Building a Modern Military: The Economic Crisis and its Impact on the Chinese People’s Liberation Army. By Kristen Gunness
The Brookings Institution, Feb 12, 2009
February 2009 — Over the past year there has been much speculation as to the impact of the global economic crisis on China. Debates range from concerns over domestic stability and the Chinese Communist Party’s ability to rule, to what China’s role should be in helping the international community to “solve” the crisis. However, little attention has been given to the impact of the economic crisis on China’s national defense, or to its potential impact on the Chinese People’s Liberation Army’s (PLA) ability to continue to reach its lofty, and costly, modernization goals.
The recently issued White Paper on “China’s National Defense in 2008” describes some of these modernization goals, aimed at producing a force capable of fighting “local wars under informatized conditions.” They include improving military training, continued emphasis on personnel development, particularly in the officer corps, more cost-effective logistics support, improved integrated equipment support, and greater emphasis on information technology and building of military information systems.[1] In addition, China has entered an era in which its expanding role in the international community, as both a regional and global leader, is forcing the PLA out of its traditional comfort zones and into increasingly complex and challenging activities at home and abroad. The most recent of these activities is the deployment of Chinese navy ships to the Horn of Africa, to participate in a multinational counter-piracy effort.[2] The PLA has also sent troops abroad on various peacekeeping operations in Africa. On the domestic front, the PLA has been called to the aid of the Chinese people in times of disaster and emergency, as with the March 2007 snowstorms and the Sichuan earthquake in May 2008.[3]
The stakes are high for these missions: the international and domestic spotlight is squarely on the PLA. However, success for these and other operations depends on the PLA’s ability to man, train, and equip the military with what it needs to accomplish the mission, as well as on its ability to sustain operations and mobilize national assets in support of emergency relief and military contingencies. All of this presumes a certain level of domestic stability, funding, and access to resources.
What are the potential impacts of China’s changing economic environment on the PLA, and in particular on its ability to continue along a path of successful military modernization? While a truly complete answer to this question would require a longer article, there are three areas in particular where the economic crisis has the potential to affect the PLA: the defense budget, domestic unrest, and civil-military relations.
The Economic Crisis and China’s Defense Budget
China’s economic situation appears to be worsening as the global crisis deepens. According to recent estimates, China’s real GDP growth from January-September 2008 was 9.9%, 2.3% lower than the same period in 2007, and predictions for the results of 2008 show GDP growth slowing from 11.9% in 2007 to 9.8%. Analysts also predict that in 2009 GDP growth could drop further, to 8.4%.[4] China’s export sector has also suffered, with China’s official Xinhua News Agency reporting that Chinese exports had fallen sharply in the first half of 2008, and that half of China’s toy exporters had closed their doors.[5] In November 2008 the Chinese government announced a whopping $586 billion stimulus package focused on a host of domestic issues such as infrastructure construction, the public health system, education, welfare benefits, and subsidized housing.[6]
China’s slowing GDP growth and spending on stimulus packages—not to mention the money the CCP must increasingly put toward other daunting socioeconomic issues such as environmental pollution, poverty, and pension programs—begs the question of whether China can continue to maintain double digit increases in defense spending as it has over the past several years. The current economic crisis raises the prospect of the PLA becoming the victim of a “guns versus butter” debate.
In March 2008 the PRC announced a 17.6% increase in its defense budget and now spends, according to official figures, $59 billion a year. This followed an average annual increase of 15.8% from 2003 to 2007. The defense budget is only 1.4% of China’s GDP, again according to official figures. [7] U.S. estimates, published in the 2007 Annual Report to Congress on the Military Power of the People’s Republic of China, place China’s military spending at the higher figure of between $97 billion and $125 billion. China has stated that the budgetary increases are primarily for costs associated with raising military personnel’s standard of living, and that only a small amount of the money goes toward procurement of new technology and weapons. The PLA has certainly had to absorb the cost of overhauling its personnel system as it implemented the policies necessary to get rid of the “dead weight” in the PLA and attract, retain, and train the types of soldiers it needs to man the high-tech force it wishes to become.[8] However, there are also examples of the PLA recently investing in costly technological ventures, particularly in the space arena.
From a purely numeric point of view, some experts contend that in spite of an economic slowdown, China will be able to continue to maintain or even increase its military spending. A RAND report published in 2005 estimated that by 2025 China’s defense spending will be $185 billion, even with a lower average annual economic growth rate of 5%.[9] That said, the PRC government is already feeling increased pressure to put more money into social services, and there are certainly many domestic social woes that could limit or drive government spending away from defense. These social challenges—such as the costs associated with an aging population, a widening urban-rural income gap, and health costs from pollution—will only be exacerbated by the economic crisis. In spite of this, best estimates are that the PLA will receive the funding it needs and will likely not have to substantially cut military programs in the future.
The Economic Crisis and Increase in Domestic Unrest
Beyond the defense budget, the PLA depends on a host of other factors to continue on a path of successful military modernization. The Party mandates that the PLA has a responsibility to help maintain domestic stability, and therefore the issue has the potential to divert PLA attention and resources. In part, the PLA’s success hinges on its ability to deal with the external security challenges brought about by China’s global presence, while at the same time fulfilling its role as the Party’s guarantor of internal stability. And it must do both of these while it is still struggling to professionalize.
There are signs that the economic crisis has brought increasing unrest to China. Although the PRC government has not published official figures on mass incidents since 2004, experienced foreign analysts, drawing on Chinese sources, estimate the official figure at 80,000-90,000 incidents a year.[10] Exacerbating the prospects for domestic protest, analysts estimate that slower GDP growth, specifically growth below 8%, will not allow the government to create the jobs necessary to employ China’s 20 million new job seekers each year.[11]
In November Chinese Public Security Minister Meng Jianzhu stated that police, “should be fully aware of the challenge brought by the global financial crisis and try their best to maintain social stability.” On January 5 Hu Jintao cautioned the People’s Armed Police (PAP), stating that challenges in 2009 would be “hard and complicated.”[12] Although the Party has put resources into better training for the PAP and other domestic security forces, the lackluster performance of these organizations in some cases has called their competency into question. A recent example is the March 2008 pre-Olympic riots in Tibet, during which the Public Security and PAP forces apparently lost control of parts of Lhasa and the PLA were forced to become involved. In addition, the Party recently issued new PLA training materials for handling unrest and other domestic stability issues, further indicating that the Chinese military could potentially have a more robust role in this area.[13]
While the PLA has thus far largely avoided involvement in suppressing domestic unrest, the Tibet incident does raise the question of whether the military will be able to keep its distance from the rising numbers of protests and riots. If the PAP and other domestic security forces do not prove up to the task, the PLA might very well find itself more involved in China’s domestic security, which could impact its ability to focus on broader modernization plans. The degree to which this would be the case is of course dependent on the level of domestic unrest and how much attention the PLA needs to devote to internal security missions; something to watch for as the impact of the economic crisis in China becomes more apparent.
The Economic Crisis and Civil-Military Relations
Another potential impact of the economic crisis on the PLA’s modernization plans is increased frictions in civil-military relations, particularly those at the local level, brought about by greater resource constraints and other socioeconomic changes in China’s society. There are some areas where economic realities are presenting challenges to the PLA in civil-military relations:
First, the PLA is challenged in attracting and retaining the types of well educated youth it needs for its modern officer corps. China’s civilian college graduates are increasingly turning to the private sector for more lucrative jobs, and while the slowing economy has made the PLA a more attractive option for out of work college graduates, the number of recruits is still small. This has forced the military to put more money toward financial incentives to recruit these college graduates.[14] At the same time, the economic crunch is making the military an increasingly attractive option for China’s less educated rural youth, which are less desirable to the PLA. The PLA’s difficulty in recruiting China’s middle-class, educated, tech-savvy youth could potentially undermine its ability to build the modern, technology-centric officer corps it is aiming for.
A second area in which the PLA is challenged is the increasing difficulty of persuading local officials to bear the costs of providing the PLA with the materiel and support it needs for training and large scale exercises. Evidence suggests that this tension between the PLA and local officials has grown in recent years, and that local officials have increasingly grumbled about providing resources to the PLA and losing money for themselves, even when China’s economy was growing at a double-digit rate. A worsening economic situation could potentially make local civil-military relations even more challenging, which has implications for China’s national defense mobilization system and readiness.[15]
The PLA’s ability to adapt to rapidly changing domestic circumstances also hinges on the state of its relationship with the Party. For the moment, the Party appears to support the PLA in its modernization goals and seems to be providing it with the resources and funding required, but this may not always be the case depending on the economic or domestic situation. One could imagine that Party-PLA tensions could arise if, for example, the internal stability situation worsens and the PLA is called in to suppress mass incidents, bringing it closer to the level of involvement in domestic politics in the aftermath of the 1989 Tiananmen Square massacre. Additionally, changes in China’s external security situation could drive future “guns vs. butter” debates between the Party and the PLA, particularly as the Party faces mounting social pressures and tighter budgets. For example, with Ma Ying-jeou’s election and reduced tensions between the Mainland and Taiwan, one could argue that the PLA has less immediate reason for the continued fast-paced acquisition of advanced equipment. If China’s domestic problems become bad enough, it could provide impetus for the Party to decide that now is the time to cut back on expensive defense spending and invest in social services instead.
In closing, China’s changing economic and domestic situation is affecting the PLA in various ways, some of which are likely to be further exacerbated by the current economic crisis. The PLA has proven adept at taking advantage of opportunities provided by the changing socioeconomic environment where it can, and has already made headway in addressing some of the domestic challenges it faces. However, it is clear that these challenges are likely to exist for some time to come, and as China is changing so must the PLA.
This commentary reflects the author’s personal views and does not reflect any view or opinion of the U.S. Government.
References
[1] State Council Information Office of the People’s Republic of China, “China’s National Defense in 2008.”
[2] For a summary of PLA Navy counter-piracy operations in Somalia, see the PLA Daily’s website, “China’s Navy Fights Pirates,” http://english.chinamil.com.cn/site2/special-reports/2008hjdjhd/indexg.htm.
[3] For information on peacekeeping operations see: Information Office of the State Council, “China’s National Defense in 2006,” December 29, 2006. In addition, the PLA’s increased focus on non-traditional security missions were announced by Hu Jintao in 2004, in his speech, “Historic Missions for Our Military in the New Period and the New Century.”
[4] CRS Report for Congress: “China and the Global Financial Crisis: Implications for the United States,” Wayne M. Morrison, updated November 17, 2008.
[5] China Xinhua News Agency, November 4, 2008.[6] Zhiwu Chen, “Economic Crisis Could Push Reform in China,” published by Yale University in YaleGlobal Online, http://yaleglobal.yale.edu/display.article?id=11596.
[7] BBC News, “Q&A: China’s Military Budget,” published on March 3, 2008.
[8] For more explanation on the PLA’s personnel policies, see Roy Kamphausen, Andrew Scobell, Travis Tanner (eds.) The “People” in the PLA: Recruitment, Training, and Education, published by the National Bureau of Asian Studies, Strategic Studies Institute, 2008.
[9] RAND Project Air Force Research Brief, “Forecasting China’s Military Spending Through 2025,” http://www.rand.org/.
[10] I am grateful to Murray Scot Tanner for his help and excellent comments on protests and mass unrest in China.
[11] Morrison, “China and the Global Financial Crisis…” Op. cit.
[12] Reuters, “China Seeks to Curb Unrest Amid Global Financial Crisis,” November 19, 2008. South China Morning Post, “Hu Rallies Police Unit,” January 5, 2009, in Hong Kong South China Morning Post Online in English, http://www.scmp.com/.
[13] For an in-depth look at the PLA’s involvement in domestic unrest, see Murray Scot Tanner, CNA, “How China Manages Internal Security Challenges and its Impact on PLA Missions,” forthcoming publication from the National Bureau of Asian Research
[14] One example of these incentives is the National Defense Scholarship Program, which helps pay for the cost of attending college in return for service in the PLA
[15] For a detailed discussion of this and other civil-military issues, see David Finkelstein and Kristen Gunness (eds), Civil-Military Relations in Today’s China: Swimming in a New Sea, ME Sharpe, 2007.
Friday, February 13, 2009
Why Nurture Russia's Illusions? Excessive deference only strengthens Putin's hand
Why Nurture Russia's Illusions? By Matthew Kaminski
Excessive deference only strengthens Putin's hand.
WSJ, Feb 13, 2009
Barack Obama wants to make friends with Russia, "press the reset button" as his Veep proposed the other day.
Sounds familiar. Bill Clinton bear hugged Boris Yeltsin and George W. Bush peered into successor Vladimir Putin's soul. Yet relations haven't been this bad since Konstantin Chernenko's days at the Kremlin.
So what? America is on a roll in Eurasia. Democracy, open markets and stability spread across the region in the Clinton and Bush eras. From Estonia to Georgia to Macedonia, free people want to join the West.
At every step of the way, Russia sought to undermine this great post-Cold War project. Grant that the Kremlin acts in defense of its perceived interests but so should the U.S., and continue down this same path.
Here Foggy Bottom's finest chime in: Yes, but imagine a world with a friendly Russia, able to help us, say, stop Iran's atomic bomb program. So let's not push so hard to deploy anti-Iran missile defense sites in Poland and the Czech Republic that Russia hates -- use, if necessary, the excuse that costs and feasibility require further study. Back off on closer NATO ties for Ukraine and Georgia. Make Russia feel important and consulted. Joe Biden sketched out this sort of bargain at last weekend's Munich security conference.
The conceit is we can win the Kremlin over by modifying our behavior. Before Mr. Obama tries, he should be aware of recent history. On missile defense, American diplomats spent as much time negotiating with Russia as with the Central Europeans, offering Moscow the chance to join in. Nothing came of it. On Kosovo independence and Iran sanctions, Russia blocked the West at the U.N.
Last spring, NATO snubbed Georgia and Ukraine in a signal of good will to Mr. Putin. The day after, Mr. Putin privately told Mr. Bush that Ukraine wasn't "a real country" and belonged in the Russian fold. Five months later, Russia invaded Georgia and de facto annexed its breakaway provinces of Abkhazia and South Ossetia.
Mr. Obama may be tempted to think Russia can be won over. After all, they would seem to need America (short for the West) far more than America needs Russia. We're not the enemy. Russia's real strategic challenges are in the East: China looks ravenously at the vast, mineral-rich, lightly populated Siberian steppe cut off from Moscow (to this day, you can't drive across Russia). And to the South: The arc of Islamic extremism, starting with a possibly nuclear Iran, a competitor for Caspian energy and influence.
And as Mr. Putin discovers each day his economy sinks further, Russia failed to take advantage of sky-high oil prices to diversify away from energy. It sells nothing of value to the world aside from gas, oil and second-rate weapons. Its infrastructure is decaying and its population in decline.
A Kremlin leader with a long-term view would see these grave threats to Russia's future and rush to build a close partnership with the West. But the interests of Mr. Putin and his small, thuggish, authoritarian clique don't necessarily coincide with that of Russia.
The Obama magic dust doesn't seem to work on a regime defined and legitimized by its deep dislike for America. Dmitry Medvedev, the Putin underling in the president's office, moved the state of the nation address to the day after the American election to spin the outcome for the domestic audience. The U.S., he said into the winds of pro-American sentiment sweeping across the world in the wake of the Obama win, was "selfish . . . mistaken, egotistical and sometime simply dangerous."
The Kremlin then welcomed Mr. Obama into the White House with the administration's first serious foreign policy headache. Taking $2 billion from its fast-depleting reserves, Russia bullied and bribed Kyrgyzstan to close a U.S. military airfield, the main transport hub for supplies going into Afghanistan. Russia's desire for a "sphere of influence" trumps the threat of resurgent extreme Islamism in its southern underbelly.
The thinking here is Cold War porridge. But the Russians were never offered a new narrative. Mikhail Gorbachev's idea of a "European family" and Yeltsin's reforms foundered. Mr. Putin went back to a familiar recipe: Russia, empire-builder and scourge of the West.
A Cold War mentality lingers in America, too. A foreign policy caste rich in Sovietologists by habit overstates Russia's importance. The embassy in Moscow is huge; bilateral meetings inevitably become "summits," like in the old days.
Mr. Obama's fresh start is a good time for a reality check. The U.S. can work with Russia, seen in its proper place. To even suggest that the Russians have a special say over the fate of a Ukraine or our alliance with the Czechs lets Mr. Putin nurture the illusion of supposed greatness, and helps him hang on to power.
Ultimately it's up to the Russians to decide to be friends. One day, someone in the Kremlin will have to confront a hard choice: Does an isolated and dysfunctional Russia want to modernize and join up with the West, look toward China, or continue its slow decline? Until then, Mr. Obama better stock up on aspirin and dampen his and our expectations about Russia.
Mr. Kaminski is a member of the Journal's editorial board.
Excessive deference only strengthens Putin's hand.
WSJ, Feb 13, 2009
Barack Obama wants to make friends with Russia, "press the reset button" as his Veep proposed the other day.
Sounds familiar. Bill Clinton bear hugged Boris Yeltsin and George W. Bush peered into successor Vladimir Putin's soul. Yet relations haven't been this bad since Konstantin Chernenko's days at the Kremlin.
So what? America is on a roll in Eurasia. Democracy, open markets and stability spread across the region in the Clinton and Bush eras. From Estonia to Georgia to Macedonia, free people want to join the West.
At every step of the way, Russia sought to undermine this great post-Cold War project. Grant that the Kremlin acts in defense of its perceived interests but so should the U.S., and continue down this same path.
Here Foggy Bottom's finest chime in: Yes, but imagine a world with a friendly Russia, able to help us, say, stop Iran's atomic bomb program. So let's not push so hard to deploy anti-Iran missile defense sites in Poland and the Czech Republic that Russia hates -- use, if necessary, the excuse that costs and feasibility require further study. Back off on closer NATO ties for Ukraine and Georgia. Make Russia feel important and consulted. Joe Biden sketched out this sort of bargain at last weekend's Munich security conference.
