Atlantic Council BRENT SCOWCROFT CENTER PRIMAKOV INSTITUTE OF WORLD ECONOMY ON INTERNATIONAL SECURITY AND INTERNATIONAL RELATIONS

Global System on the Brink: Pathways toward a New Normal Joint Study by the Atlantic Council’s Strategic Foresight Initiative and the Russian Primakov Institute of World Economy and International Relations Global System on the Brink: Pathways toward a New Normal

Joint Study by the Atlantic Council’s Strategic Foresight Initiative and the Russian Primakov Institute of World Economy and International Relations

EDITORS Dr. Mathew Burrows Professor Alexander Dynkin Director Director Strategic Foresight Initiative Primakov Institute of World Brent Scowcroft Center on International Economy and International Relations Security, Atlantic Council (IMEMO)

Atlantic Council IMEMO Mathew Burrows and Vasily Mikheev, Alexey Arbatov, Natalia Ivanova, Robert Manning (key authors) Alexey Kuznetsov, Feodor Voitolovsky, Givi Machavariani (key authors) Aparajitha Vadlamannati, Diya Li, Meghan Check, Peter Engelke, Bjorn Bolte (contributors) Sergey Afontsev, Nadezhda Arbatova, Ivan Danilin, Alexander Fedorovsky, Sergey Lukonin, Yakov Mirkin, Vitaly Shvydko, Vyacheslav Trubnikov, Stanislav Zhukov (contributors)

ISBN: 978-1-61977-979-2

This report is written and published in accordance with the Atlantic Council Policy on Intellectual Indepen- dence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions.

December 2015 TABLE OF CONTENTS

Foreword 1 Executive Summary 3 The Changing Face of Globalization 4 War: Potential for Major State Conflict 4 The Global Economy: Growing Polycentrism 9 Energy Sector: Growing Uncertainties 12 New Technologies: Generator of Social Disruption 12 Regional Trends 13 Another World Order is Inevitable, but What Kind? 16 Recommendations 18 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL FOREWORD Dear Reader,

We’re delighted to present The Global System on the Brink: Pathways toward a New Normal, a joint study by the Strategic Foresight Initiative of the Atlantic Council’s Brent Scowcroft Center on International Security and the Primakov Institute of World Economy and International Relations (IMEMO). The study began before the onset of the recent crisis in cooperation between Russia and the West. US-Russian relations, but is even more relevant today as we seek to avoid a greater conflict and achieve a new normal of In keeping with previous forecasting works published by the Atlantic Council and IMEMO, the study examines current trends and potential scenarios for global developments over the next twenty years. The goal is not to predict the future so much as to highlight the challenges and opportunities ahead. The crisis in US-Russian relations is only one facet of a world at an increasingly dangerous inflection point. Despite the rapid globalization of the past few decades, which promised withcooperation nationalist, and religious,integration, and the historical-psychological potential for major state overtones. conflict is on the rise due to deep fragmentation within and between societies. The old confrontation between capitalism and communism has given way to conflicts of moral values The crisis in relations between Russia and the West from 2013 to 2015 shows that economic interests and cooperation

The East-West situation differs considerably from that of the second half of the Cold War era (mid-1960s to mid-1980s), in international security are not sufficient to prevent conflict based on political, geopolitical, and ideological ambition. followingwhen tacit the “untouchable” end of the Cold geopolitical War—a time spheres when of theinfluence big powers were avoidedclearly delineated, serious differences, and other often zones because were not Russia worth and the Chinarisk of acquiesced a direct military to Western conflict. leadership. The situation from 2015 through 2035 will be far different from the first twenty-five years

The worst outcome would be the emergence of a new bipolarity, pitting a group of states centered around China and Russia against the United States and some European and Asian allies. A somewhat less dangerous outcome would be a still exist. global breakup into regional blocs and spheres of influence, in which the potential for ad hoc global cooperation would

StrengtheningWhile we particularly the nuclear want nonproliferation to underline the regime seriousness and the of ourTreaty current on the situation, Non-Proliferation the study alsoof Nuclear emphasizes Weapons the (NPT) requiresopportunities consensus that exist among for allboth NPT our signatories countries (currentlyand the rest 190 of thecountries), world should including we findcountries ways tothat narrow could differences.violate the treaty. This would be very hard to achieve under the best conceivable circumstances, but this will be totally impossible in an environment of confrontation among the great powers. During the period from 2015 to 2035, more threshold countries are likely to emerge, and in the worst-case scenario, a chain reaction could occur, in which nuclear proliferation leads to otheran expansion countries of isthe equally “nuclear important club” from on othernine to areas fifteen of sharedor more interest, members. such This as counterterrorism;would make the use opposition of nuclear to weapons religious- in a regional conflict or their acquisition by terrorists much more likely. Cooperation among Russia, the United States, and global commons, including a peaceful outer space. Such cooperation is perhaps only possible if tensions do not escalate, andbased the violent major extremism; powers keep global their economic competition growth under and stringent financial control stability; in other combatting realms. climate Although change; looking and out safeguarding twenty years the to the future might not seem like a productive way to deal with the current East-West crisis, thinking about the kind of world we want to bequeath to the next generation may actually be the best way to start the process of overcoming the conflicts and harmful differences of today. Frederick Kempe Alexander Dynkin President and CEO Director Atlantic Council Primakov Institute of World Economy and International Relations

ATLANTIC COUNCIL 1 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL EXECUTIVE SUMMARY particularly if it pulls down growth and puts heavy point. Ironically, much of the danger ahead stems from theThe success world is of at the an post-Worldincreasingly War dangerous II international inflection system: in the two decades since the end of the Cold War, pressure on public finances. By 2035, an increasing portion of the world’s financial resources will be goods, and people—has connected economies, people, concentrated in regional clusters away from the US-UK andglobalization—the nations more tightly transborder than ever flow before of information, and led to money,the • financialThe global hub. energy sector will experience price and massive ongoing shift of wealth and population from West investment uncertainty. A peaking in global oil consumption is likely to happen by 2035-40, but could opportunities, but it also poses serious risks. As the world be accelerated if the Chinese economy slows down becomesto East and more North interdependent to South. Globalization and interconnected, provides many a faster than expected and India’s economy fails to reach plethora of state and nonstate actors—some of which see high growth rates. • New technologies, such as robotics and automation, power, creating greater instability and fragmentation. themselves as marginalized by globalization—are vying for will take more jobs away from people, triggering Looking out to 2035: a social and political backlash against established national and multilateral institutions. Over time, • growing domestic inequalities may be lessened as new, between the United States/NATO and Russia, and China well-paid jobs are created and education and skills The risk of conflict among the big powers, including increase. second-tier powers, such as those between India and Pakistan,and its neighbors, could spill is overgrowing, into andnuclear conflicts war. Sectarianbetween Given the depth and breadth of the changes that will transform the global landscape, a new international order and Arabs are worsening, potentially sparking a major is inevitable. However, no hegemonic force can shape warconflicts along between religious, Sunnis ethnic, and and Shias, political and betweenlines. The Kurds the global system, as was the case in the post-World War growth of armed Islamic extremism as an answer to II order, and no consensus exists on what kind of new growing external interventions is another long-term international order should be established. Nevertheless, opportunities to mitigate or avoid the risks ahead do been at a historic low since the end of the Cold War; exist. The international community’s shared interests in itsdestabilizing reversal is factor.the single The biggestincidence threat of conflicts to longer-term has confronting and mastering an array of global challenges far outweigh any differences. We hope that knowledge of the forces eroding the foundations of the post-Cold War • globalDeveloping economic countries growth will and increasingly globalization drive itself. the international system will serve as a guide in developing global economy. The Chinese renminbi (RMB) will an inclusive rules-based multilateral order that can again join the dollar and euro as a third reserve currency. A globally aging population introduces a new risk factor, global cooperation. lower the risks of conflict, while providing the basis for

