Ian Bremmer

The media can’t help themselves when it comes to presidential politics, and that’s never been more in evidence than in the current Republican nomination battle. For the press, campaign season is its Olympics, the time when reporters’ bosses open their wallets to send them to far off places like Dixville Notch, New Hampshire and Cedar Rapids, Iowa, and correspondents can make a career on how well they report on the race. Except this year, there is no race. Mitt Romney will be the nominee, and that’s been clear for months.

Yet here’s the lead from today’s Wall Street Journal recap of yesterday’s New Hampshire primary: “Mitt Romney is a long way from claiming the Republican nomination, but he leaves New Hampshire with significant advantages in a field where no single opponent seems well-positioned to stop him or become the obvious alternative to him.” While the reporter may merely be acknowledging the mathematics of the delegates Romney still has to win in primaries across the country, the hedging on Romney’s inevitable victory, to anyone who follows the day-to-day stories in the campaign, rings hollow at best.

With Gingrich, then Santorum, and Bachmann and Cain before them, news stories always turned to polls to explain the latest in the “anyone but Romney” vote. But the story the media should be telling is that polls during campaign seasons historically change the most and matter the least. Flawed methodology and small sample sizes make even the most rigorous polling little more than a one-day snapshot of popular sentiment, yet poll results are often reported as if they were all but recorded in the county clerk’s election rolls.

What we should be reading about when it comes to the nomination are things like the size of each candidate’s ground force, the number of committed staff, an ongoing endorsement tally–in other words, the true measures of a candidate’s strength. By these measures, Romney has an overwhelming advantage and has for months. But for some reason such metrics are mentioned only in passing, if at all, or are left to weekend feature stories, as if the day-to-day news about Romney walking down a street in Manchester to knock on doors had anything to do with his viability as a national candidate.

Part of the problem, albeit unspoken, may be that the media haven’t really warmed to the often robotic and sometimes aloof Romney, and because of that, they are holding back on anointing him as the nominee. They therefore highlight those qualities in him and cite the failure of the Tea Party and evangelicals to coalesce around him, even though Romney has been carrying a majority of the overall support of the party, again, for many months now.

The other problem Romney is facing is that candidates with no chance of winning the nomination are refusing to get out of the race. While some may blame the influence of soft money and Super PACs in putting these campaigns on artificial life support, there are simpler explanations for why Gingrich, Cain, Perry, Santorum, Huntsman and Bachmann all stayed in so long: There’s nothing but upside for them, personally, in doing so. The longer candidates can claim a sliver of the national stage, the better off they are in the long run. For Gingrich and Cain, it helps them sell books and raise their personal profiles. For Santorum and many of the rest, they can position themselves to be important parts of Team Romney in the general election and in a Romney administration. Those who aren’t looking for a spot on Romney’s roster are especially willing to trade the enmity of the future GOP nominee for the media attention that bashing him brings. It’s all about job security. And after all, any publicity is good publicity–fueled by an ever-rotating media spotlight that really shouldn’t be shining on these also-rans in the first place. If Ron Paul, who consistently garners high percentages in polls and now in the New Hampshire primary, is widely acknowledged as being too far outside the Republican mainstream to win the nomination, there’s no way Huntsman, who could do no better than third in New Hampshire, can surge past both to win the nod.

Having been vetted during the GOP primaries in the 2008 cycle, what few skeletons there are in Romney’s closet have likely been thoroughly exhumed and inspected. There’s always the chance of a scandalous surprise to knock him from his perch, but it seems unlikely that the no-swearing, no-drinking, family man Mormon has any such bombshells to worry about. So what’s the net result of the media’s refusal to call this race all but over?

Probably a stronger and stronger platform for Barack Obama in the general election. The longer Romney has to beat back the fringe candidates in the primaries, the less work Obama has to do in the general election. But even that is not Romney’s biggest concern–rather, it’s the improving economy and the continual upward creep of economic and employment numbers–indications the country is getting back on the right track, upsetting his core argument against the incumbent.

