The International Advisory Council gathered for its tenth annual meeting against the backdrop of a troubled world: turmoil in Iraq and Syria, Russia’s ongoing intervention in Ukraine, the escalating fiscal and political crisis in Greece, tensions in East Asia, a cliffhanger negotiation over Iran’s nuclear program, and a global economy still struggling to find its footing seven years after the onset of the Great Recession. Through three days of meetings, site visits, and briefings from senior policymakers, business leaders, and Brookings experts, the Council assessed the tools available to the international community in confronting these challenges and brainstormed how to take advantage of new technologies and opportunities for economic growth.
Old-Style Geopolitics Makes a Comeback
A highpoint of the meeting was a chance for the Council to meet with Vice President Joseph Biden and hear him lay out the toughest presentation to date on the administration’s assessment of Russia’s threat to peace in Europe. Biden accused Vladimir Putin of trying to establish a sphere of domination over former Soviet republics. The Russian economy, he said, is in decline because of Western sanctions, falling oil prices, and the absence of reform. Yet the Russian president shows no sign of backing away from his muscling Russia’s neighbors and testing Western resolve and solidarity. Therefore Putin’s aggression presents a difficult test for NATO, the European Union, and American leadership. The Vice President affirmed the “sacred commitment” in Article V of the North Atlantic Treaty, which pledges the alliance to defend any member from attack. He was clearly sending a message to Putin as well as to the new and most vulnerable NATO members: Estonia, Latvia, and Lithuania.
“We’re questioning who will be the glue for the international order. It’s been the United States for decades, but now China has risen, India is potentially on the cusp and Russia continues to signal that it will not be ignored.” — Mick Davis
The Vice President also stressed the importance of Ukraine addressing the inefficiencies and corruption in its own economy in return for assistance from the West. He alluded to debates underway in Washington, NATO headquarters in Brussels, and other European capitals over whether to provide lethal defensive assistance to Ukraine. He acknowledged the risk of provoking Russian escalation, but he also made clear that the option was still on the table if Russia ratchets up its aggressive behavior. He added that further sanctions are also available if necessary and that, in any case, the United States will work with Europe on ways to increase its energy independence. A restoration of a united, prosperous Europe with diversified sources of energy, including renewables, would be far less vulnerable to Russia’s use of gas deliveries as a political weapon.
“Most Europeans want the UK to remain as part of the EU, but it’s not easy to find reforms that would make them feel more comfortable in staying. The EU still needs reforms in many sectors of the economy, and some of those would also be an inducement to the UK. We don’t need referenda to make those changes.” — Javier Solana
Like Russia, Iran has been hobbled by sanctions imposed by the international community—in its case, because of efforts to develop nuclear weapons in violation of an international treaty. During the meeting, the IAC focused on reports about the progress and hindrances in the P5+1 negotiations, which were, at the time of the meeting, intense but suspenseful. The group also learned from several official briefers and Brookings scholars about how the Obama administration was already working on ways to blunt domestic opposition from Congress.
The basic argument was that, given the alternatives—military action or holding out for a better but nonnegotiable deal—compromise was justified, as long as it halted Iranian efforts to develop nuclear weapons for a significant number of years and included a rigorous monitoring and inspection regime. If the negotiations failed and Iran got the bomb, there would likely be a nuclear arms race in the world’s most volatile region. If the U.S. Congress scuttled a deal, Iran would have the best outcome for itself and the worst for the world, since the international sanctions regime would collapse and Tehran could pull out all the stops in its nuclear weapons program.
Combating Transnational Threats
One area where Russia, Iran, and the U.S. have shared interests is in the battle against ISIS, which continues to gain ground and attract militants at an alarming rate, including an estimated 22,000 fighters from 100 nations. While ISIS is not about to take Baghdad, it has nonetheless proven resilient and difficult to contain. Air power has shown to be of limited value against ISIS and, thus far, the Iraqi militias have not demonstrated that they are up to the task. The U.S. has not made investing resources in defeating ISIS a priority, and only Jordan seems to view them as a first-order threat. Saudi Arabia is more concerned about Yemen and regards Iran as its main regional adversary.
As the U.S. weighs its interests in responding to these threats, it is also working with allies and multilateral institutions to share the burden of peacekeeping in trouble spots around the world. The United Nations can help deal with these challenges—from Ebola to violent extremism—without the complications that arise from military action by individual countries. However, differing motives among the members of the UN Security Council often prevent decisive action where it is clearly needed. Syria is a case in point. Diverging perspectives and interests among members of the Security Council have tended to paralyze a multilateral response, which has been a boon to the ISIS juggernaut in the region.
