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What to Worry About in 2014

Presider: Jami Miscik, President and Vice Chairman, Kissinger Associates, Inc.
Speakers: Michael Moran, Vice President, Global Risk Analysis, Control Risks, Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics, Council on Foreign Relations, and Paul B. Stares, General John W. Vessey Senior Fellow for Conflict Prevention and Director of the Center for Preventive Action, Council on Foreign Relations
January 14, 2014
Council on Foreign Relations

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MISCIK: I'd like to welcome you all to the Council. I'm Jami Miscik. I am the president of Kissinger Associates and a member of the board here at the Council. Happy new year to you all.

A lot of organizations would get together and talk about all the great things that might happen in the coming year. Here at the Council, we're going to get together and talk about all the horrible things that might be out there waiting to befall you. So do we know how to celebrate the new year or what?

The sessions here today is sponsored by the Center for Preventive Action. It's called, "What to Expect in 2014." And it is on-the-record.

We have an excellent panel to have our discussion with, starting to my left with Paul Stares, the director of the Center for Preventive Action; Mike Moran, the vice president of Global Risk Analysis at Control Risks; and Rob Kahn, the senior fellow for international economics here at the Council, particularly in our Washington office.

If I could ask all of you to turn off your devices so that it does not interfere with our sound system. May I please ask the panel to make sure that they comply with this rule, as well. Nothing like it going off on stage.

And let me just -- we'll deal with this in kind of a normal CFR tradition, start off with a couple of questions that I'll lead a conversation here on the stage, and then we'll open it up for questions. Microphones will come around. If you could just stand, identify yourself, and ask your question, that would be great, and just do keep in mind, it is on the record.

So, Paul, your survey results for 2014 are out, and I think everybody has copies or there are copies available for everyone. And the survey focuses on the source of instability that will most directly affect U.S. interests.

STARES: Right.

MISCIK: So with Washington having to conserve its fiscal resources, with policymakers having limited time to devote to any one topic, what were your big takeaways from the survey this year?

STARES: OK. Well, thank you, Jami. And thank you all for coming here today on this wet Tuesday. I want to particularly thank the Carnegie Corporation that helped sponsor this survey, and I see Steve Del Rosso there and big shout-out to you, Steve.

So just if I may just give a quick sort of two seconds on the survey itself, and then I'll talk about the takeaways, some of you actually may have been participants in this survey. So every year, we ask, I think, this year 1,500 foreign policy experts to assess 30 contingencies which we had solicited earlier from various sort of crowd-sourcing techniques to rank them in terms of how likely they thought they would be in 2014, and their relative impact on U.S. interests.

And on the basis of those results, we then ranked them into three tiers of relative priority for U.S. policy on the basis of not every potential crisis or conflict is equally important to everyone else, that we have to determine where we want to focus our resources, give them -- as you say, Jami, the fiscal climate. And so we rank them into these three tiers.

In terms of sort of takeaways, I think, rather than getting into, you know, what's in which tier this year, what's up, what's down, I think, in terms of the main challenges facing the U.S. today, I think you can put them into sort of three clusters. There is, firstly, the cluster in the Middle East and North Africa. I think 5 out of the top 10 contingencies in the very top tier are all in Middle East and North Africa. This is clearly a result of this intensifying geopolitical rivalry between the Sunni gulf states and Iran, and we're seeing this played out in various sectarian contests, obviously, in Syria, Iraq. We're seeing spillover into Lebanon, Jordan. It's affecting the Kurdish issue. And this is a very complex, entwined problem now.

The second, I think, main challenge is in East Asia. And it used to be that the principal concern was North Korea, and that still is a major concern, given the unpredictability of the new leader there, or relatively new leader. He's a 29-year-old sitting on a nuclear arsenal. He's just had his uncle executed. I don't know whether he was thrown to the dogs literally, as some news reports suggested, or was just shot in the firing squad.

But then you also have, in addition to North Korea, rising tensions between Japan and China over the Senkaku Islands in the East China Sea, which are also entwined with similar territorial disputes in the South China Sea. So that's the sort of second cluster.

The third, I think, is -- relates to Central and South Asia. We have the drawdown in U.S. forces in Afghanistan over the next year, still considerable uncertainty of what the size of the U.S. force will be in Afghanistan. How that plays out will affect, obviously, the stability of Afghanistan, which has immediate bearing on neighboring Pakistan. There was a recently leaked National Intelligence Estimate being very pessimistic about the prospects of Afghanistan.

And if -- if Pakistan is destabilizing, then that has an effect on Indo-Pak relations, so it's, again, another one of these sort of clusters where -- where the issues all intertwine. So they're the three, I think, big challenges facing the U.S. in the coming year.

MISCIK: Did anything of this year's survey really surprise you, either because it was included and it was a surprise or because it was omitted and it was a surprise?

STARES: Well, we've already had some surprises. The situation in South Sudan we didn't -- we didn't see coming. We were concerned about instability in Sudan proper and North-South tensions, but that came out of almost nowhere.

Previous years, instability in Saudi Arabia has been a big concern, and that didn't show up anywhere this year, so there seems to be broad confidence that the kingdom is stable. Similarly, Mexico last two years was pretty -- there was a lot of concern about Mexico becoming a, quote, unquote, "failed state." I think that was kind of overblown. But Mexico's still in there, but it's not a real tier one priority that -- on the basis of this year's survey.

MISCIK: OK. Mike, Control Risks also puts out an annual risk map focusing on different countries and threats around the world. And this year, you've also put out -- and I think several people have this, as well -- a comparison over the last 10 years of trend lines. I was really struck when I looked at the trend lines that overall risk hasn't changed all that much. You know, 9-ish percent, you know, worldwide, that sort of thing.

But when you look at risk to business from political risk, it's gone up dramatically. It's now over 20 percent. What explains that jump?

MORAN: You know, largely, I think that is a byproduct of the fact that business is in more places now. The expansion of -- this search for kind of yield that has gone on since the turn of the century, the emerging markets/BRICs phenomenon, meant -- and then, of course, the kind of more sclerotic growth that we've seen in the developed world -- has meant that multinationals in particular have had to go to places they never thought they would go in search of new customers, in attempts to get in early on the expansion of middle classes in places from Southeast Asia to sub-Saharan Africa to South America.

And that has brought with it -- you know, sometimes these moves, let's just say, were not done in a kind of completely thought-through way. Often, people rush in. I think if you look today at the newspapers today, almost every week there's an indication of somebody who's gotten it just a little wrong. Today's example would be from India, where Nestle is pulling out of a good deal of the very low-end retail market for sweets because, frankly, tapering has caused a kind -- not collapse, but a decline in the local currency, and the mass market is now finding that it cannot afford Nestle's product.

And so you're seeing multinationals make these fairly expensive mistakes on a regular basis. Loreal in China is another good example from last week. These are the kind of things that -- it's not merely business risk. It's also security and political risk.

Throughout the last decade, if there's any one thing I think that has come home to me in several perches that I've occupied, is that people are -- because you cannot put political risk into your model doesn't mean that it's not there. And I don't think, by and large, many institutions understand the potential implications of that. They assume that because -- they either write it off as the kind of cottage industry of people who get, you know, international affairs degrees and are still looking for a salary, or they look at it as something that they'll just have to deal with it as it comes. And whether it's anti-corruption risk or whether it's security risk -- Mexico, as you say, very much a darling of the emerging markets investor class right now, but also the number-one place in the world where you're likely to get kidnapped and held for ransom.

