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The Global Leadership Vacuum: An Interview with Ian Bremmer, President and Founder, Eurasia Group

Eurasia Group's Ian Bremmer / Stephen Voss
Posted: May 10, 2012 at 3:13 am   /   by   /   comments (0)

The SAIS Review’s Editor-in-Chief, Joshua Grundleger, and Senior Editor, Sean Creehan, recently sat down with Ian Bremmer, founder and president of Eurasia Group, a global political risk research and consulting firm. Dr. Bremmer discussed the outlook for 2012 and the hidden risks that face the international system.

Eurasia Group’s Ian Bremmer / Stephen Voss

Dr. Bremmer created Wall Street’s first global political risk index and has authored several books including the national bestseller, The End of the Free Market: Who Wins the War Between States and Corporations?, which details the new global phenomenon of state capitalism and its geopolitical implications. He Bremmer also wrote The J Curve: A New Way to Understand Why Nations Rise and Fall and The Fat Tail: The Power of Political Knowledge for Strategic Investing. Dr. Bremmer is a contributor for the Financial Times A-List and Reuters.com and writes “The Call” blog on ForeignPolicy.comHe is also a panelist for CNN International’s “Connect the World” and appears frequently in the media as a political risk expert. Dr. Bremmer has a PhD in political science from Stanford University (1994), and he presently teaches at Columbia University. His analysis focuses on global macro-political trends and emerging markets, which he defines as “those countries where politics matter at least as much as economics for market outcomes.”

The full text, which was published in Winter-Spring 2012, Volume XXXII, No. 2, Hidden Risks: Challenges for the International System, is reproduced in full below.

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SAIS ReviewAre there certain risks or threats that are underemphasized or not discussed enough that could have significant ramifications this year or in the next five to ten years?

Ian Bremmer: For me, the biggest structural risk is the lack of global governance. It’s not about North Korea, it’s not about Iran, it’s not about the euro zone, it’s not about China—it’s much more macro than that. It’s about the notion that we’ve had a global environment for the last half-century plus, that was basically driven by the United States, with American values. We may or may not all like those values, or those priorities, or that power, or those institutions, but they existed, and the rules of the road were very clear. It is very clear that can’t persist, but what will replace it is not here yet. That period of transition is going to be very volatile. In fact, there are very few people around who’ve ever lived through that kind of transition—World War II is the last time we had a period like that. It may be obvious to folks that are in policy on a daily basis, but, when I think of that, I say it’s a hidden risk because it’s not in the headlines. People aren’t thinking macro right now, they’re really thinking about all of this stuff that’s pressing and immediate and driving the headlines. The much more important issue is the rebalancing that will need to occur and the crises that will get larger in the absence of effective governance capacity to resolve them over the course of the coming years. This is something that is just starting, really, now. For the last several years, we’ve had the financial crisis; for the last ten years, we’ve had the 9/11 era; both of them are now coming to a close simultaneously. The financial crisis—we’re seeing our way through it—not with the most extraordinary, robust recovery, but we are. The 9/11 era with Iraq being done, with bin Laden being killed, with Afghanistan [deployment] ending—in a much less attractive way to the U.S., but still ending—now we say well, what’s next? Well, what’s next is that the old world order doesn’t function anymore, and we don’t have a roadmap, and that will affect everything out there. It will make investors more likely to stay on the sidelines and look for safety as opposed to return, cash, gold, and the rest. As countries, it will make us look more towards resilience and less towards growth. I think that’s a fundamental and systemic change in the way we think about the world.

SRIt seems you’re implying that, in some way, there’s a decline of American leadership that is creating this vacuum. Is that fair?

