IAN BREMMER: The GZERO is the absence of global leadership. Mainstream media is dividing our country and is dividing the world. We're more divided, our allies are weaker and more divided, and the Chinese are building an alternative. And it's completely different from what advocates of globalization, and the free market were hoping was going to happen in the 21st century.
VINCENT CATALANO: The world is a complex place. An interconnected, interdependent ecosystem where what happens in Vegas, oh, it rarely stays in Vegas. Now many investors-- too many investors-- rely on simplistic slogans and rules of thumb; heuristics. Things like don't fight the Fed and the inputs into the discounted cash flow model.
What is lacking is a more comprehensive approach; a more holistic look at the investment decision-making process. In this Real Vision interview, the master of comprehensiveness is my guest. Ian Bremmer is president and founder of the Eurasia Group, the world's leading political risk analysis firm, and GZERO Media, a company dedicated to providing the public with intelligent and engaging coverage of global affairs.
I hope you like what you see. Ian, welcome.
IAN BREMMER: Vinny. Good to see you, man.
VINCENT CATALANO: Good to see you, too. Why is geopolitics important to investors?
IAN BREMMER: It's not always as important as it is right now. Usually, geopolitics is really important for people focused on parts of the world that are intrinsically unstable-- the Middle East, emerging markets, cross-border tensions, that kind of thing.
But right now we're heading to a bust cycle, what I call a geopolitical recession, where the old US-led order is actually unwinding. In other words-- I mean, the US is still stable domestically. If we have Trump for another term or not, that's not going to matter that much to domestic policy.
But what happens with the world, the idea that you've got major trade tensions between the US and all of its major allies and between the two largest economies in the world, the US and China. You have NATO in much weaker condition than it was historically. The ability to respond to crises when they emerge.
After 9/11, after the 2008 financial crisis, the US came together, the allies came together. Even our antagonists. The Russians after 9/11 supported the US. The Chinese after 2008 were constructive in the G20.
But today, next time we have a crisis, you're not going to see that. You're going to see an unwind and finger-pointing inside the US. You're going to see the allies much weaker. You're going to see the Chinese and the Russians taking advantage trying to build new architecture or trying to create, in the case of the Russians, more chaos.
That's why geopolitics matters. If you look forward over the next 5, 10 years, the single question that most investors are most uncertain about in terms of driving macro market strategy is actually geopolitics. It's not economics.
VINCENT CATALANO: And the economic consequences therefrom.
IAN BREMMER: That's right.
VINCENT CATALANO: Exactly. Look let's look at some-- and by the way, what you're describing sounds very much like-- and we're going to get into it in a little bit-- GZERO.
IAN BREMMER: That's right.
VINCENT CATALANO: OK, exactly. Let's take a look at some of the geopolitical type of issues that are out there. Touch upon a few macro trends that are there. And I'm sure weave it into GZERO concept.
Globalization. A little bit more like deglobalization is going on. And that's kind of what you're describing to you a good extent, too.
IAN BREMMER: Well, I mean, certainly people are moving and ideas are moving and capital is moving around the world faster and faster. That's certainly true. And if you want to talk about early stage industrialization-- oil, gas, commodities, rare earths-- I don't see deglobalization happening there. I actually see markets continuing to become more integrated.
But if you start talking about manufactured goods and services. there I see labor becoming less important to supply chain and I see supply chains becoming shorter. And especially after the next economic downturn and given the fact that the Chinese are becoming more competitive and they don't have rule of law, I actually see some level of trajectory momentum away from further globalization.
But the most important point is the most advanced part of our economy, which is technology. Chips, 5G, big data, the cloud. And there we actually see globalization literally falling apart. We see two completely different competitive systems, one being driven by the Chinese, the other largely being driven by the Americans, and they don't interact.
I mean, everyone's complaining right now in China that the Americans are trying to get rid of Huawei, which is their major technology company driving 5G. But if you're Amazon or Google, which are functionally American monopolies in their space, they don't even have access in the world's largest internet market, China.
That's not globalization. That's not the world wide web. That's a splinter net and it's completely different from what advocates of globalization and the free market were hoping was going to happen in the 21st century.
VINCENT CATALANO: Trade wars figuring into all of this, interconnected with this, wouldn't you say?
IAN BREMMER: Well, trade wars are a part of this but the Americans and the Chinese fundamentally need each other in trade. We want to buy Chinese goods. They want to sell them to us. And one of the reasons why Trump, despite talking about putting tariffs on the remaining $325 billion of Chinese exports to the US, has been reluctant to do so is because those are products that American consumers actually buy.
Its clothing, its toys, its your iPhone. And if he does that, American voters are going to feel it. So he's very reluctant. And that's why despite the fact that there's no breakthrough deal as of yet between Americans and the Chinese, he's actually put a ceiling on further escalation.
So yes, the populism and nationalism that we see not just in the US but in many democracies around the world, and developing, is leading to some more protectionism. But the fact is that the interconnection of international trade is still a driving force in the economy.