MISCIK: But, you know, I think that was one of the most interesting statistics on your chart that I -- that I looked at, and if you haven't seen it yet, when you compare 10 years ago to today, Mexico is on the chart as one of the hot spots for kidnapping. In 2004, it was number two. In 2013, it was number one. But the other two countries changed dramatically. In 2004, it was Colombia number one, then Mexico, then Iraq. 2013, it's Mexico, India, Nigeria. And that really was a surprise to me.

MORAN: And, again, places where, arguably, during that period, major multinational corporations have begun to put their feet in and test the waters or have made significant, you know, investments.

MISCIK: Last month, you wrote a piece that was looking ahead at 2014 in which you said, "The eurozone is more on the lam than on the mend." Can you talk a little bit about what you were focused on there?

MORAN: Yeah, I think one of the things you're seeing in Europe is that as the technicians of Europe attempt to limit the damage that has been done by the eurozone crisis, the sovereign risk citizens that's at the center of it, they have -- as is Europe's wont -- Europe being the E.U. -- they've lost touch with the electorate.

They've -- there's often what's described as a democracy gap in the workings of the European Union. It has again raised its head, and it's raised its head at a very perilous time for the E.U., because while some countries are coming out of the -- the periphery countries are coming out of these periods of real depression -- Ireland and Portugal in particular have been able recently to sell their sovereign bonds at a reasonably good rate -- Ireland, for instance, has lost 37 percent off its GDP in the -- in this favorable period of austerity. That is not a crowd-pleaser.

More importantly, the French and the Italians who were always the kind of lurking danger here really have done very little to reform their fiscal situation. And the basic disagreement between France on the one side and some peripheral countries and Germany and some northern -- mostly northern countries over how they should deal with these problems is not resolved. Germans continue to press austerity. It benefits them. They got the best of both worlds, in many ways. They got their -- their brands took over Europe during the boom years, and now that the austerity is being put in place, there's no hope that a local brand in a place like Greece or Spain could rise to, you know, supplant a German brand that has captured the market.

So there is a real problem. And on top of it all, you've got the British, of all times, have decided to have a referendum on the membership in the E.U. It's not an easy sell right now. I mean, they'll probably avoid the Scottish independence mistake, but they've added another one in there. So there's a lot of risk in Europe right now and a lot of happy talk about the banks being stress-tested and being fine.

But I don't know if any of you have seen or bothered to look at places like Commerzbank and some of the larger French and German banks these days. They're not in tremendously good shape if you look at their assets. They are still distressed. And they have, once again, fallen back on the ECB as the lender of last resort and the bailout, if things should go wrong. So, really, it looks very much like a, you know, papered-over problem, not a solved problem.

MISCIK: So, Rob, we've segued nicely into the area of international economics. And when you look at economic disruptions or surprises that we might anticipate in 2014, what are your top two or three?

KAHN: Two or three? Well, it's an interesting time, because I think there's a general perception now that after several years where economic policy events, cliffs, midnight Sunday meetings in Europe over crisis packages, tapering debates, drove markets. And so if you were going to be an emerging market investor, you had to have a view on the Fed, first and foremost, that the view is that that kind of policy risk has receded and that 2014, that's not going to be as much a driver of markets.

But, of course, that doesn't mean that economics isn't very important in this type of environment, partly because you could see markets respond very dramatically to some of the risks that Paul and Michael are mentioning, but also because I think you can look -- and as you said at the start, because it's our job to be pessimistic and to find potential problems -- I think you can look around the world and see some interesting or challenging possibilities.

Europe -- and, you know, I think Michael really nicely summarized it -- is a concern for me. I am probably out of consensus in thinking that we could end up back in crisis environment, not so much because of a package failure as much as it is a loss of support in a country for continued austerity. The growth that we're going to get is really about trend, 1 percent, and not really, I think, in my view, significant enough to reduce these very high levels of unemployment and youth unemployment, and I think this is the time of the cycle where it is very hard to sustain popular support, so I very much would have that first on my list.

The second one -- maybe to put it in a catchy way that I pay attention to -- is the possibility of currency wars. In 2013, this was the dog that didn't bite. We were worried that discussions of tapering would be destabilizing, particularly in emerging markets, and might lead to competitive depreciations, might lead to capital controls, and it didn't happen. I give credit to the G-7 and G-20 in the spring meeting setting the parameters of what was acceptable policy and how it should be done that defused some of those tensions. I also think, frankly, that the QE effects on the real economies in emerging markets was less than many people have argued, and so I think ultimately it's not as destabilizing as people thought.

So why might I worry more this year? And I think it comes to the fact that I think we may see potentially monetary policies in some of the key countries diverging more in the coming year in a way that puts a lot of pressure, particularly in a low-rate environment, puts a lot of pressure on exchange rates.

And to give you one particular example, let's look at Japan, where the Bank of Japan has made a commitment to 2 percent inflation and, in a much heralded package, agreed -- announced that it would double its money supply over two years.

Most of the models you look at will tell you that you won't get there. You won't get to 2 percent with that package. And I think if you talk to policymakers in Japan, I think the view is, well, you know, we needed to say this, it was a big public statement to show that we're in a different policy environment, and they're relying a lot hopefully on a very constructive wage round to boost wages, to boost inflationary expectations, and they might be right.

But if it doesn't work, and inflation starts to falter, if there's some sense the economy is stalling, I think the Bank of Japan has made it clear, they will do whatever it takes, their version of it, and that would mean, I think -- additional significant monetary easing. And in this environment, that means probably a material depreciation of the yen. That's going to be a problem, I think, for many of -- of Japan's trading partners and could even interact, perhaps, with some of the political risks in the region.

The third -- the third one I think we'll mention, many people in the market are worrying about it, many because we don't understand it very well, is the Chinese banking system. You know, there's much publicized initial tightening effort by the central bank of China earlier this year. They backed off it a bit. But they've made it clear, both with those measures and with more recent reform measures, that they are intent on trying to encourage a deleveraging in the financial system, a reduction of risks, and in particular, in the shadow banking system.

Now, I think those efforts are really starting to be felt. We're starting to see some funding pressures in those sectors. We are seeing funding problems particularly for some local governments that rely importantly on those institutions for funding. And I think it is causing a fair degree of tension, both between the markets and the government, and also between the government and the central bank, over how fast to move down this road.

I think that it -- there is a real tension between, say, continuing to achieve a 7.5 percent growth rate and trying to restore the stability in the financial system in the way the central bank is talking about it.

Now, where -- which -- who gives, is going to be the interesting question. There was a shadow banking directive that came out a few days ago, and many people are reading it as a backing off a bit on the regulation of the banking system, and I think, if that's right, the central bank must not be happy, because I think they wanted tough regulation as the price for easing up. But I think that friction, that battle has the potential for some real volatility in markets. Ultimately, it's for the good, but it can be a very painful ride along the way.

MISCIK: Let me follow up on that, and I sense we've got a little bit of potential disagreement here. So, Mike, you've written that, you know, there used to be a day where you thought the G-7 could resolve and respond to a financial crisis globally and be effective, and we can all remember Plaza Accords and the like. And then you wonder about whether or not today that still is possible.