Rick Perry has promised to make his last stand in South Carolina, and Jon Huntsman has said that the Florida primary on Jan. 31 will decide who the GOP nominee will be. While it may be fun for both men to dream, they know the race is long over, and the identity of the nominee will be Willard M. Romney. It may be fun for reporters to cover the remaining candidates as the political human-interest equivalent of the Jamaican bobsled team, but this isn’t the Olympics–it’s a national presidential election. It’s time to focus on who Romney is and what his policies as president would be, and how they stack up against Obama’s. With so much at stake for the future direction of the U.S. and its place in the world, anything else is, at best, a disservice to readers.

PHOTO: Republican presidential candidate and former Massachusetts Governor Mitt Romney points to supporters as he stands on stage with his relatives while speaking at his New Hampshire primary night rally in Manchester, New Hampshire, January 10, 2012. REUTERS/Jim Bourg

In a video for Reuters, Ian Bremmer discusses the biggest risks facing the markets in 2012 and says the next phase in the Middle East and the post-9/11 environment pose the greatest uncertainty:

Top Risks of 2012

As we begin 2012, political risks dominate global headlines in a way we’ve not experienced in decades. Everywhere you look in today’s global economy, concerns over insular, gridlocked, or fractured politics affecting markets stare back at you. Continuation of the politically driven crisis in the eurozone appears virtually guaranteed. There is profound instability across the Middle East. Grassroots opposition to entrenched governments is spreading to countries such as Russia and Kazakhstan that were thought more insulated. Nuclear powers North Korea and Pakistan (and soon Iran?) face unprecedented internal political pressure… Read the full top risks report here.

Visit msnbc.com for breaking news, world news, and news about the economy

By Ian Bremmer
The opinions expressed are his own.

There are many surprising things about Kim Jong-il’s sudden death, not the least of which is that it took two days for the rest of the world to hear about it. Yet most surprising is the sanguine reaction of the global and especially the Asian markets. On Monday, or actually Sunday as we now know, the world woke up to its first leaderless nuclear power. Coming as close as anyone could to filling his seat was his youngest son, who is in his late twenties. There’s no way these facts were accurately priced into markets that took just a relatively minor dip as a first response. The news from North Korea appears to have been taken far too lightly, and just a few days out, it’s disappearing from the front pages.

While Kim Jong-un’s status as heir apparent seems to tie a nice bow around the situation, let’s get real for a moment. The son of the elder Kim only appeared on the North Korean stage after a stroke necessitated succession planning in Kim Jong-il’s regime in 2008. Consider that founder of the country Kim Il-sung put his son, Kim Jong-il, in front of the citizenry as his heir for more than a decade before his 1994 death. That decade was precious time; time Kim Jong-il spent consolidating power and putting his own people into high government office— and he was over 50 years old when his father passed away. Kim Jong-un has been deprived of that head start; he’s got to rely on whatever ground his dead father managed to clear for him since his 2008 stroke. A couple of years at his father’s side — and a promotion to four star general — is scant time for the younger Kim to have developed a real plan for ruling, or real allies in government.

That said, don’t expect Kim Jong-un to be deposed. There won’t be a North Korean spring — for real or for show — anytime soon. The country is too backward and too brainwashed to mount any sort of populist opposition to the ruling regime, and its people have little if any knowledge of the outside world. Even if Kim Jong-un proves unable to consolidate and retain power, all that would replace him as the head of state is a military junta or strongman; there’s no democracy on the horizon, given the country’s current sorry state of affairs.

The important relationship to watch going forward will be between North Korea and China. Kim will want to impress his people by letting more food into the markets and increasing their terrible standard of living in whatever marginal way he can. He’ll need cash to do so, and will probably call upon China to help. China is North Korea’s last substantial benefactor in the world. In a classic diplomatic sense, because North Korea is America’s enemy and South Korea is America’s friend, China has little choice but to keep propping up the North. If China changes its tack now, it could find North Korea inching towards reunification with the South, putting a firm American ally right on its border. The question is, will China support Kim Jong-un wholeheartedly, or will it too take a step back and see what emerges from the power struggles sure to be playing out behind the scenes at this very moment?

Meanwhile, the U.S. has taken the right approach to this complicated situation: the White House has decided to sit back, watch and wait. It could, and likely already is, offering behind-the-scenes humanitarian relief to the North Korean people. It should continue to offer any such assistance that it thinks will be accepted. The Obama administration should not by any means be applying diplomatic pressure to restart six party talks or anything else of the sort. In essence, the free world should be rooting for Kim Jong-un to stabilize the country so that it can again try to bring North Korea out of the dark ages in an orderly fashion.

