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1 Project on International Order and Strategy at BROOKINGS Five Known Unknowns about the Next Generation Global Political Economy DANIEL W. DREZNER May 2016

2 Acknowledgements I am grateful to Bhaskar Chakravorti, Tyler Cowen, Matt Goodman, Da- vid Gordon, Michael Horowitz, Ash Jain, Bruce Jones, Jonathan Kirshner, Milena Rodban, Nicolas Veron, and Tom Wright for their feedback on ear - lier drafts. I am thankful to Brookings for organizing a discussion seminar on an earlier draft version of this paper, as well as the participants in that seminar. Brookings Acknowledgements The Brookings Institution is a nonprofit organization devoted to indepen- dent research and policy solutions. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. The conclu- sions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the Institution, its manage- ment, or its other scholars. Support for this publication was generously provided by the Ministry of For - eign Affairs of Denmark and the Ministry for Foreign Affairs of Sweden. Brookings recognizes that the value it provides to any supporter is in its absolute commitment to quality, independence, and impact. Activ- ities supported by its donors reflect this commitment, and the analysis and recommendations of the Institution’s scholars are not determined by any donation. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS ii

3 About the Project on International Order and Strategy The purpose of the Project on International Order and Strategy (IOS) is to understand the chang- ing power dynamics in the international system and the implications for U.S. strategy and inter - national cooperation. The Foreign Policy program at Brookings created the project in 2007, then called the Project on Managing Global Order, to address the burgeoning debate in the United States on the future of power, the international order, and U.S. strategy. This is being driven by numerous factors including: the rise of new great powers, the diffusion of military and political power, economic difficulties in the Western order, challenges to the regional order in the Middle East, and the re- emergence of territorial disputes in Asia. These challenges to the order, and threats to state and human security, are evolving rapidly, while the United States is grappling with new constraints— as well as new opportunities. IOS examines these developments in their totality and not just as individual issues, and assess the implications for U.S. strategy. IOS is a unique project, offering sustained research and policy engagement on the questions of international order and strategy, and features many leading thinkers on the subject, including staff members Thomas Wright, Bruce Jones, Robert Kagan, Ted Piccone, and Tanvi Madan; Non- resident Senior Fellows Daniel Drezner (Tufts), Rory Medcalf (Lowy Institute), and Jean-Marie Guéhenno (Columbia); Distinguished Fellow Javier Solana (ESADE); and Post-Doctoral Visiting Fellow Iskander Rehman. Research Assistant Laura Daniels supports the project. The project’s key research topics include the future of America’s global role, the behavior of the emerging powers, geopolitical competition in an interdependent world, and the revitalization of the West. IOS promotes sustained dialogue with the emerging powers; convenes the emerging powers and foreign policy officials and experts from the United States and the Western allies, and engages key U.S. decision-makers on the challenge of adapting U.S. leadership and strategy to changing international realities. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS iii

4 Introduction ich and powerful actors believe that predict- tal regulations. Any company planning significant out- ing the future will make them more rich and lays in research and development or foreign direct in- R powerful. Great powers and international vestment would like to reduce their uncertainty about organizations have invested significant resources the future state of the world. Consultants at McKinsey, into crafting an accurate sketch of the next genera- Goldman Sachs, and Credit Suisse are in the business tion global economy. The U.S. National Intelligence of identifying the key drivers for the next generation Council (NIC) has devoted considerable efforts to economy. Bond investors must calculate whether the predicting what the world will look like twenty or advanced industrialized democracies will revert to their thirty years from now. A key part of the NIC’s cur - mean rate of economic growth that they delivered prior rent exercise is to map out what the distribution of to the 2008 financial crisis, or whether we have entered economic power will look like in 2036. Internation- a “new normal” of secular stagnation and low interest al financial institutions and budget planners in the rates. Geopolitical risk advisors at Eurasia Group, Strat- developed world furiously debate demographic and for, and Maplecroft would gain a comparative advan- economic trends to assess the future liabilities of tage in their field if they could proffer an accurate take governments. In theory, sovereign wealth funds are on the next-generation geopolitical trends. superior long-term investors because of their abili- ty to ride out short-term reverses. In practice, these Despite the bevy of powerful actors invested in know- funds still need quality long-term projections to ex- ing what the future of the global economy will look like, 1 Central bankers ploit that comparative advantage. the quality of such forecasts has been extremely prob- have a strong incentive to develop accurate forecasts lematic. As Philip Tetlock recently noted, “many have about their country’s economic future. Rising pow- become wealthy peddling forecasting of untested value ers must assess whether their strategic ambitions are to corporate executives, government officials, and or - worth the economic fallout of heightened tensions dinary people who would never think of swallowing with neighbors and the developed world. The future medicine of unknown efficacy and safety but who rou- of global economic growth is a critical input into the tinely pay for forecasts that are as dubious as elixirs sold 2 Even over the short run, Intergovernmental Panel on Climate Change’s sce- from the back of a wagon.” both economic and geopolitical predictions have been narios for the future global warming. far from perfect. The quality of long-range projections has been even worse. The result is a market for lem- Within the private sector, multinational corporations ons in predictions: an inadequate supply of low quality and financial consultants have strong profit motives 3 Despite a strong demand for thinking about forecasts. to predict the contours of the future global economy. the next generation’s global economy, the supply has Energy companies have a strong incentive to forecast been insubstantial in every meaning of that word. the future of hydrocarbon resources and environmen- Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 1

5 This paper examines why the ability to forecast the however, is to catalog the known unknowns that will next generation global economy is so difficult, and frame the way the world looks a generation from offers up a different lens to think about the global now. Five significant political economy questions economy for 2036. Far-range economic forecasting stand out: the uncertain pace of technological inno- suffers from multiple flaws: the cognitive tendency to vation, the severity of the middle-income trap for de- extrapolate from recent trends, the incentive to exag- veloping economies, the resiliency of constraints on gerate the accuracy of predictions, and the failure to great power wars, the depth and political effects of consider the possibility of discontinuous shocks. The economic inequality, and the durability of free-mar - deeper problem, however, is that many of the key ket democracy’s appeal to the world’s governments. drivers of generational economic change have little The combined effect of these known unknowns will to do with neoclassical economics. Long-range pro- determine whether the 2036 world economy looks jections require some evaluation of non-economic brighter or darker than the world today. factors. In thinking about what the global economy will look like a generation from now, we need to con- This paper is divided into six sections. The next sec- sider factors that economists take as “given”—such as tion considers the poverty of current global fore- the global distribution of power and ideas—as well casting. The third section explains the reasons why as the interplay between economics and the grand making generational predictions is so difficult. The strategy of great powers. fourth section considers the proper way to frame thinking about the global political economy of 2036. With so many uncertainties, accurate predictions The fifth section discusses the known unknowns about the contours of the global economy circa 2036 about the next generation economy. The final section are impossible to develop in 2016. What can be done, concludes. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 2

6 The Poverty of Forecasting conomic forecasting is a difficult enterprise in Some of these errors could be due to the political 4 and the recent past has not the best of times, pressures within these organizations to slant their 6 E Understandably, official institutions like been the best of times. At the beginning of forecasts. the World Bank or U.S. Office of Management and this century, the Bush administration overestimated 7 Budget might be inclined to project rosy scenarios. projected federal budget surpluses to justify a series It would be understandable to argue that private sec- of large tax cuts. As a result, federal budget deficits tor economists do a better job. However, multiple mushroomed. Upon taking office, the Obama ad- studies suggest that the international financial in- ministration underestimated the depths of the Great stitutions’ short-run and medium-run forecasts are Recession to justify a more modest fiscal stimulus. 8 Neither private sec- similar to private-sector efforts. As a result, the recovery from the 2008 financial cri- tor nor public sector efforts at forecasting have been sis was widely perceived as lackluster. In both cases, 9 - And nei particularly good at predicting recessions. errors in forecasting led to suboptimal macroeco- ther group of forecasters foresaw the magnitude of nomic policies. the 2008 financial crisis. As FiveThirtyEight founder Nate Silver noted “the best way to view the financial These errors in forecasting are not limited to the White crisis is as a failure of judgment—a catastrophic fail- House. The years since the 2008 financial crisis have 10 ure of prediction.” not been kind to economic forecasters of any stripe. The Federal Reserve has persistently overestimated The flaws listed above are only for short-range projec- economic growth since the collapse of Lehman Broth- tions—i.e., how the global economy or national econ- ers. Since the start of the Great Recession, the Inter - omies would be predicted to perform over the next national Monetary Fund’s economic forecasters have eighteen months. Moving to long-term predictions, had to continually revise downward their short-term the results are even more depressing. One study of projections for global economic growth. The failure private sector efforts concluded that “survey forecasts rate has been so bad that the IMF devoted a chapter do not have much value when the horizon goes be- - World Economic Out to the problem in its April 2015 11 Official long-range projections are yond 18 months.” . Its authors acknowledged that “repeated down- look no better. A profound “optimism bias” exists in both ward revisions to medium-term growth forecasts IMF and World Bank projections. On average, a ten- highlight the uncertainties surrounding prospects for 5 year IMF or World Bank macroeconomic forecast the growth rate of potential output.” Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 3

7 overestimates a country’s annual GDP growth by 1.1 “marked by chronic financial volatility and a widen- percent a year. Twenty-year projections have an even ing economic divide.” Other predictions—like the deeper degree of optimism bias. OECD economic global economy “return[ing] to the high levels of 12 Two IMF staff forecasts suffer from similar biases. growth reached in the 1960s and early 1970s”—have 20 The primary bias in the NIC economists conclude “forecasters seem to overesti- held up far less well. Global Trends series is that, as Philip Tetlock and mate the persistence of rapid economic growth and Michael Horowitz pointed out, “the reports almost to give much greater weight to a country’s recent past inevitably fail into the trap of treating the conven- performance than would be warranted on the basis tional wisdom of the present as the blueprint for the of the estimated ex-post persistence of economic 13 21 future 15 or 20 years down the road.” growth in large samples of countries.” Unfortunately, the forecasting power of international The private sector hardly does better than the public - relations appears to be at least as dismal as econom- sector in making long-term predictions about inter national politics. Private sector political forecasters ics. As Philip Tetlock demonstrated a decade ago, the short-term predictive abilities of political scientists have an incentive to accentuate the negative so as to 14 Interest in geopolitical risks highlight the need for their services. When not scar - have been lackluster. have increased, and methods for developing better ing potential clients, for-profit firms like McKinsey or 15 The Econ - geopolitical forecasting have improved. Goldman Sachs highlight market opportunities for 22 The most successful example of this, omist series The World In ___ ’s predictions in their their customers. 16 Nevertheless, the poverty of by far, was Goldman Sachs’ invention of the BRICs has been hit or miss. geopolitical forecasting has also recently been on category in 2003. This was a rare case of a marketing display. Geopolitical risk analysts who have used the neologism leading to an actual international group- “fiscal breakeven oil price” to predict instability in ing. Other analysts, picking up on the BRIC concept, Russia or OPEC economies have been largely wrong argued that there would soon be a “world without 17 In late 2013, the World Eco- over the past few years. the West,” in which developing economies were “de- 23 nomic Forum asked more than 700 decision-makers, coupled” from the advanced industrialized states. The 2008 financial crisis categorically demonstrated “to nominate their risks of highest concern” for the 18 The consensus forecast was that the most that decoupling had not taken place, however. Ruchir next year. important risks for 2014 were socioeconomic and Sharma is likely correct when he concluded that “no environmental; concerns about pandemics or geo- idea has done more to muddle thinking about the 24 Geopolit - political instability were posited to be less important. global economy than that of the BRICs.” - ical analysts concur that the BRICS acronym gener It would be safe to say that the actual events of 2014, 25 ated fuzzy understandings about their actual power. highlighted by political turmoil in the Middle East Indeed, even Goldman Sachs officials have lamented and an Ebola pandemic in West Africa, did not con- 26 19 After their overhyping of the BRICs phenomenon. report. Global Risks 2014 form to the WEF’s hemorrhaging losses for five straight years, Gold- As with economics, long-term geopolitical pre- man Sachs quietly dissolved its BRIC fund in August 27 dictions suffer from even greater problems than 2015. near-term predictions. The most well-known pub- More generally, just as economic forecasters seem lic-sector effort is the National Intelligence Council’s to suffer from an optimism bias, geopolitical fore- Global Trends series. Since 1997, the NIC’s reports 28 casters tend to display a profound pessimism bias. have attempted to project what the world will look Political scientists failed to predict both the manner like 15-20 years out. As the world has caught up with 29 Realists in particular and the end of the Cold War. the NIC’s past projections, some of the predictions made overly pessimistic predictions about how the seem prescient. Written in 2000, for example, Global post-Cold War order would affect NATO, nuclear predicts that the global economy will be Trends 2015 Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 4