ATLANTIC COUNCIL 3 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

THE CHANGING FACE OF GLOBALIZATION volatile global environment with increasing gaps between theThe core character and periphery of globalization of the world is changing, economy. creating The loss a more of national sovereignty is a growing battle cry for those opposed to globalization. instead, it is occurring on terms set by non-Western cultures, asGlobalization wealth and is technology no longer spreadsequivalent to theto Westernization; east and the south. and developing economies, but it has deepened economic differencesGlobalization domestically has reduced in inequalities practically allbetween countries. developed Anti- immigrant sentiment is rising at a time of increasing job insecurity. The sources of instability are not just on the surface between nations, but are deeply rooted in cultures and societies undergoing immense unraveling. Financial crises can’t be ruled out even if the more polycentric Agreement in Seattle, September 2006. Photo credit: Wikimedia Commons.Demonstration against the United States-South Korea Free Trade controlfinancial market system forces—is becomes moreseen as stable. a universal The governance problem in deficit—the absence and ability of any regulatory body to intellectual and moral values with more or less religious andcommunism historical-psychological has given way to overtones. nationalism These and differences conflicts of bothGovernmental advanced powerand fledgling is becoming countries. more diffuse. The nation- are even more serious when linked to the domestic political interests of particular countries’ ruling circles. and from below by ethno-nationalism and individual empowerment,state system is challenged which will fromremain above potent by globalizationforces through Compared to the last twenty years, the big powers will to the year 2035. The instant, 24/7 access to information has sparked a “global awakening” in expectations—seen to take opposing sides in the period of 2015-35. They be more likely to get involved in various conflicts and 2011 Arab Spring—and local, traditional sources of identity as a result of an escalation of crises. This risk applies might be unintentionally drawn into direct armed conflict havedramatically become but reinvigorated. briefly across Forces the Middle of fragmentation East with theare most immediately to the differences between Russia, evident worldwide in secessionist efforts from Scotland and Catalonia in Europe to South Sudan in East Africa. The United States/NATO in the post-Soviet space, and, less the Shanghai Cooperation Organization (SCO), and the future of the Arab state system in the Middle East is in likely, to Chinese and US relations with both countries’ allies and partners in Asia. The growing turbulence in the Middle East and, to a lesser extent, South and alldoubt. levels, Anti-globalization from local to global. stirrings by themselves won’t stop globalization, but they will undermine trust in governance at powers and a potential breakdown of the world order. A East Asia sets the stage for conflict between the major and increased mobility and migration—will continue to challenged ideal of an inclusive liberal world order and Demographic trends—rapid aging, greater urbanization, putconflict the globalinvolving economy the great at risk. powers would end the already will struggle to temper “demography as destiny” if aging compound the difficulties of governing. Many governments The ongoing crisis in Russia’s relations with the US and increased migration intensify public discontent. the European Union (EU) starting in 2013-15 shows causes an economic slowdown, and rapid urbanization and that economic interests and cooperation in international WAR: POTENTIAL FOR MAJOR geopolitical, and ideological ambition. The current confrontationsecurity can be differs sacrificed considerably for the sake from of thatpolitical, of the mid- STATE CONFLICT 1960s to mid-1980s, in second half of the Cold War era, SOURCES OF VOLATILITY when tacit “untouchable” geopolitical spheres of influence Despite the promise of cooperation and integration were clearly delineated, and other zones were not worth the risk of a direct military conflict. The situation through 2035 will also be far different from that of the first becauseemanating of deepfrom fragmentationthe rapid globalization within and of the between past few the big powers avoided serious differences, often because twenty-five years following the end of the Cold War, when societies.decades, the The potential old confrontation for major betweenstate conflict capitalism is growing and Russia and China acquiesced to Western leadership.

4 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

WORST-CASE OUTCOMES The worst outcome would be a new bipolarity with the the region, sectarian conflicts between Sunnis and Shias emergence of a grouping around Russia and China facing betweenand between Saudi Kurds Arabia and and Arabs Iran could is already worsen, under eventually way, and a United States with some European and Asian allies. A sparking a major conflict in the region. A “cold war” somewhat less dangerous outcome would be the breakup supporteda “hot” regional by Saudi conflict Arabia is occurring and its Sunni in Yemen. allies, Pro-Iranianincluding potential for greater ad hoc global cooperation would still theHouthis, United as Arab a branch Emirates of Shia, (UAE) are fightingand Egypt. Yemeni The Middle Sunnis in regional blocs and spheres of influence in which the exist but is not guaranteed. A remote possibility would be a East is a platform for increasing tensions between the return to a more inclusive, integrated world order, in which United States and its partners against Russia, Iran, and interstate competition was kept in check and in which others who want to bolster Syrian leader Bashar al-Assad. there was more scope for cooperation.

For both the United States and Russia, a new global bipolarity or possible breakup of the world into regional A REMOTE POSSIBILITY blocs would create new challenges. US capacity would be stretched to the breaking point if tensions with Russia and WOULD BE A RETURN China escalate at a time of increased security concerns TO A MORE INCLUSIVE, in the Middle East. The breakup into regional blocs and INTEGRATED WORLD ORDER IN WHICH aspheres global coalitionof influence on challengeswould increase like counterterrorismthe number of players and nonproliferation.with divergent interests, In a new making bipolar it system,more difficult Russia towould sustain INTERSTATE COMPETITION end up not only in confrontation with the West, but it also WAS KEPT IN CHECK part. In a regional blocs scenario, if Russia’s relations with AND IN WHICH THERE thecould West be drawndeteriorated into conflicts even further, in which that it wouldoriginally inevitably had no poison China’s and India’s relations with the Western bloc WAS MORE SCOPE FOR and strengthen the SCO. After its enlargement in 2015, COOPERATION. already comprises four nuclear states. it has increased its institutionalization substantially and In East Asia, China has been undertaking a massive Number of Regions Ripe for Conflict. Practically any part of the post-Soviet space and surrounding regions, the buildup of its conventional forces, in particular its navy, which occurs against a backdrop of a shift in the nuclear and the northern part of the Indian Ocean could become balance of power in China’s favor. The reach of China’s thewestern site of part serious of the competition Asia-Pacific between region, the major Middle powers. East, The navy will cover the entire region in which US allies and increasing range and reduced response time of current and partners are located (Japan, Malaysia, the Philippines, emerging non-nuclear offensive weapons systems and their highly automated command-and-control systems heighten Singapore, South Korea, Taiwan, Thailand, and Vietnam), the risks of accidental or provoked military incidents and neighboring seas. reflecting Beijing’s growing geopolitical ambitions in its If China engages in military and political expansion in the rapidIf Ukraine escalation continues of armed to disintegrate conflict. and Russia becomes more-heavily involved, NATO, the United States, or a a new bipolarity could develop. Such a system would western part of the Pacific Ocean and in the Indian Ocean, “coalition of the willing” might engage in direct military include, on the one hand, a loose group centered around China and Russia, including some Collective Security Treaty the possibility of a crushing defeat, it might perceive that intervention, resulting in head-on conflict. If Moscow faces Iran, and probably others depending on circumstances, Organization (CSTO) members of Central Asia, North Korea, states, “constitute a threat to [Russia’s] statehood” and and, on the other hand, an alliance centered around the forcesuch aRussia conflict to would,use nuclear as Russia’s weapons. new Even military without doctrine going United States, including US allies in Europe and Asia. to such extremes, actions by the Russian and NATO navies Likelihood of Nuclear War Increasing. As geopolitical and air forces in the Black and Baltic Seas today have raised into regional nuclear war between second-tier nuclear threat of such crises will grow if relations with the West powerstensions will increase, also increase. the likelihood Worsening of conflicts relations spilling between over the risk of military incidents leading to armed conflict. The become confrontational and East-West tensions increase. India and Pakistan pose the biggest risk of this kind.