The conceit is we can win the Kremlin over by modifying our behavior. Before Mr. Obama tries, he should be aware of recent history. On missile defense, American diplomats spent as much time negotiating with Russia as with the Central Europeans, offering Moscow the chance to join in. Nothing came of it. On Kosovo independence and Iran sanctions, Russia blocked the West at the U.N.
Last spring, NATO snubbed Georgia and Ukraine in a signal of good will to Mr. Putin. The day after, Mr. Putin privately told Mr. Bush that Ukraine wasn't "a real country" and belonged in the Russian fold. Five months later, Russia invaded Georgia and de facto annexed its breakaway provinces of Abkhazia and South Ossetia.
Mr. Obama may be tempted to think Russia can be won over. After all, they would seem to need America (short for the West) far more than America needs Russia. We're not the enemy. Russia's real strategic challenges are in the East: China looks ravenously at the vast, mineral-rich, lightly populated Siberian steppe cut off from Moscow (to this day, you can't drive across Russia). And to the South: The arc of Islamic extremism, starting with a possibly nuclear Iran, a competitor for Caspian energy and influence.
And as Mr. Putin discovers each day his economy sinks further, Russia failed to take advantage of sky-high oil prices to diversify away from energy. It sells nothing of value to the world aside from gas, oil and second-rate weapons. Its infrastructure is decaying and its population in decline.
A Kremlin leader with a long-term view would see these grave threats to Russia's future and rush to build a close partnership with the West. But the interests of Mr. Putin and his small, thuggish, authoritarian clique don't necessarily coincide with that of Russia.
The Obama magic dust doesn't seem to work on a regime defined and legitimized by its deep dislike for America. Dmitry Medvedev, the Putin underling in the president's office, moved the state of the nation address to the day after the American election to spin the outcome for the domestic audience. The U.S., he said into the winds of pro-American sentiment sweeping across the world in the wake of the Obama win, was "selfish . . . mistaken, egotistical and sometime simply dangerous."
The Kremlin then welcomed Mr. Obama into the White House with the administration's first serious foreign policy headache. Taking $2 billion from its fast-depleting reserves, Russia bullied and bribed Kyrgyzstan to close a U.S. military airfield, the main transport hub for supplies going into Afghanistan. Russia's desire for a "sphere of influence" trumps the threat of resurgent extreme Islamism in its southern underbelly.
The thinking here is Cold War porridge. But the Russians were never offered a new narrative. Mikhail Gorbachev's idea of a "European family" and Yeltsin's reforms foundered. Mr. Putin went back to a familiar recipe: Russia, empire-builder and scourge of the West.
A Cold War mentality lingers in America, too. A foreign policy caste rich in Sovietologists by habit overstates Russia's importance. The embassy in Moscow is huge; bilateral meetings inevitably become "summits," like in the old days.
Mr. Obama's fresh start is a good time for a reality check. The U.S. can work with Russia, seen in its proper place. To even suggest that the Russians have a special say over the fate of a Ukraine or our alliance with the Czechs lets Mr. Putin nurture the illusion of supposed greatness, and helps him hang on to power.
Ultimately it's up to the Russians to decide to be friends. One day, someone in the Kremlin will have to confront a hard choice: Does an isolated and dysfunctional Russia want to modernize and join up with the West, look toward China, or continue its slow decline? Until then, Mr. Obama better stock up on aspirin and dampen his and our expectations about Russia.
Mr. Kaminski is a member of the Journal's editorial board.
China, Rice, and GMOs: Navigating the Global Rift on Genetic Engineering
China, Rice, and GMOs: Navigating the Global Rift on Genetic Engineering. By Ron Herring
The Asia-Pacific Journal, Jan 12, 2009
A recent article in Nature [1] asked provocatively: Is China ready for GM rice? The title reflects widely shared anxiety over genetic engineering in agriculture. The use of the term “GM” specifically conjures a politically charged object: “GMOs” or “genetically modified organisms.” Is anyone ready for FrankenFoods? Strawberries with fish genes? Human cloning? The question has an ominous overtone, though both reporter and venue are identified with science. The question derives its energy from the decision of the Chinese Government to go full speed ahead with genetically engineered rice to confront what the state constructs as a gathering Malthusian crisis of hunger. What the article does not tell the reader is that the farmers are way ahead of the government: ready and able. Transgenic rice – officially unauthorized within China – has for several years been showing up in exports from China to Europe, to Japan, to New Zealand – and probably many other places that simply are not checking.
To ask if China is “ready” for “GM” rice is then doubly loaded. The necessity of getting ready implies threat; “GM” ties a specific cultivar to global anxiety about transgenic crops. The anxiety is multi-pronged: does the spread of transgenics entail threats of corporate dominance? Environmental risk? Food safety? The anxiety is heightened because these crops are spreading faster globally than perhaps any previous agricultural innovation, both through official channels of firm and state and underground, like films on DVDs or business software on CDs.[2] The transgenic genie is out of the bottle.
Then the question of who must be “ready” becomes especially curious. Farmers are clearly ready. As in many countries, cultivators in China risk prosecution to grow unauthorized transgenic crops, including Bt rice. They do so because they are impatient with bureaucratic delays and unwilling to pay corporate technology fees. And in fact, though urban consumers of GM politics think otherwise, there is not a lot to get ready for on farm: all the technology is in the seed, typically with a few altered genes, often only one. There is no more preparation than in playing an illegal DVD of a Bollywood film, once you know how to operate a player.
But is the state ready? Here the construction of transgenic rice as a special category designated by “GM” indicates why the issue carries political freight. Being “ready” implies a state of preparation, alertness, and consequences of not being ready, all of which are bad. No one was ready for the financial meltdown of 2008, most especially pensioners and homeowners. Is China ready for democracy? Open internet? But no one has ever asked -- in Europe, or in China, or in India -- if nations were “ready” for transgenic pharmaceuticals – which have been with us, and thoroughly normalized, since successful production of human insulin via transgenic bacteria began in 1978. There are no FrankenPills on posters. Useful to urban consumers and endorsed by the authority of medical science, transgenic pharmaceuticals have not drawn protests. Agriculture is different. The category “GM” as site of risk has become so normalized in political discourse about agriculture that no one ever asks: what is especially risky about any particular cultivar? Is China ready for “GM rice” really means: is the state ready to confront the political and administrative complexities of seed surveillance contrary to farmer interests?
The answer is probably “no.”We already know that stealth transgenic rice – and unauthorized Bt cotton as well – are being grown by Chinese farmers without permission of the state. What Jane Qiu’s article highlights is why the state or farmers or anyone else should care.
The Government of China, like many governments in nations with large agricultural sectors – e.g. India, Brazil – officially promotes and invests in biotechnology as a means of responding to what are constructed as urgent crises on the land. Rice stands for the larger problematic of increasing food production. Much of the corporate propaganda for transgenic technologies evokes the Malthusian threat, but here the evocation of urgency is from the Chinese state. This is no small issue: regimes incapable of feeding their populations have not fared well historically. Nor have their citizens. Being dependent on the global economy for fuel and food runs counter to imperatives of statecraft itself, across many ideological gradients. The threat conjured in China is quite explicit: inadequate productive capacity projected into the future. Against this threat is posed a promise: technical change in plant breeding. Genetic engineering – the possibility of rearranging DNA in plants to produce traits that are not in the genome of the plant itself, such as insect resistance, virus resistance, enhanced nutrient content, and on the horizon drought and salinity resistance – has long been official policy of the Chinese government. The controversy implied by the Nature article rests on two changes in the context of biotechnology: first, rice would be the first food crop authorized officially in China, and secondly, rice as a plant raises questions of agro-ecology not presented by cotton, China’s first transgenic. But the same recombinant DNA technology that the state constructs as promise has been constructed as threat in a very powerful global discourse.[3]
What exactly is the threat that China may or may not be ready for? “GM” is a political label, but it is one that sticks: it has political effects. All plants in agriculture are genetically modified. We no longer live in the world of Gregor Mendel puttering with peas: rather, plant genomes have been for decades radically altered and re-assembled in order to get phenotypic variation that plant breeders and farmers want. Transgenic techniques came later, and may indeed cause less disruption of gene networks than alternative [non “GM”] techniques [Batista et al 2008], but are socially constructed as something one must be ready for. No other kind of plant is subjected to the level of scrutiny of a plant bred by recombinant DNA techniques. Nor do transgenic pharmaceuticals constitute a special object of regulation, surveillance and control. Recombinant DNA techniques are constructed as threats only in agriculture.
The thing China may or may not be “ready” for is the global governance regime that sets transgenic plants apart. “GM” rice constitutes a plant that must be plugged into international norms of bio-safety as laid out in the Cartagena Protocol. The Protocol itself is the product of transnational advocacy networks and EU politics; it was resisted by major transgenic crop exporters such as the United States and Argentina. The protocol reflects the fact that half the globe holds “GMOs” to require special surveillance, monitoring, and governance.[4] To be ready is to have institutions that can promise effective rural governmentality ; in this sense the question is rhetorical: China lacks that kind of state, as do most nations.
A global rift divides the planet into places that see special needs for bio-safety regulation of “GMOs” – except pharmaceuticals – and those that express no more concern with transgenic plants than with agricultural plants in general. The world is divided between an American construction of “GM” plants as “substantially equivalent” to their non-“GM” equivalents – because no difference can be found by scientific measurement – and a European view privileging the “precautionary principle” – that something truly terrible may be lurking in the new gene networks created by DNA splicing. Prince Charles refers to rDNA work on plants – but not pharmaceuticals – as “playing God,” entering “realms that belong to God and God alone.” Hubris is the culprit; genetic engineering, in this view, involves a "gigantic experiment I think with nature and the whole of humanity which has gone seriously wrong. Why else are we facing all these challenges, climate change and everything?" An empty vessel has been created into which multiple anxieties may be bundled, and its name is GM.
The European discourse of playing God does not play well in Asia; it presupposes the God of Genesis, a creator with a plan, a garden, absolute control and a stable equilibrium of species. And in general the Apocalyptic vision of European political activism has not penetrated beyond small numbers of urban professionals in Asia, where grounds of objection of transgenics have to do with consumer preference and resistance to corporate globalization. China is the case that confounds the discourse; not MNCs, but Chinese scientists have been the drivers of transgenic research and development. China showed how public sector investments in transgenics could traget specific problems in agriculture without signing away the farm.
China was the leader among non-OECD nations in responding to biotechnology as a potential growth sector. Recombinant DNA techniques first became viable in laboratories in 1973; by 1980, patents on transgenic organisms became possible in the United States, as always the first-mover in creating and strengthening property in novel fields. With potential property to be made, and valuable discoveries in medicine and pharmaceuticals, a de facto global race began. In India, which established a Department of Biotechnology early, one heard the refrain “we missed the industrial revolution, we cannot afford to miss out on the information revolution.” Much of Asia responded in similar ways, with grand plans for state backing of biotechnology in the mode of developmental statism, but China was the clear leader and only success story. Though much of the political discourse is about MNCs and patents, China represents a now-common alternative dynamic: public funding of transgenic crops by developmental states.[5]
China’s early efforts in biotechnology began with strong state backing in the 1970s, focused on both food crops and cotton. Standard techniques of tissue culture and cell fusion were involved to modify plants before the advent of advanced recombinant DNA techniques in the early 1980s. The so-called 863 plan for advancing biotechnology research started in 1986.[6] The Ministry of Agriculture reported in 1996 that more than 190 genes had been transferred to more than 100 organisms, including plants, micro-organisms and animals. Investment levels were high, and addressed an indigenous sense of the most serious agricultural problems. The Bt cotton developed in China enables insect resistance from within the plant. It was a priority not only because of the massive land investment China had in cotton, but also because of the widely recognized externalities of heavy pesticide use: deleterious environmental and health consequences. China’s Bt cotton is now growing both legally and illegally in far-flung Asian locations.
Southeast Asian states feared that that China would become hegemonic in this new information-intensive sector, and ramped up plans for autonomous development defensively [Barboza 2003]. But plans in Southeast Asia were cut back after a profound European U-turn on genetic engineering in agriculture. Like commercial firms in the United States, European states initially saw the genomics revolution in biology as a potential source of profit and national development; European firms were early leaders; they were backed, especially in France, by governments. The turn away from biotechnology came as a result of transnational social movements joining hands across the Atlantic in opposing corporate environmental irresponsibility. By the end of the 1990s, Europe had crossed over, from support for genetic engineering to attempts to protect its economy from American transgenic imports.[7] Whereas American policy moved to the USFDA conclusion of “substantial equivalence” and society followed in train, Europe moved to a “precautionary principle,” led by social activists.
But not all opposition targeted all biotechnology: food was the crux of the anti-GM campaign in Europe. “White” biotechnologies, such as biodegradable plastics and other industrial applications, as well as “red” biotechnologies in medicine and pharmaceuticals remained strongly supported in Europe [EB 64.3 2006]. In these applications of rDNA technologies, there are large human utilities, such as avoiding death. Food is different. There being no benefit to consumers in GM-food – with a few caveats about reduction of pesticide residues and externalities – European consumers were free to support campaigns to restrict agricultural biotechnology not only in Europe, but all over the world. The most successful efforts were in Africa, as Robert Paarlberg’s new book Starved for Science documents. The WTO has ruled that the European standards are contradicted by EU science, but the EU U-turn remains both politically sticky in Europe and consequential internationally. The EU declaration on “GMOs” structurally segregated world markets: GM or GM-free. It became quite clear in the late 1990s where the smart money would go in poor countries hoping to export to Europe.
China’s current interest in regulation of transgenic rice derives directly from this global regulatory rift. An early leader in state-led biotechnology development, China slowed its approach after the EU U-turn. Cotton is one thing, food another. Bt cotton from China’s public sector not only performed well, and reduced pesticide poisoning of farmers and farm workers, but was smuggled out of China and thrives as stealth seeds in other parts of Asia.[8] Bt cotton is of no concern to powerful players in the international system; national governments such as Vietnam and Pakistan prefer to look the other way in order to avoid a confrontation with both farmers as political agents and their own incapacity to build viable Cartagena-friendly bio-safety regimes. Rice is food, and thus another kettle of fish.
What China is not ready for is another assault on the integrity of its export products; that assault derives from EU regulations as to what food is acceptable and what is not. Spot checks carried out by several EU countries, including Germany, the UK, and France, have, since 2006, found Chinese shipments of rice and rice products to contain evidence of a genetically-engineered rice, specifically Bt 63. Bt63 is not authorized for commercial cultivation either in China or in the EU; its import into the EU is banned. The formal resolution of the China-EU conflict was to require all rice and rice products from China to have a certificate that there is no transgenic Bt 63 content; one predicts a strong market for certificates over time. Japan and New Zealand, which have similar EU-like restrictions, reported similar findings.[9]
The Cartagena Protocol requires that “Living Modified Organisms” be clearly identified in international trade; the criterion for an LMO is essentially the same as the GMO. This is not surprising: EU support of transnational opponents of biotechnology succeeded in crafting soft law stigmatizing transgenics and their downstream products, whether or not any DNA or trans-gene protein survives processing. Surveillance is to be “from farm to fork.” Though the reality of food systems would seem to make this level of control a dream only bureaucrats could conjure, the consequences are serious. Failure of the Chinese government to enforce the protocol indicates not only non-compliance with international soft law, but inability of the state to control transgenic organisms within its own boundaries or in its exports. China is hardly alone in failure to regulate crops -- – seed police are hard to find – but China does face strong international pressure for tighter regulation of safety in exports in general. Bt proteins have not been shown to kill pets or people, but the net effect is to undermine confidence in Chinese exports to nations with strict regulations.
Though this threat to export products is the main objective risk of growing transgenics in China – the Bt itself has not been shown to be unsafe for humans or animals, and many Bt crops are regularly consumed – the Nature article is more concerned about environmental effects. Given China’s disturbing record on environmental protection, how serious a risk is transgenic rice? In general, Bt crops present a difficult question for environmental policy: if we compare the Bt plants to traditional cultivars, cultivated in traditional ways, the transgenics reduce pesticide use and therefore seem environmentally friendly. Nevertheless, one seldom finds transgenic crops discussed in the frame of biodiversity preservation or sustainability. Rather, the environmental risk assessment of transgenic crops typically poses questions about the potential for gene flow in the environment.
Here the Chinese official caution regarding Bt rice raises the importance of disaggregating transgenic crops. Bt rice raises more and more serious questions of agro-ecology than does Bt cotton, China’s most successful biotechnology venture. Gene flow from Bt cotton presents little if any potential risk; like many cultivated crops, cotton is highly specialized, with no evidence of crossing with wild relatives. Without crossing, there is no gene flow. If genes flow, there is a question of fitness: will the wild and weedy relatives of the cultivated plant now gain an advantage in fitness in the environment from addition of the trait from the transgene [eg insect resistance]? Will this fitness advantage be such that they begin to dominate, thus upsetting agro-ecologies in new ways? This is the “super-weed” scenario stressed by opponents of rDNA technology: FrankenPlants. With cotton, the answer to these questions is almost certainly not; with rice, there is a much greater possibility of agro-ecological risk. Rice is first of all a grass – a more promiscuous kind of plant than cotton – and secondly has wild and weedy relatives in and around cultivated fields.
The bureaucratically sensible resolution would seem to be to test the crops under Chinese conditions. But testing itself comes under attack when the object is “GM.” Uncertainties abound: how long a testing period is long enough to determine safety? For proponents of the precautionary principle, the answer is “forever.” For the US FDA, the answer is “not much”: if composition tests show the same range of variation in transgenic plants as in comparable non-transgenic cultivars [i.e. comparing apples to apples, rather than to oranges], there is no reason for special regulation or labels. The American position risks riding on the side of hubris: we know what we know. The European position imposes nearly impossible[10] standards: how can you prove that something will not happen? Do you check your brakes every time you take your car out to drive? Do you avoid any airplane that could conceivably crash and burn? Do you demand demonstration that your cell phone safe cannot cause cancer?
