"Oil-for-Food" When Oil Is Down (and the Ruble Is Weak). By Leon Aron
Russia's Dependence on Food Imports and the Economic Crisis
AEI, Mar 17, 2009
[Full article w/notes in the link above]
Although it contains millions of acres of some of the world's most fertile soil and has implemented the world's largest land privatization reform, Russia imports food in amounts that are inordinately high for a country of its size and per-capita GDP. The reliance on imported meat and poultry is especially large. Already under strain from rampant inflation, a very significant proportion of Russia's population will find its access to food further diminished by deep depreciation of the ruble as well as such inevitable consequences of the crisis as unemployment and still higher inflation. While widespread hunger is not likely, the constraints on food consumption could add yet another perilous dimension to a political crisis that is bound to unfold alongside the economic one.
Russia inherited from the Soviet Union a failed state-owned agriculture: backward, wasteful, and utterly unable to motivate the workers. Every fourth kolkhoz (collective farm) or sovkhoz (state farm)[1]--6,500 out of 26,000--lost money, often for decades.[2] Their overall debt approached 140 billion rubles, or over 15 percent of the Soviet Union's GDP.[3] Despite "free" (that is, state-owned) land, low salaries, and billions of rubles in state assistance, kolkhozes and sovkhozes were so inefficient that their output, especially meat, required enormous price subsidies and ration coupons to make them accessible to the majority of Russians. Half of the money the Soviet state raised through its single largest source of internal revenue--the so-called turnover tax, levied against the total monetary value of the goods produced--was spent on food subsidies, up to 50 billion rubles a year.[4]
Every fall, tens of thousands of city dwellers--workers and engineers, surgeons and lawyers, college students and art critics--were dispatched, sometimes for several weeks, to local collective farms to dig potatoes. Still, an estimated 60-70 percent of the potatoes were left in the ground to be snowed over and plowed under the next spring.[5] In just three months in 1988, nearly eight hundred thousand tons of potatoes, fruits, and vegetables "rotted away."[6] Around 20 percent of the annual grain yield was also lost every year: left unharvested in the fields, spilled by trucks on the way to the elevators, and allowed to rot in uncovered heaps under rain and snow. Beginning in the early 1960s, the Soviet Union bought increasingly large amounts of wheat abroad, reaching 30 million tons in 1987.[7]
By President Boris Yeltsin's decrees in the 1990s, most collective farms were turned, at least nominally, into joint-stock companies, and 12 million of their workers became shareholders and, thus, landowners. Although fierce resistance by the leftist parliament between 1995 and 1999 prevented Yeltsin from privatizing agricultural land, the last free parliamentary election in December 1999 resulted in a proreform legislature, which, on June 15, 2001, passed the Land Code, allowing for the first time the sale of land.[8] Although the code did not mention agricultural land specifically, soon collective farm workers' shares in land could be sold, rented, used as mortgage collateral, and passed on to heirs.
Enforcement, Values, and Demography
The reform's enforcement was not effective. In most cases, collective farms' "red directors" were left in control of the land and equipment (tractors, seed, and harvesters) necessary for the peasants' livelihoods.[9] The plots of land to which their shares entitled farm workers were badly demarcated, and it was up to former kolkhoz-sovkhoz authorities to decide who owned what. Needless to say, those seeking to strike out on their own were given far from the finest land, equipment, and livestock. In some regions, authorities openly violated the laws, allowing only the leasing of land but not its purchase.[10]
As with other areas of the economy, the Putin presidency (2000-2008) brought about more red tape and "bureaucratization of the land privatization process."[11] For those outside the nexus of power and property--another hallmark of Putinism at every administrative level--navigating the complexities of acquiring or selling land without paying thousands of rubles in bribes became virtually impossible. Always starved for capital, the new private farmers found most banks unwilling to accept land and equipment as collateral for loans. Farmers also complained of being pressured to pay otkaty (kickbacks) to the banks of as much as 10 percent of the loan amounts--and "even that [was] sometimes not enough," as one of them recently told a Russian sociologist.[12] With no perceptible improvement in infrastructure, rural roads continued to turn into impassable mud rivers at the worst times--spring sowing and fall harvesting and storage--further driving up the costs and the risks of independent farming.
Yet, as usual, the decisive factors in the slow and uneven progress of Russia's post-Soviet agriculture were people's values and aspirations. Unlike in Eastern Europe or China, no living memory of private farming remains in the Russian village. It has been almost eight decades since the murderous "collectivization" of 1929-33, when millions of the most hardworking, enterprising, and successful peasants and their entire families were arrested and sent into exile, and many were starved and worked to death. Millions more died in the man-made famine of 1932-33. The human capital was further depleted by the almost half-century exodus to the cities by the young and, more often than not, most ambitious and intelligent men and women since the end of the kolkhoz serfdom in the 1960s. (The peasants were issued domestic passports that enabled them to travel around the country and were no longer required to obtain written permission by the local authorities to leave the village.)
An overwhelming majority of those still on the farm today appear content to be salaried employees while, as in the Soviet days, cultivating in their spare time tiny plots (listed as "household farms" by the Federal Service for State Statistics) and "leasing" their shares of land to their "agricultural organization"--often for a nominal fee in rubles, a few sacks of grain, hay for a cow, or a few hours of a tractor driver's time to plow the plot for potatoes. Only 5 percent of former collective farm workers have chosen to claim their shares in land and become private farmers. By 2006, they and former city dwellers who had bought or leased land for private farming owned less than 10 percent of the 120 million hectares (almost 300 million acres) that were eligible for privatization.[13]
"Organizations," "Household Farms," and "Capitalists"
With the barely refurbished kolkhozes and sovkhozes controlling four-fifths of the arable land,[14] the structure of agricultural production looks very much like it did in Soviet times: these "agricultural organizations" produce over three-quarters of the country's grain, nearly half of its beef and poultry, and half of its milk and eggs. Millions of "household farms," described by a Russian expert as "less than half a hectare of land [about an acre and a quarter] and one or two cows," turn out the other half of its meat, poultry, and milk, as well as almost all of its potatoes (Russia's "second bread") and over 75 percent of its vegetables.[15]
The only significant contribution made by those whom Russian sociologists call "capitalists" or "Western-style" farmers--designated as the owners of "private (peasant) farms" in the official statistics, they are the closest Russia has come to modern commercial agriculture--is in grain (20 percent), sunflower seeds used for Russia's most popular vegetable oil (29 percent), and sugar beets (11 percent).[16] It seems hardly a coincidence that these products are among the few in which the output in 2007 exceeded that of 1992.[17] It is also largely because of these farmers--whose land could run into hundreds or even thousands of hectares, who use "highly productive" modern technology, and who employ up to several dozen workers[18]--that Russia went from the world's largest importer of grain in the 1970s and 1980s to one of the top ten exporters, selling abroad, on average, around 12 million tons of grain a year.[19] As to overall agricultural output, the "capitalist" share thus far has not exceeded 6 percent.[20]
Another source of modernization, spurred by the spike in grain prices over the past few years, has been urban investors who bought up individual shares from the peasants and in that way took over entire "agricultural organizations," mostly in the extrafertile chernozyom ("black earth") regions of Belgorod, Oryol, Rostov, Stavropol, and Krasnodar. Often, these "agribusinesses" are "vertically integrated"[21] into the banking and industrial empires of the national or regional oligarchs, whose coffers, in the absence of modern banking and financial structures, are still by far the main source of venture capital in Russia. Helped by very propitious weather, the steady progress of the "capitalists" and the "agribusinesses" combined to make Russia's 2008 grain harvest of 113 million tons the largest in post-Soviet history and the first one to exceed the 1992 yield of 107 million tons.
Outside of grain, however, Russian agriculture cannot compete with the ultra-efficient, mechanized, computerized, and heavily state-subsidized European and U.S. private farms in either quality or quantity. The gap is especially dramatic in animal husbandry, in which Russia is still behind its 1992 production levels of meat and poultry (by 33 percent), milk (32 percent), and eggs (12 percent).[22] Under the state National Priority Project on agriculture, launched in 2006 and extended to run from 2008 to 2012, tens of billions of rubles are to be spent to speed up the emergence of modern commercial farming by facilitating farmers' access to long-term credit, modern equipment, and fertilizers; attracting young professionals to the rural areas by helping them obtain loans for home-building; and providing state support for breeding high-quality livestock and fish, among other goals.[23]
Yet, even if they were not mired in corruption and incompetence like most of the grandiose state endeavors of the Putin era, these objectives of the National Priority Project do not include--critics say for political reasons--many other urgent tasks like affordable gasification of the countryside (in early 2008, Gazprom charged 100,000-120,000 rubles, or approximately $4,000-$5,000, to hook up a farm or private home); efforts to spur competition in the purchasing, processing, and sale of agricultural products, which are increasingly monopolized; and greater foreign investment.[24]
Inordinately Large Imports
These structural deficiencies help explain Russia's inordinate dependence on imported food. In early 2007, 45 percent of all food consumed in Russia was imported (compared to 20 percent in 2004), including 30 percent of meat (beef and pork) and nearly 40 percent of poultry.[25] In larger cities, according to Putin, 70-85 percent of food for sale came from abroad.[26]
Such reliance on foreign food is most unusual for a country of Russia's per-capita GDP and, even more so, its land area, which encompasses 9 percent of the world's arable acreage, 40 percent of which is exceptionally fertile "black earth."[27] With a per-capita GDP of $14,000 (in purchasing power parity), Russia imported twenty-two kilos (forty-eight pounds) of meat and poultry per capita, worth $35 in 2007 (the most recent year for which data are available).[28] By comparison, geographically and historically proximate Poland, with a per-capita GDP of $15,330[29] and about the same level of agricultural development (although far behind Russia in size of arable land and fertility), imported nine kilos (twenty pounds) and $21 worth of meat and poultry per capita, or 40 and 60 percent, respectively, of Russia's amounts. Russia's per-capita consumption of imported butter and its cost exceeded Poland's by factors of 3 and 1.6, respectively.[30] (Compared to the other three members of the emergent group of industrial giants, known as BRIC, among which Russia is proud to count itself, Russia's general dependence on foreign-manufactured consumer goods, including food, is staggering: whereas China and India import only "tiny" amounts and Brazil 9 percent, 28 percent of Russia's consumer goods are from abroad.[31]) Since these data were collected in 2007, food imports have continued to soar: in January-June 2008, those of meat and poultry grew year-on-year by 44 percent and of milk by 21 percent; sugar and vegetable oil were 2.8 times and 1.9 times higher, respectively.[32]
Inflation
Even at the height of the oil boom in the first half of 2008--when record oil prices steadily pushed the ruble upward, despite the Central Bank's efforts to depress the national currency in order to increase profits from commodity exports--the growth of food prices far outstripped the already high overall inflation; while the latter reached 13 percent in 2008, the cost of the "basket" of "essential" food items increased by 18 percent.[33]
The basket's composite, however, does not tell the whole story. Throughout 2008, the prices for many individual items grew astonishingly quickly. For instance, the price of vegetable oil went up almost 5 percent in March and almost 9 percent in April.[34] Also in April, the price of bread skyrocketed, with St. Petersburg's price increasing the sharpest--almost 24 percent.[35]
One cause of the high food prices--expensive oil--Russia shared with the rest of the world as the commodity pushed up the cost of main agricultural inputs: fertilizers, pesticides, herbicides, and fuel for tractors and combines.[36] Yet it cannot account for the prices of staples having grown more quickly in Russia than in Europe--as much as four times the European rate in the first five months of 2008.[37] Government policies and the business environment provide much of the rest of the explanation.
The effects of the centralization and interpenetration of political power and private property, so characteristic of Putin's presidency, have been no less conspicuous in agricultural production than they have been, for instance, in oil production, car-making, or aeronautics. The outcomes have been similar as well: the already mentioned, and growing, monopolization of wholesale trade, food processing, farm services, and equipment leasing; the erosion or elimination of competition; unfairly low purchasing prices for the farmers; and price fixing and collusion between buyers and distributors of food.[38] The monopolization has been blamed for the spiraling prices by commentators across the political spectrum, including Putin himself.[39] One of the many examples cited was the continuing growth in the retail price of milk when its wholesale price decreased by half in the spring of 2008.[40]
Another boost to inflation was a freeze on the prices of staples imposed by the government in the run-up to the December 2007 parliamentary elections. The results were predictable: a drop in the production of such staples as bread, sugar, and vegetable oil; a continuing increase in the prices despite the freeze; and an inflationary spike after the freeze was formally lifted on May 1, 2008.[41]
To curry favor with domestic producers and to punish the United States for criticizing Russia's August 2008 incursion into Georgia, the Russian government announced that it would be reviewing the agreed-upon import quotas on chicken parts, three-quarters of which--almost 900,000 tons--came from the United States.[42] (Russia is the largest foreign market for U.S. poultry.) Three months later, the minister of agriculture, Alexey Gordeev, announced that the import would be cut in 2009 by 300,000 tons, or almost a quarter of the amount that was to be delivered that year in accordance with the existing contracts, which stipulated the annual increase of 40,000 tons. In the end, the quota for poultry imports from the United States was decreased by 180,000 tons and duty on imports above the quota increased up to 95 percent.[43] The reaction of the experts was unanimous: because these imports offer Russian consumers something for which there is huge demand and that the national producers cannot supply at the same prices in the foreseeable future, the reduction in the imports can lead only to shortages and price increases.[44]
Straining Food Accessibility to a Breaking Point?
Last June, the average share of food in the overall cost of the basket of basic consumer goods was 36 percent--or between 1.5 and 2.4 times higher than in Europe, where it ranged between 15 and 25 percent. At the same time, half of the respondents in a national survey supported the issuance of "food cards" (similar to food stamps in the United States) to help the poor cope with the inflation, and 28 percent said that they themselves would use such cards.[45] In November, a poll found that 37 percent of Russian families had money enough to cover only food.[46]
In the meantime, inflation has shown no sign of abating in the new year. In the first three weeks of January 2009, consumer goods prices grew by 1.2 percent, while in only a week (between January 13 and 16), staples such as beef, chicken, milk, rye bread, and tea went up by between 0.4 and 0.7 percent and sugar by 3.9 percent.[47] From the end of January to the beginning of February, 75 percent of the respondents in a national poll named inflation among the most troubling issues facing the country.[48] (The second most frequently mentioned problem was the increase in unemployment, cited by 57 percent.) The rise in prices also has led among the difficulties for which the respondents "faulted" the government (41 percent of those surveyed), while the government's other biggest setback, the inability to "overcome the economic problems," was mentioned by 28 percent.[49]
In addition to such inevitable consequences as unemployment and the general diminution of household purchasing power, access to food will be severely hampered in 2009 by the sharply declining value of the ruble, which could place food imports outside the reach of tens of millions of Russians. At its peak in July 2008, the ruble traded at 23.9 to a U.S. dollar; a dollar was worth 35.65 rubles at the beginning of March 2009--a 49 percent decrease.
If the financial crash of 1998 is to serve as an example, widespread hunger is not likely. Import substitution quickly made up for the substantial dependence on foreign food,[50] which became too expensive after the ruble was sharply devalued. Together with similar developments in other consumer goods and industrial sectors, import substitution laid the foundation for Russia's economic expansion from 1999 to 2007.
Yet, some leading independent Russian experts are uncertain about the applicability of the 1998-99 experience after "years of the enormously heavy administrative pressure" have largely put an end to the growth of small businesses, whose situation, as Putin himself admitted, was "awful."[51] Would-be businessmen ("former engineers, designers, and bureaucrats"[52]), who created businesses and jobs (and fed the nation) after the 1998 crisis, today might be less capable (or willing) to take the risk.
Gloomier scenarios have sprung up to account for this potential structural handicap. In one such hypothetical development, in a small to medium-sized Russian city of the kind in which most Russians live, supermarkets are closed and only the "most elemental" products--bread, groats, cheap sausage, and milk--are available at kiosk-like "trading points" or sold by old women on the streets.[53] As the situation continues to deteriorate and people grow desperate, the local administration, which used to rely on the Kremlin's "vertical of power" for any decision, waits for orders from Moscow. No directives are forthcoming, and spontaneous demonstrations break out.[54]
One hopes that such versions of events will not come to pass. Still, superimposed on the already substantial inflation in food prices, Russia's inordinate dependence on imported food may yet become an explosive issue when the economic crisis and the falling oil prices increase unemployment and further weaken the ruble. Alongside other key economic and political certainties of Putinism, the "oil-for-food" structure is very likely to deteriorate rapidly and even collapse.
Leon Aron is a resident scholar and the director of Russian studies at AEI.
The author is grateful to AEI research assistant Kara Flook and associate editor Laura Drinkwine for their help in editing and producing this essay.
