Sumit Lal: The ubiquitous Indian

Our friend from New Delhi, Sumit Lal, former Director and General Manager at ECCO INDIA, and currently Business Adviser at ECCO Asia Pacific Limited, has just started his own blog.

Please check it out here.

How We Can Win in Afghanistan

 

U.S. Soldiers with the 101st Division Special Troops Battalion, 101st Airborne Division watch as two Chinook helicopters fly in to take them back to Bagram Airfield, Afghanistan, November 4, 2008.

 

The most pressing issue on the U.S. president’s agenda today is whether he will commit more troops to Afghanistan – the “good war.”

In an article published in the November issue of Commentary Magazine, military historian Max Boot brings all his expertise to bear on explaining how the U.S. can win in that Taliban-plagued country.

But first we have to win the battle at home – the battle to convince Barack Obama to learn the right lessons from history and to heed the wise counsel of his own general, Stanley A. McChrystal.

Read full story.

Human Rights and the Rule of Law in China

Elizabeth Economy, expert on China-U.S. relations and Chinese domestic and foreign policy, testified before the Congressional-Executive Commission on China. She discussed China’s current environmental challenges and implications for U.S.-China relations.

Elizabeth Economy – Director, Asia Studies, Council on Foreign Relations

Statement Prepared for the Congressional-Executive Commission on China

October 7, 2009, Room 628 Dirksen Senate Office Building, 2:00 pm

Mr. Chairman and distinguished Members of the Commission, it is my pleasure to have the opportunity to discuss China’s efforts in the realm of human rights, the rule of law and the environment and the prospects for U.S.-China cooperation on this critical issue.

Introduction

Over the past five to seven years, China’s leaders have become increasingly concerned about the impact of the environment on the country’s future. Twenty of the world’s thirty most polluted cities are in China; over half of the country’s population drinks contaminated water on a daily basis; and more than twenty-five percent of the land is severely degraded or desertified. As China’s Minister of Environmental Protection Zhou Shengxian acknowledged in 2007, “Pollution problems have threatened public health and social stability and have become a bottleneck for sound socio-economic development.”

Much of China’s environmental challenge stems from the very rapid and unfettered growth of the past thirty years. The “growth at all costs” model of development has exerted a profoundly negative impact on the country’s air, water and land quality and further transformed China into a major global polluter. The country now ranks as the world’s chief contributor to global climate change, ozone depletion, the illegal timber trade, and pollution in the Pacific.

Yet the inability of China’s leaders to turn this devastating environmental situation around—and the environment is frequently mentioned as a “top” priority by President Hu Jintao and Premier Wen Jiabao—has as much to do with failings in governance as with economic interests. China has passed well over 100 environmental laws and hundreds of regulations. The challenge rests in effectively implementing these laws and regulations, a process that is seriously impeded by a lack of transparency, rule of law and official accountability.

Whether China’s leaders are able to incorporate better governance practices into their system matters enormously not only for the health and welfare of the Chinese people but also for the rest of the world. If China cannot enforce its current environmental laws and regulations, there is little reason to believe that it will be able to respond effectively to a challenge such as global climate change.

The Nature of the Challenge

China’s leaders are concerned about the country’s environment above all because it is limiting opportunities for future economic growth, harming the health of the Chinese people, and has become one of the leading sources of social unrest throughout the country.

The economic challenges are most direct. Over the past several years, the Chinese media have reported on a number of environment-induced annual economic losses: desertification costs the Chinese economy about $8 billion, in addition to water pollution costs of $35.8 billion, air pollution costs of $27 billion and weather disaster and acid rain costs of $26.5 and $13.3 billion respectively.

All told, the Ministry of Environmental Protection estimates that environmental pollution and degradation cost the Chinese economy the equivalent of ten percent of GDP annually. Regionally, the impact is even more devastating. The prawn catch in the Bohai Sea, for example, has dropped by ninety percent over the past decade and a half as a result of pollution and overfishing. In Qinghai, over two thousand lakes and rivers have simply dried up over the past two decades, contributing to significant lost opportunities for industrial growth.

These economic costs are compounded by a set of mounting public health problems. In a survey of thirty cities and seventy-eight counties released in spring 2007, the Ministry of Health blamed worsening air and water pollution for dramatic increases in the incidence of cancer throughut the country: a nineteen percent rise in urban areas and a twenty-three percent rise in rural areas since 2005.

About 700 million people in China drink water that is contaminated with human or animal waste, and according to the Ministry of Water Resources, 190 million drink water that is so contaminated that it is dangerous to their health.

Taken together, these economic and health problems are at the root of the rapidly rising public discontent and unrest over the state of the environment. According to Minister Zhou, in 2005, the number of environmental protests topped 50,000.

While some pollution-related protests are relatively small and peaceful, others become violent, even deadly, when demands for change are repeatedly ignored.

In August 2009, for example, several thousand villagers in Shaanxi Province stormed a lead and zinc smelting plant after hundreds of children living near the plant tested positive for excessive levels of lead in their blood.Of these, 154 were so sick that they had to be admitted to the hospital. The villagers had been complaining for three years about the plant, and although the local government has promised to relocate the affected families, villagers in the relocation sites have noted that their children are similarly afflicted with lead poisoning.

Environmental protest has also been spurred by the Internet. In May 2009, in Shandong Province, a group of residents posted an online petition calling for an investigation of four cyclohexanone chemical plants. The petioners believed that the factories, which had been in operation since a year earlier, were polluting the air and water and contributing to an unusually high number of thyroid cancer cases. The county government initially ignored the petition, arguing that the factories were not allowed to drain wastewater until they met provincial standards and had passed official water quality tests. Over the next month, the petition circulated on web portals such as Baidu and Tianya, collecting an estimated 1,400 signatures.

In an open letter published on Internet forums, one resident even called for a broader “uprising” that might not be successful but would “mark the start of a revolution against a crude regime” and even called for the killing of the Communist Party chief and county director. The author later claimed that more than 5,000 people had signed up for the protest. On June 29, 2009, Premier Wen Jiabao ordered the Shandong officials to investigate the claims and respond to the public.

In addition, the Internet and other forms of telecommunication such as texting have facilitated mobilized protest in urban areas, a phenomenon of only the past two years. There have been significant protests—with up to 10,000 people—in major cities such as Xiamen, Zhangzhou and Chengdu over the planned siting of various large-scale chemical and petrochemical plants. Here, too, violence has occurred in some cases. Notably, in a few of these instances of urban protest, public opposition has been strong enough to lead to a reversal in a government decision. The significance of the urban, middle class protest is that it erupts not “after the fact” in response to a devastating environment-induced economic or public health crisis, but rather in advance of something likely to cause significant public health damage. In a small, but potentially significant, way, therefore, urban protestors have influenced Chinese government policy.

Reform in Environmental Governance

There are a number of reasons for China’s worsening environmental situation and the related proliferating social and economic challenges: a continued priority on economic growth, the pricing of resources that doesn’t support conservation or efficiency, a dearth of political and economic incentives to do the right thing and, most critically, a lack of transparency, official accountability and the rule of law. There is no reliable mechanism for uncovering and dealing with environmental wrongdoing.

To begin with, accurate environmental data are often difficult to obtain. Sometimes it is a matter of capacity. Local environmental officials may simply not have the manpower, transportation or funds to monitor pollution levels at all the sites for which they are responsible. In addition, local officials are often reluctant to provide information that reflects poorly on their leadership, and there is no institutionalized check on the statistics that are provided. One significant central government campaign to evaluate local officials on their environmental performance—the Green GDP campaign—failed in large measure because the Ministry of Environmental Protection could not access the necessary environmental data from a number of recalcitrant provincial leaders. In a few places, such as Jiangsu Province, there are experiments underway with interntational partners to scorecard factories and make the information available publicly. However, ensuring the transparency element of the process has apparently been quite difficult.

Corruption is also a serious problem. Many local officials often ignore serious pollution problems out of self-interest. Sometimes they have a direct financial stake in factories or personal relationships with factory managers. In recent years, the media have uncovered cases in which local officials have put pressure on the courts, the press, or even hospitals to prevent pollution problems and disasters from coming to light. Moreover, local officials often divert environmental protection funds to other endeavors. A recent Ministry of Environmental Protection-supported study, for example, found that fully half of the environmental funds distributed from Beijing to local officials for environmental protection made its way to projects unrelated to the environment.

Recognizing the potential of local officials to subvert or ignore environmental laws and regulations, Beijing has opened the door to the media and non-governmental organizations (NGOs) to act as unofficial environmental watchdogs. China’s first environmental NGO, Friends of Nature, was established in 1994, and it was devoted to environmental education and biodiversity protection. Fifteen years later, China has over 3,000 environmental NGOs that play a role in virtually every aspect of environmental protection. Above all, they help bring transparency to the environmental situation on the ground.

These groups help expose polluting factories to the central government, launch internet campaigns to protest the proliferation of large-scale hydropower projects, sue for the rights of villagers poisoned by contaminated water or air, provide seed money to smaller, newer NGOS throughout the country, and go undercover to expose multinationals that ignore international environmental standards. The media are an important ally in this fight: educating the public, shaming polluters, uncovering environmental abuse and highlighting environmental protection successes.