And, Rob, you seem to be implying that, you know, they did some good with the G-7, G-20 this year. Are these institutions still institutions that can effect the kind of change and the responsiveness to crisis that you'd like? And broadening it out, Paul, you know, not just in the economic sphere, but, you know, there are missing regional institutions in a lot of places to deal with conflicts. So what do you think about that institutional global response?

KAHN: Well, first, from an economic perspective, yeah, the G-20, I thought, did a great job during the crisis and coming out of it in producing consensus and driving a policy response. I think it's not terribly surprising that, as the crisis ebbs, it's harder for that group to reach consensus and to advance a policy agenda. And I think we are in an environment now where, absent another significant global crisis, it is very difficult for them to -- to effectively coordinate policy in a way that reduces imbalances.

As I said, last year, I actually was surprised they -- I think they did a pretty good job with it, but I think the kind of challenges we're talking about now may be very difficult for the G-20 to really contain.

MORAN: Yeah, I would say, you know, the G-20 is populated by countries with some -- in some cases, little common interest in the way monetary policy plays out on the global stage. There are status quo and somewhat defensive status quo powers in the G-7 who are going to lose -- if you want to look at it this way -- market share in the world, in terms of the percentage of GDP that -- globally that their economy represents. And there are powers that are rising. Those two are going to be very difficult to put in the same -- on the same page on a regular basis.

The other thing I think we have to look at, though, and this, I think, gets into the political side of this, is the -- if this would be an easier transition and an easier job to corral these different interests if the United States was at the -- at the top of its game, if its reputation had not been damaged by -- where do you want to start -- somewhere after 9/11, decisions that were taken both politically and economically right up to this year's, you know, mess over Syria, the pivot that seems to be not happening toward Asia. There's a credibility gap in our -- in our execution of policy.

We're still good at rhetoric. Perhaps the worst, of course, is the Snowden affair, which -- you know, a very prescient piece by a former GW professor of mine in Foreign Affairs recently pointed out, the credit -- the gap between what we say and what we do has never looked larger. I mean, there's always going to be a gap on a great power, what it projects as its goals and what it actually does to affect them, but Snowden really kind of stripped away a lot of that kind of Potemkin village, and now we see that gap very starkly, and it looks much worse outside the United States than it does here. Look at how even Germany is reacting to it.

STARES: Well, just to pick up on your question, the three areas I highlighted at the outset also happened to be three sort of sub-regions, regions where international organizations are the weakest. You know, there are no effective multilateral institutions in the Middle East. Northeast Asia doesn't have anything, unless you count this sort of six-party process around North Korean denuclearization. South Asia, there is this organization called SAARC, but, frankly, you know, nobody takes it seriously.

And so this makes managing those conflicts that much harder, for two reasons. One, it's much harder to mobilize international action around it, to actually develop sort of a coordinated approach to the problems.

The other reason why international institutions are important is that they help to legitimatize actual intervention. I don't necessarily mean military intervention, but political initiatives to actually address what are essentially internal conflicts. And, you know, I toted up the number of what are truly sort of civil, intrastate conflicts of the 30 that are in this survey's list, and over 21 are actually internal conflicts; 15 of them also involved armed non-state actions.

And, you know, this makes sort of management of these problems that much harder, but when you have effective international organizations that can give you the legitimacy for, in effect, you know, breaching sovereignty, it's so much easier. And we saw this with Libya. We saw this, obviously, in Kosovo and elsewhere.

But it just doesn't exist, and you're reliant on these ad hoc kind of coalitions of the willing, which can be effective, but they lack, I think, the legitimacy that real institutions have.

MORAN: And, Jami, if you want to just think about that, the one -- to bolster your point, the Japan-China friction in particular, if you imagine where is the likely conflict going to derive from, is it going to be a pronouncement by the politburo, is it going to be someone in Abe's cabinet who says something untoward and starts -- no, it's going to be a lieutenant JG on a fishery patrol boat off the coast of one of these disputed islands who shoots, intending to shoot across the bow at somebody, and hits it.

And this is the second- and third-largest economy in the world, neighbors, and quite hateful neighbors, in many ways. That's an untenable situation. There needs to be -- there needs to be some pressure from the United States to -- to stand up, before our influence completely disappears, some kind of infrastructure for conversations like that to happen. And I don't see it, because...

STARES: Because we're -- we're at risk...

MORAN: Well, we're playing -- we're playing...

STARES: ... as a treaty partner...

MORAN: ... the tactical game. We're -- we're banking little victories, yes, Vietnam's getting closer, Philippines wants us back in, et cetera, et cetera. Those are tactical victories. That is not a strategic long-term game plan for a country whose power may not diminish, but is certainly, in relative terms, going to diminish in the next several decades.

MISCIK: Bob?

KAHN: And yet, you know, to bring it back to the U.S. context a bit, if we look at the Hill -- and I suspect most people in the room would agree on the important -- the value of multilateral institutions -- yet it's -- arguably with the level of understanding and support for these institutions is as low as I can remember.

Just one example yesterday was, you know, an effort by the administration to put into this omnibus spending bill authorization for a very partial reform in the IMF that was agreed in 2010 the U.S. still hasn't approved. And they were not able even to get it in there, even though it's a pretty marginal cost. And I think part of it is simply there's just very little support for these institutions, and we have to do a lot better job of telling the story.

MISCIK: There are so many directions I would like to take this in, but in the interest of just covering a few more before we open it up to the members for their questions, let's talk about policymakers in the United States government. You know, you only have so much time a day. You have priorities that have been given to you. You have new things that are coming up. You announce a major strategic change that we want to do a pivot to Asia, and yet 21 of the 30 conflicts are elsewhere in the world, or even more, probably. How do you cope? What's the capacity -- or what's the right strategy, if you were the policymaker, that you would take to trying to, you know, play the long ball, as opposed to just the short game?

STARES: Well, you mentioned the desire to pivot to Asia, to rebalance, to use the term that the administration likes, and the dilemma or the challenge they face is, as we discuss, so many of the -- the most pressing concerns are in the Middle East. And it reminds me of that famous line from Michael Corleone in "The Godfather," when he says, "Just when I thought I was up, they drag me back in." And this is what's happening. I need a New York accent to do that.

(LAUGHTER)

MISCIK: We got the idea.

STARES: And this is the problem that the Obama administration faces. They want to pivot to Asia. They know that the main event, the unfolding drama of the 21st century is going to be in Asia. Yet it's this -- these pressing concerns.

Now, how do you do this? You know, you've got to maintain a strategic focus. You've got to be able to look a little bit over the horizon. As you know only too well, Jami, you know that the administration or any administration tends to be very short-term. There's very little what I would call kind of anticipatory intelligence in terms of trying to, you know, look a little bit further down the road, what are the -- the risk factors that are brewing and coming together? How can we sort of preposition ourselves to deal with these challenges if they arise? You know, we're still very short term, very reactive. The machinery in the interagency process is just not set up to think ahead. It's very reactive.

MISCIK: I would just second that. You know, from my experience in government, even if you find the anticipatory intelligence, it's very hard to get traction from a policymaker who is just overwhelmed with their day-to-day inbox, and very few places in our governmental structure that focus and reward thinking about that long-term...

STARES: There's no strategic planning. You know, policy planning at State is basically a special project, speechwriting shop for the secretary. Strategic planning at the NSC...

