The Exclusion Zone

G-20 leaders are out of ideas and out of touch. No wonder their citizens are so angry.

As world leaders gathered in Los Cabos at the tip of the Baja California peninsula this week, they did so behind a monumental wall of security. Thousands of Mexican federal police and military personnel in heavily armed patrol cars cruised the tourist corridor connecting the twin resort towns of Cabo San Lucas and San José de Cabos; there were dozens of checkpoints through which both pedestrians and vehicles must pass; and the Convention Center in which the Group of 20 nations' summit played out is an impenetrable fortress for all but the specially accredited.

It is always thus at big world summit meetings, and the G-20 is no exception. So far, these comprehensive lockdowns have successfully kept heads of state out of harm's way since the summits began in Washington in 2008. But in securing themselves inside their conference chambers, governments have also put up a barrier to block out the people they claim to represent. Inside the aptly named "exclusion zone" -- the area that lies within a security perimeter lined with barricades and riot police and which often encompasses the relevant city's entire downtown area -- an eerie silence will prevail as vendors shut up shop and locals leave town to avoid the inconvenience. Accredited members of the press will be allowed into selected areas but will spend most of their time in a cavernous, warehouse-like structure refashioned as "the international media center," a frustrating arrangement that leaves journalists' physically detached from the attending leaders and their staff. They might as well watch the proceedings on C-SPAN.

But in terms of keeping the peace outside the security perimeter, the G-20 summits' track record is far from stellar. At Pittsburgh in September 2009, thousands of protesting anarchists smashed windows and threw rocks at riot police, who responded with tear gas. Nine months later, an even bigger melee stunned genteel Toronto, where 900 were arrested after rioters set fire to two patrol cars and smashed multiple storefronts. The Canadian government, taking a lesson from Pittsburgh, had spared no expense on summit security and had effectively turned downtown Toronto into a militarized zone. Perhaps this impressive array of firepower backfired. Maybe it gave the excitable crowd a target against which to vent its anger.

These clashes reflect more than the failure of the local police to contain a mob of testosterone-fired youths. They are a manifestation of the widespread public discontent with the dismal and unstable state of the world economy and of a profound and worrying loss of confidence in the capacity of policymakers to improve it. It's no coincidence that the only riots that Western countries experience these days -- save for the occasional hockey riot -- occur at these gatherings, where the world's governments gather with the goal of mending a dysfunctional global economic system but come away with little more than empty phrases of shared intent. And by putting up a wall of firepower to protect themselves, they accentuate the physical and symbolic divide that lies between them and an increasingly skeptical public.

You don't need to see people in the streets with Molotov cocktails to understand that public trust in governments is breaking down. It is playing out more broadly in voting booths. This is especially so in the crisis-wracked countries of Europe, where a commonly held view is that the now embattled euro was a project designed by and for elites with minimal public input. Witness the speed with which parties from the extreme left and right sprung out of nowhere in Greece and almost garnered enough of the vote in Sunday's election to render that beleaguered country ungovernable.

Yet the phenomenon of voter rebellion, and the challenge this poses for establishment parties, is also present in what were previously thought to be stable democracies. Governments have fallen or struggled to form majorities in Australia, Belgium, Britain, the Netherlands, and many other countries. Anti-immigrant, euro-skeptic parties have found renewed prominence in France and Finland. And comedians-turned-politicians have tapped a powerful protest vote to claim electoral victories in Iceland and Germany. In the United States, the Tea Party has diluted the Republican old guard's control over the GOP and all but destroyed what was left of bipartisanship in Washington.

In the Middle East, popular uprisings have led to the overthrow of corrupt, authoritarian regimes in Egypt, Libya, and Tunisia and have challenged them in various countries on the Arabian Peninsula and, most recently, in Syria. Meanwhile, the global Occupy Wall Street movement has given voice to people's frustrations over a uniquely Western form of power corruption: the control that large financial institutions wield over government policymaking. One of the more cynical reasons why protesters perceive the barricade-protected G-20 leaders to be cut off from the people they represent is because they sense that politicians' loyalties are captured by deep-pocketed Wall Street donors.

Most destructively, this mistrust plays out in the investment sphere. The boom that took gold prices to a record $1,900 an ounce in September 2011 -- three years after Lehman Brothers' collapse -- was the ultimate hedge against government incompetence. At its core, a bet on gold is a bet on government dysfunction, one that inherently reflects a foreboding mistrust in society's capacity to mend itself. Gold offers protection against a final breakdown in social and economic order, a world in which confidence in fiat currencies dries up as their depreciation against the goods they can buy depletes the value of people's savings.