In the Middle East, surrounding countries and regions— Pakistan, which has no clearly formulated nuclear doctrine, such as Turkey, Egypt, and Europe—are increasingly focused on domestic issues. With less US engagement in

ATLANTIC COUNCIL heavily relies on the principle of making a first nuclear 5 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

The P5 plus Germany along with Iran announce the nuclear deal framework in Lausanne on 2 April 2015. The framework deal became Photo credit: US Department of State. the basis for a final agreement, the Joint Comprehensive Plan of Action, which was agreed on 15 July 2015.

rather the use of force to prevent their development and proliferation. The current agreement is only slated to last situationstrike; India, and on the the threat other of hand, Islamic has radicals pledged (the a no-first-use Taliban) andnuclear international policy. A flare-up terrorists in Pakistan’s(al-Qaeda) domestic getting their political hands confrontation if Iran does not extend its renunciation of nuclearten to fifteen weapons. years, opening up the potential for another on nuclear weapons might also lead to conflict. War, especially if the United States gets involved on Israel’s toA premeditated develop intercontinental nuclear attack ballistic by North missile Korea capability against off a rapid upsurge in Islamic radicalism around the world. South Korea or the United States (Pyongyang is projected Itside, could would also risk push destabilizing the Arab and nuclear Muslim Pakistan countries and into setting a large-scale departure from the Nuclear Nonproliferation in the next ten to fifteen years) is unlikely. However, Treaty (NPT) and encourage some countries to step up periodic attempts by North Korea to increase tensions their own military nuclear programs with the aim of usingcould nuclearprovoke weapons. an armed In conflict. such a Ifsituation, the North the Korean United acquiring nuclear deterrent capability against the United Statesregime might were decideto find toitself launch facing a pre-emptive defeat, it might strike resort using to States and Israel. high-precision conventional weapons; Pyongyang would probably respond by using its surviving nuclear arms. This would irreversibly undermine the legal foundations of the nuclear nonproliferation regime. The Iranian nuclear agreement paves the way for new opportunities to strengthen the nuclear nonproliferation regime and IndiaA conflict and betweenPakistan. IndiaChina and would China be isunlikely much lessto use likely nuclear the controls over critical technology and materials weaponsduring the even next if twenty a war between years than India a conflict and Pakistan between turned through cooperation between big powers and regional nuclear. At the same time, tensions in the Indian Ocean will players. probably increase and might provoke a number of armed clashes, though these would not turn nuclear. Growing Regionalized Conflict. increase during the next twenty years, even if the big The risk of conflict will necessarily escalate to include the use of nuclear weapons. agreementDuring the nextof July twenty 2015, years, regarding Israel the or limitation Iran could and fight an Thispowers applies do not above get directlyall to the involved. Middle EastSuch and conflicts neighboring will not transparencyinterstate conflict of the if programeither side or violates the lifting the of comprehensive sanctions. would not involve the actual use of nuclear weapons, but alsoregions, drawing with inthe Afghanistan, possibility that Pakistan, conflict Central areas Asia,could and merge If such a conflict occurs, it would be quasi-nuclear—it to form one large zone from Morocco to the Hindu Kush, 6 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

assets would forge predominantly confrontational relations THE LIKELIHOOD OF A among the principal international players. MAJOR WAR BETWEEN OPPORTUNITIES THE MAIN POWER CENTERS WILL INCREASE military operations under United Nations (UN) aegis to imposeDespite orthe maintain growing peace risk of or conflict, to prevent the numbergenocide, of ethnic RELATIVELY, BUT WILL cleansing, and humanitarian emergencies—and perhaps STILL BE LOWER THAN IT also to prevent technological disasters and to protect the environment—could increase. States no longer have the WAS DURING THE FIRST monopoly on killing or disruption on a large scale. The next PART OF THE COLD WAR accessible instruments of war, especially precision-strike (1947-62). capabilities,fifteen to twenty cyber years instruments, will see a and wider bioterror spectrum weaponry of more potentially being used by international terrorist and Iran (if a military strike is launched against its nuclear infrastructure). number of operations by states to combat them is likely to increase.transnational criminal organizations. Concomitantly, the The risk of armed Islamic extremism in the region (this is an issue that is simultaneously domestic, transnational, The major powers and the main regional players could also and transregional in nature) remains the most serious collectively use force to prevent the proliferation of nuclear threat to international security. Islamic armed extremism weapons and cut off terrorists’ access to them. Operations could take the form of attacks on secular pro-Western of this kind on a multilateral basis or under the mandate of the UN and/or regional security operations might occur and Shias; and an increase in piracy in the Mediterranean more frequently during the next twenty years. and Redanti-Western seas, around state the regimes; entire Africanconflict coast,between and Sunnis in the Arms Control. For France, Russia, China, and India, the nuclear deterrent could play a less important role in northern Indian Ocean and western Pacific Ocean. guaranteeing security than it does today, if geopolitical and Southeast Asia and also equatorial Africa, where a competition decreases. If geopolitical competition Other regions where conflict could spread include Central increases, there will be much weaker incentives for between Muslim and Christian populations, providing movement toward nuclear disarmament. The emphasis will fertilegrowing ground number for offurther countries expansion could beof terrorism.drawn into conflict shift to cutting-edge, high-precision, long-range offensive and defensive weapons as well as non-nuclear deterrent Nature and Types of Conflict. The likelihood of a major concepts. In a more competitive security environment, war between the main power centers will increase nuclear weapons would play a greater role in military- political relations between the big players and smaller part of the Cold War (1947-62). Hybrid wars, selective nuclear powers, as well as between the new nuclear and militaryrelatively, operations, but will still long-range be lower precisionthan it was strikes during (non- the first threshold countries. contact wars), the use of small mobile units in special operations (rapid power), communication disruptions, If the major powers cooperate, Russia and the United and blockades will play bigger roles in the use of military States could reduce their nuclear arsenals to around 1,000 power. Such means will not be used to achieve victory over strategic and tactical warheads. Britain and France will get the enemy, but to reach limited objectives. These objectives involved in this process by the mid-2020s. By that time, include changing the country’s regime or subjugating the international community might be able to bring the a state through direct external threats to its territorial Comprehensive Nuclear Test Ban Treaty into force and integrity or violating territorial integrity by engaging local armed opposition groups. conclude the fissile material cut-off treaty, at least between The major powers and their allies are unlikely to engage theIf—with five big the nuclear help of powers.Russia, the United States, and China— resources (including fresh water), Arctic transport routes, and Islamabad could conclude a nuclear arms limitation andin conflict territories with andeach key other geographic over energy nodes and abroad. other naturalThe treatyIndia and during Pakistan the 2020s. can avoid In the nuclear context conflict, of general New security Delhi the interdependent big powers would be far greater than and strengthening the nuclear nonproliferation regime thedamage hypothetical and consequences advantages of to any solving large-scale disputes conflict through for (particularlyand political andpertaining military to stabilization Iran’s nuclear in program),the Middle Israel East military means. However, large-scale military deployments could end the use of operationally deployed nuclear and an intensive arms race to gain control over the above weapons by 2035 (following the South African example).

ATLANTIC COUNCIL 7 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

British, Russian, and American astronauts wearing Russian ‘Sokol launch and entry’ suits before an expedition, in November 2015. Photo credit: US National Aeronautics and Space Administration/Flickr.

Israel would keep the weapons-grade material in storage Chemical and Biological Weapons. Regardless of whether under the International Atomic Energy Agency safeguards the major powers cooperate or compete, by 2025—much but dismantle the explosive devices. During the next later than the deadline set by the 1992 Convention—global stocks of chemical weapons held by states will have been could collapse and be united with the South, likely resulting destroyed in full. The situation pertaining to biological twenty years, North Korea’s political and economic system weapons is different, however. The ban on these weapons, established by the 1972 Convention, is not supported by inChina a unified might Korea play a that greater renounces role in nuclear weapons.and other arms control efforts, probably working bilaterally with the controls for new types of bio-weapons (e.g. through genetic United States. Greater Chinese involvement in nuclear engineering)a verification wouldsystem. be The possible development on a multilateral of new bans basis and only and advanced conventional arms control efforts could be if the big powers cooperate. motivated by China’s desire to take Russia’s place as the second superpower, a status traditionally associated with Proliferation and the Nuclear Energy Threat. With the privileged role of the counterpart in strategic arms climate change, we can expect to see a considerable talks with the United States. increase in nuclear energy use over the forecast period. In a worrisome trend, the increase will occur in many unstable Arms Cooperation or Race in Space? The only way to prevent an arms race in space would be to improve in global oil prices could slow the pace of nuclear energy the legal basis for activity in outer space, particularly developmentand conflict-prone but will parts not of change the world. the fundamental The current droptrend. by expanding restrictions and bans on weapons deployment in orbit and on developing land-, air-, and During the next twenty years, a breakdown in the barriers sea-based means of destroying objects in space. If global between “military” and “peaceful” nuclear energy use is likely to occur, primarily driven by nuclear fuel cycle the accidental collision of Russian and US satellites in technology. 2009—willcompetition probably intensifies, occur. more In spaceaddition, incidents—such antagonists might as disrupt the operation of each other’s space systems, with Nuclear energy (like the space sector, which is linked to unpredictable socioeconomic and military consequences. missile technology) has both an economic and a political dimension in terms of countries’ status, prestige, and

8 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL defense capability. Nuclear weapons will increasingly countries, so too will their contribution to global economic morph from being one of the attributes of the leading growth. In 1990, the developed countries accounted for powers to being a “weapon of the poor,” to be used against 59.8 percent of global GDP, but by 2013, their share had adversaries’ superior conventional forces. This shift decreased to 43.3 percent. We anticipate that by 2035, the increases the risk of their deliberate or accidental use in developed countries’ share of global GDP will drop to 32 local wars. percent of global GDP in terms of purchasing power parity.

