Brookings: Topics - Global Change

The Arab Spring Ain't Over

H.A. Hellyer — Mon, 01 Apr 2013 00:00:00 -0400

"...Stimulate that process of reawakening..."

(From the "About" section of the Arab webzine, TahrirSquared.com.)

"Despair is Treason"

(A slogan of the independent news outlet, the Egypt Independent.)

It has been two years since the start of the Arab uprisings. When they began, there was a lot of hope in this part of the world - the promise of a new dawn for the Arabs. There has been much disappointment thus far, and many within and without the region wonder: Is this the future? Or can that promise of that original spirit, which was launched in those powerful places of Tahrir Square and elsewhere, be realized? Is there still the potential of an "Arab promise" for a better future?

In the last few years, there has been much to be disappointed about. The media, and more broadly freedom of speech, have seen better days. Quality has not exactly increased, and in some countries, it has become more polarized. Censorship, by different means, still exists, and this was evident in a recent banning of a film called, Jews of Egypt. How can free societies emerge without less control on free speech? We have seen the rising to prominence of radical religious voices that are extreme, if not violent.

The radical voices are loud and have been pushing people forward in Syria, Egypt, Libya and Tunisia. Sectarianism between different religious groups shows up in the most unexpected places. Pro-revolutionary activists like Alaa Abdel-Fattah and Mona Seif in Egypt have, along with others, been summoned for investigation by the Egyptian prosecutor general in a move that is being interpreted by opposition figures as the Muslim Brotherhood government clamping down on dissent.

Yet, in the midst of all of these challenges, there are great signs to be optimistic about the future. The reality of the uprisings and revolutions is that they may have begun two years ago, but they are grappling with decades of trauma and turmoil. None of this should have been assumed to be easy, but the real success story is where in spite of these challenges, very powerful moves are taking place.

Read the full article »

Authors

H.A. Hellyer

Publication: The Atlantic

Prepare for the Unknowns: India's Black Swans

Tanvi Madan — Fri, 08 Mar 2013 00:00:00 -0500

Imagine the breaking news headline: Revolution in Riyadh. The scenario: The House of Saud, which has ruled Saudi Arabia for years, has been overthrown. Closer to home, think about what China going off the rails would look like-and portend for India. These are just two of the "Black Swans" that foreign policy scholars at the Brookings Institution recently identified as deserving the attention of the U.S. government, along with a series of Big Bets that the administration should make in President Obama's second term. These black swans are low-probability, high-impact events that can have a dramatic impact on the plans and policies of a country. The idea behind this project was to identify potential events, suggest ways to prevent them if possible and prepare for them if they occur. With American involvement in a number of countries in the world, it might seem natural to undertake such exercises in the United States. It is essential, however, that such thinking take place in India -- whose global interests and involvement are growing -- as well.

Just a glance at the black swans that Brookings scholars envisioned indicates how each of them could affect India's interests. The collapse of the Saudi monarchy would bring instability in a country that is India's largest oil supplier and critical to its economy. It is also the location of two of Islam's holiest sites. The spillover into other countries in the region that is not just the source of most of the crude oil and natural gas that India imports but is home to a large number of Indians, will also have major ramifications. A Eurozone collapse would have a significant impact on the Indian economy. A China-U.S. confrontation or especially a direct military conflict between them over Korea -- though seemingly distant from India's area of operations and interest -- would change the geopolitical context in which India is operating. A confrontational Chinese leadership, driven by popular nationalism and desire for regime survival into war, could have serious consequences for India. Domestic revolution in China could also affect not just India's geopolitical interests but its economic ones as well; it could also lead to significant changes in the Tibet dynamic. Finally, a dramatic rise in sea levels could devastate India's coastal areas where about a fifth of its population resides.

One could dismiss these scenarios as far-fetched, but ignoring such possibilities entirely can be risky. India itself has felt the brunt of black swans -- for instance, the Dalai Lama's escape to India in 1959 or the black swan triple whammy in 1990-91 with the Iraqi invasion of Kuwait, the Gulf War and the collapse of the Soviet Union. India has also benefited from some black swans -- for example, from two crucial ones that Nassim Nicholas Taleb, who generated the black swan theory, laid out in his book The Black Swan: the development and spread of the computer and the Internet.

India could face black swans again: A serious and sudden deterioration of the situation in Tibet. A climate change-caused catastrophe in Bangladesh with thousands, if not hundreds of thousands, of people trying to cross over into India. A major cyber attack with uncertain origins. A disintegration in Pakistan with the "loose nuke" problem becoming real. A collapse in the price of gold. A U.S.-Iranian rapprochement -- a black swan that could throw up challenges or opportunities for India.

Black swans are not always negative and do not necessarily have a negative impact. As my Brookings colleague Govinda Avasarala notes, a major breakthrough in grid-level battery storage developed in India that could make solar and other intermittent forms of energy instantly economic could be one such "positive" black swan. This development would not only change India's energy picture, it would change the debate on and the available solutions to the climate change challenge. It would also put India at the forefront of the next big technology revolution.

It is important to think about such black swans, consider ways of preventing them if they are negative ones and facilitating them if they are positive, and lay out ways of coping with them. Government agencies can do some of this thinking. Indeed, recently, at a talk organised by RAW, former president Abdul Kalam highlighted the need for the country's intelligence apparatus to be prepared for black swans. Policy planning staffs can also undertake such exercises. Government agencies, however, are often burdened or overburdened with day-to-day priorities, with little time, inclination or resources to undertake such thinking. Therefore it is outside government -- in think tanks, universities and the corporate sector -- that such thinking about black swans, as well as forecasting, scenario planning and war gaming can and must take place. Such exercises do not necessarily require classified information. They do require time, resources, expertise and, most importantly, imagination.

Authors

Tanvi Madan

Publication: India Today

Image Source: © Rafiquar Rahman / Reuters

U.S.-China Study Group on G-20 Reform

Thu, 07 Mar 2013 14:34:00 -0500

The China Institutes of Contemporary International Relations, the Center for American Progress, and the Stanley Foundation formed a study group in late 2011 to evaluate the role of the G-20 in the U.S.-China bilateral relationship and the influence of the relationship on the G-20 and to propose recommendations that could improve the efficacy of this important body. The Chinese and American experts listed below held two conferences over the course of 2012, in Santa Monica, in February and in Beijing in October. At the end of these meetings, participants in the group agreed to 20 recommendations.

Read the U.S.-China Study Group's recommendations » (PDF)

Participants in the G-20 Study Group

Tim Adams, Managing Director, The Lindsey Group and former Sherpa and Undersecretary of the Treasury under President George W. Bush

Sabina Dewan, Director of Globalization and International Development, Center for American Progress

DU Yanjun, Director of the Department of International Exchanges, China Institutes of Contemporary International Relations (CICIR)

Elizabeth Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations

Matthew Goodman, Simon Chair in Political Economy, Center for Strategic and International Studies and former Director for International Economics in the Obama White House

Nina Hachigian, Senior Fellow, Center for American Progress

Adam Hersh, Economist, Center for American Progress

HUANG Ying, Associate Professor, the CICIR Institute of World Economic Studies

Bruce Jones, Senior Fellow and Director of the Managing Global Order (MGO) project at the Brookings Institution and Director of the Center on International Cooperation at New York University

LI Zheng, Assistant Professor, the CICIR Institute of American Studies

LIN Hongyu, Director of the Department of International Politics at the China University of International Relations

LIU Bo, Deputy Director of the Department of International Exchanges, CICIR

Stewart Patrick, Senior Fellow and Director, International Institutions and Global Governance Program, Council on Foreign Relations

Keith Porter, Director of Policy and Outreach, the Stanley Foundation

QIAN Liwei, Associate Professor, the CICIR Institute of American Studies

David Shorr, Program Officer, the Stanley Foundation

Randy Schriver, Armitage International

WANG Wenfeng, Deputy Director of the CICIR Institute of American Studies

YUAN Peng, Assistant President, CICIR and Director of the CICIR Institute of American Studies

ZHAI Kun, Director of the CICIR Institute of World Political Studies

ZHANG Wenzong, Assistant Professor, the CICIR Institute of American Studies

ZHU Feng, Deputy Director, Center for International & Strategic Studies, Peking University

ZHU Liqun, Vice President, China Foreign Affairs University

Publication: Center for American Progress, China Institutes of Contemporary International Relations and The Stanley Foundation

Image Source: © Kevin Lamarque / Reuters

Time to Call a Truce in the Currency Wars

Michael W. Klein — Fri, 01 Mar 2013 00:00:00 -0500

Yes, the yen has weakened and the pound has gotten pounded, but worries about an all-out currency war may be overblown.