Environmental NGOs are also at the forefront of advancing the still nascent rule of law in China’s political system. In 1998, Wang Canfa, a professor of law at the China University of Politics and Law, established the Center for Legal Assistance to Pollution Victims (CLAPV). The center trains lawyers to engage in enforcing environmental laws, educates judges on environmental issues, provides free legal advice to pollution victims through a telephone hotline, and litigates cases involving environmental law. Between 2001 and 2007, the center trained 262 lawyers, 189 judges and 21 environmental enforcement officials in environmental law.

In addition, Wang has been advising the Chinese government on the establishment of a system of specialized environmental courts. Beginning in late 2007, the Supreme People’s Court established a network of courts that are responsible only for cases regarding environmental protection and the enforcement of environmental regulations. These environmental protection courts seek to address the weak capacity of judges to solve environmental disputes due to lack of expertise and experience, eliminate the challenge faced by plaintiffs in bringing environmental lawsuits, and strengthen the enforcement of judgements against defendants who are influential in local economic matters. Thus far, these courts have been established in three provinces: Guizhou, Jiangsu and Yunnan. The courts have already heard a number of cases: the Kunming Court in Yunnan Province heard twelve environmental law violation cases during the first half of 2009, while the Guiyang court in Guizhou accepted forty-five environmental cases (and ruled on thirty-seven of them) in its first six months.These environmental courts also have the authority to enforce the judgments they issue. More environmental courts are expected to open throughout China as the success of established courts becomes determined. The biggest problem currently confronting the courts is that they do not have enough cases to consider.

Despite the important role that environmental NGOs and the media have come to play in China’s environmental protection effort, many Chinese leaders remain wary of the intentions of these non-governmental actors. Above all, China’s leaders fear the potential that the environment might become a lightning rod for a broader push for political reform. They thus have put in place a byzantine set of financial and political requirements to confine NGO activities within certain boundaries and to enable their close monitoring by authorities.

Misjudging these boundaries can bring severe penalties. Wu Lihong worked for sixteen years to address the pollution in Tai Lake, gathering evidence that forced almost two hundred factories to close. In 2005, Beijing honored Wu as one of the country’s top environmentalists, but in 2006, one of the local governments Wu had criticized, arrested and jailed him on dubious charges of blackmail and fraud. Yu Xiaogang, the 2006 winner of the Goldman Environmental Prize and 2009 winner of the Ramon Magsaysay Award, both for grassroots environmental activism, has been forbidden to travel abroad in retaliation for educating villagers about the potential downsides of a proposed dam relocation in Yunnan Province. A third environmental activist, Tan Kai, has been in jail since 2006. In 2005, Tan established the NGO Green Watch in his home province, Zhejiang, to monitor local officials’ compliance with orders to shut down several polluting factories that had been the sites of serious protests.

Implications for the United States

For the United States, the capacity of China to meet its environmental challenges is only becoming more pressing. If China does not have transparency, accountability or the rule of law within its domestic environmental system, it cannot be relied upon to be a responsible partner to meet the challenge of a global issue such as climate change. It will not possess the capacity to enforce the regulations that will arise from domestic climate legislation nor the transparency to ensure accurate measurement of emissions and emissions reductions. Nor will China be able to devise and implement a system that will ensure that officials who attempt to subvert the legislation will be held accountable. This does not mean that the United States should not move forward to assist China in setting and meeting targets to reduce their greenhouse gas emissions. It does suggest, however, that building capacity within China’s system of environmental governance should be a top priority for bilateral cooperation.

There are small-scale efforts already underway within the United States to help China develop such capacity. Over the past two years, the U.S. government has provided $5-$10 million in Development Assistance for programs and activities in the PRC related to democracy, rule of law and the environment. With support from the U.S. government, for example, the American Bar Association has supported both Wang Canfa’s Center for Legal Assistance to Pollution Victims as well as various universities to train public interest lawyers to specialize on the environment and provide expertise to the new environmental courts. Vermont Law School similarly engages partners such as SunYat-sen University to help improve China’s environmental policies, systems and laws. Climate change is also garnering growing interest as an area of cooperation.

The state of California is already pushing forward on several fronts, including enhancing transparency in energy use in Jiangsu Province and fostering interagency cooperation at the local level to address climate change. Still, the majority of interest and attention in the United States and China is focused on the opportunity for technology cooperation and transfer. This technology will only be effective, however, if China has the appropriate political environment to support its use. To tackle an issue of the magnitude of climate change, will require far more of a concerted and coordinated international effort by the United States and its partners to bolster the rule of law, transparency and accountability within China.

General Stanley A. McChrystal’s military strategy in Afghanistan

President Barack Obama meets with General Stanley A. McChrystal, in the Oval Office at the White House, May 19, 2009.

 

General Stanley A. McChrystal’s review of U.S. military strategy in Afghanistan, in which the top U.S. commander in Afghanistan calls for an increase in troops, can be read here.

The Washington Post also reports on the military debate over whether to withdraw from isolated rural parts of Afghanistan where U.S. troops are more vulnerable to attack and refocus on urban centers.

Read full story.

Former U.S. President Bill Clinton in North Korea

 

John Fitzgerald Kennedy shaking hands with teenager Bill Clinton.

 

Former U.S. President Bill Clinton made a surprise visit to North Korea to try to convince the government to liberate two imprisoned U.S. journalists.

The journalists – Euna Lee and Laura Ling, of U.S. media outlet Current TV – were arrested on the North Korea-China border in March. The women were sentenced to twelve years of hard labour for entering the country illegally and for “hostile acts.”

Bill Clinton is well respected in North Korea, as he almost visited Pyongyang toward the end of his presidency, and because he met with North Korea’s top military commander, Jo Myong-rok, in Washington in 2000. North Korea and the United States also made a deal to freeze plutonium-based nuclear reactor at Yongbyon under the Clinton administration.

Former South Korean government official Park Chan-bong tells the Wall Street Journal the talks will probably serve as a launching point for bilateral discussions between the two countries.

Read full story.

New Afghanistan strategy

Lieutenant General Stanley A. McChrystal, the top U.S. commander in Afghanistan, is preparing a new strategy for U.S. forces, calling for unconventional methods for dealing with the Taliban fighters.

McChrystal will reportedly ask for a doubling of the number of U.S. and NATO troops stationed in Afghanistan, and will call for a change in the “operational culture” of U.S. and NATO forces. He will recommend that commanders boost personal contact with Afghans, possibly living in towns and spending more time on foot patrols.

The Los Angeles Times interviews McChrystal on the assessment of military operations.

Read full story.

India gets nuclear submarine

India will launch its first nuclear submarine later this month, the Financial Times reports.

The submarine would add India to a short list of countries with the capability to launch a nuclear strike from the sea.

Read full story.

China’s public relations strategy

Thousands of Chinese military forces have been deployed into Urumqi, Xinjiang’s regional capital, in an attempt to control turmoil that has led to over 150 deaths in recent days.

A BBC correspondent in Urumqi says the situation “feels like martial law in everything but name.” The troop deployment comes after disorder yesterday when thousands of angry ethnic Han Chinese wielding improvised weapons engaged in sporadic revenge attacks against Uighurs after deadly riots Sunday.

Meanwhile, Chinese President Hu Jintao left the G8 summit in Italy and returned to Beijing to deal with the violence. The Wall Street Journal says Hu’s departure from the G8 summit underlines the severity of the challenge the Xinjiang violence presents to China’s leadership.

Newsweek looks at the evolution of China’s public relations strategy, as evidenced in the latest crisis.

Read full story.

U.S. marines launch major Afghan offensive

U.S. marines launched today a military offensive to retake the Helmand River Valley in south-western Afghanistan from Taliban militants.

The U.S. military says this operation is the largest since its invasion of Fallujah, Iraq, in 2004. The focus of the offensive will be bolstering local Afghan governments and protecting civilians. Pakistan says it deployed troops to a stretch of its border to prevent insurgents from fleeing across.

Reuters provides a Q&A on the new military offensive.

Read full story.

Iran’s New Revolution

Iran entered its final day of campaigning before its presidential elections tomorrow. President Mahmoud Ahmadinejad’s challengers held rival protests in the city, criticizing the president for his crackdowns on personal freedoms and his troubles managing Iran’s struggling economy.

Several media have noted that Mahmoud Ahmadinejad’s challengers, mostly the reformists Mir Hossein Mousavi and Mehdi Karroubi, once appeared pretty weak but seem to have gained momentum in recent weeks. It remains to be seen, of course, whether any of the challengers stands a chance of unseating the president. Some analysts have predicted that Mousavi and Karroubi will split the reformist vote, undermining one another.

The Economist says the results of the vote could hinge primarily on voter turnout, with higher turnout benefiting the reformists. The piece notes that recent televised debates seem to have energized Iranians “as much as any [election] since the Islamic revolution of 1979.”

The New York Times reports the state of the Iranian economy has emerged as a defining issue ahead of the vote.

EurasiaNet has an analysis arguing that Ahmadinejad may be trying to foment a “revolution within the Islamic Revolution” in hopes of establishing a “neoconservative dictatorship with the blessing of the country’s spiritual leader.” The problem, the article says, is that Ahmadinejad’s opponents are stronger than the Iranian president once thought.