Contrary to the logic underpinning the Nonproliferation Treaty (NPT), peaceful nuclear energy has not become NUCLEAR WEAPONS WILL an attractive alternative to developing nuclear weapons. INCREASINGLY MORPH nuclear weapons and, for many years, Iran had been FROM BEING ONE OF North Korea used nuclear energy as a cover for developing other countries in Asia, Africa, and Latin America—many THE ATTRIBUTES OF THE ofsuspected which are of unstablefollowing and/or North Korea’sare involved example. in regional By 2035, LEADING POWERS TO BEING A “WEAPON OF THE POOR” conflicts—mightStrengthening the also nuclear take thisnonproliferation road. regime and the NPT requires consensus among all NPT signatories TO BE USED AGAINST (currently 190 countries), including countries that could ADVERSARIES’ SUPERIOR violate the treaty. This is hard to achieve even under the best possible circumstances, but would be completely CONVENTIONAL FORCES. impossible if the great powers think in confrontational THIS INCREASES THE RISK terms. Until 2035, more threshold countries are likely to emerge, and in the worst-case scenario, a chain reaction OF THEIR DELIBERATE OR could occur in which nuclear proliferation leads to an ACCIDENTAL USE IN LOCAL members. This would greatly increase the probability of WARS. expansion of the “nuclear club” from nine to fifteen or more getting access to a nuclear explosive device. The global reserve system will also evolve toward nuclear weapons use in regional conflicts and of terrorists polycentrism. During the next twenty years, the US dollar Preventing nuclear terrorism is clearly an area of common (USD) will preserve its status as the global reserve currency, interest between the great powers and their allies, regardless of the nature of their relationship. However, cooperation among Russia, the United States, and other isaccounting in US dollars. for the At thebiggest same share time, of the global Euro finance has become (up to a 45 de countries on the security of nuclear munitions and factopercent); reserve currently, currency, more and than it will 60 remainpercent the of global second finance reserve materials in a bilateral and multilateral format could be restored and expanded only if tensions do not escalate and percent; currently, its share is 20-25 percent. the major powers do not compete in other realms. currency. Its share of global finance could reach 25-30 In the next ten to twenty years, a third reserve currency THE GLOBAL ECONOMY: will appear. This new common currency might be the GROWING POLYCENTRISM possibility,Chinese Yuan, with which more will time account and effort for 10-15required percent and fewer of SOURCES OF VOLATILITY global finance. A new common currency for Asia is another By 2035, the structure of the global economy will be chances to be realized any time soon. radically altered, owing to differences in growth rates economies will be growing faster than developed countries between developing and developed countries. The The fact that the newly industrialized and emerging economies of developing countries and emerging new systems. These include the potential for excessive risk- markets will continue to grow at nearly twice the rate of will increasingly lead to big imbalances in their financial the developed countries, according to Institute of World Economy and International Relations (IMEMO) modeling. taking, higher volatility and returns on financial assets, Following a deep economic crisis in 2008 and the beginning fierce inflation, heavy debt burden, piles of bad assets, and of structural reforms, developed countries have seen higher financial dependence on foreign sources. growth rates in recent years, but collectively they will will operate out of more mature developing countries, not achieve the same high growth rates over the next two However, a significant part of the financial markets decades as they did in the 1990s. As developing countries’ GDP continues to grow faster than that of developed enhancing the financial depth of the global economy. A polycentric reserve system and financial architecture ATLANTIC COUNCIL should contribute to greater stability in global finance. 9 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

Sophisticated systems of macro-prudential supervision The role of the state will strengthen in the next decade, and will be developed at the national and international levels. then this trend will be replaced after eight to ten years by a This will lead to the dampening of volatility. The resulting structural reforms to make more space for market forces. of moderately increased volatility (lower than that of the new wave of liberalization, privatization, deregulation, and 1890s-1940seconomic and but financial higher environment than that of thewill 1950-60s), probably be with one periodic market booms and crashes, and instances of crises are inevitable (“ripples on the surface of a long markets getting out of control and falling into imbalances. In the long-term cyclical expansion, the local financial to six big local crises during the next decades. These will Growing Regionalism. occurwave”). either IMEMO in emerging modeling markets forecasts (Asian that there economies, will be post-five model” will be changed. At the end of the twentieth and the By 2035, the world’s “financial resources were accumulated and redistributed mostly infections,”Soviet marketplace, or in innovative Latin America, segments Islamic of developed finance), capital caused beginning of the twenty-first centuries, the world’s financial markets,by their imbalances, due to the “bubbles” speculative of attacks,the new andeconomy “financial and andthrough concentrate the “US +in UK regional + offshore” clusters financial like the hubs. EU, ASEAN,But by 2035, and an increasing part of financial resources will pass through financialThe long-term innovations. cycles of the USD exchange rate values insular to some extent, owing to the integration of regional against the Euro and a basket of world currencies will economiesMercosur. Moreover, and the growth regional in financialtheir domestic systems demand. will become continue (it exists from the beginning of the 1970s). The related cyclic changes in the world prices of commodities

The Anglo-Saxon model (“US + UK + offshore”) will still and financial assets that have appeared since the beginning serve the largest financial players in processing major ofAs 2000systemic will risksgenerate pile theup, awaves chain of reaction financial resulting instability. in “shareholdercapital flows. capitalism”It will play aof crucial the Anglo-Saxon role in the redistributionmodel will the transmission of risks will occur repeatedly, leading of financial resources among regional clusters. The of the real economy. As a consequence, two scenarios continue to fulfill its key global functions: the development to financial contagion, cross-border shocks, and crises andof financial the “natural innovations selection” and of risk weak management, economies. venture financing, world pricing of commodity and financial assets, riskare possible. management The first at the and macro- more andlikely micro-levels. scenario is theA second, lessaccelerated likely scenario globalization would and occur increased if the super-concentration efficacy of financial an increasingly prominent role. The development of a Regional multilateral financial institutions will play clusters will lead to a relative decline in the role of the of risks in global finance undermines the viability of the Internationalpolycentric financial Monetary architecture Fund (IMF), and World its subordinated Bank, Bank for currency,financial system. etc.) crises Finally, and thecan separate spread to big the risks real will economy, be International Settlements, the Organisation for Economic causingmagnified a “waterfall” as a consequence of social of and financial economic (banking, disruptions. debt, In Co-operation and Development (OECD), and the World of a lever to initiate the long process of degradation of the globalthis scenario, economy. global finance and its risks will play the role Trade Organization (WTO) (financial services). The G-20 making.could play The a greaterFinancial role Stability in the globalBoard, financial representing system, G-20 creating its own infrastructure for financial decision- will experience the growth of its regulatory role. economies, particularly the United States, have become major economies (90 percent of global financial assets), netAt the importers beginning of capitalof the twenty-first that is channeled century, from developed the export-oriented developing countries (resource-based and monetary unions will increase. These institutions economies and the “workshops of the world”), who The significance of free trade zones, common markets, have become global creditors. This situation could change in the event of global economic rebalancing. If will serve as mechanisms for financial integration within Eurasianregional clusters areas will and be as of financial particular bridges importance. between them. Free trade zones bridging Transatlantic, Transpacific, and Financialcommodity recovery prices fallof the and/or developed re-industrialization economies of WORST-CASE OUTCOMES developed countries occurs, the flows would reverse. restructurings, and reductions of government debt burden)(manifesting could itself also in help higher the Unitedsaving rates,States public and several finance Strong expansion and the fast growth of global investments other developed economies return to their role as net Long-term economic and financial cycles will continue. exporters of capital. to early 2020s, combined with increasing volatility and strengtheningand market capitalization of systemic arerisks forecast to the middlefrom the of mid-2010sthe third