The British SAS used to say that when securing a dangerous environment, you should shoot the first person who makes a move (hostile or otherwise) to ensure authority. While I’m not advocating violence, one has to hope Kim Jong-un can consolidate power sufficiently, so that the world at least knows who it’s dealing with when it comes to North Korea. We don’t know what kind of leader he’ll be, or if he’ll even be a leader for very long, but a country that treats its rulers as gods needs someone at the top of the pyramid to keep from devolving into chaos. Otherwise, the world is back to where it was the day after Kim Jong-il died — a day in which no one knew whose finger was on the North Korean nuclear button.

This essay is based on a transcribed interview with Bremmer.

Photo: New North Korean ruler Kim Jong-un (C) pays his respects to his father and former leader Kim Jong-il (R) who is lying in state at the Kumsusan Memorial Palace in Pyongyang in this still picture taken from video footage aired by KRT (Korean Central TV of the North) December 20, 2011. REUTERS/KRT via REUTERS TV

By Ian Bremmer
The opinions expressed are his own.

After a week full of anti-government and pro-government protests, Russians woke up on Monday to big news. Mikhail Prokhorov, a political novice with billions of dollars—and the New Jersey Nets— to his name, announced his Presidential bid.  Alexei Kudrin, a longtime bureaucratic infighter, also declared his plans to re-enter the political arena. These developments were even more significant considering both were ousted in rather public quarrels with the powers that be just months ago. Kudrin said he would support and aid a pro-reform liberal party that would stand as a counterweight to the incumbent United Russia. Prokhorov intends to challenge Putin for the presidency in March 2012 on a platform that would appeal to Russia’s “disenchanted middle class.”

No matter what Kudrin and Prokhorov say in public, they both represent the same thing to Russia and the world: Vladimir Putin’s iron grip on power. As I’ve written before, Putin is the most powerful individual on the planet. To think that either man would risk his freedom or his fortune to oppose Putin’s Kremlin, no matter what their stated reasons are, is just wrong. That said, there are reasons to watch this “race” as it will give some insight into Putin’s inevitable third term as president.

Putin has had to deal with a growing sense of dissatisfaction in Russia as of late.  Growth and living standards are stagnating, while economic inequality persists. It is unclear whose pockets are being lined with the wealth generated by Russia’s massive natural resources. The lack of freedom of the press, centralized control over economic opportunity, and pervasive corruption that makes a mockery of the justice and security systems and other institutions, are Putin’s levers of power– and also the focal points for protesters. The protestors’ complaints crystallized last week over United Russia, Putin’s party, winning a smaller but still strong majority in the parliamentary elections. Accusations of election fraud were widespread and tens of thousands took to the streets in protest over the course of last week. Putin has not been in a position to crack down on these protests — they’re too visible and too widespread — but be sure that the oligarchs and ruling classes in Russia are on Putin’s side. While his tactics for retaining power have had to change, the outcome is the same.

Monday, a pro-United Russia rally in Moscow had the distinct air of a made-for-media event, with the college kids in attendance complaining their classes had been cancelled in order to compel them to turn out to show their “support” for the current regime. But the numbers, even if not to the extent that the state television claims, were there. Though Prokhorov and Kudrin will deny it endlessly, their candidacies are without a doubt sanctioned by the Kremlin. Just this year, Prokhorov was the leader of a pro-business liberal party that was created by and quite obviously aligned with the Kremlin. He quit because of a falling out with one of Putin’s Kremlin advisors — but it was not a falling out so great that Prokhorov became persona non grata. Quite the opposite, Prokhorov’s political resurrection may prove too useful for either Putin or the Kremlin middlemen to pass up.

Prokhorov has not forgotten that he owes his fortune and therefore his allegiance to Putin. As he already stated in his press conference, he doesn’t plan to dwell on attacking Putin (no more than 10% of his platform will be anti-Putin), but rather would like to talk about his plans for Russia. Kudrin has all but ignored Putin in laying out his case for a new party. Imagine if Newt Gingrich or Mitt Romney came out tomorrow and said they were done attacking President Obama and wanted to focus solely on their plans for the U.S. Both Kudrin and Prokhorov represent ‘acceptable opposition’ to Moscow. That’s a recipe for a gracious but certain defeat. Kudrin owes his allegiance to Putin for slightly different reasons, but the result is the same: both candidates exist to draw off votes and appease the intellectual classes who are disenchanted with Putin’s leadership. But they will do nothing to keep Putin from a third term as President.