MISCIK: Be sure to mention that to the director here, who was once head of policy planning.

STARES: Strategic -- strategic planning at the National Security Council, anybody know -- take a rough guess how many people in that shop? Two, three detailees. They're mainly writing the national security strategy. They're not really doing major, you know, big think about the future. They don't have the time; they don't have the resources.

MISCIK: So if I were going to add my two cents on things to watch for in 2014, I guess one of the issues I would focus on -- and we haven't touched on yet, so just to draw out the group -- mine would be looking at the middle class around the world and the massive growth of the number of people who have entered the middle class. And when people enter the middle class, they demand more from their governments. And not only do they want it, but they want it now, so impatience, expectations exceed deliverables on the part of governments.

You know, if you look at countries like -- I'm doing this off the top of my head -- Brazil, Turkey, Ukraine, and -- and many others, you know, they've all seen people go out into the streets in the past year. So what are your thoughts? Is this something that is overblown as a concern on my part? Or is this something that, you know -- and I'm not saying that joining the middle class is a bad thing -- don't get me wrong -- but I think this is a new challenge that's also out there for governments.

(UNKNOWN): I think it goes hand in hand with the metrics we discussed at this top of this conversation. If I were to do a top five, something called great expectations would probably be at the top. And as you say, if you go back a few years, you could add Russia, you could add a number of other -- not to mention Spain and Greece, where a very different -- quite different dynamic is at play, but in effect, there's a echo throughout both developed and developing societies that the elites that govern us are not governing on our behalf.

And I think, in a developing context, this can erode governance and civil society and safety, frankly, very quickly. And it's something, you know, our consultants around the world worry about intensely.

In the developed world, you're seeing it as two things. You're seeing it as the radicalization of elements of both major parties in the United States. You're seeing in the rise of anti-Europe -- what the economists call the Tea Parties of Europe in its last issue in Europe.

And you're seeing a backlash kind of to anything that smacks of the status quo in places like Brazil and India and China, where, you know, if you'd gone back three or four years ago and asked the average American strategist, well, who are our future friends and allies? You know, they play that game of, you know, picking the teams on the -- on the playground, well, Brazil and -- we'll take India, and it turns out they don't like us that much, not as much as we thought, at least.

And I think there's a lot of cart before horse in American public policy thinking, in foreign policy thinking, that doesn't take into account what actual people in these countries believe. And there's a comeuppance that's happening now, and it's -- it's bubbling through both emerging and developed countries.

MISCIK: And a concern for China moving forward, as more of their people also get into this middle class, higher expectations category.

STARES: It has a huge impact on the environment, too. You know, as people want -- their diets change, their expectations about the products they want to have in their house change. That puts an immense stress on the environment long term.

MISCIK: So before we open it up, if you just had to pick one or two things that you think the U.S. administration is not focusing on, or at least not focusing on to the extent you believe to be wise, you know, what could they spend some time on now in an anticipatory sort of way that would maybe mitigate or prevent crisis later? Any thoughts? I'll throw a couple out, just to give them time...

STARES: OK, good.

MISCIK: ... with my question. You know, I -- I would really be comforted if I felt the U.S. government was spending a lot of time looking at Turkey right now. There's a lot going on in Turkey, not just spillover from Syria, not -- but internal Turkish political issues, I guess I would say. A member of NATO, you know, all sorts of ramifications, I think, there for the United States. I'm sure people are looking at it, but I would like to be reassured of that one.

The other one I would put on the table -- I guess this is my dog that didn't bark in 2013 -- I've been very concerned about the youth unemployment turning more radicalized. It, you know, was beginning to look like that with Occupy Wall Street, you know, 18 months ago. That kind of went away. Don't know if that's coming back again or not, but it's certainly something I would keep on the list.

And then I already mentioned the middle class. Food security is another one. And, again, you know, as more people move into the middle class, diets change, people, you know, expect to move up that scale. And the idea of these food farms being developed all over the world, where countries that don't have arable land are growing in other countries, well, let a drought or crisis develop in one of those other countries and have all the hungry people watching the food be shipped off to another country. I think that's a real potential for unrest.

(UNKNOWN): I think those are -- that's a great list. On the youth unemployment, I might just broaden it a touch and say it's also long-term unemployment, whether young or not, and that we have this -- the depth of this recession and the length of it has produced a lot of people who are increasingly detached from the labor force and losing skills, and that is a long-term problem that I don't think we've given a lot of thought to how policy can best address that.

And then maybe I'd add to the list -- although people are worrying about it, something we need to be thinking more about is protectionism and rising protectionism, which can feed off some of the other issues you're raising. It can be in the financial space, where I think there's pressures for Balkanization of the financial system, as reform goes forward, but it also can be in the trade side, we have a lot of optimism that we're going to conclude TPP and TTIP and that will serve as an anchor for a broadening -- a growing open market that countries will want to join into, and it's a positive scenario, if it works out, but there's, I think, downside risk to that, in which we could see the pendulum start to swing back.

(UNKNOWN): I'd take it from a business standpoint, just to talk to the -- talk the book a minute. I think one of the things that we're concerned with is that you're seeing regulatory environments that change radically and big corporations fail to keep up with those changes. The spate of arrests of Western executives in China in the pharmaceutical industry in the autumn was one good example of this, where there's a tendency to think that, if you're operating in any environment, as long as you're FCPA compliant, you're compliant with U.S. law and Foreign Corrupt Practices Act, somehow you must be OK in China, when, in fact, in China, taking someone to lunch is technically a bribe.

You don't -- there's a lot of implications to seeking profits and yield in the emerging markets that I don't think have been fully absorbed by even the biggest global corporations. And they're learning the hard way, sadly.

The other topic would be -- I think that going hand-in-hand with the youth and long-term unemployment, the kind of -- the term that's popping up again and again in places like the Financial Times and the Economist, and places where you -- this was pretty much written off as a pet peeve, is income inequality. And that's one that cuts across both the developed and undeveloped world, but it's particularly grievous in the developed world, when, you know, in effect, you know, if you go back 20 years, the United States -- if you had told them that, well, China would be capitalist, Russia would be capitalist, we'd be investing heavily in Africa and retail sector, you know, people would go, what, you crazy? That's never going to happen.

In fact, it's happening. In some ways, what we proselytized has come true, and we don't really love it, but it has happened. So the world that we've created in large part we need to now embrace and live in. I think the implications for those back in the United States who don't feel they're taking part in this boom are fairly dire.

And there's -- it's gone unaddressed. I think it's getting rhetorical attention now, but I don't see any real policy discussion about, how do you really make sure that income transfers that are acceptable politically take place or that tax reform that makes some sense in -- and at least arrests the gap takes place? None of that conversation seems to be happening.

STARES: Let me just say two things briefly, one, something that I think we should be paying more attention to and something which we are arguably may now need to pay less attention to. I think the fraying of the transatlantic alliance partnerships, I think, is a big concern to me. It's partly generational. It's partly things like the Snowden affair that's undermined trust between the U.S. and -- and leading European governments.


It's partly this -- the actions of the Europeans, they're more inward-looking. They're, you know, investing almost next to nothing in any kind of sort of out-of-area expeditionary capabilities to partner with the U.S.