There's a perception that some countries' economies are being harmed by currency movements that have been undertaken to gain an unfair advantage.

That may be a bit misguided.

In the United States, the threat of a fiscal contraction due to sequestration has prompted the Federal Reserve to take actions that could weaken the dollar.

Signals suggest that the new head of the central bank in Japan will pursue a more expansionary policy in an effort to stimulate that country's long-moribund economy.

These actions are taken for purely domestic reasons, but they could have consequences for currencies.

In anticipation of frictions that could arise, there was an agreement by the G-20 nations at the recent Moscow summit to refrain from so-called competitive devaluations.

But, since then, governments such as South Korea and New Zealand have signaled a desire to pursue explicit policies to weaken currencies, or even to impose capital controls.

Read the rest of the opinion at cnn.com »

Authors

Michael W. Klein

Publication: CNN

Image Source: © Toru Hanai / Reuters

The European-American Dream

Javier Solana — Tue, 26 Feb 2013 13:26:00 -0500

Today, three European countries are among the world’s seven largest economies. Ten years from now, only two will remain. By 2030, only Germany will still be on the list, and by 2050, none will remain. Indeed, by then, the United States will be the only representative of the West in the top seven.

What this means is that the European states are too small to compete separately in the world of the twenty-first century. It’s as simple as that. By 2030, according to the World Bank, there will be two billion more people, mainly Asians, in the middle class. The pressure on the planet’s resources, commodities, water, and food will be huge, making a global rebalancing practically inevitable. And in a world marked by interdependence and constant change, Europe will find that unity is strength.

Indeed, unless Europeans work toward integration, they may find themselves surpassed by emerging countries in terms of technological development, job creation, production costs, talent, and creativity.

The European Union is still the place where economic and social institutions assure a better quality of life. In this sense, the demand for a European voice in the world is clear – Brazil’s former president, Luiz Inácio Lula da Silva, spoke of the EU as a “singular international heritage” – because it guarantees the values that represent humanity at its best.

Read the full article »

Authors

Javier Solana

Publication: Project Syndicate

Neocons Versus Realists Is So 2008

Thomas Wright — Mon, 11 Feb 2013 00:00:00 -0500

President Obama may not say so explicitly in his State of the Union address, but his administration's foreign policy is poised to shift significantly in his second term. The shift is the result of an ongoing debate between two camps that I call "restrainers" and "shapers." Restrainers and shapers sharply disagree about the threats to the United States and this leads to very different views about how to engage the world -- and it may well lead to a division within the Democratic Party.

Restrainers see a crumbling infrastructure, the budget deficit, a subpar education system, and a sluggish economy as much more threatening than events elsewhere in the world. Democrats of this stripe call for "nation-building at home," to use President Obama's phrase, and want to prioritize these tasks at the expense of international commitments, which they see as a drain or a distraction. Republicans have their restrainers too. They eschew the notion of an activist government but also want to concentrate on the domestic tasks of reducing the deficit and restoring growth.

The shapers have a starkly different view. They agree that domestic challenges are important -- and should be the subject of a strong domestic policy agenda -- but they don't believe international difficulties are on the wane. The U.S. economy is in a slump largely because of a crisis prone international economic order. A new foreign economic policy that advances new free trade agreements and a more stable international structure is crucial but thus far lacking. On security, the United States is a global power and detrimental developments in the Middle East, East Asia, or Europe will severely damage U.S. interests. For instance, war between China and Japan would likely spark a new economic crisis and create the conditions for decades of instability in a crucial region. Any notion that the United States can take a sabbatical to tend to the home front is mistaken, the shapers argue.

Read the full article »

Authors

Thomas Wright

Publication: Foreign Policy

Image Source: © Kevin Lamarque / Reuters

John Kerry as Secretary of State

Tamara Cofman Wittes — Wed, 06 Feb 2013 00:00:00 -0500

Editor's note: In an interview with BBC Newshour, Tamara Cofman Wittes discusses John Kerry's role as the next secretary of state. Read an excerpt below or listen to the full audio.

BBC: So what is your take on the Kerry years that we’re going to see now? How do you think he will compare to Hillary Clinton?

Tamara Cofman Wittes: You know the personal style might be quite different, but I think this is someone with a long experience in foreign affairs, indeed a life time’s experience if you consider that he’s the son of a Foreign Service officer. But also, somebody with his own longstanding relationships with a lot of global leaders through his time on the Senate Foreign Relations Committee and I think because of that work, a keen appreciation of American interest’s, of our alliances abroad, and also of the limits and the changing nature of American power.

BBC: Everything you’ve just said suggests a period of management rather than change.

Wittes: Look, there are inevitably going to be crisis that flair, that demand intense focus. But I think the mood of the American public is one of management not of taking on ambitious new projects abroad. And I think that’s a mood that the White House is sensitive to as well as the new Secretary of State.

BBC: Righter, I could see that, that people don’t want any more foreign interventions. But maybe they would like a United States to be more assertive in the Middle-East, peace and that sort of thing, and would you expect him to deliver much of that?

Wittes: It’s interesting to me that we’ve already got information coming out about a Presidential trip to the Middle-East. I wouldn’t expect too much, by way of the Middle-East peace initiative out of that trip, but I think it’s an interesting choice given the administration’s clear desire to focus it’s energy abroad in places like East Asia where there is perhaps more of an economic gain for the United States to be found.

BBC: I saw an article you wrote the other day, saying that really women are now at the heart of the foreign policy establishment. Even if Hillary Clinton is gone, even if Condoleeza Rice is gone, that there are a lot of women in senior positions now, that is the case.

Wittes: Absolutely. We’ve seen a number of women taking senior portfolios, whether it’s Secretary Clinton, or Michèle Flournoy in the Defense Department, or others indeed scattered across the foreign policy agencies of the Executive Branch. But more than that I think we’ve seen a generation of women who have come into this field and really made a name for themselves so that it’s no longer the case that when you’re looking for a female face in the room you have to search. There’s really a plethora of female faces and female experts available to draw on.

Audio

John Kerry as Secretary of State

Authors

Tamara Cofman Wittes

Publication: BBC Newshour

Image Source: © Jason Reed / Reuters

Can Kerry Fill Clinton’s Shoes?

Tamara Cofman Wittes — Mon, 04 Feb 2013 00:00:00 -0500

When I was in college studying politics, a senior male professor was my valued mentor. One piece of his advice, way back then, always stuck in my craw: Even if I wasn't interested in professional sports, he urged, I should learn a bit about it and read the sports page in the paper every day. Why? So that I would be able to join in the male chit-chat before the big meetings started.

I took his advice, for a while, and found that he was right: The big boys always did seem to talk about the football game before the meeting, and knowing something about sports gave me a way to join in. But it always felt forced, and a little risky, too -- after all, what if I said something ignorant? But though it was uncomfortable, it was what I had to do to make a place for myself in what was still, in the early 1990s, mostly a man's world.

As a younger scholar, I attended my share of meetings and conferences where I was the only woman in a room full of male experts. Although I saw more younger women entering graduate school, hoping to work in foreign policy and international affairs, not all of them made it out the other end of the pipeline. Too many female students and junior faculty I met were agonizing about whether they could afford to take time out for maternity leave before they got tenured. One older professor told me, when he learned I was pregnant, "A dissertation is a baby, too, you know." If that were true, then I produced three babies in three years (two delightful humans, one that "lives" on a shelf) -- while getting and holding a full-time job at a think tank.