Of course we all – Europeans and middle-class activists of transnational advocacy networks in poorer countries – dismiss as alarmist “risks” from cell phones. But there has been a recent upsurge in caution concerning cell phones in regard to brain damage from a presumably authoritative source: the Director of the University of Pittsburgh’s University Medical Center Cancer Center.[11] Why do we disregard such warnings – and seldom check our car’s brakes or inquire into the maintenance record of our next flight’s plane? Because the disutility of ascertaining certainty far outweighs a subjective assessment of risk. Moreover, negatives are impossible to prove: how could there be even in principle decisive proof that no critical system on any given 747 will fail? No one can live with the precautionary principle; not only are there innumerable known unknowns, but – and here Donald Rumsfeld for once got something right – the sheer number of unknown unknowns is everywhere daunting. Farmers in China, like those in India, Pakistan, Brazil, Vietnam and much of the world grow Bt transgenics because they make life marginally easier, slightly more profitable, and slightly less destructive of their very local environments. If there are distal and uncertain risks, they pale by comparison to the real risks of pesticide poisoning and crop failure. Farmers make this calculation whether governments approve or not, just as desperate Americans try remedies not yet approved by the Food and Drug Administration.
Do farmers then worry about biodiversity, as the Nature article clearly thinks they should? Yes and no: they worry about destruction of helpful predators on the pests of their crops, but they recognize that spraying poisons across the fields kills friends and foes alike, including some farmers and farm workers. Bt plants, in contrast, are targeted to a class of pests, and contained in the plant tissues. Bt plants represent a kind of poetic justice: if a pest leaves the plant alone, it will not be harmed; if it attacks the plant, it will die. The advantage to the farmer is that the pro-toxin stays in plant tissues, instead of rivers, soils, lungs, birds, toads, ladybugs.
In this one incidence of conflicting pressures on the state in China is contained the global cognitive rift around transgenic organisms, much as the history of imperialism can be drawn from a single cup of tea. The discourse is one of threat and promise, of state responsibilities and international norms. The dichotomous—threat/promise—construction of technical change in agriculture resonates with previous attempts to promote or stop technical change; the “green revolution” of nitrogen-responsive grain varieties still launches many pages of paper. Agriculture is symbolic terrain on which much larger conflicts are joined.
The lessons from China’s consideration of Bt rice then illustrate larger points about transnational politics of “GMOs.”First, disaggregation is necessary to make sense. China’s development and deployment of an indigenous Bt cotton raised no real controversy; rice is a food crop, and the politics around food differ fundamentally from those around purely utilitarian technologies, whether cotton or insulin. Second, rice is not cotton in terms of gene flow: careful science is necessary to sort out risks and benefits to farmers; risks to farmers and agro-ecological systems are much greater in rice than cotton. Third, there is no reason to assume, as is often done instrumentally, that biotechnology entails corporate dominance of either farmers or national governments. China is the giant exception, but not the only one. Finally, nothing in the battle for the formal-legal high ground makes much difference on the real ground. Though the EU battles the US and WTO over whether or not transgenic crops should be allowed, the decision will ultimately be made by farmers.[12] It is the agency of people close to the seeds that will settle the question; in China, that decision leans toward transgenic rice, just as it previously did to transgenic cotton. It is hard to conjure the kind of state that could regulate the seed choices of millions of farmers across dozens of crops; but even if such surveillance and control could be imagined, it is hard not to think that there are better things to do.
Ron Herring teaches political economy and political ecology in the political science department at Cornell. He is the author most recently of Transgenics and the Poor: Biotechnology in Development Studies and coeditor with Rina Agarwal of Whatever Happened to Class?: Reflections from South Asia.
Full article w/notes and references here.
The Asia-Pacific Journal, Jan 12, 2009
A recent article in Nature [1] asked provocatively: Is China ready for GM rice? The title reflects widely shared anxiety over genetic engineering in agriculture. The use of the term “GM” specifically conjures a politically charged object: “GMOs” or “genetically modified organisms.” Is anyone ready for FrankenFoods? Strawberries with fish genes? Human cloning? The question has an ominous overtone, though both reporter and venue are identified with science. The question derives its energy from the decision of the Chinese Government to go full speed ahead with genetically engineered rice to confront what the state constructs as a gathering Malthusian crisis of hunger. What the article does not tell the reader is that the farmers are way ahead of the government: ready and able. Transgenic rice – officially unauthorized within China – has for several years been showing up in exports from China to Europe, to Japan, to New Zealand – and probably many other places that simply are not checking.
To ask if China is “ready” for “GM” rice is then doubly loaded. The necessity of getting ready implies threat; “GM” ties a specific cultivar to global anxiety about transgenic crops. The anxiety is multi-pronged: does the spread of transgenics entail threats of corporate dominance? Environmental risk? Food safety? The anxiety is heightened because these crops are spreading faster globally than perhaps any previous agricultural innovation, both through official channels of firm and state and underground, like films on DVDs or business software on CDs.[2] The transgenic genie is out of the bottle.
Then the question of who must be “ready” becomes especially curious. Farmers are clearly ready. As in many countries, cultivators in China risk prosecution to grow unauthorized transgenic crops, including Bt rice. They do so because they are impatient with bureaucratic delays and unwilling to pay corporate technology fees. And in fact, though urban consumers of GM politics think otherwise, there is not a lot to get ready for on farm: all the technology is in the seed, typically with a few altered genes, often only one. There is no more preparation than in playing an illegal DVD of a Bollywood film, once you know how to operate a player.
But is the state ready? Here the construction of transgenic rice as a special category designated by “GM” indicates why the issue carries political freight. Being “ready” implies a state of preparation, alertness, and consequences of not being ready, all of which are bad. No one was ready for the financial meltdown of 2008, most especially pensioners and homeowners. Is China ready for democracy? Open internet? But no one has ever asked -- in Europe, or in China, or in India -- if nations were “ready” for transgenic pharmaceuticals – which have been with us, and thoroughly normalized, since successful production of human insulin via transgenic bacteria began in 1978. There are no FrankenPills on posters. Useful to urban consumers and endorsed by the authority of medical science, transgenic pharmaceuticals have not drawn protests. Agriculture is different. The category “GM” as site of risk has become so normalized in political discourse about agriculture that no one ever asks: what is especially risky about any particular cultivar? Is China ready for “GM rice” really means: is the state ready to confront the political and administrative complexities of seed surveillance contrary to farmer interests?
The answer is probably “no.”We already know that stealth transgenic rice – and unauthorized Bt cotton as well – are being grown by Chinese farmers without permission of the state. What Jane Qiu’s article highlights is why the state or farmers or anyone else should care.
The Government of China, like many governments in nations with large agricultural sectors – e.g. India, Brazil – officially promotes and invests in biotechnology as a means of responding to what are constructed as urgent crises on the land. Rice stands for the larger problematic of increasing food production. Much of the corporate propaganda for transgenic technologies evokes the Malthusian threat, but here the evocation of urgency is from the Chinese state. This is no small issue: regimes incapable of feeding their populations have not fared well historically. Nor have their citizens. Being dependent on the global economy for fuel and food runs counter to imperatives of statecraft itself, across many ideological gradients. The threat conjured in China is quite explicit: inadequate productive capacity projected into the future. Against this threat is posed a promise: technical change in plant breeding. Genetic engineering – the possibility of rearranging DNA in plants to produce traits that are not in the genome of the plant itself, such as insect resistance, virus resistance, enhanced nutrient content, and on the horizon drought and salinity resistance – has long been official policy of the Chinese government. The controversy implied by the Nature article rests on two changes in the context of biotechnology: first, rice would be the first food crop authorized officially in China, and secondly, rice as a plant raises questions of agro-ecology not presented by cotton, China’s first transgenic. But the same recombinant DNA technology that the state constructs as promise has been constructed as threat in a very powerful global discourse.[3]
What exactly is the threat that China may or may not be ready for? “GM” is a political label, but it is one that sticks: it has political effects. All plants in agriculture are genetically modified. We no longer live in the world of Gregor Mendel puttering with peas: rather, plant genomes have been for decades radically altered and re-assembled in order to get phenotypic variation that plant breeders and farmers want. Transgenic techniques came later, and may indeed cause less disruption of gene networks than alternative [non “GM”] techniques [Batista et al 2008], but are socially constructed as something one must be ready for. No other kind of plant is subjected to the level of scrutiny of a plant bred by recombinant DNA techniques. Nor do transgenic pharmaceuticals constitute a special object of regulation, surveillance and control. Recombinant DNA techniques are constructed as threats only in agriculture.
The thing China may or may not be “ready” for is the global governance regime that sets transgenic plants apart. “GM” rice constitutes a plant that must be plugged into international norms of bio-safety as laid out in the Cartagena Protocol. The Protocol itself is the product of transnational advocacy networks and EU politics; it was resisted by major transgenic crop exporters such as the United States and Argentina. The protocol reflects the fact that half the globe holds “GMOs” to require special surveillance, monitoring, and governance.[4] To be ready is to have institutions that can promise effective rural governmentality ; in this sense the question is rhetorical: China lacks that kind of state, as do most nations.
A global rift divides the planet into places that see special needs for bio-safety regulation of “GMOs” – except pharmaceuticals – and those that express no more concern with transgenic plants than with agricultural plants in general. The world is divided between an American construction of “GM” plants as “substantially equivalent” to their non-“GM” equivalents – because no difference can be found by scientific measurement – and a European view privileging the “precautionary principle” – that something truly terrible may be lurking in the new gene networks created by DNA splicing. Prince Charles refers to rDNA work on plants – but not pharmaceuticals – as “playing God,” entering “realms that belong to God and God alone.” Hubris is the culprit; genetic engineering, in this view, involves a "gigantic experiment I think with nature and the whole of humanity which has gone seriously wrong. Why else are we facing all these challenges, climate change and everything?" An empty vessel has been created into which multiple anxieties may be bundled, and its name is GM.
The European discourse of playing God does not play well in Asia; it presupposes the God of Genesis, a creator with a plan, a garden, absolute control and a stable equilibrium of species. And in general the Apocalyptic vision of European political activism has not penetrated beyond small numbers of urban professionals in Asia, where grounds of objection of transgenics have to do with consumer preference and resistance to corporate globalization. China is the case that confounds the discourse; not MNCs, but Chinese scientists have been the drivers of transgenic research and development. China showed how public sector investments in transgenics could traget specific problems in agriculture without signing away the farm.
China was the leader among non-OECD nations in responding to biotechnology as a potential growth sector. Recombinant DNA techniques first became viable in laboratories in 1973; by 1980, patents on transgenic organisms became possible in the United States, as always the first-mover in creating and strengthening property in novel fields. With potential property to be made, and valuable discoveries in medicine and pharmaceuticals, a de facto global race began. In India, which established a Department of Biotechnology early, one heard the refrain “we missed the industrial revolution, we cannot afford to miss out on the information revolution.” Much of Asia responded in similar ways, with grand plans for state backing of biotechnology in the mode of developmental statism, but China was the clear leader and only success story. Though much of the political discourse is about MNCs and patents, China represents a now-common alternative dynamic: public funding of transgenic crops by developmental states.[5]
China’s early efforts in biotechnology began with strong state backing in the 1970s, focused on both food crops and cotton. Standard techniques of tissue culture and cell fusion were involved to modify plants before the advent of advanced recombinant DNA techniques in the early 1980s. The so-called 863 plan for advancing biotechnology research started in 1986.[6] The Ministry of Agriculture reported in 1996 that more than 190 genes had been transferred to more than 100 organisms, including plants, micro-organisms and animals. Investment levels were high, and addressed an indigenous sense of the most serious agricultural problems. The Bt cotton developed in China enables insect resistance from within the plant. It was a priority not only because of the massive land investment China had in cotton, but also because of the widely recognized externalities of heavy pesticide use: deleterious environmental and health consequences. China’s Bt cotton is now growing both legally and illegally in far-flung Asian locations.
Southeast Asian states feared that that China would become hegemonic in this new information-intensive sector, and ramped up plans for autonomous development defensively [Barboza 2003]. But plans in Southeast Asia were cut back after a profound European U-turn on genetic engineering in agriculture. Like commercial firms in the United States, European states initially saw the genomics revolution in biology as a potential source of profit and national development; European firms were early leaders; they were backed, especially in France, by governments. The turn away from biotechnology came as a result of transnational social movements joining hands across the Atlantic in opposing corporate environmental irresponsibility. By the end of the 1990s, Europe had crossed over, from support for genetic engineering to attempts to protect its economy from American transgenic imports.[7] Whereas American policy moved to the USFDA conclusion of “substantial equivalence” and society followed in train, Europe moved to a “precautionary principle,” led by social activists.
But not all opposition targeted all biotechnology: food was the crux of the anti-GM campaign in Europe. “White” biotechnologies, such as biodegradable plastics and other industrial applications, as well as “red” biotechnologies in medicine and pharmaceuticals remained strongly supported in Europe [EB 64.3 2006]. In these applications of rDNA technologies, there are large human utilities, such as avoiding death. Food is different. There being no benefit to consumers in GM-food – with a few caveats about reduction of pesticide residues and externalities – European consumers were free to support campaigns to restrict agricultural biotechnology not only in Europe, but all over the world. The most successful efforts were in Africa, as Robert Paarlberg’s new book Starved for Science documents. The WTO has ruled that the European standards are contradicted by EU science, but the EU U-turn remains both politically sticky in Europe and consequential internationally. The EU declaration on “GMOs” structurally segregated world markets: GM or GM-free. It became quite clear in the late 1990s where the smart money would go in poor countries hoping to export to Europe.
China’s current interest in regulation of transgenic rice derives directly from this global regulatory rift. An early leader in state-led biotechnology development, China slowed its approach after the EU U-turn. Cotton is one thing, food another. Bt cotton from China’s public sector not only performed well, and reduced pesticide poisoning of farmers and farm workers, but was smuggled out of China and thrives as stealth seeds in other parts of Asia.[8] Bt cotton is of no concern to powerful players in the international system; national governments such as Vietnam and Pakistan prefer to look the other way in order to avoid a confrontation with both farmers as political agents and their own incapacity to build viable Cartagena-friendly bio-safety regimes. Rice is food, and thus another kettle of fish.
What China is not ready for is another assault on the integrity of its export products; that assault derives from EU regulations as to what food is acceptable and what is not. Spot checks carried out by several EU countries, including Germany, the UK, and France, have, since 2006, found Chinese shipments of rice and rice products to contain evidence of a genetically-engineered rice, specifically Bt 63. Bt63 is not authorized for commercial cultivation either in China or in the EU; its import into the EU is banned. The formal resolution of the China-EU conflict was to require all rice and rice products from China to have a certificate that there is no transgenic Bt 63 content; one predicts a strong market for certificates over time. Japan and New Zealand, which have similar EU-like restrictions, reported similar findings.[9]
The Cartagena Protocol requires that “Living Modified Organisms” be clearly identified in international trade; the criterion for an LMO is essentially the same as the GMO. This is not surprising: EU support of transnational opponents of biotechnology succeeded in crafting soft law stigmatizing transgenics and their downstream products, whether or not any DNA or trans-gene protein survives processing. Surveillance is to be “from farm to fork.” Though the reality of food systems would seem to make this level of control a dream only bureaucrats could conjure, the consequences are serious. Failure of the Chinese government to enforce the protocol indicates not only non-compliance with international soft law, but inability of the state to control transgenic organisms within its own boundaries or in its exports. China is hardly alone in failure to regulate crops -- – seed police are hard to find – but China does face strong international pressure for tighter regulation of safety in exports in general. Bt proteins have not been shown to kill pets or people, but the net effect is to undermine confidence in Chinese exports to nations with strict regulations.
Though this threat to export products is the main objective risk of growing transgenics in China – the Bt itself has not been shown to be unsafe for humans or animals, and many Bt crops are regularly consumed – the Nature article is more concerned about environmental effects. Given China’s disturbing record on environmental protection, how serious a risk is transgenic rice? In general, Bt crops present a difficult question for environmental policy: if we compare the Bt plants to traditional cultivars, cultivated in traditional ways, the transgenics reduce pesticide use and therefore seem environmentally friendly. Nevertheless, one seldom finds transgenic crops discussed in the frame of biodiversity preservation or sustainability. Rather, the environmental risk assessment of transgenic crops typically poses questions about the potential for gene flow in the environment.
Here the Chinese official caution regarding Bt rice raises the importance of disaggregating transgenic crops. Bt rice raises more and more serious questions of agro-ecology than does Bt cotton, China’s most successful biotechnology venture. Gene flow from Bt cotton presents little if any potential risk; like many cultivated crops, cotton is highly specialized, with no evidence of crossing with wild relatives. Without crossing, there is no gene flow. If genes flow, there is a question of fitness: will the wild and weedy relatives of the cultivated plant now gain an advantage in fitness in the environment from addition of the trait from the transgene [eg insect resistance]? Will this fitness advantage be such that they begin to dominate, thus upsetting agro-ecologies in new ways? This is the “super-weed” scenario stressed by opponents of rDNA technology: FrankenPlants. With cotton, the answer to these questions is almost certainly not; with rice, there is a much greater possibility of agro-ecological risk. Rice is first of all a grass – a more promiscuous kind of plant than cotton – and secondly has wild and weedy relatives in and around cultivated fields.
The bureaucratically sensible resolution would seem to be to test the crops under Chinese conditions. But testing itself comes under attack when the object is “GM.” Uncertainties abound: how long a testing period is long enough to determine safety? For proponents of the precautionary principle, the answer is “forever.” For the US FDA, the answer is “not much”: if composition tests show the same range of variation in transgenic plants as in comparable non-transgenic cultivars [i.e. comparing apples to apples, rather than to oranges], there is no reason for special regulation or labels. The American position risks riding on the side of hubris: we know what we know. The European position imposes nearly impossible[10] standards: how can you prove that something will not happen? Do you check your brakes every time you take your car out to drive? Do you avoid any airplane that could conceivably crash and burn? Do you demand demonstration that your cell phone safe cannot cause cancer?
