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10:00 A.M.

Pieter Bottelier
Senior Adjunct Professor, China Studies
Johns Hopkins University School of Advanced International Studies

Tim Adams
Managing Director
Lindsey Group

Uri Dadush
Director, International Economics Program
Carnegie Endowment

Ambassador James F. Collins

Director, Russia and Eurasia Program
Carnegie Endowment

Moisés Naím
Foreign Policy

Transcript by Federal News Service

Washington, D.C.
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PIETER BOTTELIER: Good morning, all. Very pleased to welcome you to this Carnegie seminar on the
future. How long term that future is depends on your perspective. If you are Chinese, you think 2050 is tomorrow.

We are pleased to have a very distinguished panel of futurologists. I will serve as the moderator. My name is
Pieter Bottelier and I am a teacher at Johns Hopkins SAIS and I’m also a nonresident visiting scholar at Carnegie.

You have the bios of the speakers in your program, so I will be very short in introducing them. Our first
speaker will be Uri Dadush, who for many years was the director of the future in the World Bank. He is currently
senior associate at Carnegie and director of the international economics program. The second speaker will be Tim
Adams, on my right. Tim is managing director of the Lindsey Group and previously undersecretary for international
affairs at the United States Treasury. The third speaker will be Ambassador Collins, on my left, who is the director
of Carnegie’s Russia and Eurasia Program. He served as ambassador to the Russian Federation from 1997 to 2001.
And finally and not lastly, Moisés Naím, on my far right, well-known to you, is the editor-in-chief of the Foreign
Policy magazine and has a CV too long even to summarize. I got to know him first when he served as executive
director of the board at the World Bank many years ago.

I would like to start by inviting Uri to make the initial presentation, and then we will go through the program
and we hope to have the last 40, 50 minutes or so for discussion. Thank you.

URI DADUSH: Yes, thank you very much, and good morning, everyone. This is a presentation based on
papers, also jointly, with Shimelse Ali and Bennett Stancil of the International Economics Program at Carnegie.
They are both here today. And it is based on two papers that were distributed with the invitation to this seminar.
They are also available on the Carnegie Web page and you also have the URLs where you can find the papers on the
sheet here with the projections.

About 250 years ago, the world was poor pretty much uniformly. The variance between different countries –
most countries were between $1 a day average in today’s prices and $3 a day average. And then in the Western
periphery of Asia, a small peninsula inhabited by a few million people, a peninsula we call Europe, saw the eruption
of an Industrial Revolution that gradually over a long period of time led their income per capita to rise very, very
sharply. And so that today, the gap between the richest countries and the poorest countries is not 3-to-1 but 100-to-

And this process of the Industrial Revolution spread actually relatively slowly outside of Europe. It spread to
the English-speaking colonies – the United States, Australia; much, much later to Japan in the middle of the 19th
century; and then most recently in the second half of the 20th century to a few countries in Asia. So until about 25
years ago, very few people in the world had made “the rich club,” or indeed seemed likely to make the rich club –
perhaps, 15 percent of the world’s population – as the advanced technologies struggled to spread to other parts of
the world.

In the current era – the last 25 years, the next 25 years – is exceptional in that a much, much larger group of
people is in a sense joining this revolution. I realize this is an oversimplification but the reality is that a huge
acceleration affecting a very large share of the world’s people occurred in the course of the last 25 years. It goes
beyond the scope of my presentation to discuss the causes of this. Let me just say that peace has something to do
with it and openness to ideas and market-oriented policies. Clearly, the spread of these has something to do with the
fact that the rest of the world is rising.
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And the implications of this are, of course, far-reaching because by 2050, the world order will be
transformed. And the financial crisis has, by all indications, if anything, accelerated this process because for example,
last year, domestic demand in China grew 12 percent whereas it declined sharply in all of the advanced countries.
And India also grew rapidly.

Now, in the time available, I am – my job really is to set out the numbers and the projections and to leave to
this extremely distinguished panel the job of drawing out some of the policy implications, some of the lessons for
international relations and for domestic policy.

So let me then tell you a word about the projections that are included in the paper and that are also illustrated
in the PowerPoint handout that you have been given. Basically, the projections are based on a pretty standard
model. By now, many of these exercises are being carried out. And the model – the basic drivers of the model are
four. They are demographics, the rate of investment, the rate of technological convergence and the real exchange

Let me just say a word about each of these briefly. Demographics is in a sense one of the most powerful
variables but also the simplest one. The main message about demographics is in chart 9 of your handout. The
numbers are at the bottom right-hand side.

In chart 9 of your handout, you see that in the course of the next 40 years, there’s going to be a large rise in
the world’s population of working-age people between 15 and 59, but all of the rise will be in the developing
countries. And in fact, the population of working age in the industrial countries is going to decline in the course of
the next 40 years. It will decline much more sharply in countries like Japan, Russia, Italy than it will in the United
States. So this is one factor that accounts for the rise of importance of developing countries.

The second factor is investment. The simple message here is that developing countries invest a lot more
than industrial countries. Again, there’s variance here. But if industrial countries invest about 20 percent of GDP,
most developing countries invest 25 percent of GDP and several Asian developing countries invest 35 percent or
more of GDP. And this is a factor contributing the rate of return to capital is higher in the developing countries.

The third and most important factor accounting for the difference in the growth rate between at least the
successful developing countries, which are an increasing number, and the advanced countries is the spread of

And it is not – many people don’t realize in the rich countries that there are over a billion people in the world
who do not have electricity these days. And the issue is not that countries don’t know how to do electricity.
Virtually all countries of the world have some capacity to do electricity. But electricity in the poorest countries
remains confined to certain areas, certain elites. In other words, the message is that even very old technologies like
electricity and sanitation, et cetera, have not spread inside many developing countries. And that revolution is
happening now.

The second is that new technologies are actually spreading quite a bit faster than old technologies – we’re
talking about cell phones, the Internet – in part because they’re relatively cheap and require less government
investment to do.

Now, this is a huge abbreviation of a complex topic but the bottom line is that the overall economic
productivity in the industrial countries tends to rise between one and 1.5 percent a year. In the most successful
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developing countries, it is rising at five or 6 percent a year. And this you have to attribute largely to the spread of

The last factor is a little more technical, is the real exchange rate, and explains the fact that as developing
countries grow, they become more interesting trade partners not just because they are able to produce more goods
and buy more goods but because the real exchange rate tends to appreciate, which is a reflection of the fact that the
real wage appreciates. So on top of the volume growth, you have an appreciation of the real exchange rates.

These are the four factors which are included in the model and now I want to say a word about the results.
And here, if you go to chart number 3 in your handout, you see the growth rate projected over the next 40 years for
China, India, United States and Japan, you see how China and India are growing much faster and have been growing
much faster than those two countries, and how the United States continues to grow at a relatively rapid rate partly
because its demographics is favorable. Japan decelerates because it has very unfavorable demographics. There are
other factors at play here. And China and India in these projections continue to grow rapidly but over time, their
growth rates converge to those of the advanced countries so though India remains much faster growing even in 2050
and the reason for this convergence is if you go through the list of factor – the four factors that I’ve mentioned –
each of these plays a less important role as time goes on.

However, the fact that for 40 years, these large countries grow much faster than the advanced countries leads
us to the change in the world economic order, so to speak. And here I refer you to slide number 5 where you see
that already in 2030, China’s GDP is about the same side as the United States’ and by 2050, it is about 20 percent
bigger. This is in dollar terms.

But if you count in purchasing power parity – if you account for the fact that prices in the United States are
much higher than they are in China than in 2050. And here you see in chart 6, China’s PPP – purchasing power
parity – of GDP is twice the size of the United States. And India’s purchasing power parity of GDP is about the
same size as that of the United States. And these become by far the three largest economies of the world. So India
is a much bigger economy than Japan and Germany, for example, in 2050.

This point about relative size applies more broadly to the emerging markets as a group if you turn to slide
number 7, you will see that in 2050, the GDP of the emerging markets in the G-20 will be about a quarter bigger
than that of the advanced countries even though they are only about a third as large today.

One important observation – this is not a new observation but very important to restate it – is that in 2050,
even though China, India, Brazil, Indonesia, a few other developing countries, will be among the largest economies
in the world, they will be no means be among the richer economies of the world. The advanced countries will
remain much wealthier in 2050 measured by income per capita than the developing countries. And this you see in
chart 11 where the advanced countries, even in 2050, have per capita incomes which are still three to four times
larger than that of the emerging markets. And United States GDP per capita is about three times bigger than China’s
GDP per capita in 2050.