Read the full article »

Authors

Tamara Cofman Wittes

Publication: Foreign Policy

Image Source: © Gary Cameron / Reuters

With Prince Muqrin’s Appointment, Saudi Succession Crisis Looms

Bruce Riedel — Sun, 03 Feb 2013 00:00:00 -0500

Generational change has been postponed again in Saudi Arabia, and the kingdom’s succession process is now clear for the foreseeable future. With King Abdullah’s appointment this week of his half-brother Prince Muqrin bin Abdulaziz to the position of second deputy prime minister behind Crown Prince Salman, the inner circle of princes that has run the kingdom for half a century will retain power.

Prince Muqrin, along with King Abdullah and Crown Prince Salman, are all the first-generation offspring of the current kingdom’s founder, King Abdul Aziz. This generation has been in power for nearly 60 years, and the Arab spring isn’t stopping the House of Saud from sticking with its veteran lineup.

The new second deputy prime minister, the slot from which future kings move up in the kingdom, was born Sept. 15, 1945. Educated at the Royal Air Force College in Cranwell, England, Prince Muqrin became a pilot in the Saudi Air Force and then, like many of the royals, he was given a remote province to govern as a young man. In 1999 he was promoted to be governor of Medina province, home of the kingdom’s second holy city. Eight years ago, Abdallah made him head of Saudi intelligence, a job he held until last year, when he was replaced by the former ambassador to Washington, Prince Bandar bin Sultan. Muqrin is an affable and competent leader, but he did not excel as spy chief.

Muqrin has always been one of Abdullah’s favorites and often accompanies the king when he travels for business or for health reasons. Both the king and crown prince are in poor health, with the king making repeated trips to hospitals in the United States in recent years. Salman has been reported to be increasingly ill as well and often not up to the job.

The current Saudi Kingdom is the third state created by the House of Saud. Two earlier kingdoms dating back to 1745 collapsed due to outside pressure and internal divisions created by succession quarrels. All three have been based on a unique partnership between the Saudi royal family and a conservative clerical establishment begun by Muhammad ibn Abd al Wahhab, one of the most important Islamic figures since the earliest days of the faith. The Saud-Wahhab alliance remains crucial to the kingdom’s stability today. Since the kingdom is also home to Islam’s two holiest cities, that partnership has global implications.

Simmering just below the surface is a country perhaps increasingly ripe for revolution. Sixty percent of Saudis are 20 or younger, and most have no hope of a fulfilling job. Seventy percent of Saudis cannot afford to own a home; 40 percent live below the poverty line. The royals, 25,000 princes and princesses, own most of the valuable land and benefit from a system that gives each a stipend and some a fortune. Foreign labor makes the kingdom work; 19 million Saudi citizens share the Kingdom with 8.5 million guest workers. Since the start of the Arab spring, the king has spent $130 billion in new stipends and projects to try to buy off dissent.

Other fault lines are getting deeper and more explosive. Hejazis in the west and Shia in the east resent the strict Wahhabi lifestyle in the Nejd central desert. Gender discrimination, essential to the Wahhabi worldview, is a growing problem, as more and more women become well educated with no prospect of a job. Sixty percent of Saudi college graduates are women, but they are only 12 percent of the workforce. Abdullah recently tried to appease them with appointments to the powerless consultative council, only to provoke outrage from the Wahhabi establishment.

For decades, the kingdom has been blessed with good leadership, and King Abdullah is a progressive by Saudi standards. Muqrin is a good choice for now. But sooner rather than later the third Saudi state will face an unprecedented succession challenge. Since the death of ibn Saud in 1953, succession has moved only among his sons. Now they are all old, ill, and few in number. The kingdom will have to pick a grandson of ibn Saud, and there is no agreed formula for how to do so other than the last of the current line will choose from his own sons. The House of Saud will enter a new world then, without the legitimacy its leaders have enjoyed for a century. History is not encouraging. The second Saudi state fell apart over succession problems in the late 19th century.

Authors

Bruce Riedel

Publication: The Daily Beast

Image Source: © Ali Jarekji / Reuters

State and the Stateswoman: How Hillary Clinton Reshaped U.S. Foreign Policy — But Not the World

Michael E. O'Hanlon — Tue, 29 Jan 2013 00:00:00 -0500

As Secretary of State Hillary Clinton prepares to hand the reins of foreign policy over to Senator John Kerry, her legacy is a matter of hot debate. To be sure, with much of the Middle East in turmoil and U.S. relations with Russia and China shifting, broad assessments of her tenure, no matter how heated, are only provisional. Even so, some of the most important and enduring elements of the Clinton years—steadiness and pragmatism coupled with a reinvigoration of ties with Europe and the so-called rebalancing with Asia—are clear.

For style and for collegiality, Clinton gets high marks. She understood that she was a part of President Barack Obama's team, not a co-president, as some might have once worried she would try to be coming out of the bruising 2008 election season. When Obama had strong views, she did not publicly dissent or allow any distance to open between her position and that of her boss. She understood that secretaries of state carry out the foreign policy determined by the president and that little good can come from public disagreements of the kind that plagued the Carter administration and the George W. Bush administration.

Clinton's work ethic as secretary of state was remarkable. She did not quite overtake Condoleezza Rice's record for miles traveled during her four-year stint as the nation's top diplomat -- Rice traversed a total of 1,006,846 miles, Clinton a mere 956,733 -- but most everyone around her was continually impressed by her preparedness. Hard work is no unusual distinction for secretaries of state, and is, in itself, no great virtue. But in Clinton's case, diligence paid off. Gaffes were rare, and she never embarrassed allies with a failure to understand the constraints binding them; there were few public trip-ups of the kind that haunted the Reagan administration's early efforts on missile defense, the Clinton administration's dealings with allies over Bosnia, or the George W. Bush administration's handling of the war in Iraq. Moreover, Clinton did not have to backtrack on positions she recognized too late as unpromising, unwise, or simply incorrect; for example, there was none of the on-again, off-again quality to negotiations with North Korea that there had been in several previous administrations.

Read the full article »

Authors

Michael E. O'Hanlon

Publication: Foreign Affairs

Image Source: © Gary Cameron / Reuters

Over the Horizon: What the U.S. Can Do to Prepare for Future Global Crises

Martin S. Indyk — Fri, 18 Jan 2013 00:00:00 -0500

Editor's note: This article was originally published by Foreign Policy magazine.

U.S. President Barack Obama begins his second term at a critical moment in world affairs -- al Qaeda raising its head in North Africa, President Bashar al-Assad possibly preparing to use chemical weapons in Syria, Iran moving toward the nuclear weapons threshold, and tensions rising in Asia. An unstable world promises to present the president with many challenges in the next four years, and his advisors are already grappling with how to confront them.

Some looming challenges -- like the America's debt or China's rise -- have been the focus of a good deal of attention. However, low-probability but high-impact "black-swan" events could also define Obama's second term, diverting the president from his intended foreign-policy agenda. These events would be so catastrophic that he needs to take steps now to minimize the risk that they might occur.

Here are some of the black swans that could upend the Obama administration's agenda over the next four years:

Confrontation over Korea

There is a serious risk of an acute U.S.-China confrontation over -- or even a direct military conflict on -- the Korean Peninsula. The North Korean regime is facing an existential internal crisis. Under such conditions, it is prone to lashing out at neighboring states or engaging in other forms of risky behavior. Although it seems strong, it is also dependent on China's support and vulnerable to quick-onset instability. If Washington and Beijing fail to coordinate and communicate before a collapse begins, we could face the possibility of a U.S.-China confrontation of almost unimaginable consequences.

The Obama administration has sought to sharpen Pyongyang's choices, pushing it to recognize that it can't have nuclear weapons and genuine national strength. To reduce the risks of a confrontation with China over the possibility of a North Korean collapse, the administration should pursue four objectives with Beijing. The countries should disclose information on the location, operation, and capabilities of each other's military forces that could soon intervene in North Korea; share intelligence on the known or suspected location of North Korea's weapons-of-mass-destruction assets; initiate planning for the evacuation of foreign citizens in South Korea; and discuss possible measures to avoid an acute humanitarian disaster among North Korean citizens seeking to flee.