Of course we all – Europeans and middle-class activists of transnational advocacy networks in poorer countries – dismiss as alarmist “risks” from cell phones. But there has been a recent upsurge in caution concerning cell phones in regard to brain damage from a presumably authoritative source: the Director of the University of Pittsburgh’s University Medical Center Cancer Center.[11] Why do we disregard such warnings – and seldom check our car’s brakes or inquire into the maintenance record of our next flight’s plane? Because the disutility of ascertaining certainty far outweighs a subjective assessment of risk. Moreover, negatives are impossible to prove: how could there be even in principle decisive proof that no critical system on any given 747 will fail? No one can live with the precautionary principle; not only are there innumerable known unknowns, but – and here Donald Rumsfeld for once got something right – the sheer number of unknown unknowns is everywhere daunting. Farmers in China, like those in India, Pakistan, Brazil, Vietnam and much of the world grow Bt transgenics because they make life marginally easier, slightly more profitable, and slightly less destructive of their very local environments. If there are distal and uncertain risks, they pale by comparison to the real risks of pesticide poisoning and crop failure. Farmers make this calculation whether governments approve or not, just as desperate Americans try remedies not yet approved by the Food and Drug Administration.
Do farmers then worry about biodiversity, as the Nature article clearly thinks they should? Yes and no: they worry about destruction of helpful predators on the pests of their crops, but they recognize that spraying poisons across the fields kills friends and foes alike, including some farmers and farm workers. Bt plants, in contrast, are targeted to a class of pests, and contained in the plant tissues. Bt plants represent a kind of poetic justice: if a pest leaves the plant alone, it will not be harmed; if it attacks the plant, it will die. The advantage to the farmer is that the pro-toxin stays in plant tissues, instead of rivers, soils, lungs, birds, toads, ladybugs.
In this one incidence of conflicting pressures on the state in China is contained the global cognitive rift around transgenic organisms, much as the history of imperialism can be drawn from a single cup of tea. The discourse is one of threat and promise, of state responsibilities and international norms. The dichotomous—threat/promise—construction of technical change in agriculture resonates with previous attempts to promote or stop technical change; the “green revolution” of nitrogen-responsive grain varieties still launches many pages of paper. Agriculture is symbolic terrain on which much larger conflicts are joined.
The lessons from China’s consideration of Bt rice then illustrate larger points about transnational politics of “GMOs.”First, disaggregation is necessary to make sense. China’s development and deployment of an indigenous Bt cotton raised no real controversy; rice is a food crop, and the politics around food differ fundamentally from those around purely utilitarian technologies, whether cotton or insulin. Second, rice is not cotton in terms of gene flow: careful science is necessary to sort out risks and benefits to farmers; risks to farmers and agro-ecological systems are much greater in rice than cotton. Third, there is no reason to assume, as is often done instrumentally, that biotechnology entails corporate dominance of either farmers or national governments. China is the giant exception, but not the only one. Finally, nothing in the battle for the formal-legal high ground makes much difference on the real ground. Though the EU battles the US and WTO over whether or not transgenic crops should be allowed, the decision will ultimately be made by farmers.[12] It is the agency of people close to the seeds that will settle the question; in China, that decision leans toward transgenic rice, just as it previously did to transgenic cotton. It is hard to conjure the kind of state that could regulate the seed choices of millions of farmers across dozens of crops; but even if such surveillance and control could be imagined, it is hard not to think that there are better things to do.
Ron Herring teaches political economy and political ecology in the political science department at Cornell. He is the author most recently of Transgenics and the Poor: Biotechnology in Development Studies and coeditor with Rina Agarwal of Whatever Happened to Class?: Reflections from South Asia.
Full article w/notes and references here.
WSJ Editorial Page: Obama's Antiterror Progress
Obama's Antiterror Progress. WSJ Editorial
He embraces Bush policies on secrecy, rendition.
WSJ, Feb 13, 2009
President Obama has done a masterful job disguising his Administration's growing antiterror maturity, but this week produced further evidence that he is erring on the side of keeping the country safe rather than appeasing the political left. The Justice Department filed to dismiss a federal appeals case involving rendition, embracing an argument developed by . . . the Bush Administration.
In other words, the anti-antiterror lobby is being exposed as more radical than its putative banner carrier. As Mr. Obama is learning, the left's exertions to disarm the country's counterterrorism arsenal are as dangerous now as they were prior to his election.
In this closely watched case, the American Civil Liberties Union sued the flight-logistics outfit Jeppesen DataPlan in 2007 on behalf of Binyam Mohamed and four other Guantanamo detainees. The argument was that the Boeing subsidiary was complicit in arranging flights for rendition, a policy that transfers certain terror prisoners seized abroad to other countries for interrogation. Mohamed and his compatriots claim they are the victims of torture overseas.
The Bush Administration argued the case should be dismissed because open proceedings could damage national security by disclosing state secrets. A lower court agreed. Most everyone expected the Obama Justice Department to dump the secrecy line when the case came up for review before the left-leaning Ninth Circuit Court of Appeals on Monday, apparently including the Ninth Circuit.
Judge Mary Schroeder asked leadingly, "Is there anything that might have happened" to cause Justice to shift its views? "No, your honor," the Justice attorney, Douglas Letter, replied. A startled Judge Schroeder tried again. "The change in Administration has no bearing?" Mr. Letter reiterated that his positions had been "authorized" and "thoroughly vetted with the appropriate officials within the new Administration."
The Obama Administration says it will invoke the state secrets privilege more sparingly than its predecessor. But it is really admitting that lifting the hood on classified intelligence-gathering would let terrorists know what to expect, and to shift their operations to avoid detection. Perhaps the Obama team has also stumbled upon the larger game behind lawsuits like the one against Jeppesen -- which is to intimidate private companies into refusing to cooperate with the government on national security.
The left has failed to achieve its policy ambitions through Congress or by directly challenging the government in court. So the latest tactic is suing third parties such as Jeppesen -- note that the ACLU is not suing here to win Mohamed's release -- to hamstring the executive branch via the courts. These companies thought they were doing their patriotic duty by lending a hand.
But the anti-antiterror trial bar uses lawsuits to raise the costs for these private actors of cooperating with the intelligence community, and the legal exposure makes it that much more difficult for the feds to gain private cooperation. Sometimes the suits shut down such cooperation altogether. The telecom companies, faced with multibillion-dollar civil complaints over warrantless wiretapping, refused to proceed without legal immunity, and the 2007-2008 political dispute nearly ended the program. The FISA appeals court revealed last month that one (still anonymous) telecom even sued the government to opt out.
The larger story here is that the anti-antiterror lobby is losing the man it thought was its strongest ally. During his campaign, Mr. Obama talked as if he really believed that the Bush Administration was uniquely wicked on national security. Joe Biden cosponsored Senate legislation that would have prevented the executive branch from making state-secrets claims to shelve lawsuits, rather than shielding individual evidence from judicial (and public) scrutiny.
Now it seems that the Bush Administration's antiterror architecture is gaining new legitimacy, just as Eisenhower validated Truman's Cold War framework. Mr. Obama claims to have banned coercive interrogation techniques, except in those cases where more extreme measures are necessary to save lives. He says he'll shut down Gitmo in a year or so, but his subordinates -- including Elena Kagan during her confirmation hearings for Solicitor General this week -- admit that indefinite detention will still be necessary for some terrorists. He walked back his wiretap absolutism even before he was elected. Now the Administration has endorsed the same secrecy posture that he once found so offensive, merely saying that it will be used less frequently. We'll see.
These are all laudable signs of Mr. Obama's antiterror progress. Perhaps some day he'll acknowledge his debt to his predecessor.
He embraces Bush policies on secrecy, rendition.
WSJ, Feb 13, 2009
President Obama has done a masterful job disguising his Administration's growing antiterror maturity, but this week produced further evidence that he is erring on the side of keeping the country safe rather than appeasing the political left. The Justice Department filed to dismiss a federal appeals case involving rendition, embracing an argument developed by . . . the Bush Administration.
In other words, the anti-antiterror lobby is being exposed as more radical than its putative banner carrier. As Mr. Obama is learning, the left's exertions to disarm the country's counterterrorism arsenal are as dangerous now as they were prior to his election.
In this closely watched case, the American Civil Liberties Union sued the flight-logistics outfit Jeppesen DataPlan in 2007 on behalf of Binyam Mohamed and four other Guantanamo detainees. The argument was that the Boeing subsidiary was complicit in arranging flights for rendition, a policy that transfers certain terror prisoners seized abroad to other countries for interrogation. Mohamed and his compatriots claim they are the victims of torture overseas.
The Bush Administration argued the case should be dismissed because open proceedings could damage national security by disclosing state secrets. A lower court agreed. Most everyone expected the Obama Justice Department to dump the secrecy line when the case came up for review before the left-leaning Ninth Circuit Court of Appeals on Monday, apparently including the Ninth Circuit.
Judge Mary Schroeder asked leadingly, "Is there anything that might have happened" to cause Justice to shift its views? "No, your honor," the Justice attorney, Douglas Letter, replied. A startled Judge Schroeder tried again. "The change in Administration has no bearing?" Mr. Letter reiterated that his positions had been "authorized" and "thoroughly vetted with the appropriate officials within the new Administration."
The Obama Administration says it will invoke the state secrets privilege more sparingly than its predecessor. But it is really admitting that lifting the hood on classified intelligence-gathering would let terrorists know what to expect, and to shift their operations to avoid detection. Perhaps the Obama team has also stumbled upon the larger game behind lawsuits like the one against Jeppesen -- which is to intimidate private companies into refusing to cooperate with the government on national security.
The left has failed to achieve its policy ambitions through Congress or by directly challenging the government in court. So the latest tactic is suing third parties such as Jeppesen -- note that the ACLU is not suing here to win Mohamed's release -- to hamstring the executive branch via the courts. These companies thought they were doing their patriotic duty by lending a hand.
But the anti-antiterror trial bar uses lawsuits to raise the costs for these private actors of cooperating with the intelligence community, and the legal exposure makes it that much more difficult for the feds to gain private cooperation. Sometimes the suits shut down such cooperation altogether. The telecom companies, faced with multibillion-dollar civil complaints over warrantless wiretapping, refused to proceed without legal immunity, and the 2007-2008 political dispute nearly ended the program. The FISA appeals court revealed last month that one (still anonymous) telecom even sued the government to opt out.
The larger story here is that the anti-antiterror lobby is losing the man it thought was its strongest ally. During his campaign, Mr. Obama talked as if he really believed that the Bush Administration was uniquely wicked on national security. Joe Biden cosponsored Senate legislation that would have prevented the executive branch from making state-secrets claims to shelve lawsuits, rather than shielding individual evidence from judicial (and public) scrutiny.
Now it seems that the Bush Administration's antiterror architecture is gaining new legitimacy, just as Eisenhower validated Truman's Cold War framework. Mr. Obama claims to have banned coercive interrogation techniques, except in those cases where more extreme measures are necessary to save lives. He says he'll shut down Gitmo in a year or so, but his subordinates -- including Elena Kagan during her confirmation hearings for Solicitor General this week -- admit that indefinite detention will still be necessary for some terrorists. He walked back his wiretap absolutism even before he was elected. Now the Administration has endorsed the same secrecy posture that he once found so offensive, merely saying that it will be used less frequently. We'll see.
These are all laudable signs of Mr. Obama's antiterror progress. Perhaps some day he'll acknowledge his debt to his predecessor.
Thursday, February 12, 2009
Paul Weinstein Jr., former adviser to Clinton and Gore, fellow at the Progressive Policy Institute: Next, cut spending
Next, cut spending. By Paul Weinstein, Jr
Or debt will doom our future
NY Post, February 10, 2009
DESPITE the need to stimulate the economy now, the long-term health of the nation depends on a return to the fundamentals - namely, getting our fiscal house in order. So the Obama administration should lay out a plan now that would restrain spending, curb entitlement growth, eliminate tax breaks for special interests and make government more efficient.
Any effort to cut the deficit must wait until the current crisis abates and the economy gets back on its feet, but there is no reason not to enact legislation now that would put into place triggers that will kick-start a series of budget reforms later, when the time is right.
In fact, acting now would do much to allay the concerns of our economic partners, who are fearful that US borrowing will crowd them out of the credit markets. It would also help to keep down the cost of credit and capital for the private sector - and ensure the eventual recovery doesn't stall down the road.
What would such a reform plan look like?
First, it would restore pay-as-you-go budgeting and caps on discretionary spending that we had in the 1990s. These laws helped hold down the rate of spending and were a key reason that the nation experienced surpluses by the end of the decade.
Second, it would create a bipartisan commission (like the one that long handled military-base closings) that would be charged with identifying which expenditures, tax subsidies and government inefficiencies can be curbed, eliminated or streamlined. Congress would then have an up-or-down vote on the commission's recommendations, without amendment.
Third, it would give the president the authority to send pork projects and special-interest tax breaks back to Congress for reconsideration, creating a constitutional alternative to the line-item veto.
Finally, it would, as suggested by the bipartisan "Fiscal Seminar" group, put into place targets for entitlement spending and tax expenditures that would be budgeted for the long run - say, 30 years. When unexpected events pushed spending or tax expenditures above targets, automatic triggers would be used to slow spending growth, increase revenues or some combination of the two.
Such a system would force policymakers to address the greatest threat to our nation's long-term fiscal well-being: burgeoning retirement and health-care costs.
If we don't, and insist on maintaining the tax burden where it has been over the last 50 years (about 18 percent of GDP), the Fiscal Seminar group estimates public debt will most likely exceed 100 percent of GDP within 25 years.
At the end of World War II, America's debt exceeded its entire gross domestic product. Yet rather than throwing up their hands, our parents and grandparents whittled down their deficits. By the Kennedy administration, the ratio of debt to GDP was back down to prewar levels.
What lesson can we learn from the "greatest generation"? Simply this: Opportunity, not debt, is the legacy we owe to future Americans. We cannot afford to let budget basics get lost in our efforts to right the economy.
Paul Weinstein Jr., a former policy adviser to Bill Clinton and Al Gore, is a fellow at the Progressive Policy Institute and Johns Hopkins University.
Or debt will doom our future
NY Post, February 10, 2009
DESPITE the need to stimulate the economy now, the long-term health of the nation depends on a return to the fundamentals - namely, getting our fiscal house in order. So the Obama administration should lay out a plan now that would restrain spending, curb entitlement growth, eliminate tax breaks for special interests and make government more efficient.
Any effort to cut the deficit must wait until the current crisis abates and the economy gets back on its feet, but there is no reason not to enact legislation now that would put into place triggers that will kick-start a series of budget reforms later, when the time is right.
In fact, acting now would do much to allay the concerns of our economic partners, who are fearful that US borrowing will crowd them out of the credit markets. It would also help to keep down the cost of credit and capital for the private sector - and ensure the eventual recovery doesn't stall down the road.
What would such a reform plan look like?
First, it would restore pay-as-you-go budgeting and caps on discretionary spending that we had in the 1990s. These laws helped hold down the rate of spending and were a key reason that the nation experienced surpluses by the end of the decade.
Second, it would create a bipartisan commission (like the one that long handled military-base closings) that would be charged with identifying which expenditures, tax subsidies and government inefficiencies can be curbed, eliminated or streamlined. Congress would then have an up-or-down vote on the commission's recommendations, without amendment.
Third, it would give the president the authority to send pork projects and special-interest tax breaks back to Congress for reconsideration, creating a constitutional alternative to the line-item veto.
Finally, it would, as suggested by the bipartisan "Fiscal Seminar" group, put into place targets for entitlement spending and tax expenditures that would be budgeted for the long run - say, 30 years. When unexpected events pushed spending or tax expenditures above targets, automatic triggers would be used to slow spending growth, increase revenues or some combination of the two.
Such a system would force policymakers to address the greatest threat to our nation's long-term fiscal well-being: burgeoning retirement and health-care costs.
If we don't, and insist on maintaining the tax burden where it has been over the last 50 years (about 18 percent of GDP), the Fiscal Seminar group estimates public debt will most likely exceed 100 percent of GDP within 25 years.
At the end of World War II, America's debt exceeded its entire gross domestic product. Yet rather than throwing up their hands, our parents and grandparents whittled down their deficits. By the Kennedy administration, the ratio of debt to GDP was back down to prewar levels.
What lesson can we learn from the "greatest generation"? Simply this: Opportunity, not debt, is the legacy we owe to future Americans. We cannot afford to let budget basics get lost in our efforts to right the economy.
Paul Weinstein Jr., a former policy adviser to Bill Clinton and Al Gore, is a fellow at the Progressive Policy Institute and Johns Hopkins University.
Strengthening American Competitiveness: Regaining Our Competitive Edge - Four Priorities and 20 New Ideas
Strengthening American Competitiveness: Regaining Our Competitive Edge - Four Priorities and 20 New Ideas. By Jason Bordoff, Lael Brainard, Carola McGiffert & Isaac Sorkin
The Brookings Institution, February 13, 2009
The United States is in the midst of the most serious economic downturn since the Great Depression. Policymakers are understandably preoccupied with applying the right mix of fiscal and monetary policy responses to stanch and eventually reverse the decline. At the same time, policymakers need to build a foundation for sustainable, long-term prosperity that can drive our economy once we move beyond the present crisis. Going forward, the economy will no longer have the technology boom of the 1990s or the housing bubble of the 2000s to sustain its growth. And it is unlikely that debt-driven consumer spending or Wall Street will provide the same boost as in the past. If we are going to provide opportunities for all Americans going forward, we need to make the right investments today to rebuild American competitiveness by investing in our people, infrastructure, ideas, and green transformation.