Wednesday, March 18, 2009
Revisionism on Judicial Nominees & Bipartisanship
Anti-Bush Revisionism on Judicial Nominees, by Ed Whelan
Bench Memos/NRO, Mar 17, 2009
The New York Times article on President Obama’s first judicial nominee (which I discussed here) repeats the now-common charge that the White House ceremony in May 2001 in which President Bush announced his first 11 nominees for federal appellate seats “provided a political air to the nominations.” That charge is often used to suggest that the White House ceremony triggered the Democrats’ subsequent unprecedented measures of obstruction of judicial nominees.
The contemporaneous reaction of leading Democrats to that White House ceremony, which included Clinton recess appointee Roger Gregory and Clinton district-court appointee Barrington Parker Jr. among the nominees, was markedly different. The Associated Press’s next-day account of the event (titled “Senate Democrats seem ready to allow most of Bush’s first judges”) noted that “Democrats appeared content with the choices.” In particular:
In other words, far from having “a political air,” the White House ceremony was so nonpartisan that Senator Leahy was happy to attend, and minority leader Daschle praised the White House for working with Senate Democrats on the nominees.
Bench Memos/NRO, Mar 17, 2009
The New York Times article on President Obama’s first judicial nominee (which I discussed here) repeats the now-common charge that the White House ceremony in May 2001 in which President Bush announced his first 11 nominees for federal appellate seats “provided a political air to the nominations.” That charge is often used to suggest that the White House ceremony triggered the Democrats’ subsequent unprecedented measures of obstruction of judicial nominees.
The contemporaneous reaction of leading Democrats to that White House ceremony, which included Clinton recess appointee Roger Gregory and Clinton district-court appointee Barrington Parker Jr. among the nominees, was markedly different. The Associated Press’s next-day account of the event (titled “Senate Democrats seem ready to allow most of Bush’s first judges”) noted that “Democrats appeared content with the choices.” In particular:
“We are pleased that the White House has chosen to work with us on the first
group of nominations,” said Senate Minority Leader Thomas Daschle, D-S.D. He
noted that some Democrats already had turned in positive reviews of some of the
nominees.
Sen. Patrick Leahy of Vermont, the Judiciary Committee's top Democrat, even
attended the White House announcement. “Had I not been encouraged, I would not
have been here today,” he said.
In other words, far from having “a political air,” the White House ceremony was so nonpartisan that Senator Leahy was happy to attend, and minority leader Daschle praised the White House for working with Senate Democrats on the nominees.
Seventh Circuit Candidate David Hamilton got a “not qualified” ABA rating in 1994
Seventh Circuit Candidate David Hamilton—An ACLU “Moderate”! By Ed Whelan
Bench Memos/NRO, Mar 17, 2009
In an article headlined “Moderate Is Said to Be Pick for Court,” the New York Times reports that President Obama’s first nominee to a federal appellate court seat is expected to be David F. Hamilton. Hamilton, appointed by President Clinton to a district judgeship in Indiana in 1994 (despite the ABA’s “not qualified” rating), is expected to be named to the Seventh Circuit.
It’s far from clear what justifies the article’s characterization of Hamilton as a “moderate” (or, as the article oddly puts it, as “represent[ing] some of his state’s traditionally moderate strain”—how does one represent some of a strain?). Was it perhaps Hamilton’s service as vice president for litigation, and as a board member, of the Indiana branch of the ACLU? Or maybe Hamilton’s extraordinary seven-year-long series of rulings obstructing Indiana’s implementation of its law providing for informed consent on abortion? That obstruction elicited this strong statement (emphasis added) from the Seventh Circuit panel majority that overturned Hamilton:
Or perhaps Hamilton’s inventive invocation of substantive due process to suppress evidence of a criminal defendant’s possession of cocaine, a ruling that, alas, was unanimously reversed by the Seventh Circuit?
With “moderates” like Hamilton, imagine what Obama’s “liberal” nominees will look like.
Bench Memos/NRO, Mar 17, 2009
In an article headlined “Moderate Is Said to Be Pick for Court,” the New York Times reports that President Obama’s first nominee to a federal appellate court seat is expected to be David F. Hamilton. Hamilton, appointed by President Clinton to a district judgeship in Indiana in 1994 (despite the ABA’s “not qualified” rating), is expected to be named to the Seventh Circuit.
It’s far from clear what justifies the article’s characterization of Hamilton as a “moderate” (or, as the article oddly puts it, as “represent[ing] some of his state’s traditionally moderate strain”—how does one represent some of a strain?). Was it perhaps Hamilton’s service as vice president for litigation, and as a board member, of the Indiana branch of the ACLU? Or maybe Hamilton’s extraordinary seven-year-long series of rulings obstructing Indiana’s implementation of its law providing for informed consent on abortion? That obstruction elicited this strong statement (emphasis added) from the Seventh Circuit panel majority that overturned Hamilton:
For seven years Indiana has been prevented from enforcing a statute materially identical to a law held valid by the Supreme Court in Casey, by this court in Karlin, and by the fifth circuit in Barnes. No court anywhere in the country
(other than one district judge in Indiana [i.e., Hamilton]) has held any similar law invalid in the years since Casey. Although Salerno does not foreclose all pre-enforcement challenges to abortion laws, it is an abuse of discretion for a district judge to issue a pre-enforcement injunction while the effects of the law (and reasons for those effects) are open to debate.
Or perhaps Hamilton’s inventive invocation of substantive due process to suppress evidence of a criminal defendant’s possession of cocaine, a ruling that, alas, was unanimously reversed by the Seventh Circuit?
With “moderates” like Hamilton, imagine what Obama’s “liberal” nominees will look like.
WSJ Editorial Page: Prisoners of W--
Prisoners of W--. WSJ Editorial
WSJ, Mar 18, 2009
By now, President Obama's lather-rinse-repeat approach to the legal war on terror is familiar: He lambastes his predecessor, then makes cosmetic changes that leave the substance of Bush policy intact. But Mr. Obama's decision last week to renounce the term "enemy combatant" is almost a parody of this method, given that the "new standard" for detaining terrorists is identical to the old one.
Strunk & White counseled simplicity in prose, so whoever wrote the Justice Department's filing with the D.C. District Court learned his elements of style elsewhere. To avoid using enemy combatants, we instead get "individuals captured in connection with armed conflicts and counterterrorism operations," or "members of enemy forces," or "persons who [the President] determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, and persons who harbored those responsible for the September 11 attacks."
These gyrations are bizarre because the brief is actually a solid legal argument for detaining e---- c---------. Justice argues that the U.S. has the right to hold indefinitely, without legal charges, those who "substantially supported" al Qaeda or the Taliban, reserving the right to define what qualifies as "substantial" in each case. It also extends its writ to people who support terror networks away from the battlefield, such as financiers.
The concept of the unlawful enemy combatant is deeply rooted in international law and custom, including the Geneva Conventions. It refers to those who violate the laws of war by killing civilians or fighting out of uniform, and thus are not entitled to prisoner-of-war status. The Justice brief cites the Supreme Court's 2004 Hamdi decision, in which a plurality of Justices held that capture and detention is "so fundamental and accepted an incident to war" as to be an afterthought.
The one difference between the Bush and Obama detention standards concerns core executive powers. The Obama team argues that its authority flows from the Authorization for the Use of Military Force Act, which Congress passed after 9/11 and authorizes the President to use "all necessary and appropriate force" to prosecute "nations, organizations, or persons" associated with the attack. Here, again, there is less than meets the eye. Bush lawyers also cited this act of Congress, but in addition they asserted inherent war power under the Constitution.
Eric Holder's Justice Department does not assert Commander in Chief prerogatives, but it doesn't disavow them either. Justice knows it doesn't need the argument given Hamdi and that it appeases the anti-antiterror left not to echo every Bush claim. The risk is that Mr. Obama could one day face a more isolationist GOP Congress, run by a Tom DeLay or a Senator William Borah that is unwilling to endorse the President's national-security policies. Then Justice will not be able to cite its own precedents as the courts intrude on executive war powers.
We're delighted that Mr. Obama has come around on one of the most rancorous controversies of the last eight years. Even so, Mr. Obama's supporters must be suffering some kind of post-traumatic stress disorder, because on the range of Bush antiterror policies that Mr. Obama has largely preserved -- interrogation, surveillance, rendition, state secrets, now detention -- no one seems to be vilifying him with the same intensity. Or maybe the problem with President Bush's policies was that they were President Bush's policies.
WSJ, Mar 18, 2009
By now, President Obama's lather-rinse-repeat approach to the legal war on terror is familiar: He lambastes his predecessor, then makes cosmetic changes that leave the substance of Bush policy intact. But Mr. Obama's decision last week to renounce the term "enemy combatant" is almost a parody of this method, given that the "new standard" for detaining terrorists is identical to the old one.
Strunk & White counseled simplicity in prose, so whoever wrote the Justice Department's filing with the D.C. District Court learned his elements of style elsewhere. To avoid using enemy combatants, we instead get "individuals captured in connection with armed conflicts and counterterrorism operations," or "members of enemy forces," or "persons who [the President] determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, and persons who harbored those responsible for the September 11 attacks."
These gyrations are bizarre because the brief is actually a solid legal argument for detaining e---- c---------. Justice argues that the U.S. has the right to hold indefinitely, without legal charges, those who "substantially supported" al Qaeda or the Taliban, reserving the right to define what qualifies as "substantial" in each case. It also extends its writ to people who support terror networks away from the battlefield, such as financiers.
The concept of the unlawful enemy combatant is deeply rooted in international law and custom, including the Geneva Conventions. It refers to those who violate the laws of war by killing civilians or fighting out of uniform, and thus are not entitled to prisoner-of-war status. The Justice brief cites the Supreme Court's 2004 Hamdi decision, in which a plurality of Justices held that capture and detention is "so fundamental and accepted an incident to war" as to be an afterthought.
The one difference between the Bush and Obama detention standards concerns core executive powers. The Obama team argues that its authority flows from the Authorization for the Use of Military Force Act, which Congress passed after 9/11 and authorizes the President to use "all necessary and appropriate force" to prosecute "nations, organizations, or persons" associated with the attack. Here, again, there is less than meets the eye. Bush lawyers also cited this act of Congress, but in addition they asserted inherent war power under the Constitution.
Eric Holder's Justice Department does not assert Commander in Chief prerogatives, but it doesn't disavow them either. Justice knows it doesn't need the argument given Hamdi and that it appeases the anti-antiterror left not to echo every Bush claim. The risk is that Mr. Obama could one day face a more isolationist GOP Congress, run by a Tom DeLay or a Senator William Borah that is unwilling to endorse the President's national-security policies. Then Justice will not be able to cite its own precedents as the courts intrude on executive war powers.
We're delighted that Mr. Obama has come around on one of the most rancorous controversies of the last eight years. Even so, Mr. Obama's supporters must be suffering some kind of post-traumatic stress disorder, because on the range of Bush antiterror policies that Mr. Obama has largely preserved -- interrogation, surveillance, rendition, state secrets, now detention -- no one seems to be vilifying him with the same intensity. Or maybe the problem with President Bush's policies was that they were President Bush's policies.
Justice Dept win is not made public by DoJ
Left-Wing Attorney General Ashamed of End to Discrimination, by Hans Bader
A federal appeals court recently upheld an injunction barring a county official from continuing to prevent people from voting based on their race. The unanimous ruling in United States v. Brown (5th Cir. 2009) was a victory for the Justice Department, which brought the case back during the Bush Administration.
But Eric Holder, Obama’s new attorney general, is ashamed of the decision, and his Justice Department is keeping mum about it. The Justice Department refused even to issue a press release announcing the decision, even though it is customary to issue press releases after all Justice Department wins.
Why the deafening silence? Because the victims of the blatant and massive voting discrimination in Noxubee County, Mississippi, were whites prevented from casting ballots in Democratic primaries by the black political boss who ran the county. (A few blacks also had their voting rights violated).
Holder’s attitude is so small-minded and parochial that it is an embarrassment to the Justice Department.
It has been more than 30 years since a unanimous Supreme Court ruled in McDonald v. Santa Fe Trail Transportation Company (1976) that all races — including whites –are covered by the civil-rights laws. That ruling, which allowed white employees to challenge their race-based firing, was authored by the Supreme Court’s first black justice, Thurgood Marshall, who had earlier successfully argued the landmark case of Brown v. Board of Education, which struck down school segregation in 1954.
But apparently, the principles of the liberal icon Thurgood Marshall are just too “right-wing” for this left-wing administration. (And for many left-wing “career” Justice Department employees in the Voting Rights Section and Civil Rights Division, who refused to work on the suit against voting discrimination in Noxubee County because the victims were white. Only because of the persistence of Bush appointees like Hans Von Spakovsky did this case ever see the light of day).
Holder is simply blind to reality. He can’t accept the reality of even blatant discrimination against white people. Meanwhile, he also refuses to accept the possibility of innocence when white people are accused of hate crimes, citing examples of white people being acquitted in state court as a justification for passing a broad new federal hate-crimes law, which would allow people found not guilty in state court to be retried in federal court.
Ironically, Holder claims that Americans are a “nation of cowards” on matters of race.
A federal appeals court recently upheld an injunction barring a county official from continuing to prevent people from voting based on their race. The unanimous ruling in United States v. Brown (5th Cir. 2009) was a victory for the Justice Department, which brought the case back during the Bush Administration.
But Eric Holder, Obama’s new attorney general, is ashamed of the decision, and his Justice Department is keeping mum about it. The Justice Department refused even to issue a press release announcing the decision, even though it is customary to issue press releases after all Justice Department wins.
Why the deafening silence? Because the victims of the blatant and massive voting discrimination in Noxubee County, Mississippi, were whites prevented from casting ballots in Democratic primaries by the black political boss who ran the county. (A few blacks also had their voting rights violated).
Holder’s attitude is so small-minded and parochial that it is an embarrassment to the Justice Department.
It has been more than 30 years since a unanimous Supreme Court ruled in McDonald v. Santa Fe Trail Transportation Company (1976) that all races — including whites –are covered by the civil-rights laws. That ruling, which allowed white employees to challenge their race-based firing, was authored by the Supreme Court’s first black justice, Thurgood Marshall, who had earlier successfully argued the landmark case of Brown v. Board of Education, which struck down school segregation in 1954.
But apparently, the principles of the liberal icon Thurgood Marshall are just too “right-wing” for this left-wing administration. (And for many left-wing “career” Justice Department employees in the Voting Rights Section and Civil Rights Division, who refused to work on the suit against voting discrimination in Noxubee County because the victims were white. Only because of the persistence of Bush appointees like Hans Von Spakovsky did this case ever see the light of day).
Holder is simply blind to reality. He can’t accept the reality of even blatant discrimination against white people. Meanwhile, he also refuses to accept the possibility of innocence when white people are accused of hate crimes, citing examples of white people being acquitted in state court as a justification for passing a broad new federal hate-crimes law, which would allow people found not guilty in state court to be retried in federal court.
Ironically, Holder claims that Americans are a “nation of cowards” on matters of race.
Tuesday, March 17, 2009
WSJ Editorial Page: The Real AIG Outrage
The Real AIG Outrage. WSJ Editorial
WSJ, Mar 17, 2009
President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. He and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout.
Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG "rescue." This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.
Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts.
* * *
Given that the government has never defined "systemic risk," we're also starting to wonder exactly which system American taxpayers are paying to protect. It's not capitalism, in which risk-takers suffer the consequences of bad decisions. And in some cases it's not even American. The U.S. government is now in the business of distributing foreign aid to offshore financiers, laundered through a once-great American company.
The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.
Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.
But what about that supposedly rogue AIG operation in London? Wasn't that outside the reach of federal regulators? Mr. Polakoff called it "a false statement" to say that his agency couldn't regulate the London office.
And his agency wasn't the only federal regulator. AIG's Financial Products unit has been overseen for years by an SEC-approved monitor. And AIG didn't just make disastrous bets on housing using those infamous credit default swaps. AIG made the same stupid bets on housing using money in its securities lending program, which was heavily regulated at the state level. State, foreign and various U.S. federal regulators were all looking over AIG's shoulder and approving the bad housing bets. Americans always pay their mortgages, right? Mr. Polakoff said his agency "should have taken an entirely different approach" in regulating the contracts written by AIG's Financial Products unit.
That's for sure, especially after March of 2005. The housing trouble began -- as most of AIG's troubles did -- when the company's board buckled under pressure from then New York Attorney General Eliot Spitzer when it fired longtime CEO Hank Greenberg. Almost immediately, Fitch took away the company's triple-A credit rating, which allowed it to borrow at cheaper rates. AIG subsequently announced an earnings restatement. The restatement addressed alleged accounting sins that Mr. Spitzer trumpeted initially but later dropped from his civil complaint.
Other elements of the restatement were later reversed by AIG itself. But the damage had been done. The restatement triggered more credit ratings downgrades. Mr. Greenberg's successors seemed to understand that the game had changed, warning in a 2005 SEC filing that a lower credit rating meant the firm would likely have to post more collateral to trading counterparties. But rather than managing risks even more carefully, they went in the opposite direction. Tragically, they did what Mr. Greenberg's AIG never did -- bet big on housing.