8 proliferation, violent conflict, and balancing against Climate Change (IPCC) has refined their modeling 30 In actuality, the twenty years af- the United States. exercise to determine the effects of greenhouse gas ter the breakup of the Soviet Union saw dramatic de- emissions on the Earth’s climate. The IPCC’s past 31 clines in almost every category of political violence. models of climate change effects have been borne More generally, international relations scholars have out by increases in global temperature readings 34 In contrast to geopolitics and econom- been predicting the end of American hegemony since 1990. ics, predicting long-range climate shifts is easier than since the start of American hegemony. The centen- 35 predicting medium-term fluctuations in climate. nial anniversary of the start of the First World War Finally, some international relations scholars stress led to a raft of historians predicting a replay of those 32 A year later, that the constants of world politics over time, like the du- events in the Pacific Rim in 2014. 36 Still, pre - region looks more stable than either the Middle East rability of the Westphalian state system. dicting a constant to remain constant seems like a or Eastern Europe. low bar for success. To be sure, there are pertinent dimensions of the fu- Stepping back, the picture is not pretty. Neither eco- ture global political economy that can be currently nomic forecasters nor geopolitical analysts are very predicted with a reasonable degree of accuracy. De- good at prediction. There are persistent flaws in mographic predictions have proven to be remarkably their short-term predictions and persistent biases in Global Trends 2015 robust. The NIC’s population their long-term predictions. These problems are not forecast of 7.2 billion, for example, was correct. This a function of whether the forecaster is working for is not because demographic models have gotten bet- the private, public or nonprofit sector. Outside of a ter. Rather, demographic models require few working few areas like demography, the current tools, mod- parts: fertility rates, mortality rates, and net migration els, and analytics for predicting the contours of the (at the national level). The persistence of fertility and next-generation global economy are at best radically mortality trends, combined with better data from the imperfect and at worse significantly flawed. developing world, has improved demographic pro- 33 Similarly, the Intergovernmental Panel on jections. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 5

9 The Market for Lemons in Forecasting iven the strong incentives to develop quality Consider, for example, the ongoing debates about predictions, why is the state of political econ- whether the developed world has entered a period of G omy forecasting so bad? The most obvious “secular stagnation” in recent years. Unusually, this explanation is that predicting the future of complex hypothesis does have the backing of some prestigious systems is extremely difficult, and the global political economists, such as Lawrence Summers and Robert 39 Nevertheless, there has been surprisingly lit- economy is an extremely complex system. The anal- S ol ow. tle scholarly debate on the question of whether the ogy to meteorology would seem apt. The accuracy of secular stagnation hypothesis is valid or merely a weather forecasters fades as the forecast lengthens in reprise of past hypotheses about economic growth time because it becomes impossible to predict the com- 40 There that emerged during previous depressions. plex interactions that could occur. The same problem has been a lot of public debate about the possibility exists when thinking about the global economy. For of a permanent growth slowdown, but less scholarly most economists, there is too simply much uncertain- 41 As the economist Robert inquiry and discussion. ty to model this kind of exercise. Beyond predicting Shiller noted: “There is little talk about secular stag- that summer will be warmer than winter, the utility of 37 nation in scholarly circles today. The recent chat- weather forecasts after a week serves little purpose. ter has centered in the news media, in conference 42 The complexity of the global political economy And panel discussions and in the blogosphere.” makes prediction intrinsically difficult. The deep compared to other questions crucial to predicting uncertainty that it fosters, however, also creates per - the next generation economy, there has been much verse incentives that degrade our ability to develop more high-profile discussion of secular stagnation. better predictions. For example, the deep uncertain- Indeed, with a few significant exceptions, there has ty of forecasting deters many scholars from engag- not been an abundance of recent scholarly work on 43 ing in this area of activity. From a career perspective, the next generation economy. there is little incentive for social scientists to engage in long-range forecasting when the likelihood of Without more rigorous models, efforts at prediction 38 There is therefore little incentive error is so high. rely on simple but flawed methodologies. Long- for scholars to risk their reputations by refereeing range prognosticators often lean on straight-line debates about prediction when the entire exercise is extrapolations from the present or recent past. This viewed as a dubious endeavor. This leaves the fore- is based on the simple premise that the recent past casting playing field to those unafraid of such rep- is the best guide for the future—that the biggest de- utational costs. This leads to a more shallow pool of terminant of events at time (t + 1) or (t + 20) is the forecasters – and, equally important, a more shallow observed changes between time (t) and (t – 1) or (t discussion about the validity of extant forecasts. – 20). Long-range forecasting is vulnerable to dis - Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 6

10 44 Simple or even sophisticated continuities, however. the world has risen, there has been a desire to identi- extrapolations are highly vulnerable the precise mo- fy states at risk of instability or violent conflict based 49 Plenty of ana- ment in time one begins a projection. Predictions of on past examples of state collapse. lysts predicted that Chinese political stability would a persistent, durable Cold War sounded reasonable in be at risk if economic growth fell below eight percent 1984; the same prediction would have sounded less a year. When oil prices crashed in 2014, there were reasonable just a few years later. A decade ago, fore- numerous warnings about the fragility of oil-export- casters were warning about ‘peak oil’ and U.S. energy 50 Many of these ex- ing economies to fiscal crunches. dependence on the rest of the world. Now the Unit- ercises failed to consider the degree to which author - ed States is the leading producer of oil in the world itarian regimes adapted to negative shocks, however. and has dramatically reduced its need for oil imports. Beyond simply doubling down on repression, many More generally, economic forecasts can overhype of these countries built up reserves via sovereign short-term bursts of economic growth, overlooking 45 wealth funds and other investment vehicles. Rev- the fact that such bursts tend to be transient. enues from these funds, combined with low inter - The most high-profile example of this kind of ex- est rates, has made it easy for these governments to 51 trapolation risk concerns the future of China. By one As for China, just as economists maintain stability. measure the largest economy in the world, getting overestimated that country’s future growth rate, geo- China’s growth trajectory right is a key facet of any political analysts have underestimated the Commu- 46 attempt to predict the next generation economy. nist Party’s political resiliency. The most headline-grabbing forecast in recent years Beyond extrapolation, the robust demand for more was Nobel prize-winning economic historian Rob- - precise predictions also leads to other forecasting er ert Fogel’s Foreign Policy essay projecting China to rors. Human beings have a cognitive tendency to see have a $123 trillion economy by 2040—more than patterns in noisy data, even if the pattern is actually a three times the size of the United States economy. 52 Because clients desire precision, statistical chimera. That result, however, was based on a cursory anal- forecasters of every stripe have an incentive to prof- ysis—a simple, straight-line extrapolation of China’s certainty even when it is unjustified. This can faux fer previous thirty-year growth rate. Five years later, encourage forecasters to pass off uncertainty as risk. as China’s economy has cooled off significantly, the In a world of what economists call “Knightian un- absurdity of Fogel’s projection can already be seen. 53 probabilities cannot be assigned to dif- certainty,” But even more sober forecasts of Chinese economic ferent outcomes because the existing distribution of growth, such as the OECD’s Looking to 2060 project, possible outcomes is unknowable. In a world of risk, the Carnegie Endowment for International Peace’s probabilities can be assigned to possible outcomes. A China 2030 World Order in 2050 , or the World Bank’s range of possible outcomes exists in worlds of quan- exercise, projected massive increases in Chinese per 47 As Lant Pritchett and Law- unquantifiable uncertainty—which and tifiable risk capita income growth. rence Summers note, “Many of the great economic means that it is easy for a forecaster to claim that we forecasting errors of the past half century came from operate in a world of risk even if we live in a world of excessive extrapolation of performance of the recent uncertainty. There is simply no way for any client to past and treating a country’s growth rate as a per - be able to distinguish the reasons why a prediction manent characteristic rather than a transient condi- might be wrong. Because those who consume pre- 48 Clearly, a common source of error from eco- tion.” dictions prefer analytical precision, forecasters will nomic forecasters has been the excessive weighting provide precise predictions, regardless of the quality of current rates of economic growth over the tenden- of the analysis underlying those predictions. cy of countries to revert to their mean growth rate. Geopolitical forecasters are guilty of a similar sin. As There are multiple ways in which forecasters can concerns about the resiliency of governments across exaggerate their predictive powers in ways that Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 7

11 cater to the cognitive biases of their clients. One is incentives for talented researchers to stay away from through the prioritization of first-hand information this arena of inquiry. It is also difficult for any client or intelligence. Individuals are far more likely to val- to discern between good-faith forecasters who ex- ue first-hand narrative sources of information over pend considerable effort in their analysis and turned 54 Both geopolitical risk more dispassionate analyses. out to be wrong and charlatans who are equally analysts and management consultants excel at mar - wrong. There is little incentive for forecasters to im- 55 Another rying such narratives to their predictions. prove on their predictions. Rather, the incentives are way that forecasters will worsen their performance geared towards exaggerating the precision of fore- is through ‘overfitting’—over-interpreting statistical casts. Such exaggerations satiate the cognitive pref- noise as representing an underlying trend. As Nate erences of governments and corporations, and also Silver notes, “Overfitting represents a double wham- generate greater media attention to the forecast itself. - on paper but per better my: it makes our model look For much of the private sector, public forecasts are 56 form worse in the real world.” designed to maximize marketing rather than predic- 58 Public investment in better forecast- tive accuracy. The cumulative effect of these pitfalls to prediction ing can only partially offset this market for lemons. is what could be called a market for lemons in long- As Philip Tetlock concluded, “the demand for accu- range forecasting. As George Akerlof noted long rate predictions is insatiable. Reliable suppliers are ago, markets in which consumers possess imperfect few and far between. And this gap between demand information and producers possess a profit motive and supply creates opportunities for unscrupulous 57 Similarly, are thin, insubstantial, and low quality. suppliers to fill the void by gulling desperate custom- bad forecasters drive out good forecasters. There is ers into thinking they are getting something no one 59 massive uncertainty in making long-range politi- else knows how to provide.” cal economy predictions, and there are powerful Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 8

12 How to Think About Thinking About the Next Generation’s Global Political Economy ong-range forecasting suffers from an absence wealth funds, or multinational corporations lack of quality and an abundance of biases. Nei- the resources to insure or prepare against this kind L ther of these facts vitiates the continued need of catastrophic contingency. Mapping out what the by governments and corporations for political and global economy will look like in 2036 must presup- economic projections into the future. Simply arguing pose the existence of a global economy. This means that forecasting is impossible and therefore should that future forecasts will be slightly biased in favor not be done will not work; all large organizations of stability against extremely negative or extremely 63 To put it in more concrete terms, must engage in some form of strategic planning to positive shocks. 60 As Dwight D. Eisenhower said, perhaps long-range forecasters should be concerned act in the present. “Plans are useless, but planning is indispensable.” about the prospect of a great power war, but not the Thinking about the next generation global economy likelihood of a nuclear war. requires marrying a few deeply held ideas about eco- This realization segues to the next guideline: abstain- nomics with big questions about the sociopolitical ing from making predictions of central tendency assumptions that economists usually take as given. Is and instead focusing on the “known unknowns” of it possible to reconcile the meager supply of decent the next generation. As Secretary of Defense Don- projections with surging demand? ald Rumsfeld famously said in 2002: “[T]here are Given the inherent biases and flaws in the forecast- known knowns; there are things we know we know. ing process, perhaps the first step going forward We also know there are known unknowns; that is to is to filter out contingencies that simply cannot be say we know there are some things we do not know. predicted with any accuracy. For example, Nassim But there are also unknown unknowns—the ones we 64 The known knowns for Taleb has criticized forecasters for underestimating don’t know we don’t know.” 61 the next generation are the effects of demographics fat-tailed outlier events, such as financial crashes. This is a valid critique, but the important question and climate change, and will not be discussed further is what forecasters should do with this informa- in this paper. The unknown unknowns fall into the tion. There are certain contingencies that are so aforementioned category of possibilities that might catastrophic that, paradoxically, there is no point have extreme effects but simply cannot be forecast. in planning for them. The Global Challenges Foun- The known unknowns, however, can be discussed. It dation has attempted to estimate the probability of might not be possible to convert known unknowns events that have “potentially infinite impacts,” such into quantifiable risks—but, at a minimum, known 62 In trying to as a nuclear war or a global pandemic. unknowns can be acknowledged and debated by plan out what the global economy will look like in planners going forwards. 2036, even entities such as central banks, sovereign Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 9