Putin will run a campaign — he will go to a supermarket, complain that prices are too high, and prices will be lowered. He will find some way to distribute a token amount of the natural resource wealth to the public, such as ordering a price cap on gasoline.  He will spend the money it takes to make a noticeable impact for his base. He’ll make the gestures to the public and the media that he deserves a third term. And he’ll get it.

What will be interesting is whether Putin makes any adjustments to his leadership style upon winning that third term. Will he embrace some limited reforms? Will he attempt to prepare Russia for a day when he is no longer president? Putin, as president and now prime minister, has spent years gutting Russia’s institutions, in order to consolidate power. Could that, in the face of these protests, begin to be reversed, ever so slightly?

Whatever occurs in Russia, be sure that this is no Arab Spring. Changes are a long way off in Putin’s Russia. But the reemergence of Prokhorov and Kudrin in the political arena may just indicate that the Kremlin is toying with an idea of reform.

This essay is based on a transcribed interview with Bremmer.

Photo: Russian billionaire Mikhail Prokhorov speaks during a news conference in Moscow December 12, 2011. Prokhorov announced on Monday his intention to run for president during the March 2012 election. REUTERS/Sergei Karpukhin

By Ian Bremmer
The opinions expressed are his own.

It seems every Monday morning, the U.S. newspapers greet their readers with the latest news of the euro zone’s painful sovereign debt negotiations, not to mention all the politics, institutions and personalities wrapped therein. The tick-tock accounts of every phone call and meeting are important and fascinating reading, but they’re not as important as the real news coming out of this crisis: Europe is changing — painfully and haltingly, but for the better.

The Continent is moving to a point where increased fiscal coordination will redefine the nature of sovereignty for euro zone member states. Economists have long been saying that it’s going to take an extraordinary amount of pain to right the wrongs of the euro zone’s finances. Europe has already suffered through a lot: liquidity crunches in the banks (see today’s ECB rate drop), recession, riots and technocratic governments taking over the peripheral states. But what must be noted is that Europe would never be where it is today — on the verge of a sounder fiscal path forward — but for all this pain. It has all been necessary, in order to right the course of a euro zone that was, like the U.S., on an unsustainable path.

This may sound like strong medicine, so strong that it may cure the disease but kill the patient, but ask yourself this: Would any of the austerity and return to fiscal sanity have happened in Europe if Germany had simply cut the debtor nations a fat check one and a half years ago, when this crisis came to light? Would the problems of Europe have been solved? The answers to both are, of course, no.

With the latest euro summit meeting about to happen, we’ll likely see a good political story as Angela Merkel and Nicolas Sarkozy smooth over their differences and start to steer the EU ship of state towards a better treaty. But a good political story is not the same as a good market story — the markets, as we know too well, are crueler. They want to see the fat check. They want the problems resolved, even before they start. But nothing changes when a fat check is written, and what the euro zone member states needed much more than a bailout was the type of structural change that is now underway. Markets will have to wait for Angela Merkel to sign on before any bailout happens, and until then, they will continue to inflict pain on the euro zone by cutting credit, playing tug-of-war with bond spreads and complaining, as a JP Morgan analyst recently did, about the “intertemporal dimension” of the crisis.

If it sounds like I’m blaming the markets for riots and political upheaval in the real world, that’s not exactly true either. As I’ve said before, Europe’s path was unsustainable. The markets, after all, had to inflict this pain in response to the perceived collision course.  It’s only through market pain that governments and political institutions will realize they have no choice but to fix their spending habits and resolve the crisis. We should cheer that Merkel hasn’t been bullied into writing a check just yet– because as soon as this crisis is on the road to resolution, the next question will be “could this all happen again?” The re-writing of the EU treaty that Merkel and Sarkozy are proposing is a solid step in making sure that history doesn’t repeat itself — and a step that might not have been taken had the fat check been cut.