“A big concern for East Asia is how peace can be secured when every nation has dreams and ambitions of its own.” — Kihak Sung
A major act of terrorism against targets outside the Middle East would probably bring about quick unity and trigger a robust response from the U.S. and its allies, but it may be hard to pinpoint the source of the plot, and a military response all by itself will not address underlying governance, societal and economic issues that fuel extremism.
Recognition of this dilemma led to a vigorous discussion of the youth bulge in many developing countries. In the case of males, the lack of economic opportunity turns many of them into recruits for extremist organizations. The lack of access to education for girls in many parts of the world diminishes their nations’ ability to harness half of their human resources. Efforts by the U.S. government, like the Let Girls Learn initiative, and multilateral organizations, like the UN’s Learning Metrics Task Force, are focused on achieving equity among vulnerable populations, ensuring that children are learning the right competencies, securing financing, and scaling up successful efforts to reach larger populations. As girls reach adolescence, many are pressured to leave school before completion. Educated girls have children who are healthier and live longer and family incomes go up, benefitting their communities. Beyond that, educating girls is part of the United States’s national security strategy, since their involvement in conflict resolution and leadership contributes to greater stability and economic growth.
Energy, Climate, and Economic Growth
Economic growth requires energy and, while resource consumption is leveling off in OECD countries, demand is rising rapidly in non-OECD countries. Nations that are just beginning to industrialize must resolve the tension between the twin imperatives of alleviating poverty and containing climate change. Deteriorating air quality in developing countries—a byproduct of their reliance on coal, oil, and gas—is compelling governments to explore alternative fuel sources. In rural areas, where many of the estimated 1.2 billion people without access to electricity live, it is cheaper to build out small-scale solar and micro-grids than to expand the conventional one. However, existing policies that impose tariffs on imported technologies and provide subsidies for kerosene and other dirty energy sources make realizing the full potential of these innovations difficult.
“There are enormous opportunities in renewable energy and distributed power systems and we can be more aggressive in pursuing energy efficiency gains. There is a future there and we must move to it.” — Nawal Al-Hosany
Many state-owned utilities in the developing world face difficulty attracting capital for new projects. The long time horizon for water and power infrastructure projects requires strategic planning at the national level. Every non-hydroelectric power plant currently operating in the U.S. will need to be replaced by 2050, creating opportunities to increase efficiency and cleanliness. Improvements to the grid will have an even greater impact if carbon is priced to reflect its true costs and as more people worldwide enter the middle class, increasing demand for scarce resources.
Good News and Bad in Latin America
In a number of Latin American countries, recent economic growth has led to a rapid expansion of the middle class, increased democracy and rule of law, reduced corruption, and a comparatively low risk of terrorism and militancy. The end of the commodity boom has slowed some of the growth that made that expansion possible, and governments are coping with how to meet citizens’ heightened expectations. The countries that focused on building macroeconomic stability and amassing foreign reserves during the good times are much better positioned to withstand the slowdown, while those that stuck with a traditional service economy have not fared as well.
“Latin America is undergoing tremendous social and economic change, which has major implications for the countries in the region, the U.S., and the broader world. This is an important time for all stakeholders to understand the issues, so it’s important for Brookings to continue with an enhanced research agenda.” — Suzanne Nora Johnson
Post-boom, the region as a whole is significantly more integrated into the global economy, with trade between Latin America and Asia increasing rapidly and China preparing to invest $25 billion, primarily in infrastructure. The Trans-Pacific Partnership holds great promise for the region as well, since it will link the Pacific Rim nations of Central and South America with a larger Asian trading regime. The U.S.’s recent rapprochement with Cuba has improved its standing in Latin America and has rescued the Summit of the Americas project for President Obama. The U.S. benefits greatly from a hemisphere of democratic states at peace as it deals with instability and violence in other parts of the world.
“The U.S. opening to Cuba is important and significant. The question is if it can be a game changer with other countries, like Venezuela.” — Eckart von Klaeden
Despite these opportunities, Latin America still faces a number of challenges. It remains a place of high crime—it’s home to nine of the top ten most murderous countries in the world—and some countries have recently backslid on human rights. Corruption remains a serious problem, with no less than ten governments facing serious scandals. Increased public attention to this corruption, though, is making it more difficult for people accustomed to how things used to work. Latin America plays a disproportionately small role in global affairs; despite the size of Brazil and Mexico, they have seemingly little to say on the Middle East, non-proliferation, climate change, and other pressing global concerns.