Foreign Policy has a special report on the elections questioning whether a new revolution might be taking place.

Read full story.

U.S. treasury secretary Geithner urges combined U.S.-China efforts to boost global economy

United States Secretary of the Treasury Timothy Geithner

Timothy Geithner, in his first visit to China as U.S. Treasury Secretary, presented a plan for the United States and China to work together to rebuild the global economy and restore growth.

In a speech today at Peking University, Geithner stressed that there is much that both the United States and China need to do to rebalance the world economy. He called for China to make its currency more flexible in exchange for fiscal reforms in the United States. He also said China would need to diversify its economy beyond relying so heavily on exports for growth, and that the United States, in return, would focus on mitigating its ballooning deficit to protect massive Chinese investments in U.S. government debt.

Chinese media focused on Geithner’s implication that China should play a more significant role in global economic policymaking. China Daily says the primary goal of Geithner’s trip, which has included meetings with several leading Chinese economic policymakers, has been to reaffirm China’s faith in U.S. dollar-backed assets and still fears that U.S. budget deficit and loose monetary policy will prompt inflation, undermining Chinese holdings of both the U.S. dollar and U.S. Treasury bonds.

Below is the text of Timothy Geithner’s speech.

***

The United States and China, Cooperating for Recovery and Growth

 Treasury Secretary Timothy F. Geithner

Speech at Peking University – Beijing, China
June 1^st, 2009

 It is a pleasure to be back in China and to join you here today at this great university. 

I first came to China, and to Peking University, in the summer of 1981 as a college student studying Mandarin. I was here with a small group of graduate and undergraduate students from across the United States. I returned the next summer to Beijing Normal University. 

We studied reasonably hard, and had the privilege of working with many talented professors, some of whom are here today. As we explored this city and traveled through Eastern China, we had the chance not just to understand more about your history and your aspirations, but also to begin to see the United States through your eyes. 

Over the decades since, we have seen the beginnings of one of the most extraordinary economic transformations in history. China is thriving.  Economic reform has brought exceptionally rapid and sustained growth in incomes. China’s emergence as a major economic force more fully integrated into the world economy has brought substantial benefits to the United States and to economies around the world.  

In recognition of our mutual interest in a positive, cooperative, and comprehensive relationship, President Hu Jintao and President Obama agreed in April to establish the Strategic and Economic Dialogue. Secretary Clinton and I will host Vice Premier Wang and State Councilor Dai in Washington this summer for our first meeting.  I have the privilege of beginning the economic discussions with a series of meetings in Beijing today and tomorrow. 

These meetings will give us a chance to discuss the risks and challenges on the economic front, to examine some of the longer term challenges we both face in laying the foundation for a more balanced and sustainable recovery, and to explore our common interest in international financial reform.

Current Challenges and Risks

The world economy is going through the most challenging economic and financial stress in generations. 

 The International Monetary Fund predicts that the world economy will shrink this year for the first time in more than six decades. The collapse of world trade is likely to be the worst since the end of World War II. The lost output, compared to the world economy’s potential growth in a normal year, could be between three and four trillion dollars.

In the face of this challenge, China and the United States are working together to help shape a strong global strategy to contain the crisis and to lay the foundation for recovery. And these efforts, the combined effect of forceful policy actions here in China, in the United States, and in other major economies, have helped slow the pace of deterioration in growth, repair the financial system, and improve confidence. 

In fact, what distinguishes the current crisis is not just its global scale and its acute severity, but the size and speed of the global response.

At the G-20 Leaders meeting in London in April, we agreed on an unprecedented program of coordinated policy actions to support growth, to stabilize and repair the financial system, to restore the flow of credit essential for trade and investment, to mobilize financial resources for emerging market economies through the international financial institutions, and to keep markets open for trade and investment. 

That historic accord on a strategy for recovery was made possible in part by the policy actions already begun in China and the United States. 

China moved quickly as the crisis intensified with a very forceful program of investments and financial measures to strengthen domestic demand.

In the United States, in the first weeks of the new Administration, we put in place a comprehensive program of tax incentives and investments ¨C the largest peace time recovery effort since World War II – to help arrest the sharp fall in private demand. Alongside these fiscal measures, we acted to ease the housing crisis. And we have put in place a series of initiatives to bring more capital into the banking system and to restart the credit markets.  

These actions have been reinforced by similar actions in countries around the world. 

In contrast to the global crisis of the 1930s and to the major economic crises of the postwar period, the leaders of the world acted together. They acted quickly. They  took steps to provide assistance to the most vulnerable economies, even as they faced exceptional financial needs at home. They worked to keep their markets open, rather than retreating into self-defeating measures of discrimination and protection. 

And they have committed to make sure this program of initiatives is sustained until the foundation for recovery is firmly established, a commitment the IMF will monitor closely, and that we will be able to evaluate together when the G-20 Leaders meet again in the United States this fall. 

We are starting to see some initial signs of improvement. The global recession seems to be losing force. In the United States, the pace of decline in economic activity has slowed. Households are saving more, but consumer confidence has improved, and spending is starting to recover. House prices are falling at a slower pace and the inventory of unsold homes has come down significantly. Orders for goods and services are somewhat stronger. The pace of deterioration in the labor market has slowed, and new claims for unemployment insurance have started to come down a bit. 

The financial system is starting to heal. The clarity and disclosure provided by our capital assessment of major U.S. banks has helped improve market confidence in them, making it possible for banks that needed capital to raise it from private investors and to borrow without guarantees. The securities markets, including the asset backed securities markets that essentially stopped functioning late last year, have started to come back. The cost of credit has fallen substantially for businesses and for families as spreads and risk premia have narrowed.    

These are important signs of stability, and assurance that we will succeed in averting financial collapse and global deflation, but they represent only the first steps in laying the foundation for recovery. The process of repair and adjustment is going to take time. 

China, despite your own manifest challenges as a developing country, you are in an enviably strong position. But in most economies, the recession is still powerful and dangerous. Business and households in the United States, as in many countries, are still experiencing the most challenging economic and financial pressures in decades. 

The plant closures, and company restructurings that the recession is causing are painful, and this process is not yet over. The fallout from these events has been brutally indiscriminant, affecting those with little or no responsibility for the events that now buffet them, as well as on some who played key roles in bringing about our troubles.

The extent of the damage to financial systems entails significant risk that the supply of credit will be constrained for some time. The constraints on banks in many major economies will make it hard for them to compensate fully for the damage done to the basic machinery of the securitization markets, including the loss of confidence in credit ratings. After a long period where financial institutions took on too much risk, we still face the possibility that  banks and investors may take too little risk, even as the underlying economic conditions start to improve. 

And, after a long period of falling saving and substantial growth in household borrowing relative to GDP, consumer spending in the United States will be restrained for some time relative to what is typically the case in recoveries. 

 These are necessary adjustments. They will entail a longer, slower process of recovery, with a very different pattern of future growth across countries than we have seen in the past several recoveries. 

Laying the Foundation for Future Growth

As we address this immediate financial and economic crisis, it is important that we also lay the foundations for more balanced, sustained growth of the global economy once this recovery is firmly established. 

A successful transition to a more balanced and stable global economy will require very substantial changes to economic policy and financial regulation around the world. But some of the most important of those changes will have to come in the United States and China. How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world. The effectiveness of U.S. policies will depend in part on China’s, and the effectiveness of yours on ours. 

Although the United States and China start from very different positions, many of our domestic challenges are similar. In the United States, we are working to reform our health care system, to improve the quality of education, to rebuild our infrastructure, and to improve energy efficiency. These reforms are essential to boosting the productive capacity of our economy. These challenges are at the center of your reform priorities, too. 

We are both working to reform our financial systems. In the United States, our challenge is to create a more stable and more resilient financial system, with stronger protections for consumer and investors.  As we work to strengthen and redesign regulation to achieve these objectives, our challenge is to preserve the core strengths of our financial system, which are its exceptional capacity to adapt and innovate and to channel capital for investment in new technologies and innovative companies. You have the benefit of being able to learn from our shortcomings, which have proved so damaging in the present crisis, as well as from our strengths.  

Our common challenge is to recognize that a more balanced and sustainable global recovery will require changes in the composition of growth in our two economies. Because of this, our policies have to be directed at very different outcomes. 

In the United States, saving rates will have to increase, and the purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past. 

In China, as your leadership has recognized, growth that is sustainable growth will require a very substantial shift from external to domestic demand, from an investment and export intensive driven growth, to growth led by consumption. Strengthening domestic demand will also strengthen China’s ability to weather fluctuations in global supply and demand.

If we are successful on these respective paths, public and private saving in the United States will increase as recovery strengthens, and as this happens, our current account deficit will come down. And in China, domestic demand will rise at a faster rate than overall GDP, led by a gradual shift to higher rates of consumption.  

Globally, recovery will have come more from a shift by high saving economies to stronger domestic demand and less from the American consumer. 

The policy framework for a successful transition to this outcome is starting to take shape.

In the United States, we are putting in place the foundations for restoring fiscal sustainability. 

