Top Risks and Ethical Decisions 2009

• Introduction
• Remarks
• Questions and Answers

DEVIN STEWART: Happy 2009. Thanks, everyone, for coming. We have a lot to talk about today, and I'm going to make my introduction very brief.

We're talking about "Top Risks and Ethical Decisions for 2009." A lot of talk these days, a lot of writing about, thinking about risk, and how do we think about risk.

Joe Nocera in The New York Times Magazine last week had a very interesting and in-depth analysis of the way Wall Street incorporates risk in making their decisions on investments. There is a lot of debate about whether that worked out the way we had hoped.

In fact, there are things called Black Swans, and we are observing one right now, which is the meltdown of the global financial system. The author of The Black Swan, Nassim Taleb, hoped to be here today to join the panel, but he had other business, unfortunately. But we have a fantastic panel today.

I'm so fortunate—we're all very fortunate—to have Ian Bremmer, who is the founder of the Eurasia Group, whom you all know. Ian Bremmer will talk about his Top Ten Risks for 2009, sort of an unveiling of the Top Ten Risks. We had some of it on display yesterday at WNYC on The Brian Lehrer Show.

I wish you had been upstairs, or there had been a hidden mike upstairs, because the pre-event conversation was really dynamic, a lot of fun.

And then, after Ian Bremmer, Michele Wucker from the World Policy Institute will look at those country-specific risks and break them down, looking at more systemic problems, trade-offs, long-term thinking.

This is part of the value of this exercise today. People are talking about financial risk, strategic risk, and political risk in Ian's case. We're trying to make this useful in a practical manner, of how do you make ethical decisions.

Ending up, Art Kleiner, who is the editor of strategy+business magazine of Booz & Company, will talk about how to be an effective manager, how to be an effective decision maker, given what the panel is talking about.

I want to thank Booz & Company's strategy+business magazine, as always, for their long-term thinking and supporting this program, now on its third year; as well as Merck & Company, which recently joined in sponsorship of this program; and NYU's Center for Global Affairs. Also, I want to thank World Policy Institute and Eurasia Group for their help in promoting this and their partnership and getting the media out here. Thank you very much for coming.

As you know, I usually am right here moderating, but one of my clansmen—I don't know, I guess that's the right term—but I'm very fortunate to be able to sit down in the audience and watch from a different perspective. We have Thomas Stewart, who is chief marketing and knowledge officer of Booz & Company, who has kindly offered to moderate. I am going to turn it right over to Tom Stewart, who is going to get this panel going, and then we will have a little intra-panel discussion, and then some Q&A.

Thank you very much.

THOMAS STEWART: Thank you, cousin.

I want to frame this by thinking about a couple of examples.

We now have seven days left in the Bush administration—but one of the things that I think we need to remember—we forget that 2001 had simultaneous risk calamities in the fall. On September 11th—we all know what happened on September 11th—but it was also that week, or the week after that, that Enron imploded, Arthur Andersen disappeared. So all of those corporate meltdowns happened fundamentally, simultaneously at the same time as the terrorist attacks on the World Trade Center. If you think about these from the point of view of risk and ethics, which is what we're really trying to talk about, you see a couple of very interesting parallels and divergences.

If you go back and read all of the stuff about Enron, one of the things you realize is that companies like Merrill Lynch, that were investing in the Raptors and these other various, bizarre, and corrupt financial instruments, all had to tick off a box about that investment. They had to tick off boxes; they had to fill in the form.

One of the boxes that they had to tick off was whether there would be reputational risk. They all—I'm not sure which of the many Enron books this is in—but you understand that they all ticked the box "Yes, there's reputational risk." They probably ticked that box regardless of whether the loan was to Enron or General Electric or to some completely safe Mary Poppins kind of figure. They probably always ticked it and didn't think about it. So I think that there's a lot of times when we think about risk or we think about ethical things—"Yeah, we've covered that, we've looked at it." But we haven't really looked at it. We've simply acknowledged that there's always some kind of risk, but haven't thought about it.

Think about the Bush administration. They were blindsided, and they would argue their predecessors were equally blindsided, by not expecting what happened on September 11th. So in that sense, they didn't even tick the box. They didn't even acknowledge—well, they ticked it, or a very similar thing.

But then, they took a risk in their response, which was to respond in a series of ways that created a whole bunch of other consequences that have now shown up in the form of ethical problems and moral problems. They responded saying, "We're going to respond with muscle, we're going to respond in this rather single-minded way—you know, damn the torpedoes, damn the waterboarding, full speed ahead. This is the number one thing, and we're not going to consider these risks in a more holistic way that might have involved soft power or other things like that." By going only with their right hand, they left themselves exposed in the left hand as far as risk was concerned.

So I think when we think about risk and we think about ethics and we think about the combination of the two, we end up realizing that this is always a bigger problem than we know, that there's always sort of the big combination of: What are you going to do, what's the most important thing to do, what's our single number one priority; but what's going to come back and bite us later that we don't expect?

Part of what I hope we can do—you know, the topic here is "Risks and Ethical Decisions for 2009"—but one of the questions I would also have us bear in mind is, as we talk about these risks for 2009: What are the things we can do in response to those risks that might create greater risks in 2010, or greater ethical problems in 2010, or beyond?

So with that sort of cautionary prologue—Devin has introduced the panelists—I won't say more. You've got their bios. Their bios speak for themselves. And more to the point, they speak extremely well for themselves.

So I am going to pass the baton to Ian Bremmer. He has already catalogued the Top Ten Risks for 2009. So over to you.

IAN BREMMER: We've catalogued them; we've rank ordered them.

Thank you, Tom and Devin and Joel. As always, it's lovely to be here with friends and family at the Carnegie Council.

It's tough to do the world in ten or 15 minutes. I'm not going to really try.

THOMAS STEWART: It takes 22 minutes.

IAN BREMMER: It takes about 20. 2009 is a tough year.

I think I should start by saying I like the way you framed this right at the end of your comments. Frankly, when you think about ethics and responses to risks, it's precisely the longer term. So many of the responses to the risk environment that we're going to see in 2009 will be short-term responses that will create much more significant questions as we think longer term.

It has been much discussed over the course of the last couple weeks—are U.S.Treasuries the newest, the latest bubble? Not something we really have to worry about for 2009. But that may be coming and biting us after that, so what do we think about the U.S. response in the context of that bigger structural piece? Interesting thing to think about.

I want to do two quick things in this opening sort of salvo in what I think is going to be a really engaging discussion: First, I want to talk about where I think the world is heading, the context for these risks; and then, I just want to talk about 2009 a little bit.

The context for these risks is that, over the course of the last 20 years, the one thing you could not afford to get wrong as an investor was globalization. You had to understand that the world economy was increasingly becoming a kind of unified, fast-moving place. You took advantage of global economies of scale. Multinational corporations were becoming increasingly the dominant global actors, with shareholders they were responsive to; trying to maximize profitability, often short-term profitability; differentials in labor rates, global supply chains, global outsourcing.

That doesn't mean globalization was a good thing, right? It was a thing. It was a good thing if you happened to be invested in Bangalore. It was probably a bad thing if you were an automotive worker in Detroit. I'm not going to try to make that call here. But that was a big deal.

In 2009, it seems to me, all of these risks are informed by a world where globalization is increasingly being challenged by state capitalism; where increasingly the dominant economic actors and market forces are governmental, they are not corporations. That has been a long time coming. It was coming when national oil corporations became more important than multinationals, over the past several decades. It was coming with the rise of state-owned enterprises, as the BRICs and other emerging markets and frontier markets became more important. It was coming as sovereign wealth funds became much more important in the investment community over the last several years. And in the past six months it has become much more important because of the extraordinary governmental response on stimulus and regulatory policy to this global financial crisis.

So 2009 is the year where the state is not dead. The state actors come back. In my view, that creates more regionalization of capital flows, not global, for reasons we can talk about; it creates less efficiency in the global economy; and it creates winners and losers that are increasingly determined by political, as opposed to by purely economic-driven, factors. That's the first point.

