Opinion

Compass

Uncertainty is not going away

Nader Mousavizadeh
Nov 8, 2012 17:51 UTC

This week, within the space of 48 hours, the United States elected its next president and the Chinese Communist Party will convene in Beijing to begin the formal handover of power to the next generation of its leadership. To many, this pivotal transition point for the world’s two largest economies holds out the promise of deliverance from the specter that’s been haunting decision-making ever since the collapse of Lehman Brothers four years ago: the specter of “uncertainty.” If there is a phrase that CEOs, politicians and investors use more often to explain everything from poor performance to halting growth to lack of investment and a reluctance to boost hiring, it might just be its near-cousin, “volatility.”

The reality, however, is that the long-awaited, much-desired “certainty” is a mirage. Uncertainty and volatility, in economics and politics, are now as permanent to the macro landscape as competition, resource scarcity, disruptive technology and the race for talent. Leave aside the false nostalgia for a certainty of outlook that never quite was – or, rather, for a kind of uncertainty that only seemed to surprise on the upside during the years of the great moderation. Ignore as well the fact that uncertainty and volatility too often are used as synonyms for the structural challenge of the long period of deleveraging still facing major Western economies. No election in the United States, and no leadership change in China – however orderly, pro-growth, or politically decisive they may be – can reverse the structural shift towards uncertainty in the global macro environment.

It is a shift that is defined not just by a range of geopolitical tail risks as diverse as they are potentially consequential: a war between Israel and Iran over Tehran’s suspected nuclear weapons program; the deepening radicalization of nuclear-weapons-armed Pakistan at every level of its pulverized society; the rising tide of nationalism in East Asia threatening conflicts across multiple boundaries; the danger of far more paralyzing cyber-attacks on state and private sector organizations; the as-yet-to-drop second shoe of the Arab Awakening in the Gulf states (including Saudi Arabia) pivotal to global energy markets.

Nor is it merely a matter of economic uncertainty emerging from the still-unresolved question of whether the euro zone will manage to make its sovereign debt good through the unlimited financial commitment of its Central Bank, and the unwavering political commitment of its paymaster in Berlin; or whether the hollowing out of the moderate center in the U.S. political landscape will make going over the “fiscal cliff” – even at the cost of a 3-4 percent contraction in GDP – the better bet for a deeply polarized system; or how China’s prudent management of its next period of growth can be reconciled with a creeping oligarchy that threatens to render the all-important allocation of state capital irreversibly corrupted by personal elite interests.

Even if these geopolitical and geo-economic uncertainties were to be reduced or removed, two historical shifts would continue to multiply the variables affecting the macro landscape for investors and businesses. First, the proliferation of a diverse range of states and entities with sufficient economic and political power to affect the global agenda means that there is far less predictability and transparency in the international system. Second, the rise of state power in developed as well as developing countries has made the nexus of business and government the decisive one, with far greater policy event-risk in the markets as a consequence.

China’s war of the oligarchs

Nader Mousavizadeh
Apr 23, 2012 19:30 UTC

The death of an Englishman in Chongqing has acquired all the intrigue of a John le Carré novel with none of its charms. Despite the occasionally romantic descriptions of the disgraced leader Bo Xilai as a charismatic man of the people challenging the prerogatives of Beijing’s bureaucratic leadership, this is a story without heroes, in which no one’s hands are clean. For all the elements of murder, mystery and missing fortunes occupying the Western press, in China today the focus of the country’s political and economic leaders is on the cascading power struggle that is in progress and what it holds for the future management of the world’s second-largest economy.

A year of leadership change that should have been defined by a smooth, almost seamless transition is instead shaping up to be a turning point in the direction – and ownership – of the political economy of China. Two years of plotting, positioning and maneuvering on the part of tens of thousands of party officials have been thrown into disarray by Bo’s fall, with few now confident of where their allies and masters will find themselves at the conclusion of this upheaval. Combine this with the unresolved elite debate about the cause of China’s economic miracle – the process of reform and liberalization, on the one hand; or, on the other, the still-powerful grip of the state on the means of production – and what you have are all the elements of a perfect storm for the Chinese Communist Party.

Beneath the past month’s surface impression of a resilient party able to manage with speed – and unprecedented candor – the exit of one of its princelings, two visions of China’s future are battling it out more fiercely than ever, in Beijing and throughout the provincial capitals. On one side is a movement, often but inaccurately described as “neo-Maoist,” led by Bo Xilai’s faction and dedicated to maintaining the dominance of the party in the service of the masses left behind by the rapid growth in the major cities. On the other, closely identified with outgoing Premier Wen Jiabao, is the faction dedicated to accelerating economic and political reform designed to ensure long-term sustainable growth. What they share, rhetorically, is a commitment to addressing rapidly widening income inequality. What the factions share, equally, is a reputation for corruption and family privilege of immense proportions at their leadership levels.

How we got to the archipelago world

Nader Mousavizadeh
Jul 25, 2011 11:29 UTC

By Nader Mousavizadeh
The opinions expressed are his own.

Ten years after the attacks of September 11th, the brief moment of global solidarity that followed when we were “all Americans,” in the words of Le Monde, seems as improbable as it is distant. Barring a global catastrophe, the world is unlikely to unite again as it did on that day – and not just because of the conduct and course of the wars of 9/11 in Afghanistan and Iraq. A deeper – and more radical – shift is at work in the politics of the global economy. A fragmentation of power, capital and ideas is creating a new map of the world – with lasting implications for investors and policymakers alike.

The evidence is everywhere. Europe beginning to roll back key aspects of the free market even as it manages yet another bail-out of Greece; the failure of the Copenhagen climate change negotiations; a Doha trade round dead in all but name; the emergence of new global governance structures, such as G-20; the flows of macro-finance investments between emerging markets combining state and business interests; China’s “going out” strategy upending traditional vectors of global capital and influence; an Arab Awakening as much defined by its diversity as its aspiration for accountability and legitimate government; the resurgence of nationalist, populist movements across rich and poor parts of the world; a proliferation of hybrid economic and political systems defying old categories of left and right, liberal and authoritarian.

Conventional thinking holds that all this is a threat to an otherwise well-ordered global order – or that it reflects a zero-sum shift from West to East, U.S. to China, democracies to dictatorships.  For large parts of the world, of course, the existing global order seemed less well-ordered than designed to perpetuate – by any means necessary – dated power structures of the mid-20th century.  Equally, to see this merely as reflecting an all-embracing power shift to the East (as observers both Eastern and Western do) ignores the fact that pivotal powers such as Turkey, Brazil, Indonesia and Nigeria are charting distinct paths aimed above all at economic independence and national power – beyond ideological labels.

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