Davos 2012: The Rise of Regions in a G-Zero World

Our old models of transnational governance are just that: old.

Our old models of transnational governance are just that: old.

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"Davos Man" was what the late renowned political scientist Samuel Huntington branded those who make the deep winter journey to the small town in Switzerland, of the same name, to attend the World Economic Forum, the world's most elite gathering of state leaders, multinational corporate chiefs, financial and economic gurus, and the world's richest people. The annual clock has struck - and the World Economic Forum meeting attendees gather today for a formal start tomorrow.

The world Davos Man lived in was abundant in clarity until a decade ago. The financial sector's wealth-generating innovations out-stripped nearly every other economic option and thus a world of diminishing friction for the movement of capital and freedom for the evolution of a global financial architecture became central to Davos Man's priorities.

Davos 2012
A special report on a global economy in crisis

Nations were out. Transnational economics and institutions in. Those developing nations that wanted to head up the global ladder needed to don what Thomas Friedman called "the golden straightjacket" and mimic the behaviors that had helped the US and West to generate phenomenal wealth, among hedge fund managers and those who traded in global financial instruments. Then they needed to send their next generation elites (usually the sons and daughters of the developing country's president) to Davos to become part of the club.

Over the last decade, however, clarity in Davos Man's ecosystem has been supplanted by confusion, a global financial meltdown, the rise of transnational terrorism, the triggering of costly wars, and the ascendance of beyond-finance issues like climate change, refugees, global poverty, and water. Global power today is being reshuffled to include other rising stars like Brazil, China and Turkey.

Today there are indicators that perhaps the last decade of disorder and distraction are ending, that gravity is returning to a revised global order, and that the World Economic Forum sessions in Davos may give us glimpses of what the next era of global governance and its key drivers will look like.

For America, the completion of the 9/11 Memorial provided closure that was, in many respects, more than symbolic. After all, in 2011 the U.S. further undercut Al Qaeda's global reach and assassinated Osama bin Laden. It officially ended the Iraq War and announced its timetable for withdrawal from Afghanistan. Taken together, the events of 2011 ended the post-9/11 era of security-focused US foreign policy.

Likewise, the financial crisis of 2008-2009 has faded as the fundamental driver of macroeconomic global policy. The euro zone has been left to deal with its current debt crisis largely on its own, as the rest of the world lets market pressure spur muddled results. The United States is showing signs of recovery in fits and starts as it puts the crisis behind it. On the whole, emerging market powerhouses like China have long since rebounded from the crisis and have returned to relentless growth. Most importantly, international cooperation in response to the crisis has not extended beyond it: the greater influence of institutions like the G20, so vital at the beginning of the global financial crisis, has since waned, and coordinated multinational policy has proved fleeting.

In 2012, it is now clear that a US security-driven foreign policy was just a decade-long detour that will not shape geopolitics in years to come. Likewise, the financial crisis no longer dominates policy, nor have its residual institutions engendered sustained international collaboration.

If the old global order is out, what is the new global order? If both the major security concern and the most significant economic event of the last decade have come and gone, where does that leave us? When the dust settles, where will global leadership and international governance come from?

These critical questions will drive the World Economic Forum debate in Davos this week, mainly because there are no simple answers. In the coming years, where will the world look for global leadership? When it comes to multinational institutions and the geopolitical balance of power, what model works?

While it is hard to predict what will work, it is easy to define what won't. Our old models of governance are just that. Old. Institutions such as the United Nations, the World Bank and the International Monetary Fund remain largely crystallized in their post-WWII form, when they were erected to serve as governance structures for global issues, based on broad multinational membership and decisions made by vote. Today, these global institutions have lost their efficacy, as they remain largely the same -- while the challenges they face have grown larger and have changed dramatically.

First and foremost, these institutions always needed global leadership from sovereigns in order to function effectively. The United States is losing its ability -- and willingness -- to take the lead on this front, and no other nation or group of nations can coordinate to fill the gap. After the financial crisis, the shortcomings of existing institutions were clear, and the G20 rose to prominence as a result. But the forum has proven too diverse and fragmented, as its members' interests continuously fail to align except in response to the direst of crises. The result?

We have entered the era of G-Zero, where institutions cannot provide coordinated leadership, nor can any durable alliance of states.

But no viable international framework does not result in no framework at all. We just have to zoom in.

A G-Zero World and the Rise of Regions?

In response to the global power vacuum, we'll see a return to geography as a primary organizing principle, where a country's placement will determine its friends and enemies, trading partners, and foreign policy focus to an outsized degree. Countries are already coming together in new ways on a regional level, filling the void left by global institutions with smaller-scale governance within limited spheres of influence. We will see new institutions, organized geographically that promote and reflect regional interests, and new trends exposing the ascendancy of neighborhoods in a G-Zero world.

This rise of regionalism, at its core, arises from an accepted truth: nations are selfish. They act in their own interests. But they also acknowledge that the unbridled pursuit of those interests produces sub-optimal results, and coordinated policies can help drive national agendas forward. In order to provide leadership that extends beyond the national stage, there is a growing reliance on regionalism to stopgap this shortage of effective global decision-making.