The second contextual point is that this is happening in the context of a world where the United States is increasingly neither capable nor willing to do the heavy lifting to deal with the global challenges as they exist. I don't believe that that unipolar system is becoming multipolar. I don't think we're moving toward global governance. I think we're moving toward nonpolarity. I don't think that is a sustainable equilibrium point, but I think it's where we are heading.

In other words, the G20 is not going to be more effective than the G7. The G7, the G8, was referred to as herding cats. The G20 is not herding more cats, though that would also be more difficult; it is herding more cats and other animals that don't like cats. The basic values are not shared. I think that that nonpolarity will create an increasing absence of authority and effective response on things as diverse as nuclear proliferation, collective security, a global financial architecture, climate change—you name it.

So that's 2009. Fun picture. But that's where I think we presently are. It's not hard to be negative about 2009, given what's going on right now, but I think that the context is important to sort of inform, or at least give you guys my filter, my axe—because we can disagree with the risks on the page, we can disagree with ordering, and we can parse do I have Russia/Ukraine right—it's going on right now. But the big point is let me tell you my bias. My structural bias is that those two things are becoming much more important.

Here we are in 2009. So for this year itself, there are a couple of points I want to make.

First is that, from a geopolitical risk perspective, it is actually a riskier year than 2008—not in terms of Iraq, but in terms of most other places in the world. The conflicts, the underlying tensions, are probably greater in 2009 than 2008. The large Israel-Iran phenomenon, with elections in both places, proxy fighting, Iran going nuclear, all the rest—clearly bigger in 2009 than in 2008—is a real risk impacting us. The South Asia security phenomenon—Afghanistan, Pakistan, and India.

I could easily make the argument that the war in Iraq is increasingly becoming a peacekeeping operation. I could more easily make the argument that the peacekeeping operation in South Asia is increasingly becoming a war, and I think in 2009 that becomes more obvious.

Russia, geopolitical risk around Russia. They went after Georgia last year. That made some newspapers. But Georgia, at the end of the day, from a global risk environment—and I love the Georgians—doesn't really matter.

Ukraine matters a little more. We're seeing this with the gas fight going on. We're seeing this because it's fundamentally about Europe. It's about downstream. It's about Bulgaria. It's about the Germans. This is a much bigger point. In 2009, Russia becomes a bigger deal.

Plus, in the context of a serious economic downturn, political instability in places where emerging middle classes don't have that great of a grip on their capacity—growing radicalism and the rest, major changes in migration patterns—create a lot of geopolitical risk.

The important point on that is that when the United States went to war in Iraq this last time around, everyone knew it was coming. You can't hide the troops mobilizing in the region. The concept was pretty clear, to the point that when the war finally happened the markets went up, because the only thing that was left was "just get rid of the uncertainty on the date, just get it going."

In 2009, the headlines will be dominated by the financial crisis. So as a consequence, geopolitical risk when it hits in these places will come as a surprise. We will not have expected it.

Second point is that if geopolitics are a bit more touchy and dicey in 2009 than they were in 2008, the real point is that political risk—and this is related to the opening two points I made—is becoming much greater.

We sit in New York. New York City used to be the global financial capital. It is no longer the economic capital of the United States. Washington is. Shanghai used to be the most important driver if you wanted to go and invest in China. Beijing now is. Dubai used to be the place you really wanted to go if you were investing in the Emirates. Abu Dhabi now is. Even in India, which is massively decentralized, there is a change in the gravitational pull of who is determining outcomes, risks, and opportunities from the key economic capital, Mumbai, to the key political capital, Delhi. That is a pretty systemic change.

The reason why Congress gets top billing here—though I could have as easily said parliaments all over the world, just the United States happens to be the biggest—is not because I don't like Congress, it's not because progressive is bad. It's only because you're herding a lot of cats. It's only because they are going to feel the need to do something, and what they need to do is likely to be less well organized, less efficient, than if you had smaller groups of individuals actually putting this thing forward.

THOMAS STEWART: The executive committee of Citicorp. Just a thought.

IAN BREMMER: To be fair, I would clearly argue that last year the big risks in the global economy turned out to be not political risks. In fact, if you look back at our Top Risk piece from January 2008, we actually said "political risk is going down this year." The risk that I'm not a specialist on—but there's hedge fund over-leveraging risks and those horrifying subprime loan risks that you take from people not understanding what their exposures are in the investment banking community. Those aren't political risks, but boy were they huge, and now we're dealing with the clean-up. The point is that the clean-up is going to come from the state actors, not from the private-sector actors.

One final point I'd make before I close this up. Again, I don't want to go through all of the individual risks. We can talk about places, countries, and ideas when we get to the discussion.

But one thing that is not here is the red herrings. We do talk about red herrings, which are the places that, frankly, we think show significant upside, that aren't priced effectively, that aren't understood effectively. I think there are lots of those. This is not just an exercise in existential negativity. There are a few that I would focus on.

One would be the Persian Gulf, broadly speaking. Even in a low-oil-price environment, they are quite stable. Abu Dhabi will bail out Dubai. The Emirates will do well, even if Dubai loses a lot of political power in the process. Saudi Arabia is astonishingly stable, especially in the context of where they have been in the course of the last ten years. I could make the same argument about Qatar and Kuwait, even Bahrain.

I talked about the improvements in Iraq. I'm not saying they're going to last long term, but in 2009 it will look better.

Indonesia: It looked like President Yudhoyono was going to have a very serious problem from Megawati, who many in Southeast Asia refer to as the Sarah Palin of Indonesia, with everything that comes along with that. He now actually has the support. He is going to do much better. Southeast Asia looks pretty good, generally speaking. Indonesia is by far the biggest economy there.

Brazil looks good, their ability to get through, with very strong approval for President Lula.

Final point—I'm going to make my controversial what looks good—in 2009 is China. Everyone talks about the fact that if China goes under 8-percent growth they have massive social instability. Wrong.

China is probably going to have a hard landing. I just did this hour conference call with Nouriel Roubini, literally before I came over here. You want to talk about depressing—you don't want him in this room. He's a brilliant, brilliant, brilliant economist and a good friend of mine. I'm not saying anything he wouldn't agree to. But the economists—his outlook for 2009 for China is like 3 percent. You want to talk about hard landing.

I'm not an economist, so I'm not going to give you a projection of Chinese growth. But I will tell you that to the extent that China sees a hard landing, a lot of Chinese will be very upset, but they will largely blame non-Chinese actors. They will blame the West. They will blame the desire to have the Chinese government work in a free trade system that they don't particularly accept, to respond to a Washington-led financial architecture that they never completely bought into.

They will want to focus much more on building up their own capacity and to economically try to decouple themselves, the way they have been politically decoupling themselves over the last years. Whether or not that's effective is an open question for the longer term—there's a big open question around that in China long term. But for 2009, even with the downturn, China to me looks very stable and surprisingly able and flexible to get through this global financial crisis.

That's really enough for me.

THOMAS STEWART: Michele, can you see Papua, New Guinea, from your house?

MICHELE WUCKER: I can see all sorts of things from my house.

THOMAS STEWART: Let's hear what you see. This was a really amazing tour de raison. We'll come back to this. There's some stuff to poke at. I think that would be great.

MICHELE WUCKER: I wanted to touch back on something that Ian said about the need for global collaboration. Actually, over lunch we were talking about the less and less likelihood that that's actually going to happen.

One of the things we look at at the World Policy Institute is exactly the kinds of problems that transcend borders, that need global cooperation. I was really amazed last fall when we had all of the central banks around the world within seconds of each other doing rate cuts, coming out and saying, "Hey, we've got to work together right now." Certainly, the memory of the last time something like this happened, say the 1930s, was very large in everyone's mind. So over a couple of months you really heard a lot of talking about the need to cooperate economically. They finally got all together. But I think I blinked and I missed that meeting, because nothing much really came out of it.

Certainly, on issues like climate change, you've got countries like Bolivia, the Dominican Republic, and Haiti, which contribute point-zero-zero-zero-whatever of global greenhouse gases, and, because of hurricanes, because a large part of their country is above the cloud cover, are suffering the brunt of climate change, and they don't have any say in it.

Migration issues. Of course, my issue, in a lot of countries, if you don't deal with the sending countries, the problems there, you're going to have a lot of trouble controlling immigration to the host countries. It's an economic demand issue.