IB: Well, I’m not so sure that I would put it that way. I’m certainly not a declinist—because, in many ways, American power is still very robust—the American dollar is more important in the global economy than it was before the financial crisis. That doesn’t imply decline. But American capacity and willingness to provide global leadership certainly is much less than it was. Perhaps more importantly, no one else individually and no constellation of powers are prepared to step up and fill even a portion of that role, and so what we have is an absence of global leadership, and this is what I’ve been talking about: the G-zero. We don’t have a G-20, we have a G-zero. I do not believe that a G-zero means American decline. In fact, I would argue America is not necessarily a loser from the G-zero; that, as America plays less of a leadership role globally and no one else does, as you start looking more towards resilience in countries as opposed to “growth growth, growth.” China is not a very resilient country—China is a country that grows a lot, as are the emerging markets. They will be in worse shape in a G-zero world than they were in the last thirty years. The United States and Japan, for example, are more resilient. When Fukushima hits Japan, Japan gets through it. When Katrina hits the US, we do a pretty bad job, but it doesn’t have a great impact on American stability. Neither does the 2000 presidential election in the US, right? So resilience matters a lot and is likely to matter much more in this environment. Here’s a place where Nassim Taleb and I obviously agree a great deal. So I would argue that this contradicts notions of American decline.

SRCould you elaborate on your comment about China thriving with US global leadership over the last 30 years and how you see a lack of global leadership as a threat to continued Chinese growth?

IB: I think that China clearly benefits from the United States’ provision security, access to shipping lanes, and the transition such as it was in Iraq—I mean China is much more likely to get a lot of oil out of Iraq in the long term if US troops stay there than if they pull out, for example. China doesn’t have to do as much in Afghanistan or South Asia or worry about a proxy war if the US is doing it. They’re not going to. If Geithner played the role in the Euro-zone crisis that the Americans had played historically in the Peso crisis or the Ruble crises, or the Asian financial crisis, then China can worry a lot less about it. China wants a stable Europe, but China’s not prepared to stabilize Europe—there’s no Chinese Marshall Plan. When Sarkozy went to Beijing, China said “no,“ but the Americans aren’t going to stabilize Europe, so a G-zero world is more problematic for the Chinese, and the Chinese are less resilient than the United States. If the United States has a couple of years of recession, the structure of the American political system is not under stress. If the Chinese have a severe hard landing, their political system is under a great deal of stress. The ability of the Chinese to continue to grow—and they know this better than anyone else does—requires a fundamental restructuring of not only their economy, from state-driven to consumption-driven, but also of their political system to allow for that. That’s incredibly hard. In fact, it’s never been done with an economy remotely the size of China’s. To do that in an environment where the United States is not going to be providing public goods, but nobody else is, is much more challenging for China. So, this is absolutely an environment where governments that do not have significant resilience will come under greater stress. That is a problem because we are in a world where emerging markets are doing more of the growth in the global economy than the developed world is, but those emerging markets are, of course, fundamentally less stable. They are fundamentally less resilient—their political systems are just less consolidated. That’s true whether they are democracies or authoritarian states. This is not just about beating on dictatorships. Emerging markets just don’t have the same level of stability.

SR: So taking that description as given, what do you think the Chinese might do to fill this void in leadership? For example, last year China became Germany’s largest export market outside of Europe, and, as two large surplus economies, to what extent are they logical partners? Are there any other scenarios you see where China might step up to lead?

IB: So, I think in principle the China-Germany relationship is the most interesting relationship to watch in the coming years, for the reasons that you mentioned. They are both the world’s largest creditor economies, they have a very strong sense of the way that politics and economics should be run in their region, and they wish to put their own stamp on it, to the degree that is annoying to countries in their own peripheries. They both benefit very much from a strong Euro-zone—the Chinese, because, it allows them to hedge against the dollar and gives them more flexibility.

So, in principle, there should be a strategic play for the Chinese to make that says, “OK, Germany, we’re going to play in a big way, we’re going to be a real part of this bailout, and in return here’s all the stuff we want.” Then, suddenly, that’s the end of NATO. That could be the end of a lot. If that were to happen, that is the single thing that I think strategically would have the biggest negative impact on the dollar in the next five years.