13 This leads to the last guideline: recognizing that long- The commonality to the known unknowns is the range economic projections require some incorpora- intersection of economic questions with non-eco- tion of non-economic factors. Many of the key driv- nomic questions that economists take as given in ers of generational economic change have little to do short-run forecasts. Various domestic and interna- with neoclassical economics or even conventional tional arrangements can be assumed to be constant growth economics. Conventional economic models in short-term projections. Over a generation, how- usually take as “given” factors that, over the span of a ever, what are thought to be constants must be treat- generation or more, might be subject to change. For Looking to ed as variables. For example, the OECD’s example, most modern macroeconomic projections project has served as a baseline for many long- 2060 65 That exercise, however, explic- have been made in a world where the United States range forecasters. itly ignored a number of possible negative impact has been the unquestioned economic hegemon. If factors, “including the possibility of disorderly debt the United States experiences relative decline, there defaults, trade disruptions and possible bottlenecks are reasons to believe that the current rules of the 68 to growth due to an unsustainable use of natural global economic game will be subject to change. 66 The authors further assumed a policy Similarly, shifts in the global distribution of ideas— resources.” trend of more market-friendly regulations without as well as the interplay between economics and the any convincing explanation. Other non-economic grand strategy of great powers—could also feed back factors, such as political instability or interstate wars, into economic policy and economic growth. were not even mentioned as contingencies. Recent private-sector forecasts have made similarly unreal- 67 istic assumptions. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 10

14 The Known Unknowns he next generation world economy will de- to faster economic growth through increases in labor pend crucially on the answers to the follow- productivity. New technological advances in trans- T ing five questions: portation and communication rapidly lowered the barriers to trade and exchange across borders, there- Has the accelerated growth experienced by the 1. by spurring greater growth through globalization. developed world since the start of the Industrial Advances in health and medicine also enabled and Revolution come to an end? enhanced a significant demographic explosion, an- other key mechanism to increase economic growth. Perhaps the best long-range economic forecast ever made was John Maynard Keynes’ statement at the In recent years, however, the rate of per capita in- start of the Great Depression in 1930 that “the stan- come economic growth in the developed world has dard of life in progressive countries one hundred slowed down considerably. If one compares the U.S. years hence will be between four and eight times as economy since 1971 to the Bretton Woods era, there 69 That prediction has turned out high as it is today.” is no denying that, with one brief exception in the to be true—because of the rapid rate of postwar eco- late 1990s, there has been a slowdown in per capita nomic growth. income growth. According to Northwestern Uni- versity economist Robert Gordon, at the peak of the While Keynes proved to be correct, it is nonetheless twentieth century U.S. boom, real GDP per capita true that the last two centuries of rapid growth are increased by 2.5 percent per year. In the 21st century, 73 A con- the exception and not the rule in human history. that figure has been less than 1.4 percent. comitant slowdown has occurred in U.S. productivi- One economic historian estimates that England’s per ty. During the heyday of the 1960s, labor productivi- capita GDP in 500 B.C. was roughly what it was in ty increased by more than three percent a year. Over 1800 A.D. Over the next two hundred years, howev- 70 - Econo the past five years, annual U.S. productivity growth er, GDP per capital increased twelve-fold. mists agree that with the start of the Industrial Rev- has fallen to an average of 0.9 percent. Indeed, in the olution, economic growth and prosperity radiated last quarter of 2014 and the first quarter of 2015, pro- 74 The slowdowns outwards from Great Britain to the rest of the de- ductivity contracted by 2.6 percent. 71 The Industrial Revolution directly in income and productivity are not only true of the veloped world. contributed to economic growth through innova- United States—they apply to the rest of the advanced tion, but it also indirectly contributed to economic industrialized democracies as well. 72 growth through trade and demographic drivers. The development and spread of general purpose Gordon speculates that by the year 2100, growth in technologies in manufacturing directly contributed GDP per capita could fall to pre-1800 levels. This is Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 11

15 because, as Tyler Cowen has argued, many of the driv- improvements have not necessarily had dramat- ers of economic growth in the developed world for ic systemic effects. For example, the average speed the past two centuries are now close to being tapped on a passenger aircraft has actually fallen since the out: “We’re trying to eke out gains from marginal introduction of the Boeing 707 in 1958, because of improvements in how we’ve done things for quite a the need to conserve fuel. For all of the talk of “dis- few decades. That kind of process isn’t going to yield ruptive innovations,” the effect of these disruptions 75 massive improvements in our living standards.” on both the business world and aggregate economic 80 The “low-hanging fruit” of demographic and trade growth have been exaggerated. expansions will not play much of a role in boosting At present, many of the fields that seem promising for economic growth in the developed world. All of the innovation—nanotechnology, green energy, and so demographic evidence shows a decline of work- forth—require massive fixed investments. Only large ing-age population in the OECD economies. Japan institutions, like research universities, multinational is projected to lose over a quarter of its labor force; corporations and government entities, can play in Germany, Portugal and South Korea are projected to 76 Trade will also be less that kind of game. Joseph Schumpeter warned that lose close to twenty percent. of a driver of economic growth for these economies. once large organizations became the primary engine Further trade liberalization is certainly possible, as of innovation, the pace of change would naturally demonstrated by the ongoing negotiations of the - slow down. Because large organizations are inher Trans-Pacific Partnership and Transatlantic Trade ently bureaucratic and conservative, they will be less 81 What if the and Investment Partnership. Still, estimates of these able to imagine radical innovations. “secular stagnation” debate is really just a harbinger agreements’ effect on economic growth pale beside of a deeper debate about a return to pre-19th century the estimates of past trade liberalization on econom- 77 growth levels? ic growth. The erosion of the trade and demographic drivers An obvious counter to this argument is that the puts even more pressure on technological innova- pace of technological innovation in laptops, smart tion to be the engine of economic growth in the de- phones, tablets, and the Internet of things has ac- veloped world. As one McKinsey analysis concluded, celerated. This is undeniably true—but the prob- “For economic growth to match its historical rates, lem is that the gains in utility have not been, strictly virtually all of it must come from increases in labor speaking, economic. Most of the important innova- 78 Growth in labor productivity is par - productivity.” - tions that we think about with respect to the Inter tially a function of capital investment, but mostly a net—Facebook, Twitter, Wikipedia, YouTube and so function of technological innovation. The key ques- forth —are free technologies for consumers. As Tyler tion is whether the pace of technological innovation Cowen argues, “The big technological gains are com- 82 They generate lots will sustain itself. ing in revenue-deficient sectors.” of enjoyment but little employment. The largest and most dynamic information technology firms, like This remains a known unknown. The pace of inno- Google and Apple, hire only a fraction of the people vation relative to global population has slowed dra- 79 Consider that who worked for General Motors in its heyday. At the matically over the past fifty years. the developed world still relies on the same general same time, Internet-based content has eroded the fi- purpose technologies of modern society that were nancial viability of other parts of the economy. Con- originally invented 50-100 years ago: the automo- tent-providing sectors—such as music, entertain- bile, airplane, telephone, refrigerator, and computer. ment, and journalism—have suffered directly. The To be sure, all of these technologies have improved growth of “sharing economy” firms like Uber and in recent decades, in some cases dramatically. But Airbnb that develop peer-to-peer markets are caus- nothing new has replaced them. And even these ing similar levels of creative disruption to the travel Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 12

16 83 The rapid acceleration of auto- and tourism sectors. the public finances of the OECD economies. Most mation is also leading to debates about whether the of the developed world will have to support dispro- “lump of labor” fallacy remains a fallacy—in other portionately large numbers of pensioners by 2036; words, whether displaced workers will be able to find slower-growing economies will worsen the debt- 84 new employment. to-GDP ratios of most of these economies, causing further macroeconomic stresses—and, potentially, A slow-growth economic trajectory also creates pol- political unrest from increasingly stringent budget 89 icy problems that increase the likelihood of even constraints. slower growth. Higher growth is a political palliative 2. Are there hard constraints on the ability of that makes structural reforms easier. For example, the developing world to converge to devel- Germany prides itself on the “Hartz reforms” to its oped-country living standards? labor markets last decade, and has advocated similar policies for the rest of the Eurozone since the start of One of the common predictions made for the next the 2008 financial crisis. But the Hartz reforms were generation economy is that China will displace the accomplished during a global economic upswing, United States as the world’s biggest economy. This is boosting German exports and cushioning the short- a synecdoche of the deeper forecast that per capita term cost of the reforms themselves. In a low-growth incomes in developing countries will slowly converge world, other economies will be understandably re- towards the living standards of the advance indus- luctant to engage in such reforms. trialized democracies. The OECD’s Looking to 2060 report is based on “a tendency of GDP per capita to It is possible that concerns about a radical growth converge across countries” even if that convergence slowdown are exaggerated. In 1987, Robert Solow is slow-moving. The EIU’s long-term macroeconom- famously said, “You can see the computer age every- 85 A decade ic forecast predicts that China’s per capita income where but in the productivity statistics.” 90 The Carnegie later, the late 1990s productivity surge was in full will approximate Japan’s by 2050. Endowment’s World Order in 2050 report presumes bloom. Economists are furiously debating wheth- that total factor productivity gains in the developing er the visible innovations in the information sector world will be significantly higher than countries on are leading to productivity advances that are simply the technological frontier. Looking at the previous going undetected in the current productivity statis- 86 Google’s chief economist Hal Varian, echoing twenty years of economic growth, Kemal Dervis tics. Solow from a generation ago, asserts that “there is a posited that by 2030, “The rather stark division of lack of appreciation for what’s happening in Silicon the world into ‘advanced’ and ‘poor’ economies that Valley, because we don’t have a good way to measure began with the industrial revolution will end, ceding 87 It is also possible that current innovations will i t .” to a much more differentiated and multipolar world 91 only lead to gains in labor productivity a decade economy.” from now. The OECD argues that the productivity Intuitively, this seems rational. The theory is that problem resides in firms far from the leading edge 88 developing countries have lower incomes primarily failing to adopt new technologies and systems. There are plenty of sectors, such as health or edu- because they are capital-deficient and because their cation, in which technological innovations can yield economies operate further away from technological significant productivity gains. It would foolhardy to frontier. The gains from physical and human capital predict the end of radical innovations. investment in the developing world should be great- er than in the developed world. From Alexander But the possibility of a technological slowdown is a Gerschenkron forward, development economists significant “known unknown.” And if such a slow- have presumed that there are some growth advan- 92 down occurs, it would have catastrophic effects on tages to “economic backwardness” Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 13