This paper addresses this central challenge for the United States. We begin by discussing the economic downturn and financial turmoil facing the country and how policymakers should respond to both boost our economy in the short-run and also build the foundations for long-term competitiveness. Second, the competitiveness agenda is motivated by, and must therefore be responsive to, at least three changes in the fabric of the global economy: the increase in global integration; the attendant shift in economic power to rising powers such as Brazil, China and India; and the realization of the existential threat that climate change poses. Finally, we lay out the fundamentals of a competitiveness agenda through descriptions of specific policy proposals by leading experts on how to invest more robustly in infrastructure, people, ideas and green transformation.
The whole document is here.
The Brookings Institution, February 13, 2009
The United States is in the midst of the most serious economic downturn since the Great Depression. Policymakers are understandably preoccupied with applying the right mix of fiscal and monetary policy responses to stanch and eventually reverse the decline. At the same time, policymakers need to build a foundation for sustainable, long-term prosperity that can drive our economy once we move beyond the present crisis. Going forward, the economy will no longer have the technology boom of the 1990s or the housing bubble of the 2000s to sustain its growth. And it is unlikely that debt-driven consumer spending or Wall Street will provide the same boost as in the past. If we are going to provide opportunities for all Americans going forward, we need to make the right investments today to rebuild American competitiveness by investing in our people, infrastructure, ideas, and green transformation.
This paper addresses this central challenge for the United States. We begin by discussing the economic downturn and financial turmoil facing the country and how policymakers should respond to both boost our economy in the short-run and also build the foundations for long-term competitiveness. Second, the competitiveness agenda is motivated by, and must therefore be responsive to, at least three changes in the fabric of the global economy: the increase in global integration; the attendant shift in economic power to rising powers such as Brazil, China and India; and the realization of the existential threat that climate change poses. Finally, we lay out the fundamentals of a competitiveness agenda through descriptions of specific policy proposals by leading experts on how to invest more robustly in infrastructure, people, ideas and green transformation.
The whole document is here.
State Sec remarks on the 50th Anniversary of Martin Luther King, Jr.'s Trip to India and Black History Month
The 50th Anniversary of Martin Luther King, Jr.'s Trip to India and Black History Month. Remarks by Hillary Rodham Clinton, Secretary of State
Treaty Room, Washington, DC, Thu, 12 Feb 2009 15:50:23 -0600
Remarks With Mr. Martin Luther King III, Congressman John Lewis, Congressman Spencer Bachus and Mr. Herbie Hancock
SECRETARY CLINTON: Good afternoon. Good afternoon. Well, we are so delighted to have you – please be seated – here in the Treaty Room at the State Department for what is an historic occasion, something that means a great deal to this Department and to our country. I am pleased that His Excellency, Ambassador Sen of India is with us today, and I’m also very honored to be joined by a remarkable group of Americans.
We have standing before you some of the heroes of the Civil Rights Movement and of our recent history. Certainly, Congressman Lewis needs no introduction. We have with us also Congressman Bachus. They will be leading a congressional delegation to India to retrace the steps of Dr. King and Mrs. King. And of course, the person who – for whom this is a personal journey as well as a historic one, Martin Luther King III.
Now Herbie Hancock is going along as well. (Laughter.) And I think there’ll be a lot of people who recognize him. And he just told me he’s going to be recording, including some Indian artists. And maybe he’ll say a word more about that in a minute. Also joining the CODEL will be a number of other distinguished members of Congress, as well as Ambassador Andy Young and former Senator Harris Wofford. This is the real American dream team. And I don’t think we could find better ambassadors for our country to send to help mark the 50th anniversary of Dr. Martin Luther King, Jr.’s historic trip to India.
As we celebrate Black History Month here at home, the 50th Anniversary of Dr. King’s trip to India is a reminder that the struggle for civil rights and justice has always been and continues to be a global mission; it knows no borders. As Dr. King told us, “Injustice anywhere is a threat to justice everywhere.”
Now Dr. King was just 30 years old when he traveled to India in 1959, but he had already led the Montgomery bus boycott, and understood the wisdom and power of the nonviolent protest movement pioneered by the great Mahatma Gandhi. Dr. King toured the country for a month, studying Gandhi’s philosophy, meeting with Prime Minister Nehru. He met with other Indian leaders in politics and government, in academia and the professions in business and across the society. And he talked with citizens and young people at every opportunity. He brought the lessons he learned there back to the United States, and renewed his own faith in the unmatched moral force of nonviolent resistance and its ability to achieve meaningful social change.
It’s been my great privilege to have heard Dr. King speak when I was a young girl. It was a few years after he had returned from India. It was a cold January night in Chicago, but I was deeply moved then, as I continue to be, by his timeless call to all of us, his dream for a world that is really worthy of our children. I remain inspired by his undying hope for a better tomorrow.
So I am pleased to honor Dr. King’s historic journey which really represents the journey that our country has been on. And in many ways, as we have celebrated the inauguration of President Obama, a journey that has brought great faith to people who follow the tenets of nonviolence and Dr. King’s philosophy and preaching and who have worked to make the changes here at home that continue to reverberate around the world, it’s fitting that this mission then be undertaken during Black History Month, and just weeks after our President’s historic inauguration. And on behalf of President Obama, I want to express his gratitude for you doing this and for your service as well.
You know, Dr. King’s trip to India stands as a landmark of the Civil Rights Movement and a real testament, ambassador, to the bonds of affection and shared history between our two nations. I want to thank the Government of India for welcoming and supporting our delegation, a reflection that India also understands that the deep and broad partnership our countries are forging is one based on common history and values. And it is because of that that it is destined to grow even stronger in the future. So I wish you Godspeed and a great deal of – oh, shall I say, jealousy that (laughter) – that you are retracing these footsteps.
And now I’d like to introduce some of my friends and those who will be making this journey, starting with Martin Luther King III, followed by Congressman Lewis and Congressman Bachus, if you would also like to say a few words, and ending up with Herbie Hancock.
Martin.
MR. KING: Thank you so much, Madame Secretary, and thank you, Congressman Lewis, Congressman Bachus, and of course, the great Mr. Herbie Hancock. I must also thank the Government of India and Ambassador Sen, for this is a very special journey for me personally, my wife and I, to retrace the steps that my parents engaged in 50 years ago. On behalf of everyone at Realizing the Dream, an organization I started, I am honored to be making this journey on this 50th anniversary of that incredible visit.
In 1959, at the invitation of the Gandhi National Memorial Foundation, my parents, Dr. Martin Luther King, Jr. and Coretta Scott King, traveled to India to immerse themselves in Gandhi’s nonviolence movement, and to identify with and give support to the people of India who were struggling to overcome the evils of poverty and discrimination.
By working to foster peace through nonviolence, I hope this pilgrimage will inspire others to end the dependence on violence for nominal change, and instead look to reconciliatory power of nonviolence to create sustainable progress and diplomacy.
The impact that Gandhi’s life had on my father was quite profound. And it is in that spirit that I set out on this journey in just a few days. Thank you. (Applause.)
MR. LEWIS: Madame Secretary and His Excellency Mr. Ambassador Sen, I would like to thank you, the United States Department of State, and the Government of India for all that you have done to support this delegation. It is with great pleasure and delight that I embark on this journey with Representative Bachus, my friend and my brother and my colleague from Alabama, co-leader of the delegation; other colleagues in the House; Martin Luther King III; Herbie Hancock and their delegation to pay tribute to the abiding link between Gandhi and Martin Luther King, Jr.
The two men were not politicians or lawmakers. They were not presidents or popes. But they were inspired human beings who believed deeply in the power of nonviolent resistance to injustice as a tool for social change. Because of their courage, commitment, and vision, this nation has witnessed a nonviolent revolution under the rule of law, a revolution of values and ideas that have changed America forever. We are all a beneficiary of this powerful legacy.
It is a great honor to retrace the steps of Gandhi and Martin Luther King, Jr. in India. Madame Secretary, I don’t where I would be if it had not been for the teaching of Gandhi and Martin Luther King, Jr. We are looking forward to fulfilling an inspiring journey. Thank you, Madame Secretary, for all your help in making this possible. Thank you.
SECRETARY CLINTON: Thank you so much. (Applause.)
MR. BACHUS: I walked into my office this morning and there was music playing, and my staff was just ecstatic that Herbie Hancock – (laughter) – was – I would be traveling with Herbie Hancock, and they knew about Martin Luther King. And I first want to say that thank you for your father. I’m the congressman from Birmingham, Alabama. And Birmingham is a better place today than it was, because of Martin Luther King. As Congressman Lewis, when he called me and asked me to head this delegation, I was overwhelmed, because we in Birmingham, probably more than anywhere else, know about the ills of discrimination and racism.
I buried my father two years ago, and I’m proudest of him for crossing that color line and being the first contractor in Birmingham to hire subcontractors. He had vandalism of worksites, but he had the vast support of the people in Birmingham when he did that. And I want you to know that Birmingham is a better place. And I’m not sure there’s any place more committed to equality than a place which suffered from inequality. And for that, I thank you and I thank your father. Thank you. (Applause.)
MR. HANCOCK: Madame Secretary, members of Congress, Mr. Ambassador, members of the Diplomatic Corps, Martin Luther King, Jr. – Martin Luther King III – and honored invited guests, it is a privilege for me to be here today among such esteemed company.
As chairman of the Thelonious Monk Institute of Jazz, I am honored to be traveling to India with my fellow musicians, singers Chaka Khan, Dee Dee Bridgewater, pianist George Duke, and young students who are studying with the Thelonious Monk Institute of Jazz performers in New Orleans. We are honored to be partnering with the State Department and to be taking this journey with Martin Luther King III, Congressman John Lewis, and other members of Congress. And we look forward to bringing music and jazz education to the people of India through this historic tour that celebrates the philosophies of Dr. King and Mahatma Gandhi, two very inspirational political and spiritual leaders whose teachings have really encouraged me to lead a life of peace, honesty, and filled with love for my fellow man.
And of great importance to me and my fellow artists, their philosophies of cooperation, communication, and harmony are also essential elements of every jazz band. (Laughter.) The Thelonious Monk Institute of Jazz has partnered with the State Department now for over 15 years, and this is our third trip to India. On the first trip I was humbled meeting Mother Teresa, as I have told you, Madame Secretary, and then filled with joy having several opportunities to contribute to the cultural fabric of the Indian people through performance and jazz education workshops.
We look forward to being a part of the Living Dream concerts in Mumbai and Delhi, and then working with the students who attend the Ravi Shankar Institute of the Performing Arts, where our students are going to be able to exchange valuable lessons with the young Indian musicians and prove again that the language of jazz knows no boundaries.
On behalf of the institute, all the musicians on the tour, and myself, I’d like to say a very, very warm and heartfelt thank you to our good friend and Secretary of State Hillary Clinton, and to the U.S. Department of State for continuing your support of culture, jazz, and music education throughout the world, and for giving us the opportunity to represent the United States and to be a part of this historic tour. Thank you. (Applause.)
SECRETARY CLINTON: Well, as you can tell, it’s going to be quite a journey and all of us wish you well. I think it’s important to really underscore the significance of this kind of cultural and historical diplomacy. It’s exactly what the State Department should be doing even more of, reaching out and learning from as well as sharing with people around the world.
And it is also a reminder that nonviolence works. And if more people were able to understand that and remember the teachings of Gandhi and Dr. King, not only would the world, I think, be a more peaceful place, but I honestly believe that the injustice that persists would be far more likely to be remedied.
So it’s a real pleasure during this Black History Month. I want to thank John Robinson and the Office of Civil Rights for what they do during this month, and this is part of that commemoration and celebration. And to all of you, it’s a great reminder from the incomparable Herbie Hancock that jazz is not just about music. I think jazz is a pretty good guide to most things in life, and I can tell you, as Secretary of State, I’m improvising every single day. (Laughter.) Thank you all very much. (Applause.)
Those of you who would like to --
QUESTION: Madame Secretary --
SECRETARY CLINTON: Just a second. Those of you who would like to meet our guests, please come up, and before they have to leave, I know they’d like to say hello to some of our guests. So, please, come up.
QUESTION: Madame Secretary, do you believe that --
SECRETARY CLINTON: Thank you.
QUESTION: -- Dr. King’s dream has come full circle now with President Obama’s election, and also, if the change began with Mahatma Gandhi and Martin Luther King?
SECRETARY CLINTON: Well, I think President Obama would tell you that it is not about him. His election, his victory, is a victory for the American people as well as for his philosophy of change and his deep commitment to American values. There’s still a lot of work to be done. I mean, the work of justice never ends. But we’re very proud in the United States that our President represents, in great measure, the dream of Dr. King. And certainly, we all have to now continue that work, and I know that the President feels that responsibility acutely.
But it’s not just the work of a president or not just the work of diplomats or members of Congress. It is the work of everyone, and that’s why it’s so important to have people like Martin and his nonprofit organization continuing that work, artists like Herbie and others of great talent continuing that work. So if anything, the philosophy and the examples of Gandhi and Dr. King should spur each and every one of us to even do more.
Thank you all very much. (Applause.)
PRN: 2009/125
Treaty Room, Washington, DC, Thu, 12 Feb 2009 15:50:23 -0600
Remarks With Mr. Martin Luther King III, Congressman John Lewis, Congressman Spencer Bachus and Mr. Herbie Hancock
SECRETARY CLINTON: Good afternoon. Good afternoon. Well, we are so delighted to have you – please be seated – here in the Treaty Room at the State Department for what is an historic occasion, something that means a great deal to this Department and to our country. I am pleased that His Excellency, Ambassador Sen of India is with us today, and I’m also very honored to be joined by a remarkable group of Americans.
We have standing before you some of the heroes of the Civil Rights Movement and of our recent history. Certainly, Congressman Lewis needs no introduction. We have with us also Congressman Bachus. They will be leading a congressional delegation to India to retrace the steps of Dr. King and Mrs. King. And of course, the person who – for whom this is a personal journey as well as a historic one, Martin Luther King III.
Now Herbie Hancock is going along as well. (Laughter.) And I think there’ll be a lot of people who recognize him. And he just told me he’s going to be recording, including some Indian artists. And maybe he’ll say a word more about that in a minute. Also joining the CODEL will be a number of other distinguished members of Congress, as well as Ambassador Andy Young and former Senator Harris Wofford. This is the real American dream team. And I don’t think we could find better ambassadors for our country to send to help mark the 50th anniversary of Dr. Martin Luther King, Jr.’s historic trip to India.
As we celebrate Black History Month here at home, the 50th Anniversary of Dr. King’s trip to India is a reminder that the struggle for civil rights and justice has always been and continues to be a global mission; it knows no borders. As Dr. King told us, “Injustice anywhere is a threat to justice everywhere.”
Now Dr. King was just 30 years old when he traveled to India in 1959, but he had already led the Montgomery bus boycott, and understood the wisdom and power of the nonviolent protest movement pioneered by the great Mahatma Gandhi. Dr. King toured the country for a month, studying Gandhi’s philosophy, meeting with Prime Minister Nehru. He met with other Indian leaders in politics and government, in academia and the professions in business and across the society. And he talked with citizens and young people at every opportunity. He brought the lessons he learned there back to the United States, and renewed his own faith in the unmatched moral force of nonviolent resistance and its ability to achieve meaningful social change.
It’s been my great privilege to have heard Dr. King speak when I was a young girl. It was a few years after he had returned from India. It was a cold January night in Chicago, but I was deeply moved then, as I continue to be, by his timeless call to all of us, his dream for a world that is really worthy of our children. I remain inspired by his undying hope for a better tomorrow.
So I am pleased to honor Dr. King’s historic journey which really represents the journey that our country has been on. And in many ways, as we have celebrated the inauguration of President Obama, a journey that has brought great faith to people who follow the tenets of nonviolence and Dr. King’s philosophy and preaching and who have worked to make the changes here at home that continue to reverberate around the world, it’s fitting that this mission then be undertaken during Black History Month, and just weeks after our President’s historic inauguration. And on behalf of President Obama, I want to express his gratitude for you doing this and for your service as well.
You know, Dr. King’s trip to India stands as a landmark of the Civil Rights Movement and a real testament, ambassador, to the bonds of affection and shared history between our two nations. I want to thank the Government of India for welcoming and supporting our delegation, a reflection that India also understands that the deep and broad partnership our countries are forging is one based on common history and values. And it is because of that that it is destined to grow even stronger in the future. So I wish you Godspeed and a great deal of – oh, shall I say, jealousy that (laughter) – that you are retracing these footsteps.
And now I’d like to introduce some of my friends and those who will be making this journey, starting with Martin Luther King III, followed by Congressman Lewis and Congressman Bachus, if you would also like to say a few words, and ending up with Herbie Hancock.
Martin.
MR. KING: Thank you so much, Madame Secretary, and thank you, Congressman Lewis, Congressman Bachus, and of course, the great Mr. Herbie Hancock. I must also thank the Government of India and Ambassador Sen, for this is a very special journey for me personally, my wife and I, to retrace the steps that my parents engaged in 50 years ago. On behalf of everyone at Realizing the Dream, an organization I started, I am honored to be making this journey on this 50th anniversary of that incredible visit.
In 1959, at the invitation of the Gandhi National Memorial Foundation, my parents, Dr. Martin Luther King, Jr. and Coretta Scott King, traveled to India to immerse themselves in Gandhi’s nonviolence movement, and to identify with and give support to the people of India who were struggling to overcome the evils of poverty and discrimination.
By working to foster peace through nonviolence, I hope this pilgrimage will inspire others to end the dependence on violence for nominal change, and instead look to reconciliatory power of nonviolence to create sustainable progress and diplomacy.
The impact that Gandhi’s life had on my father was quite profound. And it is in that spirit that I set out on this journey in just a few days. Thank you. (Applause.)