Current AIG CEO Ed Liddy was picked by the government in 2008 and didn't create the mess, and he shouldn't be blamed for honoring the firm's lawful bonus contracts. However, it is on Mr. Liddy's watch that AIG has lately been conducting a campaign to stoke fears of "systemic risk." To mute Congressional objections to taxpayer cash infusions, AIG's lobbying materials suggest that taxpayers need to continue subsidizing the insurance giant to avoid economic ruin.
Among the more dubious claims is that AIG policyholders won't be able to purchase the coverage they need. The sweeteners AIG has been offering to retain customers tell a different story. Moreover, getting back to those infamous bonuses, AIG can argue that it needs to pay top dollar to survive in an ultra-competitive business, or it can argue that it offers services not otherwise available in the market, but not both.
* * *
The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.
Whether or not these funds ever come back to the Treasury, regulators should now focus on getting AIG back into private hands as soon as possible. And if Treasury and the Fed want to continue bailing out foreign banks, let them make that case, honestly and directly, to American taxpayers.
WSJ, Mar 17, 2009
President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. He and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout.
Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG "rescue." This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.
Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts.
* * *
Given that the government has never defined "systemic risk," we're also starting to wonder exactly which system American taxpayers are paying to protect. It's not capitalism, in which risk-takers suffer the consequences of bad decisions. And in some cases it's not even American. The U.S. government is now in the business of distributing foreign aid to offshore financiers, laundered through a once-great American company.
The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.
Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.
But what about that supposedly rogue AIG operation in London? Wasn't that outside the reach of federal regulators? Mr. Polakoff called it "a false statement" to say that his agency couldn't regulate the London office.
And his agency wasn't the only federal regulator. AIG's Financial Products unit has been overseen for years by an SEC-approved monitor. And AIG didn't just make disastrous bets on housing using those infamous credit default swaps. AIG made the same stupid bets on housing using money in its securities lending program, which was heavily regulated at the state level. State, foreign and various U.S. federal regulators were all looking over AIG's shoulder and approving the bad housing bets. Americans always pay their mortgages, right? Mr. Polakoff said his agency "should have taken an entirely different approach" in regulating the contracts written by AIG's Financial Products unit.
That's for sure, especially after March of 2005. The housing trouble began -- as most of AIG's troubles did -- when the company's board buckled under pressure from then New York Attorney General Eliot Spitzer when it fired longtime CEO Hank Greenberg. Almost immediately, Fitch took away the company's triple-A credit rating, which allowed it to borrow at cheaper rates. AIG subsequently announced an earnings restatement. The restatement addressed alleged accounting sins that Mr. Spitzer trumpeted initially but later dropped from his civil complaint.
Other elements of the restatement were later reversed by AIG itself. But the damage had been done. The restatement triggered more credit ratings downgrades. Mr. Greenberg's successors seemed to understand that the game had changed, warning in a 2005 SEC filing that a lower credit rating meant the firm would likely have to post more collateral to trading counterparties. But rather than managing risks even more carefully, they went in the opposite direction. Tragically, they did what Mr. Greenberg's AIG never did -- bet big on housing.
Current AIG CEO Ed Liddy was picked by the government in 2008 and didn't create the mess, and he shouldn't be blamed for honoring the firm's lawful bonus contracts. However, it is on Mr. Liddy's watch that AIG has lately been conducting a campaign to stoke fears of "systemic risk." To mute Congressional objections to taxpayer cash infusions, AIG's lobbying materials suggest that taxpayers need to continue subsidizing the insurance giant to avoid economic ruin.
Among the more dubious claims is that AIG policyholders won't be able to purchase the coverage they need. The sweeteners AIG has been offering to retain customers tell a different story. Moreover, getting back to those infamous bonuses, AIG can argue that it needs to pay top dollar to survive in an ultra-competitive business, or it can argue that it offers services not otherwise available in the market, but not both.
* * *
The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.
Whether or not these funds ever come back to the Treasury, regulators should now focus on getting AIG back into private hands as soon as possible. And if Treasury and the Fed want to continue bailing out foreign banks, let them make that case, honestly and directly, to American taxpayers.
US Energy Dept Report on Techniques to Ensure Safe, Effective Geologic Carbon Sequestration
DOE Releases Report on Techniques to Ensure Safe, Effective Geologic Carbon Sequestration
Comprehensive Report Describes New and Emerging Methods to Monitor, Verify, and Account for CO2 Stored in Geologic Formations
March 17, 2009
Washington, DC — The Office of Fossil Energy's National Energy Technology Laboratory (NETL) has created a comprehensive new document that examines existing and emerging techniques to monitor, verify, and account for carbon dioxide (CO2) stored in geologic formations. The report, titled Monitoring, Verification, and Accounting of CO2 Stored in Deep Geologic Formations, should prove to be an invaluable tool in reducing greenhouse gas emissions to the atmosphere through geologic sequestration.
The report was prepared by NETL with input from the seven Regional Carbon Sequestration Partnerships. Its main goals are to—
Reliable and cost-effective MVA techniques are critical to making geologic storage a safe, effective, and acceptable method for reducing greenhouse gas emissions. Additionally, MVA provides data that can be used to—
Comprehensive Report Describes New and Emerging Methods to Monitor, Verify, and Account for CO2 Stored in Geologic Formations
March 17, 2009
Washington, DC — The Office of Fossil Energy's National Energy Technology Laboratory (NETL) has created a comprehensive new document that examines existing and emerging techniques to monitor, verify, and account for carbon dioxide (CO2) stored in geologic formations. The report, titled Monitoring, Verification, and Accounting of CO2 Stored in Deep Geologic Formations, should prove to be an invaluable tool in reducing greenhouse gas emissions to the atmosphere through geologic sequestration.
The report was prepared by NETL with input from the seven Regional Carbon Sequestration Partnerships. Its main goals are to—
- Provide an overview of monitoring, verification, and accounting (MVA) techniques that are currently in use or are being developed.
- Summarize the Energy Department’s MVA research and development program.
- Present information that can be used by regulatory organizations, project developers, and national and state policymakers to ensure the safety and efficacy of carbon storage projects.
- Emissions of CO2 have increased from an insignificant level two centuries ago to more than 30 billion tons worldwide today. As a result, atmospheric levels of CO2 have risen from preindustrial levels of 280 parts per million (ppm) to more than 380 ppm today. If no effort is made to reduce CO2 emissions, yearly release from the United States could increase by one third from 2005 to 2030.
Reliable and cost-effective MVA techniques are critical to making geologic storage a safe, effective, and acceptable method for reducing greenhouse gas emissions. Additionally, MVA provides data that can be used to—
- Verify national inventories of greenhouse gases.
- Assess reductions of greenhouse gas emissions at geologic sequestration sites.
- Evaluate potential regional, national, and international greenhouse gas reduction goals.
Palestinian Security Forces Training Center Opens
Palestinian Security Forces Training Center Opens
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, March 17, 2009
U.S. Assistant Secretary of State for International Narcotics and Law Enforcement Affairs (INL) David Johnson and Palestinian Authority Prime Minister Salam Fayyad formally opened the Presidential Guard Training Center in Jericho. The training center was built with $10.1 million of State Department assistance.
The center, completed by Palestinian contractors over the course of the past 16 months, has a training capacity of 700 officers and enlisted men, including accommodations and dining facilities, waste water treatment, parade grounds, classrooms, and an obstacle course. The construction was overseen by the United Nations Office for Project Services. The center is the first of several construction projects to be built with INL funds in support of Palestinian Authority security forces in the West Bank.
U.S. Assistant Secretary of State Johnson praised the work of the Presidential Guard and the Palestinian Authority in developing a well-trained, professional force to advance the rule of law, which is of fundamental importance to Palestinians.
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, March 17, 2009
U.S. Assistant Secretary of State for International Narcotics and Law Enforcement Affairs (INL) David Johnson and Palestinian Authority Prime Minister Salam Fayyad formally opened the Presidential Guard Training Center in Jericho. The training center was built with $10.1 million of State Department assistance.
The center, completed by Palestinian contractors over the course of the past 16 months, has a training capacity of 700 officers and enlisted men, including accommodations and dining facilities, waste water treatment, parade grounds, classrooms, and an obstacle course. The construction was overseen by the United Nations Office for Project Services. The center is the first of several construction projects to be built with INL funds in support of Palestinian Authority security forces in the West Bank.
U.S. Assistant Secretary of State Johnson praised the work of the Presidential Guard and the Palestinian Authority in developing a well-trained, professional force to advance the rule of law, which is of fundamental importance to Palestinians.
Medvedev: Russia To Rearm Fleet, Army From 2011
Medvedev: Russia To Rearm Fleet, Army From 2011
Mar 17, 2009
MOSCOW (AFP)--President Dmitry Medvedev said Tuesday the North Atlantic Treaty Organization was still seeking to expand its physical presence near Russian borders and ordered a "large-scale" Russian rearmament from 2011.
"From 2011 a large-scale rearmament of the army and navy will begin," Medvedev was quoted by news agencies as saying at a meeting of military chiefs in Moscow.
He called for a renewal of Russia's nuclear weapons arsenal and said NATO was pursuing military expansion near Russia's borders.
"Analysis of the military-political situation in the world shows that a serious conflict potential remains in some regions," Medvedev said.
He listed local crises and international terrorism as persistent security threats and also stated: "Attempts to expand the military infrastructure of NATO near the borders of our country are continuing.
"The primary task is to increase the combat readiness of our forces, first of all our strategic nuclear forces. They must be able to fulfill all tasks necessary to ensure Russia's security," Medvedev said.
The comments came despite statements by the Russian leadership suggesting a thaw in relations with the U.S. following the end of the George W. Bush administration and the inauguration of President Barack Obama.
Some analysts have detected a softening of U.S. support for NATO enlargement to ex-Soviet countries on Russia's borders such as Georgia and Ukraine.
The Obama administration has said it is weighing what to do about a Bush-era project to build missile defense facilities in eastern Europe that has angered Moscow.
Russia, the world's largest country and one of a handful of nuclear-armed states, is attempting to slim down and improve its military, which currently numbers about 1 million personnel.
At Tuesday's meeting Defense Minister Anatoly Serdyukov said a host of non- core activity, from guest house management to weapons repair and food production, would be transferred from the Defense Ministry to a state-owned civilian company, Oboronservis.
Mar 17, 2009
MOSCOW (AFP)--President Dmitry Medvedev said Tuesday the North Atlantic Treaty Organization was still seeking to expand its physical presence near Russian borders and ordered a "large-scale" Russian rearmament from 2011.
"From 2011 a large-scale rearmament of the army and navy will begin," Medvedev was quoted by news agencies as saying at a meeting of military chiefs in Moscow.
He called for a renewal of Russia's nuclear weapons arsenal and said NATO was pursuing military expansion near Russia's borders.
"Analysis of the military-political situation in the world shows that a serious conflict potential remains in some regions," Medvedev said.
He listed local crises and international terrorism as persistent security threats and also stated: "Attempts to expand the military infrastructure of NATO near the borders of our country are continuing.
"The primary task is to increase the combat readiness of our forces, first of all our strategic nuclear forces. They must be able to fulfill all tasks necessary to ensure Russia's security," Medvedev said.
The comments came despite statements by the Russian leadership suggesting a thaw in relations with the U.S. following the end of the George W. Bush administration and the inauguration of President Barack Obama.
Some analysts have detected a softening of U.S. support for NATO enlargement to ex-Soviet countries on Russia's borders such as Georgia and Ukraine.
The Obama administration has said it is weighing what to do about a Bush-era project to build missile defense facilities in eastern Europe that has angered Moscow.
Russia, the world's largest country and one of a handful of nuclear-armed states, is attempting to slim down and improve its military, which currently numbers about 1 million personnel.
At Tuesday's meeting Defense Minister Anatoly Serdyukov said a host of non- core activity, from guest house management to weapons repair and food production, would be transferred from the Defense Ministry to a state-owned civilian company, Oboronservis.
China Gains Key Assets In Spate of Purchases
China Gains Key Assets In Spate of Purchases. By Ariana Eunjung Cha
Oil, Minerals Are Among Acquisitions Worldwide
Washington Post, Tuesday, March 17, 2009; Page A01
SHANGHAI -- Chinese companies have been on a shopping spree in the past month, snapping up tens of billions of dollars' worth of key assets in Iran, Brazil, Russia, Venezuela, Australia and France in a global fire sale set off by the financial crisis.
The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth. The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States.
Just a few months ago, many countries were greeting such overtures from China with suspicion. Today, as corporations and banks in other parts of the world find themselves reluctant or unable to give out money to distressed companies, cash-rich China has become a major force driving new lending and investment.
On Feb. 12, China's state-owned metals giant Chinalco signed a $19.5 billion deal with Australia's Rio Tinto that will eventually double its stake in the world's second-largest mining company.
In three other cases, China has used loans as a way of securing energy supplies. On Feb. 17 and 18, China National Petroleum signed separate agreements with Russia and Venezuela under which China would provide $25 billion and $4 billion in loans, respectively, in exchange for long-term commitments to supply oil. And on Feb. 19, the China Development Bank struck a similar deal with Petrobras, the Brazilian oil company, agreeing to a loan of $10 billion in exchange for oil.
On Saturday, Iran announced that it had signed a $3.2 billion agreement with a Chinese consortium to develop an area beneath the Persian Gulf seabed that is believed to hold about 8 percent of the world's reserves of natural gas.
Even as global financial flows have slowed sharply overall, China has dramatically stepped up its outbound investment. In 2008, its overseas mergers and acquisitions were worth $52.1 billion -- a record, according to the research firm Dealogic. In January and February of this year, Chinese companies invested $16.3 billion abroad, meaning that if the pace holds, the total for 2009 could be nearly double last year's.
Worldwide, the value of mergers and acquisitions transactions so far this year has dropped 35 percent to $384 billion. By comparison, the United States had $186.2 billion in outbound mergers and acquisitions in 2008 and Japan had $74.3 billion.
China's state-run media outlets are calling the acquisition spree an opportunity that comes once in a hundred years, and analysts are drawing parallels to 1980s Japan.
"That China started investing or acquiring some overseas mineral resources companies with relatively low prices during the global economic crisis is quite a normal practice. Japan did the same thing in its prime development period, too," said Xu Xiangchun, consulting director for Mysteel.com, a market research and analysis firm.
It's not just Chinese corporations that are taking advantage of the economic crisis to help others while helping themselves.
The Chinese government also has come to the rescue of ailing countries, such as Jamaica and Pakistan, that it wants as allies, extending generous loans. Even Chinese consumers are taking their money abroad. In a shopping trip last month organized by an online real estate brokerage, a group of 50 individual investors from China traveled to New York, Los Angeles and San Francisco to purchase homes at prices that have crashed since the subprime crisis.
"As soon as we launched the project, we had 100 people registered and ready to go," said Dai Jianzhong, chief executive of SouFun Holdings, which organized the trip. "Now the number has reached 400. Apparently, the American real estate market has a great appeal to Chinese buyers."
China's Commerce Ministry organized a similar shopping expedition -- but for Chinese companies to visit foreign companies -- the week of Feb. 25. Commerce Minister Chen Deming took with him about 90 executives, who signed contracts worth about $10 billion in Germany, $400,000 in Switzerland, $320 million in Spain and $2 billion in Britain. The deals were mostly for the purchase of goods, including olive oil, 3,000 Jaguars and 10,000 Land Rovers.
The Commerce Ministry said Monday that it intends to send more investment missions abroad this year. Although details are still being worked out, the itineraries will probably include the United States, Japan and Southeast Asia, the ministry said.
Foreign automakers may be next on China's acquisitions list.
On Feb. 23, Weichai Power, a diesel engine company, said it would spend about $3.8 million to acquire the products, technology and brand of France's Moteurs Baudouin, which designs and manufactures marine propulsive equipment such as engines and propellers.
That was a relatively small deal, but Chen Bin, director general of the National Development and Reform Commission's Department of Industry, hinted that larger acquisitions may be in the works. He noted on the sidelines of a news conference on the economy late last month that overseas car companies are facing cash difficulties at the same time their Chinese counterparts "need their technology, brands, talent and sales networks."
"It will be a very big challenge for Chinese companies to stabilize the operations of foreign automakers and to maintain growth," Chen acknowledged, according to the official People's Daily, but he added that if the companies decide to acquire such assets, "the government will support them."
The one country that appears conspicuously absent from China's corporate bargain-hunting spree is the United States.
Many Chinese investors are still stung by the memory of China National Offshore Oil's 2005 attempt to buy a stake in the U.S. energy company Unocal. The deal fell apart after U.S. lawmakers expressed concern about the national security implications of China controlling some of the country's oil resources.