10decade of the twenty-first century. ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

Table 1. Average gross domestic product growth in 2013 purchasing power parity terms (percent)

1991-2000 2001-10 2011-13 2014-20 2021-30 2031-35

World 3.0 3.8 3.5 3.8 3.7 3.7

Developed countries 2.7 1.7 1.4 2.3 2.6 2.6

USA 3.4 1.6 2.0 2.7 2.8 2.8

EU 2.1 1.5 0.5 1.7 2.3 2.3

Developing countries and 3.4 6.2 5.4 4.9 4.5 4.3 countries in transition

China 10.4 10.5 8.3 6.5 5.0 4.0

India 5.6 7.5 6.2 5.9 5.5 5.3

Brazil 2.6 3.6 2.8 2.5 3.2 3.5

Russia -3.9 4.8 3.0 2.5 3.5 4.0

Source: IMEMO calculations. OPPORTUNITIES developed in the early 2010s, will be gradually replaced There will be a transition toward more complex byA repressive an incentive-based system of tax taxing system financial aimed transactions, at concentrating development in order to ensure sustainable economic growthmanagement and more of macro-financial balanced economies. structures In this and framework, financial liquidityThere will and be long-termtransition financingtoward a multi-tier,in the domestic polycentric markets. ideas of the twentieth century, which are related to the the financial authorities will traditionally address the ratesystem than of theregulation real economy. that can The hold regulatory and stabilize framework the will and capability to effectively manage the exchange rates and be“supersized” based on a global hierarchical finance structure, system, expanding supported at by a ahigher mix of intereststability rates.of prices, low inflation, health of public finance, linear, functional, regional, and project structures. The shift

Alongside these traditional concerns, the central issue (primarily regional) base will continue. will become the regulation of the following: the rate of of financial regulation from the national to international economic growth, ownership structure, capital raising capital raising instruments, savings rates, savings and ofWith law; regard wider to implementation international finance, of the international the marketplace investment,models in the the economy, tax burden, financial the relationship depth, structure between of the standardswill be increasingly on the macro- unified and due micro-levels; to the harmonization multiplication of best practices; and greater use of information sharing agreements, “Single Passport” programs for integrated prudentialpublic and privatesupervision, (corporate, and reduction household) of systemic finance, risks.internal markets, common rules inside global trading platforms and external financial sources of economic growth, macro- and major infrastructure institutions, agreed formats of information disclosure, and more comprehensive sustainable economic growth and mitigation of cyclical international statistics. Developments of the financial system promoting behaviorATLANTIC and excessive COUNCIL volatility will be prioritized. 11 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

OPPORTUNITIES Unregulated space in finance could be reduced. A trend Time has conclusively disproven the theory that a peak in disclosure,toward centralized safekeeping, regulation clearing, will and persist, settlement including for alla oil production would be followed by a shortage of energy gradual transition to centralized systems of information resources that would constrain global economic growth. with nonconventional assets and instruments across Energy resources will not become a limiting factor for over-the-counter (OTC) financial transactions, especially economic growth. weaklyThe facilities regulated to supervise financial and institutions. mitigate systemic risks will At the global level, proven oil reserves are sufficient to be developed in global finance. Along with attention to the Thesatisfy “shale current gas revolution”oil consumption has demonstrated for fifty-three how years, new and financial health of individual countries, the key focus of such productionnatural gas reservescan develop are rapidlysufficient using for fifty-fivebreakthrough years. thesupervision needs of willthe realbe on economy, the identification and super- of concentrations deformations in of technological advances. We can expect that production riskglobal at financialvarious stages architecture, of economic major cycles. dysfunctions in covering technology developed in the nonconventional hydrocarbons sector will be used in the conventional oil and gas sector, increasing usable resources and helping will be built on global and regional levels, aimed at maintain the competitiveness of hydrocarbon fuels. “taming”In global finance,volatility a (optimalsystem of currency quantitative areas, restrictions agreed Wind and solar energy will continue to grow at faster rates, in part because of the thousands of private companies adequacyparameters requirements, of monetary, restrictionsinterest rate, on fiscal bank policies, leverages, working in this sector. There is also a highly developed etc.).inflation There rates also ceilings, will be limitsattempts on the to establish public debt, limits capital for the development of derivatives markets and structured and high production costs involved mean that renewable energysystem sourcesfor financing will not projects. account But for the more small than initial 2-3 basepercent of global energy consumption by 2020 and 4-5 percent financial products. by 2035. Some developed countries, especially the EU ENERGY SECTOR: GROWING countries, are actively promoting the renewable energy sector through state subsidies and administrative levers: UNCERTAINTIES renewable energy sources could account for 6-7 percent of total energy consumption in these countries by 2035. Lower SOURCES OF VOLATILITY oil and natural gas prices will slow down to some extent the The “shale gas revolution” in the United States and the advancement of new energy sources in the transport sector, refusal of Saudi Arabia and other Arab monarchies to but will probably not have an impact on its development in the electricity sector, especially in Europe. in oil prices, setting off a restructuring process in all themaintain energy high markets. oil prices Over in the 2014 coming led to years, a significant the global drop energy sector will be in a state of price and investment NEW TECHNOLOGIES: uncertainty. GENERATOR OF SOCIAL DISRUPTION Global demand for oil is likely to increase to 91.5 million barrels per day (bpd) in 2020 and 99 million bpd in 2035. China will account for nearly two-thirds of global SOURCES OF VOLATILITY oil consumption growth. At the same time, global oil We are entering a period in which the economic and social consumption could peak earlier, if the Chinese economy impact of new technologies is taking a toll on existing jobs, slows down faster than expected, and India’s economy fails and it’s unlikely that new, well-paying employment will be to reach the high growth rates usually predicted in many created in the near term to offset the losses. It is a future forecasts. in which technology substitutes for labor, and automation replaces not only jobs, but also knowledge. During the Demand for coal will peak sooner. OECD countries, coming decade, robots will be replacing a wider array of jobs, according to the most likely scenario, will pass their posing both risks but also opportunities to deal with aging peak coal consumption by 2020. If international climate populations and the skills gaps that exist in many countries. cooperation and the adoption of binding measures to limit greenhouse gas emissions become more likely, China As with the previous technological revolution, this one could pass its peak coal consumption in 2020-25, and coal consumption in the development countries would peak in the sum of its parts, owing to an increasing synergy 2030-35. amongreflects technologies. a reality in which This thefuture whole has equalsbeen enabled more than by the innovative application of decades of developments in information and communications technology (ICT) and

12 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL emerging Internet of Things (IoT), and new materials WE ARE ENTERING createdartificial through intelligence, nanomanufacturing as well as big data, technologies, algorithms, such the as graphene. A PERIOD IN WHICH

This revolution involves more than just a different way of THE ECONOMIC AND using raw materials—steel, aluminum, plastic, and other SOCIAL IMPACT OF NEW inputs—and fashioning them into different objects. Rather, TECHNOLOGIES IS TAKING computer-created design—or a scanned physical object— A TOLL ON EXISTING JOBS, canit also be includesconverted the from materialization digital bits to of material digital information. atoms. This A AND IT IS UNCLEAR HOW thecan world.be done It remotely,has the potential by sending to reduce, the digital if not file eliminate, for the OR WHEN NEW, WELL- supply3D object chains over and the assemblyInternet to lines rematerialize for many products. anywhere in PAYING EMPLOYMENT WILL BE CREATED TO OFFSET WORST-CASE OUTCOMES Low-skill service and manual labor jobs are likely to be THE LOSSES. eliminated by new technologies, such as automation and occupations will increase income inequality without printing and other emerging technologies once they are governmentsartificial intelligence. taking politically The loss of controversial what have been steps, stable such as moreThe developing low cost. Today, world Africanmay benefit countries the most import from many 3D taxing the rich more, in order to achieve greater income basic consumer goods that, in the future, could be easily redistribution. manufactured through 3D printing. The expense involved in building a 3D printing facility, including a computer, There’s already an ongoing morality debate about the use printers, materials, and Internet access, is less than of drones in warfare. Waging war by remote control will $10,000. By comparison, a conventional factory could intensify further when robots can substitute for infantry cost much more. We’ve seen how mobile telephones soldiers. The degree to which robots are allowed to make were transformative in such economically challenged environments. It’s not too hard to imagine that 3D printing point for many opponents. So long as there’s no guarantee as well as other new technologies—most of which don’t life or death decisions on the battlefield is a key tipping against erring in killing unarmed civilians or bystanders, require massive infrastructure investments—could be also robot police or soldiers probably won’t be widely used. situations, especially if putting in “live” soldiers would beneficial for low income economies. proveThere moremay be dangerous. more latitude Terrorist for their groups use wouldin battlefield have fewer REGIONAL TRENDS qualms about any collateral damage from the use of robots.