Chaos in Kabul

As the 2014 transition to a radically diminished U.S. presence in Afghanistan approaches, the United States will leave behind a perilous security situation, a political system few Afghans see as legitimate, and a likely severe economic downturn. Obama has not yet specified how many U.S. troops will remain in Afghanistan after the transition, but he has made it very clear -- including during the recent visit by President Hamid Karzai -- that troop levels will be in the low thousands and that their functions will be restricted to very narrow counterterrorism and training missions. He also conditioned any continuing U.S. troop presence in Afghanistan on the signing of a status of forces agreement that grants immunity to U.S. soldiers, a condition that the Afghan government may find difficult to swallow.

Although a massive security deterioration, including the possibility of civil war, is far from inevitable, it is a real possibility. Such a meltdown would leave the administration with few policy options, severely compromising America's ability to protect its interests in the region.

A major security collapse in Afghanistan would, in all likelihood, initially resemble the early 1990s pattern of infighting between ethnic groups and local power brokers, rather than the late 1990s, when a Taliban line of control moved steadily north. The extent of violence and fragmentation would depend on whether the Afghan army and police force splintered.

Even then, the Afghan government may have enough strength to hold Kabul, major cities, and other parts of Afghanistan. The Taliban would easily control parts of the south and east, while fighting could break out elsewhere among members of a resurrected Northern Alliance or among Durrani Pashtun power brokers. But ethnic fighting could eventually explode even on the streets of Kabul, where Pashtuns harbor resentments about the post-2001 influx of Tajiks that changed land distribution in the capital. In the event of massive instability, a military coup is also a possibility, particularly if the 2014 presidential election is seen as illegitimate.

An unstable Afghanistan will be like an ulcer bleeding into Pakistan. It will further distract Pakistan's leaders from tackling their country's internal security, economic, energy, and social crises, and stemming the radicalization of Pakistani society. These trends, needless to say, will adversely affect U.S. interests.

Even though U.S. leverage in Afghanistan diminishes daily, decisions made in Washington still critically affect Afghanistan's future. The Obama administration can mitigate risks by withdrawing at a judicious pace -- one that doesn't put an unbearable strain on Afghanistan's security capacity. It should also continue to provide security assistance, define negotiations with the Taliban and Afghan government as a broader reconciliation process, and encourage good governance.

Camp David Collapse

Since the collapse of Hosni Mubarak's regime in Egypt, the United States has been resolutely focused on maintaining the Egypt-Israel peace treaty, which serves as a cornerstone of stability for the region, an anchor for U.S. influence in the Middle East, and a building block for efforts at Arab-Israeli coexistence. Happily, Egyptian President Mohamed Morsy has signaled his willingness to set aside the Muslim Brotherhood's ideological opposition and most Egyptians' hostility to Israel. Several factors, however, could still destabilize the situation, including terrorist attacks in Sinai or from Gaza, the collapse of the Palestinian Authority, and populist demands to break relations with Israel.

If Morsy were to ditch this peace treaty, it would represent a profound strategic defeat for the United States in the Middle East and could threaten a regional war. The United States should continue its policy of conditional engagement with Morsy's government and, in particular, deepen its security cooperation and coordination. It should also develop a new modus vivendi with Egyptian and Israeli partners through cooperation over common concerns in Sinai and Gaza that would advance the sustainability of the peace treaty.

Revolution in China

While China continues on its path of growth and seeming political confidence, a number of problems lie beneath the surface of its apparent success. A sense of political uncertainty -- as well as a fear of sociopolitical instability -- is on the rise. Many in the country worry about environmental degradation, health hazards, and all manner of public safety problems. These pitfalls could trigger any number of major crises: slowed economic growth, widespread social unrest, vicious political infighting among the elite, rampant official corruption, and heightened Chinese nationalism in the wake of territorial disputes. In this rapidly modernizing but still oligarchic one-party state, it is not hard to see how such a crisis could take the form of a domestic revolution or foreign war.

Either event would be very disruptive, severely impairing global economic development and regional security in the Asia-Pacific. A combination of the two would constitute one of the most complicated foreign-policy problems of the president's second term. A domestic revolution and a foreign war would certainly be the defining events of our time. The latter could potentially risk leading the United States into military conflict in Asia.

The best way to prepare for either likelihood is for the White House to achieve a delicate balancing act -- cultivating a deeper relationship with Xi Jinping and his new leadership team on the one hand, and reaching out directly to the Chinese people on the other. The United States should more explicitly articulate to leaders in Beijing and the Chinese public the long-standing goodwill that the United States has toward China and America's firm commitment to democracy, human rights, media freedom, and the rule of law.

The Big Thaw

Global warming is happening faster than predicted by scientists. Temperatures are rising, ice caps and glaciers are melting, and extreme weather is more frequent and intense than ever before in recent history. If these trends continue, the results will be monumental and far-reaching. But it could get even worse: If warming accelerates dramatically and if polar ice melts even faster -- particularly if the Greenland ice sheet or the West Antarctic ice sheet melts -- the results could be catastrophic.

Some scientists have suggested that the melting of polar ice has not previously proceeded in a smooth and linear process, but rather had "sensitive tipping points." Although unlikely, this raises the possibility of a black-swan nightmare in which rises in sea level coupled with extreme weather events threaten some of the world's major cities. It's not difficult to imagine another superstorm like Hurricane Sandy during Obama's second term, but perhaps we should be thinking -- and planning -- for a year in which we suffer through a dozen Sandys.

A significant rise in sea levels throughout the world would have a particularly devastating impact on concentrated populations living in low-lying coastal areas. The local economy, politics, and security in these regions would all be transformed, but perhaps the biggest impact would be climate-induced migration and displacement. The United States can help mitigate these risks by giving climate change a higher priority in international and domestic policymaking -- leading new multilateral initiatives and increasing mitigation and adaptation.

Obama needs to keep his word and move climate change higher on his political agenda. In 2009, he pledged to reduce U.S. greenhouse gas emissions by 2020 to a level 17 percent lower than that in 2005 -- but no legislation, executive order, regulation, or published plan currently exists to translate this promise into action.

Authors

Martin S. Indyk

Publication: Foreign Policy

Image Source: © Rick Wilking / Reuters

Big Bets and Black Swans: Foreign Policy Challenges for President Obama’s Second Term

Thu, 17 Jan 2013 00:00:00 -0500

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A Foreign-Policy Cheat Sheet for Obama

Martin S. Indyk — Thu, 17 Jan 2013 00:00:00 -0500

President Obama begins his second term at a volatile juncture in history and world affairs. However, this time of uncertainty and instability presents the president with a range of opportunities: By making a series of “big bets,” Obama can shape the emerging global order in transformational ways and define his own historic legacy. However, he will need to avoid a number of “black swans”—low-probability but high-impact events—that could derail his intended agenda and come to dominate his second term.

Here is the list of top-10 picks from our foreign-policy experts:

BIG BETS

1. Turning Tehran

The persistent and intractable challenge of Iran—the world’s most dangerous state—presents the Obama administration with an epic threat and a historic opportunity. Iran’s negative influence, through its nuclear program and support for Syrian dictator Bashar al-Assad, has helped inflame sectarian tensions and undermined prospects for peace in a region already beset by upheaval.

The president should seek a deal with Iran to resolve the nuclear crisis. Such an initiative would include pursuing a quick stop-and-swap deal to end Iran’s 20 percent enrichment, pressing for an intensified schedule of negotiations with Iran, and developing a comprehensive proposal of sequenced Iranian nuclear concessions and sanctions relief. A meaningful nuclear deal with Iran would represent a major step forward for nuclear nonproliferation.