But, I don’t think that’s going to happen, and I don’t think it’s going to happen for a few reasons. The first is because the Chinese are very, very insular. People criticize Americans for being insular. They say we’re evangelical, we want everyone to act the way we want them to act, we don’t travel much, we don’t have passports, we’re uneducated. And, compared to the Europeans, that’s true. But if you compare us to Russians, or the Chinese, you know, it’s not true. And the Chinese are focused overwhelmingly on China, as they probably should be, and they’re focused on Asia. Furthermore, China’s not a dictatorship of one person that runs the country like Russia with Putin. China is a consolidated authoritarian regime that runs by consensus. So if you want to move on currency, you do it slowly and very incrementally. If you want to change your investment policy, you do it slowly and incrementally, and you’re going to have to get everybody on board. Furthermore, there was a lot of egg-on-face after the Chinese made some strategic investments in the US following the financial crisis. So, I don’t see the Chinese getting behind a massive structural bailout that would align them in that way with the Germans. Barring that, what they will do is they will act like the sovereign wealth funds in Abu Dhabi. They will look to places like Greece and Italy, and they’ll look for the stressed assets, and they’ll bottom fish, and they’ll pick them off. There are also more banal reasons why the Chinese and the Germans won’t play as nicely together and they have to do with things like the rule of law and relative stages of development and how you feel about climate change and all of that kind of stuff. But again, the points are interesting, and, while the scenario—you asked me to play out a scenario—I think that my scenario is the most likely, I don’t think it’s inevitable. The consequences are so significant that, if we look out over the next five years, I think it’s worth keeping a close eye on.

SR: To go back to some of your discussion on resilience, with the United States, when you talk about this G-zero and a leadership vacuum, do you see this resilience putting the U.S. in a position where in five years or ten years it rebounds and takes over the leadership position that it’s given up?

IB: No.

SRWhy not? Does this go beyond the near-term economic slump and imply a broader systemic problem?

IB: I think that the US could be in a very good position in five or ten years. But I don’t think the US will ever have the leadership role that it has had historically, and I think that there are two reasons for that. One is that, if China does well, if it continues to grow the way that it has, then the US will, at the very minimum, have to share its influence and leadership with China. On the other hand, if the Chinese do not grow the way they have, and they experience a serious hard landing, the impact that will have on the United States economy will be sufficiently grave that it will have a major impact on how much the US is capable of doing globally. So, go either way on China, and that tells you that we’re not going to go back to a G-1. G-1 isn’t feasible. There are lots of other permutations. There are lots of other things that could happen, but we experienced a half-century of virtually unprecedented consolidation of the world’s dynamic growth economies. Yes, there was the Cold War going on during that period, but the countries within the Soviet bloc were virtually dead economic space, and the emerging markets were boomtown in the 1980s and 1990s, and then, of course, when the Soviet Union collapsed, you got even more of it. All of that happened within the governance of countries and institutions that shared the same basic values, with a private sector that was dominating. There are a lot of people who were hurt in that environment, it wasn’t good for everybody, but the point is, in terms of overall growth, that was a uniquely propitious period that would support it that’s not coming back.

SRSo do you see a return to a bipolar or multipolar international system?

IB: I think that’s an open question. Right now it’s increasingly a non-polar system, though the US is clearly the most important of the players. But what happens down the road is going to depend an awful lot on the US-China relationship. It is too early; I would argue that, right now, the US-China relationship is deteriorating. It needn’t continue to deteriorate. If the US can avoid protectionism, if we get lucky on things like cyber, if we can build some mutual trust—a North Korean crisis could be horrible for both sides but could bring them together, could create more military-to-military cooperation, for example.

As the Chinese become wealthier, there will be internal Chinese forces that will support rule of law and intellectual property protections for their own reasons, compared with other Chinese competitors. And that may well make the Chinese more interested in playing a role as a more active stakeholder in the global system, and that will require a compromise from the US—not just compromise from China. That could happen. But right now, we’re not on that path. We’re on the path of more confrontation with the Chinese, for many reasons, and, if that is true, then that will be the dominant theme. I mean, in 2012 right now if you’re sitting here, if you ask me what the big risks are, if you look at what our firm is paying attention to, you know we’re talking about the Euro-zone, we’re talking about the Middle East, we’re talking about North Korea, and all of these things; we’re not talking very much about China. We will. At some point over the next five years, China will become the single most important issue that everyone talks about. By the way, when that happens we will stop talking about emerging markets, because at that point we’ll be talking about the US and China. And then we’ll be talking about the orientation of other countries towards the US and China. That’s going to turn into a very, very different environment.