There are many other implications of these projections. I’ll just mention them very, very briefly. The first is
that poverty – absolute poverty – essentially disappears but remains a factor in India and remains a factor in sub-
Saharan Africa and a few other countries, which does not mean that relative poverty is no longer an issue. Relative
poverty remains an issue. It may even become a more important issue in the future as people living less than $2 a
day, which is still a pretty miserable experience. There’ll still be very large numbers of people in that vicinity and
looking at much, much richer people in different parts of the world.
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Another important implication is the fact that the global middle and rich class – these are the people that are
defined by the World Bank to be above $4,000 per capita – these are people that can afford basic consumer products
or even reasonably advanced consumer products. The number of people in the global middle and rich class will be
as big in 2030 in the developing countries of the G-20 as they will in the advanced countries in the G-20. And by
2050, there’ll be over 50 or 60 percent more people that are middle class and rich in the developing countries as there
are in the industrial countries.

Other implications relate to world trade, and these are reported in slides 14 and 16. Not surprisingly,
developing countries become the largest part of world trade. They’re about a third of world trade right now. They
become two-thirds of world trade in 2050.

But trade is reoriented in a much more fundamental way. For example, China becomes at the center of the
main trade relations in the world. so if you take – according to a certain taxonomy proposed in the paper – if you
take the main payers of world trade, four of the five largest payers of world trade have China as a partner. And the
only one out of the five large payers of world trade where China is not a partner is intra-EU trade.

However, intra-EU trade greatly declines in significance as a share of world trade in these projections. On
the other hand, intra-regional trade in Latin America, sub-Saharan Africa, and of course in East Asia becomes much
more important than it is today. The United States – to give you a sense of the changes that are implied – by 2050,
the United States trades more with China and with Latin America than it does with the European Union. This is
simply a reflection of the relative growth rates of these different regions.

Finally, let me say a word about risks. Everything I have said is a discussion of economic potential. Indeed,
the models that I have discussed are about potential GDP growth. Realized growth could be quite a lot lower than
that. I suspect it will not be much higher than that, but could be quite a bit lower than that.

The risks are on the downside. And let me just quickly enumerate these risks; again, they are discussed in the
papers. The first is geopolitical strife. Bear in mind that what we are projecting here is an enormous shift in world
economic power. These things very rarely happen elegantly, if history is a guide. So how that will be managed is a
critical question and I hope that the panel will be talking about that.

The other big source of potential source of geopolitical strife is the fact that the biggest and most powerful
economies are no longer the richest economies. So the priorities, in some sense, of the international community may
no longer be as easy to set as they are when you have a homogeneous set of nations at the helm. So it may be that
China and India may want to pay less attention or may want to take a little more risks on the environment, given the
fact that they have very important development priorities to address. And it may be that they may be less concerned
about pushing intellectual property rights, and so on and so forth. There are many areas where this lack of
homogeneity could lead to strife.

The second risk is a repeat of financial crisis and depression. Let me just say that I am among those who
believes that we have not taken the needed measures to reduce the vulnerability of the world economy to another
bout of financial crisis.

The third source of risk and potentially a very important one is protectionism. Protectionism is always there
and it gets worse during economic recessions, as we are observing at the moment. But these projections suggest also
another important source of protectionism, which is that you have the rise to enormous prominence of low-wage
economies in a way that has never really happened. So it’s one thing when a low-wage economy is a small economy.
It’s another when it’s China and India, et cetera. And this also could give rise to protectionism.
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And I’m not going to say – although a very evident source of risk, I’m not going to elaborate on it – is
climate change because the implications or the projections would be for a big increase, of course, in carbon
emissions, greenhouse gases. And that’s one reason that the projections could go awry, is the deterioration in the

Let me say in conclusion that my own judgment – having gone through this exercise and many other
exercises like it at the World Bank before I joined Carnegie – my own conclusion is that while these risks are
significant and they may very well decelerate the process that I am describing, I do not think the fundamental
message is going to change.

The history of the 20th century, a very troubled history, shows that even wars and depressions, while they
slow the advance of technology or can slow the advance of technology and the advance of globalization, in fact do
not stop it. Thanks.

MR. BOTELLIER: Thank you, Uri. Our next speaker will be Tim Adams.

TIM ADAMS: Thank you, Uri, for that presentation. It is an honor to be with such a distinguished panel
and to see so many dear friends out in the audience. When I spoke with Uri several weeks ago – obviously, this first
session was rescheduled because of this inclement weather, the snow – “snowmageddon” as it’s been referred to – I
said, well, what do you want me to talk about? And he said, well, do you believe it? And let me say that I certainly
respect. And one of the lessons I had – and it’s the research, and it’s outstanding work, the two papers.

One of the lessons – one of many lessons I have learned through this crisis that, as Uri knows, we’re still
suffering through, is that complex systems – the global economy, national economies, regional economies – behave
in nonlinear fashions and they are often unstable in ways in which we don’t foresee. And so I think it’s easy to get in
the habit of extrapolating current trends and looking into the future and saying what the future look like – today, just
larger and bigger and richer.

When I first moved to Washington 25 years ago, we did that. And Japan was seen as the great villain for the
U.S. economy that was going to take over literally the U.S., buying noted properties. And of course, that didn’t
happen. I think this is different and I think some of the countries noted in here – China and India specifically – are
very different; a very different set of dynamics and certainly demographics and just size and scope.

So let me say that I don’t know whether I believe it but I certainly have enormous respect for it and we
should think about and plan for the implications of what this means because the implications are enormous for
everything that we do in this city.

Before I get to that, let me just say, look, there’s a lot of good news in here, right? The notion that hundreds
of millions of people are lifted out of poverty in absolute terms, we should celebrate that. The dramatic changes that
will have occurred in our lifetimes or our and our children’s lifetimes is of historic proportions and we should note
that. and so it truly is remarkable if, indeed, it comes to fruition.

A growing middle class, and as the theorists posit, the political stability that comes with that. the notion that
a middle class will want governments that are accountable and transparent; that will have some form of democratic
institutions; that those in and of themselves are an important end, and they are a stabilizing force. That, too, is
something to celebrate.
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And as the papers note that you have growth that is more widely distributed and as economies become less
dependent on commodities and less subject to the wild swings in commodity prices and therefore the terms of trade
shock that accompany those wild swings. In some ways, the global economy should be much more stable. That,
too, we should celebrate.

It reminds me of the paper that Sir Norman Angell wrote in I guess 1913, 1914, called “The Great Illusion”
that said that economic integration, globalization as it occurred in the late 19th century and early 20th century was such
a powerful force that war was unthinkable. It made war futile. And that was in 1913.

And hopefully, we’ve learned from those lessons, or we will. But I do think there are stabilizing forces and
great messages here. But as Uri notes, there are enormous risks. Climate change is one which we could spend an
entire day talking about, you noted and ill note; just energy demand and environmental issues beyond climate change.

And it’s not just the energy usage. Think about in the U.S., we have 800 automobiles per thousand citizens.
In China, it’s about 40 or 50. For anyone who spends time in the streets trying to drive around Beijing or Shanghai,
you know what the gridlock feels like. Imagine what that looks like if these trends are indeed true and what that
means for the usage of various forms of hydrocarbons.

So there’s not just climate change; it’s environmental issues generally. But it’s not about usage; it’s also the
extraction and the transportation of those energy sources – who will control, who will protect the sea lanes as we
move hydrocarbons from one part of the world to the other part of the world.

It has implications for security arrangements. What is the future of NATO if indeed – and I say this with my
good European friends sitting here on the front row – if indeed the U.S. and Europe become less important in the
global economy? Who will be the security forces to ensure that all this trade integration that we’re talking about is
indeed protected – the trade lanes, the sea lanes are protected? What will become of security arrangements, as they
currently exist?

And then of course the multilateral institutions that all of us have been a part of. Just the fact that we’ve seen
the ascendancy of the G-20 in the past 24 months tells you that institutional response are powerful and are coming
quickly to the fore.

But it’s not just the ascendancy of the G-20 or other institutions. There also have to be an effective aspect of
these institutions. Can they move beyond the crisis environment that we’ve found ourselves in to actually effectively
dealing with some of these issues and finding a new model of growth? And I don’t think we know yet.