However smart machines are made to be, there are likely EURO-ATLANTIC: GREAT POTENTIAL, to be errors. The more serious the accidents, the more BUT ALSO BIG PROBLEMS likely governments and publics will be slow to incorporate Despite their political differences, North America, Europe, and Russia/Eurasia have the greatest potential to create a artificial intelligence in critical infrastructure functions common economic space because of their shared interests OPPORTUNITIESdespite the efficiency benefits. theand world cultural by affinity. 2035, despite This common the rapid economic strengthening space couldof see the most intensive trade and investment flows in will be facilitated by the increasing convergence of a emerging markets. The potential for stronger science and numberThe reinforcement of the new oftechnologies more local, suchcustomized as 3D printing, production technology (S&T) linkages should not be underestimated nanomanufacturing, nanobiotechnology, robotics, more either. Geopolitically, the United States, Europe, and Russia will all be battling terrorism and extremism in various forms for years to come and have common interests in capable artificial intelligence, and customized personal lowering tensions in the Middle East. particularlyhealth care. Small-if the cost and of medium-sized these emerging industries technologies (around Another direction for creating global common market will begin300,000 to comein the down. United It’s States not tooalone) hard could to envisage benefit, a small of bespoke products and Baxter-like robots helping in the be the upscaling of the Trans-Pacific-Partnership (TPP), business with 3D printers customizing the manufacture cooperation between the US and China, with China probably packing and distribution. which will also foster economic, financial, and technological

ATLANTIC COUNCIL joining the partnership in ten to fifteen years. 13 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

A rise in political populism and nationalism could make it Japan will play less of a role in the region, largely as a impossible for North America, Europe, and Russia/Eurasia result of the dual nature of Tokyo’s goals, which include to come together despite shared interests. The countries a desire to maintain alliance relations with the United in these regions have many peripheral areas that are less States to ensure Japan’s security and to strengthen its own economically competitive, have weak links to the main defense capabilities. At the same time, while China will research and development hubs, and have made only continue to be its main strategic security challenge, Tokyo limited use of the information revolution’s achievements. will need to strengthen its economic ties with Beijing and Thus, inequalities will remain. Even many prosperous other regional powers to promote sustainable economic countries in North America and Europe face the threat of increased poverty. Millions of people in developed foreign laborers and the opening of traditionally closed countries will most likely be functionally illiterate and sectorsgrowth. to A continuedforeign competition resistance would to a large-scale hinder Japan’s influx of

The growing number of immigrants from other cultures couldunable become to exploit one the of benefitsthe biggest of technologicalchallenges for progress. Euro- involvement in deeper regional liberalization. Atlantic countries during the next twenty years. MILLIONS OF PEOPLE IN

The potential for higher GDP growth rates would increase DEVELOPED COUNTRIES with greater regional integration. Without this increased WILL MOST LIKELY BE integration, the region, which currently accounts for more than half of global GDP, risks a sharper loss of economic FUNCTIONALLY ILLITERATE leadership. AND UNABLE TO EXPLOIT ASIA: SHIFTING BALANCE OF POWER THE BENEFITS OF TECHNO- During the next twenty years, China will increasingly LOGICAL PROGRESS. become the United States’ main competitor in military, economic, and technological realms. Its role as an enabler India has a good chance of achieving high economic of S&T and the industrial development of other regions, such as Eurasia, will grow. Beijing will face a choice: either of balancing the interests of major social and political join the frameworks initiated by the United States (e.g., the groups.growth ifGeopolitically, it can raise educational it will be pulled levels in and a number find ways of TPP) or rely on free trade agreements initiated by China, directions. Worried about a domineering China, it—along with Southeast Asian states—will develop stronger option carries the risk that China will be subordinate to security ties with the United States. At the same time, USin which regulations, Washington it seems is not to be welcome. more probable Though because the first of trade and investment with China are increasing; China China’s growing global political and economic involvement. also is becoming a more important player in Central Asia The second option contains the risk that China’s partners on India’s northern border as the United States and NATO will switch—for economic and political reasons—to areas retreat. and associations subject to US regulations. A third option ASEAN Eurasian Economic Union area succeeds. That would bring integration, despite its focus on removing internal barriers morecould stimulusalso arise for in closerfifteen cooperation to twenty years with if the Silk EU. Road– and promoting will not cooperationbecome the locomotivewithin the association. of Pacific

With growing capitalism in China and its anti-corruption Attempts to address the issues on the Korean Peninsula drive, there will be an increasing need for political reforms, through negotiations among the major regional powers particularly as it seeks to develop its innovation capacity. are highly unlikely to succeed; the only solution to the Chinese President Xi Jinping’s current anti-corruption campaign demonstrates that the Chinese leadership understands reforms are necessary to protect the party’s happenproblem unless of tensions there onis an the acute Korean collapse Peninsula of the would North be position and legitimacy. The biggest challenge for the the peaceful reunification of the country. That won’t Chinese leadership will be to work out a fuller concept for KoreanTerritorial regime. disputes will also remain a critical security issue for all of Asia. The key to establishing new security democratization.China will certainly not become the leading power in international relations comparable to the United States. promotion of security dialogues between China and Russia Worries about becoming overextended will act as a onarchitecture one side, andin the the Asia United Pacific States, region Japan, could and be the the Republic constraint on Chinese foreign policymaking. China wants to avoid what it sees as the United States’ entrapment in international talks on strategic stability. global problems like the Middle East. of Korea on the other, along with involving China in

14 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

A Chinese navy destroyer is docked in the American port of Pearl Harbor, Hawaii, in 2006. Photo credit: US Navy/Wikimedia Commons.

THE MIDDLE EAST: VIOLENCE FEEDING How the Middle East evolves has huge implications for the ON ITSELF increase the dangers of a much more rapid spread of The Middle East will be the region that will be the most jihadism,broader international raising the terrorist system. threatLarge-scale elsewhere conflict in Europe,would Russia, and the United States. The global economy would more threat than anywhere else because of deeply divided societiesunrecognizable and external in 2035. interventions There, the nation-state in major countries is under like Iraq and Syria. Today’s national boundaries—many intake Asia a big and hit Europe. if a conflict Given resulted how other in the countries’ closure interestsof the straits of which were set after the end of the First World War— of Hormuz, preventing oil supplies from reaching customers are highly unlikely to survive intact. The formation of the ironic effect of cementing closer ties among the great new states in the region, along with the fragmentation powers—thewould be affected, United an States, all-out Europe, Middle China,East conflict Japan, might India, haveand of existing states, is certain. By 2035, fossil fuel use may Russia. All of these countries would be hurt by such a major be peaking, eliminating a key revenue source for a large number of Middle Eastern states. The youth bulge will be together to try to stop such a war from spreading. disappearing, but it will not have delivered a “demographic conflict and would have an increased interest in banding dividend.” The big question will be the degree to which SUB-SAHARAN AFRICA: INCREASING contained and dying out by 2035. OPPORTUNITIES, BUT STIFF conflict spreads, either engulfing the whole region or being CHALLENGES COULD MAR A non-nuclear Iran would increase the chances for greater DEVELOPMENT regional security, but equally plausible is a scenario in which Iran is seen by its neighbors as being nuclear- Sub-Saharan Africa will be the only region with a growing capable—despite the recent agreement with the West— and youthful population in 2035. Failure to overcome the and very dangerous. This latter perception could trigger impediments to economic development will have long term a nuclear arms race. A Sunni-Shia “cold war”—if not global implications as a growing and large proportion of the world’s population will be African in 2035 and beyond. scenarios for the region are not impossible, but unlikely in There are many positive signs that Africans are turning theescalating next few into years. a hot conflict—is also a possibility. Positive around their economies, but nevertheless the progress has