Xiong Weiping, president of Chinalco, whose bid for a larger stake in Rio Tinto is China's biggest outbound investment to date, has taken measures to address concerns as scrutiny of that deal has increased. The deal will be put to a shareholder vote in May or June and must also be approved by Australia's Foreign Investment Review Board.
At a news briefing in Sydney on March 2, Xiong assured the country that Chinalco is not seeking a majority share of the mining giant and that its management and corporate strategy would not change. Xiong emphasized that "the transaction will in no way lead to any control of the natural resources of Australia."
Zha Daojiong, an energy researcher at Peking University, said Chinese companies feel they may be discriminated against in the United States because of the mistaken perception that they are all state-owned or state-directed.
"Foreigners question these companies' intentions and tend to link their moves with government instructions," Zha said, "but I should say it is really hard to tell whether this is true nor not."
Researchers Wang Juan and Liu Liu in Beijing contributed to this report.
Oil, Minerals Are Among Acquisitions Worldwide
Washington Post, Tuesday, March 17, 2009; Page A01
SHANGHAI -- Chinese companies have been on a shopping spree in the past month, snapping up tens of billions of dollars' worth of key assets in Iran, Brazil, Russia, Venezuela, Australia and France in a global fire sale set off by the financial crisis.
The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth. The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States.
Just a few months ago, many countries were greeting such overtures from China with suspicion. Today, as corporations and banks in other parts of the world find themselves reluctant or unable to give out money to distressed companies, cash-rich China has become a major force driving new lending and investment.
On Feb. 12, China's state-owned metals giant Chinalco signed a $19.5 billion deal with Australia's Rio Tinto that will eventually double its stake in the world's second-largest mining company.
In three other cases, China has used loans as a way of securing energy supplies. On Feb. 17 and 18, China National Petroleum signed separate agreements with Russia and Venezuela under which China would provide $25 billion and $4 billion in loans, respectively, in exchange for long-term commitments to supply oil. And on Feb. 19, the China Development Bank struck a similar deal with Petrobras, the Brazilian oil company, agreeing to a loan of $10 billion in exchange for oil.
On Saturday, Iran announced that it had signed a $3.2 billion agreement with a Chinese consortium to develop an area beneath the Persian Gulf seabed that is believed to hold about 8 percent of the world's reserves of natural gas.
Even as global financial flows have slowed sharply overall, China has dramatically stepped up its outbound investment. In 2008, its overseas mergers and acquisitions were worth $52.1 billion -- a record, according to the research firm Dealogic. In January and February of this year, Chinese companies invested $16.3 billion abroad, meaning that if the pace holds, the total for 2009 could be nearly double last year's.
Worldwide, the value of mergers and acquisitions transactions so far this year has dropped 35 percent to $384 billion. By comparison, the United States had $186.2 billion in outbound mergers and acquisitions in 2008 and Japan had $74.3 billion.
China's state-run media outlets are calling the acquisition spree an opportunity that comes once in a hundred years, and analysts are drawing parallels to 1980s Japan.
"That China started investing or acquiring some overseas mineral resources companies with relatively low prices during the global economic crisis is quite a normal practice. Japan did the same thing in its prime development period, too," said Xu Xiangchun, consulting director for Mysteel.com, a market research and analysis firm.
It's not just Chinese corporations that are taking advantage of the economic crisis to help others while helping themselves.
The Chinese government also has come to the rescue of ailing countries, such as Jamaica and Pakistan, that it wants as allies, extending generous loans. Even Chinese consumers are taking their money abroad. In a shopping trip last month organized by an online real estate brokerage, a group of 50 individual investors from China traveled to New York, Los Angeles and San Francisco to purchase homes at prices that have crashed since the subprime crisis.
"As soon as we launched the project, we had 100 people registered and ready to go," said Dai Jianzhong, chief executive of SouFun Holdings, which organized the trip. "Now the number has reached 400. Apparently, the American real estate market has a great appeal to Chinese buyers."
China's Commerce Ministry organized a similar shopping expedition -- but for Chinese companies to visit foreign companies -- the week of Feb. 25. Commerce Minister Chen Deming took with him about 90 executives, who signed contracts worth about $10 billion in Germany, $400,000 in Switzerland, $320 million in Spain and $2 billion in Britain. The deals were mostly for the purchase of goods, including olive oil, 3,000 Jaguars and 10,000 Land Rovers.
The Commerce Ministry said Monday that it intends to send more investment missions abroad this year. Although details are still being worked out, the itineraries will probably include the United States, Japan and Southeast Asia, the ministry said.
Foreign automakers may be next on China's acquisitions list.
On Feb. 23, Weichai Power, a diesel engine company, said it would spend about $3.8 million to acquire the products, technology and brand of France's Moteurs Baudouin, which designs and manufactures marine propulsive equipment such as engines and propellers.
That was a relatively small deal, but Chen Bin, director general of the National Development and Reform Commission's Department of Industry, hinted that larger acquisitions may be in the works. He noted on the sidelines of a news conference on the economy late last month that overseas car companies are facing cash difficulties at the same time their Chinese counterparts "need their technology, brands, talent and sales networks."
"It will be a very big challenge for Chinese companies to stabilize the operations of foreign automakers and to maintain growth," Chen acknowledged, according to the official People's Daily, but he added that if the companies decide to acquire such assets, "the government will support them."
The one country that appears conspicuously absent from China's corporate bargain-hunting spree is the United States.
Many Chinese investors are still stung by the memory of China National Offshore Oil's 2005 attempt to buy a stake in the U.S. energy company Unocal. The deal fell apart after U.S. lawmakers expressed concern about the national security implications of China controlling some of the country's oil resources.
Xiong Weiping, president of Chinalco, whose bid for a larger stake in Rio Tinto is China's biggest outbound investment to date, has taken measures to address concerns as scrutiny of that deal has increased. The deal will be put to a shareholder vote in May or June and must also be approved by Australia's Foreign Investment Review Board.
At a news briefing in Sydney on March 2, Xiong assured the country that Chinalco is not seeking a majority share of the mining giant and that its management and corporate strategy would not change. Xiong emphasized that "the transaction will in no way lead to any control of the natural resources of Australia."
Zha Daojiong, an energy researcher at Peking University, said Chinese companies feel they may be discriminated against in the United States because of the mistaken perception that they are all state-owned or state-directed.
"Foreigners question these companies' intentions and tend to link their moves with government instructions," Zha said, "but I should say it is really hard to tell whether this is true nor not."
Researchers Wang Juan and Liu Liu in Beijing contributed to this report.
Congress Is the Real Systemic Risk
Congress Is the Real Systemic Risk. By Peter J Wallison
WSJ, Mar 17, 2009
After their experience with Fannie Mae and Freddie Mac, you'd think that Congress would no longer be interested in creating companies seen by the market as backed by the government. Yet that is exactly what the relevant congressional committees -- the Senate Banking Committee and the House Financial Services Committee -- are now considering.
In the wake of the financial crisis, the idea rapidly gaining strength in Washington is to create a systemic risk regulator. The principal sponsor of the plan is Barney Frank, the chair of the House Financial Services Committee. A recent report by the Group of Thirty (a private sector organization of financial regulation specialists), written by a subcommittee headed by Paul Volcker, also endorsed the idea, as has the U.S. Chamber of Commerce and the Securities Industry Financial Markets Association.
If implemented, this would give the government the authority to designate and supervise "systemically significant" companies. Presumably, systemically significant companies would be those that are so large, or involved in financial activities of such importance, that their failure would create systemic risk.
There are several serious problems with this plan, beginning with the fact that no one can define a systemic risk or its causes. The Congressional Oversight Panel, which was established to advise Congress on the use of the TARP funds, concluded -- with two Republicans dissenting -- that the current crisis is an example of a systemic risk evolving into a true systemic event. After all, virtually all the world's major financial institutions are seriously weakened, and many have either failed or been rescued. If this is not an example of a systemic risk, what is?
The current financial crisis is certainly systemic. But what caused it? The failure of Lehman Brothers occurred long after the market for mortgage-backed securities (MBS) had shut down, and six months after Bear Stearns had to be rescued because of its losses. In other words, the crisis did not arise from the failure of a particular systemically significant institution. The world's major financial institutions had already been weakened by the realization that losses on trillions of dollars in MBS were going to be much greater than anyone had imagined, and before the major asset write-downs had begun. So if this was a systemic event, it was not caused by the failure of one or more major institutions. In fact, it was the other way around: The weakness or failure of financial institutions was the result of an external event (losses on trillions of dollars of subprime mortgages embedded in MBS).
If this is true, what is the value of regulating systemically significant financial institutions? Financial failures, it seems, can be the result, rather than the cause, of systemic events like the one we are now experiencing. Even if we assume that regulating systemically significant companies will somehow prevent them from failing -- a doubtful proposition, given that the heavily regulated banks have been the most severely affected by the current crisis -- we will not have prevented the collapse of a major oil-supplying country, an earthquake or a pandemic from causing a similar problem in the future. All we will have done is given some government agency more power and imposed more costs on financial institutions and consumers.
But increased government power and higher costs are not the worst elements of the proposal to designate and supervise systemically significant companies. The worst result is that we will create an unlimited number of financial institutions that, like Fannie Mae and Freddie Mac, will be seen in the financial markets as backed by the government. This will be especially true if, as Mr. Frank has recommended, the Federal Reserve is given supervisory authority over these institutions. The Fed already has the power -- without a vote of Congress -- to provide financing under "exigent circumstances" to any company, and will no doubt be able to do so for the institutions it supervises.
A company that is designated as systemically significant will inevitably come to be viewed as having government backing. After all, the designation occurs because some government agency believes that the failure of a particular institution will have a highly adverse effect on the rest of the financial system. Accordingly, designation as a systemically significant company will in effect be a government declaration that that company is too big to fail. The market will understand -- as it did with Fannie and Freddie -- that loans to such a company will involve less risk than loans to its competitors. Counterparties and customers will believe that transactions with the company will generally be more secure than transactions with other firms that aren't similarly protected from failure.
As a consequence, the effect on competition will be profound. Financial institutions that are not large enough to be designated as systemically significant will gradually lose out in the marketplace to the larger companies that are perceived to have government backing, just as Fannie and Freddie were able to drive banks and others from the secondary market for prime middle-class mortgages. A small group of government-backed financial institutions will thus come to dominate all sectors of finance in the U.S. And when that happens they shall be called by a special name: winners.
Mr. Wallison is a fellow at the American Enterprise Institute.
WSJ, Mar 17, 2009
After their experience with Fannie Mae and Freddie Mac, you'd think that Congress would no longer be interested in creating companies seen by the market as backed by the government. Yet that is exactly what the relevant congressional committees -- the Senate Banking Committee and the House Financial Services Committee -- are now considering.
In the wake of the financial crisis, the idea rapidly gaining strength in Washington is to create a systemic risk regulator. The principal sponsor of the plan is Barney Frank, the chair of the House Financial Services Committee. A recent report by the Group of Thirty (a private sector organization of financial regulation specialists), written by a subcommittee headed by Paul Volcker, also endorsed the idea, as has the U.S. Chamber of Commerce and the Securities Industry Financial Markets Association.
If implemented, this would give the government the authority to designate and supervise "systemically significant" companies. Presumably, systemically significant companies would be those that are so large, or involved in financial activities of such importance, that their failure would create systemic risk.
There are several serious problems with this plan, beginning with the fact that no one can define a systemic risk or its causes. The Congressional Oversight Panel, which was established to advise Congress on the use of the TARP funds, concluded -- with two Republicans dissenting -- that the current crisis is an example of a systemic risk evolving into a true systemic event. After all, virtually all the world's major financial institutions are seriously weakened, and many have either failed or been rescued. If this is not an example of a systemic risk, what is?
The current financial crisis is certainly systemic. But what caused it? The failure of Lehman Brothers occurred long after the market for mortgage-backed securities (MBS) had shut down, and six months after Bear Stearns had to be rescued because of its losses. In other words, the crisis did not arise from the failure of a particular systemically significant institution. The world's major financial institutions had already been weakened by the realization that losses on trillions of dollars in MBS were going to be much greater than anyone had imagined, and before the major asset write-downs had begun. So if this was a systemic event, it was not caused by the failure of one or more major institutions. In fact, it was the other way around: The weakness or failure of financial institutions was the result of an external event (losses on trillions of dollars of subprime mortgages embedded in MBS).
If this is true, what is the value of regulating systemically significant financial institutions? Financial failures, it seems, can be the result, rather than the cause, of systemic events like the one we are now experiencing. Even if we assume that regulating systemically significant companies will somehow prevent them from failing -- a doubtful proposition, given that the heavily regulated banks have been the most severely affected by the current crisis -- we will not have prevented the collapse of a major oil-supplying country, an earthquake or a pandemic from causing a similar problem in the future. All we will have done is given some government agency more power and imposed more costs on financial institutions and consumers.
But increased government power and higher costs are not the worst elements of the proposal to designate and supervise systemically significant companies. The worst result is that we will create an unlimited number of financial institutions that, like Fannie Mae and Freddie Mac, will be seen in the financial markets as backed by the government. This will be especially true if, as Mr. Frank has recommended, the Federal Reserve is given supervisory authority over these institutions. The Fed already has the power -- without a vote of Congress -- to provide financing under "exigent circumstances" to any company, and will no doubt be able to do so for the institutions it supervises.
A company that is designated as systemically significant will inevitably come to be viewed as having government backing. After all, the designation occurs because some government agency believes that the failure of a particular institution will have a highly adverse effect on the rest of the financial system. Accordingly, designation as a systemically significant company will in effect be a government declaration that that company is too big to fail. The market will understand -- as it did with Fannie and Freddie -- that loans to such a company will involve less risk than loans to its competitors. Counterparties and customers will believe that transactions with the company will generally be more secure than transactions with other firms that aren't similarly protected from failure.
As a consequence, the effect on competition will be profound. Financial institutions that are not large enough to be designated as systemically significant will gradually lose out in the marketplace to the larger companies that are perceived to have government backing, just as Fannie and Freddie were able to drive banks and others from the secondary market for prime middle-class mortgages. A small group of government-backed financial institutions will thus come to dominate all sectors of finance in the U.S. And when that happens they shall be called by a special name: winners.
Mr. Wallison is a fellow at the American Enterprise Institute.
Taiwan's New Defense Report Could Fray Ties With China
Taiwan's New Defense Report Could Fray Ties With China. By Ting-I Tsai
WSJ, Mar 17, 2009, page A9
TAIPEI -- Taiwan issued a defense report that calls for the island to press for modern military equipment from the U.S. -- a move that could complicate the warming relations both Taiwan and the U.S. have been cultivating with China.
The quadrennial military review, issued Monday, runs counter to softer, more China-friendly draft versions that circulated in Taiwan over the past few months. Some officials said the harder line is a response to criticism in Taipei and Washington that the current administration in Taiwan had been making too many concessions to China without having received much in return.
"The report is tougher than I expected," said Alexander Huang, a strategic studies professor at Tamkang University in Taipei, who was involved in earlier versions of the paper.
Taiwan and China have been ruled separately for more than 60 years, since China's civil war, and have become close trading partners. Under President Ma Ying-jeou, who was elected a year ago, the two sides have moved closer, setting up direct transport flights and shipping links and discussing a possible free-trade deal. On Monday, relations across the Taiwan Strait marked a new milestone when the Ocean Mystery, the first luxury cruise ship to sail directly from China, arrived in Taiwan with more than 1,000 Chinese tourists.
Perhaps the most notable sign of improving ties was a government defense paper endorsed by Mr. Ma that called for democratically governed Taiwan, a hub of the global high-tech industry, to give up its longtime strategy of preventing a Chinese attack by maintaining air and sea superiority. Instead, Taiwan would concentrate its defenses against a ground assault, according to the paper.
Supporters said the proposed strategy would be less costly for Taiwan and the weapons easier to obtain. In deference to China, few countries are willing to sell Taiwan weapons. Opponents said it would be nearly suicidal for the island of 23 million to fight a land war with its giant neighbor.
"Critics from the military and academia forced President Ma to emphasize that the navy and air force are both important," said a senior official from the Ministry of National Defense.
A presidential spokesman said: "President Ma fully respects professionals on this issue."
Under Monday's plan, Taiwan will try again to buy 66 F-16 C/D fighters from the U.S. These are more advanced versions of the F-16 that Taiwan has and would allow it to more effectively counter China's growing fleet of Russian-built warplanes. Last year, the Bush administration agreed to a US$6.43 billion arms package but excluded the fighters. China reacted by suspending military-to-military talks with the U.S., though they since have resumed.
Taiwan will formally request the fighters again, officials in Tapei said Monday, and in the long term try to buy "stealth" technology fighters. Taiwan also wants to buy submarines -- another item vetoed by the Bush administration. In an effort to balance this with more China-friendly policies, the paper calls for a "confidence-building mechanism" with China. Some officials have said this could involve officer exchanges.