The President in his initial budget to Congress made it clear that, as soon as recovery is firmly established, we are going to have to bring our fiscal deficit down to a level that is sustainable over the medium term. This will mean bringing the imbalance between our fiscal resources and expenditures down to the point - roughly three percent of GDP – where the overall level of public debt to GDP is definitively on a downward path.  The temporary investments and tax incentives we put in place in the Recovery Act to strengthen private demand will have to expire, discretionary spending will have to fall back to a more modest level relative to GDP, and we will have to be very disciplined in limiting future commitments through the reintroduction of budget disciplines, such as pay-as-you go rules.

The President also looks forward to working with Congress to further reduce our long-run fiscal deficit.

And, critical to our long-term fiscal health, we have to put in place comprehensive health care reform that will bring down the growth in health care costs, costs that are the principal driver of our long run fiscal deficit. 

The President has also proposed steps to encourage private saving, including through automatic enrollment in retirement savings accounts. 

Alongside these fiscal actions, we have designed our policies to address the financial crisis to carefully minimize risk to the taxpayer and to allow for an orderly exit or unwinding as soon as conditions permit. Across the various financial facilities put in place by the Treasury, the Federal Reserve, and the FDIC, we have been careful to set the economic terms at a level so that demand for these facilities will fade as conditions normalize and risk premia recede.  Banks have a strong incentive to replace public capital with private capital as soon as conditions permit. 

Let me be clear - the United States is committed to a strong and stable international financial system. The Obama Administration fully recognizes that the United States has a special responsibility to play in this regard, and we fully appreciate that exercising this special responsibility begins at home. As we recover from this unprecedented crisis, we will cut our fiscal deficit, we will eliminate the extraordinary governmental support that we have put in place to overcome the crisis, we will continue to preserve the openness of our economy, and we will resolutely maintain the policy framework necessary for durable and lasting sustained non-inflationary growth.

In China, the challenge is fundamentally different, and at least as complex. 

Critical to the success of your efforts to shift future growth to domestic demand are measures to raise household incomes and to reduce the need that households feel to save large amounts for precautionary reasons or to pay for major expenditures like education.  This involves strengthening the social safety net with health care reform and more complete public retirement systems, enacting financial reforms to help expand access to credit for households, and providing products that allow households to insure against risk.  These efforts can be funded through the increased collection of dividends from state-owned enterprises.

The structure of the Chinese economy will shift as domestic demand grows in importance, with a larger service sector, more emphasis on light industry, and less emphasis on heavy, capital intensive export and import-competing industries.  The resulting growth will generate greater employment, and be less energy-intensive than the current structure of Chinese industry. Allowing the market, interest rates, and other prices to function to encourage the shift in production will be particularly important.

An important part of this strategy is the government’s commitment to continue progress toward a more flexible exchange rate regime.  Greater exchange rate flexibility will help reinforce the shift in the composition of growth, encourage resource shifts to support domestic demand, and provide greater ability for monetary policy to achieve sustained growth with low inflation in the future. 

International Financial Reform

These are some of the most important domestic economic challenge we face, and these issues will be at the core of our agenda for economic cooperation. 

But I think it is important to underscore that we also have a very strong interest in working together to strengthen the framework for international economic and financial cooperation.  

Let me highlight three important areas.

At the G-20 Leaders meeting, we committed to a series of actions to help reform and strengthen the international financial architecture.

As part of this, we agreed to put in place a stronger framework of standards for supervision and regulation of the financial system.  We expanded and strengthened the Financial Stability Forum, now renamed the Financial Stability Board.  China and other major emerging economies are now full participants, alongside the major financial centers, in this critical institution for cooperation.  We will have the chance together to help redesign global standards for capital requirements, stronger oversight of global markets like derivatives, better tools for resolving future financial crises, and measures to reduce the opportunities for regulatory arbitrage. 

We also committed to an ambitious program of reform of the IMF and other international financial institutions.  Our common objective is to reform the governance of these institutions to make them more representative of the shifting balance of economic and financial activity in the world, to strengthen their capacity to prevent future crisis, with stronger surveillance of macroeconomic, exchange rate, and financial policies, and to equip them with a stronger financial capacity to respond to future crises. We also committed to mobilize $500 billion in additional finance through the enlargement and membership expansion of the IMF’s New Arrangements to Borrow in order to provide an insurance policy for the global financial system.

As part of this process of reform, the United States will fully support having China play a role in the principal cooperative arrangements that help shape the international system, a role that is commensurate with China’s importance in the global economy.

I believe that a greater role for China is necessary for China, for the effectiveness of the international financial institutions themselves, and for the world economy. 

China is already too important to the global economy not to have a full seat at the international table, helping to define the policies that are critical to the effective functioning of the international financial system.

Second, we must cooperate to assure that the global trade and investment environment remains open, and that opportunities continue to expand.  As economies have become more open and more closely integrated, global economic growth has been stronger and more broad-based, bringing increasing numbers out of poverty, and turning developing nations into major emerging markets.    The global commitment to trade liberalization and increasingly open investment played a critical role in this process ¨C in the industrialized world, in East Asia, and, since 1978, in China.  As we go through the severe stresses of this crisis, we must not turn our backs on open trade and investment - for ourselves and for those who have yet to experience the fruits of growth and development. The United States, China, and the other members of the G20 have committed to not resort to protectionist measures by raising trade and investment barriers and to work toward a successful conclusion to the Doha Development Round. 

And third, one of the most critical long-term challenges that we both face is climate change.  Individually and collectively, there is an urgent need to ensure that each and every country takes meaningful action to deal with this threat.  Reducing land and forest degradation, conserving energy, and using clean technology are important objectives that complement both our efforts to achieve a new, sustainable pattern of growth and our goal of reducing greenhouse gas emissions. China and the United States already are working closely through the Strategic and Economic Dialogue in areas such as clean transportation, clean and efficient production of electricity, and the reduction of air and water pollution.  We must continue these efforts for the sake of our natio ns and the planet.

Conclusion

In the last few years the frequency, intensity, and importance of U.S.-China economic engagements have multiplied.  The U.S.-China Strategic and Economic Dialogue that President Obama and President Hu initiated in April is the next stage in that process.  I look forward to welcoming Vice Premier Wang, State Councilor Dai and their colleagues to Washington to participate in the first meeting of the U.S.-China Strategic and Economic Dialogue.

 Our engagement should be conducted with mutual respect for the traditions, values, and interests of China and the United States. We will make a joint effort in a concerted way “同心协力“.  We should understand that we each have a very strong stake in the health and the success of each other’s economy. 

China and the United States individually, and together, are so important in the global economy and financial system that what we do has a direct impact on the stability and strength of the international economic system.  Other nations have a legitimate interest in our policies and the ways in which we work together, and we each have an obligation to ensure that our policies and actions promote the health and stability of the global economy and financial system.

We come together because we have shared interests and responsibilities.  We also have our own national interests.   I will be a strong advocate for U.S. interests, just as I expect my counterparts to represent China.  China has benefited hugely from open trade and investment, and the ability to greatly increase its exports to the rest of the world.  In turn, we expect increased opportunities to export to and invest in the Chinese economy.   

We want China to succeed and prosper.  Chinese growth and expanding Chinese demand is a tremendous opportunity for U.S. firms and workers, just as it is in China and the rest of the world. 

Global problems will not be solved without U.S.-China cooperation.  That goes for the entire range of issues that face our world from economic recovery and financial repair to climate change and energy policy.

I look forward to working with you cooperatively, and in a spirit of mutual respect.

North Korea Alert

Yonhap News Agency reports the United States of America and South Korea have increased their alert level toward North Korea and have ramped up surveillance following Pyongyang’s decision to scrap the treaty halting the Korean War.

The BBC has a news analysis attempting to gauge North Korea’s game plan. 

In a strategic paper published by the U.S. War Army College, experts Colonel Ray Midkiff and Dr. James Downey address the policy options available to influence North Korea.

Read full story.

The Geopolitics of Emotion: How Cultures of Fear, Humiliation, and Hope are Reshaping the World

Dominique Moïsi, a founder of the Institut Français des Relations Internationales (IFRI – French Institute of International Affairs), professor at the Institut d’études politiques (Sciences Po Paris) and Harvard University, and one of Europe’s leading geo-strategic thinkers, discusses in his new book how cultures of fear, humiliation, and hope are reshaping global politics.

“Fear, Humiliation, Hope, and the New World Order

Thirteen years ago, Samuel Huntington argued that a “clash of civilizations” was about to dominate world politics, with culture, along with national interests and political ideology, becoming a geopolitical fault line (“The Clash of Civilizations?” Summer 1993). Events since then have proved Huntington’s vision more right than wrong. Yet what has not been recognized sufficiently is that today the world faces what might be called a “clash of emotions” as well. The Western world displays a culture of fear, the Arab and Muslim worlds are trapped in a culture of humiliation, and much of Asia displays a culture of hope.

Instead of being united by their fears, the twin pillars of the West, the United States and Europe, are more often divided by them – or rather, divided by how best to confront or transcend them. The culture of humiliation, in contrast, helps unite the Muslim world around its most radical forces and has led to a culture of hatred. The chief beneficiaries of the deadly encounter between the forces of fear and the forces of humiliation are the bystanders in the culture of hope, who have been able to concentrate on creating a better future for themselves.