17 This intuitive logic, however, is somewhat contradict- additional workers from agriculture to industry and ed by the “middle income trap.” Barry Eichengreen, where the gains from importing foreign technology 97 But that is insufficient to explain why Donghyun Park, and Kwanho Shin have argued in a diminish.” the slowdowns in growth have been so dramatic and series of papers that as an economy’s GDP per cap- widespread. ita hits close to $10,000, and then again at $16,000, 93 This makes it very growth slowdowns commence. There are multiple candidate explanations. One difficult for these economies to converge towards the argument, consistent with Paul Krugman’s decon- per capita income levels of the advanced industrial- 98 is that struction of the previous East Asia “miracle,” - ized states. History bears this out. There is a power much of this growth was based on unsustainable ful correlation between a country’s GDP per capita levels of ill-conceived capital investment. Econo- in 1960 and that country’s per capita income in 2008. mies that allocate large shares of GDP to investment In fact, more countries that were middle income in can generate high growth rates, particularly in cap- 1960 had become relatively poorer than had joined ital-deficient countries. The sustainability of those the ranks of the rich economies. To be sure, there growth rates depends on whether the investments have been success stories, such as South Korea, Sin- are productive or unproductive. For example, high gapore, and Israel. But other success stories, such as levels of Soviet economic growth in the 1950s and Greece, look increasingly fragile. Lant Prichett and 1960s masked the degree to which this capital was Lawrence Summers conclude that “past performance misallocated. As Krugman noted, a lesser though is no guarantee of future performance. Regression to similar phenomenon took place in the Asian tigers the mean is the single most robust and empirical rel- 94 in the 1990s. It is plausible that China has been expe- evant fact about cross-national growth rates.” riencing the same illusory growth-from-bad-invest- Post-2008 growth performance of the established ment problem. Reports of overinvestment in infra- and emerging markets matches this assessment. structure and “ghost cities” are rampant; according While most of the developing world experienced to two Chinese government researchers, the country rapid growth in the previous decade, the BRICS have wasted an estimated $6.8 trillion in “ineffective in- 99 run into roadblocks. Since the collapse of Lehman vestment” between 2009 and 2013 alone. Brothers, these economies are looking less likely A political explanation would be rooted in the to converge with the developed world. During the fact that many emerging markets lack the political Great Recession, the non-Chinese BRICS—India, and institutional capabilities to sustain continued Russia, Brazil, and South Africa—have not seen their 95 - growth. Daron Acemoğlu and James Robinson ar relative share of the global economy increase at all. China’s growth has also slowed down dramatically gue that modern economies are based on either 100 over the past few years. Recent and massive outflows “extractive institutions” or “inclusive institutions.” Governments based on extractive institutions can of capital suggests that the Chinese economy is head- generate higher rates of growth than governments ed for a significant market correction. The collapse without any effective structures. It is not surpris- of commodity prices removed another source of ing, for example, that post-Maoist Chinese eco- economic growth in the developing world. By 2015, nomic growth has far outstripped Maoist-era rates the gap between developing country growth and de- of growth. Inclusive institutions are open to a wider veloped country growth had narrowed to its lowest 96 array of citizens, and therefore more democratic. Ac- level in the 21st century. emoğlu and Robinson argue that economies based What explains the middle income trap? Eichen- on inclusive institutions will outperform those based green, Park and Shin suggest that “slowdowns coin- on extractive institutions. Inclusive institutions are cide with the point in the growth process where it is less likely to be prone to corruption, more able to no longer possible to boost productivity by shifting credibly commit to the rule of law, and more likely to Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 14

18 invest in the necessary public goods for broad-based massive. Looking at China and India alone, the gap economic growth. Similarly, Pritchett and Summers in projections between a continuation of past growth conclude that institutional quality has a powerful trends and regression to the mean is equivalent to and long-lasting effect on economic growth—and $42 trillion—more than half of global economic 104 This gap is significant enough to that “salient characteristics of China—high levels of output in 2015. matter not just to China and India, but to the world state control and corruption along with high mea- economy. sures of authoritarian rule—make a discontinuous decline in growth even more likely than general ex- 101 As with the developed world, a growth slowdown perience would suggest.” in the developing world can have a feedback effect A more forward-looking explanation is that the that makes more growth-friendly reforms more dif- changing nature of manufacturing has badly dis- ficult to accomplish. As Chinese economic growth rupted the 20th century pathway for economic de- has slowed, Chinese leader Xi Jinping’s economic re- velopment. For decades, the principal blueprint for form plans have stalled out in favor of more political developing economies to become developed was to repression. Follows the recent playbook of Russian specialize in industrial sectors where low-cost la- President Vladimir Putin, who has added diversion- bor offered a comparative advantage. The resulting ary war as another distracting tactic from negative growth from export promotion would then spill over economic growth. Short-term steps towards political into upstream and downstream sectors, creating new repression will make politically risky steps towards job-creating sectors. Globalization, however, has al- economic reform that less palatable in the future. In- ready generated tremendous productivity gains in stead, the advanced developing economies seem set manufacturing—to the point where industrial sec- to double down on strategies that yield less econom- tors do not create the same amount of employment ic growth over time. 102 Like agriculture opportunities that they used to. in the developed world, manufacturing has become 3. Will geopolitical rivalries or technological in- so productive that it does not need that many work- novation alter the patterns of economic inter - ers. As a result, many developing economies suffer dependence? from what Dani Rodrik labels “premature deindus- trialization.” If Rodrik is correct, then going forward, Multiple scholars have observed a secular decline in 105 The Kantian manufacturing will fail to jump-start developing interstate violence in recent decades. triad of more democracies, stronger multilateral in- economies into higher growth trajectories—and the stitutions, and greater levels of cross-border trade is political effects that have traditionally come with in- 103 well known. In recent years, international relations dustrialization will also be stunted. theorists have stressed that commercial interdepen- Both the middle-income trap and the regression to dence is a bigger driver of this phenomenon than 106 The liberal logic is straight- the mean observation are empirical observations previously thought. forward. The benefits of cross-border exchange and about the past. There is no guaranteeing that these economic interdependence act as a powerful brake empirical regularities will hold for the future. In- on the utility of violence in international politics. deed, China’s astonishing growth rate over the past The global supply chain and “just in time” delivery 30 years is a direct contradiction of the regression systems have further imbricated national economies to the mean phenomenon. It is possible that over into the international system. This creates incentives time the convergence hypothesis swamps the myriad for governments to preserve an open economy even explanations listed above for continued divergence. during times of crisis. The more that a country’s But in sketching out the next generation global econ- economy was enmeshed in the global supply chain, omy, the implications of whether regression to the for example, the less likely it was to raise tariffs after mean will dominate the convergence hypothesis are Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 15

19 107 the 2008 financial crisis. Similarly, global finan- smaller than they were in the pre-crisis era. In trade, ciers are strongly interested in minimizing political this reflects a pre-crisis trend. Between 1950 and risk; historically, the financial sector has staunchly 2000, trade grew, on average, more than twice as opposed initiating the use of force in world poli- fast as global economic output. In the 2000s, how- 108 Even militarily powerful actors must be wary tics. ever, trade only grew about 30 percent more than 113 than In 2012 and 2013, trade grew less of alienating global capital. output. economic output. The McKinsey Global Institute es- Globalization therefore creates powerful pressures timates that global flows as a percentage of output on governments not to close off their economies have fallen from 53 percent in 2007 to 39 percent in 114 While the stock of interdependence remains through protectionism or military aggression. In- 2014. high, the flow has slowed to a trickle. The Financial terdependence can also tamp down conflicts that Times has suggested that the global economy has hit would otherwise be likely to break out during a great 115 “peak trade.” power transition. Of the 15 times a rising power has emerged to challenge a ruling power between 1500 109 Despite these If economic growth continues to outstrip trade, then and 2000, war broke out 11 times. odds, China’s recent rise to great power status has ele- the level of interdependence will slowly decline, vated tensions without leading to anything approach- thereby weakening the liberal constraint on great ing war. It could be argued that the Sino-American power conflicts. And there are several reasons to posit why interdependence might stall out. One pos- economic relationship is so deep that it has tamped sibility is due to innovations reducing the need for down the great power conflict that would otherwise traded goods. For example, in the last decade, higher have been in full bloom over the past two decades. energy prices in the United States triggered invest- Instead, both China and the United States have taken ments into conservation, alternative forms of energy, pains to talk about the need for a new kind of great power relationship. Interdependence can help to re- and unconventional sources of hydrocarbons. All of duce the likelihood of an extreme event—such as a these steps reduced the U.S. demand for imported energy. A future in which compact fusion engines great power war—from taking place. are developed would further reduce the need for im- 116 Will this be true for the next generation economy as ported energy even more. well? The two other legs of the Kantian triad—de- A more radical possibility is the development of mocratization and multilateralism—are facing their technologies that reduce the need for physical trade own problems in the wake of the 2008 financial 110 Economic openness survived the negative across borders. Digital manufacturing will cause the crisis. shock of the 2008 financial crisis, which suggests relocation of production facilities closer to end-us- 117 that the logic of commercial liberalism will contin- er markets, shortening the global supply chain. An even more radical discontinuity would come ue to hold with equal force going forward. But some from the wholesale diffusion of 3-D printing. The international relations scholars doubt the power of ability of a single printer to produce multiple com- - globalization’s pacifying effects, arguing that inter 111 Other ponent parts of a larger manufactured good elimi- dependence is not a powerful constraint. analysts go further, arguing that globalization exac- nates the need for a global supply chain. As Richard erbates financial volatility—which in turn can lead Baldwin notes, “Supply chain unbundling is driven 112 to political instability and violence. by a fundamental trade-off between the gains from specialization and the costs of dispersal. This would A different counterargument is that the continued be seriously undermined by radical advances in the growth of interdependence will stall out. Since 2008, direction of mass customization and 3D printing by for example, the growth in global trade flows has been sophisticated machines...To put it sharply, transmis- muted, and global capital flows are still considerably sion of data would substitute for transportation of Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 16

20 118 As 3-D printing technology improves, the goods.” increased American use of targeted financial sanc- need for large economies to import anything other tions, for example, has already generated grumblings 119 than raw materials concomitantly declines. - from peer competitors about finding ways to diver 123 In 2015, sify away from reliance upon the dollar. Geopolitical ambitions could reduce economic in- China introduced its own international payment and 120 terdependence even further. Russia and China settlements system, in part, to diversify away from 124 The correlation of eco- have territorial and quasi-territorial ambitions be- reliance upon the dollar. nomic flows with geopolitical alliances would not yond their recognized borders, and the United States just have a profound effect on cross-border flows; has attempted to counter what it sees as revisionist it would likely lead to the fragmentation of glob- behavior by both countries. In a low-growth world, al economic governance. Just as significantly, great it is possible that leaders of either country would power governments would reverse post-Cold War choose to prioritize their nationalist ambitions over trends and choose to allocate more scarce resources economic growth. More generally, it could be that towards their militaries. the expectation of future gains from interdepen- dence—rather than existing levels of interdepen- 121 4. Will income and wealth inequality persist going If great dence—constrains great power bellicosity. forward, to the point when political externali- powers expect that the future benefits of internation- ties cannot be ignored? al trade and investment will wane, then commercial constraints on revisionist behavior will lessen. All Thomas Piketty’s bestselling “Capital in the Twen- else equal, this increases the likelihood of great pow- ty-First Century” sparked a wide-ranging debate er conflict going forward. 125 In his about the future of economic inequality. book, Piketty argued that, left to its own devices, There have been other drivers of the decades-long capitalism creates an economy in which the rate reduction in militarized interstate disputes. Nuclear of return on capital exceeds the rate of economic deterrence has helped curb violent conflict among the growth. The current ratio of capital to national in- great powers. Multilateral peacekeeping missions mit- come, for example, matches the Gilded Age of the igate small country conflicts. Even if there is a decline late 19th century; only the upheavals of the first half in interdependence, it is possible that the “Long Peace” of the 20th century have prevented an even great- will endure. Furthermore, it is impossible to predict er concentration of wealth. In this kind of world, the degree to which either innovations or geopoli- existing owners of capital capture an ever-greater tics will lessen the need for international trade. Even share of the economic pie. The essence of Piketty’s technological optimists acknowledge that the future “r > g” equation was that if the rate of return per - diffusion of 3D printing is unclear. Advocates of net- sistently exceeded the rate of growth, the income worked manufacturing insist that economic openness 122 and wealth of the rich would grow faster than the And the is a prerequisite for the process to continue. 126 Furthermore, accord- average income from work.” degree of geopolitical revisionism among great pow- ing to Piketty, elites who hold more capital will earn ers might be endogenous—that is to say, preexisting an even higher rate of return than elites possessing levels of globalization might constrain revisionist im- a smaller initial endowment. Piketty’s dynamics, if pulses, rather than such impulses weakening the glo- correct, would produce a world in which the richest balized economy. of the rich would grab an ever-growing share of the economic pie—and inherited wealth matters more If great powers resort to revisionist foreign policies, than ability. however, then the global economy will start to resem- ble the Cold War era of economic blocs and strategic Piketty’s theoretical argument buttressed ongoing embargoes—one in which trade and investment fol- debates about the rise of inequality and decline of low the flag rather than follow the rate of return. The Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 17

