The Promise, and Peril, Ahead for Iraq. By Kimberley Kagan and Frederick W Kagan
The parliament has learned how to use the power of the purse.
WSJ, Apr 10. 2009
During his visit to Iraq this week, President Barack Obama commended U.S. forces for their invaluable work there: "From getting rid of Saddam, to reducing violence, to stabilizing the country, to facilitating elections -- you have given Iraq the opportunity to stand on its own as a democratic country. That is an extraordinary achievement." But the president also cautioned that "now is not the time to lose focus" for the next 18 months will be a "critical period."
He's absolutely right.
Iraq has undergone a quiet transformation since Mr. Obama's first visit to the country as a senator in July 2008. We can no longer speak of Iraqi politics at a standstill, or a lack of political accommodation, or an unwillingness of the Iraqi government to take responsibility. The issues facing the president in Iraq, and his military commanders, are fundamentally different from those of 2007 and 2008.
On a visit to Iraq last month, we had the opportunity to see the transformation firsthand. Iraq is now a fully sovereign country. U.S. Commander Gen. Ray Odierno has insisted on the most rigorous implementation of the U.S.-Iraqi security agreement, which gives Iraqi authorities greater responsibility than ever before. U.S. forces now detain Iraqis only after securing arrest warrants from Iraqi judges, and they are releasing or transferring to Iraqi custody all of the detainees they now hold. The U.S. maintains forces and bases only where the Iraqi government wants them. The U.S. has already turned responsibility for the security of the Green Zone over to the Iraqi government, and Iraqi Security Forces have responsibility for an ever-growing proportion of Baghdad well in advance of the agreement's June 30 deadline.
Moreover, Gen. Odierno and the U.S. Embassy have established joint committees with Iraqi military and political leaders at the highest levels both to coordinate operations and to monitor and ensure adherence to the agreement. There is a committee for each article of the agreement that reviews all questions of implementation and investigates all accusations of infringements. Both sides have agreed that the approved minutes of these committees are legally binding.
January's peaceful provincial elections have reinvigorated Iraqi democracy. Iraqis voted in large numbers and, as dissatisfied voters often do, they voted the incumbents out. This was an important step, demonstrating that Iraqis believe that their vote counts and their leaders are held accountable. Iraqi politicians have gotten the message. The losing parties are working to develop platforms to win back their voters in the upcoming national elections. The struggle to form coalitions in the provinces has forced competing parties to compromise with one another at the local level.
Mr. Obama also said that Iraqis must "decide that they want to resolve their differences through constitutional means and legal means." Iraqi leaders of many parties are already showing their determination to do precisely this. For some time, rivals (and even allies) of Prime Minister Nouri al-Maliki have been concerned about his apparent efforts to concentrate too much power in his own hands through the establishment of extra-constitutional government bodies. The Council of Representatives has used the 2009 budget to clip the prime minister's wings by eliminating all funding for these "illegal" bodies. In other words, Iraqi representatives have discovered the power of the purse. It is a remarkable advance in Iraqi politics that the parliament could act against the prime minister and his party, while nonetheless passing a law that is constructive for the state.
But the country faces three major challenges in coming months: national parliamentary elections, most likely in January 2010; major budget constraints, resulting from the low price of oil; and the threat of growing Arab-Kurd tensions in the north.
The national elections will lead to the first transfer of power in the democratic Iraqi state. This is always a critical moment in the birth of a new democracy. In Iraq it will be especially challenging because of its parliamentary system. Voters must first elect a new Council of Representatives, which must then elect a prime minister and approve a cabinet. The parties must agree not only on a leader but also about how all of the ministries will be parceled out among parties and ethno-sectarian groups. In 2006, this process took five months. U.S. forces will play a critical role in helping the Iraqis secure the elections, but they will also play an important role after the vote supporting the Iraqi Security Forces and deterring dissatisfied groups from resorting to violence.
Meanwhile, the fall in the global price of oil has presented a major problem for Iraq's balance of payments. The current Iraqi budget is based on the assumption that oil would sell for an average of $50 per barrel. Oil prices have been lower than that for most of the year, generating a significant shortfall of revenue so far and forcing the Iraqi government to slash spending and dip into its reserves.
If prices remain low, important programs that maintain Iraq's security and internal stability may be threatened. Revenue shortfalls have already halted the planned expansion of the Iraqi Security Forces and disrupted plans to acquire equipment for them. And since the Iraqi government is the principal employer in the country, any significant reduction in its spending limits its ability to create jobs, including those central to the process of reconciling former insurgents.
The budget crisis, if protracted, can also prevent the newly elected provincial governments and even the central government from providing the services that the population expects, possibly leading to general disillusionment with the political process if not to a resurgence of violence. Tensions between Iraq's Arabs and Kurds, particularly over the status of Kirkuk, are still capable of destabilizing the country rapidly and profoundly. The unexpected success of the Arab al Hadba Party in Ninewah Province shifted the focus of these tensions from Mosul back to Kirkuk. But the friction over Kirkuk's status is not simply one of rival ethnicities. It also involves fundamental constitutional questions about the relationship between the central government, provincial government, and federal regions.
There is little enthusiasm in Kirkuk itself for a violent resolution of the dispute, and the presence of an American brigade near the city has helped keep the peace by helping Kurdish and Iraqi forces to understand each other's positions and actions. But rhetoric and posturing in an election year could inflame this delicate situation, and the presence of U.S. forces there is necessary.
Mr. Obama has stated his objectives in Iraq clearly: The U.S. must "make sure that Iraq is stable, that it is not a safe haven for terrorists, that it is a good neighbor and a good ally." This is an attainable goal. Iraq has undergone a profound transformation -- it is no longer a predatory, dictatorial state or a maelstrom of sectarian violence. It no longer threatens its neighbors or stability in the region. Indeed, Iraq has become an attractive political and economic partner for states throughout the Middle East.
But Iraqis remain most interested in establishing a strategic partnership with the U.S. and the West. In the long run, this partnership will not be defined by the numbers of U.S. troops in Iraq but by the depth of our economic and political cooperation, diplomatic support, and strategic alliance. As Mr. Obama said in Baghdad, America must be "a stalwart partner" and Iraqis must "know that they have a steady partner with us."