These moods, of course, are not universal within each region, and there are some areas, such as Russia and parts of Latin America, that seem to display all of them simultaneously. But their dynamics and interactions will help shape the world for years to come.

THE CULTURE OF FEAR

The United States and Europe are divided by a common culture of fear. On both sides, one encounters, in varying degrees, a fear of the other, a fear of the future, and a fundamental anxiety about the loss of identity in an increasingly complex world.

In the case of Europe, there are layers of fear. There is the fear of being invaded by the poor, primarily from the South – a fear driven by demography and geography. Images of Africans being killed recently as they tried to scale barbed wire to enter a Spanish enclave in Morocco evoked images of another time not so long ago, when East Germans were shot at as they tried to reach freedom in the West. Back then, Germans were killed because they wanted to escape oppression. Today, Africans are being killed because they want to escape absolute poverty.”

Buy your copy now from Amazon.

Pakistan’s nuclear arsenal at risk

The New York Times reports today that Washington is increasingly concerned about the security of Pakistan’s nuclear weapons arsenal, including the potential of militants to steal a weapon or otherwise infiltrate nuclear laboratories or fuel-production facilities.

Meanwhile, the spokesman for Sufi Mohammad, the radical and increasingly influential Muslim cleric in Pakistan, said the Taliban would not lay down their arms in the Malakand region unless government military operations there are halted.

Read full story.

Fears About Pakistan’s Nuclear Weapons

As militancy grows in Pakistan, U.S. officials are increasingly concerned about the security of Pakistan’s nuclear weapons.

The Washington Times reports that the military controls the country’s nuclear stockpile, so any scenario that changes the balance of power in the military – from a coup to a Taliban takeover – could endanger the security of Pakistan’s nuclear weapons.

Read full story.

Afpak: Richard Holbrooke’ U.S. Strategy for South Asia

Richard Holbrooke, the U.S. special representative to Afghanistan and Pakistan, opened meetings with Indian officials today in an attempt to win support for President Barack Obama’s strategy to bring peace to the region.

Al-Jazeera reports Richard Holbrooke will meet with India’s foreign minister, to counter concerns from India that Washington favours Pakistan.

Pakistani officials have disputed that Washington shows disproportionate support for India in its bilateral relations with Pakistan, and have criticized the parameters of Holbrooke’s “Af-Pak” mission, saying a more productive assignment would include mediation of the India-Pakistan conflict in Kashmir, which foreign policy experts say is inextricably linked with terrorism in Pakistan and Afghanistan.

Read full story.

China reacts sharply to new U.S. military report

The BBC reports Beijing reacted sharply toward a U.S. Defense Department report that says China’s rapid development of its armed forces is dramatically shifting the power balance in Asia.

A foreign ministry spokesperson for China said the report represented a “gross distortion of the facts” and “Cold War thinking.”

Here is the text of the report itself. The Pentagon’s annual report to Congress on China’s military power draws Beijing’s ire every year.

G-20-Finance Ministers Meeting

News reports indicate a meeting of finance ministers from the G-20 countries, laying the groundwork for a major April 2nd, 2009 heads-of-state summit addressing the financial crisis, produced agreement in several areas.

Australia’s representative at the meetings said: “Everybody agreed: It’s fiscal stimulus plus. We’ve got to do something about the flow of credit in the financial system; we’ve got to reform our international financial institutions.”

Reportedly the delegates reached general agreement on the need both to boost International Monetary Fund (IMF) resources in the short-term and to reshape the fund in the longer term, including a timetable to increase the voting rights of emerging economies.

Reuters reports the group also agreed to boost funding to the Asian Development Bank (ADB) by $100 billion, bringing the bank’s war chest to $150 billion total.

Pakistan crackdown

The BBC reports Pakistani authorities have broadened their crackdown on anti-government protests in several parts of the country. Authorities in the country’s northwest have banned political gatherings, the article says, and officials in Sindh province blocked a protest convoy.

Pakistan’s Prime Minister Yousaf Raza Gilani ordered security for opposition leader Nawaz Sharif to be stepped up, following intelligence reports that Sharif and his brother are under threat.

Meanwhile, Britain’s Foreign Minister David Miliband and U.S. regional envoy Richard Holbrooke held talks with Pakistan’s President Asif Ali Zardari. The Times of India reports Zardari also held meetings with Pakistan’s military chief Ashfaq Kiyani.

Dawn continues its coverage with a blog dedicated to the protests.

Read full story.

Security Challenges Arising from the Global Financial Crisis

Statement of Richard Nathan Haass, former Director of Policy Planning in the U.S. State Department, current President of the Council on Foreign Relations, before the Committee on Armed Services of the U.S. House of Representatives

Washington DC, March 11, 2009

Mr. Chairman,

Thank you for this opportunity to testify before the House Committee on Armed Services on security challenges arising from the global financial crisis. Let me first commend you and your colleagues for holding this hearing. Most of the analysis and commentary on the global economic crisis has focused on the economic consequences.

This is understandable, but it is not sufficient. The world does not consist of stovepipes, and what happens in the economic realm affects political and strategic policies and realities alike. It is also important to say at the outset that this crisis, which began in the housing sector in the United States, is now more than a financial crisis. It is a full-fledged economic crisis. It is also more than an American crisis. It is truly global.

I would add, too, that the crisis is unlike any challenge we have seen in the past. It is qualitatively different than the sort of cyclical downturn that capitalism produces periodically. This crisis promises to be one of great depth, duration, and consequence. This crisis was not inevitable. It was the result of flawed policies, poor decisions, and questionable behavior.

It is important that this point be fully understood lest the conclusion be widely drawn that market economies are to be avoided. The problem lies with the practice of capitalism, not the model. Nevertheless, the perception is otherwise, and one consequence of the economic crisis is that market economies have lost much of their luster and the United States has lost much of its credibility in this realm.

It is inconceivable in these circumstances to imagine an American official preaching the virtues of the Washington Consensus. This is unfortunate, as open economies continue to have more to offer the developing world than the alternatives. It also adds to the importance that the U.S. economy get back on track lest a lasting casualty of the crisis be modern capitalism itself.

The impact of the economic crisis will be varied and go far beyond the image of capitalism and the reputation of the United States. Director of National Intelligence Dennis Blair was all too correct when he testified recently that the primary near-term security concern of the United States is the global economic crisis and its geopolitical implications. The crisis will have impact on conditions within states, on the policies of states, on relations between states, and on the thinking of those who run states. I have already alluded to this last consideration.

Here I would only add that initial reactions around the world to the crisis appear to have evolved, from some initial gloating at America’s expense to resentment of the United States for having spawned this crisis to, increasingly, hopes that the American recovery arrives sooner and proves to be more robust than is predicted. This change of heart is not due to any change of thinking about the United States but rather to increased understanding that the recovery of others will to a significant extent depend on recovery in the United States. In a global world, what happens here affects developments elsewhere and vice versa. Decoupling in either direction is rarely a serious possibility. The crisis is clearly affecting the developed world, mostly as a result of the centrality of banking-related problems and the high degree of integration that exists among the economies of the developed world. Iceland’s government has fallen; others may over time. Many governments (including several in Central and Eastern Europe but outside the Eurozone) will require substantial loans.

The economies of Japan, much of Europe, and the United States are all contracting. World economic growth, which averaged 4 to 5 percent over the past decade, will be anemic this year even if it manages to be positive, which is increasingly unlikely. It is worth noting that the most recent World Bank projection predicts negative growth for 2009. Change of this sort will have consequences. There will likely be fewer resources available for defense and foreign assistance. Reduced availability of resources for defense makes it even more critical that U.S. planners determine priorities. Preparing to fight a large-scale conventional war is arguably not the highest priority given the enormous gap between the relevant military capabilities of the United States and others and the greater likelihood that security-related challenges will come from terrorism and asymmetric warfare. State-capacity building, the sort of activity the United States is doing in Iraq, Afghanistan, and Pakistan, will continue to place a heavy burden on U.S. military and civilian assets.

Also remaining highly relevant (and deserving to be a funding priority) will be standoff capabilities designed to destroy targets associated with terrorism and weapons of mass destruction. Developing states may appear to be better off than wealthier countries at first glance. Their growth on average is down by half from previous years, but still positive. Appearances, however, can be deceptive. This growth is measured from a low base in absolute and relative terms. The reduction in growth in some instances has been dramatic. Developing country exports are down as demand is down in the developed world.

Also reduced are aid flows and most importantly investment flows to the developing world. Commodity prices are much lower, a boon to those who rely on imports but a major problem for the many who are dependent on the income from one or two exports. A few countries merit specific mention. One is China. China’s economic success over the past few decades constitutes one of history’s great examples of poverty eradication. This process, one that has involved the migration of millions of people every year from poor rural areas to cities, will slow considerably. The already large number of domestic political protests in China over such issues as land confiscation, corruption, environmental degradation, and public health, is likely to grow. Absent renewed robust economic growth, the chances are high that the government will react by clamping down even more on the population lest economic frustration lead to meaningful political unrest.