And then, of course, security. We've got all sorts of global institutions to address security in all sorts of different ways, which are certainly realigning themselves. As Ian said, there are a lot more countries that want to have a place at the table and a say in things. That's not necessarily going to make things easier. But it is going to, I think, require bringing other parties into the debate earlier in order to get buy-in, much the way they tell you to do at companies, that you get your stakeholders to align with your mission. I think we're really going to have to think a lot more about that globally.

At the same time that a lot of the problems that we are facing are more global, I think our ability to follow through on global cooperation is much, much lower. Again going back to the 1930s, actually at that time a much, much larger portion of most economies involved trade than today, significantly more. So you've got, again, a chance to cooperate to solve a problem. What happened then—what I'm hoping doesn't happen now—is that people, instead of cooperating, took very much a "beggar-thy-neighbor" approach, everybody standing up for themselves.

Which comes down to really the central ethical question of this debate. It's an interesting way of aligning, perhaps, ethics with self-interest. It does very much go to this short term versus long term. If I slap some trade sanctions on this country right now, I might be better off for the next couple of years, but what happens down the road?

We've got this real structural situation, where the wealthy countries of the world for a very long time have certainly shaped the global trading system, the global financial system, have enjoyed a tremendous advantage from that, and the rest of the world is at a point where they're saying, "Hey, wait a minute. We're not going to take it anymore." That is contributing to the problems of coordinating globally.

I started in the early 1990s writing about what then had just started to be called "emerging markets." A friend of mine edited a newsletter that was called LDC Debt Report, for less developed countries, and they actually had to go change the name of the newsletter. We were talking at lunch about "Okay, what do we call them now?"

So, for lack of a better term, the countries formerly known as emerging markets have spent a lot of the last couple of decades listening to the advice of the Washington Consensus. They privatized, they cleaned up their balance sheets, did all the stuff that they were supposed to. Whenever they had a crisis, the message was generally "austerity, austerity, austerity." Well, now they're in a place where they did everything they were supposed to—most of them, not all of them; there are a couple of very clear exceptions—and they are suffering from the current crisis much more than even we are.

So you look at the responses to crisis in the developed countries, and it's all about "stimulus, stimulus, stimulus." So I think that we are going to start seeing a lot of resentment from the countries formerly known as emerging markets, saying, "Hey, we're not going to cooperate in this."

If the global trade talks are revived this year, I think there is going to be a lot more backlash from the countries of the Global South. We need their buy-in to get anything to happen—they were the ones who killed it last year. I think the situation is making it harder and harder.

Also, because of the policy recommendations that were made over the last couple of decades, we are in a position where a lot of these countries are not necessarily going to listen to any advice from Washington. I think we are going to have to come up with a whole new way of trying to mitigate the effects of the crisis in those countries as well. They have really almost dropped off the radar because we are so self-involved right now.

China is absolutely a very good example of this. I think it is one of the key countries that will determine what happens in 2010. It's a real paradox there, because the solution, I think, certainly from the rest of the world's perspective, and probably from the Chinese perspective, is a way to build their middle class, to get people to actually start consuming some of the stuff that they would otherwise export, in a certain way buying in to this global capitalist model that they're mad at because it's not working.

So the next year is really going to be crucial. I think that it is not a given that China is going to make it through. I think you are going to see a lot more unrest there. The question is going to be how the government responds to that unrest.

It's very interesting that, just in September, we were talking about rising resource prices, rising food prices, food riots, governments failing because of food riots around the world, and we were so worried about inflation.

We had a small event with a good friend, Michael Pettis, who's in China and who writes a lot about this stuff. He said that there was a lot of worry about overheating and that the Chinese government was in a real pickle, trying to decide between, on the one hand, loosening policy and, on the other hand, tightening it, to deal with the overheating of the economy. They ended up loosening, even before all of this happened, and I think probably made the right decision.

But what they do over the course of the next year is really going to affect whether China can turn around, bring more people up on the economic ladder. I think that's something they are going to have to do for the rest of the world to be comfortable engaging with China.

We are also going to see some continued backlash in places like Venezuela and Argentina.

I also would put Venezuela on a list of top places where there is clear risk. I think we might also see some impact on the energy markets. We have seen in the past when there have been problems in Venezuela—strikes, oil supply disruptions—and certainly we have seen at various points threats from Hugo Chavez: "We are going to turn this off, so watch out."

Argentina—there is a FaceBook campaign saying "Yo no voté por Cristina" ("I didn't vote for Cristina"). Last year, during the food crisis, she made some very unpopular decisions, trying to slap on export taxes. Farmers were very, very unhappy about it. You've seen several years of the rest of the world being unhappy with Argentina. You've got the Argentineans being unhappy with Argentina. Having spent time there, you might say, "That's just part of the Argentine condition." I love Argentina, I really do. But I think you are going to see some problems there.

The biggest risk that I think gets overlooked has to do with migration and ethnic conflict. With the huge economic growth of the past decade, we've seen a lot of migration from south to north. You've seen record global migration.

People seem to have forgotten, because there is so much tension over migration in the rich countries, that close to half of global migration takes place in poor countries, from one developing country to another. Where refugees and asylees are concerned, it is close to 80 percent.

You are also starting to see a lot more climate change refugees, people fleeing storms, hurricanes, flooding, drought, all of it related to climate change, which we're going to see a lot more of. And most of that is going to be happening between one developing country and another.

Paradoxically, for the rich countries I think you'll see an easing of tension, because, as we've started to see in the United States already, migration has started to slow because of the slowing of the economy here and the lessening of the demand. But I think that what we're going to see going forward is a lot of the wealthier countries putting much more emphasis on skilled migration, which the countries of the Global South are upset about, that brain drain. So I think you are going to see a lot of tension on that.

You are also going to see some ethnic conflict, particularly in the global south, particularly related to some of these climate change refugees.

That comes down to my final point on the role of the state. Ian certainly pointed out that the state is becoming a much bigger part in economies. There are a lot of questions over how it is going to do, what it's going to do. Are we going to have more industrial policy? I think much more likely. Are the decisions that are made going to be good or not?

But in a bigger sense, related to migration and minorities, there is going to be an ongoing question of what's the role of the state, what's the obligation of the state to its own citizens, what's its obligation to the people who are in its country, who is it going to allow to be there legally or not? In this country, that was a big, big, big debate two years ago. It has kind of calmed down. But I think that over the course of this year, toward the end of the year, it is going to become quite heated again, and I think probably that will be a big issue for 2010 as well.

And again, it gets down to the question of ethics and short-term interests versus long-term interests. While it is probably in some people's interest to keep other people out, to beggar thy neighbor, in the longer term, if we see more economic growth in developing countries, that is actually going to slow some of the pressure for migration out of developing countries to the wealthier countries.

It is going to ease some of the backlash against some of the global systems that are required for coordination. I think we are going to have to revisit things like the IMF, the World Bank, certainly even the United Nations—which I don't think anyone thinks has worked well, but it's what we've got. Looking at systems on migration, there's not a really good global coordination system.

And on climate change as well, we haven't gotten those things right. Those are more important than ever. Our capability for dealing with them is very, very weak, because of the tendency to turn inward. But if we want to do better a year from now, five years, ten years from now, we've got to keep those global issues and not beggar our neighbors and keep cooperation on the table.

THOMAS STEWART: Thank you, Michele.

So we have an interesting set of long term/short term—what I'm hearing is long-term ethical opportunities being forgotten, or being lost, in the need to handle short-term risks, which is a little bit of what Ian also said in a slightly different context.

I think, Art, as you put this in a leadership context, you may end up in the same dilemma. But why don't we hear what you have to say, and then we'll have a little discussion here, and then open it up.

ART KLEINER: Thank you very much, Tom, and Joel and Carnegie, everyone. It's a great opportunity to listen and speak a little bit.

The thing that impressed me the most as I was listening to both of you was how these crises take patterns that have been developing over decades, like migration, and shift their direction in a matter of weeks. So the crisis is fast. But then it's a little bit like being in an accident—you know, it takes a long, long time after that to change your behavior and to heal and to ensure that you're not going to be in another accident later.