Ms. Kagan is the president of the Institute for the Study of War and the author of "The Surge: A Military History," which will be published this month by Encounter Books. Mr. Kagan is a resident scholar at the American Enterprise Institute.
Friday, April 10, 2009
Alec Baldwin: Why We Need the New York Times
Why We Need the New York Times. By Alec Baldwin
Huffington Post, April 8, 2009 11:25 AM (EST)
For many years, I was a devoted reader of the New York Times. An unusually devoted one.
I picked up the habit from David O'Brien, an actor who played my father on a soap opera I appeared on over 25 years ago. It was my first professional job, and I watched O'Brien as he passed his down time by scouring the paper from cover to cover and doing the crossword along the way.
I picked up the paper every day, back when many places ran out of the Times, and rather quickly, by late morning. I carried it with me everywhere, as so many other New Yorkers seemed to. In New York, someone else is usually doing the driving. In a cab or on the train, the Times and the time to read it were mine.
Television news had become less relevant in my life. I was rarely near a TV at 6pm to watch the classic network broadcast. CNN was good for breaking news and convention coverage. But salacious crimes and court cases seemed to predominate more than I could bear.
On cable news, I am a fan of Keith and Rachel. But he wastes too much time pissing on Bush and his deposed cronies. She is smart and charming but her writers are dreadful and the less cutesy she is, the better. She did an excellent interview with Colin Powell recently. The next night, I missed that tougher, less avuncular Rachel. A while back, the idea of sitting down at another screen and getting my evening news seemed unappealing. Now I sit and watch Rachel and Keith while I do my e-mail and read Slate and HuffPo online.
But something has changed again. I'm back to buying the Times. I think others should get back to buying and reading a newspaper, too.
When the Jayson Blair story erupted, I realized that if the Times couldn't even properly and effectively assess their own, how could they be relied upon to assess public officials and figures? It was then that I stopped buying the paper. A lot of people did. In Manhattan, copies of the New York Times often pile up everywhere.
But lately, the alternatives seem wanting. In the Times recently was good reporting about the poor documentation of the deaths of deportation detainees by various state and federal agencies. Another article recently captured the abyss of disputed workmen's compensation cases and the endless troubles that greet those who fall into it. I don't see that on MSNBC. Frankly, I don't see that on TV at all.
Some friends of mine in the media business say the newspaper model as we know it is in its death throes. Papers will fold or go digital. The Times will survive only online. I hope that is not true. I hope that one does not need to own a computer and a high speed connection in order to stay connected with the world of news and opinion. The Times, like many other important journals, is not perfect. Sometimes its writing and its priorities are downright awful. But that is rare.
I still think people should read a newspaper every day and that children should be taught the importance of doing so in school. Television news can be good. It just isn't as good as the New York Times. And now more than ever.
Huffington Post, April 8, 2009 11:25 AM (EST)
For many years, I was a devoted reader of the New York Times. An unusually devoted one.
I picked up the habit from David O'Brien, an actor who played my father on a soap opera I appeared on over 25 years ago. It was my first professional job, and I watched O'Brien as he passed his down time by scouring the paper from cover to cover and doing the crossword along the way.
I picked up the paper every day, back when many places ran out of the Times, and rather quickly, by late morning. I carried it with me everywhere, as so many other New Yorkers seemed to. In New York, someone else is usually doing the driving. In a cab or on the train, the Times and the time to read it were mine.
Television news had become less relevant in my life. I was rarely near a TV at 6pm to watch the classic network broadcast. CNN was good for breaking news and convention coverage. But salacious crimes and court cases seemed to predominate more than I could bear.
On cable news, I am a fan of Keith and Rachel. But he wastes too much time pissing on Bush and his deposed cronies. She is smart and charming but her writers are dreadful and the less cutesy she is, the better. She did an excellent interview with Colin Powell recently. The next night, I missed that tougher, less avuncular Rachel. A while back, the idea of sitting down at another screen and getting my evening news seemed unappealing. Now I sit and watch Rachel and Keith while I do my e-mail and read Slate and HuffPo online.
But something has changed again. I'm back to buying the Times. I think others should get back to buying and reading a newspaper, too.
When the Jayson Blair story erupted, I realized that if the Times couldn't even properly and effectively assess their own, how could they be relied upon to assess public officials and figures? It was then that I stopped buying the paper. A lot of people did. In Manhattan, copies of the New York Times often pile up everywhere.
But lately, the alternatives seem wanting. In the Times recently was good reporting about the poor documentation of the deaths of deportation detainees by various state and federal agencies. Another article recently captured the abyss of disputed workmen's compensation cases and the endless troubles that greet those who fall into it. I don't see that on MSNBC. Frankly, I don't see that on TV at all.
Some friends of mine in the media business say the newspaper model as we know it is in its death throes. Papers will fold or go digital. The Times will survive only online. I hope that is not true. I hope that one does not need to own a computer and a high speed connection in order to stay connected with the world of news and opinion. The Times, like many other important journals, is not perfect. Sometimes its writing and its priorities are downright awful. But that is rare.
I still think people should read a newspaper every day and that children should be taught the importance of doing so in school. Television news can be good. It just isn't as good as the New York Times. And now more than ever.
India Defies Slump, Powered by Growth in Poor Rural States
India Defies Slump, Powered by Growth in Poor Rural States. By PETER WONACOTT
WSJ, Apr 10. 200
DEV KULI VILLAGE, India -- This country's path out of the global economic turmoil may start here, among a community of outcastes who dine on rats.
In Bihar, India's poorest and least literate major state, the Mushahar are the poorest and least literate. Most are farm laborers. About one in 10 can read. So impoverished is this group that they hunt field rats to supplement a deprived diet. Mushahar is Hindi for "rat eater."
But the outlook for the state's two million Mushahar has brightened in the past year. Thanks to government aid programs, more Mushahar children are attending school. Increased state investment in roads and local factories has put their parents to work. Demand for laborers has pushed up wages for field work.