21 economic mobility across the developed world. economic growth in the developing world has re- Since 1820, the world Gini coefficient has increased duced global economic inequality. Between 2003 127 That increase has been by more than 30 percent. and 2013, the Gini coefficient for global inequality even more concentrated in recent years. The top 1 fell from .69 to .65. By 2036, it is projected to fall percent of the U.S. population captured 52 percent even further. If the convergence hypothesis predom- of the gains in national income between 1993 and inates, then the Gini should fall to .61. Even if a re- 2008; between 2009 and 2012, that share climbed to gression-to-the-mean phenomenon takes place in 128 The returns to capital have so exceed- 95 percent. the developing world, global economic inequality is 133 ed the returns to labor that Goldman Sachs provoc- still projected to fall. atively noted in early 2016 if high corporate profits As Piketty acknowledged in a follow-up paper, “there persist while wage growth remains stagnant, “there is substantial uncertainty about how far income and are broader implications to be asked about the ef- 134 129 Nor is this phenomenon re- wealth inequality might rise in the 21st century.” ficacy of capitalism.” Nevertheless, the counterarguments made by Ac- stricted to the United States. Between 1980 and 2005, emoğlu, Robinson et al have their own counterar - the Gini coefficient increased in 80 percent of the ad- guments as well. In particular, a world of extreme vanced industrialized economies. economic inequality is likely to lead to a world of Piketty’s argument has encountered significant extreme political inequality. In theory, a free-market pushback, however. Some economists argue that the democracy can be economically unequal but politi- rising share of capital income is primarily due to the cally equal. In practice, however, the rich can direct increased price of housing and not some general dy- greater resources at influencing political outcomes. 130 More generally, Daron Ace- namic of capitalism. These influence attempts range from outright polit- moğlu and James Robinson have pushed back on the ical corruption to direct support of favored politi- theoretical part of Piketty’s analysis. They argue that cians to lobbying for policies that favor entrenched Piketty omits any consideration of political and eco- economic interests to supporting ideologically sym- nomic institutions in ameliorating trends towards pathetic think tanks and foundations. As Acemoğ- inequality: “a satisfactory framework for the analy- lu and Robinson acknowledge, “It may be difficult sis of inequality should take into account both the to maintain political institutions that create a dis- effect of different types of institutions on the distri- persed distribution of political power and political bution of resources and the endogenous evolution of access for a wide cross-section of people in a society 131 If these institutions can foster these institutions.” in which a small number of families and individuals 135 a higher rate of economic growth, then any natural have become disproportionately rich.” path towards income and wealth inequality would be This political economy of rent-seeking is already po- disrupted. Acemoğlu and Robinson’s argument are tent within the United States. According to Benjamin consistent with historical institutionalist accounts in 132 These suggest that, regardless of Page, Larry Bartels, and Jason Seawright, wealthy political science. the distributional effects of capitalism, markets can Americans display a much stronger preference than be embedded into political arrangements that sus- ordinary Americans for cutting government spend- tain different distributional outcomes. ing on social insurance programs like Social Security 136 One recent study of U.S. policy pref- or Medicaid. erences found that enacted policies more closely re- Piketty’s argument was centered on the degree of flected median policy preferences of 90th percentile inequality within national economies in the devel- 137 The rich Americans rather than 50th percentile. oped world. A glance at projections of global income have an incentive to use their political influence to inequality reveal trends at variance with Piketty’s bend the rules of the game to keep themselves rich narrative. A recent Peterson Institute for Interna- and prevent competition to their sources of income. tional Economics paper argues that the rapid rate of Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 18

22 According to The New York Times, fewer than 160 5. Will an alternative economic ideology supplant families were responsible for close to half the cam- free-market capitalism as a viable universal paign contributions during the first part of the 2016 model for large parts of the world? election cycle—“a concentration of political donors 138 Econo - that is unprecedented in the modern era.” Francis Fukuyama’s “End of History” argument has mists view this kind of activity as unproductive rath- been widely mocked but little understood since he 139 145 er than productive entrepreneurship. originally formulated it a quarter-century ago. Fukuyama did not claim that the world would soon It is also possible to envision this kind of rent-seeking consist of nothing but free-market democracies. taking place at a global level. Indeed, the insertion of Rather, his contention was that, with the collapse ever-more-stringent intellectual property rights pro- of communism, liberal free-market democracy re- visions into trade deals would qualify as one exam- mained the last universally appealing model of politi- ple of successful global lobbying to favor producers cal economy left standing. While there might be pow- 140 Furthermore, the life of global over consumers. erful nationalist or sectarian challenges to capitalist plutocrats subtly alters their perspective on public democracy, these challenges were self-contained to policy. Many of them participate in the same circuit a particular region or country. Radical Islamic the- of events in which they mingle with each other to ology can only be implemented in Muslim societies; the exclusion of anyone from a different economic Putin’s nationalist calls for “Novorossiya” do not play 141 After a steady diet of World Economic Fo- strata. well outside of Russia’s borders. Fukuyama’s predic- rums, TED conferences, and Clinton Global Initia- tion was that no universally viable challenger to lib- tives, a certain mindset begins to calcify. As Chrystia eral capitalist democracy would emerge as an alter - Freeland noted in her book “Plutocrats”: “For the native mode of domestic governance. super-elite, a sense of meritocratic achievement can inspire self-regard, and that self-regard—especially Fukuyama developed his end of history thesis at when compounded by their isolation among like- the end of the Cold War. On its 25th anniversary, mined peers—can lead to obliviousness and indif- Fukuyama reaffirmed his position, concluding that, 142 Studies confirm ference to the suffering of others.” “the underlying idea remains essentially correct... that wealthy people, because they are surrounded In the realm of ideas, moreover, liberal democracy 146 More re - primarily by other wealthy people, overestimate the still doesn’t have any real competitors.” cently, however, he has also focused on the concept wealth of others and undervalue the benefits of so- 143 Such insulation can lead to of “political decay,” concluding in his most recent cial insurance policies. an atrophying of political antennae, as when billion- book: “the fact that a system once was a successful - aires write letters to The Wall Street Journal compar and stable liberal democracy does not mean that it 147 ing political antipathy to the wealthy to the first days will remain so in perpetuity.” 144 of Kristallnacht. Fukuyama’s slight hedge gives rise to the biggest The past two centuries demonstrate that it is possi- known unknown for the next generation. One of ble to combine rising levels of inequality with rising the unspoken assumptions of the past generation levels of mass affluence. And it remains uncertain was that free-market capitalism was the only viable whether an explosion of plutocrats comes at the ex- economic model for generating economic growth. pense of a global middle class. The known unknown Another unspoken assumption that that for afflu- is whether current political and economic institu- ent countries, democracy was “locked in.” In other tions can ameliorate any secular trend towards rising words, it was assumed that the advanced industri- levels of income and wealth inequality—and, if not, alized democracies would stay democratic and cap- whether political resentment against global elites italist, and that the rest of the world would seek to lead to a more severe political backlash. emulate that model. But it is now at least possible to Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 19

23 conceive of an alternative governance model of po- At the same time, some commentators are beginning to articulate an alternative model that contrasts with litical economy, for two reasons. liberal democracy. On the economic side, there has been enthusiasm in some quarters for the way that First, the liberal capitalist model looks somewhat authoritarian states deploy a mix of sovereign wealth shopworn. Even before the Great Recession, the funds, state-owned enterprises, policy development paradox of political stability affected the entire de- banks, and national oil companies to accelerate eco- veloped world. The paradox is that stable polities nomic development, buy off dissent, and promote help to foster the slow accretion of policy distortions 148 technology transfer. Multiple Western analysts argue from interest group pressures and rent-seeking. that the relative success of state-directed growth au- Events since 2008 have not improved the image of gur a rise in “authoritarian capitalism” or “state cap- the advanced industrialized economies. The growth 155 Stefan Halper argues explicitly that “the italism.” slowdown in the OECD economies has been severe, terms, the conditions and arrangements, of state-di- which in turn led to increased fragility for elected 149 rected capitalism give Beijing a distinct edge over In the United States, political grid- governments. 156 Martin Jacques notes “Chi- Western competitors.” lock has accelerated a decline in public trust in na’s success suggests that the Chinese model of the government. Both Gallup and Pew data showed a state is destined to exercise a powerful global influ- marked decrease in the trust in the U.S. federal gov- 150 ence, especially in the developing world, and thereby Nor is this disillu- ernment to do the right thing. 157 transform the terms of future economic debate.” sionment limited to the United States. The Edelman As previously noted, the ability of this model to gen- Trust Barometer shows that trust of elite institutions erate economic growth in the future is dubious. But is significantly higher in developing countries than 151 its political appeal to citizens frustrated with seem- Little wonder that extrem- in the developed world. ingly corrupt democracies can be potent. ist movements have gained voting shares across the European Union. Elected leaders like Hungary’s Vik- There are also emerging arguments in favor of al- tor Orbán have said explicitly that “liberal democrat- ternative political models posited to be superior to ic states can’t remain globally competitive,” and that liberal democracy. Arguments from authoritarian it is better to create “an illiberal new state” inspired 152 strongmen can be discounted as self-serving. Sup- The issue is not whether Or - by Russia and China. port from Western pundits are more worrisome but bán is actually correct, but that he is publicly willing 158 Political theorists making can also be dismissed. to articulate such an alternative. Such disdain among the case for “political meritocracy” are harder to dis- political leaders reflects populist trends across the miss. Daniel Bell argues that meritocratic principles developing world—including the United States— 153 for selecting leaders based on virtue, social skills, that show waning faith in democracy. and intellectual ability can produce superior forms of governance in theory. In practice, he argues that Similarly, disillusionment has set in with the Wash- China’s current political model—“democracy at the ington Consensus set of neoliberal economic poli- bottom, experimentation in the middle, and meri- cies. Whether accurate or not, many actors view the tocracy at the top”—is superior to Western liber - U.S. embrace of “market fundamentalism” as the key al democracy as practiced. Bell goes on to observe trigger for the 2008 financial crisis. Some scholars that his political views are “quite middle-of-the-road assert that the resulting Great Recession has led to a 159 among academics living and working in China.” “new heterogeneity of thinking” about how to man- 154 Whether Bell is correct in his praise of meritocracy The first step towards age global capital markets. is not the point; what matters is that political theo- thinking about a new paradigm is to discredit the old rists are putting forward arguments in favor of non- one. And the contradictions that have crept into the democratic political models that could be universal liberal free market democratic model suggest that in application. this first step could be accomplished. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 20

24 Continued intellectual support for state capitalism free-market democracy will actually take root. The and political meritocracy would have corrosive ef- 2008 financial crisis was an ideal moment for neo- fects on the Western-created rules and norms that liberal critics to proffer an alternative. As it turns currently govern the global political economy. Sociol- out, however, there has been no wholesale rejection ogists note the tendency of developing countries to of the neoliberal model. If anything, in recent years 160 mimetically copy the practices of successful states. China has moved closer to the Washington Consen- 162 Furthermore, global This copying is not always successful—indeed, these sus, not further away from it. public opinion surveys demonstrate strong and ro- same sociologists conclude that it leads to dysfunc- bust support for both free markets and free trade. tional policy outcomes. Nevertheless, if a majority of Indeed, this support is stronger in the developing countries in the world perceive non-liberal models of political economy the pathway for a “successful” countries where state capitalism is ostensibly sup- 163 And the real world posed to be more appealing. country, then one could envision the proliferation of flaws of China’s political model have also caused such states—regardless of whether such institutions leading China-watchers to predict that the luster of actually work. Economically, the effects of a turn 164 political meritocracy will soon be lost. away from liberal capitalist democracy would be di- sastrous. For every country like China or Singapore Still, given the vicissitudes of markets, it is high- that has seemed to demonstrate that an alternative is ly likely that there will be significant shocks to the possible, there are myriad other countries that have global political economy between now and 2036. failed spectacularly. Politically, it would be an open The question is whether the current neoliberal mod- question whether the rest of the world would look at el will be able to ward off political decay effectively the democratic development model as one to emu- enough to prevent an unforeseen alternative from late. To use Joseph Nye’s language of soft power, the emerging. If an alternative ideology were to emerge, effect of a viable, non-Western alternative is that far the effects on global economic governance are im- fewer countries would want what the advanced in- 161 possible to foresee. dustrialized states want. It is still highly uncertain whether these nascent articulations of a viable universal alternative to Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 21