And so our traditional partner on the world stage, I think, is -- is receding. You know, if you look at those three areas, the Europeans are really not playing much of a role. They were, obviously, a major partner in the deal with Iran, but elsewhere in the Middle East and North Africa, their role is relatively minor. No role in East Asia. A little bit in central, south Asia. So that's the number one.

In terms of where we may be paying more attention than perhaps is justified now -- and this is going to sound heretical to a lot of people -- is, believe it or not, Israeli-Palestinian peace. Now, I'm not saying that's not a desirable goal and something that we should be seeking, but in terms of the challenges that are now confronting the Middle East, solving that problem will have, I think, relatively limited impact on the rest of the region.

You know, it used to be that, you know, if we solved that one, everything will -- you know, it's Gordian knot that -- knot that would be cut and everything else would kind of fall into place. I see that less and less likely. In fact, these are the challenges that are, frankly, supplanting that conflict. That's not to say it's not desirable to deal with. But in terms of its relative importance to these other challenges, I would say it's receding.

MISCIK: Yeah. And I think, on that last point, you're touching on something that I think is really important today. If you look at the Middle East, Syria, the Iran nuclear, the Saudi-Iranian, the Arab-Israeli, so much of that is interconnected, you know, that the ability for countries to pick these issues off one at a time and solve for X, and then move on to the next one, really has been reduced. And I think leverage winds up being reduced because of that interconnection.

And then you have other countries that only want to deal with things bilaterally, not multilateral situations, that it really does complicate the equation.

STARES: Yeah, these are like mini-Rubik's cubes now. You have to align four, five different very complex problems before you can solve them all. There's no kind of magic bullet here.

MISCIK: I want to open it up now to questions. Just raise your hand. Microphones will come around. And as we're getting the first questions up, I also want to draw your attention, at the back of the room as you leave, there is a monitor that's showing what is on the Global Conflict Tracker. And it's really quite an impressive array of work, so, you know, this is something that's accessible online, if you just go to CFR.org and look for the Global Conflict Tracker. I think just as a way of keeping up on issues, it really is of value.

So let me open it up to questions. And do we have microphones up in the front? OK, let's start right over there.

QUESTION: Thank you, Jami. Craig Charney from Charney Research. I'd actually like to pick up on the last point relating to Israel-Palestine, because I was surprised that the CPA and Control Risks both rated it so low. On the one hand, there's been rising violence in the occupied territories recently, and public opinion polls also suggest an increase in tension. And there would appear, if you read the Israeli press, to be a consensus that there is a real risk of a third intifada, if and when the current talks fail. That would certainly be at least the complication for U.S. foreign policy in the region.

On the other hand, to pick up on Jami's point about leverage, Secretary Kerry at least seems to think that one of the ways he can drive the linked Iranian and Israeli negotiations forward is by using the Iran -- the Iran negotiations as a way of both securing and, at the same time, extracting concessions from Israel. So it would seem that, on the other hand, there is a certain centrality to it, as well, in the sense that he has linked these two issues.

So I guess I am surprised why these -- both the risks and opportunities seem to be ranked so low.

MISCIK: Well, I won't speak to either of the studies, but I do think, for my two cents, that it's -- it was almost a mantra when I first started in government that if you could resolve the Palestinian-Israeli question, then so much of the animosity in the region would dissipate and that you could move on from there, but that that was so central.

I think now -- and, again, I don't want to speak for either of my colleagues here -- I think that even with that, you have an array of issues that aren't related that are still going to be very problematic for a U.S. administration. So I think that centrality leading to resolution of all others -- and maybe that was a faulty premise to begin with -- but I think that was a premise for many, many years. Things like Syria and Saudi, Iran, and things like that I don't think are as affected, but...

STARES: I'm sort of just essentially reflecting the survey that went out, and we solicited people's inputs in terms of what they thought was most important and likely, and I think a few mentioned third intifada. You know, we gave them the option of -- you know, if there's something in -- in the list that you're most worried about that you think should be in there, please, you know, fill in the blank, and several of them did mention that.

The relationship between that and, I think, this -- as I say, this unfolding regional rivalry between, you know, the Sunni gulf states and Iran and the sectarian tensions that that's spinning up, I think that actually has limited impact on that.

You know, you mentioned Iran. There was some sort of speculation that Israel and Saudi Arabia will actually develop a closer strategic relationship to counter Iran, and, you know, there could be -- you know, I've heard this term mentioned -- a grand bargain between Saudi Arabia and Israel to deal with Palestinian statehood. And that might be, you know, a perverse unintended consequence of this larger strategic relationship that is starting to develop between those two countries. So, you know, after all this effort, decades of effort, you know, there may be conceivably a breakthrough.

MISCIK: Yes, right here in the middle.

QUESTION: Hi, I'm Minky Worden from Human Rights Watch. And thank you all for the great world tour. I wanted to -- I was surprised not to hear the word Russia that often, and in a matter of days, the world will tune in for Putin's star turn on the world stage. Can you all talk through the implications of Russia's repression at home and intransigence externally?

MORAN: I'll take that.

STARES: Good.

(LAUGHTER)

MORAN: Well, Sochi, where I know your heart is right now, is a huge challenge for Putin. I mean, any country that walks around on the global stage with its chin out is bound to get punched every once in a while, and there's no one who does that quite the way Mr. Putin does. So he has put himself in a position where it's an awfully inviting thing to disrupt this showpiece for his regime.

In the larger stage, you know, I think Russia has been constantly surprising to the downside in its economic performance. It's struggling to make the most of this enormous inheritance of, you know, conventional oil and gas, plus the prospect of shale. I think its economy is such that it will struggle mightily to produce shale oil and gas, because it requires things that Russians can't do so far, cost controls, regulatory flexibility, an incredibly flexible and responsive infrastructure.

I mean, the way these guys do it in the Bakken and in Texas, I mean, they -- they're refiling their drilling plans every day. The state's saying yes. New trucks are showing up. Old trucks are leaving. They're changing things constantly. That's just -- that's not how the Russians do it. They'll be great in the Arctic. They'll build a city on the Arctic Circle, and there will be -- you know, there be conventional oil for decades coming out of the Arctic, but I see shale as a problem.

All of this undermines some of what Putin has tried to project, I think, which is he is the great modernizer. I've read a very nice book about Putin last year, and I'm spacing -- it was by a lovely woman at the Brookings Institution. I hope nobody takes that the wrong way. And I can't remember the book. But she noted that it was actually this 19th century tsar who was the great modernizer, not the tsar we all remember as being killed with his family in the revolution, but a tsar in the 18th century, Alexander, who Putin modeled himself after. He wants to be the man who turns Russia into a modern superpower economically.

That's really not happening in Russia. And I think the weight of these kind of unfulfilled promises and projections are beginning to weigh on his government. It doesn't show up often in popular unrest. When it does, it's stepped on pretty severely. And obviously, the extent to which the electoral cycle will bring out protestors again, as they did in 2012, is a question.

He clearly wanted to throw a bit of a -- a bit of a, you know, peace offering to the world human rights organizations and international opinion when he let the punk band out of jail, and he basically pardoned his arch nemesis, Khodorkovsky. But these are really small things. These are not statutory reforms. These are not the kind of things that enhance the ability to enforce a contract, to ensure that you're not going to be arbitrarily harassed or arrest -- if you're arrested in Russia.