2. An Obama Doctrine on New Rules of War

In its first term, the Obama administration worked hard to roll back one of the signature weapons of the 20th century: the nuclear bomb. Yet over the last four years, the United States also broke new ground in the use of new, revolutionary military technologies that may well become signature weapons of the 21st century. These encompass both physical systems, like unmanned aircraft (“drones”) and a new class of virtual weaponry, malware that can conduct a cyberattack with real-world consequences.

Obama now has an opportunity to establish new international norms for these new weapons of war by enunciating how the United States will deploy and use them. He will need to address accountability, the applicability of existing rules of war, limitations on development or use, future scenarios, and the prospects for international cooperation. The effort to create a doctrine should draw upon past lessons from comparable situations such as Cold War nuclear doctrine.

3. Energy and Climate: From Black to Gold to Green

The hydrocarbon bonanza in the United States gives Obama a significant opportunity. The administration can help strengthen the American economic and geopolitical position by taking a leadership role in the battle to address climate change.

By adopting policies that encourage the development and export of American oil, coal, and gas, the administration can take advantage of the rising demand in developing and emerging economies around the world.

As a condition of greater exploration, production, and trade, the U.S. government should impose a modest but meaningful carbon-based tax on production, with revenue allocated specifically to the development of climate-change-fighting technologies such as carbon capture and sequestration.

4. The Road Away From Damascus

Syria is standing on a precipice. The regime will likely fall, but the prospect now is one of a failed state that produces a toxic culture of extremism and lawlessness. If the United States does not take on a more active leadership role, the trend toward warlordism and sectarian fragmentation will likely prove inexorable, generating spillover that could impact the security interests of neighboring U.S. allies Turkey, Jordan, and Israel.

The Obama administration should change its approach to one of active intervention to ensure a more stable transition to a post-Assad order. Specifically, the administration should provide assistance to the Syrian opposition in the form of weapons, forge a genuine national dialogue that includes Alawites and Christians, and create an international steering group to oversee and lend support to the transitional process, including the creation of an international stabilization force to protect Syrian civilians. The president should engage directly with President Vladimir Putin to get the Russians onboard.

5. Free-Trade Game Changer

Protectionism is on the rise everywhere. The Doha round is essentially dead. But the United States and Europe need to stimulate their economies without resorting to increased spending. One way forward is for the United States to promote dramatic new free-trade agreements.

Achieving both a transpacific partnership and a transatlantic free-trade agreement is the most effective way to reclaim U.S. economic leadership and make progress toward the Obama administration’s promised goal of doubling U.S. exports. Signing these agreements would also have deep strategic implications, reaffirming liberal norms and a leading U.S. role in setting the global rules of the road.

BLACK SWANS

1. China in Revolution and War

There are many serious problems in China that could trigger a major crisis, including slowing economic growth, widespread social unrest, vicious elite infighting, rampant official corruption, heightened Chinese nationalism generated by territorial disputes, and even the potential for military conflict with neighboring countries. Such a crisis could take the form of a domestic revolution or foreign war.

Either would be very disruptive, severely impairing global economic development and regional security in the Asia-Pacific region. A combination of the two would constitute one of the most complicated foreign-policy problems of the president’s second term.

The best way to prepare in advance is for the White House to cultivate a deeper relationship with Chinese leader Xi Jinping and his new leadership team, to reach out directly to the Chinese people, and to use U.S. influence to dissuade any country in Asia from resorting to force to settle disputes.

2. Revolution in Riyadh

Saudi Arabia is the world’s last absolute monarchy and the world's largest oil supplier. The Arab awakening confronts the royal family with its most severe test. Demographic challenges, high underemployment, and restrictions on freedom make it even more vulnerable.

The overthrow of America’s oldest ally in the Middle East would be a severe setback to the U.S. position in the region and provide a dramatic strategic windfall for Iran. The small oil-rich monarchies of the Gulf and the Hashemite Kingdom of Jordan would be endangered.

The president should try to reestablish trust with the king and urge him to move more rapidly on his political-reform agenda while recognizing that this is likely to have limited results. The administration should also ensure the best possible intelligence is available to predict if a crisis coming, put in place measures to limit impacts on the global economy, be ready to support neighboring kingdoms and sheikhdoms, and then try to ride out the storm.

3. Euro-Zoned Out

The euro crisis has been ongoing for three years now, and the EU is beginning to get its act together to build a sustainable monetary union. But the underlying causes of the crisis have not yet been addressed. The politics are diverging from the solution as populations on the periphery suffer from austerity measures and see no end in sight, while those in the core feel exploited.

As long as a more comprehensive solution remains elusive, the risks of failure will continue to loom large. If failure occurs, it could be devastating to the U.S. economy, surpassing the crisis of 2008. A related black swan is the fragmentation of the European Union, which would also damage U.S. strategic interests. The United States should work closely with EU leaders to prevent new dangerous design flaws in reforms to the euro zone. The administration should also oppose the withdrawal of the United Kingdom from the European Union.

4. The End of the Palestinian Authority

The collapse of the Palestinian Authority would represent the final nail in the coffin of the Oslo peace process that began in 1993. The Palestinian Authority’s demise would eliminate the single most tangible expression of efforts to achieve a two-state solution—all but destroying chances for a peaceful settlement between Israelis and Palestinians for the foreseeable future.

Over the immediate term, the collapse could lead to large-scale Palestinian civil unrest and perhaps even a total breakdown in law and order in the West Bank, increasing the chances of a violent Palestinian uprising against Israel, a full Israeli reoccupation of the West Bank, or a takeover by extremist elements.

The immediate priority is to prevent the financial collapse of the Palestinian Authority, then an effort should be made to convince Israel to lift its restrictions that hamper economic growth, and make a renewed push to promote political progress through negotiations.

5. The Big Thaw

Global warming is happening faster than scientists predicted. Temperatures are rising, icecaps and glaciers are melting, and extreme weather is more frequent and intense. If these trends continue, the consequences will be monumental and far-reaching over time. If the warming accelerates more dramatically, and the polar ice melts even faster, the results could be catastrophic.

A significant rise in sea levels throughout the world would have particularly devastating impacts on the concentrated populations living in low-lying coastal areas, affecting the local economy, politics, community life, and security. But perhaps the biggest impact will be climate-induced migration and displacement, placing strains on infrastructure and pressure on governments to deliver services.

The United States can help mitigate these risks by giving climate change a higher priority in international and domestic policymaking—promoting new multilateral initiatives and increasing mitigation and adaptation.

Authors

Martin S. Indyk

Publication: The Daily Beast

Image Source: © Jim Bourg / Reuters

A Plastic Moment to Mold a Liberal Global Order

Martin S. Indyk and Robert Kagan — Thu, 17 Jan 2013 00:00:00 -0500

In the next four years, President Obama has a choice about whether to make democracy building and a liberal world order key tenets of his foreign policy plan. Martin Indyk and Robert Kagan wrote this memorandum to the President as part of the Big Bets and Black Swans: A Presidential Briefing Book.

Will America turn inward and away from an increasingly unstable world?
How can American take advantage of this plastic moment to mold the emerging global order to best serve the United States and humankind?
Will America launch a new effort to strengthen and extend the liberal world order?

Download Memorandum (pdf) | Download the Presidential Briefing Book (pdf)

Editor's Note: An adapted version of this Big Bets and Black Swans memo was published in the New York Times on January 21, 2013.

TO: President Obama

FROM: Martin S. Indyk and Robert Kagan

As you enter your second term, the state of the world is remarkably unsettled. The leading powers are beset with economic crises or are in various states of political transition or gridlock. The Middle East is in a state of political upheaval. Tensions are rising in East Asia. The world’s institutions, whether the United Nations, the G-20, or the European Union, are weakened and dysfunctional, and seem to be pulling apart in the absence of concerted leadership. The liberal world order established after the Second World War — characterized by a free, open international economy, the spread of liberal democracy, and the deepening of liberal, peaceful norms of international behavior — is fraying at the edges.