In a G-Zero world, the U.S. is no longer the country holding the bailout checkbook, as it did in financial crises in Russia, Latin America, Mexico and Asia over the last two decades. For the first time in modern history, countries and regions are going to have to navigate these crises themselves. Europe is merely the first to go it alone, but others will follow. It’s hugely important that Europe take steps to prevent a crisis like this from happening again, not only for its own viability, but to help draft a new blueprint for the rest of the world. By all accounts, the endless euro zone summit meetings, though frustrating and painful for Europe’s citizens and its bankers, are putting the euro zone on the right path.

This essay is based on a transcribed interview with Bremmer.

France’s President Nicolas Sarkozy (C) sits next to German Chancellor Angela Merkel (L) and European Commission President Jose Manuel Barroso (R) after he delivered his speech at the Conservative European People’s Party (EPP) congress in Marseille, December 8, 2011. REUTERS/Jean-Paul Pelissier

By Ian Bremmer
The opinions expressed are his own.

As Syria’s Assad faces civil war, Egypt struggles to elect a new government, Iranian students storm the British embassy, and Israel’s Netanyahu worries over what it all means, it’s remarkable that U.S. Secretary of State Hillary Clinton just touched down in Myanmar. Rather than sending his chief diplomat off to the Middle East to fight fires and broker deals, President Obama appears intent on minimizing US exposure there and concentrating his attention elsewhere.

Clinton becomes just the second U.S. official of her rank to visit Myanmar, once known as Burma, a country run by an isolated, paranoid military regime that represses its people from a fortified enclave in the middle of the jungle. Clinton made the trip knowing that the Obama administration and her State Department might face accusations at home, from both left and right, that she is endorsing that country’s leaders. But in fact, Clinton’s boldness has proven to be a strength for the administration. And Obama’s foreign policy savvy benefits him politically relative the lack of a coherent Republican view of US foreign policy. (See Herman Cain’s newly published map of the world or my recent column on the lack of serious foreign policy in the GOP debates.)

The visit is all the more noteworthy because, following President Obama’s recent Pacific tour, it highlights just how much time the Obama team is devoting to Asia.

Obama sees an important new opening. For years, Asia’s powers have aligned their policies according to the moment’s defining trends: Cold War rivalries or opportunities for trade liberalization. Those debates are decided. Here is the region’s new defining question: What does China’s rise mean for everyone else? Anxiety is growing among the neighbors. Chinese officials were surely taken aback by widespread complaints from its neighbors during the recent ASEAN conference about Chinese aggression in the South China Sea. From India to South Korea and Indonesia to Vietnam, Washington now has a chance to revive old friendships and build a few new ones.

It won’t be easy. Shifting public opinion and political calculations inside these countries will remind US officials that they are welcome as valued allies, not as saviors. But the key variable in Asia’s future—and for America’s future in Asia—is the fate of Beijing’s profoundly ambitious economic reform plans. Some economists argue that China’s economy is headed for a hard landing. The country’s coming leadership transition makes matters especially unpredictable.

China itself will make matters worse. Just as America’s economic populists love to demonize China, so Beijing’s patriots are about to indulge in a bout of anti-American nationalism. It’s a tried-and-true way to drum up support from hawks within the leadership as the next generation of leaders begins to hand out jobs. But any ostentatious display of national pride inside China will only make other Asian governments that much more uncomfortable—and more likely to turn to Washington to hedge their bets on China’s next moves.

The benefits for America are already obvious. Witness the spike in US exports to Asia as a growing number of US lawmakers embrace the idea that increased trade is an important antidote to the country’s long-term economic ills.

Obama and Clinton have shown that they get it, that they are following events in Asia closely, and that they are ready to seize new opportunities—even in a place like Myanmar.

This essay is based on a transcribed interview with Bremmer.

PHOTO: U.S. Secretary of State Hillary Clinton pours water over a statue of Buddha at the Shwedegon Pagoda in Yangon December 1, 2011. REUTERS/Saul Loeb/Pool

By Ian Bremmer
The opinions expressed are his own.

Though I’ve already written about the recent Munk debate in Toronto elsewhere, it’s worth taking some space to expand on my position, and why the U.S. truly is not going to experience a Japan-style lost decade of economic stagnation.

(The debate was on this resolution: Be it resolved North America faces a Japan-style era of economic stagnation. I joined Larry Summers in arguing the Con side against Paul Krugman and David Rosenberg.)