Although the Obama administration is eager to improve relations with Beijing, some officials in Washington have implied that weapons sales are in the U.S.'s national interest. In testimony to Congress in February, National Intelligence Director Dennis Blair said the U.S. was the only outside power that could help Taiwan: "That means we're going to have to help them some more in order to maintain a balance."
Some U.S.-based analysts say sales would help maintain the balance of power in the region. That would reduce the need for American soldiers to defend Taiwan in case China tries to invade.
"If Taiwan is unable to deter attacks from China, it increases the probability of the U.S. having to confront China militarily should China make a mistake," said Rick Fisher, a senior fellow at the International Assessment and Strategy Center in Washington.
WSJ, Mar 17, 2009, page A9
TAIPEI -- Taiwan issued a defense report that calls for the island to press for modern military equipment from the U.S. -- a move that could complicate the warming relations both Taiwan and the U.S. have been cultivating with China.
The quadrennial military review, issued Monday, runs counter to softer, more China-friendly draft versions that circulated in Taiwan over the past few months. Some officials said the harder line is a response to criticism in Taipei and Washington that the current administration in Taiwan had been making too many concessions to China without having received much in return.
"The report is tougher than I expected," said Alexander Huang, a strategic studies professor at Tamkang University in Taipei, who was involved in earlier versions of the paper.
Taiwan and China have been ruled separately for more than 60 years, since China's civil war, and have become close trading partners. Under President Ma Ying-jeou, who was elected a year ago, the two sides have moved closer, setting up direct transport flights and shipping links and discussing a possible free-trade deal. On Monday, relations across the Taiwan Strait marked a new milestone when the Ocean Mystery, the first luxury cruise ship to sail directly from China, arrived in Taiwan with more than 1,000 Chinese tourists.
Perhaps the most notable sign of improving ties was a government defense paper endorsed by Mr. Ma that called for democratically governed Taiwan, a hub of the global high-tech industry, to give up its longtime strategy of preventing a Chinese attack by maintaining air and sea superiority. Instead, Taiwan would concentrate its defenses against a ground assault, according to the paper.
Supporters said the proposed strategy would be less costly for Taiwan and the weapons easier to obtain. In deference to China, few countries are willing to sell Taiwan weapons. Opponents said it would be nearly suicidal for the island of 23 million to fight a land war with its giant neighbor.
"Critics from the military and academia forced President Ma to emphasize that the navy and air force are both important," said a senior official from the Ministry of National Defense.
A presidential spokesman said: "President Ma fully respects professionals on this issue."
Under Monday's plan, Taiwan will try again to buy 66 F-16 C/D fighters from the U.S. These are more advanced versions of the F-16 that Taiwan has and would allow it to more effectively counter China's growing fleet of Russian-built warplanes. Last year, the Bush administration agreed to a US$6.43 billion arms package but excluded the fighters. China reacted by suspending military-to-military talks with the U.S., though they since have resumed.
Taiwan will formally request the fighters again, officials in Tapei said Monday, and in the long term try to buy "stealth" technology fighters. Taiwan also wants to buy submarines -- another item vetoed by the Bush administration. In an effort to balance this with more China-friendly policies, the paper calls for a "confidence-building mechanism" with China. Some officials have said this could involve officer exchanges.
Although the Obama administration is eager to improve relations with Beijing, some officials in Washington have implied that weapons sales are in the U.S.'s national interest. In testimony to Congress in February, National Intelligence Director Dennis Blair said the U.S. was the only outside power that could help Taiwan: "That means we're going to have to help them some more in order to maintain a balance."
Some U.S.-based analysts say sales would help maintain the balance of power in the region. That would reduce the need for American soldiers to defend Taiwan in case China tries to invade.
"If Taiwan is unable to deter attacks from China, it increases the probability of the U.S. having to confront China militarily should China make a mistake," said Rick Fisher, a senior fellow at the International Assessment and Strategy Center in Washington.
IER president on carbon taxes
A Taxing Debate, by Thomas J. Pyle
Planet Gore, Monday, March 16, 2009
Economists rarely agree on the past, and never on the future. But in the present debate over carbon taxes, a strange consensus is starting to form around the idea that a national tax on carbon is better than installing an economy-wide cap on it.
Maybe so. But being "better" than cap-and-trade doesn't make a carbon tax a worthwhile public investment. Black bears are less dangerous than grizzly bears; neither should be let loose in the subway. Just as we shouldn't let the perfect be the enemy of the good, we shouldn't let the horrendous serve as a justification for the horrible.
Well-intentioned proponents of the carbon tax call it "equitable and fair." It's "straightforward and upfront" — even its detractors admit that. And the coup de grâce: "It's budget neutral."
Here's how it's supposed to work: The federal government conjures a carbon-tax rate it believes will incent the American public to use, generate, and emit less of the stuff. To offset that new levy, the government reduces by a corresponding amount its tax-related take on things we desperately need right now: jobs, investment, and income. A revenue-neutral carbon tax, its advocates say, will create new jobs, generate new wealth, and save the planet, to boot.
The problem is, being revenue neutral from the government's point-of-view doesn't make a carbon tax revenue neutral for American families. Even if the government reduces income taxes to offset the imposition of a carbon tax, that tax will immediately increase the cost of nearly everything that's produced, consumed, manufactured, or transported — including and especially food and fuel.
And what of the nearly 40 percent of the public that doesn't pay taxes on its income? How are they made whole under a carbon tax system that's "offset" by tax reductions elsewhere? If government were to reduce payroll taxes rather than income taxes to achieve budget neutrality, how would we cover the ballooning obligations of our entitlement programs for retirees? A plan that would rob Peter to pay Paul is bad enough; robbing Mildred to subsidize Moonbat represents the height of irresponsibility.
Still, a growing number of economists — left, right, and middle — agree that a straight carbon tax makes more sense than cap and trade. Their fundamental contention is that it's more transparent, more understandable, and subject to less political manipulation than a purposefully opaque, intentionally unwieldy cap-and-trade regime. All good points. And irrelevant ones.
Why? Because the carbon tax is being sold as a means to reduce the concentration of atmospheric carbon dioxide, and thus to slow the pace and intensity of our world's changing climate. But America's share of the world's total CO2 emissions is getting smaller and smaller by the year, as developing nations' share continues to grow. The trend lines are so pronounced that if the U.S. were to halt its use of hydrocarbons today, the increase in carbon emissions from the rest of the world would replace our emissions in fewer than eight years. If we adopted a more modest approach - ban all cars, for instance - the rest of the world would replace our transportation emissions in less than two years.
And since Congress is powerless to levy a carbon tax on other countries, a unilateral, preemptive strike on carbon would only erode our ability to compete economically, without doing anything meaningful thing to change the composition of our air or the quality of our environment.
China and India will be happy to meet us half-way on at least one crucial consideration: they're more than willing to take the jobs America hemorrhages if we go it alone on carbon taxation. Government accountants can call the plan "budget neutral," but the labor department's monthly unemployment reports will have the final say on whether it is "job neutral."
Are the American people willing — or able — to set aside trillions of dollars to support a plan that cannot work without global participation? The very least we should expect from our elected leaders is a grown-up discussion about what it will all cost, what we'll get in return, and whether or not we can afford it right now. Or ever.
Those who support cap-and-trade have refused to engage in that discussion from the start. Carbon-tax supporters have been more up front. But that doesn't mean they're right.
— Thomas J. Pyle is president of the Institute for Energy Research
Planet Gore, Monday, March 16, 2009
Economists rarely agree on the past, and never on the future. But in the present debate over carbon taxes, a strange consensus is starting to form around the idea that a national tax on carbon is better than installing an economy-wide cap on it.
Maybe so. But being "better" than cap-and-trade doesn't make a carbon tax a worthwhile public investment. Black bears are less dangerous than grizzly bears; neither should be let loose in the subway. Just as we shouldn't let the perfect be the enemy of the good, we shouldn't let the horrendous serve as a justification for the horrible.
Well-intentioned proponents of the carbon tax call it "equitable and fair." It's "straightforward and upfront" — even its detractors admit that. And the coup de grâce: "It's budget neutral."
Here's how it's supposed to work: The federal government conjures a carbon-tax rate it believes will incent the American public to use, generate, and emit less of the stuff. To offset that new levy, the government reduces by a corresponding amount its tax-related take on things we desperately need right now: jobs, investment, and income. A revenue-neutral carbon tax, its advocates say, will create new jobs, generate new wealth, and save the planet, to boot.
The problem is, being revenue neutral from the government's point-of-view doesn't make a carbon tax revenue neutral for American families. Even if the government reduces income taxes to offset the imposition of a carbon tax, that tax will immediately increase the cost of nearly everything that's produced, consumed, manufactured, or transported — including and especially food and fuel.
And what of the nearly 40 percent of the public that doesn't pay taxes on its income? How are they made whole under a carbon tax system that's "offset" by tax reductions elsewhere? If government were to reduce payroll taxes rather than income taxes to achieve budget neutrality, how would we cover the ballooning obligations of our entitlement programs for retirees? A plan that would rob Peter to pay Paul is bad enough; robbing Mildred to subsidize Moonbat represents the height of irresponsibility.
Still, a growing number of economists — left, right, and middle — agree that a straight carbon tax makes more sense than cap and trade. Their fundamental contention is that it's more transparent, more understandable, and subject to less political manipulation than a purposefully opaque, intentionally unwieldy cap-and-trade regime. All good points. And irrelevant ones.
Why? Because the carbon tax is being sold as a means to reduce the concentration of atmospheric carbon dioxide, and thus to slow the pace and intensity of our world's changing climate. But America's share of the world's total CO2 emissions is getting smaller and smaller by the year, as developing nations' share continues to grow. The trend lines are so pronounced that if the U.S. were to halt its use of hydrocarbons today, the increase in carbon emissions from the rest of the world would replace our emissions in fewer than eight years. If we adopted a more modest approach - ban all cars, for instance - the rest of the world would replace our transportation emissions in less than two years.
And since Congress is powerless to levy a carbon tax on other countries, a unilateral, preemptive strike on carbon would only erode our ability to compete economically, without doing anything meaningful thing to change the composition of our air or the quality of our environment.
China and India will be happy to meet us half-way on at least one crucial consideration: they're more than willing to take the jobs America hemorrhages if we go it alone on carbon taxation. Government accountants can call the plan "budget neutral," but the labor department's monthly unemployment reports will have the final say on whether it is "job neutral."
Are the American people willing — or able — to set aside trillions of dollars to support a plan that cannot work without global participation? The very least we should expect from our elected leaders is a grown-up discussion about what it will all cost, what we'll get in return, and whether or not we can afford it right now. Or ever.
Those who support cap-and-trade have refused to engage in that discussion from the start. Carbon-tax supporters have been more up front. But that doesn't mean they're right.
— Thomas J. Pyle is president of the Institute for Energy Research
Sheikh Hasina’s Regional Anti-Terror Task Force Unlikely to Takeoff
Sheikh Hasina’s Regional Anti-Terror Task Force Unlikely to Takeoff. By Anand Kumar
Institute for Defence Studies and Analyses, March 16, 2009
Counter-terrorism and elimination of religious extremism were important parts of Sheikh Hasina’s election manifesto. But the concern about terrorism is not limited to top Awami League leaders and is also felt by a major section of the Bangladesh public. Many supported the Awami League in the hope of reversing the rising trend of extremism and terrorism in the country. In her very first press conference after winning the elections, Sheikh Hasina stated that she will not allow the country's soil to be used by terror groups and proposed a joint task force in the subcontinent to tackle terror. It is felt that this task force will help track down militants and bring them to justice as well as strengthen cooperation between the police forces and judiciaries of South Asian nations. Hasina also sought British support for such a task force during a meeting with the British High Commissioner to Dhaka. Terrorism was also a prominent topic that was discussed at the meeting with the American envoy James Moriarty and Bangladesh’s Foreign Minister Dipu Moni.
However, Hasina’s proposal to establish a South Asian regional anti-terror task force may not fructify especially given domestic opposition within Bangladesh. The Awami League’s main political rival, Bangladesh Nationalist Party (BNP), has expressed its opposition to the proposal. The party feels that other nations, particularly Pakistan, are unlikely to be enthusiastic about it. When Sheikh Hasina discussed the proposal with Indian foreign minister Pranab Mukherjee, the BNP launched a blistering attack against. BNP Secretary General Khandaker Delwar Hossain warned the government that “any bilateral mechanism” with India in the name of a South Asian regional anti-terror task force could turn Bangladesh into a “Gaza.” It could give rise to “complications and possibilities of armed activities of other countries spilling over to Bangladesh.” Hossain also said, “We firmly believe that our people, conventional laws, law enforcing agencies and the armed forces are capable enough to keep the country free from militancy and strife. Signing any deal with other countries outside international conventions to contain militancy is unnecessary and could prove suicidal.”
Jamaat-e-Islami Bangladesh has also warned the Hasina government that it will only invite trouble by forming a regional anti-terror task force. Party chief Matiur Rahman Nizami said, "Our police, BDR, RAB and army are enough to prevent terrorism in the country. If foreign troops are called inside the country it will amount to inviting trouble." Nizami criticized the government for its impatience to sign "anti-people" agreements like the regional anti-terrorism task, transit facilities, the Trade and Investment Framework Agreement (TIFA) with the United States, etc. Nizami also alleged that "….such a hasty move proves that they were put to power through a conspiracy only for signing such anti-people agreements."
In addition to domestic resistance, the regional task force proposal also has to contend with the realities of divergent interests among South Asian countries. There is little doubt that to combat terrorism South Asia needs a joint effort. It was realized long ago that regional cooperation was necessary to address terrorism, and it was with this objective that South Asian countries had adopted the SAARC Convention on Terrorism in 1987. The convention was reinforced by the adoption of an Additional Protocol on terrorism at the 12th Summit whose modalities were finalised in the Dhaka Summit. The SAARC established a Terrorist Offences Monitoring Desk (STOMD) in Colombo to collate, analyse and disseminate information about terrorist incidents, tactics, strategies and methods. At the 11th Summit in Kathmandu in January 2002, leaders of SAARC had taken a pledge to make collective efforts to stamp out terrorism.
But for regional efforts to bear fruit, all member states have to show equal commitment. In the past this has not been the case, a state of affairs that has not yet changed. If South Asia really wants to uproot terror SAARC should get down to implementing the declarations it has agreed upon at various summits. Hasina is also probably aware of the problem among SAARC countries, hence her call for good relations between Pakistan and India. But it is also known that relations between India and Pakistan are not going to improve in a hurry. Thus, it is all the more incomprehensible as to why the Hasina government wants to make counter-terrorism cooperation hostage to the creation of a regional mechanism.
Dr. Anand Kumar is Associate Fellow at the Institute for Defence Studies and Analyses, New Delhi.
Institute for Defence Studies and Analyses, March 16, 2009
Counter-terrorism and elimination of religious extremism were important parts of Sheikh Hasina’s election manifesto. But the concern about terrorism is not limited to top Awami League leaders and is also felt by a major section of the Bangladesh public. Many supported the Awami League in the hope of reversing the rising trend of extremism and terrorism in the country. In her very first press conference after winning the elections, Sheikh Hasina stated that she will not allow the country's soil to be used by terror groups and proposed a joint task force in the subcontinent to tackle terror. It is felt that this task force will help track down militants and bring them to justice as well as strengthen cooperation between the police forces and judiciaries of South Asian nations. Hasina also sought British support for such a task force during a meeting with the British High Commissioner to Dhaka. Terrorism was also a prominent topic that was discussed at the meeting with the American envoy James Moriarty and Bangladesh’s Foreign Minister Dipu Moni.
However, Hasina’s proposal to establish a South Asian regional anti-terror task force may not fructify especially given domestic opposition within Bangladesh. The Awami League’s main political rival, Bangladesh Nationalist Party (BNP), has expressed its opposition to the proposal. The party feels that other nations, particularly Pakistan, are unlikely to be enthusiastic about it. When Sheikh Hasina discussed the proposal with Indian foreign minister Pranab Mukherjee, the BNP launched a blistering attack against. BNP Secretary General Khandaker Delwar Hossain warned the government that “any bilateral mechanism” with India in the name of a South Asian regional anti-terror task force could turn Bangladesh into a “Gaza.” It could give rise to “complications and possibilities of armed activities of other countries spilling over to Bangladesh.” Hossain also said, “We firmly believe that our people, conventional laws, law enforcing agencies and the armed forces are capable enough to keep the country free from militancy and strife. Signing any deal with other countries outside international conventions to contain militancy is unnecessary and could prove suicidal.”
Jamaat-e-Islami Bangladesh has also warned the Hasina government that it will only invite trouble by forming a regional anti-terror task force. Party chief Matiur Rahman Nizami said, "Our police, BDR, RAB and army are enough to prevent terrorism in the country. If foreign troops are called inside the country it will amount to inviting trouble." Nizami criticized the government for its impatience to sign "anti-people" agreements like the regional anti-terrorism task, transit facilities, the Trade and Investment Framework Agreement (TIFA) with the United States, etc. Nizami also alleged that "….such a hasty move proves that they were put to power through a conspiracy only for signing such anti-people agreements."