Bouncing Up From the Bottom Rung
View Slideshow
The one-room primary school for Mushahar children at Bihar's Dev Kuli village, where several hundred of the low-caste Mushahar families live.
In a sign of the times, a government proposal to promote rat farming was ridiculed by the Mushahar, the very group of untouchables, or Dalits, it was supposed to benefit. They worried it would pull their children out of school and extend a social stigma to the next generation. Some protested on the streets of Bihar's capital, Patna, shouting: "We want to learn to use a computer mouse, not catch mice."
The Mushahar in Bihar are part of a political and economic shift that is building across the Indian countryside. The transformation, largely driven by development spending by national and state policy makers, will be put to a test starting next week. The world's largest democracy kicks off a month of polling April 16 in which many of the leaders behind these experiments are seeking re-election.
Growth has slowed in the new India of technology outsourcing, property development and securities trade. But old India -- the rural sector that is home to 700 million of the country's billion-plus people -- shows signs it can pick up the slack. The rural awakening helps explain why India continues to grow even as the U.S. recession drags on the world economy.
The change is largely political. In years past, many state leaders rode to power with vows to give voice to lower-caste voters. But after failing for the most part to lift living standards, these officials have been replaced in many cases by leaders who have. In poor and largely rural states from Orissa in the east to Rajasthan in the west, many new leaders have invested in health, education and infrastructure. That has set the stage for the creation of industry and consumer markets and enabled upward mobility.
It's unclear whether development spending in rural India will spark longer-term expansion. "Up till now, a lot of our growth has been bubble growth," says Nandan Nilekani, co-chairman of Infosys Technologies Ltd., a software and outsourcing company. "That makes the internal reforms even more important now, so we create momentum for future growth."
Video: Teaching India's Untouchables 3:18
India's lowest castes, the Dalits, are known for their illiteracy and deep poverty. But in rural India, something remarkable is happening: Dalit children are attending elementary school.
The rural economic rise is recent, with few figures yet available for 2008. In the five-year period ending in 2007, rural Indians' consumer spending grew faster than that of city dwellers, according to Indian brokerage IIFL. Rural India has surpassed urban centers in the number of households earning $2,000 a year, above which families begin to have disposable income.
Companies from Coca-Cola Co. to telecom provider Reliance Communications India Ltd. say rising sales in once-spurned rural areas are driving their India growth. The Indian unit of LG Electronics, which sells low-voltage appliances for power-deprived areas, expects rural areas to account for 45% of its Indian sales this year, up from 35% last year. Mahindra & Mahindra Ltd., a car and tractor maker, says it couldn't keep up with orders for its new Xylo, a cross between a minivan and SUV, in part because of surprising rural demand.
"If any one part of the economy is decoupled from the global crisis, it is India's rural sector," says Anand Mahindra, vice chairman of auto maker's parent company, Mahindra Group.
Tariff Barriers
The countryside's strength comes in part from a trade policy that free-market economists say may hurt India in the long run. Tariffs on agricultural imports are among the world's highest and may have deterred investment in rural India. But these tariffs have also sheltered swaths of the country. An estimated 88% of India's rural incomes are tied to activities inside those markets, according to IIFL.
Even slight improvements here are significant, economists say, because they build on a base of practically zero. "For so long, these states were a drag on our economy," says Surjit Bhalla, head of Oxus Research & Investments, an advisory firm in New Delhi. "Now larger rural populations can become a fillip to growth."
India's economy has held up better than most, in spite of slowing tech sales and falling real-estate and stock markets. The International Monetary Fund projects India will grow 5.1% in 2009, faster than Brazil (1.8%) and Russia (-0.7%). India is also closing the gap on China, whose 6.7% projected growth for 2009 marks a sharp decline from recent double-digit gains.
Bihar, which borders Nepal, was once a breadbasket of eastern India. But it largely missed out on the economic miracle of the last decade. In the 1990s, as India's economy expanded about 5% a year, Bihar barely grew.
Infrastructure was poor. Farm goods often rotted before reaching the market. Amid corruption and rampant crime, the state was branded India's "kidnap capital." The young left to seek education and jobs.
More than half Bihar's 83 million residents live below the international poverty line of about $1 dollar a day. Fewer than half are literate. The state attracted $167 million in foreign direct investment between 1994 and 2004, a period when India as a whole attracted $29 billion.
Government Open House
In recent years, political candidates won elections with promises to empower to lower-caste voters. But education, health and infrastructure projects were often neglected, presenting opportunity for opponents. In late 2005, a former railways minister from a low-caste background, Nitish Kumar, became chief minister, the leader of Bihar state.
Breaking from the torpid bureaucracy of his predecessors, the 58-year-old Mr. Kumar has tried to prod the government machinery into action. He hosts Monday open houses at his residence, where ministers and department secretaries are required to field public complaints. Bureaucrats must also accompany him to town-hall meetings in far corners of the state, where they pitch tents in fields. His critics say the exercises simply aim to drum up votes; Mr. Kumar says an open government serves the people and the economy.
"My message is that democracy should provide solutions to the problems," he said in an interview at his residence, where he wore traditional white linen trousers and shirt.
With an alliance led by his ruling Janata Dal (United) party, Mr. Kumar has built thousands of miles of roads. He has hired 200,000 schoolteachers and is recruiting 100,000 more. He has lured private-clinic doctors back to public hospitals.
Development projects and strong harvests have helped Bihar's economy close the gap with the national average. The state is growing at an annual rate of about 5.5%, and that is expected to accelerate, according to the Asian Development Research Institute. The number of people migrating out dropped 27% in the 2006-08 period compared with 2001-03, according to the Bihar Institute of Economic Studies, a local think tank.
Homes in a Gully
One of Mr. Kumar's toughest challenges is improving the lot of the Mushahar in places like Dev Kuli village.
Home to about 10,000 people, Dev Kuli is surrounded by farming hamlets and abuts a two-lane highway where long-haul trucks blast their air horns as they rumble toward New Delhi. The lives of all residents, from low caste to high, have long revolved around the rice and wheat harvests.
