Innovation/Global Crisis Blog

Four Critical Ruling Bargains Come Unstuck: Can They Be Rebuilt?  

By Shlomo Maital



A Do-It-Yourself Tool for Forecasting Global Developments


Tom Friedman’s NYT column (Global edition, August 29) makes an insightful observation about global markets and economies, which again appear headed for crisis.

   Friedman notes that there are four ‘critical ruling bargains’ that held together the global system since the end of the Cold War in 1991.  They are:

 ● Mideast dictators supplying oil to the West in return for arms and tacit support

  ● Euro zone harmony

  ● American spending, deficits and borrowing

  ● China’s growth, based on an undervalued currency and high domestic saving.

All four of those ‘ruling bargains’, shown as circles above,  have come unstuck, Friedman notes.  The Euro bargain broke down because the PIIGS (Portugal Ireland Italy Greece and Spain) in the South strangely failed to behave like the diligent Germans in the North, and have crashed the system.  Mideast dictators are falling like flies and no-one knows what or who will replace them.  Americans, drowning in debt, have at last resumed saving, but only because recession has shaken their faith and confidence in holding their jobs. And China must shift from a factory-based to a knowledge-based economy with higher domestic spending – a shift easy to define, tough to do.  Underlying all this is the global revolt of lower and middle classes, seeking their democratic rights.

    The ‘zone of  success’ occurs where all of these four ‘ruling bargains’ are somehow restored.  China’s rapid growth returns and stabilizes. Mideast oil flows. American spending resumes.  And the euro is rescued by a grand compromise between the puritan North and irresponsible South. (This is the ‘lightning bolt’ in the Figure, a very tiny space indeed).

   Zones of failure are the 11 numbered areas, beginning with utter collapse (zone 1, none of the four bargains is rebuilt), ranging through, for instance, zone 10, where 3 of the 4  ‘bargains’ are rebuilt,  but China comes unglued. 

   Use this tool to build your own global scenario. Which of the four ‘grand bargains’ are likely to resume, and which are not? What is the timing?  Find your most likely ‘zone’.  Use it to build a future scenario. What does this mean for your career?  Your company? Your assets?   Faced with thick global fog, Tom Friedman may have helped give us a tool that disperses at least some of it.