Can the Philippines be a pivot state, instead of a shadow state, with a truly independent foreign policy?
Here's a thought-provoking essay by American scholar, strategic & global political risk analyst, Stanford-educated Columbia University professor, Eurasia Group (a top global political risk analyst & consulting firm) President Dr. Ian Bremmer in the Harvard Business Review:
Here's a thought-provoking essay by American scholar, strategic & global political risk analyst, Stanford-educated Columbia University professor, Eurasia Group (a top global political risk analyst & consulting firm) President Dr. Ian Bremmer in the Harvard Business Review:
Which Countries Will Rise to the Top in a Leaderless World?
Over the years, the phrase "emerging market" has become all but meaningless. No group that includes China, Argentina, Kenya, the Philippines, and Romania can possibly qualify as a single coherent class.
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To pick the likeliest winners in this vast category, Jim O'Neill of Goldman Sachs has given us the BRICS (Brazil, Russia, India, China, and now South Africa), the "Next 11" (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea, and Vietnam) and, more recently, MIST (Mexico, Indonesia, South Korea, and Turkey). Robert Ward of the Economist Intelligence Unit has added the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa.)
(Photo below: Jim O"Neill of Goldman Sachs coined "BRICS")
But all these constructions include a dizzyingly diverse set of economies that don't have much in common, and in any case the market conditions inside these countries tell only part of the story. In order to understand which nations are likeliest to emerge, we also need to look at changes underway across the global landscape.
We live in a crisis-prone age. In the past 44 months, we've endured the dips and gyrations of an international financial crisis, the worst economic slowdown since the 1930s, a wave of turmoil across North Africa and the Middle East, and Europe's worst crisis of confidence since the Second World War. Unfortunately, we can't expect smoother sailing in years to come because, for the first time in seven decades, we now live in a world without global leadership.
In the United States, a war-weary public is focused on jobs and debt, and taxpayers tell pollsters that America should focus on problems at home and mind its own business. Across the Atlantic, Europeans' fears for their economic future diminish their interest in the world beyond the region. America and Europe have overcome adversity before and are well equipped over the long run to do it again, but that won't happen this year or next.
Nor are China or other emerging powers ready to fill the leadership vacuum. Each of them faces too many complex development challenges at home to accept more costs and risks abroad.
So we've entered a period of transition. The old order, call it a U.S.-led G7 world, no longer reflects the true international balance of power. But there is not yet a new order to take its place. That's why global markets are in for an extended (and tumultuous) period of transition, one that's especially vulnerable to crises that appear suddenly and from unexpected directions. It's a G-Zero world.
Investors and business decision makers must understand this problem if they are to spot the era's winners, losers, opportunities, and risks.
The countries that are best positioned to prosper are those that are resilient as well as strong. Over the past 30 years, the winners were those states that adapted to profit from Western-led globalization. But in a world where no country is willing and able to play the consistent global leader, governments have to create more of their own opportunities. Bet on states that have good options.
That's why pivot states, those able to build profitable relationships with multiple partners without becoming overly reliant on any of them, are the likeliest winners in the G-Zero era.
Brazil will continue to enjoy excellent trade ties with the United States. But China is now its largest trade partner, helping Brazil's economy ride out the U.S. slowdown with minimal damage. NATO membership gives Turkey lasting influence in Brussels and Washington, and many in the Arab world look to Turkey as a dynamic, modern Muslim state. Add its position at the crossroads of Europe, Central Asia, the Middle East, and the former Soviet Union, and Turkey has a range of political and commercial options. As in Brazil, this advantage helps absorb the sorts of shocks that are now all too commonplace.
Asia is home to several pivot states. Indonesia, with nearly 240 million people, enjoys a well-diversified economy with trade ties balanced among China, the United States, Japan, and Singapore. Vietnam receives most of its aid from Japan, its arms from Russia, and its tourists from China; its biggest export market is the United States.
Not all pivot states are developing countries. Far-sighted policy ensures that Canada is now less vulnerable to a slowdown in the United States. The percentage of Canada's exports to countries other than the U.S. jumped from 18% in 2005 to more than 25% just four years later, and Canada now draws nearly 40% of its imports from countries other than the United States. British Columbia exports more to Asia than to the U.S.
The likeliest losers in this more volatile world are shadow states, the opposite of pivots, those whose political and commercial possibilities are determined almost entirely by a single powerful partner. Mexico's largest sources of foreign currency are oil sales, tourism, and remittances from nationals working abroad. In all three cases, the vast majority of that currency comes from the United States, and there's no evidence that will change anytime soon. The fates of its economy and standard of living are linked tightly with the health of its giant neighbor.
Shadow states aren't like Cold War-era satellites, countries where government was thoroughly dominated by a foreign power. Mexico's domestic- and foreign-policy choices are determined by its political process, not the demands of a domineering sponsor. But when compared with Canada, Mexico's commercial opportunities and the speed of its development are largely defined by conditions inside one foreign country.
Ukraine, another shadow state, wants to escape Russia's gravitational pull and become a pivot state, preserving relations with Moscow while building new ties with Europe. In fact, Kyiv wants to ink a free-trade deal with the European Union. But Russia has threatened to sharply increase the price of natural gas shipments to Ukraine and throw up new trade barriers if Kyiv moves forward with Europe. The EU, for its part, will end trade talks with Ukraine if it joins a customs union with Russia. Ukraine can't win because it can't pivot. It lacks the strength and independence to improve its bargaining position with either side.
