What does THE FUTURE HOLD?

Predicting the future is no easy feat. Healthy growth or poverty and instability ahead? How about a mixture of the two? To offer a peek at what's on the horizon, this briefing takes stock of political and economic events around the globe and their likely consequences.

Global inequality will increase in 2001, not between rich and poor, but between countries that "get it" and those that don't. Those with market economies, democratic political procedures, enforced property rights, dispute resolution, and companies that operate efficiently will hurtle ahead. Those with a governing elite who believe they're smarter than the market and entitled to steal and pillage will fall further behind. Rich countries, especially the U.S.--which ought to care--will show little commitment to fixing the problem, so look for more poverty, disease, population movements, and increased global instability.

In the U.S., a widespread sense of betrayal and loss will paralyze politics throughout Bush's term. The closeness of the race created strong voting blocks (African-Americans and Jews for Gore, Protestants for Bush), many of whom were bitterly disappointed by the outcome. Partisanship in the nearly balanced Congress will ensure that only the blandest laws see the light of day. Watch for government spending to rise rapidly while the surplus disappears and interest rates fall. The dollar will weaken.

Many believe a deadlocked Federal government results in less interference in the economy, and therefore more robust economic growth. Wrong. Companies need a positive macro-economic environment to flourish. Instability and bitter partisanship are unlikely to provide that. Instead, a weak U.S. president without domestic support may turn to global challenges as a way to avoid domestic in fighting. We've already witnessed increased military aggression toward Iraq.

Because the partisanship will be deep, the bickering intense, and presidential legitimacy low, the would-be successors to Bush and Gore will position them selves early for 2004. We're in for greater instability in U.S. politics than at any time since Nixon's resignation.

That being said, the office of the President invokes considerable legitimacy, regardless of who is inaugurated or how. The trappings and ceremony of executive government can make a President in spite of the most contested election. The U.S. doesn't have a crippled president, only a weak one. An unusually competent circle of seasoned advisors and foreign policy specialists will help keep the President out of trouble.

MEXICO recently embarked on its most exciting political adventure in seven decades: democracy. President Vicente Fox has already made a move to ward long-term stability by initiating peace talks with the Chiapas rebels. Unfortunately, any country with long-standing ties between a dictatorship and its business elite faces setbacks as corrupt links get unwound; in the short term, Mexico will face economic difficulties.

SOUTHEAST ASIA, once a driver of economic growth, will suffer hard times. Indonesian President Wahid will not be able to hold the center as the legitimacy of the armed forces collapses and more island peoples seek independence. Philippines President Estrada has been ousted; and while Muslim fundamentalists demand independence, Filipinos call for economic growth and the rule of law. In Malaysia, a fading tyrant faces the rise of a more militant Islam. In Thailand, corruption is boundless. An aging and corrupt communist party rules Vietnam; a military junta rules Burma; Cambodia remains under water. Singapore--the only rich country in the midst of these disintegrating states--faces the threat of waves of boat people fleeing to its stability across the Straits. The exodus of businesses from Hong Kong to Singapore will slow dramatically, given the neighborhood.

JAPAN's economy, which contracted by 2.5 percent in 1998, showed slight growth in 1999 and 2000. But the European and U.S. slowdown will keep economic growth hovering around 1 percent through 2001. Internationally-oriented manufacturing companies have restructured, but banks, insurance companies, retailers large and small, and construction industries keep the economy mired in trouble. Public debt rose above 125 percent of GDP, with bad corporate debts abounding. Worries over job security will curb consumer spending. Yet the LDP, masters of Japan's disastrous public policy, will retain power.

KOREA. Under government pressure to preserve the wealthy and powerful and to save jobs, the Korean economy remains politically driven, not market-driven. President Kim talks tough, then checks public reaction, then adjusts policy. Watch for the South Korean president to spend more time cultivating the North and basking in the glow of his Nobel Peace Prize than forcing further restructure. Ties with the bankrupt North will deepen as its communist rulers court capitalist financing to stay in power. The rest of us will provide it, grateful that the North doesn't collapse and force the South to integrate the basket case into its shaky economy.

CHINA's economy will suffer the least of all the Asian states from slower U.S. and European electronics imports. In 2000, China's electronics exports equaled only 22 percent of total exports, compared to Malaysia's 57 percent, Philippines' 61 percent, Taiwan's 44 percent, Korea's 34 percent, and HongKong's 30 percent.

China's long-sought inclusion in the WTO commences in 2001. Chinese leaders intend to use it to force a restructuring of Chinese industry. Market discipline will increase accordingly. High economic growth will reach 8 percent, but that won't be high enough to help the hundreds of millions of poor. Discontent and repression will follow.

The three senior Chinese leaders are scheduled to retire by 2003. President Jiang Zemin is likely to surrender his post as Communist Party Secretary General in 2001 and appoint Vice President Hu Jintao. Hu has been tapped to eventually succeed Zemin as President.

TAIWAN will present problems by year's end. With new elections for parliament scheduled in December, President Chen Shuibian is likely to boost his party's chances for controlling parliament by becoming more strident on independence. China will likely respond with rhetoric, but not with its military, given its dependency on foreign investment to maintain growth.

In EUROPE, four positive processes are at work: One, the euro is here to stay and will yet serve as a global reserve currency. By September 2001, the European Central Bank will distribute euro bank-notes and coins to become legal currency in 2002.