I want to talk about the other kind of risk, the risk that doesn't come from outside, but that as decision-makers we sort of bring with us from the inside. It will be relevant to the response that we see in the world to the risks that my copanelists have been talking about.

So imagine for a moment that the year is 1953 and you are a senior executive at a major manufacturer of a beloved product, known for its impact on health, conviviality, for its role in the world in making the world a better place. The product is a cigarette. A report comes across your desk that says that this product is carcinogenic and addictive. You have a lot of choices now.

Bear in mind your whole company, which may not be a global company yet but it's a huge company; and it's also responsible for significant parts of the economy in at least two states, North Carolina and Kentucky, at least the agricultural parts of the economy; and people whom you've worked with and grown up with in the business are sort of dependent on this organization, as is your family.

You have a lot of choices, but they basically come down to two. You can tell the truth to the world at large and say, "Oh by the way, our product is carcinogenic and addictive, and we're going to deal with that." Or you can obfuscate, lie, hide the evidence, and hope for the best. It may take 40 years or more for the truth to come to light in a way that actually forces you and the society around you to change your behavior—or it might be sooner, or it might never happen.

Either way, both courses have a huge amount of risk. They are not good choices. The choice you want is never to have this problem to deal with in the first place, for cigarettes to be okay, to be just as pleasurable as they are but not to have any side effects. That's what we want. It may take you a little bit of time to deal with that, the fact that you can't have that choice. But once you do, your basic choice is: do we tell the truth or not?

What we call "ethics" is really a set of decisions about which risk is easier to sleep with at night: telling the truth about an uncertain situation, or trying to hide the worst of an uncertain situation from yourself and everyone else. As a decision-maker in business, or in government, or in the world of not-for-profits, basically the choices that probably you either confront or spend your time avoiding are exactly those choices in which both options bear that kind of risk.

So imagine that the year is—oh, I don't know—2000 and you're an auditor at Arthur Andersen; or the year is 2008 and you're a funds manager at Bear Stearns; or maybe it's 2005 and you're at FEMA trying to figure out what the exposure is in New Orleans and how much the levees will stand up, you're in the Army Corps of Engineers; or maybe you're a funds manager selling derivatives based on subprime mortgages and they've suddenly started defaulting unexpectedly—or who knows what. And a report crosses your desk—or, worse still, a report doesn't cross your desk. The basic choice you have is whether or not to tell the truth to yourself and others, or whether or not to obfuscate and hide.

The question to me about ethics is: What does it take to instill in a team, an organization, a nation, a culture, a society, the ethic where it's easier for more and more people to take the decision where they tell the truth? Inherently, this is problematic.

Now, in saying that I've revealed my own bias, which is that execution counts, that policy and execution are really the same thing. The quality of executing a policy determines the value of that policy. For me, all it took was watching news reports about the invasion of Iraq to cement that I believe this. So if you disagree with that, just bear in mind that I'm basing everything I'm about to say on that premise.

What, then, does it take for people to execute effectively in a way that makes the policy worthwhile and to learn from that policy every step along the way so that they in fact become smarter as they move onward? Lots of people have lots of answers to this.

Jay Forrester, the system dynamics originator from MIT, believes that nobody can execute effectively unless they have been trained to explore nonlinear systems, which basically means taking his course at MIT. He sort of thinks that we're not going to have good policy decision making until a couple of generations have gone by and people are used to computer models.

But let's assume that doesn't have to happen. The basic problem with decision making is that there's a difference in the time lag of feedback. If you are going to make a decision—so let's say you are that decision-maker in the cigarette company.

Or my favorite contemporary one, which is a risk that hasn't happened yet, let's say you're a decision-maker in a cell phone manufacturing company, and a report crosses your desk, as they have, that says that exposure to holding this shortwave-emitting device next to your head does in fact produce brain damage. Speaking as a parent who has given cell phones to two of his children, this is a critical issue and one that I resolutely ignore. So I can just imagine how much executives of cell phone companies do the same.

But let's say that you work for that cell phone company. The report crosses your desk and you want to say something about it. The feedback that you will get from the people who count at that cell phone company is immediate.

Let's say you want to propose a product like a cell phone for kids where you can't detach the extendable headphone. That's a solution. So you have to actually introduce that in the marketplace, just like McDonald's introduced the McLean Burger. It's going to take you about two or three years to find out whether or not that is going to be a success or whether that is going to be absurd. I mean kids are not going to walk around with a headset that they can't remove.

So the feedback to say "no" is immediate, the feedback to try something is about three years, and the feedback to find out if this is really a problem is going to take about a generation, before we start to see brain damage occurring in epidemiologically large enough populations that we can then go back and attribute among all the myriad factors that it was in fact caused by cell phones.

So there is so much reason to obfuscate that report, to say it doesn't matter, to say it's not an issue, to try to come up with countervailing proposals. You have every reason in the world to ignore it.

At the same time, the right thing to do is not to get dramatic about it and say, "Okay, we're going to stop making cell phones." And there may well not be the requisite information that you need to make an appropriate decision. You have to make an appropriate decision. An appropriate decision is one, bear in mind, that is robust, whether cell phones turn out to be damaging or not.

What does it take to have people in decision-making places who can make those types of robust decisions? In a way, this is the question that just about every article in strategy+business requires us to answer in some way.

The answers to me boil down to three things, three things that it takes for an organization to have. And these are, by the way, organizational decisions. So it matters what individuals decide, just as it matters what the bacteria in our bodies do. But the ultimate decision that the organization takes is as different from any individual's decision as our movements are from the movements of the bacteria and digesting enzymes within us.

I think it boils down to three things. They all sound like platitudes when you first say them: consciousness, discipline, and empathy. A minute on each.

Consciousness is the ingrained awareness of the ramifications of our collective action. Toyota, which has taken the first operating loss in the company in 70 years this year, but which is still a viable, profit-making automobile manufacturer, is well known for its consciousness. There are a lot of famous stories.

When you were an engineer hired at Toyota in the 1960s, the first thing that would happen to you is that the engineer would draw a little circle on the floor. You'd have to stand there for four or five hours, just watching the assembly line around you, being asked, "What do you see? What do you observe?" The test was: Could you actually see problems? Could you train yourself to observe issues that would come up?

It's famous that everybody on a Toyota line has a little cord they can pull and stop the assembly line. That is typically seen as a vehicle for empowerment. But it is actually a vehicle for consciousness raising, because if you have a problem coming down the line with a fender, or whatever it may be, and you don't pull the cord, the next person at the next station is going to. You have two choices: You can either go out of your mind with anxiety or you can train yourself to be a continual observer of everything happening. In other words, you can apply an ethical sensibility to everything going past you. Consciousness.

Second quality is discipline. I personally happen to despise discipline. The more I learn about it, the more I am convinced that it is necessary and the more I despise it.

I've been spending a lot of time with neuroscientists over the last couple of years. They tell us that disciplined focus actually changes the pattern of neurons within the human brain. So that if you want to change an organization, the way to do it is not to tell everybody to do something different, but to set up practices and processes that will literally get people doing things differently day after day after day, and their neurons will change, and eventually it will become second nature. The problem is that period before your neurons change, when it just feels like living hell.

A good example of discipline is Jack Stack's financial literacy in the Springfield ReManufacturing Corporation, where they shut down the plant at noon on Fridays, or they used to, and everybody sits down together and goes through all the numbers and figures out where are the profits coming from; what's making money, what's losing money; what are we spending on; how does that spending compare to last week; what's the cash flow situation like; what are our prospects? Everybody from the person who has just joined on the production floor to the CEO of the company takes part in these conversations.

Over the years, SRC spun out 39 businesses, at the time that I learned about them—probably much more now. Twenty-two of those businesses were successful in a long-term fashion, more than half, which for entrepreneurship is a huge number. It's because people were basically changed in a neuron-changing way.

The third one is empathy, which does not mean recognizing that people have value, but changing the way you work so that people internally and externally are taking part with you in what's going to happen next.

A famous company for this is Procter & Gamble. One of the great anecdotes about A.G. Lafley at Procter & Gamble is that when he became CEO he removed the oak-paneled executive offices on the eleventh floor of their Cincinnati headquarters, he lent the paintings that hung there to a local museum, he took all the divisional presidents and he moved them out to basically live near the people they worked with, and instead he converted all that space into an employee learning center. He did it, he said, so that people understand we're in the business of leading change. Most of the things that Procter & Gamble is now known for have to do with innovating, marketing, prototyping, and manufacturing in ways that bring people together and allow them to think together.