And then of course there’s the domestic issues. And one of the issues Uri asked me to talk about is in a time
at which this town seems to have become obsessed with the idea of gridlock, and it’s certainly true. I was on the Hill
this morning; I’m going back this afternoon. Partisanship and polarization – a reflection of the country in many
ways – has gripped this city.

And it lends itself to all of us beginning to question whether this country can actually rise to the occasion that
these challenges present. And it’s easy to be a declinist these days. I can put together a set of talking points and visit
any city of the country and give a pretty gloomy outlook about the state of the U.S. political scene. It’s much more
difficult to tell the positive story about how we get through this.

And you think about some of the issues that are in this paper: the need to constantly innovate – and that
means that we’ve got to protect intellectual property rights, which is a key part of our trade negotiations. The
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administration has talked about doubling exports over the next 5 years – in which Carnegie has done a paper that’s
up on their Web site questioning whether that’s actually achievable. But are we ourselves rethinking the way in
which we think about global trade moving into a more protectionist, mercantilistic mode? Will that dominate
current thinking among the various players?

To the way in which we think about education. A great statistic I use is that if you were to assemble 100 9th
graders in this room – 100 9th graders – and you were to follow their advancement over the following years, here’s
what you get: Only 67 of those 100 graduate from high school. Only 38 go to college. Only 26 are still there by
their sophomore year. And only 18 graduate within 5 years.

And that’s including all 9th graders. If you look at Hispanic or African-Americans, the number is nine. Nine
out of 100 9th graders end up going to college and graduating in 5 years. That doesn’t allow us to compete in this
environment and somehow we have to rethink the way in which we address education in this country and focus
more on changing those statistics.

The way in which we do foreign assistance, international relations. The way in which we think about how we
spend our military budgets. The alliances that I talked about before. All these issues are going to come under
enormous strains at a time at which our fiscal outlook is the most dismal it has been in modern history.

And then as a part of that, we’ve got to rethink our relationships. The U.S.-European relationship is going to
be tested, without question. And it already is in some ways. But we have such a shared history, a shared sense of
values that it will require both sides of the Atlantic to ensure that those institutions and those relationships remain
durable throughout this period of time.

But other key alliances – Japan. I spend a lot of time in Tokyo and the new government is certainly looking
to its east and to its west and constantly reevaluating how it thinks about its security arrangement in the 21st century.
And if I were them, I would probably be making the same set of self-assessments.

India – no longer a part of the non-aligned movement and a country which the U.S. has spent the last seven
or 8 years trying to better integrate and develop closer ties. And I hope this administration – the current
administration – continues the progress that we made in the previous administration.

And then of course, China. No matter where I go in the world, the first question is always about the U.S.,
second question is always about China. The idea of the G-2 – whether you believe it or not, whether the Chinese
believe it or not – it’s immaterial. It is two of the most important economic relationships in the world. We will grow
more interconnected with each passing day.

And if this report is right, the sense of leverage, the shift in the balance of power that bilateral relationship is
going to change and change dramatically. And that has real implications for the way in which we think about
ourselves and we think about China.

People like to cite the two statistics – the two 10s now: 10 percent unemployment in the U.S. or
approximately, a 10 percent growth in China – and how that might color our relations over the coming months as we
go into midterm elections and at a time in which we think unemployment will remain high for a considerable period
of time.
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I suspect we will see the political forces in this town begin to focus more on China as the spring hopefully
eventually arrives and we get tired of beating up on bankers – and it’s Toyota this week. But we’ll find that we need
new villains and China will find themselves an easy target.

In fact, if you look at recent pollings, a Pew research poll that asked Americans about China – do you see
them as an unfair competitor? – seven out of 10 said yes. Five out of 10 – half those polled – saw them as a military
threat. I’m sure if you were to poll the officer corps at the Pentagon, you would get something similar.

So this relationship is incredibly important. I spend a tremendous amount of time shuttling back and forth
between here and Beijing. I worry about the way in which both sides may manage this relationship. Hopefully
cooler heads will take a very sober, long-term approach in the way in which we address each other and that we will
manage through what will – I think – will be some very tough times ahead.

Let me just close and say again, outstanding work. I respect it. I think it just highlights the challenges – the
political, domestic political challenges we have in this country. And I hope that others around town look at these
trends and we find our way out of this gridlock in putting in place policies that allow us to compete in this incredibly
hypercompetitive environment. Thank you.

MR. BOTTELIER: Thank you, Tim. Our next speaker is Ambassador Collins.

JAMES F. COLLINS: Well, thank you very much. And I will start by simply saying that I’m no economist,
so my perspectives here are taken from what I think are two extremely interesting papers and the conclusions of
which I believe certainly have to make us think about the kind of global order that will exist as we come up to, say,
40 years from now.

Now, I was asked to talk about Europe and the non-institutional Europe East. And I guess my fundamental
points – not to repeat what Tim has said and what Uri has said – will focus a bit more on the question of adaptation
to what I think is fairly clearly a consensus about trends that are clear. And those trends for Europe and Eurasia or
Russia/Eurasia are for the most part which will require them to accept a new place in the world, which I would
submit for both is going to be quite difficult and traumatic.

Fundamentally, what these statistics tend to show, or these figures and trends to show, is that the great
powers who managed the global system in the last 200 years just aren’t going to do that anymore. And I think it’s
perhaps easier to adapt if you’re in one of these rapidly growing developing countries where the world looks like a
bigger possibility every day. And you have new opportunities each year because you’re wealthier, you are more
sought after, you are an object of greater attention, et cetera, than is going to be the case in societies where I would
say to some extent – at least, I would say to a considerable extent – the opposite is going to be true.

Now, in Europe it seems to me – the one thing I would say about these charges, they don’t really talk about
the EU too much. And I would suggest that in many ways the way in which Europe is going to address these
questions will depend in the first and most primary way on whether or not the EU is a success.

As we look today, there are some very serious challenges afoot. I don’t pretend to be enough of a crystal-ball
gazer to know just what’s going to happen to the Greek and EU situation or other strains and stresses that have
emerged in the EU over its new treaty, over how it will govern itself, how it will integrate its economic systems and
so forth. But I think one has to note that we are far, far from a Europe which is an integrated economy, much less
an integrated polity.
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And in that sense, it seems to me the great question in front of Europeans as they approach China or India
or these developing markets is going to be how they do it. Do they do it as Germans and Dutch and British and
French and Spanish or do they really do it as the EU? And I think there is in many ways a lot of uncertainty here.
And this is in a sense an institutional political question in most respects.

I would submit that it seems to me that if the EU moves toward greater cohesion steadily, or at least even
nonlinearly but the outcome is a steady movement toward the EU as a unit, its position in this adaptation will be a
much stronger one. And the strains on the institutions will be less.

If, however, it is internally divided and difficult times emerge and the focus is within – as is often the case it
seems to me in Europe – much more than what’s going on vis-à-vis the outside world, then the adaptations may
come as shocks. They may come in much more challenging ways politically and institutionally.

So I would say that the one thing that in these papers – not in the papers but which the papers suggest as the
unknown, in a way – is what will happen with the institutions that are going to have to adapt to this changed global
role for both individual nationalities and also the entity of the European Union.

I won’t hazard a guess as to where it goes, but it seems to me that it is a substantial challenge and if we look
at – I mean, I noted, I guess, to Uri or someone yesterday – you know, the EU with the Greek issue, it in some ways
is beginning to face the same kinds of issues that the United States has faced in its regional politics and the challenges
between regions for 200-plus years. It is a very difficult issue and we still haven’t solved it, except we do have a
political context that is much more unified, and despite our stalemates and difficulties, the system at least begins
from the premise that we have to address these things as a whole. And those things are not yet decided in Europe.

Next, I’d like to say a word about Russia and I think it’s fair to say Russia is perhaps the key to what will
happen to the non-institutional Europe East. First of all, Russia begins – and its neighbors begin – from a very
difficult position to meet the challenges that are outlined or implicit in these papers.

They are on the one hand a – Russia is a developed country. It went through its forced industrialization in
the Communist period. It’s a nuclear superpower in terms of weaponry. It has in fair abundance an intellectual
capacity to compete in the modern scientific and technological marketplace and world. The problem is that it was all
developed in essence in a system which has disappeared and which left a burden of historic proportions that is still
with the Russian society – its elite and its people – in a way that is making the decisions about their future even more
complex and more difficult than might be the case in Europe or elsewhere in the developed world.