ATLANTIC COUNCIL 15 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

LATIN AMERICA: FALLING BEHIND ASIA across the entire region. In 2035, Africa is likely to remain a IN CATCHING UP WITH THE WEST regionnot been of enoughcontrasts to and signal contradictions. confidence about a bright future The key question for the future is whether the Latin America Africa is one of the fastest-growing regions of the world, region can maintain the same economic momentum, yet sixteen of the top twenty states on Foreign Policy which has fueled a commodity boom over the last decade, particularly with China’s slowing growth. The region suffers from modest productivity growth, which is lower than magazine’s• The continent Fragile containsState Index the are world’s African. most uncultivated the OECD median. To boost productivity, Latin American arable land, yet it has the lowest agricultural countries will need to spend more on education—on productivity and is a net food importer. top of the recent increased investment. Latin American • Africa is a major energy exporter, yet half its energy use educational rates are still below par compared with those is biomass and one in four Africans lacks electricity. of advanced economies. Moreover, the region’s research and development (R&D) expenditures remain low. The region • invests 13 percent of GDP in innovation capital versus the 30 with up to one-third of African countries mired in civil percent average for the OECD. Democracy has spread, yet a governance deficit exists, Population trends in Latin America have never been as Highconflict proportions of varying of working-age degrees. population was a favorable as they currently are, but the populations of key ingredient in Asian development. Africa’s annual population growth rate is 2.2 percent, more than double 2035. Latin American countries will need to work hard to that of Asia’s 0.9 percent. Though this rate is expected to Latin American countries will begin to age significantly by slow to 2 percent, Africa’s population is projected to reach remaining window. 1.6 billion by 2035. The region already has the youngest realize a demographic dividend during this relatively short population in the world, with more than half of its total With many in the recently emerging middle class vulnerable to falling back to poverty, populism is likely to be an ever of eighteen. Almost 200 million Africans are between the increasing concern throughout the region. According to one population under the age of twenty-five and a median age estimate by Brookings Institution experts, 39 percent of the total middle class population in Latin America could lose its agesAs Africa’s of fifteen largest and statetwenty-four. and the continent’s largest newly found middle class status as economic growth ebbs in economy, Nigeria is a major concern. Nigeria, which the coming years. Another big threat to governance comes has made some modest strides to address corruption and enhance transparency, is often viewed as a frontier violence in Mexico and Central America. from the still high levels of organized crime and related into manufacturing and services. However, the country’s socioeconomicinvestment destination situation with is disproportionately significant diversification shaped by northern countries are attracted to, and enmeshed in, the Latin America is increasingly divided. Pacific Rim and its petro-wealth, and it faces continued ethnic and religious US-driven and Asian-focused trade initiatives. Until recently, its inability to address the Islamist threat to stability from models, but has grown increasingly dependent on the Brazil has looked to Europe for political and economic Bokodivisions. Haram. One This measure group of has Nigeria’s become governance more virulent deficit during is commodity trade with China. There are divisions in terms of the past two years; it now controls swathes of territory development models: over half of regional GDP comes from in the northeastern area of the country—in one estimate, those countries in Latin America that are promoting free upwards of 15 percent of Nigeria. and open markets; the other half like Bolivia, Ecuador and

Agriculture is a fundamental challenge for Africa. At the a large amount of state control. Finally, attempts at regional same time, however, the region is ripe for its version of Venezuela are tied to regulated economies in which there is these sharp intra-regional divisions along multiple lines, it’s world in the 1960s and 1970s and is an imperative for questionableintegration has whether failed to the find region success. could Taking project account a distinctly of sustaininga “Green Revolution,” growth. Raising which production benefited otherlevels parts to those of the of unitary political voice even by 2035, given the entrenched India or China would mean a doubling or more of African diversity and discordant perspectives. grain production, and by some estimates, would lead to a 10-12 percent increase in global food production. ANOTHER WORLD ORDER Sustaining the continent’s economic growth trajectory IS INEVITABLE, BUT WHAT from the past decade will require the improvement of governance and resource management, a resolution of KIND? rule of law—and a qualitative leap in functional regional are developing competing visions of the world order. In integration.longstanding conflict, better governance—including addition For the first to the time re-emergence since the end of ofmajor the Cold powers War, such countries as

16 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

China and India, a burgeoning strata of dynamic rising undermined the sense of legitimacy of such policies. Muammar Qaddafi but led to violent internal conflict, have anmiddle increasingly powers (particularlyimportant role Brazil, in regional Indonesia, security Iran, and Nigeria, The lag between the diffusion of power in the international globalSouth Africa,rules-shaping. South Korea, Some Turkey) of these is emerging already playing states— system and the distribution of power in the structure of democracies (liberal and illiberal) as well as authoritarian multilateral institutions fosters resentment in countries regimes—harbor resentments against the US- and with emerging economies and complicates efforts at global Western-created and controlled global institutions, whose problem-solving. It is relatively easy for nations to block governing structures have been largely unchanged since the Doha global trade round, or UN efforts to forge a treaty China, and South Africa (the BRICS) launching their own global actions, such as the Kyoto accord on climate change, dialogue1947. Whether framework it is evidenced and development by Brazil, bank; Russia, China India, pushing of trying to fashion alternative institutions—from the its “One Belt, One Road” mega-strategy and initiating an to cut off production of fissile material. The growing trend Asian Infrastructure Investment Bank (AIIB) to support it internationalChiang Mai Initiative cooperation spurred to address by the 1997-98 global problems. Asian financial distancing itself from the United States and the EU; or crisis to China’s AIIB—increases the difficulty of forging radicalfinancially; Islamists Turkey becoming becoming increasingly an illiberal intent democracy on bringing and FOUR POTENTIAL NEW WORLDS governance is unfolding. The potential for breakdown of the international liberal about a clash of civilizations, a paradigm shift in global order is greater than ever before. The possibility of turning the clock back to a more inclusive, integrated world order, 39 PERCENT OF THE in which interstate competition was kept in check and there was more scope for cooperation, seems remote. We TOTAL MIDDLE CLASS paint a picture below of different global orders and how they come about from the same starting point—the current POPULATION IN LATIN fraying international order. AMERICA COULD LOSE ITS NEWLY FOUND A NEW COLD WAR MIDDLE CLASS STATUS AS In a repeat of Churchill’s 1946 dictum: a new curtain ECONOMIC GROWTH EBBS earlier Cold War, establishing an equilibrium in this world IN THE COMING YEARS. orderdescends would across be an the immense world. As feat. was Countries in the first do half not of know the longer unthinkable. Nationalism is rearing its ugly head. each other’s redlines. Major state-on-state conflict is no Today’s world is fragmented and messy, but not classically sham—despite the numbers of people who have climbed Revisionist history is afoot. Globalization is seen as a The United States remains the sole military superpower, withmultipolar, a defense as characterized budget larger by than relatively the rest equal of the poles. world device that has promoted Western interests. In the West, out of poverty, the East and South see globalization as a Iraq and Afghanistan—military force is often of limited use its allies’ enemies. combined. Yet—as evident in the outcomes of the wars in globalization is seen as benefitting the United States’ and In this scenario, war breaks out between the major powers, East is not, for example, an outcome that the application in solving regional problems. A stable, modernizing Middle of external military power can achieve. Solving global in Ukraine and then in Asia, where the United States and problems such as poverty, disease, or climate change may first on Russia’s borders in the wake of the ongoing crisis lie more in public-private partnerships than diplomatic a shell. Only half of the member countries show up when a arrangements among states or military action. meetingChina come is held to blows. in a Western The UN capital. is immobilized. China is talkingThe G-20 about is In this increasingly post-Western world, developing pulling out of the IMF and the World Bank. The number of countries increasingly question Western policies Chinese students in the United States has plummeted. and norms that they view as threats to their national sovereignty. Thus, values-based issues such as democracy with the First World War—but at the beginning of the promotion and the Right to Protect (R2P) tend to spark Globalization had been cyclical—the last big burst ended strong counteraction from not just authoritarian regimes but also many emerging democracies that worry about twenty-first century, it was thought to be everlasting. maintaining their national sovereignty. India, for example, EURASIA LEADING THE WAY is reluctant to “name and shame” other nations or favor US-led sanctions against Russia at the time of the Ukraine regime change. “Humanitarian interventions,” such as crisis drives Russia to look East, particularly to China, India, the 2011 one in Libya that resulted in the overthrow of