Those three anecdotes are small glimpses of organizations—and I could have used some government organizations as well—that have taken to heart the idea that when you have an ethic it has to pervade the entire enterprise. You have to be almost obsessive-compulsive about the way in which you design, develop, and deliver your practice.

Does it take that kind of obsessive-compulsive consciousness, discipline, and empathy to meet the kinds of challenges that you guys have been talking about? I'd submit probably not in run-of-the-mill times. Arguably, we haven't been in run-of-the-mill times since at least 2001, and perhaps since 1973.

In the face of extraordinary challenges, ethics doesn't mean making decisions; it means instilling a way of behavior. I think that's the challenge that we're going to see in our society and in the societies around us, instilling a way of behavior, probably starting in a few organizations and then, hopefully, expanding to the culture at large.

THOMAS STEWART: Three, I think, wonderfully overlapping, sort of tiled discussions here. I want to ask a quick question of each of them, and prepare yourselves for questions.

One of the things that I would like to ask—and I'd like to ask it of Michele—is something that Ian said. Ian talked about the United States being unable or unwilling to do the heavy lifting in a lot of the global economic, political, and moral leadership. And yet, a lot of the hopes riding on the incoming administration are that it will be able to restore America's moral stature in the world and America's leadership in the world. Are both of those statements true? Will the Obama administration be able to create a kind of a moral leadership position that can, at least to some extent, compensate for the relatively weakened political and economic leadership? And, if so, how should it do it?

MICHELE WUCKER: I don't think the two are necessarily opposites. I think that the United States can do less of the heavy lifting itself while still being a leader. It goes to certainly effective leaders of companies, or whatever kind of leadership, where you go in, as I was talking before, and get buy-in, say, "Hey, you guys need—I want you to stick with me, and here's why it's in your interest to do this."

In the past, I think there has been a lot of thinking that the United States should be number one for the sake of being one. It's just whoever gets ahead of the finish line first, and "We're the top because we're the top and that's just the way it is," sort of American exceptionalism. I think that we can have a very different kind of American exceptionalism that involves leadership, but in the terms of a shared self-interest, instead of being on top for the sake of being on top.

That also is going to put some pressure on other countries, certainly in peacekeeping arrangements. You know, are they going to put their money where their mouth is? There have really got to be some changes in both sides of the equation.

I think there is certainly some promise in the new administration. But it's not automatic.

I also think that there is a risk with very, very high expectations that have been created both in the United States and around the world. I got a phone call last fall from CNBC right after I think it was a BBC poll came out saying they polled 22 countries and they all had huge majorities wanting Obama to win. They called me and they said, "Is this going to be good for the global economy?" I said, "Well, it might be, but it really depends on the kind of policies that are put in place."

I think that starting out with the goodwill is a better place to be in than starting out from where we were before. But you've got to put all the ingredients together.

THOMAS STEWART: I'd love you to comment or suggest—Art talked about discipline, consciousness, and empathy. You've been talking about oil, water, guns, and power. I'd love to ask you what you see as the opportunities in 2009 for the better angels of our nature.

IAN BREMMER: I think that Art is 100 percent on target. There's no question that this identifies the problem. It's structural; it's not individual.

Obama came in. Great. Obama is incredibly inspirational, and I think legitimately reflects his honest views on some things that have been affecting the United States for a long term—social identity, race, religion. Completely irrelevant for 2009, but really good stuff, right? But Obama's ability to actually make a fundamental difference globally, given the structure that we are in right now, I think is incredibly limited. It's not zero, and I'm hopeful about it, but it's really, really limited.

And it's not that he's not—I'll square this with Michele—it's not that he's not going to try. It's not that he's not going to be much more multilateral. He's clearly going to be much more multilateral in tone. He's even going to be somewhat more multilateral in content, though he'll be constrained because of the domestic focus and he'll be constrained because of the lack of willingness of other actors to get with him. But okay, he'll move in that direction. But the overwhelming nature of the crisis he has to respond to, and the nature of how the world is moving, means to me you don't get there.

Now, I'm all in favor of trying to instill and create in organizations, whether they are state or private sector, the sorts of mechanisms that create behavior that would be conducive to ethics. I think that we are moving in 2009 farther away from those sorts of systems, not closer.

THOMAS STEWART: So that it's a rear-guard action, it's a finger in the dike, it's a holding action against the large forces. The large forces are working for blinders, self-interest, and maybe discipline, rather than empathy, consciousness, and discipline, and the best you can do is try to minimize the damage.

IAN BREMMER:One example. Every single thing that Art mentioned from the corporate sector, every example he gave, it is very—it's not necessarily the real challenge in terms of what you should be doing long term. It's absolutely not a challenge in terms of what those actors should be doing short term to just make the pain go away, which is obfuscate. No question.

I mean your short term—every synapse in your body—if you are one of these thousands and thousands of executives in decision-making circumstances, the first time they see that, they're thinking short term—short term can be a year, short term can be a week, short term can be five seconds—is telling you, "I didn't see this report."

Now, here's my structural point. He's telling us we need to get beyond that. The only way you're going to get beyond it is to have systems and structures that allow you to be more long term.

I am suggesting that the U.S. response, for a number of reasons, has to be more short term than we would need it to be. We used to talk about selling out our future for the future of our children. Okay. But that's at least our children. We don't necessarily love them.

But we're now talking about selling out our own futures. It's becoming a little bit more—that's clearly a bad thing to do, right? But we are not going to be able to deal with it.

If you asked me ten years ago who were the longest-term thinkers as a government in the world, my answer would have been China, because the Chinese were thinking about, "Okay, we're moving toward globalization, we're getting in the WTO, we're building these companies that are going to be world-beating"—all of these sorts of things.

One of the most disturbing things I can tell you in this room in 2009 is that the Chinese are becoming less long term. They have to be, because as they've gotten more globalized, there is the necessity of their government to feel strategically that they have to respond to the whims of domestic constituency, to ensure that there is growth, growth, growth, growth this year, and stimulate growth accordingly, irrespective of what that means for the lack of viability of having a billion cars, for the immense destruction of their environment, and the rest.

The longest term, the most strategic, country in the world in my view right now, thinking most long term, is Saudi Arabia, for lots of reasons we can talk about. But it's not China. That's a serious problem.

THOMAS STEWART: That's interesting. There actually is an English-language translation of a Chinese textbook on government economic policy that begins—it's written by one of the economists who was the architect of reform in the Chinese economy. He said the process of reform in China began in 1948, which is really interesting, as they started looking at the faults, the problems in socialism in the Russian model. But it actually says, "We began the process in 1948."

Art, as you listened to this, and particularly listened to what Michele was saying about more cooperation being needed but less being possible, how do you see, perhaps taking—can you take your argument, which was couched in very personal terms, and put it into sort of those larger terms, and say what are the kinds of structures that might be created that would make more cooperation possible?

ART KLEINER: A lot of those structures are very situation-specific. So the structural things that a Chinese government—

First of all, I think there could be—I'd like to think that the dichotomy between short-term and long-term policies is false, that in fact there is a set of policies or practices that serve both. But it takes a lot of thinking and effort to find them.

I'm going to answer that question from the point of view of somebody trying to change an organization, whether it's the Chinese government, General Motors—

THOMAS STEWART: Or Eurasia Group.

ART KLEINER: —the Eurasia Group, strategy+business, Booz & Company, Carnegie Council, R.J. Reynolds, or the United States executive branch. All of these, I'm sure, have reason to change in some way.

The answer to the question of "What do you do first?" probably varies from one to another quite a bit.

What they have in common is they are all alive, they are all living systems, and as such they all have circulatory systems. So they all have money flowing through them, which is changed by designing the transactions and ways in which money is exchanged.

They all have hierarchies. So you can actually approach them by designing who reports to whom. You can take all of the agencies related to security and put them under one organization, and then you can blow up that organization and have them all report to different people. You can do a lot of things with reporting rights and what's expected of people and promises. We know a lot about how to do effective hierarchies actually.

