The Call

Top Risks 2011

Top Risks 2011

By Ian Bremmer and David Gordon

We’ve now released our annual report on the ten most important political risks for 2011. Over the next two weeks, we’ll be discussing each risk in more depth in this space. We begin with a brief overview.

In the past, our coverage of political risk has centered on particular countries, regions, issues, or events. We worry about elections in brittle countries and their ability to generate unrest, military confrontations involving unpredictable governments, or a policy shift with serious implications for a country’s business climate and growth trajectory. For 2011, we’re focused on a fundamental ongoing change in the global order.

As we step into 2011, headlines in the United States suggest a little more optimism about recovery, but market players and business decision-makers aren’t convinced. Gold prices remain relatively high, and trillions of dollars that could be invested remains on the sidelines. Why the caution?

We’re entering an entirely new world order with new ways for states to relate to one another, both politically and economically. That problem could provoke new areas of conflict, and it will highlight an emerging vacuum of power in international leadership — and the uncertainty that comes with it.

We’re calling this new order the G-Zero, because no country or bloc of countries has the political and economic leverage today to drive an international agenda. The G-20 helped build a useful crisis response when the financial crisis hit, but as the sense of urgency evaporated, so did the unity. The G7 is an anachronism. The G2 (the United States plus China) won’t work, because the United States can’t afford to keep up its role as primary provider of public goods, and China (like other emerging states) is much more interested in protecting domestic growth and stability than in accepting new burdens abroad. The G3 (the United States, Europe, and Japan) isn’t viable, because Europe is shoulder deep in a bid to save the eurozone, and Japan’s government is dysfunctional.

There’s no international leadership, and each government will increasingly protect its gains at the expense of others. That’s why the dominant economic trend of the last 50 years, globalization, now faces a direct challenge from geopolitics. Governments in both the developed and the developing world have every incentive to throw up barriers to commerce and investment that are designed to protect their own workers and companies — and no country or bloc of countries has the will or the muscle to reverse this trend.

Our list of risks for 2011 includes the potential for crisis in Europe, tensions at the intersection of cybersecurity and geopolitics, China’s unwillingness to bow to a growing surge of international pressure for economic policy changes, provocations from North Korea, and the risk of a spike in currency controls. All these risks are intensified by this transition to a G-Zero order.

Next up, we’ll look at the G-Zero in greater depth, because it’s our top risk for 2011.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm’s head of research.