25 Conclusion arge institutions need forecasts about fu- one way to proceed in forecasting; some geopolitical ture state of the world economy to be able to analysis relies on such scenario-based planning. Of L plan—but prediction is really, really hard. The course, even five variables with binary outcomes can evidence suggest that both economic and geopoliti- generate 32 different possible scenarios. This is far cal forecasting efforts have been underwhelming at too complex for most consumers of forecasts. best and counterproductive at worst. They get worse the further one stretches out the time horizon. For a Another possible way of simplifying would be to variety of reasons—sheer complexity, scholarly dis- determine drivers common to more than one of incentives, the conflation of uncertainty with risk— these known unknowns. The pace of technological there appears to be a market for lemons in the world innovation, for example, clearly affects economic of forecasting. This is particularly true for long-range - growth, but it also has concomitant effects on inter forecasting. These exercises rely too much on extrap- dependence and inequality. This could reduce the olation and not enough on noneconomic factors that number of scenarios that planners would need to affect the global economy. sketch out. Highlighting these known unknowns re- veal some questions beyond the scope of this paper. This paper has suggested five “known unknowns” Whether technological innovation will continue to that should govern thinking about the next genera- be correlated with robust economic growth affects tion global economy. Each of these known unknowns, known unknowns about economic growth in the by definition, possesses significant uncertainty. Will developed world, inequality, and the viability of free the developed world revert to pre-Industrial Revolu- market democracy. Whether China’s political system tion growth rates? Will large developing economies copes with its economic slowdown affects known continue to converge towards the developed world unknowns about the developing world, interdepen- or regress to their mean growth rates? Will economic dence, and the viability of free market democracy. interdependence continue to function as a constraint And finally, the ability of the developed world to on great power conflict? Will economic inequality— adapt to demographic and political pressures affect and its attendant political externalities—continue every known unknown listed above. to rise? And will a viable, universal alternative to free-market democracy be developed? In conclusion, it is worth stressing the degree to which projecting the next generation economy re- All five of these questions merit much further study quire analysis that goes far beyond economics. Of in thinking about the next generation economy. Sce- the five known unknowns listed above, only the first nario-based planning based around different pos- one could be considered to be an exclusively eco- sible outcomes of these known unknowns could be nomic question. The future of the developing world Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 22

26 depends as much on political institutions as it does uncontested is a question for political theorists and on economic fundamentals. The probability of great philosophers. The answers to each of these known power conflict is the province of international re- unknowns depend upon politics and culture as well lations, not economics. The effect of inequality on as economics. This is a fact that both planners and the global political economy is a question that re- prognosticators should consider as they develop quires sociological and political analysis. And the their next round of forecasts. question of whether liberal democracy will remain Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 23

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31 The Triumph of Politics: Why the Stockman, David. 1986. Timmermann, Allan. 2007. “An evaluation of the World . New York: Harper & Row. 54(1): Reagan Revolution Failed Economic Outlook forecasts.’ IMF Staff Papers 1-33. Climate Change 2013: The Physi- Stocker, T. F., et al. 2013. cal Science Basis . Stockhold: Intergovernmental Panel Waltz, Kenneth. 1979. Theory of International Politics . on Climate Change. New York: McGraw-Hill. Wang, Ada, and Susannah Kroeber. 2012. “Year of the Summers, Lawrence H. 2014. “US economic prospects: (White) Elephant.” J Capital Research Triage report. secular stagnation, hysteresis, and the zero lower 49(2): 65-73. http://www.economia.unam.mx/deschimex/cechimex/ bound.” Business Economics - chmxExtras/documentos/catedra/catedra2013/cur sointensivo/Programacion/Materialapoyo/Yearofthe- . New York: The Black Swan Taleb, Nassim Nicholas. 2007. . Random House. WhiteElephant.pdf Taleb, Nassim Nicholas, and Gregory F. Treverton. 2015. Billionaires: Reflections on the Upper West, Darrell. 2014. Crust “The Calm Before the Storm: Why Volatility Signals . Washington: Brookings Institution Press. Stability, and Vice Versa.” Foreign Affairs 94(1): 86- - China 2030: Building a Modern, Har World Bank. 2013. 95. monious, and Creative Society . Washington: World Tetlock, Philip. 2005. Expert Political Judgment Bank Publications . Prince- ton: Princeton University Press. . Davos: Global Risks 2014 World Economic Forum. 2014. http://www.weforum.org/ World Economic Forum. ________. 2009. “Reading Tarot on K Street.” The Nation - reports/global-risks-2014-report al Interest . (103): 57-67. Tetlock, Philip, and Dan Gardner. 2015. Superforecasting: Wright, Thomas. 2013. “Sifting Through Interdepen- dence.” . New York: Crown, 36(4): 7-23. The Art and Science of Prediction The Washington Quarterly 2015. Knowing the Adversary: Leaders, Yarhi-Milo, Keren. 2014. Intelligence, and Assessment of Intentions in Inter - Secular Teulings, Cole, and Richard Baldwin, eds. 2014. national Relations . London: Center Stagnation: Facts, Causes and Cures . Princeton: Princeton University for Economic Policy Research. Press. Thompson, Derek. 2015. “A World Without Work.” The . July. Atlantic Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 28

32 Endnotes 1. , September 28, 2014. Financial Times in Its Own Right,” Capital in the Twenty-First Indeed, in Thomas Piketty’s Century On the improvements in forecasting, see Barbara Mell- (Cambridge: Belknap, 2014), the author ar - ers et al., “Identifying and Cultivating Superforecasters gues that a source of the rising wealth gap in the future as a Method of Improving Probabilistic Predictions,” will be the fact that the richest individuals and institu- 10, no. 3 (2015): Perspectives on Psychological Science tions can afford the best financial planning. Superforecasting 267-281; and Tetlock and Gardner, 2. Superforecasting: Philip Tetlock and Dan Gardner, . The Art and Science of Prediction Niall Ferguson, “Looking Back on the Future,” 16. (New York: Crown, Econ- 2015), p. 5. omist , November 19, 2005. Blake Clayton and Michael Levi, “Fiscal Breakeven 17. 3. One could argue that the surfeit of punditry should Oil Prices: Uses, Abuses, and Opportunities for Im- count as forecasting, but much punditry, particularly provement” (discussion paper, Center for Geoeco- in the global political economy, is too vague to be pre- dictive. See Tetlock and Gardner , Superforecasting. nomic Studies, Council on Foreign Relations, Wash- 4. Graham Elliott and Allan Timmermann, “Economic ington, 2015). Journal of Economic Literature Forecasting,” 18. 46, no. 1 World Economic Forum, Global Risks 2014 (Davos: (2008): 3-56. http://www.wefo- World Economic Forum, 2014), . rum.org/reports/global-risks-2014-report Davide Furceri et al., “Where Are We Headed? Perspec- 5. World Economic Outlook tives on Potential Output,” in It is difficult to gauge the accuracy of commissioned, 19. or “bespoke”, geopolitical forecasts, because of their (Washington: International Monetary Fund, 2015). 6. In the case of the IMF, for example, see Axel Dreher, proprietary nature. Several of them have boasted to Silvia Marchesi, and James Raymond Vreeland, “The me about their predictive accuracy in their bespoke Political Economy of IMF Forecasts,” Public Choice research, but there is no way to independently con- firm such claims. For a review of recent efforts, see 137, nos. 1-2 (2008): 145-171.). Philip Tetlock, “Reading Tarot on K Street,” - 7. The Na For the classic example of this, see David Stockman, The Triumph of Politics: Why the Reagan Revolution tional Interest 103, September 2009, 57-67. Global Trends 2015 National Intelligence Council, Failed 20. (New York: Harper & Row, 1986). (Washington: National Intelligence Council, 2000), Grace Juhn and Prakash Loungani, “Further 8. Cross-country Evidence on the Accuracy of the Pri- http://www.dni.gov/files/documents/Global%20 Trends_2015%20Report.pdf . vate Sector’s Output Forecasts,” IMF Staff Papers 49, Michael Horowitz and Philip Tetlock, “Trending Up- 21. no. 1 (2002): 49-64; Allan Timmermann, “An evalua- Foreign Policy ward,” - http://for , September 7, 2012, tion of the World Economic Outlook Forecasts,” IMF 54, no. 1 (2007): 1-33. Staff Papers eignpolicy.com/2012/09/07/trending-upward/ . 9. Loungani and Juhn, “Further Cross-country Evi- 22. Richard Dobbs, James Manyika, and Jonthan Woetzel, No Ordinary Disruption: The Four Global Forces Break- dence;” See, more recently, “A mean feat,” Economist , January 9, 2016. ing All the Trends (New York: PublicAffairs, 2015). The Signal and the Noise Nate Silver, 10. Naazneen Barma, Ely Ratner, and Steven Weber, “A 23. (New York: Pen- The National Interest guin, 2012). 90, Ju- world Without the West,” Gultekin Isiklar and Kajal Lahiri, “How Far Ahead 11. ly-August 2007, 23-30. Ruchir Sharma, “Broken BRICs: Why the Rest Can We Forecast? Evidence from Cross-country Sur 24. - Foreign Affairs Stopped Rising,” veys,” International Journal of Forecasting 23, no. 2 91, no. 6 (2012): 4; (2007): 167-187. See also Ruchir Sharma, “How Emerging Markets Giang Ho and Paolo Mauro, 2014, “Growth: Now and 12. , June 26, 2013. Lost Their Mojo,” Wall Street Journal 25. The Washington Forever?” (IMF Working Paper, International Mon- Harsh V. Pant, “The BRICS Fallacy,” etary Fund, Washington, July 2014); Giang Ho and Quarterly 36, no. 3 (2013): 91-105; Marcos Degaut, - Finance and Devel Paolo Mauro, “Prognosis: Rosy,” “Do the BRICS Still Matter?” (report, Americas Pro- 52, no. 1 (2015): 10-14. opment gram, Center for Strategic and International Studies, 13. Ho and Mauro, “Growth: Now and Forever?” p. 23. Washington, October 2015). (Princeton: Sinead Cruise and Chris Vellacott, “Emerging Mar 14. 26. Philip Tetlock, Expert Political Judgment - kets Mania Was a Costly Mistake: Goldman Execu- Princeton University Press, 2005). Political pundits are Signal and the Noise, tive,” Reuters, July 4, 2013; Luciana even worse; see Silver, chap. 2. Magalhães , “Chi- On the growing interest in geopolitical risk, see Barney 15. na only BRIC Country Worthy of the Title – O’Neill,” Wall Street Journal Thompson, “Political Risk Is Now a Growth Industry , August 23, 2013. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 29