In addition to domestic resistance, the regional task force proposal also has to contend with the realities of divergent interests among South Asian countries. There is little doubt that to combat terrorism South Asia needs a joint effort. It was realized long ago that regional cooperation was necessary to address terrorism, and it was with this objective that South Asian countries had adopted the SAARC Convention on Terrorism in 1987. The convention was reinforced by the adoption of an Additional Protocol on terrorism at the 12th Summit whose modalities were finalised in the Dhaka Summit. The SAARC established a Terrorist Offences Monitoring Desk (STOMD) in Colombo to collate, analyse and disseminate information about terrorist incidents, tactics, strategies and methods. At the 11th Summit in Kathmandu in January 2002, leaders of SAARC had taken a pledge to make collective efforts to stamp out terrorism.
But for regional efforts to bear fruit, all member states have to show equal commitment. In the past this has not been the case, a state of affairs that has not yet changed. If South Asia really wants to uproot terror SAARC should get down to implementing the declarations it has agreed upon at various summits. Hasina is also probably aware of the problem among SAARC countries, hence her call for good relations between Pakistan and India. But it is also known that relations between India and Pakistan are not going to improve in a hurry. Thus, it is all the more incomprehensible as to why the Hasina government wants to make counter-terrorism cooperation hostage to the creation of a regional mechanism.
Dr. Anand Kumar is Associate Fellow at the Institute for Defence Studies and Analyses, New Delhi.
Lawrence Summers on the Economic Crisis and Recovery
Lawrence Summers on the Economic Crisis and Recovery
Brookings, Mar 17, 2009
On March 13, the Brookings Institution hosted Lawrence Summers, Director of the White House National Economic Council, for a discussion of the Obama administration’s economic program and the prospects for the American economy.
Dr. Summers was appointed Director of the National Economic Council by President Obama on November 24, 2008. Before joining the White House in January, Dr. Summers was the Charles W. Eliot University Professor at Harvard University. He served as the 27th president of Harvard University from July 2001 until June 2006. From 1999 to 2001, he served as the 71st United States Secretary of the Treasury following his earlier service as Deputy and Under Secretary of the Treasury and as Chief Economist of the World Bank. Summers has taught economics at Harvard and MIT. Lawrence Summers received his B.S. from MIT and his Ph.D. in economics from Harvard. He served as a Brookings trustee from November 2002 – January 2009.
Brookings Senior Fellow Martin Neil Baily provided introductory remarks. After the program, Dr. Summers took audience questions.
Transcript
LARRY SUMMERS: Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike its recent predecessors, is fundamentally sound and not driven by financial excess. Without robust and sustained economic expansion, we will not achieve any other important national goal. We will not be able to project strength globally or reduce poverty locally. We will not expand access to higher education or make health care more affordable. And we will not be able to create opportunities for new small businesses to thrive, or most importantly, to raise incomes for middle-class families.
So today I come here to explain and discuss the rationale behind the President's Recovery Program and our strategy for long-term growth. Our problems were not made in a day or a month or a year, and they will not be solved quickly. But there is one ineluctable lesson of the history of financial crises: they all end. I am confident that with strong and sound policies the President has put forward and the passage of time, we will restore economic growth, regain financial stability and find opportunity in this moment of crisis to assure that our future prosperity rests on a sound and sustainable foundation.
View Full Transcript »
Brookings, Mar 17, 2009
On March 13, the Brookings Institution hosted Lawrence Summers, Director of the White House National Economic Council, for a discussion of the Obama administration’s economic program and the prospects for the American economy.
Dr. Summers was appointed Director of the National Economic Council by President Obama on November 24, 2008. Before joining the White House in January, Dr. Summers was the Charles W. Eliot University Professor at Harvard University. He served as the 27th president of Harvard University from July 2001 until June 2006. From 1999 to 2001, he served as the 71st United States Secretary of the Treasury following his earlier service as Deputy and Under Secretary of the Treasury and as Chief Economist of the World Bank. Summers has taught economics at Harvard and MIT. Lawrence Summers received his B.S. from MIT and his Ph.D. in economics from Harvard. He served as a Brookings trustee from November 2002 – January 2009.
Brookings Senior Fellow Martin Neil Baily provided introductory remarks. After the program, Dr. Summers took audience questions.
Transcript
LARRY SUMMERS: Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike its recent predecessors, is fundamentally sound and not driven by financial excess. Without robust and sustained economic expansion, we will not achieve any other important national goal. We will not be able to project strength globally or reduce poverty locally. We will not expand access to higher education or make health care more affordable. And we will not be able to create opportunities for new small businesses to thrive, or most importantly, to raise incomes for middle-class families.
So today I come here to explain and discuss the rationale behind the President's Recovery Program and our strategy for long-term growth. Our problems were not made in a day or a month or a year, and they will not be solved quickly. But there is one ineluctable lesson of the history of financial crises: they all end. I am confident that with strong and sound policies the President has put forward and the passage of time, we will restore economic growth, regain financial stability and find opportunity in this moment of crisis to assure that our future prosperity rests on a sound and sustainable foundation.
View Full Transcript »
Monday, March 16, 2009
Everybody hates ethanol
Hating Ethanol, by Drew Thornley
Planet Gore, Monday, March 16, 2009
In case you're not up to speed on the boondoggle that is the U.S. corn-ethanol industry, today's Wall Street Journal has a nice status report:
These days, it's routine for businesses to fail, get rescued by the government, and then continue to fail. But ethanol, which survives only because of its iron lung of subsidies and mandates, is a special case. Naturally, the industry is demanding even more government life support.
The ethanol boosters aren't troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10%. It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles. It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.
That possible policy train wreck is uniting almost every other Washington lobby — and talk about strange bedfellows. The Alliance of Automobile Manufacturers, the Motorcycle Industry Council and the Outdoor Power Equipment Institute, among others, are opposed, since raising the blend limit will ruin their products. The left-leaning American Lung Association and the Union of Concerned Scientists are opposed too, since it will increase auto emissions. The Natural Resources Defense Council and the Sierra Club agree, on top of growing scientific evidence that corn ethanol provides little or no net reduction in CO2 over the gasoline it displaces.
The biggest losers in this scheme are U.S. oil refiners. Liability for any problems arising from ethanol blending rests with them, because Congress refused to grant legal immunity for selling a product that complies with the mandates that it ordered. The refiners are also set to pay stiff fines for not fulfilling Congress's mandates for second-generation cellulosic ethanol. But the cellulosic ethanol makers themselves already concede that they won't be able to churn out enough of the stuff — 100 million gallons next year, 250 million gallons in 2011 — to meet the targets that Congress wrote two years ago.
So successful but politically unpopular businesses will be punished for not buying a product that does not exist — from companies that haven't yet found a way to succeed despite generous political and taxpayer advantages. The next step is to use cap and trade to make green alternatives look artificially good by comparison. Even then they'll probably still be bottomless money pits.
To recap: Congress and the ethanol lobby argue that if some outcome would be politically nice, it should be mandated (details to follow). Then a new round of market interventions is necessary to fix the economic harm resulting from the previous requirements, while creating more damage in the process. Ethanol is one of the most shameless energy rackets going, in a field with no shortage of competitors.
Planet Gore, Monday, March 16, 2009
In case you're not up to speed on the boondoggle that is the U.S. corn-ethanol industry, today's Wall Street Journal has a nice status report:
These days, it's routine for businesses to fail, get rescued by the government, and then continue to fail. But ethanol, which survives only because of its iron lung of subsidies and mandates, is a special case. Naturally, the industry is demanding even more government life support.
The ethanol boosters aren't troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10%. It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles. It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.
That possible policy train wreck is uniting almost every other Washington lobby — and talk about strange bedfellows. The Alliance of Automobile Manufacturers, the Motorcycle Industry Council and the Outdoor Power Equipment Institute, among others, are opposed, since raising the blend limit will ruin their products. The left-leaning American Lung Association and the Union of Concerned Scientists are opposed too, since it will increase auto emissions. The Natural Resources Defense Council and the Sierra Club agree, on top of growing scientific evidence that corn ethanol provides little or no net reduction in CO2 over the gasoline it displaces.
The biggest losers in this scheme are U.S. oil refiners. Liability for any problems arising from ethanol blending rests with them, because Congress refused to grant legal immunity for selling a product that complies with the mandates that it ordered. The refiners are also set to pay stiff fines for not fulfilling Congress's mandates for second-generation cellulosic ethanol. But the cellulosic ethanol makers themselves already concede that they won't be able to churn out enough of the stuff — 100 million gallons next year, 250 million gallons in 2011 — to meet the targets that Congress wrote two years ago.
So successful but politically unpopular businesses will be punished for not buying a product that does not exist — from companies that haven't yet found a way to succeed despite generous political and taxpayer advantages. The next step is to use cap and trade to make green alternatives look artificially good by comparison. Even then they'll probably still be bottomless money pits.
To recap: Congress and the ethanol lobby argue that if some outcome would be politically nice, it should be mandated (details to follow). Then a new round of market interventions is necessary to fix the economic harm resulting from the previous requirements, while creating more damage in the process. Ethanol is one of the most shameless energy rackets going, in a field with no shortage of competitors.
The US should focus on defending itself, allowing friends and allies to defend themselves and their regions
Squaring the Pentagon, by Doug Bandow
The U.S. government should focus on defending America, allowing friends and allies to defend themselves and their regions.
Cato, Mar 10, 2009
President Barack Obama has unveiled his new budget, which proposes continued increases in military outlays. What for? The United States is spending far too much on the Pentagon.
There is no more important federal role than providing for the common defense. But what is required for defense depends upon circumstances. Military requirements in 1900 differed dramatically from those in 1940 and in 1980. What are the requirements today?
The latest Pentagon budget suggests that the United States is embattled and isolated, its territory threatened and its future imperiled. The Obama administration has proposed a $40 billion (8 percent) hike in military outlays in 2010 to $527.7 billion. (Counting Iraq and Afghanistan will push annual military spending up to around $700 billion.) President Obama plans to continue increasing the size of the Army and Marine Corps.
This proposal comes on top of a 75 percent increase in real military outlays under the Bush administration. Today, Washington possesses the world's most sophisticated nuclear arsenal, most powerful air force, most dominating navy and most effective army. America accounts for roughly half of global military outlays. Observes the Cato Institute's Ben Friedman: "Add the wars, nuclear weapons research, veterans, and homeland security, and you get about $750 billion. That is more than six times what China spends, 10 times what Russia spends and 70 times what Iran, North Korea and Syria spend combined."
Nevertheless, Pentagon officials and conservative activists are complaining about defense "cuts" since the new administration has reduced the Pentagon's request for even more money. Robert Kagan of the Carnegie Endowment for International Peace even contends that the Obama administration is signaling that "the American retreat has begun."
Thus, a mix of officials, lobbyists, and analysts advocate spending a fixed percentage of GDP on the military, irrespective of circumstance. Both Secretary of Defense Robert Gates and Joint Chiefs of Staff Chairman Admiral Mike Mullen advocate setting a spending floor of 4 percent of GDP. Marion Blakey, president of the Aerospace Industries Association says the 4 percent floor should be "front and center for any new president's agenda." Former Missouri Senator James Talent has been promoting the same number. The Heritage Foundation calls this the "4% for Freedom Solution." (Baseline spending currently runs 3.7 percent.)
Steven Kosiak of the Center for Strategic and Budgetary Assessments figures that a four percent rule would increase military outlays above current plans by between $1.4 and $1.7 trillion over the next decade. Even that isn't enough money for some uber-hawks. Republican presidential candidate Fred Thompson wanted 4.5 percent of GDP. AEI's Gary Schmitt prefers five percent. The Wall Street Journal has editorialized for five to six percent. Former and potential GOP presidential candidate Mike Huckabee advocated six percent—more than a 50 percent hike over today's levels.
Whatever could justify such increases?
The United States already spends more on the military in real terms than it did during the cold war, even as the very hot Korean and Vietnam Wars raged. America devotes a lower percentage of its GDP to the military, but the U.S. economy is much greater today—six times (adjusting for inflation) as big as at the end of World War II. Total resources for defense are higher today than at any other point in over six decades.
Nevertheless, worries Admiral Mullen: "the four percent floor is . . . really important, given the world we're living in, given the threats that we see out there, the risks that are, in fact, global, not just in the Middle East." Bret Stephens of the Wall Street Journal believes that we are in what amounts to a new post-Locarno world like that before World War II, as the forces of darkness were gathering. AEI's Frederick Kagan argued that "American inattention to the world in the coming years could lead to a similarly devastating result" like World War II, since "the current international environment is by any comparison more dangerous for the U.S. than the one that led to World War II." Jim Talent contended: "We live in a multipolar world with threats that are highly unpredictable and therefore, taken as a whole, more dangerous than the threats we faced during the cold war." Representative John Shadegg claimed that "Our nation is facing the threat of Radical Islam, the gravest threat to our national security in history."
If these claims are true, then why spend only four percent of GDP on defense? Why not 9.4 percent, as during the Vietnam War? Or 14.2 percent, as during the Korean War? Or 37.8 percent, as during World War II? Or even more? After all, we can never be too safe.
The reason why not is simple. These apocalyptic claims are absurd.
There is no longer a Nazi Germany or imperial Japan. Nor even a fascist Italy. There is no more Soviet Union or Warsaw Pact. There is no longer an ideologically-aggressive Communist China allied with the Soviet Union. The patchwork of Third World states backed by the Soviet Union has dissolved. As Gertrude Stein once said of Oakland, there is no there there in terms of traditional military threats.
At the same time, Washington spends almost as much as the rest of the world combined on our military. Sure, some small or poor states devote a larger percentage of their limited resources to defense, but their total outlays remain minuscule compared to those of America. That's not all, however. The United States is allied with every major industrialized state save China and Russia. America and other NATO members together account for about $1.05 trillion out of $1.470 trillion in world military expenditures. Adding Japan, South Korea, and Australia take the allied up to $1.15 trillion.
Nevertheless, when running for president Rudy Giuliani opined: "The idea of a post-Cold War 'peace dividend' was a serious mistake—the product of wishful thinking and the opposite of true realism." The Washington Examiner worries that "potential adversaries rapidly are ramping up their militaries."
Precisely who?
America's relationship with Moscow and Beijing is civil, if sometimes difficult. Even if one assumes greater hostility not today evident, the United States vastly outranges both militarily. America's defense expenditures—not counting spending for the Afghanistan and Iraq wars—run at least four times and as much as seven times as much as each of their outlays (for which estimates vary). America has eleven carrier groups, while Russia has one and China has none. Moscow has a nuclear force sufficient to deter U.S. military action, but little conventional capability beyond its own borders. Russia can beat up neighboring Georgia, but not threaten the United States.
Beijing is investing more in the military, but is starting with a far lower base and still spending far less. If the People's Republic of China (PRC) wants to overtake Washington as a global power, the PRC will have to spend more than America for years. What China is doing today is creating a defensive force capable of deterring U.S. intervention, not an offensive force capable of attacking America. And even as China grows economically, it will remain well behind the United States in wealth. America's per capita GDP last year was $48,000. That of China was $6,100. The PRC is in no position to match, let alone overtake, America, in the foreseeable future.
Moreover, Russia's and China's neighbors, most of whom are close friends of Washington, could do much more if necessary: America's allies account for about three-quarters of world GDP, and the number goes higher when one includes friendly states like India. The European Union's GDP alone is thirteen times as great as that of Russia.
Japan's economy remains roughly as large as that of the PRC (estimates differ). Still, China has a greater prospect than Russia of becoming regionally dominant. But Beijing is surrounded by countries with which it has fought wars: Russia, Japan, India and Vietnam. Further, India, Japan, South Korea, Australia and ASEAN states have created or could create militaries capable of deterring Chinese adventurism. Beijing would have to undertake a dramatic military build-up to overwhelm Washington's East Asian friends, let alone threaten America's territory.
Could circumstances change in five, ten or twenty years? Yes, but it makes no sense for the United States to waste money today dealing with unlikely scenarios which, even if they occurred, could be dealt with less expensively in the future. America will be stronger and better prepared to face future challenges if it husbands its resources and encourages economic growth today. The United States should work to defuse, not exacerbate conflict. For instance, philosophical distaste for Vladimir Putin's Russia is no reason to turn it into a military adversary.
If not China and Russia, then who threatens America? Washington has forged better ties with India and has no serious conflicts with other emerging powers, such as Brazil, Indonesia and South Africa. America's presumed enemies are few and pitiful: North Korea, Iran, Cuba. Maybe Burma and Venezuela. Toss in Sudan and Somalia, as if the latter actually existed as a nation. Stretch to include Syria. This disparate group is no replacement for the Axis alliance or Soviet empire.