Several hundred village families are outcaste Mushahar, who live among goats, pigs and swarms of flies in a dried-out gully. The government began to build brick houses but left them without windows or doors.
As a caste the government has identified as "extremely backward," the Mushahar will be eligible for a $57 million government program that will provide families with a water supply, toilets, radios and educational support, according to Vijoy Prakash, the principal secretary for two government departments dedicated to low-caste assistance.
On Mr. Prakash's desk sits a stuffed rat, a reminder of who such programs aim to help. Yet he says past efforts have failed in part because only 9% of the Mushahar can read. "This is the group that has remained excluded from India's growth," he says.
As the sun came up on a recent day, a group of Mushahar gathered round a water pump to wash clothes. Later in the morning a long line of Mushahar children made their way up a mud embankment and, in a profound departure from community tradition, headed to primary school.
Parents complain that their children face discrimination even at Dev Kuli's one-room school for Mushahar children, the name of which translates as "Slum People's Primary School." Children from other castes attend a school nearby.
The government has repaired the school's roof in recent months, hired a new teacher and added an extra bathroom to provide privacy for girls. Even so, the school doesn't have chairs or desks, so students sit on empty grain bags and write on a cement floor covered with dirt.
Each day, a group of government-hired Mushahar, known as "motivators," roust children from their homes and escort them to class. Motivator Phulwanti Devi, a recent and rare Mushahar college graduate, says she battles parents almost every morning to release their children from farm work.
"We tell them, 'It will improve their future,'" says Ms. Devi, 25 years old.
"They reply, 'We don't see that you have such a good job.' I tell them: 'I have a diploma, and so I can get a better job. What about you?'"
Still, Ms. Devi and other motivators say attendance at the school has grown. Teachers say about 150 children are enrolled. On a recent day, the motivators rounded up about half that many.
There are other challenges. Some motivators say they haven't been paid their salaries of 2,000 rupees a month, about $40. Local officials occasionally tell teachers to skip class to conduct government work, such as counting votes at election time.
Mr. Prakash, the secretary for lower castes, says the motivators will soon be paid from funds his department has set aside. Bihar's education secretary, Anjani Kumar Singh, says a Bihar court has ruled that teachers can't skip class for government work, but admitted the order could be hard to enforce at election time.
Spicy Masala
Generating genuine business activity among a largely illiterate community hasn't been easy, either, judging by Mr. Prakash's rat-farming initiative. He estimated that three million people in the state would welcome a stable supply of the protein-rich meat.
Many Mushahar say they enjoy the meat, typically barbecued or cooked with a spicy masala, and believe it keeps their hair dark. But many resented being pushed into farming them. "If we get involved in rat farming, our children will also get involved," says Ms. Devi.
After some Mushahar protested in Patna late last summer, Mr. Kumar, the chief minister, shelved the proposal.
Yet Dev Kuli's economy has improved. The infrastructure push has created jobs building and repairing roads. That has helped bring factories to the area, say locals, including a steel mill and a cola-bottling plant. Those jobs have boosted farm wages to the point where the Mushahar won't work in the fields for less than about $2 a day, says Raj Ballabh Raji, a local farmer from a different caste.
Mr. Raji, who now works his six acres with a new tractor, notes one more sign of prosperity. "You can now find a petrol pump within a mile of here," he says in a tone of pleasant surprise. "The economy is changing."
—Manoj Chaurasia in Patna and Vibhuti Agarwal in New Delhi contributed to this article.
WSJ, Apr 10. 200
DEV KULI VILLAGE, India -- This country's path out of the global economic turmoil may start here, among a community of outcastes who dine on rats.
In Bihar, India's poorest and least literate major state, the Mushahar are the poorest and least literate. Most are farm laborers. About one in 10 can read. So impoverished is this group that they hunt field rats to supplement a deprived diet. Mushahar is Hindi for "rat eater."
But the outlook for the state's two million Mushahar has brightened in the past year. Thanks to government aid programs, more Mushahar children are attending school. Increased state investment in roads and local factories has put their parents to work. Demand for laborers has pushed up wages for field work.
Bouncing Up From the Bottom Rung
View Slideshow
The one-room primary school for Mushahar children at Bihar's Dev Kuli village, where several hundred of the low-caste Mushahar families live.
In a sign of the times, a government proposal to promote rat farming was ridiculed by the Mushahar, the very group of untouchables, or Dalits, it was supposed to benefit. They worried it would pull their children out of school and extend a social stigma to the next generation. Some protested on the streets of Bihar's capital, Patna, shouting: "We want to learn to use a computer mouse, not catch mice."
The Mushahar in Bihar are part of a political and economic shift that is building across the Indian countryside. The transformation, largely driven by development spending by national and state policy makers, will be put to a test starting next week. The world's largest democracy kicks off a month of polling April 16 in which many of the leaders behind these experiments are seeking re-election.
Growth has slowed in the new India of technology outsourcing, property development and securities trade. But old India -- the rural sector that is home to 700 million of the country's billion-plus people -- shows signs it can pick up the slack. The rural awakening helps explain why India continues to grow even as the U.S. recession drags on the world economy.
The change is largely political. In years past, many state leaders rode to power with vows to give voice to lower-caste voters. But after failing for the most part to lift living standards, these officials have been replaced in many cases by leaders who have. In poor and largely rural states from Orissa in the east to Rajasthan in the west, many new leaders have invested in health, education and infrastructure. That has set the stage for the creation of industry and consumer markets and enabled upward mobility.
It's unclear whether development spending in rural India will spark longer-term expansion. "Up till now, a lot of our growth has been bubble growth," says Nandan Nilekani, co-chairman of Infosys Technologies Ltd., a software and outsourcing company. "That makes the internal reforms even more important now, so we create momentum for future growth."
Video: Teaching India's Untouchables 3:18
India's lowest castes, the Dalits, are known for their illiteracy and deep poverty. But in rural India, something remarkable is happening: Dalit children are attending elementary school.
The rural economic rise is recent, with few figures yet available for 2008. In the five-year period ending in 2007, rural Indians' consumer spending grew faster than that of city dwellers, according to Indian brokerage IIFL. Rural India has surpassed urban centers in the number of households earning $2,000 a year, above which families begin to have disposable income.