33 Ye Xie, “Goldman’s BRIC Era Ends As Fund Folds 49, no. 2 (2014): 65-73; Business Economics Bound,” 27. Bloomberg Robert Solow, “Secular Stagnation: Affluent Econo- after Years of Losses,” , November 8, 2015. Finance and Development Though there are overly optimistic predictions as 28. mies Stuck in Neutral,” 51, no. 3 (2014): 16. well. See the debate on the likelihood of a persistent 40. It is worth noting that the term “secular stagnation” reduction in violent conflict between Steven Pinker, first gained popularity from Alvin H. Hansen, “Eco- The Better Angels of Our Nature: The Decline of Vi- nomic Progress and Declining Population Growth,” olence in History and Its Cause s (London: Penguin, American Economic Review 2011); and Pasquale Cirillo and Nassim Taleb, “On 29, no. 1 (1939): 1-15. See Cole Teulings and Richard Baldwin, eds., Secular the Statistic Properties and Tail Risk of Violent 41. Conflicts and Its Underestimation” (research paper, Stagnation: Facts, Causes and Cures (London: Center School of Engineering, New York University, Brook- for Economic Policy Research, 2014). lyn, 2015). Robert Shiller, “When a Stock Market Theory Is Con- 42. New York Times tagious,” John Lewis Gaddis, “International Relations Theory 29. , October 18, 2014. International Security 43. For exceptions that will be discussed later, see Tyler and the End of the Cold War,” (New York: Dutton, The Great Stagnation Cowen, 17, no. 3 (1992): 5-58. 30. Christopher J. Fettweis, “Evaluating IR’s Crystal Balls: 2011); on innovation, see Erik Brynjolfsson and An- The Second Machine Age drew McAfee, How Predictions of the Future Have Withstood Four (New York: - W.W. Norton, 2014); and on inequality, see Piketty, teen Years of Unipolarity,” International Studies Re - . At a deeper level, Capital in the Twenty-first Century 6, no. 1 (2004): 79-104. view Pinker, . Better Angels 31. growth economics is mired in debates over “mathi- Margaret MacMillan, “The Rhyme of History: Les- 32. ness.” See Paul Romer, “Mathiness in the Theory of sons of the Great War,” American Economic Review 105, , Decem- The Brookings Essay Economic Growth,” ber 14, 2013, no. 5 (2015): 89-93. http://www.brookings.edu/research/ . 44. Nassim Nicholas Taleb, The Black Swan (New York: essays/2013/rhyme-of-history Random House, 2007); Nassim Nicholas Taleb and 33. Heather Booth, “Demographic Forecasting: 1980 to Gregory F. Treverton, “The Calm Before the Storm: 2005 in Review,” International Journal of Forecasting 22, no. 3 (2006): 547-581. - For Why Volatility Signals Stability, and Vice Versa,” 94, no. 1 (2015): 86-95. Cli eign Affairs Intergovernmental Panel on Climate Change, 34. - mate Change 2013: The Physical Science Basis , T. F. One Economics, Many Recipes: Global- 45. Dani Rodrik, Stocker et al., eds. (New York: Cambridge University ization, Institutions, and Economic Growth (Prince- Press, 2013). ton: Princeton University Press, 2007); Lant Pritch- 35. Dana Nuccitelli, “IPCC Model Global Warming ett and Lawrence H. Summers, “Asiaphoria Meets Regression to the Mean,” (NBER Working Paper No. Projections Have Done Much Better Than You , October 1, 2013, The Guardian Think,” http://www. 20573, National Bureau of Economic Research, Cam- bridge, Massachusetts, October 2014). theguardian.com/environment/climate-consensus- Robert Fogel, “$123,000,000,000,000*” Foreign Poli - 46. - 97-per-cent/2013/oct/01/ipcc-global-warming-pro jections-accurate cy , January 4, 2010. . See, recently, Stephen M. Walt, “What Will 2050 Look Asa Johansson et al., “Looking to 2060: Long-term 36. 47. - Like?” global growth prospects” (OECD Economic Policy Foreign Policy , May 12, 2005. Se, more gener Theory of International Politics ally, Kenneth Waltz, Papers No. 3, Paris, November 9, 2012); Uri Dadush (New York: McGraw-Hill, 1979). and Bennett Stancil, “The World Order in 2050” Silver, Signal and the Noise , chap. 4. (policy paper, Carnegie Endowment for Interna- 37. Or, to put it another way, it creates perverse incen- 38. tional Peace, Washington, April 2010), http://carne- ; gieendowment.org/files/World_Order_in_2050.pdf tives. Forecasters who make extreme predictions but turn out to be correct are vindicated by history and China 2030: Building a Modern, Harmo- World Bank, speaker fees. And it is true, as noted in Philip Tetlock, nious, and Creative Society (Washington: World Bank Publications, 2013). (Princeton: Princeton Uni- Expert Political Judgment versity Press, 2005) “hedgehogs” are more likely to Pritchett and Summers, “Asiaphoria,” p. 5. 48. be persistently wrong – but also more likely to get an 49. See, for example, the Fund For Peace’s Fragile States “unexpected” outcome right. This incentivizes more Index or the Center for Systemic Peace’s State Fragil- extreme predictions as a means of capturing attention ity Index. and the rewards from getting a rare event right. 50. See, for example, Taleb and Treverton, “Calm before 39. ;” Lawrence H. Summers, “US Economic Prospects: or the analysts cited in Clayton and Levi, the Storm “Fiscal Breakeven Oil Prices.” Secular Stagnation, Hysteresis, and the Zero Lower Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 30

34 51. The World in 2050: Will the Shift in Global Economic See, for example, Taleb and Treverton, “Calm before (London: PriceWaterhouseCoopers, Power Continue? the Storm ;” or the analysts cited in Clayton and Levi, 2015); and Economist Intelligence Unit, Long-term “Fiscal Breakeven Oil Prices.” - (Lon Macroeconomic Forecasts: Key Trends to 2050 52. Kathryn Schulz, Being Wrong: Adventures in the Mar - (New York: Harper Collins, 2010); gin of Error don: The Economist, June 2015). See, for example, Jonathan Kirshner, 68. . Signal and the Noise Silver, 53. American Power 54. (New (Ithaca: Cornell University after the Financial Crisis Frank H. Knight, Risk, Uncertainty and Profit York: Hart, Schaffner and Marx, 1921). See, more Press, 2014). John Maynard Keynes, “Economic Possibilities for 69. recently, Stephen C. Nelson and Peter J. Katzenstein, Essays in Persuasion - “Uncertainty, Risk, and the Financial Crisis of 2008,” Our Grandchildren,” In (Lon 68, no. 2 (2014): 361-392. don: MacMillan, 1930), p. 365. International Organization 55. 70. Knowing the Adversary: Leaders, Keren Yarhi-Milo, Gregory Clark, A Farewell to Alms: A Brief Economic History of the World Intelligence, and Assessment of Intentions in Inter - (Princeton: Princeton University Press, 2007). national Relations (Princeton: Princeton University (New York: Oxford The Lever of Riches Joel Mokyr, 71. Press, 2014). Farewell to Alms University Press, 1990); Clark, 56. ; El- No See, for example, Dobbs, Manyika and Woetzel, The Mystery of Economic Growth hanan Helpman, Ordinary Disruption . 57. George A. Akerlof, “The Market for ‘Lemons’: Qual- (Cambridge: Harvard University Press, 2004). - Quar ity Uncertainty and the Market Mechanism,” 72. The earlier growth in trade opportunities and popula- tion may also have been responsible for the Industrial terly Journal of Economics 84, no. 3 (1970): 488-500. The Enlightened Economy Revolution. See Joel Mokyr, 58. Tetlock and Gardner, Superforecasting . Tetlock, “Reading Tarot p. 57. (New Haven: Yale University Press, 2009). 59. ,” Robert Gordon, “Is U.S. Economic Growth Over? 73. 60. Daniel W. Drezner, ed., Avoiding Trivia: The Role of Faltering Innovation Confronts the Six Headwinds” Strategic Planning in American Foreign Policy ( Wa s h - (NBER Working Paper No. 18315, National Bureau of ington: Brookings Institution Press, 2009). Economic Research, Cambridge, Massachusetts, Au- 61. Taleb, Black Swan. 62. The Rise and Fall of gust 2012); and Robert Gordon, Dennis Pamlin and Stuart Armstrong, Global Chal - American Growth: The U.S. Standard of Living since the lenges: 12 Risks that Threaten Human Civilization (London: Global Challenges Foundation, 2015), C i v i l Wa r (Princeton: Princeton University Press, 2016). http://globalchallenges.org/wp-content/uploads/12- Stephen S. Roach, “America, China, and the Produc- 74. Project Syndicate tivity Paradox,” Risks-with-infinite-impact.pdf , June 23, 2015; See . 63. also Sam Fleming, “Low Productivity Alarms US Pol- On the negative side, the Global Challenges Project estimated a 10.135 percent chance of a cataclysmic icymakers.” , May 6, 2015. Financial Times Cowen, 75. Great Stagnation event – but that excludes some contingencies that , p. 13. Econom Long-term Macroeco- ist Intelligence Unit, were deemed unquantifiable. A parallel positive 76. shock would be the arrival of peaceful, benevolent nomic Forecasts. Scott C. Bradford, Paul L. E. Grieco, and Gary Clyde extraterrestrials with superior technology, or a radi- 77. Hufbauer, “The Payoff to America from Global Inte- cal technological breakthrough like affordable fusion The United States and the World Economy: energy. gration,” in , ed. C. Foreign Economic Policy for the Next Decade Quote from Rumsfeld’s news briefing, February 12, 64. 2002, at http://www.defense.gov/transcripts/tran- Fred Bergsten (Washington: Institute for Internation- . script.aspx?transcriptid=2636 al Economics, 2005). “Looking to 2060”. Manyika, Rames and Woetzel, No Ordinary Disrup - 65. Johansson et al., 78. tion 66. Ibid., p. 9. Long- , p. 6. See also Economist Intelligence Unit, 67. term Macroeconomic Forecast. (London: HSBC Global The World in 2050 HSBC, Research, 2011); Jean Fouré, Agnes Bénassy-Quéré 79. Jonathan Huebner, “A Possible Declining Trend for and Lionel Fotagné, “The Great Shift: Macroeco- Worldwide Innovation,” Technological Forecasting nomic Projections for the World Economy at the and Social Change 72, no. 8 (2005): 980-986. For recent critiques of disruptive innovation, see Jill 2050 Horizon” (CEPII Working Paper 2012-03, 80. Center D’Etudes Prospectives et D’Informations In- Lepore, “The Disruption Machine: What the Gospel ternationale, Paris, February 2012) ; KPMG Inter - , June 23, of Innovation Gets Wrong,” The New Yorker Future State 2030: The Global Megatrends 2014; and Andrew King and Baljir Baatarogtokh, “How national, Shaping Governments MIT (Toronto: Mowatt Centre for Useful is the Theory of Disruptive Innovation?” 57, no. 1 (2015): 77-90. Policy Innovation, 2014); PriceWaterhouseCoopers, Sloan Management Review Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 31

35 Capitalism, Socialism, and De- Joseph A. Schumpeter, Jamil Anderlini, “China Has ‘Wasted’ $6.8 Trillion in In- 99. 81. (London: Harper & Brothers, 1942). , Financial Times vestment, Warn Beijing Researchers,” mocracy Great Stagnation , p. 49. 82. Cowen, November 27, 2014. For a critique of that estimate, see 83. “China’s $6.8-trillion Hole?” On the sharing economy, see Danielle Sacks, “The Economist http://www. , economist.com/blogs/freeexchange/2014/11/wasted-in- Sharing Economy,” Fast Company , April 18, 2011. , November 29, 2014. On inefficient Chinese vestment http://www.fastcompany.com/1747551/shar - investment more generally, see Ada Wang and Susannah . ing-economy Kroeber, “Year of the (White) Elephant” (J Triage Report, 84. See, for example, Derek Thompson, “A World with- , July 2015. The Atlantic out Work,” J Capital Research, New York, 2012), http://www.econo- Robert Solow, “We’d better watch out”, New York mia.unam.mx/deschimex/cechimex/chmxExtras/docu- 85. mentos/catedra/catedra2013/cursointensivo/Programa- , July 12, 1987. Times Book Review . For one example, see Arthur (2011). For another, cion/Materialapoyo/YearoftheWhiteElephant.pdf 86. Why Nations Daron Acemoğlu and James Robinson, see Josh Zumbrun, “Goldman Sachs and J.P. Morgan 100. Fail: The Origins of Power, Prosperity, and Poverty Can’t Agree Why the Economy’s Productivity Has (New York: Crown Business, 2012). , June 16, 2015. Slumped,” Wall Street Journal 101. Varian quoted in Timothy Aeppel, “Silicon Valley 87. Pritchett and Summers, “Asiaphoria,” p. 5-6. 102. Doesn’t Believe U.S. Productivity is Slowing Down,” Dani Rodrik, “Unconditional Convergence in Manu- facturing,” , July 16, 2015. Wall Street Journal Quarterly Journal of Economics 128, no. 1 88. Müge Adalet McGowan, Dan Andrews, Chiara (2013): 165-204. The Future of Pro- Criscuolo, and Giuseppe Nicoletti, Dani Rodrik, “Premature Deindustrialization” 103. (NBER Working Paper No. 20935, National Bureau ductivity (Paris: OECD, 2015). of Economic Research, Cambridge, Massachusetts, 89. Jacopo Ponticelli and Hans-Joachim Voth, 2011 “An- February 2015). archy and Austerity: Budget Cuts and Social Unrest 104. Pritchett and Summers, “Asiaphoria,” p. 14-16. in Europe, 1919-2008,” (CEPR Discussion Paper No. Better Angels Winning Pinker, ; Joshua S. Goldstein, 105. 8513, Center for Economic Policy Research, Wash- ington, 2011). the War on War: The Decline of Armed Conflict World- 90. “Looking to 2060,” p. 23; Economist wide (New York: Penguin, 2011). Johansson et al., American Jour Erik Gartzke, “The Capitalist Peace,” 106. Long-term Macroeconomic Fore- Intelligence Unit, - 51, no. 1 (2007): 166-19; Pat- casts , p. 11. nal of Political Science Kemal Dervis, “Convergence, Interdependence, and (New rick J. McDonald, The Invisible Hand of Peace 91. 49, no. 3 York: Cambridge University Press, 2009). Finance and Development Divergence,” (2012): 10-14. Kishore Gawande, Bernard Hoekman, and Yue Cui, 107. “Determinants of Trade Policy Responses to the 2008 92. Alexander Gerschenkron, Economic Backwardness in Financial Crisis” (Policy Research Working Paper Historical Perspective (Cambridge: Belknap, 1962). No. 5862, International Trade Department, World 93. Barry Eichengreen, Donghyun Park, and Kwanho Shin, Bank, Washington, October 2011). “When Fast Growing Economies Slow Down: Interna- Appeasing Bankers: Financial Jonathan Kirshner, tional Evidence and Implications for the People’s Re- 108. Caution on the Road to War public of China” (ADB Economics Working Paper No. (Princeton: Princeton University Press, 2007), p. 206. 262, Asian Development Bank, Manila, Philippines, June 2011); and Barry Eichengreen, Donghyun Park, 109. Graham T. Allison, “The Thucydides Trap: Are the and Kwanho Shin, “Growth Slowdowns Redux: New , Sep- The Atlantic U.S. and China Headed for War?” tember 24, 2015. Evidence on the Middle-Income Trap” (NBER Work- ing Paper No. 18673, National Bureau of Economic Re- On democratization, see Larry Diamond, “Facing 110. search, Cambridge, Massachusetts, January 2013). Up to the Democratic Recession,” Journal of Democ- 26, no. 1 (2015): 141-155. On multilateralism, racy 94. Pritchett and Summers, “Asiaphoria,” p. 4. (New York: The System Worked Daniel W. Drezner, 95. for counterpoint, see Thomas Hale, David Held, and Oxford University Press, 2014), chap. 5. Kevin Young, Gridlock: Why Global Cooperation Is “The headwinds return,” 96. Economist , September 13, (London: Polity, 2013). Failing When We Need It Most 2014; Jonathan Wheatley and James Kynge, “Emerg- 111. Waltz (1999); James D Morrow, “How Could Trade ing markets: trading blow,” , June 10, Financial Times Affect Conflict?” Journal of Peace Research 36, no. 4 (1999): 481-489. 2015. 97. Eichengreen, Park and Shin, “Economis Slow Down,” 112. Thomas Wright, “Sifting Through Interdependence,” 36, no. 4 (2013): 7-23. pp. 8-9. The Washington Quarterly 98. Krugman (1994). 113. Cristina Constantinescu, Aaditya Mattoo, and Mi- Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 32