None of these countries actually endangers the United States. Nasty actors, yes, but with very limited ambitions and abilities. Writes Friedman, "North Korea and Iran trouble their citizens and neighbors, but with decaying economies, shoddy militaries, and aversion to suicidal behavior, they pose little threat to the United States."
Only North Korea has a serious military, but it is directed at the Republic of Korea (ROK), not the United States. The ROK is a long-time friend, but can defend itself. With 40 times the GDP, twice the population, a vast technological edge and far more international friends, including the North's old allies Beijing and Moscow, South Korea no longer needs America's help.
Iran doesn't even threaten U.S. allies. Tehran remains far away from developing actual nuclear weapons, is surrounded by potential adversaries and faces Israel, which is a regional superpower with a sizable nuclear arsenal. The other hostile states are militarily irrelevant—brutal towards their own people, but unable to harm anyone else.
Washington is not without serious security concerns, most obviously terrorism. However, carrier groups and armored divisions are largely irrelevant to this issue. Better intelligence, improved allied cooperation and expanded special forces are far more useful tools. Indeed, military involvement itself encourages terrorism: intervening in the Lebanese civil war, placing a garrison on Saudi territory and sending the USS Cole to Yemen all helped spark terrorist attacks. So did the occupation of Iraq. In these and other cases, a smaller and less active military would have done more to reduce terrorism.
Washington should spend heavily, if necessary, to safeguard America's population, territory, constitutional system and liberties. But this mission cannot explain Washington's current military outlays. Observes Richard Betts of Columbia University,
such levels cannot be justified based on any actual threats that the U.S. armed forces might plausibly be expected to encounter. The military capabilities of the United States need to be kept comfortably superior to those of present and potential enemies. But they should be measured relatively, against those enemies' capabilities, and not against the limits of what is technologically possible or based on some vague urge to have more.
Today most U.S. military outlays are directed at offense, not defense, to underwrite populous and prosperous allies and remake failed societies. This is why defense expenditures are seen by some as "inadequate." Military spending is the price of one's foreign policy, and it is expensive to attempt to micromanage world affairs. Thus, Tom Donnelly of the American Enterprise Institute correctly complains of "the large and long-standing gap between U.S. strategy and military resources." But he is wrong to assume that promiscuous intervention is Washington's only policy option.
How should America decide how much to spend on the military? Steven Kosiak writes:
considering the range of military threats and challenges the country faces, and determining the strategy, forces and capabilities needed to counter those challenges and advance U.S. interests, at an acceptable level of risk—as well as at an acceptable cost, in terms of other national priorities (including everything from homeland security to health care).
By this standard, military expenditures should come down substantially. The point is not that Washington cannot afford to be a global cop and social engineer, though the economic crisis—with the collapse in private asset values and explosion of federal debt—has made such a policy much more difficult. But it is not in America's interest to devote so much of its resources to activities with so little relevance to American security. The U.S. government should focus on defending America, allowing friends and allies to defend themselves and their regions.
If spending as much as the rest of the world on the military isn't enough, how much is? If accounting for nearly 80 percent of world military outlays isn't enough for the United States and its allies, how much is? America is by far the most powerful nation on earth. What the United States needs is not a bigger military budget, but a more restrained foreign policy. That is, a foreign policy befitting a democratic republic.
The U.S. government should focus on defending America, allowing friends and allies to defend themselves and their regions.
Cato, Mar 10, 2009
President Barack Obama has unveiled his new budget, which proposes continued increases in military outlays. What for? The United States is spending far too much on the Pentagon.
There is no more important federal role than providing for the common defense. But what is required for defense depends upon circumstances. Military requirements in 1900 differed dramatically from those in 1940 and in 1980. What are the requirements today?
The latest Pentagon budget suggests that the United States is embattled and isolated, its territory threatened and its future imperiled. The Obama administration has proposed a $40 billion (8 percent) hike in military outlays in 2010 to $527.7 billion. (Counting Iraq and Afghanistan will push annual military spending up to around $700 billion.) President Obama plans to continue increasing the size of the Army and Marine Corps.
This proposal comes on top of a 75 percent increase in real military outlays under the Bush administration. Today, Washington possesses the world's most sophisticated nuclear arsenal, most powerful air force, most dominating navy and most effective army. America accounts for roughly half of global military outlays. Observes the Cato Institute's Ben Friedman: "Add the wars, nuclear weapons research, veterans, and homeland security, and you get about $750 billion. That is more than six times what China spends, 10 times what Russia spends and 70 times what Iran, North Korea and Syria spend combined."
Nevertheless, Pentagon officials and conservative activists are complaining about defense "cuts" since the new administration has reduced the Pentagon's request for even more money. Robert Kagan of the Carnegie Endowment for International Peace even contends that the Obama administration is signaling that "the American retreat has begun."
Thus, a mix of officials, lobbyists, and analysts advocate spending a fixed percentage of GDP on the military, irrespective of circumstance. Both Secretary of Defense Robert Gates and Joint Chiefs of Staff Chairman Admiral Mike Mullen advocate setting a spending floor of 4 percent of GDP. Marion Blakey, president of the Aerospace Industries Association says the 4 percent floor should be "front and center for any new president's agenda." Former Missouri Senator James Talent has been promoting the same number. The Heritage Foundation calls this the "4% for Freedom Solution." (Baseline spending currently runs 3.7 percent.)
Steven Kosiak of the Center for Strategic and Budgetary Assessments figures that a four percent rule would increase military outlays above current plans by between $1.4 and $1.7 trillion over the next decade. Even that isn't enough money for some uber-hawks. Republican presidential candidate Fred Thompson wanted 4.5 percent of GDP. AEI's Gary Schmitt prefers five percent. The Wall Street Journal has editorialized for five to six percent. Former and potential GOP presidential candidate Mike Huckabee advocated six percent—more than a 50 percent hike over today's levels.
Whatever could justify such increases?
The United States already spends more on the military in real terms than it did during the cold war, even as the very hot Korean and Vietnam Wars raged. America devotes a lower percentage of its GDP to the military, but the U.S. economy is much greater today—six times (adjusting for inflation) as big as at the end of World War II. Total resources for defense are higher today than at any other point in over six decades.
Nevertheless, worries Admiral Mullen: "the four percent floor is . . . really important, given the world we're living in, given the threats that we see out there, the risks that are, in fact, global, not just in the Middle East." Bret Stephens of the Wall Street Journal believes that we are in what amounts to a new post-Locarno world like that before World War II, as the forces of darkness were gathering. AEI's Frederick Kagan argued that "American inattention to the world in the coming years could lead to a similarly devastating result" like World War II, since "the current international environment is by any comparison more dangerous for the U.S. than the one that led to World War II." Jim Talent contended: "We live in a multipolar world with threats that are highly unpredictable and therefore, taken as a whole, more dangerous than the threats we faced during the cold war." Representative John Shadegg claimed that "Our nation is facing the threat of Radical Islam, the gravest threat to our national security in history."
If these claims are true, then why spend only four percent of GDP on defense? Why not 9.4 percent, as during the Vietnam War? Or 14.2 percent, as during the Korean War? Or 37.8 percent, as during World War II? Or even more? After all, we can never be too safe.
The reason why not is simple. These apocalyptic claims are absurd.
There is no longer a Nazi Germany or imperial Japan. Nor even a fascist Italy. There is no more Soviet Union or Warsaw Pact. There is no longer an ideologically-aggressive Communist China allied with the Soviet Union. The patchwork of Third World states backed by the Soviet Union has dissolved. As Gertrude Stein once said of Oakland, there is no there there in terms of traditional military threats.
At the same time, Washington spends almost as much as the rest of the world combined on our military. Sure, some small or poor states devote a larger percentage of their limited resources to defense, but their total outlays remain minuscule compared to those of America. That's not all, however. The United States is allied with every major industrialized state save China and Russia. America and other NATO members together account for about $1.05 trillion out of $1.470 trillion in world military expenditures. Adding Japan, South Korea, and Australia take the allied up to $1.15 trillion.
Nevertheless, when running for president Rudy Giuliani opined: "The idea of a post-Cold War 'peace dividend' was a serious mistake—the product of wishful thinking and the opposite of true realism." The Washington Examiner worries that "potential adversaries rapidly are ramping up their militaries."
Precisely who?
America's relationship with Moscow and Beijing is civil, if sometimes difficult. Even if one assumes greater hostility not today evident, the United States vastly outranges both militarily. America's defense expenditures—not counting spending for the Afghanistan and Iraq wars—run at least four times and as much as seven times as much as each of their outlays (for which estimates vary). America has eleven carrier groups, while Russia has one and China has none. Moscow has a nuclear force sufficient to deter U.S. military action, but little conventional capability beyond its own borders. Russia can beat up neighboring Georgia, but not threaten the United States.
Beijing is investing more in the military, but is starting with a far lower base and still spending far less. If the People's Republic of China (PRC) wants to overtake Washington as a global power, the PRC will have to spend more than America for years. What China is doing today is creating a defensive force capable of deterring U.S. intervention, not an offensive force capable of attacking America. And even as China grows economically, it will remain well behind the United States in wealth. America's per capita GDP last year was $48,000. That of China was $6,100. The PRC is in no position to match, let alone overtake, America, in the foreseeable future.
Moreover, Russia's and China's neighbors, most of whom are close friends of Washington, could do much more if necessary: America's allies account for about three-quarters of world GDP, and the number goes higher when one includes friendly states like India. The European Union's GDP alone is thirteen times as great as that of Russia.
Japan's economy remains roughly as large as that of the PRC (estimates differ). Still, China has a greater prospect than Russia of becoming regionally dominant. But Beijing is surrounded by countries with which it has fought wars: Russia, Japan, India and Vietnam. Further, India, Japan, South Korea, Australia and ASEAN states have created or could create militaries capable of deterring Chinese adventurism. Beijing would have to undertake a dramatic military build-up to overwhelm Washington's East Asian friends, let alone threaten America's territory.
Could circumstances change in five, ten or twenty years? Yes, but it makes no sense for the United States to waste money today dealing with unlikely scenarios which, even if they occurred, could be dealt with less expensively in the future. America will be stronger and better prepared to face future challenges if it husbands its resources and encourages economic growth today. The United States should work to defuse, not exacerbate conflict. For instance, philosophical distaste for Vladimir Putin's Russia is no reason to turn it into a military adversary.
If not China and Russia, then who threatens America? Washington has forged better ties with India and has no serious conflicts with other emerging powers, such as Brazil, Indonesia and South Africa. America's presumed enemies are few and pitiful: North Korea, Iran, Cuba. Maybe Burma and Venezuela. Toss in Sudan and Somalia, as if the latter actually existed as a nation. Stretch to include Syria. This disparate group is no replacement for the Axis alliance or Soviet empire.
None of these countries actually endangers the United States. Nasty actors, yes, but with very limited ambitions and abilities. Writes Friedman, "North Korea and Iran trouble their citizens and neighbors, but with decaying economies, shoddy militaries, and aversion to suicidal behavior, they pose little threat to the United States."
Only North Korea has a serious military, but it is directed at the Republic of Korea (ROK), not the United States. The ROK is a long-time friend, but can defend itself. With 40 times the GDP, twice the population, a vast technological edge and far more international friends, including the North's old allies Beijing and Moscow, South Korea no longer needs America's help.
Iran doesn't even threaten U.S. allies. Tehran remains far away from developing actual nuclear weapons, is surrounded by potential adversaries and faces Israel, which is a regional superpower with a sizable nuclear arsenal. The other hostile states are militarily irrelevant—brutal towards their own people, but unable to harm anyone else.
Washington is not without serious security concerns, most obviously terrorism. However, carrier groups and armored divisions are largely irrelevant to this issue. Better intelligence, improved allied cooperation and expanded special forces are far more useful tools. Indeed, military involvement itself encourages terrorism: intervening in the Lebanese civil war, placing a garrison on Saudi territory and sending the USS Cole to Yemen all helped spark terrorist attacks. So did the occupation of Iraq. In these and other cases, a smaller and less active military would have done more to reduce terrorism.
Washington should spend heavily, if necessary, to safeguard America's population, territory, constitutional system and liberties. But this mission cannot explain Washington's current military outlays. Observes Richard Betts of Columbia University,
such levels cannot be justified based on any actual threats that the U.S. armed forces might plausibly be expected to encounter. The military capabilities of the United States need to be kept comfortably superior to those of present and potential enemies. But they should be measured relatively, against those enemies' capabilities, and not against the limits of what is technologically possible or based on some vague urge to have more.
Today most U.S. military outlays are directed at offense, not defense, to underwrite populous and prosperous allies and remake failed societies. This is why defense expenditures are seen by some as "inadequate." Military spending is the price of one's foreign policy, and it is expensive to attempt to micromanage world affairs. Thus, Tom Donnelly of the American Enterprise Institute correctly complains of "the large and long-standing gap between U.S. strategy and military resources." But he is wrong to assume that promiscuous intervention is Washington's only policy option.
How should America decide how much to spend on the military? Steven Kosiak writes:
considering the range of military threats and challenges the country faces, and determining the strategy, forces and capabilities needed to counter those challenges and advance U.S. interests, at an acceptable level of risk—as well as at an acceptable cost, in terms of other national priorities (including everything from homeland security to health care).
By this standard, military expenditures should come down substantially. The point is not that Washington cannot afford to be a global cop and social engineer, though the economic crisis—with the collapse in private asset values and explosion of federal debt—has made such a policy much more difficult. But it is not in America's interest to devote so much of its resources to activities with so little relevance to American security. The U.S. government should focus on defending America, allowing friends and allies to defend themselves and their regions.
If spending as much as the rest of the world on the military isn't enough, how much is? If accounting for nearly 80 percent of world military outlays isn't enough for the United States and its allies, how much is? America is by far the most powerful nation on earth. What the United States needs is not a bigger military budget, but a more restrained foreign policy. That is, a foreign policy befitting a democratic republic.
A Dialogue With Lebanon's Ayatollah, Muhammad Hussein Fadhlullah
A Dialogue With Lebanon's Ayatollah. By Robert L Pollock
WSJ, Beirut, Mar 16, 2009, page A7
'I have not found in the whole long history of the Arab-Israeli conflict even one neutral American position. We used to love America in the region in the '40s. [President Woodrow] Wilson's principles [of national self-determination] represent freedom facing a Europe that was colonizing us. But America now is living a policy worse than that of British and French colonialism."
So said Muhammad Hussein Fadhlullah early one morning last week, and I suppose I should not have been surprised.
We met in a nondescript -- but heavily guarded -- office building in south Beirut. On my way there I had noticed, as in the Bekaa Valley a day earlier, numerous posters celebrating Hezbollah "martyrs." According to many, the Grand Ayatollah Fadhlullah is Hezbollah's spiritual leader. He is not actually a member of the famous Lebanese Shiite organization headed by Hassan Nasrallah. But his interpreter tells me the Israelis bombed his house during their 2006 air campaign in Lebanon. There is no doubt someone -- the CIA and the Saudis, according to a detailed account in Bob Woodward's book "Veil" -- targeted him in 1985, when a massive bomb aimed in his direction killed nearly 80 civilians in Beirut.
That, readers may recall, was not long after alleged Hezbollah suicide bombers directed by the late Imad Mugniyeh -- one of the "martyrs" celebrated in the posters -- murdered hundreds at the American Embassy and Marine barracks. And it was in the midst of the hostage crises that would define Lebanon in the minds of my own generation of Americans. Outside of the Iranian theocrats, no group did more than Hezbollah to associate Shiism, once known for its political quietism, with radicalism and terror.
And what of Mr. Fadhlullah today? The aging cleric (born 1935), sports the requisite black turban and a disarming twinkle in his eyes. He is often described as a "progressive" religious thinker because of views such as his egalitarian outlook on the role of women in Muslim society (he is online at english.bayynat.org.lb). Yet there can be little doubt the Ayatollah's views have also shaped, and been shaped by, the fragile and often violent country he has called home since the mid-1960s.
The Lebanese-born scholar Fouad Ajami draws my attention to Mr. Fadhlullah's preface to the 1984 edition of his book, "Islam and the Logic of Force": "Civilization does not mean that you face a rocket with a stick or a jet-fighter with a kite, or a warship with a sailboat. . . . One must face force with equal or superior force. If it is legitimate to defend self and land and destiny, then all means of self-defense are legitimate."
I decide to start our interview by asking what people mean when they describe him in "progressive" terms. "When man thinks," he tells me, "he should live in his own age, not think through the past . . . When I am in dialogue with anyone, I attempt to study their mind and to speak to them in the language of their mind, not to address them in the way I think but rather in the way they think. On this basis we begin this dialogue with you."
Mr. Fadhlullah tells me that though he is originally Lebanese, he was born in Najaf, Iraq, where his father was a teacher at the Hawza, or religious seminary, from which he would eventually earn his current distinction. (He holds the same rank as Iraq's Ali Sistani; Shiites recognize a small number of "grand ayatollahs" who issue religious rulings known as fatwas and serve as objects of "emulation.") He says his international upbringing shaped his way of thinking.