A part of the problem is that it’s also an undeveloped country or a less-developed country. Russia’s economy
today is fundamentally a commodity-based economy – heavily dependent for much of its citizen welfare or
consumer goods on imports, exporting essentially oil and gas, and suffering from what I would say is an
extraordinary system of weak institutions that are for the most part not much more than, say, 10 to 15 years old.

And it is this society which has now faced not only with having to adapt and change and structure itself to
compete in a world that it knew as the Communist experiment ended, but in which the global alignments of
economic, political and other realities with whom Russia has to deal is changing rapidly even as it tries to adapt.

Now, in this, there aren’t many anchors, frankly, for Russian leadership. One of them is not a very favorable
one. Most of the demographic projections for Russia’s population going out to 2050 are quite dismal. They take the
population to somewhere between 110 and 120 million people to inhabit a country which is the largest
geographically in the world and 11 times zones wide.
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Another factoid which is of interest is that east of the Urals there are something between 15 and 20 million
people. That is an area that is roughly twice the size of the United States or where you can tuck Europe into one or
two provinces. This presents immense demographic reality as a challenge in terms of simply how do you govern,
how do you manage this kind of territory.

Now, the good news in some ways is that it’s also a territory which has an abundance of natural resources
that it would be the envy of almost any economy anywhere in the world. They’re not easy to get at, they’re difficult
to exploit, but they’re there. The problem is most of them are out in that area where there are only 15 or 20 million
people and a pretty undeveloped infrastructure.

The second issue, as I said, is the burden of a 20th century which was dedicated by the Russian people and
system and elite to an experiment which failed; an experiment which was the Communist experiment and the Soviet
system, which produced a very peculiar way of structuring its economic realities that unfortunately when it
disappeared left the system quite unprepared institutionally or even in terms of training to deal with the kind of
competition and competitive position that the Russian economy would face as it approached the rest of the world,
which was defined largely by the market system and the Western institutions.

Well, that adaptation, while remarkable in many ways for what it’s achieved in 20 years, is still in its infancy.
And it’s a reality that most of the Russian system is still institutionally weak, financially – financial structures, banking
systems, market systems and so forth are still weakened and barely functioning, and in terms of the ability to manage
an economy and a country of this size.

So the real challenge for Russia it seems to me is how does it take these two great weaknesses that it has
today, manage the adaptations and challenges that are going to be in front of this economy and system as the world
changes rapidly and its biggest neighbor China and India and others pose new challenges? And Russia has to make a
choice about what direction it takes to deal with the problem.

Here, I would say the – I would go to one observation that was made in Uri’s paper. The biggest challenge it
seems to me for the Russians and the debate that’s going on today about where does Russia go is turning on the
question essentially of how will Russia modernize itself and make itself competitive, given all of the limits on the
system that it has today?

The outcome of that question is going to shape, it seems to me, the future. Russia can remain a commodity-
producing exporter. It would be a certain kind of country if it did. It would, it seems to me, be a very different
country from the kind of great power, modernized, competitive, 21st-century society that most of Russia’s elite says
Russia wants to be. But it’s an option.

The other option is a much more difficult and challenging one. And that is how do the reforms and the
changes institutionally that are required and infrastructure-building take place that will allow Russia to modernize
itself and become a modern, competitive, let’s say, European-type economy?

The answer to that question is unknown. The debate is going on. And it seems to me that we are going to
watch a very difficult and traumatic time as Russia tries to make the decisions that will be required for them to move
toward a decision on that issue.

MR. BOTTELIER: Thank you. Our last speaker is Dr. Naím.

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MOISÉS NAÍM: Thank you, Pieter. Thanks for inviting me. It’s an honor to be here. I just want to briefly
share with you seven surprises that I had as reading the reports and the presentations and also listening to Uri. The
first one is how gutsy this is, you know. For those of us that have a hard time planning next week’s schedule,
thinking about 2050 is just very bold. And I admire that.

And I also was, of course, like others here, concerned about issues of linearity and accidents and risks and
projecting the past and all that, which is a normal caveat that one makes when doing these exercises, but at the same
time recognizing the immense value, the heuristic value of putting oneself in the frame of mind of thinking ahead
and looking at this.

A surprise related to this – still in my first surprise – is that I wanted more. After reading this, I just wanted
to know more about what would happen if Uri and his team would inject into these projections some of the risks he
himself mentioned. What happens if China suffers some growth-impairing accident that has ripple effects of all sorts
of places? And those accidents can come – they’re either from an ecological accident or a financial accident or, you
know, the spillover of some of these street conflicts that we know take place quite frequently in Russia (ph) – you
know, the whole constant state of low-level turmoil that seems to be now a part of life in China and elsewhere.

So the whole issue that I would – and I know that there are limits to how many variables and complexities
you can add to the models, but I would much, much welcome another – the continuation of this study and give Uri
and his team more work and ask him to give us these projections with a couple of accidents injected and thrown in,
and see what happens. And I think we can all agree on what would be some very interesting systemic major
consequences of this.

The second surprise is how – was the emphasis on technology on driving the growth and the projections.
And he himself – I think in the report they write – and Uri mentioned that the main variable is demographics, which
is – goes without saying – is very important; technology and its consequences on productivity and capital as the main
drivers of these things. But the report makes the caveat that really what they believe it’s very important is technology
diffusion. So this is a very techno-centered kind of model.

And so inevitably one – I ask myself, where is the money going to come from? Where is the finance here,
where is the financial system, where is the capital? And of course, the answer is, you know, we’re talking about big
domestic savings kinds of countries. When you look at the countries that they are projecting to grow and to become
the dominant forces, these are countries that have very high savings rates and so the money comes from there. And
that’s where the capital to fund – you know, funding these rates of growth requires a lot of money. It requires a very
sophisticated, complex and global financial system; a financial system that is now being redesigned either by
authorities or by reality and that is emerging with different kinds of structures, incentives and modes of operation.

And so my next point was how does the world financial system looks in 2050? If this is the way in which the
pie looks in terms of the distribution of population and GDP and GDP per capita looks – well, what is the – how
does the financial system that supports those kinds of numbers look like?

And there, one can start speculating. I can imagine a dual or highly fragmented financial system. We will not
have an integrated regulatory system. We’re going to have a dual or even a three- or multi-layered financial
regulation in which opportunities for arbitrage between different regulatory systems are going to provide
opportunities and going to shape the behavior of financial markets. And you will have huge pockets of liquidity.
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So the question is, is the liquidity coming to fuel this growth only coming from domestic savings? Or is it
coming from a better, more integrated financial system where money flows from one continent to another and drives

And one of the potential – we don’t know yet because we are still in the middle of the financial crisis in many
ways – but it may be that one of the consequences of the financial crisis is protectionism – not trade protectionism
but financial protectionism, which is not potential but is already here. As countries salvaged the financial system and
bailed out banks and did all they had to do to deal with the banking system, they ring-fenced their economies; and
therefore creating all sorts of new impediments and more complex hurdles for capital movements.

And so it’s not impossible that we can see a world that has pools of money locked in different regions in the
world with higher transaction costs and higher difficulties and obstacles for the movement of capital around the
world. So I don’t know that that would be the case, but I think it’s very important to imagine and start thinking what
is the kind of financial system that goes with that.

The third surprise is when I started looking with more detail at specific countries – you know, discussing the
world in such aggregate numbers, it’s fascinating. But then you start saying, well, let me look at some countries and
see how they do. And then I see that, for example, the model has a projection that Mexico will be growing at 4.1
percent in the next – from here to 2050.

Well, if you tell that to any Mexican, they will just tell you that that’s not their country. Mexico has not
grown at that rate in a long time. Brazil has not grown – I’m sorry – Brazil – Mexico’s four, three, 4 percent per year
from now to 2050 – that hasn’t happened in Mexico. That hasn’t happened in Brazil in recent years.

So the model assumes that some discontinuity – some very important discontinuity – is happening in some
of these countries. Something is happening to Turkey, something is happening to – and again, I think that the
implicit assumption is that what is happening is technology; that there will be a technological push; there will be a
technological explosion that will allow countries that have not shown a great propensity to growth to acquire a
sustained level of growth. And I think that that together with demography is part of the story.

But again, I – you know, when you dissect countries and you start looking at the specific stories – the growth
stories and the growth performance of these countries in the last 10, 15 years – and you look at what is the
projection, you see, well, they are assuming a major discontinuity. And that is something that surprised me because
in general the model is quite linear.

