The speed with which any of these political detonations may explode
is gathering pace, but with the world's governments so preoccupied
with the economic elements of the global recession, they are unable
to respond with rapidity, conviction, or unity. This is likely to
hasten their progression.
The United Nations has announced that Iran now has the capacity
to produce a nuclear weapon. The moment has thus passed when an
attack on Iran's nuclear facilities may have delayed it from joining
the nuclear club. Now the questions to be addressed are how many
additional bombs the Iranians may be capable of producing and when,
which other governments in the Middle East and elsewhere will now
pursue programs to become nuclear powers, the impact this will have
on the global arms race, and which rogue states or terrorist groups
may become capable of acquiring nuclear weapons or material.
Pakistan is disintegrating as a sovereign state. The border dividing
Pakistan and Afghanistan effectively no longer exists and has been
replaced by a porous border in which Taliban and Al Qaeda fighters
move with impunity between the two countries. The recent cession
of control of the Swat region of Pakistan to the Taliban is evidence
that Pakistan's delicate balance between democracy and theocracy
is gradually being won by the theocrats. What was once an unthinkable
scenario—that a nuclear Pakistan might one day fall under the control
of a radical Islamist government—is unfolding.
The Karzai government in Afghanistan can today only say that
it is in effective control of Kabul. As a result of a failure to
win hearts and minds of the Afghani people, the money spent and
lives lost in an attempt to create a secure Afghanistan since 2001
have been in vain. History has proven that no amount of money or
soldiers devoted to such a task will be successful. Afghanistan
is being ceded back to the Taliban and there is little that can
be done about it. The Russians learned the lesson the United States
and its allies are about to learn.
In spite of the tremendous effort made by the George W. Bush
Administration to bring North Korea into the family of nations,
the six-party talks failed, and Kim Jong il has returned to his
bellicose behavior. This comes at a time when South Korea's economy
is at its weakest point since the Asia Crisis. The Sunshine Policy
is dead and the Barack Obama Administration is essentially starting
where the Bush Administration did 8 years ago, with little prospect
Israel and Palestine
The Israeli/Palestinian morass continues unabated. Neither Hamas
nor the new Netanyahu Government have much of an incentive to renew
peace negotiations. Such negotiations would undoubtedly prove to
be futile, in any event, as has proven to be the case historically.
The radicalization of political forces on both sides prevents any
realistic hope of a final settlement from gaining traction.
The tide of 21st century socialism rumbles through much of Latin
America, with many of the region's citizens now believing the democratic
movements that promised to improve their lives have instead left
them behind. Leftist movements are either already in power or have
gained appeal in an increasing number of countries. Given the pace
with which economic hardship is gripping Latin America, leftist
movements are likely to regain their historic appeal.
Russia and China
Indeed, elements of the Cold War are being reborn, 20 years after
the fall of the Soviet Union. Russia is once again flexing its muscles
amongst its neighbors, while China wields growing influence in some
of the most remote and objectionable resource-rich developing countries.
The battle for ideological supremacy now occurs with developing
countries claiming their rightful place at the table. Discussion
of when China will overtake the United States economically seems
entirely irrelevant; China has already overtaken the United States
in terms of political influence globally and will only grow stronger
with time. Given the carnage in the U.S. economy, China's long march
toward economic supremacy cannot be far behind.
All this comes at a time of increasing economic nationalism on
a global scale that threatens to derail the prospect of a global
economic recovery in 2009. Given what is known today, that the depths
of this global recession may only be reached this year or next,
and given the undeniable linkages between the world's economies,
an L-shaped recession followed by a U-shaped recovery seems likelier—over
a period of several years. This will have a cumulative impact on
governments' ability to respond meaningfully to the plethora of
political risks that confront us.
Political Risk Prognosis
With every day that now passes, the world edges closer to a nuclear
confrontation, but no longer involving the five Great Powers. Rather,
the chance that Israel, Iran, North Korea, India, or Pakistan will
be involved is increasing, as is the possibility that one day in
the not too distant future half a dozen other developing countries
may have such capability. The risk of a cataclysmic political event
occurring in the next 12-24 months has rarely been greater.
Policymakers' ability to do something about it has been compromised
over the past 6 months. Policy unity has become an ever distant
prospect, but the need for collective action is compelling. That
is the seldom spoken side of the global economic crisis, which has
somehow gotten lost among all the media coverage of bank nationalizations
and Ponzi schemes.
Political risk is rising, and will continue to rise, throughout
the course of this severe global recession. The risks of operating
a business anywhere in the world is similarly rising—including in
North America and Europe. The unpredictability associated with this
economic dislocation naturally affects the political realm. Business
owners must take a defensive posture in such an environment, review
their risk management contingency plans, and update them on an ongoing
basis until some normalcy returns to the marketplace. When might
that be? The best guess now is that 2011 is the earliest we are
likely to see anything resembling normalcy in international business