Companies from Coca-Cola Co. to telecom provider Reliance Communications India Ltd. say rising sales in once-spurned rural areas are driving their India growth. The Indian unit of LG Electronics, which sells low-voltage appliances for power-deprived areas, expects rural areas to account for 45% of its Indian sales this year, up from 35% last year. Mahindra & Mahindra Ltd., a car and tractor maker, says it couldn't keep up with orders for its new Xylo, a cross between a minivan and SUV, in part because of surprising rural demand.
"If any one part of the economy is decoupled from the global crisis, it is India's rural sector," says Anand Mahindra, vice chairman of auto maker's parent company, Mahindra Group.
Tariff Barriers
The countryside's strength comes in part from a trade policy that free-market economists say may hurt India in the long run. Tariffs on agricultural imports are among the world's highest and may have deterred investment in rural India. But these tariffs have also sheltered swaths of the country. An estimated 88% of India's rural incomes are tied to activities inside those markets, according to IIFL.
Even slight improvements here are significant, economists say, because they build on a base of practically zero. "For so long, these states were a drag on our economy," says Surjit Bhalla, head of Oxus Research & Investments, an advisory firm in New Delhi. "Now larger rural populations can become a fillip to growth."
India's economy has held up better than most, in spite of slowing tech sales and falling real-estate and stock markets. The International Monetary Fund projects India will grow 5.1% in 2009, faster than Brazil (1.8%) and Russia (-0.7%). India is also closing the gap on China, whose 6.7% projected growth for 2009 marks a sharp decline from recent double-digit gains.
Bihar, which borders Nepal, was once a breadbasket of eastern India. But it largely missed out on the economic miracle of the last decade. In the 1990s, as India's economy expanded about 5% a year, Bihar barely grew.
Infrastructure was poor. Farm goods often rotted before reaching the market. Amid corruption and rampant crime, the state was branded India's "kidnap capital." The young left to seek education and jobs.
More than half Bihar's 83 million residents live below the international poverty line of about $1 dollar a day. Fewer than half are literate. The state attracted $167 million in foreign direct investment between 1994 and 2004, a period when India as a whole attracted $29 billion.
Government Open House
In recent years, political candidates won elections with promises to empower to lower-caste voters. But education, health and infrastructure projects were often neglected, presenting opportunity for opponents. In late 2005, a former railways minister from a low-caste background, Nitish Kumar, became chief minister, the leader of Bihar state.
Breaking from the torpid bureaucracy of his predecessors, the 58-year-old Mr. Kumar has tried to prod the government machinery into action. He hosts Monday open houses at his residence, where ministers and department secretaries are required to field public complaints. Bureaucrats must also accompany him to town-hall meetings in far corners of the state, where they pitch tents in fields. His critics say the exercises simply aim to drum up votes; Mr. Kumar says an open government serves the people and the economy.
"My message is that democracy should provide solutions to the problems," he said in an interview at his residence, where he wore traditional white linen trousers and shirt.
With an alliance led by his ruling Janata Dal (United) party, Mr. Kumar has built thousands of miles of roads. He has hired 200,000 schoolteachers and is recruiting 100,000 more. He has lured private-clinic doctors back to public hospitals.
Development projects and strong harvests have helped Bihar's economy close the gap with the national average. The state is growing at an annual rate of about 5.5%, and that is expected to accelerate, according to the Asian Development Research Institute. The number of people migrating out dropped 27% in the 2006-08 period compared with 2001-03, according to the Bihar Institute of Economic Studies, a local think tank.
Homes in a Gully
One of Mr. Kumar's toughest challenges is improving the lot of the Mushahar in places like Dev Kuli village.
Home to about 10,000 people, Dev Kuli is surrounded by farming hamlets and abuts a two-lane highway where long-haul trucks blast their air horns as they rumble toward New Delhi. The lives of all residents, from low caste to high, have long revolved around the rice and wheat harvests.
Several hundred village families are outcaste Mushahar, who live among goats, pigs and swarms of flies in a dried-out gully. The government began to build brick houses but left them without windows or doors.
As a caste the government has identified as "extremely backward," the Mushahar will be eligible for a $57 million government program that will provide families with a water supply, toilets, radios and educational support, according to Vijoy Prakash, the principal secretary for two government departments dedicated to low-caste assistance.
On Mr. Prakash's desk sits a stuffed rat, a reminder of who such programs aim to help. Yet he says past efforts have failed in part because only 9% of the Mushahar can read. "This is the group that has remained excluded from India's growth," he says.
As the sun came up on a recent day, a group of Mushahar gathered round a water pump to wash clothes. Later in the morning a long line of Mushahar children made their way up a mud embankment and, in a profound departure from community tradition, headed to primary school.
Parents complain that their children face discrimination even at Dev Kuli's one-room school for Mushahar children, the name of which translates as "Slum People's Primary School." Children from other castes attend a school nearby.
The government has repaired the school's roof in recent months, hired a new teacher and added an extra bathroom to provide privacy for girls. Even so, the school doesn't have chairs or desks, so students sit on empty grain bags and write on a cement floor covered with dirt.
Each day, a group of government-hired Mushahar, known as "motivators," roust children from their homes and escort them to class. Motivator Phulwanti Devi, a recent and rare Mushahar college graduate, says she battles parents almost every morning to release their children from farm work.
"We tell them, 'It will improve their future,'" says Ms. Devi, 25 years old.
"They reply, 'We don't see that you have such a good job.' I tell them: 'I have a diploma, and so I can get a better job. What about you?'"
Still, Ms. Devi and other motivators say attendance at the school has grown. Teachers say about 150 children are enrolled. On a recent day, the motivators rounded up about half that many.
There are other challenges. Some motivators say they haven't been paid their salaries of 2,000 rupees a month, about $40. Local officials occasionally tell teachers to skip class to conduct government work, such as counting votes at election time.