Now that the looming threat of a second crisis has demonstrated that inflation is in fact a lesser risk than another recession, investors have since unwound their gold bets in acknowledgement that for the time being everyone would prefer cash to a metal of limited practical use. But they're not putting their money to work in productive investment projects; they are pouring it into the ultimate global "safe haven": U.S. Treasury bonds, whose yields have sunk as low as 1.5 percent for 10-year debt -- a record low. This fearful, mistrusting environment is not at all conducive to the kind of vibrant global capitalism needed to restore growth and fix the planet's many problems.

And yet, paradoxically, for all its failings and poor public relations, the G-20 is more important than ever. The biggest challenges facing our economies cannot be resolved with domestic solutions alone. They require policies to be coordinated and calibrated between different nation states. Problems such as China's excessive savings rate and the systemic risks attached to oversized U.S. and European banks form part of the same, sweeping distortions and poorly aligned incentives that have built up a gross misallocation of capital in the global economy and fostered the West's addiction to debt. These world imbalances can only be resolved through give-and-take negotiations at the international level, however frustrating they may be.

We live in a highly globalized economic environment, one in which $4 trillion in currency exchanges take place daily and where just one of the ubiquitous gadgets we own can contain components and labor inputs from a dozen different countries. If we are to avert another crisis, we desperately need our policymaking apparatus to break free of its domestic myopia and come into line with this, the reality of globalization. More than ever, we need effective multilateral solutions, and the G-20 is supposed to be the starting point for them.

There's much the G-20 could do to stabilize the world economy: draft treaties that establish rules for floating exchange rates; create enforceable agreements on fiscal and monetary policy adjustment; update the international monetary system to make way for an eventual alternative reserve currency; establish common minimum capital rules for banks to protect the global financial system from meltdown; reform the International Monetary Fund and World Bank to give emerging markets more of a say in international policymaking.

But none of these can happen or will carry any weight unless the G-20 itself earns legitimacy. As with its government members, the group's effectiveness depends on people having confidence in the institution itself. It's time for the G-20 to start building inclusion zones.



Putin's Waiting Game

Russia's savvy president isn't trying to start a new Cold War, he's just waiting to see what happens in November.

Despite the wan smiles and a high-minded joint statement about paving the way for a democratic transition in Syria, yesterday's meeting in Los Cabos, Mexico, between Presidents Barack Obama and Vladimir Putin did little to disguise the recent series of setbacks in U.S.-Russian relations. Yes, it's been a pretty ugly couple of months. Why have things fallen apart so quickly?

For some observers, the answer is simple enough: Putin. The notoriously thin-skinned ex-KGB officer, the argument goes, has returned to the Kremlin with zero interest in continuing the "reset" policy promoted by his squishier, iPad-toting predecessor, Dmitry Medvedev. "We told you so," suggests a chorus of determinists in both America and Russia. "Putin just doesn't like America, and that's that."

After all, it was Putin who tried to pin responsibility for last December's massive street protests on Secretary of State Hillary Clinton and then tacitly backed a campaign of harassment against U.S. Ambassador to Moscow Michael McFaul. When Russia's top military commander, Gen. Nikolai Makarov, ominously warned that Russia was prepared to launch preemptive nuclear strikes against U.S. missile defense sites in Central Europe, no Russian political heavyweight, least of all Putin, stepped up to say, "Enough with this Cold War silliness!" Yet another shock came when Putin unexpectedly backed out of a planned visit to Washington for a get-to-know-you summit meeting with Obama, followed by the G-8 gathering at Camp David. (The Kremlin's surrogates insisted, not entirely convincingly, that this decision wasn't a snub.)

The problem with this analysis is that it makes things sound worse than they actually are. In fact, Putin has simultaneously acted both pugnaciously and pragmatically in recent months.

Consider his first big, post-election foreign policy initiative: the opening of a NATO logistics facility deep in the Russian heartland for troops and equipment leaving Afghanistan. That move angered communists and nationalists alike, but delighted Pentagon logistics experts frustrated by the continued closure of the ground lines of communication through Pakistan during a crucial phase of the U.S. drawdown. Meanwhile, U.S. and Russian diplomats have worked closely behind the scenes on the blueprint that led to this week's important talks on Iran's nuclear program in Moscow. They also helped formulate former U.N. Secretary-General Kofi Annan's six-point plan to resolve the Syria crisis. If recent reports in the New York Times are to be believed, there is still hope at the highest levels of the Obama administration of enlisting the Russians to coax Bashar al-Assad into giving up power via a Yemen-style political transition. (The Russians, for their part, probably assume that Assad can shoot his way out of the crisis, and that he wouldn't listen to them anyway given how little leverage Moscow has over the regime.)

