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Nouriel Roubini on the Origins of the G-Zero World

Nouriel Roubini
Photo: Oliver Quillia for CNBC
Nouriel Roubini

The 21st Century world is fragmenting at an alarming pace—economically and politically—and the old models of understanding global dynamics are struggling to keep up with the breakneck speed of change.

Nouriel Roubini, along with political scientist Ian Bremmer, recently developed a new conceptual framework for understanding those changes called The G-Zero World.

It's a theory that covers a great deal of ground—describing the complexities of globalization on multiple fronts. I recently spoke to Nouriel Roubini to get a better understanding of his ideas.

The first point that Roubini makes about the G-Zero World involves its extraordinary scope.

Globalization has blurred a broad array of boundaries: And nations are not merely economically interdependent—they now have security interests and financial interests that are deeply intertwined.

Roubini points out that this is true "Whether you are talking about monetary and fiscal policy, exchange rates, trade—whether you are talking capital controls, energy and food security, global climate change, global security issues, how you reform the banks, how you reform the international monetary system—the disagreement not just between the US and China, but between the US and Europe and Japan."

His rapid fire delivery reinforces his premise: It's a long and comprehensive list—and one that seems to penetrate virtually ever domain of domestic and international policy within the broad headings of security and economic affairs.

What makes this a fundamentally unstable situation, in Roubini's, view is the power vacuum that has developed internationally since the fall of the Soviet Union and the end of the Cold War's bipolar model of controlled competition.

As Roubini says of the world now: "On all the most important issues there is now disagreement and disarray."

Roubini describes a world in which there are a multitude of emerging powers—and one in which he says the United States can't simply impose its will unilaterally to create a stable framework for rational competition

Roubini also brings a historical context to his description of the G-Zero World—in effect helping to define it by what it is not:

"In the 19th century it was the British Empire—providing free trade, the gold standard, the British pound sterling as a reserve currency, and global security through its navy. Then when the British Empire declined we have the rise of American power—the Pax Americana. In the 20th century, The US pushed for free markets, free trade, capital mobility, the use of the dollar as a major reserve currency."

The historical perspective that Roubini describes presents a worldview where a hegemonic nation provides leadership for the global public good.

Absent that leadership, Roubini describes a situation that can become a zero sum game— where nations see the global markets as a zone of competition without cooperation, where countries must constantly battle to maintain their slice of the pie. As he says, "It's a game in which my win is your loss."

That situation, Roubini believes, arises from an absence of leadership at the very core of global affairs. And, without that leadership, he says "People see zero sum problems—rather than coordinating together to make it a positive sum game."

That lack of coordination, a key feature of the G-Zero world, can cause a variety of global ills, according to Roubini —including currency wars, a rising tide of protectionism, and even outright trade wars.

As Roubini says of the worst case scenario: "G-Zero can become G-Minus Zero."

In the next article in this series, I will discuss the role of the developing world within the G-Zero framework, especially the role of a rising China—which figures prominently in Roubini's model.

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