Let’s start with the political realities: Japan experienced 50 years of single-party rule. In the last 22 years, the country has had 17 prime ministers. Recently, the Democratic party there defeated the long-time incumbents, the Liberal Democrats, only to find that they had no idea how to govern the nation. They had no idea how the ministries worked, no relationships with industrialists or financial institutions, no grasp on the levers of power in society, and no strong policy apparatus. If the U.S.’s political situation looks bleak, consider that alternative.

In fact, the political situation in the U.S. may not be pretty or easy to watch, but it’s functioning. The President and Republicans continue to hammer out centrist deals on issues like tax hikes and the debt ceiling, albeit at the last possible minute after much gnashing of teeth. Ignore naysayers who say that budget supercommittee doom is coming; a deal will likely get done. And after the presidential election, things will get even better. That’s because Republicans are almost certain to retain the House and take the Senate. Whether Obama or the likely GOP candidate Romney wins the election, their dealings with a unified legislative branch will become far easier than the current divided government.

Our stable government is why foreign investors continue to flood into the dollar. Paul Krugman may have argued at the Munk debate that a strong dollar is what’s harming the U.S. economy, by making the country less internationally competitive, but I believe the confidence that foreign and sovereign investors continue to show in US debt outweighs that negative. Ask yourself what the better scenario is: a strong dollar that puts us at a slight relative disadvantage, or a pullout of investment dollars in the U.S. altogether? Investors continue to make bets in dollars, and that’s good for us. Yes, gold has risen dramatically in recent years, but “gold” is not a country. When investors need security and stability in currency, only the U.S. can still claim to provide it.

Krugman is also frustrated that the U.S. can’t move on a dime to enact policies needed to slam the country out of its current GDP growth lethargy. Looking around the world, there are only a couple countries of size that I can point to with that ability. One is Russia. Vladimir Putin has positively gutted that Moscow’s fledgling institutions to let his will be done. Their growth rate has been phenomenal, but at what cost? No one can say what will happen to Russia when Putin exits the stage, and that’s not a situation the U.S. will ever be in. Our institutions endure.

Finally, let’s look at the U.S.’s secret weapon when it comes to avoiding a lost decade: its demographics. With healthy immigration and a fertility rate that hovers around replacement levels, our outlook for population and labor force growth beats that of Japan, the EU, and even China. We’re going to have workers that are educated and capable of entrepreneurship in a way that other regions of the world will not. They will continue to follow our lead, but the innovations will come from the U.S. and North America.

Ultimately that’s the most important point of all. Nearly twenty years ago, the rise of the Internet, which was a long-gestating government and university networking project, began to reshape the world. Today, we don’t know what the next Internet-like innovation is going to be. It could be 3-D printing, or laser fusion, or nanotechnology, or something none of us has ever heard of. But we do know that it’s almost certainly going to come from the United States. If that was not the case, 50 percent of Chinese millionaires wouldn’t want to actually live in the U.S. rather than China.

Our biggest economic competitor over the coming decades will be China. But in China, 1.3 billion people are in the process of industrializing. We’ve seen the industrial revolution in England and in the U.S. It’s necessary, but not pretty or simple. Check the air quality in Beijing for proof of that. The decision among the world’s elites as to where they want to locate themselves will always be a relative question. And relative to the rest of the world, the United States continues to stand alone.

This essay is based on a transcribed interview with Bremmer.

Photo: Japan’s Prime Minister Yoshihiko Noda (L) talks with China’s President Hu Jintao (2nd R) at the start of their meeting on the sidelines of the APEC summit in Honolulu November 12, 2011. REUTERS/Kyodo

By Ian Bremmer
The opinions expressed are his own.

What we’re seeing in Europe — in rising Italian borrowing costs and the felling of two prime ministers — is the growing impatience of the markets for a resolution to the euro zone crisis. To put a finer point on it, the hive mind of the markets has decided it is not going to give Europe enough time to get its act together. The big institutions that drive the world’s economies are sitting on huge amounts of cash — enough to solve many of these problems overnight. But they have lost confidence in the ability of the European political system to deliver solutions that will work.