Pushing Economic Growth around the World
The still-slow global economy is a major concern and policymakers and business leaders alike are watching carefully for signs of growth. Lower gasoline prices have been a real benefit to U.S. consumers, but it appears that much of the windfall is going into savings and de-leveraging rather than spending. The rising dollar, dampening demand for U.S. exports, adds a further drag. While the labor market is improving, productivity gains seem to be slowing. This may reflect the delayed effects of a shortfall in business investment during the recession or a lag in the uptake of new innovations into commercial products.
“In Europe, the last five or six years have shown that a monetary union without a fiscal union is ultimately unworkable. A successful monetary union requires a fiscal union. Clearly this only has become obvious in times of stress.” — Jaime Montealegre
Throughout the recovery—and more broadly over the last two decades—most income gains have gone to the top of the distribution. Income inequality continues to make headlines in the U.S. and around the world. The Federal Reserve is paying close attention to the impact of its policies on inequality, even though that falls outside its twin mandates of maintaining price stability and low unemployment. Given the global economy’s reliance on U.S. consumers in the absence of strong demand in Europe and Asia, the only way to ensure sustainable growth is through inclusive growth.
“It is disturbing how relaxed we are in measuring productivity, as Robert Solow pointed out over two decades ago when he spoke of the “productivity paradox”. Then, it was computers, now it is smartphones and robots that are absent from the real productivity numbers. Astonishingly, we measure it only as a derivative even though productivity is the main engine of economic growth. We should do better than that and could – if we would make use of big data analysis.” — Antoine van Agtmael
Advanced industries—R&D-intensive and employing a disproportionate share of STEM workers—are a key to this kind of inclusive growth. Where the recovery from the recession has been largely characterized by wage stagnation, these industries have demonstrated wage growth five times greater than other sectors of the economy. In the U.S., 70% of the firms that can be classified as being part of advanced industries are located in the 100 largest metropolitan areas, supporting supply chains and stimulating local economies. At the core of these industries is innovation: making things that are smarter and not just cheaper.
“India needs growth, employment, and foreign direct investment with technology, security, and stability. Modi’s foreign trips are very good for India and the region.” — Rahul Bajaj
In Rhode Island, for example, a once-thriving jewelry manufacturing sector supported an ecosystem of chemists, manufacturers, and other specialty businesses. When that industry went into decline, the state’s political leadership was compelled to develop a new economic strategy. With the fundamentals—a decent tax structure, competitive regulatory environment, and a nimble, transparent government—in place, Rhode Island focused on programs to build a skilled workforce, working in partnership with employers to ensure a strong match with their needs. Underscoring the role of place in building an advanced industry-based economy, the state capital redeveloped a large swath of downtown, following the re-routing of a major freeway, into an innovation campus anchored by three major universities.
“Big data and the cloud are gigantic developments, and we are only scratching the surface, including on what they mean for policy. Knowledge is power, but now it’s exponential.” — Paul Desmarais, Jr.
The deployment of advanced technologies and big data in healthcare, and financial services, and other fields raises important questions about privacy and how people interact with companies and one another. The United States and Europe pursue differing regulatory approaches aimed at protecting private information from malicious actors. The importance of security and privacy for consumers is self-evident; for companies, the risk of losing trust that drives customers away makes a strong defense imperative. As more devices and systems are connected through the “internet of things,” opportunities for mischief will only increase.
Beyond individual hackers seeking personal information for financial gain, governments are employing cyberattacks as a tool in their national security arsenal. The sophistication of some of these actors can make it difficult to identify the source of malicious behavior and determine proper countermeasures. In the coming years, many of the new users of the internet will be people who live in unstable, often censored environments. These users need a particular kind of protection to take advantage of the opportunities for expression that the internet offers.
“It is my honor to be a part of the group. I am looking forward to continuing to learn and participate in more dialogues on the issues that matter most.” — Shmuel Meitar
The 2016 meeting of the IAC will be a central part of the Institution’s centenary celebration. Throughout the year, Brookings experts will continue to engage with members of the Council to analyze the new tools the world has for unlocking robust, sustainable economic growth and promoting peace and stability.
All photography by Paul Morigi