My fifth surprise is Europe. So Tim was saying about how easy it is to go around and give a speech about
American declinism. It’s even easier to give one about Europe, right? (Laughter.) And so it’s all relative. Yes, the
United States may be going down and American high schoolers may not end up graduating from university, but the
rest of the world is not – you know, with some specific countries that – you know, it’s not that they’re doing much

So Europe – so one of the surprises of this study is that Europe shrinks – shrinks to the level of irrelevance;
shrinks to the level of becoming really a marginal player. I think that’s very dangerous for the world. I think that’s
very bad. I think Europe brings to the conversation values and priorities and goals that are very important to keep as
part of the conversation.

It’s very easy to make fun of the Europeans, right? As we talk now and sit here talking about the big
challenges of Europe trying to get their act together to deal with the world in 2050, Europe is in a spat because they
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didn’t like the way they appointed a new ambassador to the United States. And so, you know, if they cannot solve
that problem, if they cannot solve Greece, how are they going to solve the problem of doing with China, India and
all the numbers that Uri and his team has thrown on us?

So the point that I think my surprise is – which is not a surprise but is there – is that Europe challenges begin
after they have solved the insurmountable challenges that they have today. Even if they solved the problem of
having a political union and were speaking in one voice, even if they solved the problem of how to govern
themselves, even if they solved the problem of the euro and dealing with asymmetric shocks in their community,
after they have done all that, that’s just the ticket to start the beginning to be part of the conversation. And that’s a
very dangerous thing because, as I said, it’s very important to have Europe as part of the conversation for a variety of

The fifth point that I wanted to make is the requirements that this vision for 2050 has for global governance.
In the same way that these kind of outcomes, the world as divided in terms of GDP and population – in the same
way that has some very taxing difficult requirement in terms of capital, it also has even higher, more demanding
requirements in terms of the ability of the countries of the world to work together.

And a while ago I wrote an article that I titled, “The World’s Most Dangerous Deficits” that had nothing to
do with economic deficits, but it had to do with the deficit that the – the big gap that was taking place between the
ability – the demand for effective collective action at the international level and the supply.

As the world globalizes, as the world grows, as the world becomes far more interdependent in a variety of
ways, in daily ways, the need for collective action is more important. The inability of any country acting alone to deal
with some of these problem is obvious, is growing, is difficult. At the same time that the demand for that collective
action is booming, the supply is either stagnant or declining. So we have not seen in recent years major episodes in
which the world has gotten together and solved a collective problem.

And so in this world of these kinds of descriptions, that dangerous deficit becomes even more dangerous.
And it’s not going to be solved by a stronger United Nations, you know. It’s more complicated than that and
requires more – a different, perhaps, institutional setting. And without that, then some of these projections are going
to be jeopardized by the difficulty of the different countries acting together in very effective ways. Paramount
among those, of course, the example that Tim mentioned, which is the G-2 – China and the United States – and
others. You also want India and China to work together better, and of course, Europe. And so that most dangerous
deficit is something that is going to be with us for a long time and will be haunting all these kinds of projections.
Thank you.

MR. BOTTELIER: Thank you, Moisés. We have ample time for discussion. Let me abuse my position as
moderator by kicking it off. The danger, of course, of picking a subject like this is that the discussion can rapidly
become totally borderless. We can talk about anything – long term, short term, geographical issues, political issues,
economic/financial issues – so how do we bring some order into this discussion? I have no illusions that I can but
let me try to pick up on a point that I think was central to Moisés’ presentation.

If the world economy – if the global economy – continues to grow more or less along the lines that Uri is
suggesting it might, barring black swans that we cannot know about – the unknown unknowns – the way we manage
resources, including financial resources and financial systems, is going to be very, very critical.

In the United States and to a lesser extent in Europe, I think we still in our collective psychology have this
idea that the American dream can materialize for everybody. If you only work hard enough and smart enough and
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honest enough, you can fulfill your dream. That “was” true for a while in history; it’s not going to be true for very
much longer. There are going to be absolute resource constraints in many areas. We know about the climate
constraints, we know the water shortages.

I think one of the very key points that Moisés pointed to is the future of world financial systems. Where are
the savings going to come from – national savings or international global, integrated financial systems? And what
would that entail? The global financial system, as it has developed since 1970 – since the abandonment of the gold
standards – has become increasingly unstable and unpredictable. It would suggest that we have to move increasingly
in that area and in climate-control areas towards systems of global governance that we don’t have in place right now.

Moisés, again, I think pointed to the risk that if Europe for whatever reason becomes more and more
marginalized on the international political scene, we have a vital player in the past decades absent from the table.
Who is going to call the shots? Who is going to persuade the world political systems that we need – desperately need
– more and better systems of global governance? Can I just ask the panelists to reflect on that question? If Europe
cannot continue to play the role they did in the last two centuries, who is going to do it? India? China? Japan?
Where is global governance going to come from? (Pause.) (Laughter.)

MR. DADUSH: You’re asking us, right? (Laughter.)

MR. BOTTELIER: Yeah, I think you – you were the one who led us to believe in all your beautiful
projections that there is a chance that – a better chance than 50, perhaps, that things will continue to develop more
or less along the lines of the last 20, 30 years.

MR. DADUSH: Yeah, well, Pieter, I don’t have the answer, actually. And one of the advantages of being an
economist, and particularly an economic forecaster, is you can push the numbers and push the model, et cetera, and
then you come out with a certain outcome and you then stand back and say, well, what does it all mean?

I mean, I don’t have the answers. But certainly, the question is a very, very central and pertinent question.
And I’ll make a couple of observations as an economist just to get the ball rolling and I hope others will chip in.

The first thing is that you don’t need global governance on everything. you don’t need global governance to
make sure we don’t run out of copper. The markets will make their property rights in copper; the markets work. If
we start running out of copper, the price rises; alternatives to copper will be found.

Where the global governance deficit becomes absolutely fundamental is in issues like climate where basically
the externalities are gigantic and the markets don’t work, unless somebody identifies the social price – the
appropriate social price for carbon. The market left on its own devices – and I’m using market in a very wide sense
here to include sovereign countries that are not coordinating with each other – that will lead basically to a disaster
scenario. Now, some people believe the climate-change science; some people don’t. the consensus is pretty clear, I
think. But if you believe that, then that – it’s in those issues where externalities are fundamental. And climate is one
of them, but there are many others.

The second observation I’ll make, which is not really as an economist, but as an innocent citizen, is that it’s
not clear to me why Europe – the reduction in the influence of Europe suddenly reduces our capacity to deal with
global governance. I mean, what’s so great about Europeans?

I guess what I’m really trying to say is, what makes you think that China and India will also not be extremely
interested in global governance? And it’s just – they will certainly have different priorities; they will emphasize
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different things. They may be more concerned about, you know, the impact on poverty in the course of the next 5
years or 10 years of particular measures.

But they are also going to be very, very concerned about – you know, over 1 billion people – how they are
going to fit in, how they are going to be affected by, whether it’s the world trading system or the climate, for that
matter. So anyway, I question the premise of the question, and that’s all I can say.

MR. NAÍM: Can I respond to that?

MR. BOTTELIER: Yes, please.

MR. NAÍM: So I am from Venezuela, and imagine that either a close friend of mine or a relative of mine is
jailed, beaten and tortured. I would rather have the European Union with a voice on that subject than China.

MR. BOTTELIER: Actually, when I raised the question – and I will open it up to the floor very briefly – I
had it in mind, actually, to invite you to suggest where the G-20 is going to go, as a possible future instrument of
increasing importance for global governance issues. But you didn’t pick up on that.

I will now open the floor for questions. Please identify yourself, wait for the mike and keep your question or
comment as short as possible.

Q: Judd Harriet, documentary filmmaker. Looking at these numbers – well, Uri has already mentioned the
one downside risk, and that is the climate – but looking at these numbers, it’s hard to suppose that the resource base
of the planet can support income levels of this magnitude. It seems to me there’s going to have to be a revolution in
the efficiency of resource use.

Now, my question is, among the developing set – India, China, Brazil – what is the likelihood that they’ll be
able to develop the technologies to vastly improve the efficiency of resource use to support anywhere near these
growth levels?

MR. BOTTELIER: Any panelist would like to comment on that?

MR DADUSH: I think the questions are going to be very difficult, so I suggest you group them and we
come back. But you know, I also don’t want to be the one answering, only, because I don’t claim expertise in all of
these areas. And maybe some others will chip in.