Two, the EU will settle the long-standing question of what kind of Europe it is to be. Germany and Italy have argued for a federal Europe, with countries surrendering sovereignty to the European Commission in Brussels and the European parliament in Strasbourg. France and the UK want a confederal Europe, with states retaining power and Europe run by the Council of Europe, made up of the Prime Ministers of the member states. France and the UK will win the day with a United Europe of States, not a United States of Europe.

Three, the EU will set dates for expansion to the east and decide how to distribute votes among new and old member states, with weighted majority voting in general circumstance and a more constricted veto than states now exercise. France will remain the principal power.

Four, competition for investments and economic growth among individual member states will intensify. Europe will launch a virtuous circle in 2001, started last year by Germany's cutting marginal rates in corporate and personal income taxes, and continued by eliminating capital gains tax on the sale of corporate cross shareholdings.

This year, France, Italy, and UK will launch tax cuts and incentives to restructure industry. Expect Europe to grow more rapidly than the U.S. in 2001 and a strengthening euro.

Russian President Vladimir Putin's 17 years as KGB agent in East Germany were not great training for creating the framework for a market economy. RUSSIA must reverse declining life expectancy (57 years for Russian males), establish property rights, control organized crime and corruption, curb the oligarchy, cut spending on the military and security forces, and build civic institutions. None of these is likely this year.

Putin is in over his head, but he's popular. Following the September, 1999, Moscow apartment bombings he said, "We will pursue them everywhere. If, pardon me, we catch them in the toilet, we'll rub them out right there." That vulgarity made him a hero to ordinary Russians. At 65 percent, his popularity ratings are 63 points higher than Yeltsin's at term end.

Putin has used his popularity to accumulate personal power and undermine regional governors, the State Duma, and the media--all while preaching democracy and freedom of the press. High oil prices and the weak ruble will fuel a boom: Higher oil prices upped GDP 7 percent in 2000. But when oil prices fall later in 2001, Russia will go into a fiscal shortfall. In Chechnya, the prospects for negotiated settlements are zero: Low-level attacks by Chechens will continue, and terrorism will begin as Russian troops consolidate.

Watch out for AFGHANISTAN. The barbarians of the Taliban are closing in on full control, worrying Russians that they'll export Islamic fundamentalism to Central Asia and then to Russia proper. Russia has 10,000 troops stationed on the border between Tajikistan and Afghanistan. Be prepared for an acceleration of violence.

He who believes in peace in the MIDDLE EAST in 2001 doesn't have his seat back and tray table in the full upright and locked position. There can be no peace while Israel has 200,000 settlers dividing the future Palestinian state into bantustans. Time is on the side of the Palestinians, who have nothing to lose. Israel has already lost in the court of international public opinion. The exodus of highly trained Israelis to the U.S. will increase and investments in Israel will diminish, hurting the economy and the Tel Aviv stock exchange.

Let's talk oil. Two countries on the receiving end of U.S. sanctions--Iran and Iraq--are oil rich. With expensive oil, incentives for oil companies to violate sanctions to increase output are irresistible. Only U.S. companies will be shut out as European and Asian companies split the spoils. These sanctions are unwise. Yet lifting them will do little to affect short-term oil prices, which are likely to remain around $30 through summer, then fall substantially.

Amid all this forecasting, it's clear that 2001 will see an intensification of the forces accelerating at the end of the decade. Members of the OECD and about 50 emerging markets will continue to prosper, while the other 100 or so countries will fall further behind. Complexity is the hallmark of the age, there fore expect computerization to pervade and networks to encompass more of economic and political life, increasing economic efficiencies--and breakdown risks. The demand for ever-higher levels of human capital will grow; countries that mobilize it will win big. For the those that don't, more backwardness and misery for citizens, and more problems for the rest of us.

Marvin Zonis, professor, University of Chicago Graduate School of Business, and principal, Marvin Zonis+Associates, political risk consultants ([e-mail]).

Winners of my new WORLD WOULD BE BETTER WITHOUT AWARD (WWBBWA):

ONE: Saddam. Rumors of his imminent death from cancer swept Western intelligence circles last year, but he not only retains power, he's back at the center of the Middle East. Flights have resumed from Russia and Arab states; Arab leaders invited him to the Cairo Summit; and his anti-Israel stance has won him new friends.

TWO: Mahathir Mohamed, the aging Prime Minister of Malaysia, was instrumental in his country's industrialization, yet refuses to stop the corruption of his cronies. His increasing repression -- imprisoning his deputy prime minister on the charge of sodomy--will hinder prosperity.

THREE: The 74-year-old Prime Minister of India, A. B. Vajpayee, holds together his fractious coalition while preserving market reforms of the early 1990s; yet he has instituted no new reforms and appears to be losing it (he gave a re cent speech wearing only one shoe). This isn't the kind of dynamic leader ship India needs.

The Disgraceful

Transparency International, the leading corruption monitoring group, listed the 13 most corrupt countries in the world, with Vietnam as number 13, followed by Uzbekistan, Uganda, Mozambique, Kenya, Russia, Cameroon, Angola, Indonesia, Azerbaijan, Ukraine, Yugoslavia, and Nigeria, the world's all time leader in corruption. The US is the 14th least corrupt, after the UK and Singapore.

The UN Human Development Index of 175 countries is based on a combination of life expectancy at birth, adult literacy rates, primary and secondary school enrollment, and annual GDP per capita (PPP in US$). In the 10 countries ranked at the bottom, none has a life expectancy above 50, adult literacy above 46 percent, or an annual GDP per capita above $1,000: Mali, Central African Republic, Chad, Mozambique, Guinea-Bissau, Burundi, Ethiopia, Burkina Faso, Niger, Sierra Leone. The U.S. is third, after Canada and Norway.