I ask if he thinks Iraq is better off now than it was under Saddam. Iraq had a problem with "dictatorship," he concedes. But this "dictatorship had a relationship with the former American administration," he says, pointing to Saddam's invasion of Iran and other actions that allegedly "serv[ed] the American strategy . . . Saddam Hussein was an employee of the CIA but his job was finished by the end." He accuses the Bush administration of pursuing a policy of "constructive chaos" during the occupation.
Mr. Fadhlullah's fellow Shiite scholars in Najaf have been heard to complain about such sour pronouncements, but I see no reason to belabor the point. There is a rivalry of sorts with Mr. Sistani. And when it comes to the upcoming parliamentary elections in Lebanon -- the country shook off Syrian occupation in 2005, some say inspired by Iraq -- Mr. Fadhlullah even points to the West as a good example:
"We hope that that the elections will be as free as in civilized nations. Our problem in the Arab world is that people fear their rulers and therefore fall short of changing them, whereas the natural course of things is that rulers should fear their peoples. . . . We appreciate the way elections are run in America or the West; the Americans or the Europeans are not frozen over one personality. They study the success or failure of this president or this administration, and therefore they change it from time to time."
I point out that many people associate political Shiism with Iran and a concept known as Welayat al-Faqih -- or Guardianship of the Jurist -- which has been used to justify the authoritarian regimes of the Ayatollahs Khomeini and Khameini.
"I don't believe that Welayat al-Faqih has any role in Lebanon," Mr. Fadhlullah says without hesitation. "Perhaps some Lebanese commit themselves to the policy of the Guardian Jurist, as some of them commit themselves to the policy of the Vatican [Lebanon's large Maronite community is Catholic]. My opinion is that I don't see the Guardianship of the Jurist as the definitive Islamic regime."
When a Muslim goes to vote should he care more about a cleric's opinion than anyone else's?
"He should care about his own stance . . . . The Islamic idea says: When you cast your ballot, you have to watch for God because God will hold you responsible for the results of this ballot. If the person you voted for was unjust, God will hold you accountable for participating in his injustice. . . . Hence, the Americans who voted for George Bush are responsible for all the blood shed in his wars and occupations."
That seems as good an opening as any to broach the subject of Hezbollah. Does he think it's healthy that Lebanon's Shiites are increasingly associated with such a party?
His answer, in effect, is that Hezbollah is a force for modernization: "Hezbollah is a group of Shiites who are university educated. We know that you will find at universities, whether here in Lebanon or in the West, many who agree with the thought of Hezbollah." True enough, at least as concerns attitudes toward Israel.
Then the answer gets more interesting: "We do not reject the West. But we disagree with some Western administrations. We believe that America is not the administration ruling America. America is rather the universities, the research centers and the American people. That is why we want to be friends with the American people with all their variation. I was the first Islamic figure to denounce what happened on September 11. I issued a press release after four hours saying that this affair is not acceptable by any mind, divine law or religion. What these people did was directed to the American people not to the American administration."
I can't help but interject. Hadn't he just told me the American people were in fact responsible for the actions of the leaders they voted for?
He responds that the people bear "a responsibility," but concedes they can't predict their leaders' future actions. "What I am trying to say," he continues, "is that perhaps we want to be friends with the American people to engage them in a dialogue about their choices as they engage in a dialogue about our choices. Friendship does not mean adhering to whatever your friend commits to and does. Dialogue strengthens friendship; it does not annul it."
What does the Ayatollah think of President Obama? Does he think he might improve relations between the Islamic world and the United States?
Again, an interesting answer: "I think that some of his statements show that he believes in the method of dialogue. But here is an important point: America is not ruled by a person, it is ruled by institutions. The question is what is the influence of institutions like the Congress and others on the president. Can the president, if he has private opinions, can he carry them out facing institutions and conditions challenging the administration? We, in the Arab countries or in the East, we don't have institutions. The ruler is one person or one family. Therefore the people cannot object.
"We wish that President Obama tries with all his mandate to confirm the slogans he launched while still a candidate, that he tries with all power to make the world a field of dialogue not a field of war. We don't have a problem with any American president, but our problem is with his policy that might affect our strategic interest. We love freedom, therefore we are with whoever lives with us on the basis that we are free."
But didn't George Bush say that he wanted to bring freedom and democracy to the Middle East? Was he not sincere in those words?
"Does occupation . . . ?" He pauses. "Could democracy be forced upon peoples? Does occupation represent a title of democracy for people? Democracy sets out from the free choices of peoples. Therefore President Bush managed to get America hated everywhere in the world. His policy was the mentality of war, not a humane mentality. He might have spoken about 'peace,' but he saved 'war' inside the word 'peace.' That is why he was even rejected by American public opinion."
I raise Hezbollah again. Does the Iranian-backed group have Lebanon's best interests at heart? Or does it have ambitions outside Lebanon? For whom is it working?
"I don't think that the Lebanese Hezbollah has a project beyond Lebanon. Because it does not have the capacity to do so . . . . Hezbollah emerged in Lebanon as a reaction to the recurrent Israeli aggression over decades. The Lebanese army is weak with regard to its power of deterrence. Therefore it cannot face any Israeli aggression. Hezbollah is supplementary to the Lebanese Army defending the country. If the Lebanese Army reaches a level of strength enabling it to defend the country, there would be no longer a need for the resistance."
And what about the posters, I ask? Imad Mugniyeh didn't just fight Israel, he killed a lot of Americans. Does he think the children of the neighborhood should look at the posters and think Mugniyeh is a hero?
"I think that the stage Lebanon lived [when the Americans were killed] was one without clear limitations. It is very natural that the American policy was interconnected with the Israeli policy. The stage when this took place was one of the Cold War between the Soviet Union and the West. Therefore the issue was not setting out from a person, but from the conflict between the East and the West, and through the political and security anarchy in Lebanon. In my own belief, this stage is no longer existent, but the problem remains that the American policy is 100% identical to the Israeli policy. We have not found an American position condemning the massacres in Palestine and particularly in Gaza. The missiles launched by the resistance were a reaction to the Israeli aggressors, who own American fighter jets that are never used but in massive warfare . . . .
"We in the region therefore consider the American policy responsible for whatever Israel does, because there is a strategic alliance between Israel and America in all the aggressions carried out by Israel. There is an impression in the Arab region, that might be controversial, that Israel is the one ruling the United States and not the other way around. America is one of the Jewish colonies."
Does the Ayatollah believe that?
"I am close," he says. "Anyway, we believe that Obama lived in a poor and disadvantaged environment. He was poor. Therefore, we might listen to some of his statements trying to alleviate taxes on the poor and impose them on the rich. We say to him: Be with the disadvantaged, be with the poor, be with the people living and seeking their humanity, and you will be the best American president in history. Be humane."
The interview is over. We pose for pictures and the Ayatollah presents me with an English translation of one of his books: "Islam: The Religion of Dialogue." He signs it for me in Arabic: "With my affection and prayers."
Mr. Pollock is the Journal's editorial features editor.
WSJ, Beirut, Mar 16, 2009, page A7
'I have not found in the whole long history of the Arab-Israeli conflict even one neutral American position. We used to love America in the region in the '40s. [President Woodrow] Wilson's principles [of national self-determination] represent freedom facing a Europe that was colonizing us. But America now is living a policy worse than that of British and French colonialism."
So said Muhammad Hussein Fadhlullah early one morning last week, and I suppose I should not have been surprised.
We met in a nondescript -- but heavily guarded -- office building in south Beirut. On my way there I had noticed, as in the Bekaa Valley a day earlier, numerous posters celebrating Hezbollah "martyrs." According to many, the Grand Ayatollah Fadhlullah is Hezbollah's spiritual leader. He is not actually a member of the famous Lebanese Shiite organization headed by Hassan Nasrallah. But his interpreter tells me the Israelis bombed his house during their 2006 air campaign in Lebanon. There is no doubt someone -- the CIA and the Saudis, according to a detailed account in Bob Woodward's book "Veil" -- targeted him in 1985, when a massive bomb aimed in his direction killed nearly 80 civilians in Beirut.
That, readers may recall, was not long after alleged Hezbollah suicide bombers directed by the late Imad Mugniyeh -- one of the "martyrs" celebrated in the posters -- murdered hundreds at the American Embassy and Marine barracks. And it was in the midst of the hostage crises that would define Lebanon in the minds of my own generation of Americans. Outside of the Iranian theocrats, no group did more than Hezbollah to associate Shiism, once known for its political quietism, with radicalism and terror.
And what of Mr. Fadhlullah today? The aging cleric (born 1935), sports the requisite black turban and a disarming twinkle in his eyes. He is often described as a "progressive" religious thinker because of views such as his egalitarian outlook on the role of women in Muslim society (he is online at english.bayynat.org.lb). Yet there can be little doubt the Ayatollah's views have also shaped, and been shaped by, the fragile and often violent country he has called home since the mid-1960s.
The Lebanese-born scholar Fouad Ajami draws my attention to Mr. Fadhlullah's preface to the 1984 edition of his book, "Islam and the Logic of Force": "Civilization does not mean that you face a rocket with a stick or a jet-fighter with a kite, or a warship with a sailboat. . . . One must face force with equal or superior force. If it is legitimate to defend self and land and destiny, then all means of self-defense are legitimate."
I decide to start our interview by asking what people mean when they describe him in "progressive" terms. "When man thinks," he tells me, "he should live in his own age, not think through the past . . . When I am in dialogue with anyone, I attempt to study their mind and to speak to them in the language of their mind, not to address them in the way I think but rather in the way they think. On this basis we begin this dialogue with you."
Mr. Fadhlullah tells me that though he is originally Lebanese, he was born in Najaf, Iraq, where his father was a teacher at the Hawza, or religious seminary, from which he would eventually earn his current distinction. (He holds the same rank as Iraq's Ali Sistani; Shiites recognize a small number of "grand ayatollahs" who issue religious rulings known as fatwas and serve as objects of "emulation.") He says his international upbringing shaped his way of thinking.
I ask if he thinks Iraq is better off now than it was under Saddam. Iraq had a problem with "dictatorship," he concedes. But this "dictatorship had a relationship with the former American administration," he says, pointing to Saddam's invasion of Iran and other actions that allegedly "serv[ed] the American strategy . . . Saddam Hussein was an employee of the CIA but his job was finished by the end." He accuses the Bush administration of pursuing a policy of "constructive chaos" during the occupation.
Mr. Fadhlullah's fellow Shiite scholars in Najaf have been heard to complain about such sour pronouncements, but I see no reason to belabor the point. There is a rivalry of sorts with Mr. Sistani. And when it comes to the upcoming parliamentary elections in Lebanon -- the country shook off Syrian occupation in 2005, some say inspired by Iraq -- Mr. Fadhlullah even points to the West as a good example:
"We hope that that the elections will be as free as in civilized nations. Our problem in the Arab world is that people fear their rulers and therefore fall short of changing them, whereas the natural course of things is that rulers should fear their peoples. . . . We appreciate the way elections are run in America or the West; the Americans or the Europeans are not frozen over one personality. They study the success or failure of this president or this administration, and therefore they change it from time to time."
I point out that many people associate political Shiism with Iran and a concept known as Welayat al-Faqih -- or Guardianship of the Jurist -- which has been used to justify the authoritarian regimes of the Ayatollahs Khomeini and Khameini.
"I don't believe that Welayat al-Faqih has any role in Lebanon," Mr. Fadhlullah says without hesitation. "Perhaps some Lebanese commit themselves to the policy of the Guardian Jurist, as some of them commit themselves to the policy of the Vatican [Lebanon's large Maronite community is Catholic]. My opinion is that I don't see the Guardianship of the Jurist as the definitive Islamic regime."
When a Muslim goes to vote should he care more about a cleric's opinion than anyone else's?
"He should care about his own stance . . . . The Islamic idea says: When you cast your ballot, you have to watch for God because God will hold you responsible for the results of this ballot. If the person you voted for was unjust, God will hold you accountable for participating in his injustice. . . . Hence, the Americans who voted for George Bush are responsible for all the blood shed in his wars and occupations."
That seems as good an opening as any to broach the subject of Hezbollah. Does he think it's healthy that Lebanon's Shiites are increasingly associated with such a party?
His answer, in effect, is that Hezbollah is a force for modernization: "Hezbollah is a group of Shiites who are university educated. We know that you will find at universities, whether here in Lebanon or in the West, many who agree with the thought of Hezbollah." True enough, at least as concerns attitudes toward Israel.
Then the answer gets more interesting: "We do not reject the West. But we disagree with some Western administrations. We believe that America is not the administration ruling America. America is rather the universities, the research centers and the American people. That is why we want to be friends with the American people with all their variation. I was the first Islamic figure to denounce what happened on September 11. I issued a press release after four hours saying that this affair is not acceptable by any mind, divine law or religion. What these people did was directed to the American people not to the American administration."
I can't help but interject. Hadn't he just told me the American people were in fact responsible for the actions of the leaders they voted for?
He responds that the people bear "a responsibility," but concedes they can't predict their leaders' future actions. "What I am trying to say," he continues, "is that perhaps we want to be friends with the American people to engage them in a dialogue about their choices as they engage in a dialogue about our choices. Friendship does not mean adhering to whatever your friend commits to and does. Dialogue strengthens friendship; it does not annul it."
What does the Ayatollah think of President Obama? Does he think he might improve relations between the Islamic world and the United States?
Again, an interesting answer: "I think that some of his statements show that he believes in the method of dialogue. But here is an important point: America is not ruled by a person, it is ruled by institutions. The question is what is the influence of institutions like the Congress and others on the president. Can the president, if he has private opinions, can he carry them out facing institutions and conditions challenging the administration? We, in the Arab countries or in the East, we don't have institutions. The ruler is one person or one family. Therefore the people cannot object.
"We wish that President Obama tries with all his mandate to confirm the slogans he launched while still a candidate, that he tries with all power to make the world a field of dialogue not a field of war. We don't have a problem with any American president, but our problem is with his policy that might affect our strategic interest. We love freedom, therefore we are with whoever lives with us on the basis that we are free."
But didn't George Bush say that he wanted to bring freedom and democracy to the Middle East? Was he not sincere in those words?
"Does occupation . . . ?" He pauses. "Could democracy be forced upon peoples? Does occupation represent a title of democracy for people? Democracy sets out from the free choices of peoples. Therefore President Bush managed to get America hated everywhere in the world. His policy was the mentality of war, not a humane mentality. He might have spoken about 'peace,' but he saved 'war' inside the word 'peace.' That is why he was even rejected by American public opinion."
I raise Hezbollah again. Does the Iranian-backed group have Lebanon's best interests at heart? Or does it have ambitions outside Lebanon? For whom is it working?
"I don't think that the Lebanese Hezbollah has a project beyond Lebanon. Because it does not have the capacity to do so . . . . Hezbollah emerged in Lebanon as a reaction to the recurrent Israeli aggression over decades. The Lebanese army is weak with regard to its power of deterrence. Therefore it cannot face any Israeli aggression. Hezbollah is supplementary to the Lebanese Army defending the country. If the Lebanese Army reaches a level of strength enabling it to defend the country, there would be no longer a need for the resistance."
And what about the posters, I ask? Imad Mugniyeh didn't just fight Israel, he killed a lot of Americans. Does he think the children of the neighborhood should look at the posters and think Mugniyeh is a hero?
"I think that the stage Lebanon lived [when the Americans were killed] was one without clear limitations. It is very natural that the American policy was interconnected with the Israeli policy. The stage when this took place was one of the Cold War between the Soviet Union and the West. Therefore the issue was not setting out from a person, but from the conflict between the East and the West, and through the political and security anarchy in Lebanon. In my own belief, this stage is no longer existent, but the problem remains that the American policy is 100% identical to the Israeli policy. We have not found an American position condemning the massacres in Palestine and particularly in Gaza. The missiles launched by the resistance were a reaction to the Israeli aggressors, who own American fighter jets that are never used but in massive warfare . . . .
"We in the region therefore consider the American policy responsible for whatever Israel does, because there is a strategic alliance between Israel and America in all the aggressions carried out by Israel. There is an impression in the Arab region, that might be controversial, that Israel is the one ruling the United States and not the other way around. America is one of the Jewish colonies."
Does the Ayatollah believe that?
"I am close," he says. "Anyway, we believe that Obama lived in a poor and disadvantaged environment. He was poor. Therefore, we might listen to some of his statements trying to alleviate taxes on the poor and impose them on the rich. We say to him: Be with the disadvantaged, be with the poor, be with the people living and seeking their humanity, and you will be the best American president in history. Be humane."
The interview is over. We pose for pictures and the Ayatollah presents me with an English translation of one of his books: "Islam: The Religion of Dialogue." He signs it for me in Arabic: "With my affection and prayers."
Mr. Pollock is the Journal's editorial features editor.
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