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Mohamed A. El-Erian Headshot

A Make or Break Year?

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Lots of things are coming together to give 2012 the feel of a make or break year -- a year that could well determine whether the world transitions to a better and more stable place or, instead, battles an even larger number of economic, political and social fires. The drivers in four key geographical areas will be heavily influenced by the interaction of political leadership, the strength and agility of institutions, and the newly empowered segments of society.

First, there is the US where, to state the obvious, the results of the November elections will meaningfully impact the path taken by the largest economy in the world, and its only superpower.

This is an election about the economy 00 past, present and future. In the next few months, we will all be bombarded by various explanations of why America lacks its traditional growth dynamism, why so many people remain un- and underemployed, and why poverty is rising to such unacceptable levels.

Influenced by movements on both the left and right that are able to effectively self organize and project near and far, our votes will send important signals on what is needed to overcome our economic malaise. I suspect that, collectively, we will opt for compromise rather than corner solutions.

We will challenge Washington to strike the right balance between tax and spending reforms, immediate stimulus and medium-term debt and deficit solutions, incentives for businesses and safety nets for the vulnerable segments of our population, etc. In the process, we will urge our politicians to shed legacy shackles in order to come together for the good of the nation.

None of this will materialize without effective leadership. Our leaders need to quickly unite on a common vision, distill common purpose, catalyze multi-year nationwide efforts, and embrace midcourse corrections as needed (and there will be quite a few given how many unthinkables are now realities in America and in societies that we interact with closely).

Europe, the second key area, no longer has room for compromise. Its "moment of truth" is in 2012 when critical decisions -- taken either actively or passively -- will determine whether the Eurozone breaks up or, to use the words of French President Sarkozy, is "re-founded" with a firmer foundation. Again, the interaction between popular movements, institutions, and leadership will be key.

Many more people in many more European countries will be taking to the street. They will be united by a simple demand -- to end the economic and financial turmoil that is killing jobs.

Europe cannot afford more political bickering, misdiagnosis, and incomplete solutions. Its leaders and institutions need to urgently pivot, abandoning active inertia that has been anchored for too long by the delusion of returning to a status quo ante that, in reality, is no longer feasible.

There is no going back to the old Eurozone of 17 countries. It is either fragmentation or a smaller and less imperfect union of countries with similar conditions.

This brings us to the third area where, also, there is no going back to the old -- the growing number of countries where dissatisfied citizens only have the streets, as opposed to also fair and free elections, to change their governments.

Such popular movements are no longer limited to the Arab world. They will pop up in many other countries.

The required pivots here are much harder and more complex. Most uprisings are led by leaderless grass root movements, enabled by social media and fueled by multiyear grievances. Rulers still hanging on to power often opt for fear tactics to divide citizens, thus repressing the forces of orderly change and experimentation that are an inevitable part of the political maturation process. And existing institutions are not much help, having been corrupted over many years to serve now-discredited elites rather than the newly empowered masses.

So, where does all this leave us?

America should be able to come together, recognize its structural challenges, and unite on multi-year efforts needed to promote economic growth, create jobs, and restore the sense that the system is fair. Europe should be able to redefine its regional underpinnings and, after the inevitable initial disruptions, regain the financial stability that underpins economic and social well-being. Newly transitioning countries should be able to pivot, albeit noisily and imperfectly, from dismantling the past to building a better future.

Regrettably, in today's world, what SHOULD happen does not easily translate into what is LIKELY to happen. Reality is far trickier, messier and, well, more uncertain.

Uncertainty is the defining characteristic of the fourth and final area where it is even harder to reconcile the should and likely. I am referring here to countries that are under enormous pressure and, to use Thomas Friedman's insightful analogy, can explode rather than implode when critically destabilized.

Countries like Iran, North Korea, and Syria face a mix of destabilizing influences that could well come to a boil in 2012. Containment forces will compete with those fueling accelerated change. And here, neither institutions nor leaders and popular movements can be credible and effective stabilizers.

By all counts, 2012 is shaping up to be a memorable year. In some areas, the potential clearly exists for societies to seize opportunities for change and transition to a better place. In others, stability can only follow a period of even greater uncertainty and risks.

This balance is not pre-determined. Much will depend on decisions to be made, and actions to be taken. Let us all hope that they end up tipping the balance favorably. There is a lot at stake.