SRPicking up on an increasingly confrontational U.S.-China relationship where small countries orient their foreign policies around these two powers, another article in this issue addresses growing tension in the South China Sea. Is this a potential flashpoint?

IB: Well, it is not a small issue. I am someone who historically thought that Taiwan was finished as a contentious issue, and you can see that now the Chinese are taking a softer policy on Taiwan in the last year, even saying that the Democratic Progressive Party (DPP) is not such a big deal if it were to win the January 2012 elections. That didn’t happen, of course, but for the Chinese to say “not to worry” about the pro-independence elements of the DPP indicates that the Chinese leadership is quite secure on Taiwan. They won that, so they can be soft. It makes a lot of sense.

That’s not true in Vietnam, it’s not true in Indonesia, it’s not true in Japan, it’s not true around trade, or the Trans-Pacific Partnership (TPP) versus ASEAN+3 and +6, and that sort of stuff. There are lots of areas of US-China tension, and one of them is certainly the South China Sea and East China Sea, I mean, I would refer to both areas, but the way I think of the problems in Asia, it’s not that a whole bunch of countries are rushing towards the United States, it’s that a whole bunch of countries are being caught, for different reasons, between China and the United States. So, yeah, Indonesia is rushing towards the United States and asking the U.S. to make more commitments from a security perspective, but economically they’re becoming vastly more integrated with China. And they’re doing that intentionally, even if you say that they’re slowing down and they’re not being so fast on an FTA. Singapore! Think about the money Singapore is making right now on China. It’s extraordinary. And Vietnam even more so. After the 2008 financial crisis, the Vietnamese stimulus was all oriented toward building out the north of the country. Why? To take advantage of China. And they supposedly hate the Chinese, right? I mean culture is one thing but they’re making money.

So here’s the question: I’m not worried about a South China Sea blow-up in 2012. Certainly, there can be more provocations. But what I see is that the United States is making these security guarantees, what I see is this balancing behavior is unsustainable, because the United States is unlikely to want to continue to provide the kind of security guarantees for its allies in the region without getting significant—or what seem to be significant—economic benefits for doing so going forward. Perhaps more importantly, I think it is highly unlikely that the Chinese are going to be prepared to allow these countries to maintain these security ties with the United States and a political orientation towards the U.S. when the Chinese, by dint of their economic influence, will be able to sway the policies of these countries. So again, I think we understand intellectually that China, whatever we see now, is going to become much bigger. But it’s not linear. The risks that we’re paying attention to now, there’s so much on the periphery, they’re going to become completely dominant as Chinese growth, not only in economic heft but in political reality across Asia, starts bumping up directly against the U.S. Some countries will be able to continue to hedge, but many will not.

SRDo you see ASEAN making progress in terms of a common market? Can ASEAN maintain a cohesive balance against China on its own? Because, in the South China Sea, you tend to see China insisting on bilateral talks with all these parties.

IB: Which is smart. That’s what I would do.

SRSure. And that’s more of a political-military issue. But when you’re talking about economics—you don’t see much prospect for a more united ASEAN, is that fair?

IB: Against China? No. Again, I think the realities of Chinese growth, even in a place like Australia, are of overwhelming importance. I do believe there are a lot of things the US does well, creating a broader alignment—trade alignment—with the US that can be deeper would be a good idea. I broadly believe the establishment of a TPP is in the US interest; getting the Japanese involved, that is in the US interest. Can Obama push it? Can it go through Congress? Can the Japanese get it done? I see the TPP, if it works, as something that doesn’t need to be regional. You could bring in other countries; it could be multilateral. You could bring in Canada, you could bring in Mexico, you could bring in Brazil. There are other countries that can be part of it. That would be meaningful over time. Again, once China becomes truly big, those are the kinds of discussions you then have, and there will be a bunch of other countries that are inextricably tied to China. Obviously, it is not just a zero-sum game with economics, it rarely is. But there is more “zero-summedness” coming into Asian relations, even Asian economic relations. That is a challenge, and the ability of the Asians to resist the bipolar pole of the Chinese, in most cases, will be negligible. Some will be able to hedge well. Indonesia will hedge more effectively. Interestingly, I’d argue it isn’t just because they are far away and that they have their own consumer base, which is very important, but it is also because the Chinese don’t play the same role culturally in Indonesia as they do in other parts of the region. There are a lot of Chinese in Indonesia, but they are very insular, and a lot of them intermarry with Indonesians, and they think of themselves as Indonesians, whereas Chinese in the Philippines, and Thailand, and so forth, really do look back to mainland China, and that matters, too. So, I think it is very complicated.