It is a time of uncertainty and instability for the world, and for the United States; but it is also a moment of opportunity. Almost a century ago, when the United States entered the First World War, the philosopher John Dewey observed that the world was at a “plastic juncture.” He and many other progressives believed that the unsettled world of their day offered the United States and the other democratic powers a chance to remold the international system into something better. Americans walked away from that challenge and would embrace it only after a second catastrophic breakdown of world order. Today, we are at another “plastic juncture.” Will America turn inward and away from an increasingly messy world? Or will we launch a new effort to strengthen and extend, both geographically and temporally, the liberal world order from which Americans and so many others around the world have benefited?

The answer depends very much on how you choose to make use of your next four years in office. Unfortunately, there is not a lot to show for your first four years. In many respects, this is understandable. The economic crisis that you inherited made steady concentration on foreign policy more challenging. The two wars you inherited in the Greater Middle East had been bungled by your predecessor and cost the United States dearly, both materially and in terms of reputation. You began to restore that reputation through your own global appeal and the efforts of your Secretary of State.

You have done especially well in raising America’s profile and deepening our engagement in East Asia. However, so far it is hard to list many durable accomplishments. Most of the major challenges are much as you found them when you took office, or worse: from the stalled Middle East peace process and turmoil in the Arab world to Iran’s continuing march toward a nuclear weapons capability to China’s increasing assertiveness in East Asia. Your understandable preoccupation with reelection has left much of the world wondering: Where is the United States?

For all the talk of American decline from certain quarters, the United States is actually well-positioned for a new era of global leadership. If you can strike the difficult but necessary compromise with Congress that begins to address America’s fiscal crisis, the United States could well emerge as among the world’s most successful and dynamic economies. America enjoys unique advantages in the international economic system: a natural gas revolution that promises soon to make it a net-exporter of energy, a superior university education system and an open and innovative economy that continues to attract the world’s best and most creative young minds. On the international stage, the United States remains the only world power with global reach, uniquely capable of organizing concerted international action and serving as a source of security and stability to nations and peoples facing threatening neighbors.

Recommendations:

How then to take advantage of this plastic moment to mold the changing global order to best serve the United States and humankind? We believe that in the next four years you will have a unique opportunity to shape a multilateral global order that will continue to reflect American liberal values and progressive ideals. This will require your sustained attention, personal engagement, and direction of the national security agencies of the U.S. government. The reward could be a transformational and lasting impact on the international system, which will redound to the benefit of future generations.

In the security realm, your primary “big bet” must be to prevent Iran from obtaining a nuclear weapons capability. It is hard to imagine a bigger blow to the international security order than the collapse of the nonproliferation regime that would follow Iran’s successful acquisition of nuclear weapons. Conversely, if you can succeed in achieving meaningful curbs on Iran’s nuclear weapons aspirations and reinforce this by negotiating another nuclear arms reduction agreement with Moscow, you will do much to strengthen non-proliferation and nuclear disarmament as a fundamental pillar of the new liberal global order.

In East Asia, your primary big bet should be on promoting a regional order that encourages China to develop in a peaceful and productive direction. You have already formulated a credible strategy; now you will need to encourage China’s new leadership away from greater reliance on military power in favor of continued economic and political development at home and increasing economic and political integration abroad. This will mean continuing to deepen America’s Asian alliances, especially with the new leaderships in Tokyo and Seoul; building new partnerships with the nations of the region; and playing a major role in supporting regional cooperation. You should ensure that the rebalancing effort in East Asia goes beyond the military to include all aspects of American power. With India, the world’s largest democracy and the other major rising power in Asia, you have laid a strong foundation but the next four years will be critical in building a partnership that can serve as another pillar of the emerging liberal geopolitical order.

Strengthening the liberal economic order needs to be a higher priority in your second term. Concluding free trade agreements with the Asia- Pacific region and Europe would boost U.S. exports and global economic recovery while promoting a broader consensus on the necessary standards to promote free trade and investment in the global economy. Building the infrastructure and putting in place the policies necessary to export American natural gas to key allies and partners, especially in Europe and Asia, will help reduce their dependence on Russia and Iran. Leveraging America’s hydrocarbon bonanza to encourage more effective efforts to counter climate change can help promote a greener global order.

Strengthening the liberal political order will require increased efforts to enlist the support of emerging democracies. Nations like Brazil, Indonesia, Mexico, South Africa and Turkey have become increasingly influential economically. But they are struggling to find their identity as democratic powers on the international stage and, in some cases, are punching below their weight. Some are drifting toward a worldview that actually undermines the liberal nature of the global order. At the same time, powerful autocracies like Russia have staked out positions at the United Nations and elsewhere that are antithetical to liberal values — on the issue of Syria, for instance. These autocratic powers need to understand that if they continue their obstructionism, the democratic international community will increasingly move on without them and they will be isolated.

In your first term, you were reluctant to make democracy a centerpiece of your foreign policy. However, with revolutions in the Arab world and political changes in Burma that you have supported, it is time to place the United States once again at the vanguard of the global democracy movement. This is not only because democracy is consonant with American values. In the Middle East, in Russia and parts of Eastern Europe, just as in Burma and the rest of Asia, the United States has strategic, political and economic interests in the spread of stable, liberal democracies. Although democracies can be fractious, and in times of transition unstable, in the end they are more reliable supporters of the liberal world order which Americans seek. The United States needs to do more in support of the difficult struggle for democracy in the Arab world too, including holding the Egyptian Muslim Brotherhood government to democratic standards, and more actively leading the effort to shape a positive democratic outcome in Syria and preventing it from descending into chaos or becoming a haven for jihadists and Iranian proxies. America’s relationship with Russia needs to be shaped by strategic arms agreements as well as by respect for the desires and aspirations of the Russian people. You should work to steer Russia in a positive direction, strengthening where you can those forces in Russian society that favor economic and political modernization.

Finally, the United States needs a global strategy. It cannot focus on one critical region to the detriment of others. While you were absolutely right to increase American attention to the vital region of the Asia-Pacific, the United States cannot and should not reduce its involvement in the Middle East or in Europe. Since the end of the Second World War, the United States has played the key security role in all three regions at once; there is no safe alternative to that. This is particularly true in the Middle East, where many nations look to the United States for both protection and assistance. But even Europe deserves continued American attention and involvement. Everything the United States wants to accomplish in the world can be better accomplished with the help and cooperation of its European allies.

Conclusion:

At the end of World War II, the United States led the way in shaping an international political, economic, and security order which, for all its flaws, served the American people, and much of the world, remarkably well. Much is changing in today’s world, but the basic requirements of American foreign policy have not. Your great challenge is to seize this plastic moment and apply your leadership to the preservation and extension of the liberal global order for future generations.

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Bridging The Gap: Integrating Price Mechanisms Into International Climate Negotiations

Warwick J. McKibbin, Adele Morris and Peter J. Wilcoxen — Mon, 03 Dec 2012 15:34:00 -0500

EXECUTIVE SUMMARY

The Parties to the United Nations Framework Convention on Climate Change (UNFCCC) continue their efforts to forge a new binding international agreement by 2015. The negotiations face daunting odds, but the 2009 Copenhagen Accord’s shift towards heterogeneous national commitments was a positive step forward for climate policy. The prior presumption that binding commitments could only take the form of a percentage reduction relative to historical levels alienated rapidly industrializing countries and led to unproductive disputes over base years and other issues of target formulation. However, the disparate approaches now under discussion complicate comparing the likely emissions reductions and economic efforts required to achieve the commitments.

This paper makes two points. First, we offer good reasons and ways to adapt international negotiations to allow for price-based commitments. The economic uncertainty surrounding target-only commitments is enormous. Combining a clear cumulative emissions target with limits on the cost associated with achieving the target would balance the environmental objective with the need to ensure that commitments remain feasible. This economic insurance could foster greater participation in the agreement and more ambitious commitments. Specifically, we suggest that in addition to their cumulative emissions targets for the 2013 to 2020 period, major economies could agree to a "price collar" on greenhouse gas emissions in their domestic economies. This would include starting floor and ceiling prices on a ton of CO2 and a schedule for real increases in those prices. All major parties would need to show at least a minimum level of effort regardless of whether they achieve their emissions target, and they would be allowed to exceed their target if they are unable to achieve it in spite of undertaking a high level of effort. The paper provides an example of how a price collar would work in the U.S. context under a cap-and-trade system.