Russia is in a different position, one characteristic of countries dependent on raw material exports for much of their wealth. The Russian economy is contracting after a period of boom. As is the case with China, this suggests the likely assertion of greater political control. But Russia is not as fully integrated as China is with the world economy. There is thus a greater (although impossible to quantify) chance that Russia’s leaders will turn to the time-honored resort of manufacturing an overseas crisis to divert attention than will China’s.

The same holds true for Iran and Venezuela, two countries that are heavily reliant on energy exports and whose foreign policies have been counterproductive (to say the least) from the U.S. perspective. But at the same time, it is possible that one or both will pull in their horns. Venezuela is already showing some signs of this, with its more welcoming stance toward international oil companies. This may well be simply a tactical adjustment to immediate needs.

And at least in principle, Iran’s government might find it more difficult to make the case to its own people for its continued pursuit of a nuclear weapons option if the Iranian people understood that it was costing them dearly with respect to their standard of living. Iraq is another oil producing country whose wealth is closely associated with the price of oil. Here the effects are sure to be unwanted. There is the danger that disorder will increase as unemployment rises, prospects for sharing revenue shrink, and the ability of the central government to dispense cash to build broad national support diminishes. In light of the multiple challenges already facing the United States, the last thing the Obama administration needs is the specter of an unravelling Iraq.

Two other countries are worth highlighting. One is Pakistan. Pakistan’s economic performance is down sharply for many reasons, including a decrease in both foreign investment in the country and exports from Pakistan to other countries. Pakistan has little margin for error; the possibility that it could fail is all too real. The worsened economic situation makes governing all that much more difficult. The consequences of a failed Pakistan for the global struggle against terrorism, for attempts to prevent further nuclear proliferation, for the effort to promote stability in Afghanistan, and for India’s future are difficult to exaggerate. North Korea is a second nuclear-armed state whose stability is worsened by the economic crisis.

At issue is the extent to which South Korea (along with China and Japan) can provide resources to the North to help stave off collapse. Another serious consequence of the global economic crisis, one that affects both developed and developing countries, is the reality that protectionism is on the rise. One realm is trade; some seventeen of the twenty governments set to meet in London early next month have increased barriers to trade since they met late last year. Negotiated free trade agreements with Colombia, Panama, and South Korea continue to languish in the U.S. Congress. The president lacks the Trade Promotion Authority essential for the negotiation of complex, multilateral trade accords. Prospects for a Doha round global trade pact appear remote. The volume of world trade is down for the first time in decades. The economic but also strategic costs of this trend are high. Trade is a major source of political as well as economic integration; one reason China acts as responsibly as it does in the political sphere is because of its need to export its products lest potentially destabilizing unemployment jump sharply. Trade has other virtues as well. More than anything else, trade is a principal engine of global economic growth. The completion of the Doha round might be worth as much as $500 billion to the world in expanded economic activity. One-fourth of this expanded output would occur in the United States. This is the purest form of stimulus.

For the United States, exports are a source of millions of relatively high-paying jobs; imports are anti-inflationary and spur innovation. Alas, the economic crisis will make it difficult if not impossible to conclude new trade pacts and to gain the requisite domestic support for them. Economic nationalism is on the rise, and when this happens, the will and the ability of political leaders to support policies that are perceived to hurt large numbers of their citizens (but which in reality help many more) invariably goes down. What is more, the economic crisis may also make it more difficult to reach agreement on a global climate change pact when representatives of most of the world’s countries gather in Copenhagen late this year. Developed and developing countries alike will resist commitments that appear to or in fact do sacrifice near-term economic growth for long-term environmental benefit. What, then, should be done to limit the adverse strategic effects of an economic crisis that is certain to get worse and persist for some time?

The United States – the Obama administration and the Congress – should resist protectionism. “Buy America” provisions in the stimulus legislation will increase costs to American consumers and all but make certain that other countries will follow suit, thereby reducing the prospects for American firms to sell abroad. More American jobs are likely to be sacrificed than preserved. Increased protectionism will also dilute the strategic benefits that stem from trade and its ability to contribute to international stability by giving governments a stake in stability. Similar arguments hold as to why “lend national” provisions are counterproductive. Bringing countries into the world trading system (best done through WTO accession) makes strategic sense, too, as it gives them a stake in maintaining order at the same time it opens government decision-making to greater degrees of transparency. Recession cannot become this country’s energy policy or a reason not to decrease U.S. consumption of oil, imported or otherwise. Lower prices will dilute any economic incentive to consume less oil. Regulatory policy will be the principal means of discouraging demand and encouraging the development of alternative energy sources and technologies. Reduced demand is essential for strategic reasons (so as not to leave the United States highly dependent on imports and so that countries such as Russia, Venezuela, and Iran do not benefit from dollar inflows), for environmental reasons, and for economic reasons, i.e., not to increase the U.S. balance of payments deficit. The goal should be to use this moment of temporarily-reduced prices to decrease the chances we as a country again find ourselves in a world of high energy prices once the recession recedes.

The United States should work with other developed and reserve-rich countries to increase the capacity of the IMF to assist governments in need of temporary loans. Current capacity falls short of what is and will be needed. It would be helpful if aid budgets were not victims of the economic crisis. Aid is needed on a large scale not just for humanitarian reasons (to fight disease, etc.) but also to build the human capital that is the foundation of economic development. Aid will also be a necessary substitute in the short and medium run for investment. Absent such flows we are likely to see greater misery and an increased number of failing or failed states. The upcoming G-20 summit in London provides an opportunity to adopt or encourage some useful measures in many of these realms. It is essential that others, including Europe and Japan, take steps to stimulate their economies. It is equally important, though, that guidelines be promulgated so that stimulus programs do not become a convenient mechanism for unwarranted subsidies and “buy national” provisions that are simply protectionist measures by another name.

The London meeting is also an opportunity to increase IMF capacity, to generate commitments to provide aid to developing countries, and to agree on at least some regulatory principles for national banking and financial systems. There is not time, however, to try to rebuild the architecture of the international economic system, solve the problems caused by countries that run chronic surpluses, or revamp the system of exchange rates. Let me close with two final thoughts. Much of this hearing and statement is focused on the question of the consequences of the economic crisis for global security. But it is important to keep in mind that the relationship is not only one way. Developments in the political world can and will have an effect on the global economy.

Imagine for a second the economic consequences of, say, a Taiwan crisis or fighting between India and Pakistan or an armed confrontation with Iran over its nuclear ambitions. This last possibility is the most worrying in the near term and underscores the importance of trying to negotiate limits on Iran’s enrichment program lest the United States be confronted with the unsavory option of either living with an Iranian near or actual nuclear weapons capability or mounting a preventive military strike that, whatever it accomplished, would be sure to trigger a wider crisis that could well lead to energy prices several times their current level.

Finally, getting through this economic crisis should not be confused with restoring prolonged calm in the markets or sustainable growth. Enormous stimulus measures here at home coupled with equally unprecedented increases in the current account deficit and national debt make it all but certain that down the road the United States will confront not just renewed inflation but quite possibly a dollar crisis as well. At some point central banks and other holders of dollars will have secnd thoughts about continuing to add to their dollar holdings, currently larger than ever given the desire for a safe harbor. Ongoing U.S. requirements for debt financing, however, will likely mean that interest rates would need to be raised, something that could choke off a recovery. This underscores the importance of limiting stimulus packages to what is truly essential to reviving economic activity and to taking other measures (such as entitlement reform and the already discussed steps to reduce oil use) lest the current crisis give way to another one.

Former US ambassador with financial links to Iran and Saudi Arabia declines intelligence post

Former US ambassador to Saudi Arabia Charles W. (“Chas”) Freeman, Jr. has withdrawn his candidature for a top intelligence post in the Obama administration, US intelligence director Dennis Blair has announced, accepting Freeman’s decision “with regret.”

Freeman’s decision came after US lawmakers raised concerns about his alleged financial links to China and Saudi Arabia, and critics attacked comments he had made in the past which they saw as overly critical of Israel. A Republican politician highlighted Freeman’s ties to a think tank heavily funded by Saudi Arabia as well as his time on the board of a state-run Chinese oil giant, during which the firm made major investments in Iran.

Dennis Blair had chosen Freeman, a former ambassador to Riyadh and senior diplomat in Beijing, to be chairman of the National Intelligence Council. The post would have made him, in effect, the chief author of the National Intelligence Estimates – assessments for US presidents and other decision-makers on highly sensitive matters. The documents are designed to reflect the consensus view of all 16 US spy agencies on potential threats like Iran.

Freeman himself explained his withdrawal in an email saying that pro-Israeli lobbyists in Washington led a campaign to block him from taking office. Foreign Policy has printed the text of the email here.

China-U.S. Naval Dispute

A naval dispute between China and the United States escalated today as Beijing rebuffed Washington’s claims that Chinese ships “harassed” an unarmed U.S. ocean surveillance ship in the South China Sea on Sunday.

China’s foreign ministry spokesperson Ma Zhaoxu said today that “the U.S. claim is totally inaccurate and wrong” and that the American ship was breaking international law.

Read full story.

Folgt auf die Finanzkrise ein Bürgerkrieg?