All regions are not created equal, however. This trend is not simply localized globalization, where the free flow of ideas, money, information, people, and goods has fractured along regional borders. A host of factors and forces are promoting unique constellations of regional power around the world. Clearly, the nature and degree of regional cohesion will vary. Some groupings are more formalized -- the European Union is the most formal and mature integration of states, with significant institutional capacity at a regional level. Other regions will be more informally arranged, with sheer power dynamics driving cohesion; in this regard, the Caucasus and broader Middle East regions come to mind. In some cases, unity will be more symbiotic with voluntary participation -- in other cases, a coercive local hegemon may impose integration on neighbors that do not have the capacity to hedge their bets against it.

Likewise, the integrative forces that impel coordination -- whether it is formal or informal, voluntary or coercive -- will differ dramatically. What combination of security, energy, economic, political, cultural, and religious concerns will prompt or repel integration, and influence how it takes shape? To ascertain the impact of a world with regional models, we'll take a closer look to determine how they have and will cohere.

Even with its influence in decline, the EU model of regional cooperation is still the most highly developed in the world, and the evolution of its governance structures, rules, institutions and power dynamics that emerge from the current crisis will likely be looked upon with great interest by those contemplating regional alliances of their own. It is the most formal regional grouping in the world, built on strong institutions, and also on voluntary membership. Organization runs along economic and political lines. While the eventual shape of the EU is currently more uncertain than it has been for decades, there is already increasing doubt that the EU will remain as concerned with equality for smaller countries, which may, as a result, find themselves less influential. While this smaller decision-making dynamic may result in some discomfort for smaller countries, enhancing this more realistic approach to decision-making could, in the end, allow the European Union to ultimately emerge stronger and with greater international influence. But it is a long road from A to B.

In the wake of the sovereign debt issues plaguing the Eurozone, it may seem logical for others to avoid increased regional integration to watch events unfold. However, we are seeing just the opposite. In October 2011, Vladimir Putin reiterated his call for a Eurasian Union, built on the existing platform of the Customs Union trade group with Kazakhstan and Belarus. He announced his grand ambition for "an even higher integration level in the Eurasian Union." This, however, betrays just how informal and involuntary Eurasian regional integration remains. Russia has been known to play the role of regional hegemon, using overt pressure in bilateral dealings with its neighbors. It has demonstrated its willingness to do so by attempting to bully Ukraine into the Custom Union. The key integrative forces revolve around security concerns, as Russia attempts to pool power; these, in turn, tie into shared energy concerns in the region.

In the Middle East, there has also been a call for more unity, from Saudi Arabia that wants to make its Gulf Cooperation Council (GCC), the political and economic union of Middle East Arab monarchies, the predominant regional grouping. It could evolve into a more influential organization with an outsized role in regional politics and beyond. The GCC played an integral part in responding to the Arab Spring, specifically within member states such as Bahrain, and it has expressed the willingness and capacity to fill some of the void left by a United States that is unwinding its commitments in the region and increasingly focusing its attention domestically and on Asia. Down the road, the GCC's could chip away at remaining US regional influence, or set a course at odds with core US interests more broadly. The organization is willing to evolve and grow; it has recently invited Morocco and Jordan to join its ranks.

But regionalization has many question marks in the wake of the US drawdown from the region. The vacuum of power is being filled by sectarian interests, where a host of powers, namely Iran, Saudi Arabia, and Turkey will jockey for influence.

Asia is the most problematic regional grouping in the longer term, with too many powerful actors with diverse interests for anyone to emerge preeminent. The existing institutions reflect this power struggle. The Shanghai Co-operation Organization (SCO) was originally designed to build confidence around issues of border security, as well as a means to enable Central Asian energy supplies and to provide a larger market for Chinese goods. China certainly has the capacity to cement a regional sphere of influence that would directly challenge US economic and security interests in Asia and have knock-on effects for the global economy. But where the lines of influence would be drawn remains to be seen, as China jockeys with neighbors who want to hedge against its influence with US security promises. The slow process will signal what is to come and impact other regional organizations such as the Trans-Pacific Partnership (TPP) in the nearer term.

Despite the various degrees of integration and success that we will see from region to region, it is important to put the pieces together and determine the global picture that emerges. What sort of international collaboration is feasible within this "multi-track" regionalism? Where will it most critically fall short?

Global organizations such as the UN and the WTO have an inbuilt mandate to address problems that require international solutions: climate change, weapons proliferation, trade protectionism. Regional organizations are far less likely to take up global causes - which will likely be even more neglected in the new, regionalized world. For this reason, a world of regional groupings clearly pales in comparison to a viable global political system. But such a system is gone and not coming back for the foreseeable future.

Regional models are second-best to a world of effective global governance, as they are clearly preferable to raw nationalism as an alternative, and reflect the broader diffusion of international power. Nations recognize the better-than-nothing viability of such a model, which is prompting the moves toward regional integration that are already underway.

But the new system raises a host of thorny questions. What does this mean for globalization, as geographical connections become increasingly vital in shaping multinational connections? How detrimental will the rise of regions be when it comes to global issues that require broad, consensus-driven governance? Who wins and who loses in such a world? What kind of regional groupings, nations, or even corporations stand to gain?

Gravity in global affairs may be returning after a topsy-turvy, power-reshuffling decade, but gravitational forces and pulls will work differently as financial elites, heads of state, multinational firms, NGOs and others sort out how best to maximize their situations in a revised global system that still waits to be understood and calibrated. This will be the next task for those dubbed "Davos Man" by Huntington.

From January 25th to 28th, the World Economic Forum discussions will revolve around these global order questions, and the answers will reveal characteristics and behaviors of an emerging world of new regional models.

Has a decade of distractions ended?