SRWhat about the rise of India in the region? Does that change this dynamic in any way, especially growing conflicts between China and India?

IB: Not fast enough to. Everything changes over time and, ultimately, India-China is a problem because of changing demographics, and India becomes much more resource-intensive, and the security issues are a bigger deal. But if you talk to Indian officials right now, they will tell you they aren’t worried about Pakistan as much as China. If you talk to the Indian business community, they won’t tell you that. They’ll say they are making a ton of money in China, and I’m not talking the way the Japanese are making a lot, because the Japanese are worried about China. The business community is aligned with the government. Not true in India. In India, the Indian economy and the Chinese economy are very complementary. India is much cheaper, they don’t have the infrastructure, they’re not resource-intensive, they’ve got massive entrepreneurship, they’ve got more capable management skills, and the Chinese are actually starting to invest in manufacturing in India. For the next few years, that is the driver. There will be problems with anti-dumping, there will be problems with intellectual property, there will, of course, be border tensions, and and maybe tensions around Afghanistan as the U.S. pulls out in 2014. But, if you ask me what sways it, I would still say India-China is going to be a largely more complementary relationship over the next few years, which means the ability of the United States to play that card is going to have to be limited, and the U.S. should probably think about India and its strategy in India in a more nuanced way than they think about their strategy with Japan, Australia, or even Indonesia.

SRChanging focus a bit, let’s talk about policy formulation, the modeling and risk analysis side of these issues. To start, what do you think the policy approach should be for handling these low-probability but highly damaging threats, the so-called “black swans?”

IB: It should not be the precautionary principle, the notion that you have to engage in the Cheney “one percent doctrine.” You couldn’t afford it even when you thought you could afford it. You certainly can’t afford it now. We are really bad at putting prices on risks. Increasingly, you need to have folks that are doing foreign policy that know how to price risks, so they understand what is tolerable. In foreign policy, you get a lot of maximalist thinking, and I’m not just talking about Cheney’s precautionary principle. I’m talking about people just saying these things are intolerable. “It’s intolerable for the Iranians to have a nuclear weapon.” No, it’s not. We tolerated North Korea having a nuclear weapon, a bunch of them, Pakistan, too. It is a question of how tolerable is it. We automatically switch to this sort of thinking in diplomatic speak; we automatically revert to the black and the white, the good and the bad. When you are in the Treasury Department or thinking in the marketplace, it is all a question of risk-return. The United States is going to have to start thinking more in terms of risk-return in foreign policy, especially when you deal with fat-tail events, because what we are seeing, whether we are talking about defense dollars, you need to do more with less, or healthcare and what you are going to put money into because you are going to be constrained. You are not going to be able to provide every procedure for every person. What is the risk-return on that money? There will be bad outcomes, but there are always bad outcomes. There are bad outcomes of every policy, but they have measurable costs, and you need to play them out. The analysis is not always going to be perfect or right, but ballpark it. You may not know the likelihood of Iran developing a nuclear weapon over the next two years is 50 percent or 20 percent, but you get a broad sense. You have to figure out what are the costs to you, what does it mean. I’m not saying you have to make all of your decisions based on a formula; in fact, you should make none of your decisions based on a formula. You should make all of your decisions based on the most comprehensive set of interests that you can take in mind that you can, as you always have. The explicit cost-benefit analysis, with real numbers attached to the cost, must inform the decision. I fear that when we talk about homeland security and insuring, it isn’t informing our decision. That’s what we have to do when it comes to dealing with fat tails.

SRAre there certain systems of government that are better at doing that?