So, I mean, what we're seeing is the typical brushing up of the resume before the big event. And I would imagine you'll see it all snap back to norm right after Sochi's over.

MISCIK: Let me just follow up on that. Are you -- when you give advice to clients about the Olympics, what kind of threat perspective are you putting around that? Do you think that, you know, if there are challenges to the Russian government about, you know, any one of a number of issues, from human rights, gay rights, Chechens, how do you characterize that -- those risks for clients?

MORAN: Just to be very careful here, you know, specific clients have specific concerns. The security aspects, we've counseled extreme caution. We treated it as a -- we would always have treated southern Russia somewhat differently than other parts of Russia. It is -- it tends to be a more -- a tenser, more dangerous part of that country.

But during the Olympics, there's clearly a threat of Islamist militancy, terrorism. So, you know, the kind of consulting we do at the security level has been, you know, put into place with our clients that are involved in Sochi, whether it's logistical, whether it's just executive travel to actually attend the games, or whether they're sponsors.

We didn't, to my knowledge, get involved in counseling about the question of sponsorship. We didn't have a consulting gig on that level.

STARES: If I could just add, you know, the real dilemma here is, however distasteful we are of Russian human rights record and how much we want to push back and pressure on them, we need their help with Syria. We need their help, to some extent, with Iran and even some issues in the Far East, too, and as well as Afghanistan. And so it's balancing those two imperatives that's going to be the real challenge in the coming year or so.

MISCIK: Other questions? Gary?

QUESTION: Gary Sick, Columbia University. I was -- sometimes we get the timescale wrong. So, basically, I was particularly taken by your rather disparaging comments about the pivot. OK, we haven't pivoted fully yet, but if you just look at it, one war's gone, really pretty much completely, the other one is going down, whether you like it or not and whether it's a good thing or not that we're getting out. All of those bases -- we've -- about a third of the bases that we had in that region are closed now. We're down a carrier. We're drawing down here and there little bits and pieces, so it's fading away.

And what's the big thing that would keep us in the gulf, for instance, or in the Middle East? One thing is Iran as the threat. And the administration is doing, in my view, at least, a pretty decent job of trying to deal with that threat, even if it's only to remove that as the sort of number-one thing that we have to worry about all the time and that keeps us having a full fleet in the Persian Gulf. It seems to me we're going back toward 1986, when we had no presence in the region.

And the other thing is that Obama has said very explicitly -- and nobody seemed to pay any attention to it -- that we're only going to pay attention to those things that have real interest to -- United States interests are at threat. Now, that's a real change in the Middle East. We've been very interested in pushing democracy. We've been very interested in sort of do-good-ism here and there. I don't think we're going to get involved in Syria. I think we're going to keep out. We are going to try to deal with the Iran situation to remove the threat, and then if there's a rivalry between Saudi Arabia and Iran, which there was back in the days of the Shah, we can probably live with that. But it's not -- it's not our game.

And in the meantime, that is called a pivot. And if we don't notice it while it's going on, then next year you can say, hey, there was something actually happening here, when we were looking forward, and we missed it, and it seems to me that this is one of the cases that might be.

MISCIK: Questions? Right here.

QUESTION: Thank you. Tom Miller with Bloomberg. My question has to do with something that was mentioned in Mike's response concerning Russia, and that is the global energy market. And it is -- to what extent do you think -- you know, one of the greatest changes, I think, in the global economy recently has been the United States' re-emergence as an energy-independent actor and its potential to become possibly a significant energy exporter, if we improve our LNG facilities and other things.

So to what extent do you think this change in the energy market should and will affect U.S. policy towards the Middle East, in particular, where we don't have sort of the same interests, I think, in the game, and possibly even affect our relations toward Russia, you know, given the East Europeans, the Baltics, Poland, even Ukraine's current dependence on Russian energy?

MORAN: Can I address it? And it would be a good way to get to Gary, as well, because he mentioned -- he referenced something very similar. I think there are two things you've got to bear in mind with regard to the U.S. -- the shale boom, for lack of a better term. It's short-lived. In broad terms, it's over in 30 years, as far as we can tell. Now, we may find other resources, other reserves, but that is the current EIA. So it is there, but it's a 30-year window.

The other thing I would say about it is that, remember, oil is a globally traded commodity. The fact that we have oil in the United States does not make oil cheaper in the United States. It's different for gas, because gas is difficult to move, so natural gas prices here are actually an enormous headache for the rest of the world, because it's so cheap here that actually we're gaining manufacturing industries again.

But oil, whether we like it or not, Gary, is going to be controlled by -- the price of oil is going to be deeply affected by whether or not oil can move through the Straits of Hormuz. I would say that is a pretty good argument, until China has a blue water fleet and India and South Korea wake up to the fact that they are more dependent on these things, it's going to be a petty good argument within Washington for keeping a pretty substantial naval presence in that region.

And to that -- you know, yes, we're down a carrier, but we're down a war, right? It doesn't -- well, I want to see what the peacetime pivot looks like. That's what the pivot is to me, is -- have we actually moved the gravity of American foreign policy thinking toward Asia? Or are we constantly dragged back to the Middle East, because it's where we're comfortable, because we have -- it's where we're entangled, where domestic constituents expect us to pay attention? There's a whole lot of issues.

But the one issue I can't argue with is the price of oil, because -- to concede to your point, probably the last 10 years, many analysts would have had in their top five, you know, the shutdown of the Straits of Hormuz as a risk, right? And it's still a significant issue. It's fun to play out, where the price of oil would go, how long it would last, the spike.

But the reality is, that doesn't go away just because the Iranian nuclear program is put in a box. The Saudis and the Iranians still have bad blood. Iraq is a mess, and a mess that we have our fingerprints all over. And Syria is a -- you know, it's a spinning turbine of trouble in that region. What a bad metaphor.

Anyway, all of it adds up to a place we have to pay attention to for some time. And I don't see the commensurate kind of shift in either attention or -- or diplomatic initiatives or, frankly, military presence to Asia. It hasn't happen, to my knowledge.

KAHN: Just to reinforce that, and I think that's why I think Tom's question is spot on, you know, we -- we economists sort of grew up with the fact that -- or at least the presumption that most of the postwar recessions, a majority of them, have been initiated, influenced, driven by an oil shock, and that that was going to continue to be an important macro driver.

Now, more recently, we've stopped worrying about that. Now, is that because the economy -- the fundamental workings of the global economy have changed in a way that oil is just less important and it's offset by the shale gas elements which are long-lasting? Or is it that we simply haven't had the kind of disruptions in recent years that we used to have, at least as a percentage of the kind of global economy and global output, and that we're really still vulnerable, it's still going to be an important element of how the global economy works.

MISCIK: Yes, back there. No, back there.

QUESTION: Michael Oppenheimer, NYU. I want to agree with Gary. The lack of planning that, Paul, you spoke of -- and, as you know, I'm in agreement with that, by and large -- but the pivot, rebalancing, whatever you want to call it, is, in fact, an effort to think strategically and to imagine American interests in a world in which Asia has, in fact, become the center of gravity and to play a role in a region where American power still counts for something, where there's demand for American power, where you're dealing with relatively coherent states that can make relatively rational decisions about how to use your power to balance against -- against proximate threats.

And our country is in a moment where it can't do everything at once. It's got to make choices. So I think that, to the extent that -- that we are playing a more offshore or more discrete and restrained role in the Middle East is a reflection not of a lack of planning, but of a sense in the administration that we have to make some choices. And the right choice is Asia.