MR. BOTTELIER: To some extent, if I may, sir, your question identifies one aspect of my broader
question, how realistic is the American dream for the globe over the next several decades. If we don’t find answers
to the question that you raise, I think that American dream may be a pipe dream.

MR. NAÍM: There is a very unsuccessful legacy to the Club of Rome kind of predictions. The whole notion
that population growth and development and a different pattern of consumption that is wealthy will strain the
resources of the planet to levels, you know, is the Malthusian thing that has constantly been overtaken by technology
and prices. So in order to really worry about that, you do have to assume a major discontinuity in past pattern, in
which in the past, prices and other factors have taken care of that.
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Now, we have now – one discontinuity that we now face that we did not face in the past is climate change,
and the consequences for that. And Uri had the example of how, you know, copper production doesn’t need global
governance because markets will take care of that. Yeah, markets will take care of the trading and production of
copper, but it may be that you do need global governance to ensure that copper is produced and traded in a way that
is friendly to the planet, that is not as damaging.

And that would be a market failure. And that is where you would need some sort of ensuring that incentives
are aligned and regulations are aligned so that copper is produced in a way that doesn’t burden the planet’s climate in
unsustainable ways.

MR. BOTTELIER: This gentleman in the back.

Q: I’m – (off mike, technical difficulties).

MR. DADUSH: Okay, that’s a question I can answer. (Laughter.) As you see from chart number five and
six, in 2030, according to these projections, China essentially matches the United States in terms of GDP, in dollar
terms. However, it will match the United States in PPP terms, meaning at international prices, well before that.
Already, in 2030, China is a much bigger economy than the United States in PPP terms. So I’m going to guess it’s
somewhere in 2020 that, in PPP terms, China overtakes the United States.

MR. BOTTELIER: But there was a second question.

MR. DADUSH: What’s the second question? Sorry.

MR. BOTTELIER: Institutional issues – are we going to have revolutionary developments there that would
match the governance requirements?

MR. DADUSH: And are we talking about global institutions, now, or are we talking about domestic

Q: (Off mike.)

MR. DADUSH: Yeah. Oh, I see. Yeah.

Q: (Off mike.)

MR. DADUSH: Yeah. Well, again, that’s a very tough question for me, but the – already, today, you know,
most developing countries are in what you would call democratic regimes. I mean, India is the world’s largest
democracy and it is a democracy. And Latin America, you know, with a few exceptions, is – has moved in that

The big exceptions are, I would say, today, in the Middle East. And China, you have to say, doesn’t fit that
model, either. I really defer to people who know China better than I, and Pieter, who keeps sending me the
questions – I’ll send it back to him because he is a big China expert – whether he would consider China, you know, a
purely authoritarian regime today or whether he would consider it to have many aspects of a relatively free society.
I’m very interested in his view on that.
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But essentially, what I’m trying to say is that a large part of the developing world that we are saying is
growing very rapidly has moved towards a more democratic model. And I make a big exception for the Middle East,
which remains covered, essentially, with authoritarian regimes. But even in Africa, you’ve had some big evolution in
the right direction.

MR. BOTTELIER: Gentleman in the pink shirt.

Q: I’m Matt Firth (ph). I wanted to get back to – (inaudible, off mike).

MR. ADAMS: Great question, Matt. Well, you said evolving – I think that’s the key issue. They are
evolving. If you think about just the IMF and the response that, that institution – reflecting the response of its
shareholders; it’s simply a building with staff, right, very capable staff – the institution evolves and changes in a way
in which its shareholders want it to.

It doesn’t have some magical authority to self-initiate massive changes if its shareholders don’t want that to
happen. So in the midst of this crisis, principally through the G-20 and the ascendancy of the G-20, used its
instrumentality – the IMF being one – to put together a fairly robust response to the crisis. And I think the fund
rose to the occasion and has evolved in a way which made it a successful part of the response to this crisis.

The key for the G-20, getting to your question, and for the fund going forward, is now that the crisis
environment has receded, where there will be the pressure to continue to use these institutions in a way which solves
problems. Greece is one of them, and we may well hear from our European friends why the IMF is not more
involved in solving the Greece crisis.

But evolve, they will. There will not be a revolution at the IMF or the World Bank, other institutions as we
know them, because revolutionary changes tends to mean a change in the balance of control and power of those
institutions. We’ve spent years negotiating minute changes in the voting authority and quotas at the IMF – I mean,
rounding errors – we spent countless hours because it’s seen as a zero-sum game.

The key is to keep these institutions evolving fast enough that they remain relevant, and that is always an
enormous challenge. And given the pace of change that is cited in these studies, one might question whether they
can. I don’t think just layering new institutions on top of the current structure helps. We have them. They are
highly imperfect. Whatever we create in the future will be highly imperfect. But we should do what we can to make
them relevant in the time in which and events in which we’re faced.

MR. COLLINS: I think there’s another point to think about, and that is that, in some ways, the question that
gets posed about the capacity of institutions, and so forth, is perhaps best answered if you look at how institutions
respond when they have to respond. I’m struck, for instance, by the fact that, if you look at things like swine flu or
these pandemic scares that have come, actually, the institutions have emerged rather quickly to manage that problem,
which was seen by everyone across political lines as something that had to be managed.

Similarly, it seems to me the G-20 – I mean, whatever it may have been doing before – suddenly became
rather activated once we had the financial crisis. In other words, there was a real problem to solve, which everyone
was prepared to agree had to be addressed. And that may be the optimistic sort of approach, that when a problem
really arises that challenges, people can, in fact, or institutions can, in fact, rise to the occasion, or new ones are
created. And the obstacles to the work of those institutions are set aside enough to make them effective.
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The bad news is, you know, things like climate change, or, I would say, one which is on everybody’s mind in
this institution all the time, which is nuclear proliferation. Are we going to come up with a way to manage the issue
of nuclear proliferation when we know a new challenge is coming by the spread of nuclear-power generation? No
one has the answer yet.

But it seems to me that what is unlikely to happen is an abstract definition of an issue that is then addressed
by some institution which supposedly has authority or is created to address it. People simply do not see that as a real
problem until it becomes, somehow, tangible and real. And that, I think, is the great challenge for these more
abstract issues.

MR. NAÍM: If you take the 10 most important multilateral problems, global problems – threats – you will
discover that the solution requires a number of countries that is less than 192. If you take climate change, or if you
take trade, or if you take – just list – what are the lowest number of countries that accounts for the largest size of the
problem – either they are part of the solution or being part of causing the problem.

If you look at climate change, the number is about 12. If you deal with these 12 countries, you’re going to
deal with 80 percent of the problem. Nuclear proliferation is the same – it’s a small number. And you go down the
list and you will discover that you don’t need everyone in the room. Ideally – you know, that is, of course a bad
thing because, immediately, you have accusations of the democratic deficit and exclusion and all the big players being
in the room excluding the small ones and so on.

But the fact of the matter is that including everyone – including 192 countries – in the last 20 years, has
proven paralyzing. Nothing happens. And Copenhagen was the best example of that. So one of the things I’ve
written about – I titled it “minilateralism” – perhaps we should be entering in an era of minilateralism, not
multilateralism – minilateralism understood as, again, the least amount of countries – the least number of countries –
that accounts for the largest size of the problem and its solution.

MR. BOTTELIER: I think Mr. – (inaudible).

Q: Thank you also for the very stimulating discussion. The only problem that I have is that I have a long list
of topics on which it’s absolutely necessary to comment. (Laughter.) I will be very brief, though.

(Inaudible, technical difficulties) – to manage this enormously increasing – (inaudible) – question of power,
of relevance. Moisés obviously has a lot of good feelings – (inaudible) – ask the other fundamental question. I think
– and I’m absolutely in agreement with what he said. He said a lot will depend on whether the EU is going to be a
success in – (inaudible). That’s something difficult to evaluate – why we are going to be a success – because we are
in the process of building, successfully, I would argue, although it’s a little bit difficult to see behind the crisis and the
short-term difficulties.

Because Europe has one, at least – (inaudible). I agree with what you said about India and other emerging
countries and – (inaudible) – to a more multilateral or cooperative world, absolutely. Europe has one – (inaudible) –
is that this is the model that – the only one on our planet about managing interdependence among sovereigns. And
that’s – (inaudible) – the specificity that we – (inaudible). I think behind the crisis, we are seeing again something we
have seen in the past – that is, Europeans becoming stronger in their effort to manage their interdependence,
because that’s the right way to look at the EU, I would argue. (Inaudible) – become stronger through the crisis.