In a G-Zero world, where there is no strong global leader to direct the course of events, no one is interested in taking a flier on helping the Europeans get out of their mess. As the abortive G-20 conference showed last week, there is no backstop for any country or institution that makes an error in today’s environment, whether it’s tiny MF Global or the Chinese sovereign debt fund. In the postwar era, the Marshall Plan was the very definition of global security — it was a huge commitment by the U.S. to rebuild Europe into the economic force (and not incidentally, trading partner) that the world needed. Today, there is no Marshall plan for Europe, from within or without.

That’s the high-level view of the Europe situation. The question everyone wants answered is this: what happens next? Start with Greece: the best possible outcome for that country has happened with Papandreou’s resignation and the selection of economist Lucas Papademos as Prime Minister of an emergency government. Papademos is committed to remaining in the euro and accepting the terms of the Greek bailout package. Despite the roller coaster ride Papandreou took his country and the euro zone on, Greece has now moved closer to the Spanish and Portuguese models for avoiding the debt crisis drama. In Greece, a resolution is starting to be reached. It’s not the beginning of the end, but maybe this is the end of the beginning.

The same can’t be said for Italy as the situation changes by the day. The decisive Senate approval of a package of austerity measures (by a margin of 156 to 12) was one small step for Italy in the eyes of the markets— and a big step toward Silvio Berlusconi resigning his mandate.  It’s a wonder that Berlusconi held on to power for so long; he burned up his political capital years ago with scandals of all stripes. His stepping down is good news for Italy in the long run, but the handover of power to likely frontrunner Mario Monti is a delicate process that will have to be handled with tremendous care.  Unfortunately for Italy, political drama has insured it will face a higher and longer level of scrutiny.

Markets will continue to demand extensive and enforceable changes in spending levels throughout the peripheral states. When Italy and Greece look more like Spain and Portugal, the bond markets will treat them more like Spain and Portugal.  But that alone won’t solve the problem: investors are going to demand to know what happens next time any euro zone periphery country is on the brink of collapse. Euro zone institutions and politics have to be reshaped to prevent this type of crisis from ever happening again. Until this risk is mitigated, lending costs will stay high for a long time to come.

Case in point: I talked with about 200 international financial executives at a conference two weeks ago. 92 percent thought a “Lehman event” could easily happen once again somewhere in the world. Because we all thought the economy had been getting better over the last few years, we took our eye off the ball when it came to shoring up the global financial system and making the necessary structural fixes. In the U.S., President Obama took up health care. A weak Dodd-Frank bill passed. In the global financial system, Basel III has gone nowhere. And so every time the markets are rattled, we stare down the financial abyss, again and again.

I’m an optimist on the euro zone; I still don’t think it will fracture. The political will to stay together is too great; the mechanisms for countries to drop out are too complex and undeveloped. The institutions that compose it will get stronger — eventually. But that will be a long time from now. Until that day, we’re likely to see a lot of economist Joseph Schumpeter’s “creative destruction” — but as applied to financial systems, rather than corporations. Much of the financial edifice of the 20th century is yet to come crumbling down. To fully rebound from this era of crisis, more of it must.

This essay is based on a transcribed interview with Bremmer.

Photo: A man walks past signs that read, “For the good of Italy: Berlusconi resign” in Rome November 11, 2011. Former European Commissioner Mario Monti has emerged as favorite to replace Silvio Berlusconi as prime minister.

By Ian Bremmer
The views expressed are his own.

One of the biggest changes we’ve seen in the world since the 2008 financial crisis can be summed up in one sentence: Security is no longer the primary driver of geopolitical developments; economics is. Think about this in terms of the United States and its shifting place as the superpower of the world. Since World War II, the U.S.’s highly developed Department of Defense has ensured the security of the country and indeed, much of the free world. The private sector was, well, the private sector. In a free market economy, companies manage their own affairs, perhaps with government regulation, but not with government direction. More than sixty years on, perhaps that’s why our military is the most technologically advanced in the world while our domestic economy fails to create enough jobs and opportunities for the U.S. population.

