losing situation. In fact, it opens new opportunities, from bilateral to regional agreements. Doha is dead; long live the king of trade. Obama may well offer a NAFTA-plus pact to Brazil. If Brazil declines (or even independent of developments on this front), Obama may focus on enlarging and expediting the Trans-Pacific Partnership, perhaps pushing harder for Japanese inclusion.
Such an agreement between countries comprising some 40% of global GDP would have far-reaching security and economic implications, particularly for North America and the Asia Pacific region. Progress on an Atlantic equivalent - which is being billed as an 'economic NATO' - may seem beyond the horizon. But the potential for surprisingly rapid progress could turn this pipedream into an explicit goal over the course of the year.
While some argue the North American energy boom could lead to a globalized gas market based on extensive LNG circulation, it is first and foremost based on a shale revolution that could lead to reduced global interdependencies.
Should it decide to exploit its own reserves, or
collaborate with regional partners such as Algeria, Europe could, for
example, reduce its dependence on its tough Russian supplier.
In the world of 'the new local,' where increasingly vulnerable political elites have their hands full with issues in their own neighborhoods, we won't see resolution on big-ticket items like climate change, revamped trade built on the tenets of globalization, or a broad approach to curbing nuclear proliferation.
Where leaders can diagnose this new reality, they can learn to adapt to it. In 'the new local,' finding more localized fixes to problems will prove the way forward.
Political elites cannot let the perfect be the
enemy of the good - partial solutions are still progress, and incremental
steps are still steps in the right direction.