And even in the case of Greece, now – I’m not going to expand on it; it’s a fascinating discussion – but I
mean, you can see, if you look into the system, the ingredients of the system answering. Look at our ability to deal
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with the crisis of the short term, the balance between responsibility and solidarity – (inaudible) – process. And look
at our effort to build our exit strategy, and look at our effort to – (inaudible). (Inaudible) – shorter question. Just a
contribution. Thank you for giving me the time.

MR. BOTTELIER: Allow me to just react to that very briefly. I think your point is a very important one,
because what you stress is that the process of dealing with the cross-border issues is underway in Europe in a very
intense way. And that’s often overlooked by outsiders, who are not part of that process. But increasingly, the world
as a whole is going to face the kind of questions that have been addressed, now, systematically in Europe for several

Suppose Europe is not quite successful in making further progress. Then the question becomes, is
unilateralism able to provide the kind of leadership that we need. And the only country, I think, in the world, as we
know it, that could provide – continue to provide that kind of leadership is the U.S. So my quick question to Tim is,
what are your thoughts about the prospects that the U.S. will be able to resume the kind of international stature and
leadership that it has had, so critically for the world, since the Second World War?

MR. ADAMS: That’s one of the defining questions we’re trying to answer every day in this city. And let me
just say that I think we will get through this crisis and I think it will make the union more durable. So I agree with
you. I think that’s right. The issue is whether we have the financial and economic resources to play the kind of role
that we played in the past.

And this town is – the president, in 48 hours, is rolling out yet another health-care proposal that’s a trillion
dollars of additional spending. And if you look at our fiscal – and I’m not questioning whether it’s, you know,
morally right or not – but if you look at our fiscal outlook, it is harrowing and it is unsustainable.

And I think before we can expand our global reach, whether it’s through military of foreign assistance or
other forms of presence, we have to get our own economic and financial house in order. And we haven’t even
begun that discussion. You know, the issue about capping domestic discretionary spending for 3 years – big deal.
You could eliminate all of domestic discretionary spending – eliminate it this year and, by the way, eliminate all of the
defense budget – and you still have a deficit.

You could eliminate all the domestic discretionary spending for the next 10 years and you still have deficits –
massive deficits. Our spending trajectory is simply unsustainable and this town is in denial about it. And until we’re
able to address those challenges and create some priorities, I don’t think we have the capacity and I don’t think
there’s the domestic political support to expand beyond where we are.

In fact, this president was elected to bring home our troops in Iraq and, in some ways, to try to find a way to
downsize our military presence, globally. So I’m not optimistic that we have the resources or the fortitude or the
interest – the domestic political interest – to play a greater role than we played in the past.

MR. BOTTELIER: The gentleman here.

Q: Parameswaran Ponnudurai from Agence France-Presse. There was an interesting question by Pieter,
which I think the panel didn’t address. This is in relation to the questions that have arisen about global governance.
And we already have the G-20 – the summit that has taken place more than a few times. And how is the G-20 going
to address all of the problems that has been – I mean, they have grappled with climate change, finance, and
economic issues and the crisis.
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But do you all see the G-20 becoming an institution that can really grapple with all this, and especially with
Moisés himself said that you don’t need all the members in the room to discuss these global problems? And I think
the 20 countries that are represented really reflect, I would say, the developing countries and the industrialized
countries who matter.

MR. BOTTELIER: Thank you, sir. There was a lady in the back who raised her hand just a minute ago.
Please, yeah.

Q: Good morning. My name is Maria Sosa from BG Consulting, also from Venezuela, as Mr. Naím. My
question is the following: You have presented an obvious change in global leadership, a need for technology as a
tool for growth and an evident financial crisis that we can see, these days, and that we can foresee in the future, at
least a few years from now. The question is, what do you think will be or should be the role of multilateral
organizations, given these premises?

MR. BOTTELIER: Thank you. Would you like to – you know a lot about that.

MR. DADUSH: Okay. NO – all right. On the G-20, I think the G-20 is a huge step forward compared to
the G-7, G-8. I’m on the record as saying the G-7, G-8 is essentially an anachronistic structure. It’s a structure of
yesterday. And the fact that the G-20 is now affirmed as the economic forum is just common sense. You cannot
have these discussions – serious discussions about economics – without China around the table, Brazil, India, et
cetera, et cetera.

I think, over time, the G-20 should take over the broader roles. I don’t really understand why you can have –
or how you can have serious discussions about security, and not just economics, without these players around the
table. So I think it’s a very big step forward. At the same time, the G-20 suffers from many of the handicaps that
the G-7 or the G-8 did, in particular, the fact that there is no well-established institutional structure. There’s not
even a formal secretariat, et cetera, et cetera.

And you know, the G-20 suffers from summit-itis. You know, the leaders fly in and fly out and they meet
for two hours, and what can you do, you know, in that context? So it’s a big step forward because it has the right
people around the table, but its ability to execute remains very, very weak, and possibly, actually, weaker than the G-
7, G-8, perhaps because it is a more heterogeneous set of countries.

And I happen to buy into the – Moisés’ idea of minilateralism. And I think this is the way – the only way
we’re going to move forward on a lot of these problems, is the concept of getting the small, critical number of
players around the table. And I believe that that’s true at the WTO also, where we are also seeing paralysis.

The role of the multilateral institutions in fighting the crisis and establishing a new system that is less
vulnerable – I think it’s fundamental. I think that enormous progress has been made in the last couple of years on
the International Monetary Fund and on the financial Stability Board. In those areas, I think the progress is marked.

It’s actually a big disappointment to me that the Europeans that hold, which is ironic – you know, they hold a
dominant position in the IMF; they are overrepresented in the IMF board. And they have pushed very hard these
reforms of the International Monetary Fund to make it more legitimate in the eyes of its borrowers and more

And then when a massive crisis that requires specifically the expertise of the IMF is required, the Europeans
stand up and say oh, no, no, no; it would be humiliating to go to the International Monetary Fund. So the
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Europeans, kind of, are trying to have it both ways. I’m a French citizen, by the way. (Laughter.) They’re trying to
have it both ways. They want to have the weight in the International Monetary Fund; they want to control the
majority of the voting, have I don’t know how many chairs, et cetera, et cetera. And this is a medicine that is good
for other countries, but not for the Europeans.

So that’s – and I say this with a smile, as my friends, Angelos (ph) and Antonio are here. So I think a lot of
progress has been made because of the recapitalization. Much more needs to be done. I think the WTO is in very
bad shape. And I think that the WTO very badly needs reform – I’ve written on that – and, you know, to play its
role. But these institutions are fundamental to dealing with a lot of these issues.

Q: I’m Ken Dillon, Scientia Press. I’m an historian. And I think there is a very interesting perspective that
both complicates some of the very broad issues – the discussion of it – but also can be illuminating. And it
particularly goes to the point that Moisés Naím was bringing up about China and Europe.

And I would recommend to you that you might have a similar, very broad kind of discussion that would
address these kinds of political and cultural issues, and along the lines of what kind of work used to be done, very
interestingly, by the well-known Georgetown University professor Caroll Quigley, who wrote about and taught about
the evolution of civilizations.

If you understand that civilizations always, in the past, have evolved through certain stages, then you must
ask the question, are some of these problems, that you’ve been discussing today, better understood if we understand
this question of the stages of civilization?

For instance, are some of the elements of paralysis in the U.S. political system or in the problems that the
Europeans are having in dealing with their issues – are they actually evidence that they’re going through a change in
stage of civilization, moving from, for instance, an age of conflict or an age of growth into an age of what Quigley
called “universal empire?”

And of course, in Western civilization, universal empire would be divided between the European universal
empire and a U.S. universal empire. But at any rate, the point is, once you move into a new stage of civilization –
and there’s plenty of evidence that we’re headed that direction – it becomes very difficult to move back. And there’s
certain ineluctable processes that take place in your own society.

And I’m just tossing this out: Georgetown University is going to have a seminar on Quigley in June that –
where some of these issues will be raised. It’s his centennial. And it shouldn’t be discussed in the framework of
clash of civilizations, or something like that. That’s very superficial. At any rate, I just wanted to raise that.

MR. BOTTELIER: Thank you. This lady here in the front. Yeah?

Q: Thank you. Russian News Agency – (inaudible). So I have a question to Mr. Collins. Could you please
name the institutions and the strategies that will help Russia to become one of the leading members of G-20? So
could you please list these institutions? (Laughter.)