There's a whole other level at which you intervene in networks. I would imagine that the Chinese officials are very clever at this, which is simply: Who do you put in a room with whom, and can you be conscious about who's in the room? It doesn't really matter what the agenda is, but do the right people get to talk to each other in a concerted, ongoing way? And again, we know a lot about how networks work that wasn't really known 20 years ago.

And then, finally, there is this kind of really personal thing. I will often think when I am looking at an organization: if I could pick anyone in this organization and give them advice about how to act differently—in my wildest imagination, I can only imagine that they'd take my advice half the time, or anyone's—but if they would listen half the time, who would I take aside and what would I advise them? Answering that question is actually quite an endeavor in itself.

Right now in the United States, there is a whole group of career managers in the federal government about whom those questions probably deserve to be asked.

All of these are what we call interventions, organizational interventions. The odd thing is that intervening in society increasingly means intervening through organizations. The relationships between business organizations and government organizations may look a little different than it has over the past 15 or 20 years. How that works we're going to have to figure out as we go along.

THOMAS STEWART: Excellent. Let's open it up.

QUESTION: What do you see as the likelihood that China and other countries, mainly in Asia, will slow down their purchase of American debt? And if they do, what are the implications for this country, and are there ways in which we could deal with our own debt more effectively?

IAN BREMMER: I think it's a very important question. It also points to what we think about the future of the dollar as the world's reserve currency. It affects the way we think about inflation and the likelihood of such going forward.

You know, one of the big truths that we have been living with over the course of the last years is that the United States can print Treasuries and everyone is going to want to buy them. You know, that has been in an environment of extraordinary economic growth, where not only was the United States the largest game in town—and, of course, increasingly over time the differential between the United States and other games in town is actually changing—but it was also one where the other games in town were doing real well.

So here's a question. You could talk about China, but you could also talk about Russia or the Gulf States just as easily. You want to go over to Citic or you want to go to Mubadala, ADIA, or any of these new sovereign wealth funds, these really big players. You went ten years ago, and you had this great offering in the United States that you wanted to go get some cash for, and they'd say "Yes," because it was a good offering and it was profitable and it gave them some return.

Now, did that mean that they invested with you because it was their highest priority? No. It meant that they had lots of cash and so they could invest in lots of priorities. Actually, you didn't have any information about their priorities because they were throwing it.

I would make the very strong argument that we are now in an environment where they have to prioritize. They do not have enough money to give it to everyone.

Furthermore, a lot of the Western managers who had been focusing on profitability in all the things they could invest in have been thrown out and discredited. So increasingly it is the political decision-makers, not the financial types, that are actually deciding where to allocate that cash because they have to make some tough choices.

Now, I tell you, if you were Mubadala or ADIA in Abu Dhabi today and you were looking at what to do with your money, your first preference is Dubai; you're bailing it out. Your second preference is the UAE [United Arab Emirates] and making sure the other Emirates are doing okay. Your third is probably doing some GCC [Gulf Cooperation Council countries] stuff in the Gulf. Then you think about the West.

The Russians are making the same decisions—for different reasons, but nonetheless the same decisions. And the Chinese are increasingly making those sorts of decisions.

In that environment, do I believe it is conceivable that it will be as easy for the United States to continue to fund its growth and its debt through international capital? I do not. I believe that we are going to see regionalization of capital flows, and I think that is going to be seriously problematic for the United States.

That's my answer in a nutshell.

QUESTION: I heard a lot of distinctions being made between government actors and corporate actors. It's easy to see that distinction if you take a society like Venezuela, where the Chamber of Commerce and Hugo Chavez are going to be more different. But if you talk about something like the United States, it's hard to see a difference when you think of things like the fact that Robert Rubin did dismantle the Glass-Steagall Act in Washington, but you could argue he was in a New York frame of mind, in a Citigroup frame of mind. So do you see that really changing?

I think, Ian, you spoke to the challenges that Obama will face. I think that's part of the challenge. I mean are they really two different sets of agendas, and is one going to gain the upper hand?

And I think it also has implications for the role of the United States in the world and in the global sorts of things that Michele spoke about, because you could argue a lot of the U.S. positions in things like intellectual property, or even security, are dominated by corporate thinking in the United States, and there is no independent governmental policy, if you will, that dictates what the United States does in trade.

THOMAS STEWART: We actually have a very interesting internal conversation going on among some of the financial services partners at Booz & Company about what life will be like for the banks now that their investor relations departments have as their number one investor the federal government, and will that change how your behavior is.

But actually, Michele, would you take a look at this, because one of the things I think your question raises is the role of what C.K. Prahalad has talked about. He wrote an article in Harvard Business Review when I was the editor of it, the working title of which was "MNC.org meets NGO.com." He talked about this sort of blending of agendas. I guess your question to some extent is, are they centrifuging and unblending, or how will that work? I think that's a good question for you.

MICHELE WUCKER: I think that's a great question. I think that in some ways they are converging. I think we are also seeing a spreading out of the different kinds of policy actors going down to the individuals.

I think there's a lot of thought that needs to be done about who has a say in what on all sorts of levels, from the individual up to the NGOs, the corporations, to local, state, national, regional, multinational, global sorts of issues. I think that you've got different constituencies for different kinds of issues. Right now we've got a system where not everybody who has an interest in something that affects them actually has a say in it.

I think that in a lot of cases there is this idea "corporations good, NGOs bad," which is nonsensical. In some ways, certainly, they disagree, but I don't think that structurally it has to be so. I think it's very important to depoliticize things, to break it down to: "What are my best interests and also what are the best interests of other people involved? Can we find a win/win situation for everyone?"

We have done a lot of events where we try to bring together businesses and NGOs and scholars and journalists, whatever kind of people. We did one in particular in Berlin a couple years ago on immigration and security. We were really, really pleased because we had someone there from Microsoft and someone from the U.S. Chamber of Commerce, and then we had these kind of lefty immigration activists and police security people. Some of the people from the different groups walked away from there going, "I had no idea I thought the same thing as those horrible, horrible businesspeople did."

So I think that there is convergence, and that there needs to be a lot more thinking about just because somebody says one thing, everything else that they say doesn't necessarily fit in that box. There needs to be a lot more thinking about how to engage the voices of people who have stakes in things and how to do it earlier on in whatever process, so that you're not just marching in going, "Oh, I'm the United States, I'm going to save you, and this is what you shall do." I think that's what got us to a lot of the problems that we're seeing today.

IAN BREMMER: I do think there's convergence. I think it's happening relatively slowly. We're not going to see much of it in 2009. It is very different in the United States and the developed world from other places. But it's kind of a cute comment.

Michele's the migration expert. Don't forget about the great migration right now, which is to Washington, right? I mean you have had a period of many decades where the United States government has been losing talent because it can't pay for it, it's not considered interesting, the bureaucracy is this backwater. That is radically changing. That will create—

THOMAS STEWART: Are we thinking the Singaporization of Washington?

IAN BREMMER: I mean there's no question that there is an understanding that D.C. right now is the place to be. You don't care if you make quite as much. You have a job. That's where the decisions are being made.

That is going to do two things. First of all, over time it will definitely create sort of a moving together of the mentality of these things. But it will also bring a lot of private-sector sensibilities into Washington, which long term—I don't think it's going to make a damn bit of difference in 2009 structurally, but long term I think it will matter.

QUESTION: The Obama administration in 2009 is putting together a State Department and a Treasury and a White House. Tim Geithner will have all the staff in the world. Larry Summers will have the ear of the president. Hillary is there with Obama—keep your enemies close. How is this thing going to function? That's my question.

ART KLEINER: First of all, how has it functioned over the last eight years? We see the results. We don't know why that particular organizational structure led to those results first hand. A few of us do. Those who see it first hand aren't necessarily talking about it in a way that would allow the rest of us to learn.

There are some reasonable working hypotheses, one of which is that the institutionalized view that government is by definition a poor actor tends to lead to governments that are in practice poor actors. There are lots of others.

There is another sort of working hypothesis, which has to do with, in both private and public sectors, the extent to which there is lack of transparency, especially around who can earn what kind of money under what kind of circumstances, which tends to lead to abuses that not only are possible but do in fact happen.