In years to come, the BRICS will go their separate ways, and half the N11 is as likely to implode as to expand. Instead, it's the G-Zero order that will determine the next generation of winners and losers, and resilient pivot states are the countries best positioned to prosper.
To pick the likeliest winners in this vast category, Jim O'Neill of Goldman Sachs has given us the BRICS (Brazil, Russia, India, China, and now South Africa), the "Next 11" (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea, and Vietnam) and, more recently, MIST (Mexico, Indonesia, South Korea, and Turkey). Robert Ward of the Economist Intelligence Unit has added the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa.)
(Photo below: Jim O"Neill of Goldman Sachs coined "BRICS")
But all these constructions include a dizzyingly diverse set of economies that don't have much in common, and in any case the market conditions inside these countries tell only part of the story. In order to understand which nations are likeliest to emerge, we also need to look at changes underway across the global landscape.
We live in a crisis-prone age. In the past 44 months, we've endured the dips and gyrations of an international financial crisis, the worst economic slowdown since the 1930s, a wave of turmoil across North Africa and the Middle East, and Europe's worst crisis of confidence since the Second World War. Unfortunately, we can't expect smoother sailing in years to come because, for the first time in seven decades, we now live in a world without global leadership.
In the United States, a war-weary public is focused on jobs and debt, and taxpayers tell pollsters that America should focus on problems at home and mind its own business. Across the Atlantic, Europeans' fears for their economic future diminish their interest in the world beyond the region. America and Europe have overcome adversity before and are well equipped over the long run to do it again, but that won't happen this year or next.
Nor are China or other emerging powers ready to fill the leadership vacuum. Each of them faces too many complex development challenges at home to accept more costs and risks abroad.
So we've entered a period of transition. The old order, call it a U.S.-led G7 world, no longer reflects the true international balance of power. But there is not yet a new order to take its place. That's why global markets are in for an extended (and tumultuous) period of transition, one that's especially vulnerable to crises that appear suddenly and from unexpected directions. It's a G-Zero world.
Investors and business decision makers must understand this problem if they are to spot the era's winners, losers, opportunities, and risks.
The countries that are best positioned to prosper are those that are resilient as well as strong. Over the past 30 years, the winners were those states that adapted to profit from Western-led globalization. But in a world where no country is willing and able to play the consistent global leader, governments have to create more of their own opportunities. Bet on states that have good options.
That's why pivot states, those able to build profitable relationships with multiple partners without becoming overly reliant on any of them, are the likeliest winners in the G-Zero era.
Brazil will continue to enjoy excellent trade ties with the United States. But China is now its largest trade partner, helping Brazil's economy ride out the U.S. slowdown with minimal damage. NATO membership gives Turkey lasting influence in Brussels and Washington, and many in the Arab world look to Turkey as a dynamic, modern Muslim state. Add its position at the crossroads of Europe, Central Asia, the Middle East, and the former Soviet Union, and Turkey has a range of political and commercial options. As in Brazil, this advantage helps absorb the sorts of shocks that are now all too commonplace.
Asia is home to several pivot states. Indonesia, with nearly 240 million people, enjoys a well-diversified economy with trade ties balanced among China, the United States, Japan, and Singapore. Vietnam receives most of its aid from Japan, its arms from Russia, and its tourists from China; its biggest export market is the United States.
Not all pivot states are developing countries. Far-sighted policy ensures that Canada is now less vulnerable to a slowdown in the United States. The percentage of Canada's exports to countries other than the U.S. jumped from 18% in 2005 to more than 25% just four years later, and Canada now draws nearly 40% of its imports from countries other than the United States. British Columbia exports more to Asia than to the U.S.
The likeliest losers in this more volatile world are shadow states, the opposite of pivots, those whose political and commercial possibilities are determined almost entirely by a single powerful partner. Mexico's largest sources of foreign currency are oil sales, tourism, and remittances from nationals working abroad. In all three cases, the vast majority of that currency comes from the United States, and there's no evidence that will change anytime soon. The fates of its economy and standard of living are linked tightly with the health of its giant neighbor.
Shadow states aren't like Cold War-era satellites, countries where government was thoroughly dominated by a foreign power. Mexico's domestic- and foreign-policy choices are determined by its political process, not the demands of a domineering sponsor. But when compared with Canada, Mexico's commercial opportunities and the speed of its development are largely defined by conditions inside one foreign country.
Ukraine, another shadow state, wants to escape Russia's gravitational pull and become a pivot state, preserving relations with Moscow while building new ties with Europe. In fact, Kyiv wants to ink a free-trade deal with the European Union. But Russia has threatened to sharply increase the price of natural gas shipments to Ukraine and throw up new trade barriers if Kyiv moves forward with Europe. The EU, for its part, will end trade talks with Ukraine if it joins a customs union with Russia. Ukraine can't win because it can't pivot. It lacks the strength and independence to improve its bargaining position with either side.
In years to come, the BRICS will go their separate ways, and half the N11 is as likely to implode as to expand. Instead, it's the G-Zero order that will determine the next generation of winners and losers, and resilient pivot states are the countries best positioned to prosper.
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