Which brings us to a second possible culprit for the recent surge in tensions between the United States and Russia: the crisis in Syria. Last week, Clinton made the bombshell accusation that Russia was supplying Syria with attack helicopters and dismissed as "patently untrue" the Russian government's repeated denials that its arms deals have had no impact on the bloody conflict. To drive that point home, State Department spokesperson Victoria Nuland said, "On a daily basis, on an hourly basis, we are seeing Russian and Soviet-made weaponry used against civilians in towns all across Syria." Russian officials tried to muddy Clinton's accusation, arguing that Russia was merely refurbishing helicopters sold to the Syrians "many years ago" while also insisting that the bulk of Russian military aid to Syria consists of advanced air-defense and anti-ship weapons systems ill-suited to the current conflict.

As morally infuriating as Russia's backing of the Syrian regime may be, it's worth considering whether the Obama administration may have a couple of ulterior motives for pinning at least some of the responsibility for Syria's lurch toward full-scale civil war on the Russians. In the short-term, by stoking fears of a proxy war reminiscent of the worst days of the Cold War, the Obama administration is building its argument that providing military aid to the Syrian rebels -- as some congressional critics have demanded -- will only add to the militarization of the conflict. In the long-term, U.S. officials may be keeping the option of intervening open by planting the seed for the eventual creation of a new legal mechanism for military intervention that bypasses the hopelessly deadlocked U.N. Security Council.

A third big drag on U.S.-Russian relations comes from the so-called silly season that accompanies presidential campaigns in both countries. Of course, 2012 was always supposed to be a dead year in U.S.-Russian relations. Back-to-back presidential campaigns have overshadowed just about everything on the bilateral agenda, and practically no one in Washington or Moscow had been predicting that significant progress could be made this year on the toughest issues.

Take missile defense, for example. Putin has shown little interest in cutting deals on major arms control issues with a U.S. president who might not be around in just a few months time to implement them. Putin actually found himself in a nearly identical position in 2000 when then-President Bill Clinton attempted to negotiate a deal on missile defense during his final months in office. It was a frustrating experience for Clinton who felt that Putin was acting like a bored partygoer who kept looking over his shoulder for someone more interesting to talk to. Instead of engaging with Clinton, Putin ultimately chose to run out the clock and take his chances with the incoming U.S. administration.

The Russians are adopting similar tactics this time around with their utterly unrealistic demand for legally binding restrictions on deployments of future U.S. ballistic missile defenses. Even a cursory reading of the 2010 Senate debate on ratification of the New START nuclear arms reduction treaty leaves little doubt that such an agreement would be dead on arrival on Capitol Hill.  Of course, alarmist rhetoric about threats to Russia's national security and the survival of its strategic deterrent probably has other motivations, not least the need to justify the Kremlin's bloated $700 billion defense buildup through 2020 for domestic audiences.

In the United States, the White House's best-laid plans to insulate the relationship from election-year politics were disrupted by Obama's open-mic suggestion to Medvedev that he might have greater flexibility on missile defense after the November election. GOP presumptive nominee Mitt Romney may have raised eyebrows when he asserted that Russia is "without question, our number one geopolitical foe," but he set the stage for a more serious debate about Russia policy between now and November. Further complicating matters, congressional critics from both parties are now jumping into the fray with the so-called Magnitsky bill, which is on track for passage before the summer recess. The legislation, aimed at naming and shaming Russian officials involved in human rights abuses, has infuriated much of the Russian political class.

The most important yet overlooked aspect of the current situation, however, may be the cynicism and casual indifference that Putin has displayed toward the U.S.-Russian relationship in the face of his much bigger problems at home. At the moment, Putin appears to be preoccupied by the political mess created by his decision to switch jobs with Medvedev and the badly flawed Duma elections last December. He also must contend with the ripple effects of the eurozone drama and global economic slowdown, which together have contributed to a 20 percent decline in global oil prices over the past two months alone.

Against this backdrop, the ups and downs of relations with Washington may be little more than a distraction from the more urgent challenge of restoring the aura of invulnerability and bezal'ternativnost' (the lack of any alternative) that bolstered Putin's authority during his first 12 years in power. Already, he seems to have fallen back on the tried-and-true formula of portraying himself as the protector of a Fortress Russia beset by imaginary foreign enemies and spies.  This gambit has long helped the Kremlin cultivate support from average citizens and build up the regime's legitimacy.

The chief beneficiaries of Putin's rule -- the increasingly affluent and middle-class residents of places like Moscow -- show no signs of muffling their anger about his return to the Kremlin despite an ongoing crackdown on political dissent. Still, Putin knows how to cater to the two-thirds of the Russian electorate that voted for him in March and reside primarily in Russia's smaller cities and countryside. He may find it hard to resist the temptation to play upon their worst fears and anti-Western stereotypes. Sacrificing the past several years of dramatic improvement in the U.S.-Russian relationship may seem like a small price to pay if it breathes new life and legitimacy into his rule.