MR. LEWIS: Madame Secretary and His Excellency Mr. Ambassador Sen, I would like to thank you, the United States Department of State, and the Government of India for all that you have done to support this delegation. It is with great pleasure and delight that I embark on this journey with Representative Bachus, my friend and my brother and my colleague from Alabama, co-leader of the delegation; other colleagues in the House; Martin Luther King III; Herbie Hancock and their delegation to pay tribute to the abiding link between Gandhi and Martin Luther King, Jr.
The two men were not politicians or lawmakers. They were not presidents or popes. But they were inspired human beings who believed deeply in the power of nonviolent resistance to injustice as a tool for social change. Because of their courage, commitment, and vision, this nation has witnessed a nonviolent revolution under the rule of law, a revolution of values and ideas that have changed America forever. We are all a beneficiary of this powerful legacy.
It is a great honor to retrace the steps of Gandhi and Martin Luther King, Jr. in India. Madame Secretary, I don’t where I would be if it had not been for the teaching of Gandhi and Martin Luther King, Jr. We are looking forward to fulfilling an inspiring journey. Thank you, Madame Secretary, for all your help in making this possible. Thank you.
SECRETARY CLINTON: Thank you so much. (Applause.)
MR. BACHUS: I walked into my office this morning and there was music playing, and my staff was just ecstatic that Herbie Hancock – (laughter) – was – I would be traveling with Herbie Hancock, and they knew about Martin Luther King. And I first want to say that thank you for your father. I’m the congressman from Birmingham, Alabama. And Birmingham is a better place today than it was, because of Martin Luther King. As Congressman Lewis, when he called me and asked me to head this delegation, I was overwhelmed, because we in Birmingham, probably more than anywhere else, know about the ills of discrimination and racism.
I buried my father two years ago, and I’m proudest of him for crossing that color line and being the first contractor in Birmingham to hire subcontractors. He had vandalism of worksites, but he had the vast support of the people in Birmingham when he did that. And I want you to know that Birmingham is a better place. And I’m not sure there’s any place more committed to equality than a place which suffered from inequality. And for that, I thank you and I thank your father. Thank you. (Applause.)
MR. HANCOCK: Madame Secretary, members of Congress, Mr. Ambassador, members of the Diplomatic Corps, Martin Luther King, Jr. – Martin Luther King III – and honored invited guests, it is a privilege for me to be here today among such esteemed company.
As chairman of the Thelonious Monk Institute of Jazz, I am honored to be traveling to India with my fellow musicians, singers Chaka Khan, Dee Dee Bridgewater, pianist George Duke, and young students who are studying with the Thelonious Monk Institute of Jazz performers in New Orleans. We are honored to be partnering with the State Department and to be taking this journey with Martin Luther King III, Congressman John Lewis, and other members of Congress. And we look forward to bringing music and jazz education to the people of India through this historic tour that celebrates the philosophies of Dr. King and Mahatma Gandhi, two very inspirational political and spiritual leaders whose teachings have really encouraged me to lead a life of peace, honesty, and filled with love for my fellow man.
And of great importance to me and my fellow artists, their philosophies of cooperation, communication, and harmony are also essential elements of every jazz band. (Laughter.) The Thelonious Monk Institute of Jazz has partnered with the State Department now for over 15 years, and this is our third trip to India. On the first trip I was humbled meeting Mother Teresa, as I have told you, Madame Secretary, and then filled with joy having several opportunities to contribute to the cultural fabric of the Indian people through performance and jazz education workshops.
We look forward to being a part of the Living Dream concerts in Mumbai and Delhi, and then working with the students who attend the Ravi Shankar Institute of the Performing Arts, where our students are going to be able to exchange valuable lessons with the young Indian musicians and prove again that the language of jazz knows no boundaries.
On behalf of the institute, all the musicians on the tour, and myself, I’d like to say a very, very warm and heartfelt thank you to our good friend and Secretary of State Hillary Clinton, and to the U.S. Department of State for continuing your support of culture, jazz, and music education throughout the world, and for giving us the opportunity to represent the United States and to be a part of this historic tour. Thank you. (Applause.)
SECRETARY CLINTON: Well, as you can tell, it’s going to be quite a journey and all of us wish you well. I think it’s important to really underscore the significance of this kind of cultural and historical diplomacy. It’s exactly what the State Department should be doing even more of, reaching out and learning from as well as sharing with people around the world.
And it is also a reminder that nonviolence works. And if more people were able to understand that and remember the teachings of Gandhi and Dr. King, not only would the world, I think, be a more peaceful place, but I honestly believe that the injustice that persists would be far more likely to be remedied.
So it’s a real pleasure during this Black History Month. I want to thank John Robinson and the Office of Civil Rights for what they do during this month, and this is part of that commemoration and celebration. And to all of you, it’s a great reminder from the incomparable Herbie Hancock that jazz is not just about music. I think jazz is a pretty good guide to most things in life, and I can tell you, as Secretary of State, I’m improvising every single day. (Laughter.) Thank you all very much. (Applause.)
Those of you who would like to --
QUESTION: Madame Secretary --
SECRETARY CLINTON: Just a second. Those of you who would like to meet our guests, please come up, and before they have to leave, I know they’d like to say hello to some of our guests. So, please, come up.
QUESTION: Madame Secretary, do you believe that --
SECRETARY CLINTON: Thank you.
QUESTION: -- Dr. King’s dream has come full circle now with President Obama’s election, and also, if the change began with Mahatma Gandhi and Martin Luther King?
SECRETARY CLINTON: Well, I think President Obama would tell you that it is not about him. His election, his victory, is a victory for the American people as well as for his philosophy of change and his deep commitment to American values. There’s still a lot of work to be done. I mean, the work of justice never ends. But we’re very proud in the United States that our President represents, in great measure, the dream of Dr. King. And certainly, we all have to now continue that work, and I know that the President feels that responsibility acutely.
But it’s not just the work of a president or not just the work of diplomats or members of Congress. It is the work of everyone, and that’s why it’s so important to have people like Martin and his nonprofit organization continuing that work, artists like Herbie and others of great talent continuing that work. So if anything, the philosophy and the examples of Gandhi and Dr. King should spur each and every one of us to even do more.
Thank you all very much. (Applause.)
PRN: 2009/125
US Gov't Help: Gaza Humanitarian Relief
Gaza Humanitarian Relief
Robert Wood, Acting Spokesman, Office of the Spokesman
Public Affairs, Washington, DC, February 12, 2009
Question Taken at the Daily Press Briefing on February 10, 2009
Question: Have we provided or do we have plans to provide additional humanitarian aid to Gaza (in addition to the 20 million)?
Answer: At this time, the United States government has contributed almost $60 million for the provision of food, potable water, medicine, and plastic sheeting for emergency shelter needs.
In addition, the State Department has contributed money to support the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) and the International Committee of the Red Cross. For example, since the beginning of the most recent conflict, it has dedicated nearly $55 million to these two organizations for food, shelter and other emergency relief in West Bank and Gaza.
Moreover, USAID has provided almost $6 million for emergency assistance to Gaza. Food, milk powder, blankets, plastic sheeting, and other nonfood items have been distributed to beneficiaries, and the distributions are continuing. This assistance is distributed to beneficiaries through USAID’s implementing partners under several recently awarded grants, including grants to Mercy Corps, American Near East Refugee Aid (ANERA), CHF International, Relief International, Catholic Relief Services, and CARE International. Food distributions are done through USAID’s grant to the World Food Program (WFP).
The needs of Gaza’s Palestinians remain acute. The U.S. government will continue to monitor the situation to judge what additional contributions would be the most helpful.
PRN: 121
Robert Wood, Acting Spokesman, Office of the Spokesman
Public Affairs, Washington, DC, February 12, 2009
Question Taken at the Daily Press Briefing on February 10, 2009
Question: Have we provided or do we have plans to provide additional humanitarian aid to Gaza (in addition to the 20 million)?
Answer: At this time, the United States government has contributed almost $60 million for the provision of food, potable water, medicine, and plastic sheeting for emergency shelter needs.
In addition, the State Department has contributed money to support the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) and the International Committee of the Red Cross. For example, since the beginning of the most recent conflict, it has dedicated nearly $55 million to these two organizations for food, shelter and other emergency relief in West Bank and Gaza.
Moreover, USAID has provided almost $6 million for emergency assistance to Gaza. Food, milk powder, blankets, plastic sheeting, and other nonfood items have been distributed to beneficiaries, and the distributions are continuing. This assistance is distributed to beneficiaries through USAID’s implementing partners under several recently awarded grants, including grants to Mercy Corps, American Near East Refugee Aid (ANERA), CHF International, Relief International, Catholic Relief Services, and CARE International. Food distributions are done through USAID’s grant to the World Food Program (WFP).
The needs of Gaza’s Palestinians remain acute. The U.S. government will continue to monitor the situation to judge what additional contributions would be the most helpful.
PRN: 121
The Seoul Solution to the Banking Crisis: no need to sell off toxic assets immediately
The Seoul Solution to the Banking Crisis, by Weijian Shan
Geithner doesn't need to sell off toxic assets immediately.
WSJ, Feb 12, 2009
Let's face it: the American financial system is basically insolvent. To date, the U.S. government has committed, on behalf of taxpayers, more than $7 trillion of capital injections and guarantees to financial institutions. Treasury Secretary Timothy Geithner said Tuesday the government will pour up to $1 trillion more into a "Public-Private Investment Fund," which will be tasked to buy up banks' bad assets -- the real blockage in the credit pipeline. The trouble isn't, however, that banks don't want to sell loans. They just don't know what a fair price is in a now-illiquid loan market because there are no buyers.
How should the government price toxic assets? If the government overpays, current shareholders will be unjustly enriched at the expense of taxpayers. Rewarding reckless behavior would only encourage more of it. If the government underpays for assets, it will amount to an expropriation of private properties without just compensation, and make the banks' capital positions even weaker than they are now. There's another complicating factor, too: Since most bank deposits are government-guaranteed, the government has the ultimate responsibility to save failing banks. That means Washington must take over the failed bank before selling it off. The government will own the assets and sell them when private capital is brought in to recapitalize the bank.
How should the government price these assets? Mr. Geithner's plan suggests that the determination of the prices will be left to private investors. But what if the government is the seller? How does the government get it right? How do private investors get it right? It seems to be an impossible task, because currently there is simply no market for toxic assets, and if there is, the market will deeply discount them, either bankrupting the bank or costing taxpayers dearly. It is a major dilemma which needs to be resolved. But there is a proven way to solve the problem, and it should be used again.
During the latter part of 1998, the financial system of South Korea -- at that time, the 10th largest economy in the world -- was basically insolvent. Many banks failed as bad loans mounted. Capital flight reduced Korea's foreign exchange reserves so much that the country teetered on the verge of sovereign debt default. Korea had to request emergency funding from the International Monetary Fund, which, working closely with the U.S. Federal Reserve, eventually provided the country with a $58 billion rescue package.
The package came with strings attached, one of which was for the Korean government to sell off to foreign investors a clutch of failed and nationalized big banks including Korea First Bank. The Fund reasoned that the failure of Korea's banking system was due to a total lack of a "credit culture," as lending had typically been done on the basis of either government policies or collateral without much regard to the creditworthiness of the borrowers. Seoul thought foreign investors could help inculcate this culture into the banking system.
U.S.-based private equity firm Newbridge Capital was one of the only two bidders -- among more than 40 invited -- to attend the government-mandated auctions. I represented Newbridge at these meetings. After weeks of negotiations, we reached a preliminary agreement with the Korean government to give us the exclusive right to acquire Korea First Bank. The key part of the deal was that all the assets be priced at fair market value. The memorandum of understanding specifically called for all assets to be "marked to market" on a loan-by-loan basis, after which Newbridge and the government would jointly invest into the bank to recapitalize it.
"Mark to market" accounting, however, turned out to be completely inoperative in a financial crisis because then, as now, there was no market for bad loans. Sellers thought that assets would be worth more when the economy eventually recovered. Buyers worried they might be worth less if the economy continued to deteriorate. Both were right because there was a significant probability for either to happen, but their divergent expectations made it impossible for them to agree to the right price.
Then the parties discovered a simple methodology that resolved the dilemma -- and could resolve America's dilemma, too.
Since the market was illiquid, we realized that it was impossible to determine the "fair value" in the near term. We thus agreed to a so-called future "buy or sell" arrangement. Over the following three years, on the anniversary of our agreement, the bank would name the price for any existing loan on its books, and the government would have the option to "buy" or "sell" that loan at that price.
The goal was for the government to minimize the amount of money it would have to inject to make up the difference between the market and face values of bad loans, and for us not to have to bear the losses from the bad loans we had inherited when we bought the failed bank from the government. This arrangement gave us the time to work out or to improve the value of these loans, and perhaps for the loan value to recover over time. If it didn't fully recover, and on one of the anniversaries we valued a problem loan at 70 cents on the dollar and the government agreed, we would receive an injection of 30 cents to make us whole. But if the government thought we were lowballing it, the government could buy the loan from us at full face value -- $1 -- and sell it to other investors at a higher price, say 80 cents. This would leave taxpayers with a loss of only 20 cents, as opposed to 30.
The beauty of this methodology is severalfold. First, the government did not have to sell bank assets to private investors at deeply distressed value in the depth of a financial crisis -- a move which would have incurred huge losses for taxpayers. Over time, as the economy recovers, the loan value is likely to improve.
Second, the bank was no longer crippled by the burden of bad assets because it knew they were ultimately protected by the government. The new investors could concentrate on fixing the operations of the bank and making new loans.
Third, the plan removed any incentive for the privatized bank to cheat the government. To a bank, an interest-yielding asset is more valuable than cash. Therefore a bank would want to hold on to an asset, and more importantly to a customer, as long as the loan is safe. In our buy-sell arrangement, if the bank mistakenly underpriced a loan or tried to lowball its value, the government would buy it with cash and the bank would lose the loan and the customer. If the bank overpriced the asset, the bank would risk losses as it would get stuck with a loan for less than its book value. Therefore, the bank was incentivized to work out the loan to the best of its abilities and to price it as accurately as possible.
This methodology worked so well for the Korean government that, three years later, after the program ended, the government had spent a fraction of its original budget to rescue the bank. Under the new owners, many of the nonperforming loans were worked out and recovered, along with the recovery of the Korean economy.
In retrospect, the methodology was the best deal for taxpayers. It did not give investors as much gain as government-assisted bank deals elsewhere at that time, which allowed new investors to buy assets at substantially marked down values and capture significant windfall gains when the market and asset value recovered. We earned our upside from revitalizing and building up the bank, not from gains on legacy assets at taxpayer expense. Both the Korean government and Newbridge eventually realized many times their investments when the banks recovered and were sold off five years later.
Like Korea a decade ago, the U.S. government is left with little choice but to nationalize insolvent banks. Mr. Geithner now needs to flesh out the methodology through which he's going to relieve these banks of their bad loans. There is no lack of capital in America today, or in the world beyond it. Mr. Geithner can make it flow again, if he only looks to Seoul's example for how to do it.
Mr. Shan is a partner at TPG Capital. The views expressed in this article are strictly his own.
Geithner doesn't need to sell off toxic assets immediately.
WSJ, Feb 12, 2009
Let's face it: the American financial system is basically insolvent. To date, the U.S. government has committed, on behalf of taxpayers, more than $7 trillion of capital injections and guarantees to financial institutions. Treasury Secretary Timothy Geithner said Tuesday the government will pour up to $1 trillion more into a "Public-Private Investment Fund," which will be tasked to buy up banks' bad assets -- the real blockage in the credit pipeline. The trouble isn't, however, that banks don't want to sell loans. They just don't know what a fair price is in a now-illiquid loan market because there are no buyers.
How should the government price toxic assets? If the government overpays, current shareholders will be unjustly enriched at the expense of taxpayers. Rewarding reckless behavior would only encourage more of it. If the government underpays for assets, it will amount to an expropriation of private properties without just compensation, and make the banks' capital positions even weaker than they are now. There's another complicating factor, too: Since most bank deposits are government-guaranteed, the government has the ultimate responsibility to save failing banks. That means Washington must take over the failed bank before selling it off. The government will own the assets and sell them when private capital is brought in to recapitalize the bank.
How should the government price these assets? Mr. Geithner's plan suggests that the determination of the prices will be left to private investors. But what if the government is the seller? How does the government get it right? How do private investors get it right? It seems to be an impossible task, because currently there is simply no market for toxic assets, and if there is, the market will deeply discount them, either bankrupting the bank or costing taxpayers dearly. It is a major dilemma which needs to be resolved. But there is a proven way to solve the problem, and it should be used again.
During the latter part of 1998, the financial system of South Korea -- at that time, the 10th largest economy in the world -- was basically insolvent. Many banks failed as bad loans mounted. Capital flight reduced Korea's foreign exchange reserves so much that the country teetered on the verge of sovereign debt default. Korea had to request emergency funding from the International Monetary Fund, which, working closely with the U.S. Federal Reserve, eventually provided the country with a $58 billion rescue package.
The package came with strings attached, one of which was for the Korean government to sell off to foreign investors a clutch of failed and nationalized big banks including Korea First Bank. The Fund reasoned that the failure of Korea's banking system was due to a total lack of a "credit culture," as lending had typically been done on the basis of either government policies or collateral without much regard to the creditworthiness of the borrowers. Seoul thought foreign investors could help inculcate this culture into the banking system.
U.S.-based private equity firm Newbridge Capital was one of the only two bidders -- among more than 40 invited -- to attend the government-mandated auctions. I represented Newbridge at these meetings. After weeks of negotiations, we reached a preliminary agreement with the Korean government to give us the exclusive right to acquire Korea First Bank. The key part of the deal was that all the assets be priced at fair market value. The memorandum of understanding specifically called for all assets to be "marked to market" on a loan-by-loan basis, after which Newbridge and the government would jointly invest into the bank to recapitalize it.