Mr. Prakash, the secretary for lower castes, says the motivators will soon be paid from funds his department has set aside. Bihar's education secretary, Anjani Kumar Singh, says a Bihar court has ruled that teachers can't skip class for government work, but admitted the order could be hard to enforce at election time.
Spicy Masala
Generating genuine business activity among a largely illiterate community hasn't been easy, either, judging by Mr. Prakash's rat-farming initiative. He estimated that three million people in the state would welcome a stable supply of the protein-rich meat.
Many Mushahar say they enjoy the meat, typically barbecued or cooked with a spicy masala, and believe it keeps their hair dark. But many resented being pushed into farming them. "If we get involved in rat farming, our children will also get involved," says Ms. Devi.
After some Mushahar protested in Patna late last summer, Mr. Kumar, the chief minister, shelved the proposal.
Yet Dev Kuli's economy has improved. The infrastructure push has created jobs building and repairing roads. That has helped bring factories to the area, say locals, including a steel mill and a cola-bottling plant. Those jobs have boosted farm wages to the point where the Mushahar won't work in the fields for less than about $2 a day, says Raj Ballabh Raji, a local farmer from a different caste.
Mr. Raji, who now works his six acres with a new tractor, notes one more sign of prosperity. "You can now find a petrol pump within a mile of here," he says in a tone of pleasant surprise. "The economy is changing."
—Manoj Chaurasia in Patna and Vibhuti Agarwal in New Delhi contributed to this article.
Economic Downturn and Instability in China: Time for Political Reform?
Economic Downturn and Instability in China: Time for Political Reform? By Ray Yep, Research Director, Synergy Net
The Brookings Institution, Apr 09, 2009
April 2009 — China’s huge domestic market and its cautious approach to integration with the global financial system may have helped cushion the impact of the continuing financial tsunami. But although it has not felt the most severe aspects of the crisis, China’s economy is in no way immune to this global challenge. Against the backdrop of the bleak global picture, the leadership of the Chinese Communist Party has made all possible efforts to create a facade of confidence in the latest meeting of National People’s Congress (NPC). “As long as we adopt the right policies and proper measures and implement them effectively, we will be able to achieve this target [of 8% GDP growth in 2009],” Premier Wen Jiabao told the 3,000 delegates attending the annual session of the National People’s Congress in March.
This is the fifth year in a row the Chinese government has targeted 8% growth, but the contrast between 2009 and previous years could not be more vivid. In the last two years, the leadership’s goals were to moderate China’s hyper-growth and regulate its over-heated economy. This year, the concern is on how to ensure the minimum expansion essential for income growth and job creation, issues imperative for preservation of stability in China.
China’s unemployment rate is expected to reach 4.6% by the end of this year, the worst figure since 1980. Worse still, this figure does not include migrant workers from rural area. This troop of peasant workers has played a key role in economic growth in China. Their presence in the cities reduces labor costs, generates demand for goods and services, and placates rural society with their remitted income; the workers’ presence in the cities also reduces joblessness in the countryside. Unfortunately, even the most optimistic estimate predicts that at least 20 million of the 130 million migrant workers will lose their urban jobs in 2009, with factories in the Pearl River Delta particularly hard hit by the slump in export markets. Manufacturers in this area have already been severely affected by various policy developments in recent years, such as tightening of regulations over labor protection, an unfavorable renminbi exchange rate, and forced relocation of production triggered by Guangdong Province’s policy of technological upgrading. The untimely disappearance of orders from U.S. consumers is a body blow for many struggling factories in the south; temporary closures or massive layoffs have more or less become routine in the region over the last six months.
Unemployment on the rise
The existence of millions of disgruntled unemployed workers is a concern for any government, yet there are distinctive institutional features in China that make the regime particularly vulnerable to this threat. Decades of market reform have completely reshaped the nation’s mode of welfare delivery. The all-caring welfare philosophy of the pre-reform era, with the workplace supplying comprehensive support for its employees, is long gone. Though limited elements of a rudimentary welfare and entitlement system are present in the cities, an effective safety net for urban workers is still not on the horizon. The Chinese government is yet to hammer out a formula that fairly distributes burdens among employers, employees, and the state.
But it is the migrant workers, who receive no systematic support in times of need, who are the most at risk from the economic downturn. Rural-urban inequality is reflected not only in terms of discrepancy of life chances, income opportunities, and standards of living: the difference in welfare regime is also testament to the huge gap between the two worlds. Self-sufficiency is the defining feature of China’s rural welfare system, with peasants striving on their own to face economic ups and downs. With the economic and social systems in flux, and with no welfare system to serve as a tether, entitlement to the lease of land is crucial for the rural population. Land, and farming, provides a steady flow of income, cheap food, shelter, and most important of all, a sense of security. It is the last line of defense against economic disaster and a fall-back option for migrant workers.
However, in a severe downturn such as this one, when millions of these peasant workers eventually abandon their hopes in the cities and return home, many of them will have to face the cruel reality of landlessness. Many peasants lease out their lands when they take jobs in the cities, but others have been forced to surrender their land leases under less pleasant circumstances.
For revenue-hungry local governments, the sale of rural land is now a major source of income. More than one-third of revenue in county budgets now comes from land sales, which explains the general harmony between property developers, industrialists, and local officials in securing farmland for commercial purposes. As rural lands are “collectively owned”—Chinese peasants are entitled only to lease land for a fixed period of time and the ultimate control over land is in the hands of their “representatives,” village officials—peasants are simply at the mercy of local governments in defending their land leases. Waves of confrontation over land transfers in recent years attest to the general resentment of peasants against these transactions.
The effect of the Party’s latest decision in facilitating rural land transfers in alleviating tension remains uncertain. While the decision made in the 3rd Plenary Meeting of the 17th Party Congress held in October 2008 reiterates the peasants’ right to land contracts and allows greater flexibility in the exchange of land leases among peasants, specific policy prescriptions for regulating land requisition—the coercive sale of farmland for non-agricultural purpose by local governments—is missing.
The combination of presence of tens of million of frustrated, jobless, and landless people and the disposition of public security forces to sometimes employ excessive violence toward complainants appears to be the perfect recipe for confrontation and disturbance. The situation is so delicate that the Chinese government may consider it the lesser of two evils if some of these unemployed migrant workers prefer to stay in the cities.