IB: Yes, small ones. Small ones that have consensus and coherence. They can be democracies, they can be authoritarian states, but they don’t have huge levels of bureaucracy, they don’t have entrenched interests, whether they are state interests or private sector interests, which they have to feed, so the politics doesn’t have to dominate the process, so you can get to rigorous analytical thinking. Singaporeans are good at this. Why? They’re small, there are threats all around, they are very cohesive internally. Canadians are better at this than we are. Small authoritarian state, small homogenous democracies, doesn’t matter. Those are the kinds of countries that tend to be good at this.

SRHow does the US, given its size and divisiveness, especially in the past few years, do?

IB: We’ll be less efficient at it than many. But there are still certain things we do that are incredibly successful. We’ve got a lot of immigration, we have a vibrant and heterogeneous culture, lots of things happen here. There is a lot of creative destruction in the United States, which is very promising. The technology sector is more exciting in the US than anywhere in the world. I was on Fareed Zakaria’s program a few weeks ago, and I ended by saying, when he asked me this type of question, “Steve Jobs is dead—long live Steve Jobs.” That’s the way I think about it, because Steve Jobs will come again, but, in the United States, because that is where they are coming. They are not just being born here; they are coming from other places, too. 50 percent of Chinese millionaires polled said they would rather live in the United States—quality of life matters. You do the things you can do well—the things you can’t do, you can’t do. You can ask if we are going to be good at this—no, we won’t be good at this, but we’ll be good at other stuff. A lot of stuff we are good at we need to focus on. I think the real problem, and this is happening right now, in the last 48 hours, we’ve seen everybody talking about “vulture capitalism.” I do not have a problem with Mitt Romney as a vulture capitalist; let me make that very clear. I have a problem with corporations capturing government in the United States. I have a problem with super PACs that are funded by corporations, and we have no idea who they are, that are having enormous impact on the political options. I have a problem with CEOs that have no interest in competition and want monopolies and want to ensure that regulations are written that allow them to maximize the money they can make, irrespective of anything else in the sector or the good of the United States. I think that is a horrible thing. I think it undermines the free market. I think it is something that Democrats and Republicans should be going after, but they’re not because they are part of the problem.

The United States has so many things it does better than any other country in the world, and yet the system has become so subsumed in certain sectors by corporate interests that are not interested in a free market economy. You look at the oil drilling sector with what happened with BP, and you look at what happened with derivatives in the financial sector, and you look at the automotive sector and what happened with labor regulations and dealing with gas standards and taxes and all these things. This stops America from being great. That is the conversation that Gingrich should be having, but he won’t do it. That is where he should be. There aren’t any meaningful politicians that are running right now that are prepared to really have that debate, and the media isn’t having the debate, either.

SRGiven the partisanship and populism in the U.S. system, and going back to what you were saying before about using more complicated risk analyses to formulate decisions, how does this work politically in our system, especially when short sound bites are informing politics and what politicians are moving on, how do you implement smarter methods of political risk analysis and probabilities that most people just don’t comprehend?

IB: Well, first, you do it in boring areas of policy that aren’t politicized. Do it in foreign policy, do it in aid distribution. The US is a very big place—only certain issues get focus. Most of them get done by huge bureaucracies. Look at homeland security implementation. Some of it got hugely politicized, but now it is in place and it is this big beast—what are we spending our money on, and how is it hurting? These studies need to be done by people who are competent to be doing them. We need to have the economists in there and the political risks analysts in there, and they need to understand what this stuff is actually costing us, not just in terms of the dollars we are spending, but what is it costing us in terms of the risk we are mitigating—how big are those risks? The point is that, since 9/11, you’ve had politicians go, “we can’t have one terrorist attack on my watch.” But when you are talking about an environment when you are going to be making hard choices no matter what, you are going to make people increase their retirement age, you are going to deal with higher structural unemployment, you are going to have different sorts of conversations. That allows you to have more difficult internal conversations about what sorts of things you are and aren’t going to fund, what kinds of bad outcomes you are prepared to tolerate. We haven’t had a U.S. air carrier go down with civilian deaths in several years, but the number of people who die in automotive accidents has always been vastly greater, percentage-wise, than what you see from an airplane. Are we spending our money correctly there? Are we incentivizing and taxing properly there? Those are the things we need to understand. I’m a firm believer in this sort of analysis. Take Rudy Giuliani, a very controversial figure in New York, but one thing he did very well was understand how to get the most out of policing, and he did it on the basis of metrics—he got data. There are too many people out there making political decisions absent data. Data are there. We are a political risk analysis firm. We are not a political risk forecasting firm. We don’t actually really forecast political risk. What we do is look at a field that is generally underserviced. You’ve got all these people in the market that look at economics—we look at politics.