"Mark to market" accounting, however, turned out to be completely inoperative in a financial crisis because then, as now, there was no market for bad loans. Sellers thought that assets would be worth more when the economy eventually recovered. Buyers worried they might be worth less if the economy continued to deteriorate. Both were right because there was a significant probability for either to happen, but their divergent expectations made it impossible for them to agree to the right price.
Then the parties discovered a simple methodology that resolved the dilemma -- and could resolve America's dilemma, too.
Since the market was illiquid, we realized that it was impossible to determine the "fair value" in the near term. We thus agreed to a so-called future "buy or sell" arrangement. Over the following three years, on the anniversary of our agreement, the bank would name the price for any existing loan on its books, and the government would have the option to "buy" or "sell" that loan at that price.
The goal was for the government to minimize the amount of money it would have to inject to make up the difference between the market and face values of bad loans, and for us not to have to bear the losses from the bad loans we had inherited when we bought the failed bank from the government. This arrangement gave us the time to work out or to improve the value of these loans, and perhaps for the loan value to recover over time. If it didn't fully recover, and on one of the anniversaries we valued a problem loan at 70 cents on the dollar and the government agreed, we would receive an injection of 30 cents to make us whole. But if the government thought we were lowballing it, the government could buy the loan from us at full face value -- $1 -- and sell it to other investors at a higher price, say 80 cents. This would leave taxpayers with a loss of only 20 cents, as opposed to 30.
The beauty of this methodology is severalfold. First, the government did not have to sell bank assets to private investors at deeply distressed value in the depth of a financial crisis -- a move which would have incurred huge losses for taxpayers. Over time, as the economy recovers, the loan value is likely to improve.
Second, the bank was no longer crippled by the burden of bad assets because it knew they were ultimately protected by the government. The new investors could concentrate on fixing the operations of the bank and making new loans.
Third, the plan removed any incentive for the privatized bank to cheat the government. To a bank, an interest-yielding asset is more valuable than cash. Therefore a bank would want to hold on to an asset, and more importantly to a customer, as long as the loan is safe. In our buy-sell arrangement, if the bank mistakenly underpriced a loan or tried to lowball its value, the government would buy it with cash and the bank would lose the loan and the customer. If the bank overpriced the asset, the bank would risk losses as it would get stuck with a loan for less than its book value. Therefore, the bank was incentivized to work out the loan to the best of its abilities and to price it as accurately as possible.
This methodology worked so well for the Korean government that, three years later, after the program ended, the government had spent a fraction of its original budget to rescue the bank. Under the new owners, many of the nonperforming loans were worked out and recovered, along with the recovery of the Korean economy.
In retrospect, the methodology was the best deal for taxpayers. It did not give investors as much gain as government-assisted bank deals elsewhere at that time, which allowed new investors to buy assets at substantially marked down values and capture significant windfall gains when the market and asset value recovered. We earned our upside from revitalizing and building up the bank, not from gains on legacy assets at taxpayer expense. Both the Korean government and Newbridge eventually realized many times their investments when the banks recovered and were sold off five years later.
Like Korea a decade ago, the U.S. government is left with little choice but to nationalize insolvent banks. Mr. Geithner now needs to flesh out the methodology through which he's going to relieve these banks of their bad loans. There is no lack of capital in America today, or in the world beyond it. Mr. Geithner can make it flow again, if he only looks to Seoul's example for how to do it.
Mr. Shan is a partner at TPG Capital. The views expressed in this article are strictly his own.
Will You Have Enough to Retire On?
Will You Have Enough to Retire On? By Andrew G. Biggs
The Retirement Security "Crisis"
AEI, Wednesday, February 11, 2009
Excerpts w/no references:
Americans are concerned about the state of preparedness for retirement, and many believe that retirement security is nearing a crisis. As life expectancies increase, traditional defined-benefit pensions decline, and Social Security faces significant reforms, many argue that a significant share of Americans will be at risk of an inadequate income in retirement. But despite these anxieties, most older Americans seem well prepared for retirement. Controlling for household composition, the Social Security replacement rate for typical workers born in 1940 was 63 percent of average preretirement earnings, and the median total pension replacement rate was 92 percent of prior earnings--well over financial planners' recommended rate of around 75 percent. Even among the younger 1960 birth cohort, for whom the projected median Social Security replacement rate declines to 54 percent, the median total pension replacement rate remains at 82 percent. While policymakers should work to strengthen Social Security and private pension savings, talk of a crisis in retirement income preparedness appears premature.
Policymakers and the general public are increasingly concerned that a significant share of Americans are at risk of having insufficient retirement income. A common rule of thumb for financial advisers is that retirees should have enough income to replace roughly three-quarters of their preretirement earnings. A survey of financial planners and educators recommended mean and median replacement rates of 74 and 75 percent, respectively.[1] This Retirement Policy Outlook will accept these recommendations as at least approximately correct.
In this Outlook, I use a microsimulation model of Social Security and private pension benefits to analyze the level and distribution of combined pension benefits for retirees in the 1940 and 1960 birth cohorts as of age seventy. I use two integrated microsimulation models--GEMINI, which simulates Social Security taxes and benefits, and PENSIM, which simulates defined-contribution and defined-benefit pension benefits--to calculate replacement rates for retiree households in the 1940 and 1960 birth cohorts. I then adjust replacement rates for differences in household composition. Replacement rates have come under criticism for being a relatively crude tool for retirement planning,[2] but they can be refined by adjusting them for the presence of children and for economies of scale in household size.[3]
The life-cycle model of consumption implies that individuals will use borrowing and saving to smooth consumption over time, seeking to consume roughly the same amount in working years as in retirement. However, without accounting for the costs incurred in raising children and efficiencies achieved in household size, traditional replacement rates may give misleading readings of preparedness for retirement. Children can consume a significant portion of a household's income, leaving less to be consumed by their parents. Although children are often an economic burden during their parents' working years, the lower preretirement consumption by parents implies that a lower level of retirement income is needed to match that preretirement consumption. As John Karl Scholz and Ananth Seshadri of the University of Wisconsin- Madison argue, "financial planning rules of thumb, and specifically replacement rates, ignore the role that children play in optimal life-cycle wealth decisions."[4] Adjusting for the presence of children will generally increase replacement rates for households with children, although it can reduce replacement rates for individuals who continue to support children while in retirement.
Economies of scale in household size imply that households with more than one member have lower relative costs of living than single-member households. Spouses (and children) sharing housing, food, transportation, and other costs can reap significant savings versus individuals living alone. Economies of scale in household size exist during working years as well as in retirement, so the net effect on measured replacement rates of adjusting for economies of scale depends upon individual circumstances.
Shared Earnings and Retirement Income
Following standard practice in Social Security analysis, income during working years and retirement is calculated on a "shared basis." Shared income is designed to account for two factors: first, that spouses tend to share income and costs equally, and second, that household composition changes over time due to marriage, divorce, birth, death, and so on.
The shared approach divides income equally between spouses in any year in which a spouse was present. Consider a household in which the husband earns $50,000 per year while the wife earns $20,000. Under the shared approach, their total household earnings of $70,000 would be divided by two, giving each spouse a "shared" income of $35,000 for that year. Likewise, a couple's Social Security benefits and pension income are deemed to be shared between them.
Replacement rates are calculated by dividing an individual's shared Social Security benefit or combined Social Security and pension benefit as of age seventy by average preretirement earnings.[5] Age seventy is chosen because, by this time, almost all individuals have claimed Social Security benefits and most have exited the paid workforce.
Some have argued that replacement rates should be adjusted for increases in Medicare premiums (which are automatically deducted from Social Security benefits) and for out-of-pocket health care costs.[6] Doing so would reduce measured replacement rates. However, this concern seems misplaced. If health care provides a value at the margin equal to its cost, such that individuals would rather spend their income on health care than on other goods or services, then there seems little reason to treat health care provision differently from other items in a household budget.[7]
Accounting for Household Size and Composition
The method used here extends the shared earnings approach described above by adjusting earnings and pension income for the presence of children and for economies of scale in household size. In doing so, it constitutes an improvement over previous analyses using other models that do not include the presence of children.[8]
In most previous analyses of retirement income, children would be effectively ignored. Total household income would simply be divided by the number of adults living in the household to calculate each individual adult's share. Yet, we know that children consume resources during an individual's working years, and we also know that a household consisting of multiple adults will have lower costs of living than had those adults lived separately. I use a formula devised in a National Academy of Sciences (NAS) project to measure poverty.[9] This formula calculates the number of "adult equivalents" living in a household. In my approach, shared income is adjusted for the presence of children and economies of scale in household size by dividing total household income by the household's number of adult equivalents.
The first issue to consider is how the presence of children affects their parents' need to save for retirement. Dartmouth economist Jonathan S. Skinner describes the effect of children on retirement income needs in simple terms:
Parents are already used to getting by on peanut butter, given that a large fraction of their pre-retirement budget has been devoted to supporting children, so it's not difficult to set aside enough money to keep them in peanut butter through retirement. By contrast, childless households with the same income accustomed to caviar and fine wine must set aside more assets to maintain themselves in the style to which they have become accustomed.[10]
That is to say, the costs of raising children imply that the consumption of goods and services by the parents will be significantly lower than in a childless household with similar income. While parents have lower standards of living than nonparents at similar earnings levels during their working lives, this also sets a lower bar that their retirement savings must meet. Replacement rate measures should account for these differences.
The second issue I consider is how economies of scale in household composition during working years and in retirement affect the income level required in retirement. Two can generally live more cheaply than one; a couple has a lower cost of living than two singles. Moreover, a child generally consumes less than an adult, so adding a child to a household does not necessarily imply a proportionate increase in costs of living.[11]
Household equivalence scales are designed to account for how differences in the size and composition of households affect a household's true cost of living. The adult equivalence scale from the NAS has been widely used.[12] It takes the form
Adult equivalents = (A + PK)F
where A is the number of adults in the family, K is the number of children, P is the cost of a child relative to an adult, and F is a factor reflecting economies of scale in household size. Lower values of P will result in relatively lower costs of living for a child versus an adult household member, while lower values of F will result in larger economies of scale as household size increases.
The NAS recommends a value for P of 0.7 and a value for F of between 0.65 and 0.75; I will use a value of 0.7 for both variables. A P value of 0.7 implies that a child costs 70 per-cent as much to support as an adult. The F value's interpretation is less intuitive, but it implies that as additional household members are added, the incremental cost of supporting each new additional household member declines.[13]
I adjust for household size by dividing the household's total earnings by the number of adult equivalents in the household. Assuming an economy of scale factor (F) value of 0.7, a household consisting of two adults would have only 1.6 adult equivalents. To illustrate, if total household earnings were $70,000, dividing by 1.6 would produce a shared earnings value for each spouse of $43,750. This value implies that their standard of living would be equivalent to that of a single individual earning $43,750. If the couple had two children, the adult equivalent factor would then be 2.4, and each adult's attributed share of total earnings would be $29,167. This value would reflect both that larger households use resources more efficiently and that a share of the household's total earnings flows to the children rather than the adults.
In each year, the number of adult equivalents in the household is calculated, and household income is divided by this figure to produce the shared income for that particular year. This adjusted shared income is used both for calculating pre-retirement earnings and Social Security and total pension income as of age seventy. Dividing the adjusted Social Security or total pension income by adjusted preretirement earnings produces a replacement rate adjusted for household composition.
Replacement Rates for the 1940 Cohort
In this section, I report projected replacement rates for members of the 1940 birth cohort as of age seventy. It is worth noting that these projections are not adjusted for recent economic conditions, which doubtless have affected the assets and incomes of many retirees. Retirees are in many ways less exposed to an economic downturn than working age individuals, as many have left the workforce and derive income from Social Security and defined-benefit pensions, meaning that higher unemployment and lower financial asset prices may have less effect. However, retirees also are far more dependent on asset income than working age individuals and have less time to allow asset values to recover. For these reasons, figures shown here should be taken to be generally representative of the retirement income adequacy of current new retirees, based on broad trends in Social Security and pension income.
Results of the simulation are first shown to illustrate the effects of the adult equivalent adjustment factor on replacement rates. [...]
[...]
In fact, one could argue that many current retirees have oversaved. While of lesser concern than undersaving, there are large numbers of retirees with replacement rates significantly exceeding their preretirement earnings; 44 percent of individuals in the 1940 birth cohort have retirement incomes exceeding 100 percent of preretirement earnings, and 16 percent have replacement rates exceeding 150 percent. Although it is impossible to know how each individual would optimally choose to allot consumption between working years and retirement, these individuals may have inadvertently sacrificed consumption earlier in life to amass a retirement income significantly out of proportion to their needs or their ability to spend it enjoyably. These retirees may have been better served to save less during their working years, although surely many would not regret preparing for retirement as effectively as they did.
Replacement Rates for Future Retirees
While a strong majority of the 1940 birth cohort appears to have adequate retirement income to replace their preretirement earnings, many are concerned about how future retirees will fare. Social Security benefits will be lower, and private pensions will shift from defined-benefit schemes--which are perceived to be more generous--to defined-contribution plans.[18] To examine these questions, I analyze projected replacement rates for members of the 1960 birth cohort, who will retire in the 2020s.
[...]
Conclusion
Accounting for differences in household composition can have a significant effect on judgments about the adequacy of retirement income. Adjusting for household size and the presence of children increases the typical replacement rate for the 1940 birth cohort by approximately fifteen percentage points, although measured replacement rates decline for roughly one in ten retirees.
For the 1940 birth cohort, overall retirement preparedness appears to be strong. The typical Social Security replacement rate adjusted for household composition is 63 percent of preretirement earnings, while the median total pension income replacement rate is 92 percent. This latter figure significantly exceeds financial advisers' recommended replacement rate of around 75 percent.
Projected replacement rates for the 1960 cohort are lower, with a median adjusted total pension replacement rate of 84 percent. But even this reduced level is adequate on average, and if individuals were to choose to remain in the workforce for just one more year, the median replacement rate would rise to around 89 percent.
The most significant gray area surrounding these projections is when and how the Social Security program will be reformed to improve its financial soundness. While the program is projected to be solvent until the 2040s--meaning that scheduled benefits should be payable as of the 2020s, when the 1960 cohort will retire--changes to taxes and benefits are likely to occur in the near future. These changes are likely to reduce average replacement rates, although they will probably shield low earners from the greatest changes. While it is important to reduce the growth of Social Security benefits to ease pressure on the federal budget, Social Security reform should also include provisions to increase individual retirement savings outside of Social Security so as to help maintain income replacement rates at retirement.
While policymakers should not ignore policies to help individuals build sufficient income for retirement, such as reforming Social Security and automatically enrolling employees in pension plans, neither should they panic or assume a crisis is at hand. Most Americans, both current retirees and future ones, appear to be reasonably well prepared to support themselves in retirement.
Andrew G. Biggs is a resident scholar at AEI.
AEI research assistant Adam Paul worked with Mr. Biggs to produce this Retirement Policy Outlook.
The Retirement Security "Crisis"
AEI, Wednesday, February 11, 2009
Excerpts w/no references:
Americans are concerned about the state of preparedness for retirement, and many believe that retirement security is nearing a crisis. As life expectancies increase, traditional defined-benefit pensions decline, and Social Security faces significant reforms, many argue that a significant share of Americans will be at risk of an inadequate income in retirement. But despite these anxieties, most older Americans seem well prepared for retirement. Controlling for household composition, the Social Security replacement rate for typical workers born in 1940 was 63 percent of average preretirement earnings, and the median total pension replacement rate was 92 percent of prior earnings--well over financial planners' recommended rate of around 75 percent. Even among the younger 1960 birth cohort, for whom the projected median Social Security replacement rate declines to 54 percent, the median total pension replacement rate remains at 82 percent. While policymakers should work to strengthen Social Security and private pension savings, talk of a crisis in retirement income preparedness appears premature.
Policymakers and the general public are increasingly concerned that a significant share of Americans are at risk of having insufficient retirement income. A common rule of thumb for financial advisers is that retirees should have enough income to replace roughly three-quarters of their preretirement earnings. A survey of financial planners and educators recommended mean and median replacement rates of 74 and 75 percent, respectively.[1] This Retirement Policy Outlook will accept these recommendations as at least approximately correct.
In this Outlook, I use a microsimulation model of Social Security and private pension benefits to analyze the level and distribution of combined pension benefits for retirees in the 1940 and 1960 birth cohorts as of age seventy. I use two integrated microsimulation models--GEMINI, which simulates Social Security taxes and benefits, and PENSIM, which simulates defined-contribution and defined-benefit pension benefits--to calculate replacement rates for retiree households in the 1940 and 1960 birth cohorts. I then adjust replacement rates for differences in household composition. Replacement rates have come under criticism for being a relatively crude tool for retirement planning,[2] but they can be refined by adjusting them for the presence of children and for economies of scale in household size.[3]
The life-cycle model of consumption implies that individuals will use borrowing and saving to smooth consumption over time, seeking to consume roughly the same amount in working years as in retirement. However, without accounting for the costs incurred in raising children and efficiencies achieved in household size, traditional replacement rates may give misleading readings of preparedness for retirement. Children can consume a significant portion of a household's income, leaving less to be consumed by their parents. Although children are often an economic burden during their parents' working years, the lower preretirement consumption by parents implies that a lower level of retirement income is needed to match that preretirement consumption. As John Karl Scholz and Ananth Seshadri of the University of Wisconsin- Madison argue, "financial planning rules of thumb, and specifically replacement rates, ignore the role that children play in optimal life-cycle wealth decisions."[4] Adjusting for the presence of children will generally increase replacement rates for households with children, although it can reduce replacement rates for individuals who continue to support children while in retirement.
Economies of scale in household size imply that households with more than one member have lower relative costs of living than single-member households. Spouses (and children) sharing housing, food, transportation, and other costs can reap significant savings versus individuals living alone. Economies of scale in household size exist during working years as well as in retirement, so the net effect on measured replacement rates of adjusting for economies of scale depends upon individual circumstances.
