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Introduction
In a post-nancial crisis world, the lack of viable internationalleadership is in stark relief. As the Global Agenda Council onGeopolitical Risk’s 2012 report highlighted, the effectivenessof global institutions and the rise of regionalism are overarch-ing themes dening world events. In 2013, this breakdownof international coordination will go increasingly local: in sucha world, governments will focus more on their domesticagendas, which will create new risks in and of itself. Mostimportantly, the growing vulnerability of elites makes effectivepublic and private leadership that much more difcult tosustain. Leaders of all kinds are becoming more vulnerable totheir constituents, generating more reactive and short-termgovernance. Whether one looks at the dismal approvalratings of the U.S. Congress or the impact that more openows of information is having on the Chinese ruling elite, it isclear that people are becoming more and more uninspiredby their governments. When it comes to unemployment, thewidening disparity of wealth, or environmental degradation,highly complex or even intractable issues set politicians upfor failure in the eyes of their constituents.Underperformance erodes elites’ legitimacy, making itthat much harder for them to lead effectively. States capturedby corruption or special interests, or that exhibit a lack of transparency, growing disparity of wealth, or a perceivedindifference to the lives of the citizenry, will increasingly fallvictim to this ‘legitimacy decit.’ Corporate and NGO leaderswho act with impropriety can also nd the ground shiftingbeneath their feet, sometimes overnight. Rapid news cyclesand social media can allow dissident movements to arisewithout warning, creating new challenges for those in charge. Against this backdrop, a host of key 2013 risks andopportunities takes shape. Tensions between China andJapan are likely to worsen. The spill over from the Syriancivil war will have severe knock-on effects throughout theregion. The Iranian nuclear threat, Afghanistan-Pakistanconict in the wake of US 2014 withdrawal, and eurozonecrisis response are other key risks. Opportunities could arisefrom a brighter US outlook and continuity in its government. A growing awareness of the lack of international leadershipmay impel political leaders to deal with issues locally, andcould result in better crisis response. In addition, there area host of wildcards—on the downside and upside—thatcould prove game-changers over the coming year.Discussion will break down into categories as follows:
 A.Overview:TheVulnerabilityofElitesB.KeyRisksC.WildcardsD.Opportunities
 A. Overview: The Vulnerability of Elites
The challenge
 The vulnerability of elites cuts across emerging marketsand advanced economies, democracies and authoritarianstates, public and private institutions, and a wide array of issues. This is the challenge: as their legitimacy gets calledinto question, political actors struggle to react to instability,crises and opportunities in the most effective manner.Whether it is the growing disparity of wealth, or the evolving
 The Vulnerability of Elites:
Geopolitical Risk in 2013
Categorizing the major themes, risks, opportunities, and wild cards—based on discus-sions of the Global Agenda Council on Geopolitical Risk in Dubai, November 2012.
 
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ow of information, several factors are facilitating pushback against existing policies and institutions and making bothgovernments and some private actors across the globelook increasingly fragile.First, the ‘Occupy’ movement may have run out of steam, but the slogan “we are the 99%” has put an end tothe people’s “peaceful coexistence with inequality.” Whilethe richest have come out on top from the economic crisis,middle classes are experiencing reversals in their standardsof living even in the developed world. In many developedand emerging countries, youth unemployment rates arescandalously high. A ‘lost’ generation of young people feelthey have no stake in the existing system. And this develop-ment is occurring in a world where inequality is visible ona daily basis, both within and between societies. The lack of economic prospects has eroded people’s trust in, andsupport for, their political leaders, whose actions are rarelyunderstood, let alone approved. The result is a “legitimacy decit” and a sense that wemight nearly be better off without rulers. Leaders no longerhave a story to rally their followers around. The few whodo fare better than others. We’re seeing this trend acrosscountries of vastly different stages of development.Second, people are less willing to tolerate corruption,crime, cronyism and other forms of inappropriate behaviourby leaders. Most societies lack a clear moral compassin the form of religion, ideology or established values. The media are quick to ll this vacuum with instant moraloutrage about the latest scandal—and the news cycle isshort-sighted at the expense of longer-term problems thatare more pressing.Consider some of the events that dominated headlinesin the past year: revelations of phone hacking by News-Corp, the resignation of CIA director David Petraeus, thedemonstrations that erupted after a gang rape in India,or the cover-up of sexual misconduct within the BBC. Among other things, these events show that the spread of the internet and social media has made it much harder forleaders to engage in “damage control.” It has given peoplea tool to hold their leaders to account and, in extremis, totopple them. Nowadays, even rather innocuous privatemisdemeanours can end a distinguished political or corpo-rate career overnight. Governments, companies, even largemedia organisations, are ill-equipped to handle the “tyrannyof real time.” More than ever, knowledge is power—andmore than ever, knowledge has been democratized. Anyonewith an Internet connection can access diplomatic cablesrevealing inconvenient truths about their rulers.In developed democracies, scandals involving leaderscan distract whole nations for weeks on end, while moreimportant business remains undone. Greater transparencymay yield many important benets, but it can also polluteshort-term agendas. Growing disenchantment with politicalleaders may discourage the best and brightest from enter-ing politics in the rst place. Instead of imagination, convic-tion, and