Second, analyzing proposed climate commitments in terms of their implied economic stringency, as measured by the implied price on carbon necessary to achieve the targets, offers transparent and verifiable assurance of the comparability of effort across countries. It possible to calculate "carbon price equivalents" of climate commitments in a conceptually similar way to the tariff equivalents used in international trade negotiations.

In sum, the lack of transparency in the level of effort involved in achieving particular emissions targets highlights the potential value of allowing for price-based commitments and argues for greater economic transparency in the international negotiation process.

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Bridging The Gap: Integrating Price Mechanisms Into International Climate Negotiations

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Harnessing Technology and Innovation in the Fight Against Global Poverty

Wed, 10 Oct 2012 15:56:00 -0400

This collection of policy briefs was commissioned for the ninth annual Brookings Blum Roundtable on Global Poverty, held in Aspen, Colorado on August 1–3, 2012.

There is growing excitement among governments, international organizations, the private sector, philanthropic organizations and civil society about the potential of technology and innovation to dramatically improve the lives of poor people around the world.

Mobile technology is giving poor people the capacity to transact, borrow and save through their cell phones. Connection technologies such as open source software are allowing people in Haiti and Pakistan to collect and analyze information about, and then respond to, violence, corruption and natural disasters. Myriad ‘green growth’ technological innovations across the globe are expanding access to electricity, increasing agricultural yields while also reducing harmful emissions.

But innovation in the service of development goals is not just about achieving technological breakthroughs. Recent research shows that new business models often matter far more than the technology of a given product when serving poor communities. Moreover, promising technologies do not bring about improvements in the lives of the world’s poorest people unless they are adequately invested in, rigorously evaluated, and then brought to scale, which typically requires the collaboration of many actors, including the private and philanthropic sectors and government.

The following policy briefs explore these issues in detail, lay out the challenges, and offer a range of specific recommendations on what needs to happen and why.

Australia's Economy Must Adapt or Suffer the Consequences

Warwick J. McKibbin — Mon, 30 Jul 2012 00:00:00 -0400

Daily news of job losses and closure of high-profile production facilities again raises the question of what should governments do to deal with the apparent rapid transformation of the Australian economy and particularly the problems in the manufacturing sector.

The causes are many in number and vary significantly by sector. It is misleading to lay the blame for everything on a strong dollar or the carbon tax or changing government policy or the unions or poor management practices. In fact, what is needed in framing appropriate policy is a detailed understanding of the structural adjustment that Australia is facing.

In the political debate there is a tendency to oversimplify the causes. There is an overwhelming desire to find a simple common cause for everything so blame can be allocated. There is also a tendency to reject outright a driver of change that might be important because it can’t explain everything.

There are many causes of structural adjustment and many shocks occurring at the same time. Policy should be designed to respond in detail to these where possible, but within an overarching framework of what is happening and a focus on how individual policy responses fit together in a consistent fashion.

Put simply, there are many problems facing the manufacturing sector as a whole in many countries. Australia is not alone in dealing with structural adjustment.

The issues are best thought through by understanding what drives businesses to close. The problems occur when the costs of producing goods exceed the price that can be achieved from selling goods in a competitive market. Input costs include the price of labour (driven higher by labour market rigidities); the cost of capital (driven higher through financing costs); the cost of energy (driven higher, particularly in electricity, by years of neglect in infrastructure spending on generation and distribution and further increased by the carbon tax); and costs of government regulation.

After accounting for all the input costs, the strong currency is making it even more difficult to compete in foreign markets or with foreign imported products. Each sector is affected differently by each of these forces.

It is worth drilling down on the role of the carbon tax: $23 is a substantial price and it is higher than in other countries. It is not a coincidence that some industries are adjusting more quickly than others to the tax.

In the 2008 Treasury report on Australia’s low-pollution future, it is clear where the negative effects of a carbon price are focused. That report assumed global action but without the rest of the world taking action the effect on Australia will be larger than estimated due to additional competitiveness impact. The report summarises results under the carbon pollution reduction scheme (CPRS) where the government targets a 5 per cent reduction in emissions below 2000 levels by 2020.

In this scenario, the most affected sectors and the output decline by 2050 are coal mining (minus 30 per cent); oil refining (minus 37.7 per cent); aluminium (minus 45.2 per cent); and coal-fired electricity (minus 71.5 per cent).

This is the long-run outlook for these sectors. In the Treasury modelling, this takes time to unfold as the constraint of ever rising carbon prices kicks in. In reality, an industry facing such a future would begin to divest as soon as it could mobilise its funds out of these declining sectors.

It should be no surprise that we’re already seeing job losses in these sectors. It is what the carbon tax is designed to achieve. Politicians who say the carbon tax has no impact on jobs are as wrong as those who argue it is the entire story.

The carbon tax is only part of a complicated structural adjustment. The world economy is fundamentally changing and always has. What is different now is the scale of the effect of the emergence of the big emerging economies into the global economy.

As many parts of the emerging world (particularly China and India) enter the global economy, there is a fundamental transformation of production and consumption patterns around the globe.

Manufacturing has been declining as a share of gross domestic product in Australia for decades. Some things we produce are no longer competitive with foreign goods that are very similar, primarily due to the input cost structure outlined above.

On top of this decline, Australia is experiencing a mining boom which further appreciates the currency and so makes non-mining goods more expensive. Sectors that have some degree of flexibility on input costs can offset the rising currency by lowering input costs. Sectors that have rigid labour costs such as the automotive industry find it difficult to adapt. Energy-intensive industries that need high-cost energy inputs find it hard to adapt. Capital-intensive companies that need access to capital but face a high cost of funds because of global economic risk and domestic political risk cannot borrow and therefore cannot easily adapt.

Australia is being swept along by this global tide. Should we resist this change or should we adapt to the change? History gives a clear indication of the answer. Successful economies are those that adapt both their economic structures and their social structures to ride global waves of change.

A good place to start is where the rigidities are sharpest and the sources of this inflexibility. In some cases it is government that is to blame, in others, as pointed out by Treasury, it is the managerial practices in companies. One would expect the market to sort out the managerial problems eventually, but governments have a capacity and an obligation to the public to change what they do and how they do it.

As key economic managers in the Reserve Bank of Australia and Treasury have made clear, Australia has an big challenge ahead, but clearly great opportunities.

It will require a bipartisan acceptance of the national interest. It will require an understanding that governing for the few vested interests in unions or companies or regions should come second to the interest of the majority of Australians.

It will require a major role for the Productivity Commission in focusing on the costs and benefits of major structural policies. It will require an understanding of unintended consequences of legislation that locks in higher costs in labour markets, capital markets and energy markets.

It is hard to see how this change in culture can occur in a Parliament governed by minority interests.

Authors

Warwick J. McKibbin

Publication: Australian Financial Review

The Mystery of Phantom States

Daniel L. Byman and Charles King — Fri, 27 Jul 2012 00:00:00 -0400

Editor's Note: This article originally appeared in Summer 2012 issue of The Washington Quarterly.

In almost every region of the globe, there is a phantom state hovering like an apparition among the more corporeal members of the international system. Some of their names sound like the warring kingdoms of a fantasy novel: Abkhazia and South Ossetia, Nagorno—Karabakh and the Dniester Moldovan Republic. Others, such as Gaza/Palestine, the Turkish Republic of Northern Cyprus, or Taiwan, dominate the headlines. These polities look like real countries to their inhabitants, who salute their flags and vote in their elections. Some even field armies, issue visas, and collect taxes. But they are largely invisible to international legal institutions, multilateral organizations, and global trade regimes. The reason is that they lack formal recognition, or what a political scientist would call ‘‘external sovereignty.’’