ATLANTIC COUNCIL 17 GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL future in Asia, and nearly half a trillion dollars in gas and oil and Russia, as well as their political positions. The stakes dealsand Pacific with ChinaAsia as has a whole. bolstered Russia a shaky sees economy.its long-term energy foreconomy, Western potentially leaders are destabilizing equally high. the economies of China

China gains a valuable partner—instead of a rival—for No agreement is perfect, but the newly established “global concert” starts anew a global process of arms longer sees as a backwater, but as its economic future. control and nonproliferation. The G-20 is beefed up and China’sstabilizing “One and Road, modernizing One Belt” Eurasia—which or “pivot West” toChina Eurasia no is becomes the new UN Security Council. Asians are given a turning a vulnerability—a border with fourteen nations— much bigger role in the Bretton Woods institutions. Most into a strategic asset. importantly, the peacekeeping force sent to the Middle East

People’s Liberation Army, India, and Russia command and THE WORST OUTCOME coordinatereflects the thestrong effort multipolar as a group. effort. It is NATO,as if the the Congress Chinese of WOULD BE THE EMERGENCE OF A NEW COMINGVienna had been APART updated AT for THE the global SEAMS multipolar world. BIPOLARITY, PITTING A Most observers expect that the great powers are on a GROUPING AROUND CHINA collision course with one another—until each of them starts to collapse from within. The great powers all start OR RUSSIA AGAINST THE to topple like bowling spins. The wrecking ball is not a war with one another; rather, it is the internal decay UNITED STATES. that has been festering within each country for some time, the result of social cohesion being ground down by A successful partnership in Eurasia boosts what had been an ailing backward region by putting in infrastructure jobs, and the inability of governments to rise to those and serves a double purpose: economic development globalization, the technological revolution taking away there helps counter what has been a growing trend of democracies prove to be just as vulnerable as the extremism that threatens Moscow, Beijing, and numerous authoritarianchallenges in thestates. eyes of the citizenry. The advanced Central Asian regimes. China and Russia use their success to showcase the non-Western model of authoritarian-style Owing to the dysfunction of all the major powers, the state-centric capitalism. Africa and Latin America—where China development largesse has already made inroads— war. Climate change promises are not kept, and there are are reaping lessons from Eurasia’s rapid development. nosimmering extra efforts Sunni-Shia made to conflict keep the eventually rise in temperatures leads to a nuclear to below two degrees. The world is on track to a four- Sino-Russian cooperation extends into other realms, degree climb in temperatures by the end of the century— including the UN, WTO, and other Bretton Woods something future generations are left to deal with. institutions. More importantly, Russia and China develop the SCO into the premier regional body, overshadowing the TPP. India and Pakistan joined SCO years ago: it has RECOMMENDATIONS become the place that China and India are beginning to settle their differences and build cooperation. SCO could We see a rich and critical agenda of shared interests, which become a body where India-Pakistan tensions could cannot be ignored during this period of heightened global calm down, just like how the EU and NATO canceled the tensions. Without leadership from the United States, Russia, Europe, and China, as well as from other countries, these issues cannot be tackled: centuries old-conflict between Germany and France. A NEW GLOBAL CONCERT • Stemming nuclear and weapons of mass destruction (WMD) proliferation the global economy was threatened and G-20 leaders • Countering religious-based violent extremism wereFor the forced first timeto work since together the 2008 to preventfinancial a crisis—when worldwide depression—the prospect of a nuclear war brings Western • International trade leaders and the leaders of emerging powers together. Alone, the West has neither the will nor capacity to defuse • International environment (e.g. oceans, climate the military escalation in the Middle East and South Asia. change) As nuclear powers, Russian and Chinese leaders have a motive for preventing proliferation and an outbreak of war • Global Commons—move toward new norms, rules, codes between Israel and Saudi Arabia against Iran in the Middle of conduct in maritime, air, cyberspace, and outer space East. As in 2008, such a war would undermine the global

18 ATLANTIC COUNCIL GLOBAL SYSTEM ON THE BRINK: PATHWAYS TOWARD A NEW NORMAL

A world in which there is no agreement among the major powers would be harmful to everyone’s interest and in Ukraine has now become the focal point for renewed future. Developing inclusive mechanisms—such as those tensionsflow of commerce, between Russia technology, and the and United new ideas. States/Europe, The conflict that existed with the P5+1 engagement with Iran over its though it may well change in a long term perspective. In this nuclear program—to deal with major issues will be critical regard, there are areas where US and Russian interests on for successfully resolving them and may help to resolve Ukraine overlap, areas where there is a wide gap, and areas existing differences. Another example is the six-party where efforts to reconcile them are needed:

United States), which has gradually lessened differences • Neither the United States nor Russia want Ukraine betweenprocess (China, the parties Japan, and Republic established of Korea, a consensus Russia, and among the to become a failing, unstable state or the economy in eastern provinces to remain shattered.

• In regard to trade, Ukraine (and Russia) could have differencesthe five principal would outside be the emergenceactors on their of a policiesnew bipolar toward trade agreements with both the EU and the Eurasian divisionNorth Korea. between The Russiaworst outcome and China from on onethe currentside and the Union. Ukraine’s trade goes in both directions. United States and Europe on the other. • Minsk 2 and future formal processes should seek to The risk of fragmentation in the global system is increasing, despite economic, technological, and environmental United States and the EU, Russia’s actions constitute a interdependence. In a fragmented, bipolar world, violationfind a balance of another of US, country’sEU, and Russian sovereignty; interests. for Russia,To the competing ideas of regional and global order and norms it is about historical interests, culture, identity, and (e.g. precepts of European security versus the Sinocentric respect for Russian interests in the post-Soviet space. institutions proposed by Beijing) are only likely to grow in intensity. As a brake on further fragmentation, the G-20 • A stable, prosperous, and military-neutral Ukraine that is integrated into the regional and global economy economic management, expanding its role to be able to is in everybody’s interest. There is a need to move forgeshould more be institutionalized political consensus. as the central forum for global acceptable understandings and commitments on Both the United States and Russia face critical strategic Europeanbeyond another security “frozen and an conflict” inclusive and Russian define role.mutually choices if they want to successfully navigate the increasingly treacherous seas of global interdependence. • the post-Cold war international system can serve to Russia’s strategic choice: Russia is both a European and animateKnowledge a sense of the of forces mutual eroding responsibility. the foundations This can of narrow the gap in global governance and motivate interests in the East and compelling historical, economic, efforts to develop an inclusive, rules-based multilateral cultural,Pacific power and security with substantive interests ineconomic Europe. andSecuring security inclusion in a broader transatlantic economic and security providing the basis for global cooperation. architecture will remain critically important as Russia order that can lower the risks of conflict, while explores a broader agenda of cooperation with its Eurasian • neighbors, including China. for both sides. A lack of mutual understanding can onlyKeeping aggravate the communications the sense of resentment channels openand hostility is critical The United States’s strategic choice: In moving from on both sides. The US, Russian, European, and Chinese primacy to primus inter pares, the United States needs to governments should encourage efforts by universities, emerging economies. Finding ways to overcome differences to step up their exchanges. These exchanges remain inupdate interests the internationaland values will system ensure to thatreflect an theinternational new weight of criticalthink tanks, at this and time scientific of heightened and business tensions. organizations system does not fragment and remains open to the free

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