I think one of the great movements right now is the movement to—Esther Dyson is going to be mentioning this in an upcoming interview in strategy+business—but there is a movement right now to set up transparency for bills in markup. Whatever restrictions are involved, it is another step.

A lot of decision making—we already live in a pluralistic society, we have forever—the United States, at least, has been pluralistic more than people recognize—it is going to be more pluralistic. No matter how many people go to Washington, the decision making on a practice, day-by-day level is going to be made by small groups thinking together that contain people inside these agencies and outside them.

I think all of that is backdrop for saying we really don't know the answer to your question. There is tremendous potential for utopian capability and there is tremendous potential for breakdown and abuse.

MICHELE WUCKER: It's a really, really interesting question. I remember looking over the 1990s, writing about a lot of these then-emerging markets, trying to restructure things, trying to get things right. There was this big craze over technocrats.

I remember Ecuador, when they were restructuring their defaulted debt from the 1980s—of course they defaulted twice since then—you had a group of people with, I think, very similar mentalities to some of the people who are coming in now, very pragmatic, people who wanted to get things done. And you see this in a lot of other countries. You had people come through Mexico like that. You had waves of people through Brazil.

The challenge in those is to kind of wed the smart policy-making with the inevitable butting of egos among a lot of really smart people, and making the connection to what the rest of the country wanted. In Ecuador and in Mexico and in certainly lots of other cases, you kind of missed that connection. The people weren't engaging people as to why they were doing the policies that they were.

I remember when Leonel Fernandez first became president in the Dominican Republic in 1996. He came out and he got this whiteboard and he went on television, and to a country with a tremendously high illiteracy rate, he sat there doing IS/LM curves and explaining why he was doing what he was doing in the country. Bizarrely enough, some of that actually worked.

So the ideal—not that we're going to get there—is Obama's huge skill is that kind of reaching out and inspiring. I think it is really going to be up to him to connect what his people are doing with what the country wants and with what's smart. That is, I think, going to be the clash.

IAN BREMMER: I think the good news is that the economic team is incredibly cohesive under Summers, and Obama is prioritizing it. I don't think there will be a lot of leaks. I think that no one else will be allowed to touch it that isn't a part of that inner circle. Whether or not that plays well with Congress always is a different story. But I think it will work.

It is going to look like China policy has under Bush with Paulson, where you've got your point man, you've got your team behind it, Strategic Economic Dialogue; anyone who wanted to do China, they flew through there. I think that's the way U.S. economic policy under Obama will work.

Anything else is going to be much more open to leaks, speculation, inefficiency, and the rest, and foreign policy in particular. Lots of incredibly smart people that don't play nice together.

I think that Clinton, frankly, might have been a great choice as president, disastrous choice as secretary of state. I never would have done that. Holbrooke was the only adult capable of actually doing that job. But there were people like Susan Rice and people like Tony Lake on the Obama team that were prepared to actually get run over by a truck before they allowed him in that position. It didn't happen.

And so, as a consequence, you're going to end up with a lot of in-fighting. And people in the media, and outsiders, and everyone else, if there isn't a fight, they will manufacture one. I think that is going to be a problem on the foreign policy side.

QUESTION: I want to link up Art's comments about truth-telling with Ian's comments about China. The vehicle I want to use is a problem that is a real problem that I've talked a lot with people at State about lately, and that is—and it's one you've all read about and written about—and that is you've got people at Guantanamo that you can neither bring to trial nor release.

Evil behavior, if you think about Nazi behavior—I don't want to suggest that Guantanamo is as bad as the Nazis—but there's an interesting similarity. It makes truth-telling in the short run very difficult indeed. In the long run what you need to do is create an environment in which truth-telling in fact is socially possible.

But for Obama and the people around him to be completely forthcoming about Guantanamo right now, let me suggest, in the next few months is probably impossible, because the consequences of being completely transparent would themselves be unacceptable from a security point of view.

Now, what's the link between that reflection and Ian's comments about China? Talking about the Chinese government having long-term thinking is absolutely correct. I'm a Japan hand, but I've spent a fair amount of time dealing with China over the years.

But there are two key things that you may or may not agree with. There are two key things that affect all the decision making and in fact raise the risk, in my view, of China a little bit. I think you're still right about 2009, but I worry about 2010.

The two are: one, part of the decisions to go the way they did involved an amazing tolerance of corruption, which they didn't have to do, and, secondly, allowed huge regional differences.

I was involved in a foundation that funded a lot of faculty development in China. The biggest brain drain in China is from the west to the east. It's bigger than any brain drain out of China to Europe or the United States. We funded the training of faculty in extreme western China, knowing that within two years they would be in Wuhan or Shanghai or somewhere else in the east.

The instability-making factor is the huge gap that the Chinese, if not encouraged, allowed to happen between rural west and—you don't have to go very far west, by the way. You can drive an hour and a half out of Beijing and go back 1,000 years. The potential for unrest is absolutely huge.

Now, what does that have to do with the ability of the Chinese government to begin to be honest with its own people about reform? The larger question is: How do we restructure a flawed world—symbols of it are Guantanamo and corruption in China. You could pick a lot of other places; China doesn't have a monopoly on corruption. The Japanese are reputed, by the way, to have very little, but that's only because the Japanese only allow corruption to happen up where it really matters, when there's a lot of money at stake. Otherwise it's a very honest society.

But the question is the relationship between context and transparency—or, if you will, honesty—that I was trying to illustrate.

THOMAS STEWART: Or you could think about it in other terms. The question of ancien régime France trying to liberalize enough to make progress but not enough to cause a revolution. How do you get that right? I think that's a question that we can take specifically in, say, China 2010, or we could take to what kind of truth and reconciliation commission do we need in the United States, or to Tina Rosenberg's great book on the different ways in which the various Eastern European countries dealt with the criminality, or however you title it, to determine what the Warsaw Pact regimes were like. I think what we have is, therefore, a question to which we know that there is no known good answer.

But perhaps we might have an approach toward—pick a risk, pick one—pick Guantanamo, pick China, pick South Asia—pick one where the truth is dangerous in the short term but it's absolutely imperative in the long term. How would you navigate that? Anybody pick one, and how would you navigate off of those shoals?

ART KLEINER: First, I would actually start with a question, which is: Do we have enough capability to make a diagnosis? Elliott Jacques says that management today is where the natural sciences were before the discovery of the circulation of the blood. You could argue the social sciences are in the same place. Do we know enough to do this impossible thing?

South Africa had this remarkable transition from apartheid to a form of democracy in the space of a few years without bloodshed.

THOMAS STEWART: Well, without—they substituted crime for civil war. That was their choice. It was a good choice.

ART KLEINER: Fair enough.

THOMAS STEWART: Let's have a crime epidemic; let's not have a civil war.

ART KLEINER: To the extent that you regard that as successful, was that successful because they knew what they were doing, because they lucked into it, or because just by the law, by the odds, we know enough as humanity that it's got to lead to good results sometime? I don't have an answer for that question, but I think that's the core question: do we know enough to move? If we don't know enough, what's the other alternative?

THOMAS STEWART: Michele, have you got a particular risk where you think you could see a question about how you'd make one of these Hobson's choices, or any advice if you were hired as a consultant in Argentina?

MICHELE WUCKER: You know, the words "muddling through" come to mind. I think that's what—we used it a lot in the 1990s.

THOMAS STEWART: It was a great paper.

MICHELE WUCKER: I think that's what a lot of people use.

But I would be a little bit more geeky and methodical about it and sit down and make a list—here are the costs, here are the benefits, here are the possible outcomes for what this policy might be. Sit down and say, "Okay, what are my options?" You might be making a complete wrong guess about what the consequences of one thing might be, but at least you'd feel like you were going through something remotely resembling a rational process.

QUESTION: I am disappointed that you have been so dismissive of the United Nations. I would like to ask you all to reflect a little bit further on the UN as offering an ethical framework for decision making, given that there is the Universal Declaration of Human Rights, and particularly the point you made about people coming and thinking and talking through issues together, which is really what the United Nations provides.