leadership skills, a blemish-free past is becomingthe real entry criteria for Western governments. While alonger-term generational shift could ease this phenomenon,for the foreseeable future, the trend will likely only worsen.Overall, however, in established democracies thedamage stemming from elite vulnerability is limited by theexistence of stable institutions. If a minister, general, or evena president is pushed out, there is a well-rehearsed andaccepted process for replacing him or her. In less demo-cratic societies, by contrast, public scrutiny may not burdenleaders quite so continuously. But the risks associated withelite vulnerability are considerably higher. Revelations aboutelite corruption and double standards can galvanise peopleinto street action and even revolution. From Russia toChina, leaders’ wealth is increasingly exposed. Public angerat corruption and disparities of wealth also played a clearrole in the Arab Spring, and it remains to be seen whetherthe region’s monarchs will remain protected by tradition orend up having no clothes.In emerging markets countries, the growing ranks of themiddle classes will increasingly translate into pressure onauthorities to deliver everything from goods and services toproperty rights, freedom of information, and political rightsand civil liberties. Regimes that are successful in improvingliving standards and increasing the size of the middle classmay subsequently struggle with their aspirations--and thereduced likelihood that they will remain willing to abide bythe terms of the previous social contract. This dynamicwas among those at work in the Arab Spring, where GDPgrowth and a larger demographic cohort of university-edu-cated citizens ultimately expected more from government.Elites that are not perceived to have earned their statusfairly tend to be the most fragile. If a leader in an autocratic
 
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society is forced out by public outrage, leadership battlesthat can destabilise the whole political system are likely toensue. To avoid this, vulnerable leaders often search fordistractions and scapegoats. Take China, for example,where the leadership may focus on quelling transparencyinto its dealings at the expense of enacting much-neededgovernance or reform. External enemies are blown up,potential opponents are crushed and sabres are rattled. Vulnerable elites can be unpredictable. All of this takes place against the backdrop of a deglo-balising world.
The new local
 The threat to elites’ legitimacy varies considerably betweenregions and even neighbours. In a similar fashion, the risk landscape in 2013 is increasingly disparate. There is nosingle, overarching risk that could destabilise internationalpolitics or derail the global economy. Instead, a myriad of local pressure points exist, from the escalating tensionsbetween China and Japan to the bloodshed in Syria andthe ongoing crisis in the eurozone. Such risks have regionalspill over effects but none of them has the capacity tobecome an ‘umbrella’ calamity that becomes a globalpriority. Welcome to ‘the new local,’ where governmentsare more shackled by regional concerns and their domesticconstituencies—at the expense of tackling larger-scaleglobal issues that need collective leadership to solve.Paradoxically, secessionism is on the rise just as one wouldexpect support for more integrated solutions to increasinglyintricate problems. The world today lacks an overarching and acceptedmodel of development and progress. Many people believethat the global nancial and economic crisis has discreditedmarket capitalism. Institutions of global governance look weak. Regional ones are slow to take their place (see ourreport last year). The Lehman collapse, Abu Ghraib and Afghanistan have all eroded American soft power. WithEurope in deep crisis, the idea that there is a “Western”model that should be followed can no longer easily be sold.Many people in Asia, Africa and elsewhere do not think that democracy is a panacea. Perpetually waiting until afterthe next election to take action does not seem attractiveor efcient. Even the Arab Spring was not so much aboutdemocracy as about transparency and accountability –ingredients that can be supplied to some extent by stablenon-democratic systems.Globalisation itself is no longer the unquestioned unierthat drives global markets. Nor is there a clear alternativemodel. For many leaders around the world, the idea thatthere could be economic development without the ‘messybusiness’ of democracy is an appealing one. However,autocratic systems tend to be rigid and therefore likely tocrack under pressure. The notion that development andhappiness can come from authoritarian state capitalismhinges on little more than China’s year-on-year growth ratesand exceptional experience over the past decade. ShouldChina break, an entire worldview will likely come to an end. The deglobalisation of risk exacerbates old prob-lems—and ushers in some new ones. Paradoxically, thefact that spill-overs are not global makes the outbreak of local conicts more likely. During the Cold War years, anyskirmish between the two Germanys would have escalatedto a third world war. Today, China and Japan know that atit-for-tat over the Senkaku/Diaoyu islands can be pushedmuch further before it precipitates a broader internationalresponse. This knowledge might make actors more reck-less—and cause more damage. Just look at the drop-off inJapanese exports in China in the wake of the recent crisis.
B. Key Risks
China-Japan
 As previously mentioned, the risk that China-Japan rela-tions could worsen and the two nations head for a navalconfrontation over the Senkaku/Diaoyu islands is high. Although pragmatic solutions are conceivable, this conictis not ultimately about territory. For both countries, it is anopportunity to project power in a region that is in transition. And in both countries, domestic political factors are pushingtowards escalation: Japan’s government–weakened byeconomic woes and internal divisions–may want to senda signal that Japan is not a country in terminal decline. InChina, a newly installed leadership may nd anti-Japanesenationalism the easiest way of gaining popularity. In a worldwith vulnerable political elites, China and Japan’s leader-ship may have more cause to shore up their popularity by
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