VINCENT CATALANO: It's still a driving force. Yes, they are. Multilateral agreements are part of the picture here, too. Disintegrating into bilateral agreements. Where do you see the trends in that happening as it ties in with everything that you're describing?
IAN BREMMER: It's very hard for leaders of advanced industrial economies to convince their populations that more free trade is good for them. So the average member of the working class and the middle class may see that the markets are doing really well and may see that the top 10%, 1%, 0.1% have done really well.
But to the extent that their wages have been flat for decades now, telling them that NAFTA or the trans-pacific partnership is good for them doesn't really cut the mustard. That's true in the US. Bernie Sanders would have opposed the TPP. Hillary Clinton was an architect but said she'd have to change it before she pushed it through Congress.
Trump, of course, famously said I'm ripping it up and Obama couldn't get it done. That's also true in Europe. It's true in lots of wealthy democracies. Interestingly, you've got a lot of populism and nationalism in countries like Mexico and Brazil, but they're working and middle classes have benefited from globalization and they see it.
Those are the ones that got the jobs that left the United States and Europe. So even though they are voting in anti-establishment, anti-corruption figures, there's no problem promoting free trade. And in Mexico, the new US-Mexico-Canada trade agreement, which is a little bit like NAFTA-prime, is very popular among pretty much the entire population.
VINCENT CATALANO: Mm-hmm. You mentioned corruption. To shift gears a little bit, what about the rise of illiberal democracies? You have many governments now emerging where you have autocrats at the core benefiting from what appears to be superficially a democracy. I think you can think of Russia in that regard, and other countries, too.
They vote. The people vote for so-and-so. And there's an operation that seems to be happening within those countries having to do with perhaps illicit funds, and money, and kleptocrats, and things of that sort. Thoughts on that.
IAN BREMMER: Well, it's interesting. First of all, I would not consider Russian a liberal democracy. I would consider them a functional authoritarian regime. There are no meaningful opposition parties in Russia. The Russian government controls all the media that matters. And as a consequence, if the Russian people wanted to potentially vote for someone other than Putin, they really don't have the opportunity to.
In the case of Turkey, you have a democracy with relatively weak democratic institutions and a would-be autocrat, former prime minister now President Erdogan, trying to dismantle that system so that he can run it, and his family. That's really interesting.
VINCENT CATALANO: That is.
IAN BREMMER: But he's tried really hard. And Lord knows there's a lot of corruption around his family and around his sort of business network. And yes, there was an attempted coup against him. It failed. And yet he couldn't get his own guy as the mayor of Istanbul despite two tries, two bites at the apple in their elections.
And some of his most important former supporters now leaving his AK Party and they're developing alternative political movements in the same space, the center right, to go against him. In other words, I think we're seeing the tipping point away from Erdogan. I don't think he's going to be running that country in another 5 to 10 years.
VINCENT CATALANO: But we're not seeing that tipping point of autocrats, are we?
IAN BREMMER: No, no, no.
VINCENT CATALANO: Maybe him here and there.
IAN BREMMER: Autocrats are becoming stronger in many of their countries because, number one, you don't have this cohesive free world order that's actively promoting human rights and democracy. They're not leading by example. Number two, technology is increasingly empowering autocrats to surveil their populations and sort of nudge their behavior into ways that are more stabilizing for that political regime.
But my point on Turkey is that for those in the United States that believe, oh my God. If Trump gets a second term we're no longer going to be a democracy. The facts belie that. When Trump says I want to change the way we think about the census, he fails, he has to back away.
When Trump says, I don't like the way the Fed is behaving. I don't want an independent central bank. Jay Powell says if he tells me to quit, I'm not leaving. I mean, so far, 2 and 1/2 years of Trump, he's divided the country an awful lot. He's caused a lot of internal angst and even some real anger. But he's not actually done anything to the institutions, and I think that's really important.
VINCENT CATALANO: And speaking of institutions, there seems to be a considerable amount of faith in the institutions. Take for example central banks. Many investors, they go to the central banks. Don't fight the Fed. They believe that the central bank is going to be there and it will be the savior of the economy. Is there a little bit too much faith in institutions?
IAN BREMMER: I don't think that the central bank is the savior of the economy. I think that you have a lot of concerns that a lot of people are not benefiting from the economy. And ultimately, economies are built on people.
And when you have an environment where a lot of those people are left out, they're no longer viable or vital to that, they're no longer to be-- and you don't measure their inputs-- they get angry and that undermines the system.
So capitalism doesn't work for people that don't have capital. And fundamentally, most Americans today don't have capital. Therefore, they're oriented towards things other than capitalism. So I think that if you want to talk about the economy, and not just how the markets are doing but the whole economy, you're talking about human beings.
And so central banks cannot be the saviors of that. But I do believe that central banks continue to operate largely as they have through the post-war globalization period. In other words, they're run mostly by technocratic economists who share a skill set, they're very aligned with each other, and they are largely independent from the political figures that are being elected to run nominally those governments.
And in that regard, yeah. Their tools to respond to a crisis may be more limited because interest rates are low right now so they can't go that far.
