The international balance of power has shifted, giving emerging market states much more political and economic influence at the world's most important bargaining tables. This rebalancing and the uncertainty it generates will create new risks and opportunities for policymakers, investors and business decision-makers.

The financial crisis speeded the inevitable shift from an international order in which the G-7 free market democracies dominated international institutions toward one in which major emerging states have amassed unprecedented geopolitical and economic leverage. The United States remains the only global military power. Given the cost of state-of-the-art military technology -- and of building a blue-water navy -- Washington will retain this advantage for years to come. Yet, the market turmoil of the past two years has helped ensure that economic resilience, not military might, is now the ultimate guarantor of geopolitical clout.

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Fueling uncertainty during this transitional phase in global leadership is the problem that none of the world's leading powers accepts its current trajectory or the burdens that come with it. In fact, for the first time since the end of World War II, no state or bloc of states has the power to drive an international agenda. Americans, accustomed to their country's superpower status, will not welcome a diminished status. Europeans, proud of their union's capacity for collective action to build peace and prosperity, will see their prestige decline as a multiyear bid to save the eurozone undermines confidence in the region's longer-term prospects. Japan remains mired in a period of extended political dysfunction. Major emerging states, particularly China, remain deeply reluctant to assume onerous international burdens at a potentially delicate moment in their countries' development. The result is a vacuum of leadership that will complicate efforts to restore confidence in global economic growth following the most significant market meltdown of the past seven decades.

The speed of this transition should not be exaggerated. It was underway for many years before the onset of financial crisis, and it will take many more years to fully develop. But its impact is already shaping the international business climate, relations among nations, and domestic policy choices in both the developed and developing worlds. The most important near-term implication of this power vacuum is that as states recover from the global slowdown with different tools and at different speeds, the divergence in their interests leads each government to safeguard its domestic political capital with policies that protect local jobs and industries at the expense of outsiders. Both China's unwillingness to allow substantial appreciation of its currency and a policy of quantitative easing in the United States aroused international anger in 2010. Some governments have already turned to various forms of capital controls; others will likely follow. New barriers to the free flow of ideas, information, people, money, goods and services will provoke threats of retaliation. Differences of opinion over the proper role of government in an economy will pit developed and developing states against one another as they compete for capital and resources. Multinational corporations face formidable commercial challenges from state-owned companies and privately owned national champions.

In addition, this rebalancing of international power and a growing vacuum of international leadership allows medium-sized powers such as Brazil, Turkey, and South Africa to play a larger role in international diplomacy and conflict resolution. Over time, the experience these governments gain in arbitrating political disputes will enhance global stability. But during this transitional phase and before officials in these countries gain that experience, their initiatives will sometimes undermine rather than enhance international cooperation -- particularly as traditional powers resist their efforts.

Challenges

Global rebalancing, a lack of international leadership and aftershocks of the financial crisis create a number of important challenges. Assumptions about security cooperation, economic stability and crisis resolution must be revisited. The decades-long development of multilateral institutions in Europe makes conflict among EU members unthinkable, but other regions do not have this advantage. This is especially worrisome for Asia, given the region's relative importance for the global economy and the number of potential flashpoints there. The long-term erosion of Washington's ability to provide a regional security umbrella in Asia and the Middle East will force historic antagonists to build new standard operating procedures to manage conflict. In Africa, the absence of established conflict resolution mechanisms could allow unresolved border disputes to spark conflict.

Over the longer-term, the willingness of regional powers to mediate disputes will enhance global stability, but it will take time for other governments to accept new countries in these roles and for the powerbrokers themselves to gain experience in conflict resolution. The lack of international consensus will also make it easier for rogue states to sow division among leading powers. Those who believe that military power -- and nuclear capabilities in particular -- can enhance national prestige and provide the ultimate safeguard for national security will face less coordinated resistance. There will also be bigger holes in international sanctions regimes.

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