SRThere are obviously troves of data out there, but I see two problems. One is choosing which data; the other is choosing which model to crunch the data. Obviously, models rely on simplifications and cut out some stuff and include other stuff. How does one build the most robust model that really accounts for it? Sometimes, reliance is put on these models without a critical eye being put on them, which can lead policymakers down the wrong path, or reliance in such ways that policymakers have tunnel vision and don’t see this. How do we keep it dynamic enough to have flexible models or use new models to inform our policy decisions?

IB: Simple is better. Transparent, easily understandable, not many variables/inputs, and data that can be clearly scrutinized by everyone. The more complicated a model is, yes, maybe you can get incremental improvements. I’m a very firm believer of the 80-20 rule: you get 80 percent of your value from the first 20 percent you put into the model. Go for the 80 percent. We are getting virtually zero of it right now. Whatever the problem is, do that. But if you make it as transparent as possible and if you include as many people in the process once you figure that out, common sense will get you very far. The model is not driving the outcome. What you need is basic data. You want to understand how to police New York? Let’s start with a very simple computer plot that shows where crimes are being committed over time. We can all agree on that. Let’s look at it together, and then we can, all together in a wiki-format spitball, decide what we think should happen. But you must keep it as transparent as possible, as flat as possible, as inclusive as possible, within bureaucrats, among technocrats, not among politicians, among people that are aligned in the same way—they have to be aligned. All this has to happen not in Congress, all this has to happen in the professional bureaucracy, and you can’t be fighting about the basic data. If the data suck for certain reasons, say the data suck for certain reasons. It’s the same when you look at political stability. You can do incredibly complex models of political stability—we know certain countries are more stable than other countries. You don’t need thousands of variables. You should come up with the easiest possible model to explain why it is Tunisia isn’t as stable as Saudi Arabia. I think everyone can understand they [Saudi Arabia] have a lot more money. If it is controversial, keep it out of the model. If the model loses some accuracy, it is OK, common sense will give you that accuracy.

SRThis issue is all about hidden risks and hidden threats. What are your views on some under-appreciated potential upside in the near-term, things that people aren’t as optimistic about as they should be, or sectors or political developments that are positive?

IB: Risks are two sides of the same coin: we look at risk and reward. For every risk, there is a buyer. One of the biggest upsides is that, with transparency, there will be more willingness to take risks given reward. We are moving into a world where there is a lot more information and transparency; there is more capacity for individuals to know what is going on around the world. Right now, Americans are very under-invested globally. That will change as Americans learn more about the rest of the world. That is generally a very positive thing. I think Africa, I’m sure lots of people do, has extraordinary upsides. It is not just about commodities now. I know the demographics look bad now, but as you move towards urbanization, as you educate women, those numbers come down. We’ve seen it in other parts of the world, we’ll see it in Africa, and governance will improve—that’s exciting, because we are talking about a billion people. Then, ultimately, I think an upside is in the United States because of its resilience. Things get bad, but the U.S. is actually in a good position. It’s good that the country that has the most capacity to do something positive in the world is the one that is the most resilient in this environment. Were that not true, we’d have much bigger problems. The world is entering into a much more difficult environment, but the tools at least are better than they could otherwise be.

Written by Josh Grundleger and Sean Creehan

Josh Grundleger is currently the Editor-in-Chief of the SAIS Review of International Affairs. He is a second year graduate student at Johns Hopkins University School of Advanced International Studies (SAIS) where he is studying American Foreign Policy, Global Theory and History, and International Economics. He is also an author on FutureChallenges.org.

Sean Creehan is the Senior Editor of the SAIS Review. He will graduate from Johns Hopkins University, SAIS in May 2012 with a concentration in Southeast Asian Studies and International Economics.

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