Das Volk rebelliert nämlich nie allein deshalb, weil es einen schweren Sack schleppen muss, es lehnt sich nie gegen die Ausbeutung auf, denn es kennt kein Leben ohne Ausbeutung. Das Volk empört sich erst dann, wenn ihm jemand plötzlich und unvermutet einen zweiten Sack aufzubürden versucht. Er rebelliert, weil er spürt, dass du ihm mit diesem zweiten Sack betrügen wolltest, du hast ihn wie ein stumpfes Tier behandelt, den Rest seiner geschändeten Würde in den Schmutz getreten, ihn zum Idioten gemacht. Der Mensch langt nicht nach dem Beil, um seinen Geldbeutel zu verteidigen, sondern seine Würde. (Aus dem Roman König der Könige von Ryszard Kapuściński)

Steht der Zusammenbruch der öffentlichen Ordnung kurz bevor, nachdem die globale Finanzkrise die Ohnmacht der Politik (die mit einer unanständigen Umverteilung von Steuergeldern für die oberen Zehntausend reagiert, anstatt das System grundlegend zu verändern) entlarvt hat? Den genauen Zeitpunkt und die Form des kommenden Bürgerkriegs kann man noch nicht voraussehen. Dass er kommen wird, steht jedenfalls fest. Wann und wie er kommen wird, liegt noch verborgen im Schoße der Zukunft.

Es ist zumindest die ziemlich apokalyptische Prophezeiung der europäischen Denkfabrik European Laboratory of Political Anticipation LEAP/Europe 2020, die in einer Pressemitteilung vom 18. Februar 2009 verkündet wurde.

Ein ähnliches düsteres Szenario prognostiziert ebenfalls Igor Panarin, Dekan der Fakultät Internationale Beziehungen der Diplomatischen Akademie des russischen Außenministeriums: ” Der US-Dollar ist durch nichts mehr gedeckt. Die Außenverschuldung ist lawinenartig gewachsen: 1980 hatte es noch keine gegeben, 1998, als ich meine Prognose aufstellte, lag sie bei zwei Billionen Dollar, heute beträgt sie mehr als elf Billionen Dollar. Das ist eine Pyramide, die unbedingt einstürzen wird. Millionen von Bürgern haben ihre Ersparnisse eingebüßt. Die Preise und die Arbeitslosigkeit werden steigen. General Motors und Ford stehen am Rande des Zusammenbruchs. Das bedeutet, dass ganze Städte arbeitslos werden.”

***

Pressemitteilung European Laboratory of Political Anticipation LEAP/Europe 2020

Seit Februar 2006 vertrat LEAP/E2020 die Auffassung, dass die umfassende weltweite Krise in vier Grundphasen ablaufen würde, nämlich die Anfangsphase, die Beschleunigungsphase, die Aufprallphase und die Dekantierungsphase. Die Ereignisse der letzten zwei Jahre fügten sich hervorragend in dieses Schema. Jedoch müssen wir uns endlich in die Einsicht finden, dass die Regierenden unfähig sind, die wahre Natur der Krise zu verstehen. Denn seit nunmehr mehr als einem Jahr bekämpft die Politik mit ihren Maßnahmen nur die Symptome der Krise, nicht aber die Ursachen.

Deshalb gehen wir heute davon aus, dass mit dem vierten Quartal 2009 eine fünfte Phase der Krise einsetzen wird, in der die öffentliche Ordnung zerfallen wird.

Nach der Auffassung von LEAP/E2020 werden zwei bedeutende Phänomene diese neue Phase der Krise prägen; die kommenden Ereignisse werden damit in zwei parallelen Entwicklungen ablaufen:

A. Die zwei bedeutenden Phänomene:

1. Das Wegbrechen der globalen Finanzbasis (Dollar + Schulden)
2. Die sich beschleunigende Divergenz der Interessen der großen Staaten und der internationalen Organisationen

B. Die zwei parallelen Entwicklungen:

1. Die rasche Auflösung des gesamten gegenwärtigen internationalen Systems
2. Die Auflösung der Handlungsfähigkeit der mächtigen Staaten und großen internationalen Organisationen

Wir hatten gehofft, dass die Dekantierungsphase den Regierenden dieser Welt ermöglichen würde, die Schlussfolgerungen aus dem Zusammenbruch der Nachkriegsweltordnung zu ziehen. Man kann heute mit größtem Bedauern nur feststellen, dass solcher Optimismus nicht mehr zu rechtfertigen ist.

In den USA wie auch in Europa, in China oder in Japan handeln die Regierenden, als ob die Weltordnung nur von einer vorüber gehenden Krise erfasst wäre und es genügen würde, noch etwas Treibstoff (Liquidität, also weitere Schulden) und weitere Tinkturen (Leitzinssenkungen, staatlicher Aufkauf von wertlosen Forderungen, Konjunkturförderprogramme zu Gunsten insolventer Industriezweige) in das System zu gießen, um den Motor wieder zum Anspringen zu bringen. Sie wollen einfach nicht verstehen, dass, wie der Begriff der umfassenden weltweiten Krise, den LEAP/E2020 im Februar 2006 prägte, zu vermittelt versucht, die Weltordnung nicht mehr funktionsfähig ist. Statt verzweifelt zu versuchen, diese am Boden liegende, unrettbare Weltordnung zu retten, muss endlich die Schaffung einer neuen Weltordnung angegangen werden.

Geschichte wartet nicht, bis die Menschen für sie bereit sind. Da die Schaffung der neuen Weltordnung nicht vorausschauend und planend möglich war, wird der Zerfall der öffentlichen Ordnung während dieser fünften Phase der Krise die Welt in ein solches Chaos stürzen, dass die neue Weltordnung als Zufallsprodukt und Improvisation entstehen wird. Die beiden parallelen Entwicklungen, die wir in dieser 32. Ausgabe des GEAB beschreiben, werden für einige der großen Staaten und internationalen Organisationen tragisch sein.

Nach unserer Auffassung verbleibt nur ein sehr kleines Zeitfenster, während dem das Schlimmste noch vermieden werden kann, nämlich bis zum Sommer 2009. Dann wird die Zahlungsunfähigkeit erst Großbritanniens und dann der Vereinigten Staaten die Grundlagen des bestehenden Systems zusammen stürzen lassen und Chaos ausbrechen.

Wir gehen sehr konkret davon aus, dass der geplante G20-Gipfel April 2009 die letzte Chance für die bestehende Weltordnung ist, die aktuell wirkenden Kräfte so auszurichten, dass der Übergang in die neue Weltordnung sich mit dem geringst möglichen Schaden vollzieht.

Wenn ihnen das nicht gelingt, wird den Mächtigen der aktuellen Weltordnung die Kontrolle über die Ereignisse vollständig entgleiten, und zwar nicht nur auf globaler Ebene, sondern für einige von ihnen auch in ihren eigenen Ländern; die Welt wird in die Phase, in der die öffentliche Ordnung zusammen bricht, gleiten wie ein Schiff, dessen Ruder gebrochen ist. Am Ausgang dieser Phase des Zusammenbruchs der öffentlichen Ordnung wird die Welt mehr dem Europa von 1913 ähneln als der Welt, an deren reale Existenz die meisten noch bis 2007 glaubten.

Die meisten der von der Krise betroffenen Staaten, unter ihnen die mächtigsten dieser Erde, versuchten verzweifelt, das immer weiter anwachsende Gewicht der Krise zu schultern; sie verstanden nicht, dass sie damit die Gefahr herauf beschworen, unter dieser Last zusammen zu brechen. Sie vergaßen, dass Staaten, von Menschen geschaffen, nur solange Bestand haben, wie sich eine Mehrheit dieser Menschen mit ihnen identifiziert. In dieser 32. Ausgabe des GEAB wird LEAP/E2020 seine Analysen über die Auswirkungen dieser Phase des Zusammenbruchs der öffentlichen Ordnung auf die USA und die EU vorlegen.

Es wird für alle, Privatpersonen wie Wirtschaftsführer, dringlich, sich auf eine sehr schwierige Zeit vorzubereiten, in der ganze Bereiche unserer Gesellschaft wegbrechen werden und zumindest zeitweise oder sogar dauerhaft aufhören werden, Bestandteile der Gesellschaft zu bilden.

So wird z.B. der Zerfall des Weltwährungssystems im Sommer 2009 nicht nur den Dollar (und aller Geldanlagen in Dollar) zusammen brechen lassen, sondern das Vertrauen in alle Papierwährungen (also ohne Gold- oder Silberdeckung) massiv unterminieren. Alle Empfehlungen in dieser Ausgabe des GEAB sollen auf diese Situation vorbereiten.

Weiterhin gehen wir davon aus, dass die Staaten, die besonders monolithisch, besonders mächtig, besonders zentralistisch sind, diejenigen sein werden, die von der fünften Phase der umfassenden weltweiten Krise besonders massiv betroffen sein werden. Weitere Staaten, die unter dem Schutz dieser Staaten stehen, werden ihre Schutzmächte verlieren und damit dem Chaos in ihren Regionen ausgeliefert sein.