Unfortunately, the transition between A and B, between being the lynchpin of security in the Middle East and something else is a rough transition, as we're discovering. But if Obama resists the "Godfather" temptation or the temptation of others to drag him back into the -- into the -- you know, into running the mafia, I mean, he will be -- he will be viewed in the future as having done a courageous thing, which is to say no to Syria and to put American forces where they count for something and where they'll actually have a predictable and positive impact, question mark.

(LAUGHTER)

So, respond, please, if you -- if you...

STARES: Yeah, I just want to be clear to Gary and what you said, I didn't want to sound disparaging of the pivot. I think the strategic logic of the pivot is impeccable. You know, that is where the main event will be in he 21st century, no question. It's purely, essentially, a recognition of the difficulty of making the pivot.

And, you know, we're showing a lot of restraint. We're trying to be engaged where we can and try to make a difference where we can and not get sucked in. But it's not hard to see how events could suddenly drive us in that direction.

You know, it was only a few months ago that we were, what, 24 hours away from launching military strikes on Syria. We were very close. I've spoken to military planners at CENTCOM. They had the attack package planned and ready to go, and they were just waiting for the go order.

So, you know, we could have been in a very different place. Similarly, if some of those chemical weapons -- and this is still an issue -- suddenly get in the hands of Hezbollah or someone else, are we going to be quite so restrained? What if Hezbollah got hold of some of these scuds that -- who knows where they are and where they might be pointed? And, you know, the possibility that Israel might be attacked with these very long-range missiles, are we going to be so restrained?

What if there's a truly mass -- you know, more like a genocidal attack against, you know, you name the community in the Middle East? Given all the rhetoric we've made about, you know, responsibility to protect and, you know, we cannot stand by, never again, all that, are we really going to live by that and show restraint?

Because -- and all those issues could happen very quickly. They're not implausible. And we'd be in a completely different world when they happen.

QUESTION: (OFF-MIKE) this conversation a year ago (OFF-MIKE) if Assad uses chemical weapons, all bets are off, right? And then he used chemical weapons, and we found a way to, in a sense, accommodate that act, and -- and the decision to accommodate that act, A, going to the Congress and then, you know (OFF-MIKE) was a decision and a thought process. And the thought process was, I'm still going to get my (OFF-MIKE) Syria (OFF-MIKE) even if they walk right through my red line. I mean, that's, in a sense, the way policy gets made, but it gets made in a context of an overall long-term strategy that I'm not (OFF-MIKE) Middle East (OFF-MIKE) we've seen that, we've done that, we know where it got us, it's not going to happen again.

MISCIK: Thank you.

STARES: From your lips to God's ear.

QUESTION: Rob Spalding, military fellow. OK, considering the new ADIZ that the Chinese just established over Japan, the Senkakus, talk about the U.S. response to that, and is that neutral? Does that encourage further expansion? Or does it discourage?

STARES: Well, I hope some others...

MORAN: I'll talk to it. I think it's as ambiguous as the decision to set an ultimatum to Syria and then do nothing when they violate it. We flew an unarmed B-52 through the zone, and then we told all the commercial airlines to obey the Chinese demand for identification. It's -- you know, it's a non-policy, to me. I mean, it was a -- there was a messaging of sorts with the B-52, but it was a previously scheduled flight, supposedly.

What I don't see at the strategic level is an attempt to engage the Chinese in a real dialogue and drag them into the public eye and essentially compel them to negotiate on this issue. There's no -- the U.S. still has the ability, a diminishing one, but it still has the ability to somehow name and shame, and that has not been applied at all. And I don't buy the idea that they're holding our debt hostage, either, because I think they -- they would regret that move enormously.

But I think that there's been just a series of tactical decisions made that -- that don't add up to a strategy, and I'm not -- I'm not proposing that the United States could call a peace conference for the East and South China Seas, but I do think that there's been a little bit of wink-and-nod at the Japanese launching of an aircraft carrier and the Japanese rhetoric about becoming a normal country again. You know, that has not been denounced in any way. It's not been -- there's been surprisingly few eyebrows raised from the U.S. side about these things.

And all of that adds to the, you know, very dangerous kind of escalatory dynamic that is there, and there's no effort at all, it seems, to create the kind of mechanisms that would in a crisis be put into automatic effect, where these dialogues could take place to defuse it. And that's what I worry about. I think it's less a military issue for us than a diplomatic and international architecture issue right now.

MISCIK: Yes, back there.

QUESTION: I'm Tony Cutaly (ph) with the Olayan Group (ph). I have -- I guess I'm interested -- I would be interested to hear all of your opinions on something that I think we haven't really -- we've kind of touched on in many different ways, but, you know, at the risk of sounding in any way optimistic, it seems to me like, in the last year, Congress has been able to -- well, at least in the last six months, has been able to at least sit down and have some discussions with each other with regards to what's happening not just in terms of the economy here in the U.S., but in general.

And now, you know, it's beginning to bleed into sort of issues with foreign policy, with, you know, the majority of Congress, it seems like, are close to being able to pass some sort of resolution to increase sanctions on Iran while we're having these discussions with them.

So given the volatility of the way things have gone and the animosity and polarization that you've touched on, all of you have touched on, where do we see -- I mean, because I think this all bleeds into the idea of legitimacy for the U.S. abroad, not just, you know, in terms of our foreign policy power, but also in terms of our economic power and how people view the kinds of decisions we're making here at home.

How do all of you see that, you know, with regards to all of these issues or just in general, our, you know, stance in the world as a country?

MORAN: Your turn.

STARES: Well, I think, you know, having the world see our political dysfunction in all its splendor hasn't exactly helped our diplomatic position around the world. And it hasn't helped our advocacy of democracy, advocacy of fiscal responsibility, and so on, and they -- and for the world to see us, you know, flail around, to be so partisan, petty-minded, and, frankly, you know, lack of real, strong leadership, bipartisan leadership on issues is, I think, very damaging to U.S. interests around the world.

You know, hopefully the signs of cooperation in the last few months, with the debt ceiling, the omnibus bill, and, you know, I think things may have crossed a watershed that we may be righting ourselves, but I think it's been a really damaging period for the U.S., in terms of our image abroad. This is something I hear all the time when I talk to either Europeans or Chinese, Japanese. They just roll their eyes. And, you know, how can you lecture to us on these various issues? How can you, you know, deliver on your promises? You know, how can we -- can we really trust you as faithful interlocutors and that you're going to come through and deliver it? You know, I hear this all the time.

KAHN: I think you're very much seeing it in the economics side of the debate, too. You know, what kind of leverage does Treasury have to tell Europe that they have to have more growth or that financial reform has to go a certain way in Asia? And I think it -- it has undermined our soft power in that regard.

MORAN: And I would say, what you're seeing, you know, is a commensurate rise in the -- in the -- in the kind of fortunes of the Chinese model, I guess, for lack of a better term. It's -- I hate thinking it -- I hate to think that we're moving in that kind of black-and-white Cold War world, and I don't think we are all. I mean, China is arguably the most capitalistic place on the country -- on the planet.