THOMAS STEWART: Let's hold that. Does the United Nations have a role? Another quick question. We are going to answer both of these questions simultaneously, because we are going to watch our time.

QUESTION: Most of the discussion today has been in terms of a kind of geographical and institutional specification of risk, where rather than what. I want to raise two questions about what. That is, the background risks that really haven't been much discussed, although they're implicit in a lot of the places. I'm thinking about Pakistan, Russia, Iran, North Korea, and other issues. Nuclear proliferation and weapons of mass destruction proliferation become very critical.

I noticed yesterday in the president's finale that the one time he was serious and seemed to me also very threatening in terms of his view of the future was about another terrorist attack on the United States. He gets daily intelligence briefings. I assume he knows some things about that. So I'd like someone to maybe respond to the issue of, not just nuclear, but weapons of mass destruction proliferation. A dirty bomb over Chicago would suddenly make these risk assessments look not very good.

The other thing I want to ask is whether the background technical crisis in the economy doesn't in fact point to a deeper crisis in the economy, the fact that we may now have an unsustainable model of capitalism, in the absence of any real alternative. As a background, that long term could create a tremendous crisis, far greater than any specific economic/technical issue we face now.

THOMAS STEWART: Okay. Is there the equivalent to the 19th-century questions of capitalism that Marx saw and nuclear proliferation; and, if so, can we solve these things at the United Nations?

IAN BREMMER: I'm going to put it together with the UN thing, because the United Nations for me, a little bit like the challenge—it's a little like Obama, right? Incredibly inspirational and a great deal of stuff that actually aren't the primary challenges that we're dealing with in 2009. Hence, I don't spend as much time on it. Obama is not on my top list either—or red herrings, frankly. You've got to be disappointed an awful lot in this environment. I think you will be.

The Security Council is what is desperately broken, and can't get fixed and won't get fixed, and it's kind of like the G20 in that regard. It's really good at marginal crisis fixing, when no power has a strong view and is prepared to really go to bat against the consensus, and there is increasingly no consensus. All the other organizations work great, but they're not dealing with proliferation or the breaking of capitalism or the things that have been talked about.

So what about these really big things? You know, nuclear proliferation, from my perspective, is probably not as imminent, urgent, as a lot of the other stuff, but boy is it structural and something that is seriously broken. I mean the United States has decided that effectively it is prepared to accept a North Korea with nuclear weapons. They won't say that, but that is the reality of the situation, because they don't have any choice. And Iran is moving into that environment.

You want to talk about why I think the structure matters so much? In the presence of the present global structure, you will continue to have a completely broken nonproliferation regime until there is a massive shock. Now, that shock could be a dirty bomb in a place like Moscow or Tel Aviv, which makes that place unsustainable, and then says, "Okay, guys, we're just going to fundamentally subvert sovereignty and change the nature of what we're willing to tolerate on the nuclear front"—or something worse. I doubt a near miss gets you there. And I think we have a lot of these structural and organizational issues.

The unsustainability of capitalism at some level—I mean for me that plays with how bad climate change gets and how quickly, right? That's the notion that Americans got to industrialize so China should too. It's fair, right?

And the answer is—I'm going to quote John Bolton. When John Bolton was asked by the North Koreans, "How come we don't get to have nuclear weapons?", he was one of the only people to answer honestly, "Because you're North Korea." That's actually a reasonable answer in my view.

Why doesn't China get to have cars? "Because you're China. Not because we don't like you per se in this case, because you have a billion people. It's not fair, but you don't get them." And no one is prepared to have that hard conversation with the Chinese people.

Does that at some level create unsustainability of capitalism as a model? It might. I don't think it's next year or the year after. No one's willing to make that—we're not talking about Art's model. No one's willing to have that conversation.

THOMAS STEWART: So to wrap this up a little bit, I think what we're saying—and the United Nations does or does not play a role in this—but if you were putting together a bunch of Bretton Woods organizations now, one of the things you would try to do would be to find a way to price in the cost of carbon. You would try to create a global regime that could prevent that tragedy of the commons. Whether or not it was based on the East River or based someplace else would be something else, but that would do something, and that might ameliorate some of those crisis-of-capitalism issues that were North/South, or have water/don't have water, so on and so forth.

But one of the things I think we're maybe saying is that some sort of international agora, with either market or hierarchical authority and consequences, probably is necessary in that.

I want to wrap up with a couple of points that I think we heard.

But before I do that, I want to ask each of these guys—we talked a little bit about risks versus ethics. I think that there are also risks plus ethics, and there are win/win decisions. Joe Badaracco talks about ethical decisions being "right versus right" decisions.

So I'd ask you each, in 30 seconds or less, to think about one ethical act that one important player in the world could make right now, in the next month, that would significantly reduce the risks we face. Just one piece of low-hanging fruit, only one, some ethical decision that somebody could make that would be an ethical decision that would have the effect of bringing down risk—any risk, but a risk that matters.

MICHELE WUCKER: I would say if the United States were to make a major commitment to reducing carbon emissions.

THOMAS STEWART: That would be one. Art?

ART KLEINER: I think there is a lot that could be done at the lower levels of the United Nations. The one thing I disagree with Ian is—he said the Security Council is broken and all the other parts of it work great. I have had a lot of friends at the United Nations. I think that a lot could be done in the various agencies to clarify and then implement their missions, and that could have a seed effect.

THOMAS STEWART: You've actually twice suggested that. You also suggested that about the U.S. government, that empowering the civil service globally and nationally would be a good thing.

IAN BREMMER: A little one that I think would matter long term is Obama, for his first trip to Africa, could invite both Sarkozy and Brown. He has the enormous halo effect, but they're the ones that actually understand what's happening on the ground and what needs to occur. You'd have real multilateralism in a part of the world that could desperately use it.

THOMAS STEWART: Those I think are three real good, practical, even easy, suggestions.

First of all, I want to thank you all for a bunch of very good questions, very difficult questions, and very provocative questions.

I heard a couple of themes, perhaps.

One is the importance of changing work, that if you change the activities that people perform you start changing culture. There is an American military man, a colonel in Vietnam, who most famously put this when he said, "If you get them by the balls, their hearts and minds will follow." And he was right. That's a matter of changed management. He was right. So one of the important things is to change the things we are working on and we will start getting the cultural change that we want.

Secondly, I think we do have this question about whether the question of ethics and risk is a question of "truth or dare" or a question of "right versus right" decisions. Which game we play is important, and that's where changing work I think can help change the way we frame the ethical questions.

Third, we did some really interesting work about something we call organizational DNA, in which we talk basically about how you get change that sticks. As part of that, there are four tools:

• You can change the structure. You can rearrange the deck chairs on the Titanic. You can change the structure.
  
• You can change the decision rights.
  
• You can change the information flows.
  
• And you can change the incentives and motivation.

Those are the four kinds of levers you have.

The interesting thing is that in corporations it turns out that it's those middle two, the information flows and the decision rights, that are more important. But what CEOs tend to do is they tend to change the structures and organizations because those are the boxes that they control, and they're less messy. So I can change your incentives, I can give you a different pay plan, I can put different people in different boxes, I can change the boxes. But it's really decision rights and information flows that really affect organizational change most profoundly.

And finally, this point about who's in the room, which is also a decision-rights and information-flows question, is profound. I think some of the great risks-versus-ethical parables are the stories of the two great foreign policy decisions of President Kennedy, of the Bay of Pigs and the Cuban missile crisis.

One of the things that happened in the Bay of Pigs, if you look at the material, Bobby Kennedy acted as gatekeeper. You were either on the boat or you were not on the boat—"you are on our team or not on our team"—and he acted as a gatekeeper to keep people in the room cohesive.

By the time of the Cuban Missile Crisis, they were a little smarter. If you even saw the movie, you notice that Adlai Stevenson was there—"Oh, that little wimp"—but that was the decision that they came up with at the end. They made sure to keep him in the room.

I think as we think about ethics versus risks—I mean that was a really interesting set of ethical-versus-risk decisions, and they came out with what turned out to be the right deal and well presented, and part of it was about making sure that you get the right people in the room.

I know that we have the right people in the room here. That was a clever segue.

So, in addition to thanking you for your questions and your attendance, I'd like to ask you to join me in thanking our panel.