Over the last 20 years, the status of the world’s phantom countries has been literally a matter of life and death: stoking wars, fostering crime, keeping weak states weak, presenting a diplomatic conundrum to major powers, and raising the age-old question of what kinds of polities deserve to be legitimate players in a global system of sovereign states. However, serious discussion of these phantoms usually collapses into name-calling. Some unrecognized countries are derided as separatists, terrorist havens, or mafia-run enclaves. Others are praised as the home of freedom-loving citizens seeking liberation from despots. Treatments by judges and international lawyers have usually been more sober, but they too have been most interested in testing the legitimacy of a particular bid for independence by a state-like claimant. Such debates are also good for business. A large Washington-based network of lobbying firms and consultants works to help unrecognized governments make their case to the White House, Capitol Hill, think tanks, and defense contractors. One need only visit the website of the Republic of Nagorno—Karabakh or open a holiday card from the Republic of Abkhazia to see how the marketing of a country’s aspirations and grievances depends little on whether it has a seat at the United Nations.

But where do these wraiths come from, and why do they insist on hanging around? If the currency of world politics is mutual recognition official membership in the club of sovereign nations why have these non-state states proven to be such durable parts of the international community? The evidence seems to point in an uncomfortable direction.

While the bedrock of the global order is the ability of sovereign countries to enter into relations with their own kind, the rise of phantom states suggests that formal sovereignty has lost some of its cache´. How to balance respecting state sovereignty with the desire to advance other noble principles, such as human rights, is an old debate. It has been at the heart of many of the major regional crises of the last two decades, from Kosovo to Libya to Syria. Yet the real challenge to the sovereignty principle comes not from advocates of what in Davos jargon is now called ‘‘R2P’’ the international community’s ‘‘responsibility to protect’’ civilians from their own governments via muscular intervention or forceful peacekeeping. Rather, the challenge to sovereignty comes from the rather successful and deeply self-interested makers of phantom states. In other words, what happens to the foundations of international relations if you can get by just fine as a president or an average citizen by living in a country that nobody believes really exists?

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Authors

Daniel L. Byman
Charles King

Publication: The Washington Quarterly

Image Source: Ammar Awad / Reuters

Are Europeans a Better Transatlantic Security Partner than Meets the Eye?

Clara M. O'Donnell and Patryk Pawlak — Fri, 06 Jul 2012 00:00:00 -0400

The latest wave of European military spending cuts is swelling the ranks of Americans who believe that Europeans are not contributing enough to global security. But this assessment is too harsh. It is true that Europeans spend less on defence than their American counterparts. They have also been less willing to use force in recent years. But the US itself is reassessing the merit of its military interventions over the last decade. And when one takes into account policies that are not strictly military, such as aid, sanctions and homeland security, Europeans are making some significant contributions to international stability.

A number of European countries are undoubtedly falling short of their NATO and EU promises to develop a global military reach. Many governments have been slow to transform their militaries from immobile forces designed to counter a Soviet invasion into rapidly deployable combat troops. Even prior to the economic crisis, most European NATO allies had stopped spending the alliance's agreed benchmark of 2 per cent of GDP on defence. And Nicolas Gros-Verheyde, the influential French blogger, estimates that the economic downturn will lead to a 30 per cent drop in total military spending by EU member-states between 2006 and 2014. As a result, even if America cuts its own defence budget by $1 trillion over the next decade – as Congress is currently considering – the US military will still receive more than twice as much as the armed forces of all EU countries combined.

Since the end of the Cold War, a number of European countries have also been reluctant to deploy troops, particularly for heavy combat operations. Many governments have refused to send their soldiers to the most dangerous parts of Afghanistan. More than half of the European countries in NATO did not participate in the deployment to Libya. And many EU military and civilian missions have been too small to make a significant impact. Washington critics are particularly dismissive of the 60 EU officials advising Iraqis on how to improve their criminal justice system and the approximately 500 EU police trainers in Afghanistan.

Europe's recent military track record derives from the fact that most Europeans have not felt threatened. Many also do not believe that war should be used to obtain 'justice'. In a recent GMF survey of the US and 12 EU countries, only 33 per cent of Europeans believed that war is sometimes necessary to obtain justice – in contrast to 75 per cent of Americans. In addition, Europeans have been particularly doubtful of the merit of Washington's use of force over the past decade, be it Afghanistan or Iraq.

In light of this mindset, Europeans have actually been quite active on the military front. According to the Stockholm International Peace Research Institute, in 2011, Britain, France and Germany were still amongst the ten largest military spenders in the world (ranking third, fourth and eighth). The combined defence expenditure of European NATO members is still more than twice what China spends – even though Europeans do not reap the full benefits of it because they duplicate many of their military efforts.

For several years, European troops made up more than half of NATO's mission in Afghanistan. And on a per capita basis, Denmark and Estonia have suffered more casualties there than the US. Europeans undertook 90 per cent of the strike missions in Libya. In addition, many of the EU's missions, even if modest, are still helping to stabilise countries across the world. In the Gulf of Aden, an EU naval force protects vulnerable boats from pirates, including the World Food Programme vessels which deliver food to Somali people. In the months to come, the EU will deploy civilians to help the government in Niger reform its security sector (a country where, according to European governments, Islamist militants threaten international security). EU experts will also soon help improve the security at the international airport in Juba, the capital of newly independent South Sudan.

In any case, American policy-makers are themselves reconsidering the merits of how the US has used force over the last decade. The Obama administration has been extricating US armed forces from Iraq and Afghanistan – even though in both countries, the US has not achieved the level of stability which it had initially aspired to. The government's new defence guidance stresses that the US does not intend to deploy similar missions in future. It also argues that America cannot meet its security challenges through military force alone and that it must strengthen all the 'tools' of American power, including diplomacy, development, intelligence and homeland security.

These are areas in which Europeans are significant players. Combined, the EU institutions and member-states are the largest aid donor in the world. According to the OECD, they spent €69 billion in 2011 – notwithstanding the fact that some European countries reduced their budgets because of the economic crisis. This is more than twice the amount the US gave. Between 2002 and 2013, the EU institutions and member-states will notably have provided €11 billion in aid to Afghanistan. And in response to the Arab Spring, the EU institutions alone have offered nearly €7 billion over three years.

Europeans also invest significant resources in homeland security, even if budgets risk declining somewhat over the next few years because of the economic turmoil. Based on the latest OECD figures, the 21 EU member-states which belong to the organisation spent nearly €240 billion on 'public order and safety' in 2010 – nearly 90 per cent of what the US spent. This covers police forces, intelligence services, the judiciary and ministries of internal affairs. The US is a beneficiary of this spending too – in addition to supporting Europe's internal stability, these bodies tackle the international terrorism and organised crime that afflict Europeans and their allies alike.

European countries are also increasing the EU's involvement in security matters – including through the EU's bilateral ties with third countries. One EU agency, Frontex, monitors the Union's southern and eastern border, while another, Europol, tackles organised crime. EU funds for homeland security, although still modest, are increasing despite the economic crisis. From 2014 to 2020, the EU is expected to spend nearly €10 billion in this field. The money will notably fund research into intelligent maritime surveillance systems and help partner countries across the world fight criminal networks and monitor their borders more effectively.

European governments also leverage the EU's large common market to pursue their foreign policy objectives. They offer preferential trade ties to support the economic development of numerous fragile countries across the world, and to encourage them to improve their governance. Pakistan is one of the states which qualify for some of the EU's most generous trade concessions. EU countries also impose heavy sanctions on countries which they believe are undermining international security. Among other things, the EU recently introduced an oil embargo against Iran – even though the measure is inflicting significant economic hardship on Greece and other EU states which were already struggling with the financial crisis. And through the offer of EU and NATO membership, Europeans (and the US) have managed to spread stability across the European continent.

The fact that Europeans wield such extensive foreign policy 'tools' does not mean they always use them wisely. Nor should it allow Europeans to neglect their armed forces. Governments must ensure that their peacekeeping efforts are not hampered by inadequate military equipment, and that they retain the capacity to respond to a serious military threat if one were to emerge. But America is less alone in upholding global security than some in Washington would suggest.

Authors

Clara M. O'Donnell
Patryk Pawlak

Publication: Centre for European Reform

Image Source: Ognen Teofilovski / Reuters