But it is also, you know, very, very, very overtly holding itself and its system of government up, particularly economic government, up as an example to the world and to emerging powers. And I think we don't see a stampede in that direction, but there's certainly good evidence that measures to support transparency in markets that -- to put in place, really, logical and clear guidelines for anti-corruption legislation, a variety of things, legal, what we're seeing now with data protection around the world, you know, in part, energized by the Snowden affair, we're seeing countries now beginning to talk about Balkanizing their own legal systems with regard to the movement of data across borders or the ability to use Google, for instance, because Google may be cooperating with the NSA.

These are -- these are all the kind of things that have damaged not just U.S. as a governmental brand, but U.S. multinationals like Google and Microsoft and anywhere where they feel as though this is just one of the many tentacles of the U.S. government. And that, I think, is clearly an overblown view, but it's also one that's very resonant in the...

(CROSSTALK)

KAHN: One thing I would give the U.S. a little bit of credit for on the economic side, I think, comes in terms of economic statecraft and thinking about some of these issues, right? And if you look at the last 5 or 10 years, so much of our debate with China focused on the exchange rate, as if you could get the -- as if the idea of -- if you could get the exchange rate right, we would solve problems of competitiveness. And obviously that wasn't true.

And I do think, at the same time that we're seeing the exchange rate come back with a vengeance, in terms of the Capitol Hill debate and trade promotion authority, I think you are seeing an administration that's trying to say, look, we -- we have to think about how to deal with state capitalism, how to deal with government procurement problems and intellectual property rights, and redefine that debate. I think it's going to be very hard to do it, but I think they are trying to go in the right direction there.

MISCIK: I think I would just add to that, you know, I think it's tempting to count the U.S. out you're not from the U.S. You know, I think there's a little bit of sport in a lot of countries, you know, taking shots at, you know, where we are. But if you think about, you know, the past, you know, four decades, there's always been something that people haven't liked us for, you know, whether it was the Vietnam War and we were at our lowest low, and we would never recover, and it was a sign of our deterioration, whether it was, you know, the most recent, you know, move into Iraq in 2003, I mean, we are a tremendously resilient society in a tremendously resilient economy, country, people. We learn.

And I think that some of this just has to be tempered and seen as -- as a -- not that every criticism doesn't have some basis of fact and merit, but I also think you have to temper it with some contextual sense of what's going on.

So I would actually argue that we are probably sitting in the single best region of the world right now. If you look at North America, with Canada, the United States, and Mexico, the free trade agreement, we've got dynamic economies, we've got demography working to our advantage, we've got every resource we would want to have in the -- at least for the next 30 years. Not -- and I'm not trying to sugarcoat any of the problems that have been raised, because I agree with a lot of them, but I just, you know, contextually think we need to keep it in balance and not bemoan our future too much.

So, other questions? Yes, back there.

(UNKNOWN): You can wrap up whenever you want.

QUESTION: Thank you. George Baumgarten from the U.N. Press Corps. I wanted to take issue with one little thing that you mentioned in the course of your larger list, which is the growing commonality of interests between Israel and Saudi Arabia.

STARES: I wasn't making that case. That's some people have argued that.

QUESTION: Of which you spoke. I'm not saying that you were advocating it. I can well see a commonality of interests there, but do you think they are really going to be cooperating or something happening between them, however behind the scenes? Or do you think this is more likely somebody's wishful thinking?

STARES: I have no deep insight in this. I certainly don't have any inside knowledge of high-level Israeli-Saudi cooperation or nascent cooperation in any respect. I've just heard this mentioned, particularly from even Israelis, that we could see these two unlikely partners working in some kind of broad strategic relationship to contain Iran, if it were to go nuclear, whether it's, you know, intelligence-sharing, possibly some arms supplies, possibly some operational support, and, you know, it -- it could manifest itself on the political level, too.

But I couldn't comment anything more about what the substance would look like or the likelihood of it really taking effect.

MORAN: I mean, there were definitely conversations through channels about the opening of -- well, not opening, but the perhaps neutralization of Saudi airspace defenses, should there -- should the Israelis decide to strike Iran. And those -- this is five-, six-year-old conversations, but that was a -- that was a fairly common theme of most of these analyses when that was a kind of top risk in the world.

You know, the basic idea was that the, you know, Saudi air traffic controllers would all take a coffee break, just at the right moment. But, you know, those -- but, I mean, through the history of Mideast diplomacy, there's always been these back-channel, you know, conversations between enemies. And I think that would be shocking if there wasn't some Swiss or Danish diplomat shuttling back and forth with this kind of stuff.

MISCIK: All right. How about one last question here in the front?

QUESTION: Hi, my name is Jordan Ryan. I'm with the United Nations Development Program in the Bureau for Conflict Prevention and Recovery. I didn't hear much on any of the links with the whole, you know, conflicts link with climate change, and whether it's Syria and the five years of drought and the links that one can see in other parts of the world where, obviously, the change that comes about from climate increasingly is seen both in the speed of disasters and the impact that that would have.

And I'd just like to get some reflections and whether it should be increasingly a U.S. priority to do much more in that area as part of a preventative package to try to get nations working together on that, both in terms of preparedness and as a more positive step. Philippines being an example where they're actually, you know, linked to the conflict there, potentials for, you know, internal disasters. Thank you.

STARES: Yeah, there's a lot of -- thanks for the question. It's an important one. There's sort of growing evidence of the linkages. The robustness of that linkage or causal relationship is still under some debate. It's contested by a lot of people.

But I think there are -- there's enough evidence to support the notion that environment, as one of the important factors, is clearly there, if not the most important factor. That's not to say that down the road it won't become the most important factor, but, as you mentioned Syria, I think the -- the drought in Northeast Syria was a major factor. We're seeing this in Sudan, even in Mali and, you know, the whole Sahel region under a lot of stress environmentally.

You see this also, arguably, in the potential increase in the instance of major events, typhoons and so on, that may be related to the crisis -- to environmental change, and what effect that will have on political stability in certain countries. So, you know, I would -- I would bet this issue is just going to -- we're just at the beginning of this as being a major concern.

And then, of course, there's the other flipside, the effect of environmental change in the northern latitudes, around the polar regions in particular, and what effect that's having on, you know, even conceivably increasing tensions in the Arctic region over resources and so on. So it works both ways.

MORAN: And there's certainly -- maritime business that we have, they're looking very carefully at, what does it mean when there is no polar icecap? How does that change shipping lanes? What does that mean for insurers?

The other aspect of this that we've already gotten involved with is anyone who's currently expanding a port is expanding a port with the notion that sea level will be higher. So in Peru, for instance, Lima is seen as the -- the kind of Brazilian export port for Asia in the future. And that port is being designed for higher sea levels.

So these are, you know, remediations that can be done in a construction project. The tough part is cities on the coasts of the planet are going to have to, you know, retrofit, which is a tremendously huge project and arguably not possible in some places. So, you know, leaving aside what the cause is, definitely sea level is rising. So that is already sparking a -- a kind of host of studies and a lot of very serious talk about a major construction project.

MISCIK: Well, I would ask my fellow panelists for their last thoughts on what we should walk away with, but I fear that we would wind up looking like a beauty pageant, where we all hope for world peace or something like that.

(LAUGHTER)

So I think I will take a pass on that and just thank all of you. There were some really great questions and some good perspectives brought out from your participation. And I would ask you to join me in thanking our panelists here for a great session.

(APPLAUSE)

END

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