Democracy as a safety valve?
In light of such pent-up frustration, it may be reasonable to ponder the option of expanding avenues for public participation in governance, as this may help serve as a safety valve for releasing social tension. Charter 08, a petition released on December 10, 2008, represents the latest effort to articulate this theory. Originally signed by more than 300 university professors, entrepreneurs, writers, lawyers, and social activists, the document is a deliberate attempt to imitate the founding of the Charter 77 movement in Czechoslovakia. The Chinese document unleashes severe criticisms against the current political order in China:
“The political reality, which is plain for anyone to see, is that China has many laws but no rule of law; it has a constitution but no constitutional government. The ruling elite continues to cling to its authoritarian power and fights off any move toward political challenge. The stultifying results are endemic official corruption, an undermining of the rule of law, weak human rights, decays in public ethics, crony capitalism, growing inequality between the wealthy and the poor, pillage of the natural environment as well as of the human and historical environments, and the exacerbation of a long list of social conflicts, especially, in recent times, a sharpening animosity between officials and ordinary people.”
And the signatories go on to call for reforms enshrining the universal values of freedom, human rights, equality, republicanism, democracy, and constitutional rule. Unsurprisingly, the Chinese government has responded with coercive measures and a number of signers have been interrogated and held in police custody. Wu Bangguo, president of National People’s Congress, launched a further rebuttal to the initiative during the annual session of the Chinese legislature. In his report on National People’s Congress on March 9, 2009, he reiterated the distinctive path of Chinese democracy and excluded the possibility of implementing western ideas of bicameralism, multi-party rule, and separation of powers in China. In short, China will implement political reforms, but in its own style and pace.
It may be unfair to say that the Chinese government has been totally indifferent to popular demands for political reform. President Hu Jintao called democracy “the common pursuit of mankind” during his 2006 visit to the United States. And over the last three decades of market reforms, more than 250 new laws were passed, competitive elections have occurred widely at the village level across the countryside, and electoral experiments at the township and county levels were introduced. With the introduction of new laws like the Administrative Litigation Law, Chinese citizens do enjoy new leverage for redressing their grievances against the government. However, the bottom line for any form of political reform is that the Party’s dominance should never be challenged. As explained by Deng Xiaoping in the aftermath of Cultural Revolution in the late 1970s, “the Party did make mistakes, but it was the Party itself that corrected its mistakes.” The central message, echoed in Wu Bangguo’s work report, is that the Party alone should pick the opportune moment and formula for political modernization.
CCP: Economic stability as the key to social harmony
For the Party leadership under Hu Jintao, 2009 is hardly an ideal year for audacious change in political institutions. It is the twentieth anniversary of the 1989 Tiananmen Incident and the fiftieth anniversary of the Liberation of Tibet. As the global economic crisis continues, it will also be a year of social and economic dislocations. For Party leaders, “social harmony,” a synonym for maintenance of the status quo and suspension of diversity, is the priority. Contrary to the ideas of liberals who see political freedom and democracy as the solution to conflicts and tension, the Party regards economic stabilization as a more reliable option for preserving order.
Central to the response to the trying time ahead is a 4-trillion-yuan ($586 billion) plan to boost the national economy and a drastic increase in public expenditure, as outlined in Premier Wen Jiabao’s Report on Government Work to the NPC. Generous support has been bestowed upon sectors directly related to people’s livelihood. For example, the plan calls for an 18% increase in social security spending and similar rise in direct subsidies to farmers in 2009. Another 850 billion yuan will be allocated for medical and healthcare reforms over the next three years. These “people-centered” policies, as phrased by Wen, do not come cheap however. The 24% increase in public expenditure this year has to be financed by a deficit of 950 billion yuan ($139 billion), the largest since the founding of the People’s Republic of China in 1949. Yet, for the Party, this is an expensive but effective strategy of governance. For the Chinese leaders and the CCP, the unabated economic growth and steady rise in living standard over the last 30 years provided a new lease of life following the ideological bankruptcy of the 1970s; economic growth is the proven way to placate the people and preserve the Party’s legitimacy.
Political reforms that may help strengthen the administrative competence of the Chinese bureaucracy or contribute to a more business-friendly environment are deemed as relevant and thus welcomed by the regime. Political liberalization, as advocated by vocal intellectuals and dissidents in exile, is not. History tells us that those in power may contemplate sharing power when popular pressure for change has reached the boiling point and there is a threat of violent takeover. Social tension in China may have been rising and grievances against rampant corruption and social injustice are growing fast, but – given its tenacity and because success in delivering economic progress has remained by and large intact – it is debatable whether the Communist Party has already lost the mandate to rule and is prepared to concede to pressure for fundamental political reform. Realistically, an opening for political reforms will only emerge when the Party feels comfortable with its power position and is confident of its ability to control the pace and direction of those reforms. The turbulence and adversity inherent in the current global financial meltdown hardly seem conducive to these sentiments.
The Brookings Institution, Apr 09, 2009
April 2009 — China’s huge domestic market and its cautious approach to integration with the global financial system may have helped cushion the impact of the continuing financial tsunami. But although it has not felt the most severe aspects of the crisis, China’s economy is in no way immune to this global challenge. Against the backdrop of the bleak global picture, the leadership of the Chinese Communist Party has made all possible efforts to create a facade of confidence in the latest meeting of National People’s Congress (NPC). “As long as we adopt the right policies and proper measures and implement them effectively, we will be able to achieve this target [of 8% GDP growth in 2009],” Premier Wen Jiabao told the 3,000 delegates attending the annual session of the National People’s Congress in March.
This is the fifth year in a row the Chinese government has targeted 8% growth, but the contrast between 2009 and previous years could not be more vivid. In the last two years, the leadership’s goals were to moderate China’s hyper-growth and regulate its over-heated economy. This year, the concern is on how to ensure the minimum expansion essential for income growth and job creation, issues imperative for preservation of stability in China.