U.S.-North Korea Missile Tests

Lieutenant General Patrick O’Reilly, currently director of the Missile Defense Agency of the U.S. Department of Defense, says the United States has successfully passed scenarios testing its ability to use its missile defense systems to intercept missiles fired from North Korea.

The Korea Times reports North Korea, meanwhile, has pressed ahead saying it will soon fire a “satellite” into orbit.

Read full story.

Pakistan’s Battlefield

The New York Times reports that a U.S. unit of more than seventy military advisers and technical specialists are secretly working in Pakistan to aid the country’s military in its campaign against militant groups in the country’s tribal areas.

Meanwhile, the Afghan news outlet Quqnoos reports Pakistan’s government has been arming villagers in the country’s northwest in the hopes that they will fight against al-Qaeda and Taliban fighters in the region.

Read full story.

Fall Morsal: mutiger Hamburger Richter wagt gerechtes Urteil

Dass ein Mörder lebenslang bekommt, sollte selbstverständlich sein. Dass deutsche Richter bei Straftätern mit muslimischem Hintergrund unfreiwillig ein Auge zudrücken müssen, ist auch bekannt (wer ist schon lebensmüde genug, um freiwillig unter ständigem Polizeischutz leben zu wollen?).

Im spektakulären Prozess um den brutalen Mord an der Hamburgerin afghanischer Abstammung Morsal Obeidi (am 7. September 1991 in Masar-e Scharif geboren; am 15. Mai 2008 in Hamburger Stadtteil St. Georg von ihrem Bruder mit 23 Messerstichen in den Ewigen Osten gefördert worden), die sich nur von menschenunwürdigen Traditionen befreien wollte, hat sich dennoch der Richter Wolfgang Backen von Islamisten nicht einschüchtern, und eine gerechte Strafe gegen den 24-jährigen Täter verhängen lassen.

Das Landgericht Hamburg sprach Ahmad Obeidi des heimtückischen Mordes aus niederen Beweggründen schuldig und verurteilte ihm zu lebenslanger Haft.

Der Vorsitzende Richter am Landgericht Hamburg sagte in seiner Urteilsbegründung, der Angeklagte habe aus “reiner Intoleranz getötet”. “Für den Tod Ihrer Schwester, die Sie als großer Bruder eigentlich hätten schützen sollen, müssen Sie nun die volle Verantwortung übernehmen”, fügte er hinzu.

Bei einem Prozess in Kabul wäre er “längst draußen”, unterbrach ihn der Angeklagte. “Wir sind hier aber nicht in Kabul”, erwiderte der mutige Richter.

HIRAM7 REVIEW meint dazu: Anstiftung zum Mord (gemäß §§ 212, 211 und 26 des deutschen Strafgesetzbuches) ist ein Offizialdelikt, das von der Staatsanwaltschaft bzw. vom leitenden Staatsanwalt Boris Bochnick (der vom Angeklagten nach Urteilsverkündung als “Hurensohn” verunglimpft wurde) verfolgt werden muss. Die Reaktionen der Mutter und der anderen Angehörigen vor Gericht lassen keinen anderen Schluss zu: Sie haben den Bruder angestiftet, seine Schwester zu töten, und gehören ebenso vor Gericht.

Daniel Pearl and the Normalization of Evil

My name is Daniel Pearl. I am a Jewish American from Encino, California, USA. (February 21, 2002, Daniel Pearl forced to state his identity in the video produced by his murderers, before being slain.)

In The Wall Street Journal, Professor Judea Pearl wrote an op-ed in memory of his son Daniel, who was brutally murdered seven years ago by Pakistani Islamists, only because he was Jew.

By Judea Pearl

The Wall Street Journal, February 3, 2009

When will our luminaries stop making excuses for terror?

This week marks the seventh anniversary of the murder of our son, former Wall Street Journal reporter Daniel Pearl. My wife Ruth and I wonder: Would Danny have believed that today’s world emerged after his tragedy?

The answer does not come easily. Danny was an optimist, a true believer in the goodness of mankind. Yet he was also a realist, and would not let idealism bend the harshness of facts.

Neither he, nor the millions who were shocked by his murder, could have possibly predicted that seven years later his abductor, Omar Saeed Sheikh, according to several South Asian reports, would be planning terror acts from the safety of a Pakistani jail.

Or that his murderer, Khalid Sheikh Mohammed, now in Guantanamo, would proudly boast of his murder in a military tribunal in March 2007 to the cheers of sympathetic jihadi supporters. Or that this ideology of barbarism would be celebrated in European and American universities, fueling rally after rally for Hamas, Hezbollah and other heroes of “the resistance.”

Or that another kidnapped young man, Israeli Gilad Shalit, would spend his 950th day of captivity with no Red Cross visitation while world leaders seriously debate whether his kidnappers deserve international recognition.

No. Those around the world who mourned for Danny in 2002 genuinely hoped that Danny’s murder would be a turning point in the history of man’s inhumanity to man, and that the targeting of innocents to transmit political messages would quickly become, like slavery and human sacrifice, an embarrassing relic of a bygone era.

But somehow, barbarism, often cloaked in the language of “resistance,” has gained acceptance in the most elite circles of our society. The words “war on terror” cannot be uttered today without fear of offense. Civilized society, so it seems, is so numbed by violence that it has lost its gift to be disgusted by evil.

I believe it all started with well-meaning analysts, who in their zeal to find creative solutions to terror decided that terror is not a real enemy, but a tactic. Thus the basic engine that propels acts of terrorism – the ideological license to elevate one’s grievances above the norms of civilized society – was wished away in favor of seemingly more manageable “tactical” considerations.

This mentality of surrender then worked its way through politicians like the former mayor of London, Ken Livingstone. In July 2005 he told Sky News that suicide bombing is almost man’s second nature. “In an unfair balance, that’s what people use,” explained Mr. Livingstone.

But the clearest endorsement of terror as a legitimate instrument of political bargaining came from former President Jimmy Carter. In his book Palestine: Peace Not Apartheid, Mr. Carter appeals to the sponsors of suicide bombing. “It is imperative that the general Arab community and all significant Palestinian groups make it clear that they will end the suicide bombings and other acts of terrorism when international laws and the ultimate goals of the Road-map for Peace are accepted by Israel.” Acts of terror, according to Mr. Carter, are no longer taboo, but effective tools for terrorists to address perceived injustices.

Mr. Carter’s logic has become the dominant paradigm in rationalizing terror. When asked what Israel should do to stop Hamas’s rockets aimed at innocent civilians, the Syrian first lady, Asma Al-Assad, did not hesitate for a moment in her response: “They should end the occupation.” In other words, terror must earn a dividend before it is stopped.

The media have played a major role in handing terrorism this victory of acceptability. Qatari-based Al Jazeera television, for example, is still providing Sheikh Yusuf Al-Qaradawi hours of free air time each week to spew his hateful interpretation of the Koran, authorize suicide bombing, and call for jihad against Jews and Americans.

Then came the August 2008 birthday of Samir Kuntar, the unrepentant killer who, in 1979, smashed the head of a four-year-old Israeli girl with his rifle after killing her father before her eyes. Al Jazeera elevated Kuntar to heroic heights with orchestras, fireworks and sword dances, presenting him to 50 million viewers as Arab society’s role model. No mainstream Western media outlet dared to expose Al Jazeera efforts to warp its young viewers into the likes of Kuntar. Al Jazeera’s management continues to receive royal treatment in all major press clubs.

Some American pundits and TV anchors didn’t seem much different from Al Jazeera in their analysis of the recent war in Gaza. Bill Moyers was quick to lend Hamas legitimacy as a “resistance” movement, together with honorary membership in PBS’s imaginary “cycle of violence.” In his Jan. 9 TV show, Mr. Moyers explained to his viewers that “each [side] greases the cycle of violence, as one man’s terrorism becomes another’s resistance to oppression.” He then stated — without blushing — that for readers of the Hebrew Bible “God-soaked violence became genetically coded.” The “cycle of violence” platitude allows analysts to empower terror with the guise of reciprocity, and, amazingly, indict terror’s victims for violence as immutable as DNA.

When we ask ourselves what it is about the American psyche that enables genocidal organizations like Hamas – the charter of which would offend every neuron in our brains – to become tolerated in public discourse, we should take a hard look at our universities and the way they are currently being manipulated by terrorist sympathizers.

At my own university, UCLA, a symposium last week on human rights turned into a Hamas recruitment rally by a clever academic gimmick. The director of the Center for Near East Studies carefully selected only Israel bashers for the panel, each of whom concluded that the Jewish state is the greatest criminal in human history.

The primary purpose of the event was evident the morning after, when unsuspecting, uninvolved students read an article in the campus newspaper titled, “Scholars say: Israel is in violation of human rights in Gaza,” to which the good name of the University of California was attached. This is where Hamas scored its main triumph – another inch of academic respectability, another inroad into Western minds.

Danny’s picture is hanging just in front of me, his warm smile as reassuring as ever. But I find it hard to look him straight in the eyes and say: You did not die in vain.

Author Biography: Judea Pearl is president of the Daniel Pearl Foundation, an organization committed to interfaith dialogue, and co-editor of I am Jewish: Personal Reflections Inspired by the Last Words of Daniel Pearl.