Shared Earnings and Retirement Income
Following standard practice in Social Security analysis, income during working years and retirement is calculated on a "shared basis." Shared income is designed to account for two factors: first, that spouses tend to share income and costs equally, and second, that household composition changes over time due to marriage, divorce, birth, death, and so on.
The shared approach divides income equally between spouses in any year in which a spouse was present. Consider a household in which the husband earns $50,000 per year while the wife earns $20,000. Under the shared approach, their total household earnings of $70,000 would be divided by two, giving each spouse a "shared" income of $35,000 for that year. Likewise, a couple's Social Security benefits and pension income are deemed to be shared between them.
Replacement rates are calculated by dividing an individual's shared Social Security benefit or combined Social Security and pension benefit as of age seventy by average preretirement earnings.[5] Age seventy is chosen because, by this time, almost all individuals have claimed Social Security benefits and most have exited the paid workforce.
Some have argued that replacement rates should be adjusted for increases in Medicare premiums (which are automatically deducted from Social Security benefits) and for out-of-pocket health care costs.[6] Doing so would reduce measured replacement rates. However, this concern seems misplaced. If health care provides a value at the margin equal to its cost, such that individuals would rather spend their income on health care than on other goods or services, then there seems little reason to treat health care provision differently from other items in a household budget.[7]
Accounting for Household Size and Composition
The method used here extends the shared earnings approach described above by adjusting earnings and pension income for the presence of children and for economies of scale in household size. In doing so, it constitutes an improvement over previous analyses using other models that do not include the presence of children.[8]
In most previous analyses of retirement income, children would be effectively ignored. Total household income would simply be divided by the number of adults living in the household to calculate each individual adult's share. Yet, we know that children consume resources during an individual's working years, and we also know that a household consisting of multiple adults will have lower costs of living than had those adults lived separately. I use a formula devised in a National Academy of Sciences (NAS) project to measure poverty.[9] This formula calculates the number of "adult equivalents" living in a household. In my approach, shared income is adjusted for the presence of children and economies of scale in household size by dividing total household income by the household's number of adult equivalents.
The first issue to consider is how the presence of children affects their parents' need to save for retirement. Dartmouth economist Jonathan S. Skinner describes the effect of children on retirement income needs in simple terms:
Parents are already used to getting by on peanut butter, given that a large fraction of their pre-retirement budget has been devoted to supporting children, so it's not difficult to set aside enough money to keep them in peanut butter through retirement. By contrast, childless households with the same income accustomed to caviar and fine wine must set aside more assets to maintain themselves in the style to which they have become accustomed.[10]
That is to say, the costs of raising children imply that the consumption of goods and services by the parents will be significantly lower than in a childless household with similar income. While parents have lower standards of living than nonparents at similar earnings levels during their working lives, this also sets a lower bar that their retirement savings must meet. Replacement rate measures should account for these differences.
The second issue I consider is how economies of scale in household composition during working years and in retirement affect the income level required in retirement. Two can generally live more cheaply than one; a couple has a lower cost of living than two singles. Moreover, a child generally consumes less than an adult, so adding a child to a household does not necessarily imply a proportionate increase in costs of living.[11]
Household equivalence scales are designed to account for how differences in the size and composition of households affect a household's true cost of living. The adult equivalence scale from the NAS has been widely used.[12] It takes the form
Adult equivalents = (A + PK)F
where A is the number of adults in the family, K is the number of children, P is the cost of a child relative to an adult, and F is a factor reflecting economies of scale in household size. Lower values of P will result in relatively lower costs of living for a child versus an adult household member, while lower values of F will result in larger economies of scale as household size increases.
The NAS recommends a value for P of 0.7 and a value for F of between 0.65 and 0.75; I will use a value of 0.7 for both variables. A P value of 0.7 implies that a child costs 70 per-cent as much to support as an adult. The F value's interpretation is less intuitive, but it implies that as additional household members are added, the incremental cost of supporting each new additional household member declines.[13]
I adjust for household size by dividing the household's total earnings by the number of adult equivalents in the household. Assuming an economy of scale factor (F) value of 0.7, a household consisting of two adults would have only 1.6 adult equivalents. To illustrate, if total household earnings were $70,000, dividing by 1.6 would produce a shared earnings value for each spouse of $43,750. This value implies that their standard of living would be equivalent to that of a single individual earning $43,750. If the couple had two children, the adult equivalent factor would then be 2.4, and each adult's attributed share of total earnings would be $29,167. This value would reflect both that larger households use resources more efficiently and that a share of the household's total earnings flows to the children rather than the adults.
In each year, the number of adult equivalents in the household is calculated, and household income is divided by this figure to produce the shared income for that particular year. This adjusted shared income is used both for calculating pre-retirement earnings and Social Security and total pension income as of age seventy. Dividing the adjusted Social Security or total pension income by adjusted preretirement earnings produces a replacement rate adjusted for household composition.
Replacement Rates for the 1940 Cohort
In this section, I report projected replacement rates for members of the 1940 birth cohort as of age seventy. It is worth noting that these projections are not adjusted for recent economic conditions, which doubtless have affected the assets and incomes of many retirees. Retirees are in many ways less exposed to an economic downturn than working age individuals, as many have left the workforce and derive income from Social Security and defined-benefit pensions, meaning that higher unemployment and lower financial asset prices may have less effect. However, retirees also are far more dependent on asset income than working age individuals and have less time to allow asset values to recover. For these reasons, figures shown here should be taken to be generally representative of the retirement income adequacy of current new retirees, based on broad trends in Social Security and pension income.
Results of the simulation are first shown to illustrate the effects of the adult equivalent adjustment factor on replacement rates. [...]
[...]
In fact, one could argue that many current retirees have oversaved. While of lesser concern than undersaving, there are large numbers of retirees with replacement rates significantly exceeding their preretirement earnings; 44 percent of individuals in the 1940 birth cohort have retirement incomes exceeding 100 percent of preretirement earnings, and 16 percent have replacement rates exceeding 150 percent. Although it is impossible to know how each individual would optimally choose to allot consumption between working years and retirement, these individuals may have inadvertently sacrificed consumption earlier in life to amass a retirement income significantly out of proportion to their needs or their ability to spend it enjoyably. These retirees may have been better served to save less during their working years, although surely many would not regret preparing for retirement as effectively as they did.
Replacement Rates for Future Retirees
While a strong majority of the 1940 birth cohort appears to have adequate retirement income to replace their preretirement earnings, many are concerned about how future retirees will fare. Social Security benefits will be lower, and private pensions will shift from defined-benefit schemes--which are perceived to be more generous--to defined-contribution plans.[18] To examine these questions, I analyze projected replacement rates for members of the 1960 birth cohort, who will retire in the 2020s.
[...]
Conclusion
Accounting for differences in household composition can have a significant effect on judgments about the adequacy of retirement income. Adjusting for household size and the presence of children increases the typical replacement rate for the 1940 birth cohort by approximately fifteen percentage points, although measured replacement rates decline for roughly one in ten retirees.
For the 1940 birth cohort, overall retirement preparedness appears to be strong. The typical Social Security replacement rate adjusted for household composition is 63 percent of preretirement earnings, while the median total pension income replacement rate is 92 percent. This latter figure significantly exceeds financial advisers' recommended replacement rate of around 75 percent.
Projected replacement rates for the 1960 cohort are lower, with a median adjusted total pension replacement rate of 84 percent. But even this reduced level is adequate on average, and if individuals were to choose to remain in the workforce for just one more year, the median replacement rate would rise to around 89 percent.
The most significant gray area surrounding these projections is when and how the Social Security program will be reformed to improve its financial soundness. While the program is projected to be solvent until the 2040s--meaning that scheduled benefits should be payable as of the 2020s, when the 1960 cohort will retire--changes to taxes and benefits are likely to occur in the near future. These changes are likely to reduce average replacement rates, although they will probably shield low earners from the greatest changes. While it is important to reduce the growth of Social Security benefits to ease pressure on the federal budget, Social Security reform should also include provisions to increase individual retirement savings outside of Social Security so as to help maintain income replacement rates at retirement.
While policymakers should not ignore policies to help individuals build sufficient income for retirement, such as reforming Social Security and automatically enrolling employees in pension plans, neither should they panic or assume a crisis is at hand. Most Americans, both current retirees and future ones, appear to be reasonably well prepared to support themselves in retirement.
Andrew G. Biggs is a resident scholar at AEI.
AEI research assistant Adam Paul worked with Mr. Biggs to produce this Retirement Policy Outlook.
Taxing fuels, vehicles, and passengers: EEA’s vision of ’sustainable’ transport
Taxing fuels, vehicles, and passengers: EEA’s vision of ’sustainable’ transport. By Marlo Lewis
Master Resource, Feb 10, 2009
http://masterresource.org/?p=817
Europe taxes gasoline at $3-4 a gallon, imposes the world’s most stringent fuel economy standards, and mandates the blending of biofuels into the region’s motor fuel supply. Yet European Union (EU) transport-sector greenhouse gas (GHG) emissions increased by 26 percent from 1990 to 2006, according to “Beyond Transport Policy,” a recent European Environment Agency (EEA) report. Why have these policies failed to reduce GHG transport-sector emissions?
The EEA report spotlights the unheard-of fact that the “key drivers” of demand for transport services are “external” to the transport sector. So despite what you’ve been told, people don’t drive around just for the heck of it, buy airplane tickets for the sheer thrill of flying, ship products or order deliveries just to make work for truckers, sailors, and airmen. No, most people use transport vehicles to shop, work, educate their children, vacation, or supply products to customers. And—horrors—they do these things “without considering the consequences on transport demand and greenhouse gas emissions”!
What this implies, of course, is that we cannot have what the EEA calls a “sustainable transport system” until politicians and bureaucrats control those pesky “external drivers”—the other economic sectors that generate the demand for transport services.
The EEA report provides detailed case studies on how three external drivers—food production and consumption, short-haul air travel for business and leisure travel, and education—increase emissions by increasing the demand for transport. Each study reveals what every sober adult should already know. Work causes emissions. Play causes emissions. Wealth causes emissions. Trade causes emissions.
In short, life causes emissions, especially where people are prosperous and free to work and play.
Let’s begin with food. Do grapes cause global warming? According to the EEA, importing a kilogram of grapes from Chile to Austria emits 7,410.8 grams of carbon dioxide (CO2), compared to only 8.8 grams for grapes grown closer to home. So if you’re an Austrian and you eat Chilean grapes, your carbon foot print is 842 times bigger than if you eat locally-grown grapes. But Europeans like fresh produce, and they can afford to import it year-round. How decadent! Why can’t they live like their noble ancestors and eat canned fruit in the winter, or simply abstain?
To counter the fresh produce peril, the EEA calls for a labeling program alerting consumers to the transport-based carbon-intensity of the food they eat. However, that would hardly be enough to instill in Austrians, for example, an aversion to Chilean grapes, South African apples, Spanish strawberries, Dutch tomatoes, or Israeli peppers. The logical next step—which the EEA recommends—is to impose carbon taxes “to internalize the external costs of transport.” Such tariffs would also keep lots of developing country produce out of European markets. The EEA proposal is protectionism by another name.
The EEA also bemoans the vicious circle created by prosperity and air travel. As Europe becomes wealthier, more economically integrated, and more connected to the global economy, more Europeans want to fly for both business and pleasure. This has led to an expansion of aviation facilities and infrastructure, with airports functioning not only as transport hubs but also as retail centers, conference and meeting venues, and accommodation facilities. By making flying more convenient and useful, these developments further increase demand for air travel. When will the flying end!
To mitigate this dastardly trend (never mind that accelerating the movement of goods, persons, and ideas enhances wealth creation—the foundation of all environmental improvement), the EEA recommends new carbon-based aviation fuel taxes, passenger duties, and landing fees. Well, what else did you expect?
Education is the third and last “external driver” examined in the report. Here’s the gist. Millions of parents would rather drive their kids to safe, high-quality schools across town than make the children walk or bicycle to underperforming, bully-infested schools nearby. The EEA report offers several antidotes to this malady, including cycle lanes, car pooling, “walking buses,” car-free action days (or weeks), consumer information, and improvements in public transport. Well, I don’t know about you, but if my son can get beat up and have his lunch money stolen at a school with a “walking bus” program, then I’m definitely going to enroll him there rather than drive him to a good school a few miles further from home.
Although the report doesn’t specifically mention taxes in this context, it states that “revenues from a carbon-based tax can be used to cover costs of cycling and walking infrastructure,” and opines that “people may be more favorable if they are given adequate information about what would happen without the tax increase.” Sure they will! ‘Monsieur Blanc, please fork over an additional €1,000 in motor fuel taxes or the Greenland Ice Sheet will collapse.” That doesn’t sound like a winning sales pitch.
Here’s the bottom line the EEA doesn’t want to face. Until somebody mass produces electric vehicles or alternative fuels that outcompete combustion engines or petroleum-based fuels, transport-sector CO2 emissions will continue to increase along with demand for transport services.
Although transport demand comes from “external drivers” on which transport policies have had little impact, the EEA report tries but fails to go “beyond transport policy.” The EEA’s default solution to the alleged problem of too many people driving, flying, shipping, and importing is the most boringly familiar transport policy of all–increase taxes on fuels, goods, passengers, and vehicles.
Master Resource, Feb 10, 2009
http://masterresource.org/?p=817
Europe taxes gasoline at $3-4 a gallon, imposes the world’s most stringent fuel economy standards, and mandates the blending of biofuels into the region’s motor fuel supply. Yet European Union (EU) transport-sector greenhouse gas (GHG) emissions increased by 26 percent from 1990 to 2006, according to “Beyond Transport Policy,” a recent European Environment Agency (EEA) report. Why have these policies failed to reduce GHG transport-sector emissions?
The EEA report spotlights the unheard-of fact that the “key drivers” of demand for transport services are “external” to the transport sector. So despite what you’ve been told, people don’t drive around just for the heck of it, buy airplane tickets for the sheer thrill of flying, ship products or order deliveries just to make work for truckers, sailors, and airmen. No, most people use transport vehicles to shop, work, educate their children, vacation, or supply products to customers. And—horrors—they do these things “without considering the consequences on transport demand and greenhouse gas emissions”!
What this implies, of course, is that we cannot have what the EEA calls a “sustainable transport system” until politicians and bureaucrats control those pesky “external drivers”—the other economic sectors that generate the demand for transport services.
The EEA report provides detailed case studies on how three external drivers—food production and consumption, short-haul air travel for business and leisure travel, and education—increase emissions by increasing the demand for transport. Each study reveals what every sober adult should already know. Work causes emissions. Play causes emissions. Wealth causes emissions. Trade causes emissions.
In short, life causes emissions, especially where people are prosperous and free to work and play.
Let’s begin with food. Do grapes cause global warming? According to the EEA, importing a kilogram of grapes from Chile to Austria emits 7,410.8 grams of carbon dioxide (CO2), compared to only 8.8 grams for grapes grown closer to home. So if you’re an Austrian and you eat Chilean grapes, your carbon foot print is 842 times bigger than if you eat locally-grown grapes. But Europeans like fresh produce, and they can afford to import it year-round. How decadent! Why can’t they live like their noble ancestors and eat canned fruit in the winter, or simply abstain?
To counter the fresh produce peril, the EEA calls for a labeling program alerting consumers to the transport-based carbon-intensity of the food they eat. However, that would hardly be enough to instill in Austrians, for example, an aversion to Chilean grapes, South African apples, Spanish strawberries, Dutch tomatoes, or Israeli peppers. The logical next step—which the EEA recommends—is to impose carbon taxes “to internalize the external costs of transport.” Such tariffs would also keep lots of developing country produce out of European markets. The EEA proposal is protectionism by another name.
The EEA also bemoans the vicious circle created by prosperity and air travel. As Europe becomes wealthier, more economically integrated, and more connected to the global economy, more Europeans want to fly for both business and pleasure. This has led to an expansion of aviation facilities and infrastructure, with airports functioning not only as transport hubs but also as retail centers, conference and meeting venues, and accommodation facilities. By making flying more convenient and useful, these developments further increase demand for air travel. When will the flying end!
To mitigate this dastardly trend (never mind that accelerating the movement of goods, persons, and ideas enhances wealth creation—the foundation of all environmental improvement), the EEA recommends new carbon-based aviation fuel taxes, passenger duties, and landing fees. Well, what else did you expect?
Education is the third and last “external driver” examined in the report. Here’s the gist. Millions of parents would rather drive their kids to safe, high-quality schools across town than make the children walk or bicycle to underperforming, bully-infested schools nearby. The EEA report offers several antidotes to this malady, including cycle lanes, car pooling, “walking buses,” car-free action days (or weeks), consumer information, and improvements in public transport. Well, I don’t know about you, but if my son can get beat up and have his lunch money stolen at a school with a “walking bus” program, then I’m definitely going to enroll him there rather than drive him to a good school a few miles further from home.
Although the report doesn’t specifically mention taxes in this context, it states that “revenues from a carbon-based tax can be used to cover costs of cycling and walking infrastructure,” and opines that “people may be more favorable if they are given adequate information about what would happen without the tax increase.” Sure they will! ‘Monsieur Blanc, please fork over an additional €1,000 in motor fuel taxes or the Greenland Ice Sheet will collapse.” That doesn’t sound like a winning sales pitch.
Here’s the bottom line the EEA doesn’t want to face. Until somebody mass produces electric vehicles or alternative fuels that outcompete combustion engines or petroleum-based fuels, transport-sector CO2 emissions will continue to increase along with demand for transport services.
Although transport demand comes from “external drivers” on which transport policies have had little impact, the EEA report tries but fails to go “beyond transport policy.” The EEA’s default solution to the alleged problem of too many people driving, flying, shipping, and importing is the most boringly familiar transport policy of all–increase taxes on fuels, goods, passengers, and vehicles.
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