36 chele Ruta, “Slow Trade,” (Cambridge: Cambridge University tieth Century Finance and Development Press, 2002). 51, no. 4 (2014): 39-41. 133. Digital Globalization: The 114. All results in this paragraph are from Tomáš Helle- McKinsey Global Institute, brandt and Paolo Mauro, “The Future of Worldwide Nw Era of Global Flows (San Francisco: McKinsey & Income Distribution” (Working Paper 15-7, Peterson Company, March 2016). 115. Shawn Donnan, “IMF and World Bank Warn of ‘Peak Institute for International Economics, Washington, Financial Times Trade’” , November 18, 2014. April 2015. See, for example, 134. Thomas Piketty, “Putting Distribution Back at the 116. http://www.lockheedmartin.com/ . us/products/compact-fusion.html Capital in the Center of Economics: Reflections on ,” Twenty-First Century 117. Economist Intelligence Unit, Networked Manafactur - Journal of Economic Perspec- Digital Globalization ; McKinsey Global Institute, 29, no. 1 (2015): 68. ing tives 135. (2016). Acemoğlu and Robinson, “Rise and Decline,” p. 24. Richard Baldwin, “Global Supply Chains: Why They 118. 136. Benjamin I. Page, Larry M. Bartels and Jason Sea- wright, “Democracy and the Policy Preferences of Emerged, Why They Matter, and Where They Are Wealthy Americans,” Going,” in , Global Value Chains in a Changing World Perspectives on Politics 11, no. 1 (2013): 51-73. eds. Deborah K. Elms and Patrick Low (Geneva: Martin Gilens and Benjamin I. Page, “Testing Theo- 137. WTO Publications, 2013), p. 26. ries of American Politics: Elites, Interest Groups, and 119. John Manners-Bell and Ken Lyon, “The Implications of 3D Printing for the Global Logistics Industry,” Perspectives on Politics 12, no. 3 Average Citizens,” http://johnman- (2014): 564-581. , August 2012, Transport Intelligence Nicholas Confessore, “The Families Funding the 138. nersbell.com/wp-content/uploads/2013/11/The_im- New York Times , October 10, 2015. 2016 Election,” pact_of_3D_Printing_on_Global_Supply_Chains. pdf . See also, more generally, Benjamin I. Page, Jason Sea- 120. Wright, “Sifting Through Interdependence.” wright, and Matthew LaCombe, “Stealth Politics by Economic Interdependence and 121. U.S. Billionaires,” paper presented at the 2015 annual Dale C. Copeland, meeting at the American Political Science Associa- (Princeton: Princeton University Press, 2015). Wa r - tion, San Francisco, CA. 122. Economist Intelligence Unit, Networked Manufactur . William J. Baumol, “Entrepreneurship: Productive, 139. ing 123. Journal of Political Unproductive, and Destructive,” Daniel W. Drezner, “Targeted Sanctions in a World of Economy Global Finance,” 98, no. 5 (1990): 893-921. International Interactions 41, no. 4 140. (2015): 755-764. Private Power, Public Law: the Glo- Susan K. Sell, 124. Gabriel Wildau, “China launch of renminbi payment balization of Intellectual Property Rights (New York: system reflects Swift spying concerns,” Financial Cambridge University Press, 2003). See, more recent- , October 8, 2015. Times ly, Michael Grunwald, “Leaked: What’s in Obama’s Piketty, http://www.politico.com/agen- Capital in Twenty-first Century. 125. Trade Deal,” Politico , , Ibid. 126. da/story/2015/06/tpp-deal-leaked-pharma-000126 June 30, 2015. 127. Helpman, Mistery of Economic Growth . 128. Brenda Cronin, “Some 95% of 2009-2012 Income 141. See, for example, Robert Frank, “For the New Su- Wall Street Journal Gains Went to Wealthiest 1%,” , perrich, Life is Much More Than a Beach,” New York , June 20, 2015. Times September 10, 2013. 129. (New York: Penguin, 142. Chrystia Freeland, Plutocrats Joe Weisenthal, “Goldman Sachs Says It May Be - 2012), p. 238. See also Darrell West, Billionaires: Re Forced to Fundamentally Question How Capitalism Is Working,” (Washington: Brookings , February 3, 2016. flections on the Upper Crust Bloomberg Odran Bonnet, Pierre-Henri Bono, Guillaume Cha- Institution Press, 2014). 130. pelle, and Étienne Wasmer, “Does Housing Capital 143. Rael Dawtry, Robbie Sutton, and Chris Sibley, Contribute to Inequality? A Comment on Thomas “Why Wealthier People Think People Are Wealth- Piketty’s Capital in the 21st Centur y” (discussion pa- , doi: ier, and Why It Matters,” Psychological Science per, Department of Economics, Sciences Po, Paris, 10.1177/0956797615586560. 2014). Thomas Perkins, “Progressive Kristallnacht Coming?” 144. Daron Acemoğlu and James Robinson, “The Rise and 131. letter to the Wall Street Journal , January 24, 2014. - The Na Francis Fukuyama, “The End of History?” Journal of Decline of General Laws of Capitalism,” 145. Economic Perspectives 16, Summer 1989, 3-18; and Francis tional Interest 29, no. 1 (2015): 20. Great Transformations: See, for example, Mark Blyth, 132. The End of History and the Last Man Fukuyama, Economic Ideas and Institutional Change in the Twen- (New York: Free Press, 1992). Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 33

37 146. Ian Bremmer, “State Capitalism Comes of Age,” - For Francis Fukuyama, “At the ‘End of History’ Still Wall Street Journal 88, no. 3 (2009): 40-55. eign Affairs , June 6, 2014. Stands Democracy,” Stefan Halper, 156. Francis Fukuyama, Political Order and Political Decay (New York: Ba- 147. The Beijing Consensus sic Books, 2010), p. 104. (New York: Farrar Strauss Giroux, 2014), p. 451. 157. 148. (New The Rise and Decline of Nations When China Rules the World: The Martin Jacques, Mancur Olson, End of the Western World and the Birth of a New Glob- Haven: Yale University Press, 1982). (New York: Penguin, 2009), p. 230. al Order 149. Thomas Pepinsky, “The Global Economic Crisis and Thomas Friedman, “Our One-Party Democracy,” New 158. the Politics on Non-Transitions,” Government and York Times Opposition 47, no. 2 (2012): 135-161. , September 8, 2009; Francis Fukuyama, Financial 150. http:// “US Democracy Has Little to Teach China,” Gallup, “Trust in Government,” accessed at Times , www.gallup.com/poll/5392/trust-government.aspx , January 17, 2011; Graham Allison, “Singapore March 2013; Pew Research Center, “Public Trust Challenges the Idea that Democracy Is the Best Form of Governance,” , August 5, 2015. Huffington Post http:// in Government, 1958-2013.” Accessed at Daniel Bell, www.people-press.org/2013/01/31/trust-in-govern- The China Model: Political Meritocracy 159. (Princeton: Princeton , March 2013. and the Limits of Democracy ment-interactive/ The Edelman Trust Barometer data can be accessed 151. University Press, 2015), pp. 9 and 13. http://trust.edelman.com/trust-download/glob- at - John Meyer and Brian Rowan, “Institutionalized Or 160. al-results/ ganizations: Formal Structure as Myth and Ceremo- . 152. Zoltan Simon, “Orban Says He Seeks to End Liber n y,” 83, no. 2 (1977): American Journal of Sociology - al Democracy in Hungary,” 340-363; Paul DiMaggio and Walter Powell, “The , http://www. Bloomberg Iron Cage Revisited: Institutional Isomorphism bloomberg.com/news/articles/2014-07-28/orban- and Collective Rationality in Organizational Fields,” says-he-seeks-to-end-liberal-democracy-in-hungary , American Sociological Review 48, no. 2 (1983): 147- July 28, 2014. 160. 153. Roberto Foa and Yascha Mounk, “Across the Globe, Soft Power: The Means to Success in World a Growing Disillusion with Democracy,” New York Joseph Nye, 161. Politics Times , September 15, 2015; Roberto Foa and Yascha (New York: Public Affairs, 2004). Drezner, Mounk, “Are Americans Losing Faith in Democra- 162. The System Worked ; Daniel H. Rosen , Avoid - cy?” Vo x , December 18, 2015. ing the Blind Alley: China’s Economic Overhaul and Its 154. American Power. ; Kevin P. Gallagher, (New York: Asia Society Policy Rul - Kirshner, Global Implications ing Capital: Emerging Markets and the Reregulation Institute, 2014). of Cross-Border Finance (Ithaca: Cornell University 163. Drezner, The System Worked . , April 6, Press, 2015). 164. Evan Osnos, “Born Red,” The New Yorker 155. 2015; David Shambaugh, “The Coming Chinese For the most prominent versions of this argument, Crackup,” , March 6, 2015. Wall Street Journal see Azar Gat, “The Return of Authoritarian Great Powers,” Foreign Affairs 86, no. 4 (2007): 59-69; and Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 34

38 About the Author is a nonresident senior fellow at the Brookings Institu- Daniel W. Drezner tion, professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, and a contributor to The Washington Post . Prior to joining the Fletcher School, he taught at the University of Chicago and the University of Colorado at Boulder. He has previously held posi- tions with Civic Education Project, the RAND Corporation, and the U.S. Department of the Treasury. Drezner has written five books, including “ All Politics is Global” (Princeton, and edited two 2007) and “ Theories of International Politics and Zombies, ” (Brookings, 2009). He has published Avoiding Trivia” others, including “ articles in numerous scholarly journals as well as in The New York Times , Wall Street Journal , and The Foreign Affairs . Time magazine named his blog at Foreign Policy one of the 25 best in 2012. His latest book, “ The System ” was published Worked: How the World Stopped Another Great Depression, by Oxford University Press in June 2014. Five Known Unknowns about the Next Generation Global Political Economy Project on International Order and Strategy at BROOKINGS 35

39 The Brookings Institution 1775 Massachusetts Ave., NW Washington, D.C. 20036 brookings.edu

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