VINCENT CATALANO: And their balance sheet is pretty sizable.
IAN BREMMER: And their balance sheet is problematic, right. Although when we talk about the balance sheet, everyone talks about sovereign deficits. People don't talk as much about the assets on the sheet. What these governments own.
We do when we invest in corporations. I don't understand quite why we don't. I have no problem with deficit spending in the US if we're investing in things that will bring a return long-term like infrastructure and human capital. The problem is we're not and that makes me feel like the US economy is losing some of its strength.
VINCENT CATALANO: Do you feel, though, in terms of institutions writ large, OK? The concept of institutions. Of institutions being there as the backstop for bad behavior That's the point that I'm trying to get to with that.
In other words, I had a debate with the former president of the Minneapolis Fed. And the debate that I had with him was about the fact that central banks' actions backstop bad behavior. Or what would be perceived as bad behavior by many. Any thoughts on--
IAN BREMMER: They backstop the existing system. And the existing system has many excesses. I mean, if you're telling me that post-2008 we didn't do an awful lot to change the way banking worked, if you're telling me that some of capitalism is actually predatory and that indeed a lot of special interests, particularly in the United States, capture the regulatory process, that there's far too much money spent on lobbying, and that Congress people upon retirement join that and have to position themselves to ensure that they have future well-being and as a consequence are complicit-- those are very significant problems.
I would not put them at the feet of the central bank. I'd put them at the feet of a system that is no longer feeling like a representative democracy. That's a problem.
VINCENT CATALANO: You mentioned in one of your writings, I believe it was, if not the Ted talk, about a very tense 10 years between China and Russia. What do you mean by very tense? What's the sense of that tension? How far does that tension go over with this 10 year time period?
IAN BREMMER: China's ascendant. Russia is in decline. China is investing not only in its own domestic human capital and infrastructure but also they are the most strategic with a plan investing in infrastructure and technology outside their country.
The countries where they're investing the most are their Eurasian and Asian landmasses. In other words, not America's neighborhood, Russia's neighborhood. Now right now, Russia sees China as useful because they're so angry at the United States and undermining that influence.
But medium to long-term, 5 to 10 years, the reality of Chinese economic dominance around Russia, whose economy is smaller than Canada's right now, smaller than Italy's, despite all their military weight. That's increasingly going to feel like a threat.
And the anti-Chinese racism in Russia is real and the demographic imbalance with 1.4 billion Chinese and a lot of Russian land that's largely unpopulated. So it's hard to see that not becoming much more tense in the relatively near future.
VINCENT CATALANO: In the relatively near future. And belt and road exacerbates this.
IAN BREMMER: Of course, because belt and road is the Chinese strategy to ensure that all of that money is spent in a way that is politically leverageable and useful to Beijing. All belts, all roads, lead to China.
VINCENT CATALANO: And before we leave the general geopolitical area, how consequential do you think next year's US election is going to be?
IAN BREMMER: To the emotional well-being of Americans, it will be greatly consequential. And I think that matters. I mean, we're talking about a few hundred million people and they matter to you and I, right? And they've been driven completely nuts by how much they increasingly hate each other.
Within families they're fighting. They can't watch cable news. I mean, there's not one narrative, there's not one story. We don't know what we stand for as a country anymore. So that's disturbing, right?
But if you ask me how much it matters to policy, not that much. I mean Trump's policies in his first couple of years kind of look like Republican policies. I mean, he talks about things like building a wall that Mexico is going to pay for.
First of all, we've had a wall before. Building a little more wall is something most administrations have generally supported but he hasn't really changed immigration policy fundamentally. Most of what he's done that's consequential-- lower corporate taxation, regulatory rollback, more limited enforcement.
His judicial appointees, his Fed appointees. Not the people he's talked about, the ones he's actually appointed. Marco Rubio would've done the same thing. Jeb Bush would've done the same thing.
So I think the only thing Trump's done that's really surprising is that as a new Republican-- because he wasn't for long, as you know-- is probably his deficit spending, which feels more Democrat-like. Though it's heavily focused on national security and defense. That's more Republican-supported.
But it's really his lack of character. It's really his divisiveness. His ability to control the media and force them to focus only on him and on other things. That's where Trump has an impact on the national psyche of the United States. But on the actual function of the American economy, virtually none.
VINCENT CATALANO: I wonder what the feedback loop will be. We'll find out. We'll find out how that whole thing plays out. GZERO as a concept. I just want to read from your Ted talk, which, by the way, I thought was excellent.
IAN BREMMER: Thank you.
VINCENT CATALANO: The fundamental truth of the GZERO is that even though the US is not in decline, it is getting objectively harder for the Americans to impose their will, even have great influence, on the global order."
IAN BREMMER: Right.
VINCENT CATALANO: When I read this and I heard you speak it, it made me think of Joseph Nye.
IAN BREMMER: Soft power guy.
VINCENT CATALANO: Yeah, soft power guy. Exactly.
IAN BREMMER: Absolutely, yeah.
VINCENT CATALANO: Exactly. That's part of the equation that doesn't get