MR. COLLINS: Well, I’m not sure I can answer what institutions, yeah. But it seems to me that the Russian
leadership, today, is debating the question about whether it will seek to define a role in the globe that is uniquely
Russian and independent, for the future, or whether Russia is going to become a part of something bigger.
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I personally believe that if you look at certain facts that are partly in these presentations, it’s very difficult to
envision a Russia going forward into the coming century where it can play the kind of role, globally, that it played in
the 20th century. The population is going to have difficulty supporting it. The need for outside capital to develop its
resources is going to make that difficult. So the real question, to me, is, in a sense, how Russia resolves the question
of defining its relationship, essentially, to Europe and its institutions, and to its neighborhood.

And I think there’s a great debate going on at the moment that is only in its earliest stages, about precisely
that question. And it’s not couched in those terms, but its result is going to be a definition – is going to be an answer
to the question in one way or another.

And as I said, it seems to me Russia has the capacity to remain, essentially, a supplier of commodities to the
consuming economies on its borders, whether that’s in Asia or in Europe. It is one model that could develop, and it
would not be just a Saudi Arabia with nuclear weapons; it would be a very different kind of society. But its core
would be to supply commodities.

The other vision, which is the one that is put forth by many – probably the majority of the talking class in
Moscow, at least, says, no, we want to be modernized, competitive, 21st-century economy, diversified away from
commodity-dependence and fully part of the global, modern economic system.

To do that, it seems to me, is going to demand tremendous numbers of changes in Russia’s institutions, in
their capacity, and it’s going to demand that they address questions of basic infrastructure – physical, human,
educational and so forth. And those are challenges that are quite daunting and, it seems to me, are only being
touched upon in the political debate, which is just beginning.

MR. BOTTELIER: I’ll get to you later. I see a hand in the back there – gentlemen in the blue shirt.

Q: Shaila Rajamani from the Wilson Center. First of all, I would like to thank all of you for your great
presentations. I have a question for Mr. Dadush – did I pronounce that right? Okay. If you foresee China to be
such an important power in the next 40 years, what would you suggest would your solution be to their undervalued
exchange rate?

China’s undervalued exchange rate serves as a form of protectionism, and which institution do you think is
best suited to deal with not only a proper valuation of China’s exchange rate, but other exchange rates, as well, let’s
say of oil-producing countries? My second question is regarding capital. If there’s going to be a high rate of return
to capital in the emerging markets, there’s going to be a flight of capital from the industrial nations. And what do you
think the implication of this will be? Thank you.

MR. BOTTELIER: I’ll try to make a few comments on your first question. I think China has come up
repeatedly in this discussion. It’s one of the biggest questions, I think, that none of us can answer with any degree of
certainty. What we can observe is that, over the past 30 years, all of us have been consistently wrong about China.
Those who make a living studying China, speaking about China, teaching about China, as I do, are always surprised
that China, on the economic side, performs so much better than even the optimists predict.

With that sort of wisdom in mind, it would seem to suggest – would seem to be reasonable to expect that
China will continue to do very well on the economic side. The big question then becomes, can China continue to
grow and become a dominant economic power, which it already is, actually, today, while remaining stable. I think
that’s the biggest question facing China.
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To me, it’s always surprising that when you discuss these questions with the Chinese, they are as puzzled by it
– by their own performance – as we are. And I don’t think anybody in China knows terribly clearly what lies ahead.
This is breaking into new ground, new history. China has been a major factor in the world economy many, many
centuries ago, but that was before we had the global communications, before China could exert, sort of, global
leadership through multilateral organizations or national power, like it has today.

My inclination is to think that the probability that China will continue to develop in a positive direction is
very good. It’s easier to describe China’s political system by what it is not than what it is. It’s clearly not a
dictatorship; it’s clearly not a democracy. But what it is, is very hard to define, because we don’t really have parallels
– close parallels in the world. Perhaps the best way to look at it is as an evolving system that is guided by a great deal
of political courage and by pragmatism.

As long as these forces will continue, I think, to prevail, I think the Chinese and the rest of the world, I think,
can probably anticipate a continued positive, rapid development of China. Whether it will be the rate that Uri
predicts in his table, I don’t know. He predicts, with considerable, I think, logic, that ultimately, India will begin to
grow faster than China, and I think that must be mostly for demographic reasons.

I would have no quarrels with that. I think the big question is, can China remain stable? To me, that’s a
bigger question than, will China, 10 years or 15 years from now, have a multi-party political system. The notion that
China is not evolving politically, in my opinion, is completely wrong. There is tremendous development internally in
China at all levels, including at the political level.

If I may just refer to an aspect of China’s situation that not many people focus on, that’s the development of
the cultural world in China. The culture is blossoming in China, in all fields – in the literature, in the filmmaking, in
dance. I was at a presentation on modern dance in China last night at the Sidwell Friends School here and I was just
amazed about what’s going on in modern dance in China. Nobody is aware of that. So this country is expanding
and developing in all directions – militarily, politically, educationally, scientifically – and we don’t necessarily know
what lies ahead, but nor do the Chinese.

On the more narrow question of the exchange rate, which you put sensibly in your question, quite frankly, I
don’t think it is nearly, nearly as important as people believe, especially on the Hill in this town. China’s fixed-
exchange-rate policy is more a Chinese issue, I think, than it is an American issue or a global issue. I believe that it is
in China’s own interest to re-flexibilize (sic) the exchange rate management.

But even if they don’t do that, I think they cannot prevent the appreciation of the real exchange rate forever.
The sterilization over the past 5 years has, I think, been successful in preventing real appreciation. I see that more as
a defensive move on China’s part than an expression of aggressive mercantilism. Mercantilism, I don’t think, is really
the right way to describe China.

If there is one country that has opened up in the past two decades in trade and to investment, to open
contacts in the world, it is China. So how can we make mercantilism to be the cornerstone of the discussion on
China? It doesn’t make sense. And quite frankly, on the exchange rate, which was your question, I don’t think it is
as important as people think it is. (Pause.)

MR. BOTTELIER: Unfortunately, that will have to be the last question because we exhausted our time.

Q: Yes, I’m sorry. I was meaning to remain silent, in order not to take too much of the floor, so the
Europeans don’t take too much of the floor. But the nice provocation of Uri, I think, calls for some reply – not so
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much on the issue of the EU overrepresentation on the IMF. I mean, it’s a well-known issue. I mean, the EU
contributes 35 percent to the new funding, 32 percent to total funding – even more with the World Bank.

But the more important issue is the relations between the EU and the IMF, and why the EU has not called
the IMF to solve Greece. And the reason – I mean, excuse the expression – that shows, in my opinion, some
arrogance on the part of those supporting the IMF. I mean, this means that the IMF knows better than the EU what
the EU needs. I’m sorry, but I disagree.

I mean, the EU has a complex economic policy surveillance architecture. I mean, experts meet every month,
ministers meet every month, and all kinds of contacts are enshrined in this architecture. So that, I mean, I think we
can say that we know better what is needed. Of course, the IMF is extremely useful and we have called the IMF for
these cases, to provide their expertise. But I mean, thinking that because the IMF is there, it applies to every instance
and every problem, I think, is a misunderstanding.

MR. BOTTELIER: We have unfortunately run out of time. I would have liked to have some concluding
comments from the panelists, but since we are already over time, I would like to close this session. Allow me just to
say that, as I feared at the beginning, a structured discussion on a broad topic like this is extremely hard. I’m struck
by the breadths of the issues that have been raised in the audience and by panel members.

I’m also struck by the fact that some very important issues and parts of the world haven’t been mentioned.
Africa hasn’t been mentioned; we haven’t mentioned, or hardly ever mentioned Turkey – a very critical factor, I
think, for the future of Europe and the future of Europe-Asia relations; we haven’t mentioned Ukraine and what
happens to Ukraine-Russia relations, I think, is bound to be critical for a larger area than these two countries.

We haven’t even discussed the question whether the world will overcome, successfully, the current struggle
against terrorism, which is preoccupying so many governments and so many nations in the world. All this leads me
to think that, yes, it is very important to make these projections to have something to talk about. But ultimately, the
uncertainties – the risks that we cannot really assess – will drive the events.

The black swans, the unknown unknowns, to quote Mr. Rumsfeld, I think, will continue to be with us. And
we have to focus on the future, but in our human weakness, we will never know what it will bring. So with those
words, let me thank the panelists and the audience for a most interesting discussion. (Applause.)