Contrast the U.S. and its free market economy with China’s system.  For years now, that country has experienced double digit growth. Many observers would say that China’s embrace of capitalism since 1978, and especially since joining the World Trade Organization in 2001, has been responsible for its boom. They would be mostly wrong. In fact, a new study prepared for the U.S. government says it’s not capitalism that’s powering China, but state capitalism — China’s massive, centrally directed industrial policy, where the government positions huge amounts of capital and labor in economic sectors it intends to nurture. The study, prepared by consultants Capital Trade for the U.S.-China Economic and Security Review Commission, reads in part:

In a world in which central planning has been so utterly discredited, it would be natural to conclude that the Chinese government and, by extension, the Chinese Communist Party have been abandoning the institutions associated with the communist economic system, such as reliance on state‐owned enterprises (SOEs), as fast as possible. Such conclusion would be wrong.

In a G-zero world where no country can claim the mantle of international leadership, China has pulled an accomplished head fake. While the media focuses on China’s special economic zones, like Hong Kong and Macau, and the rise of the banker class and Chinese tech industry, state directed spending is the real engine of growth.  Capital invested in infrastructure like factories, heavy industry, roadways, and high speed trains continues to power annual double digit growth in GDP. Reliable data from 2004 shows that 76% of Chinese non-financial firms are classified as State Owned Enterprises (firms with government ownership of greater than 10%).

In short, while the U.S. has spent decades and vast treasure building up its defense system (and yes, by extension, the sectors of the economy that service it), China has spent its time and money building up control over the broad direction of its entire economy. In today’s world, where the first sentence of this essay rings true, which country currently looks better positioned to, pardon the pun, capitalize, in the years ahead?

During last week’s euro zone bailout talks, French President Nicolas Sarkozy went hat in hand to China, painting a stark picture of China’s still-growing economic importance internationally. Never mind that the phone call didn’t result in any particular action; the mere act raised Chinese President Hu’s profile going into the G-20 talks in France this week. Not only that, the entreaty by Sarkozy made plain that China has nothing to hide about the economic path it’s chosen for itself. After decades of hectoring from the West, the tables are perhaps about to turn. After all, what economic model should China emulate? Europe’s? The United States’? “With all due respect,” you can almost hear President Hu saying, “we like the way our system is working, thanks.”

There is, though, a fatal flaw with state capitalism. It works, and it will continue to work, until the day that it doesn’t. China’s economic growth is built on the back of cheap labor. As China’s wealth and per capita GDP (currently $4,400 compared to the U.S.’s $47,000) continues to rise, that labor will one day cease to be cheap — perhaps not compared to the U.S.’s, but certainly compared to the labor forces in India, Turkey and across Southeast Asia.  This trend is already beginning, as we have seen multinational companies turn to countries like Indonesia, Vietnam, and Thailand for cheaper labor in the region.

State capitalism requires that the state have access to a cheap good or service that has high value in trade. Saudi Arabia has oil, Argentina has mines. Reaching back further, as New Yorker writer John Cassidy has recently noted, the British had access to cheap Indian opium that 19th century China snapped right up. When China’s emperor protested the drugging of his people, the British sent warships to force its ports open. State capitalism, in other words, has a long history as midwife to economic powerhouses. China’s cheap resource continues to be its labor. The leadership there is going to protect that resource as long as it can, through any lever its government can control.   When state capitalism breaks down, the results will be ugly if the government has not adequately braced the economy for fundamental change.

At the heart of every military conflict, after all, is some sort of trade war. It’s not a bad thing that the U.S. has invested so much in its own security. But in a world where economics drives geopolitics, the U.S. will be in a decades-long race with China to maintain its perch as the world’s largest economy, and it will have to do so with a much smaller population and relatively anemic growth, compared to China’s rapidly urbanizing population and its double-digit annual GDP bonanzas.  That assumes, of course, that China weathers the shocks that state capitalism will bring, and manages to overcome a looming demographic problem as the population ages without an adequate social safety net in place.

Make no mistake — China’s leaders are well aware of the economic power they currently hold, but they also recognize the potential for more prosperity and influence if they can carefully manage their economy for future generations — and the consequences should they fail. It’s good — and long overdue — that the U.S. learns more about their system, and Capital Trade’s important new study is a step in the right direction.

This essay is based on a transcribed interview with Bremmer.

Photo: China’s President Hu Jintao (L) and France’s President Nicolas Sarkozy (R) discuss  before the start of the G20 Summit of major world economies in Cannes November 3, 2011. REUTERS/Charles Platiau