China’s unemployment rate is expected to reach 4.6% by the end of this year, the worst figure since 1980. Worse still, this figure does not include migrant workers from rural area. This troop of peasant workers has played a key role in economic growth in China. Their presence in the cities reduces labor costs, generates demand for goods and services, and placates rural society with their remitted income; the workers’ presence in the cities also reduces joblessness in the countryside. Unfortunately, even the most optimistic estimate predicts that at least 20 million of the 130 million migrant workers will lose their urban jobs in 2009, with factories in the Pearl River Delta particularly hard hit by the slump in export markets. Manufacturers in this area have already been severely affected by various policy developments in recent years, such as tightening of regulations over labor protection, an unfavorable renminbi exchange rate, and forced relocation of production triggered by Guangdong Province’s policy of technological upgrading. The untimely disappearance of orders from U.S. consumers is a body blow for many struggling factories in the south; temporary closures or massive layoffs have more or less become routine in the region over the last six months.
Unemployment on the rise
The existence of millions of disgruntled unemployed workers is a concern for any government, yet there are distinctive institutional features in China that make the regime particularly vulnerable to this threat. Decades of market reform have completely reshaped the nation’s mode of welfare delivery. The all-caring welfare philosophy of the pre-reform era, with the workplace supplying comprehensive support for its employees, is long gone. Though limited elements of a rudimentary welfare and entitlement system are present in the cities, an effective safety net for urban workers is still not on the horizon. The Chinese government is yet to hammer out a formula that fairly distributes burdens among employers, employees, and the state.
But it is the migrant workers, who receive no systematic support in times of need, who are the most at risk from the economic downturn. Rural-urban inequality is reflected not only in terms of discrepancy of life chances, income opportunities, and standards of living: the difference in welfare regime is also testament to the huge gap between the two worlds. Self-sufficiency is the defining feature of China’s rural welfare system, with peasants striving on their own to face economic ups and downs. With the economic and social systems in flux, and with no welfare system to serve as a tether, entitlement to the lease of land is crucial for the rural population. Land, and farming, provides a steady flow of income, cheap food, shelter, and most important of all, a sense of security. It is the last line of defense against economic disaster and a fall-back option for migrant workers.
However, in a severe downturn such as this one, when millions of these peasant workers eventually abandon their hopes in the cities and return home, many of them will have to face the cruel reality of landlessness. Many peasants lease out their lands when they take jobs in the cities, but others have been forced to surrender their land leases under less pleasant circumstances.
For revenue-hungry local governments, the sale of rural land is now a major source of income. More than one-third of revenue in county budgets now comes from land sales, which explains the general harmony between property developers, industrialists, and local officials in securing farmland for commercial purposes. As rural lands are “collectively owned”—Chinese peasants are entitled only to lease land for a fixed period of time and the ultimate control over land is in the hands of their “representatives,” village officials—peasants are simply at the mercy of local governments in defending their land leases. Waves of confrontation over land transfers in recent years attest to the general resentment of peasants against these transactions.
The effect of the Party’s latest decision in facilitating rural land transfers in alleviating tension remains uncertain. While the decision made in the 3rd Plenary Meeting of the 17th Party Congress held in October 2008 reiterates the peasants’ right to land contracts and allows greater flexibility in the exchange of land leases among peasants, specific policy prescriptions for regulating land requisition—the coercive sale of farmland for non-agricultural purpose by local governments—is missing.
The combination of presence of tens of million of frustrated, jobless, and landless people and the disposition of public security forces to sometimes employ excessive violence toward complainants appears to be the perfect recipe for confrontation and disturbance. The situation is so delicate that the Chinese government may consider it the lesser of two evils if some of these unemployed migrant workers prefer to stay in the cities.
Democracy as a safety valve?
In light of such pent-up frustration, it may be reasonable to ponder the option of expanding avenues for public participation in governance, as this may help serve as a safety valve for releasing social tension. Charter 08, a petition released on December 10, 2008, represents the latest effort to articulate this theory. Originally signed by more than 300 university professors, entrepreneurs, writers, lawyers, and social activists, the document is a deliberate attempt to imitate the founding of the Charter 77 movement in Czechoslovakia. The Chinese document unleashes severe criticisms against the current political order in China:
“The political reality, which is plain for anyone to see, is that China has many laws but no rule of law; it has a constitution but no constitutional government. The ruling elite continues to cling to its authoritarian power and fights off any move toward political challenge. The stultifying results are endemic official corruption, an undermining of the rule of law, weak human rights, decays in public ethics, crony capitalism, growing inequality between the wealthy and the poor, pillage of the natural environment as well as of the human and historical environments, and the exacerbation of a long list of social conflicts, especially, in recent times, a sharpening animosity between officials and ordinary people.”
And the signatories go on to call for reforms enshrining the universal values of freedom, human rights, equality, republicanism, democracy, and constitutional rule. Unsurprisingly, the Chinese government has responded with coercive measures and a number of signers have been interrogated and held in police custody. Wu Bangguo, president of National People’s Congress, launched a further rebuttal to the initiative during the annual session of the Chinese legislature. In his report on National People’s Congress on March 9, 2009, he reiterated the distinctive path of Chinese democracy and excluded the possibility of implementing western ideas of bicameralism, multi-party rule, and separation of powers in China. In short, China will implement political reforms, but in its own style and pace.
It may be unfair to say that the Chinese government has been totally indifferent to popular demands for political reform. President Hu Jintao called democracy “the common pursuit of mankind” during his 2006 visit to the United States. And over the last three decades of market reforms, more than 250 new laws were passed, competitive elections have occurred widely at the village level across the countryside, and electoral experiments at the township and county levels were introduced. With the introduction of new laws like the Administrative Litigation Law, Chinese citizens do enjoy new leverage for redressing their grievances against the government. However, the bottom line for any form of political reform is that the Party’s dominance should never be challenged. As explained by Deng Xiaoping in the aftermath of Cultural Revolution in the late 1970s, “the Party did make mistakes, but it was the Party itself that corrected its mistakes.” The central message, echoed in Wu Bangguo’s work report, is that the Party alone should pick the opportune moment and formula for political modernization.
CCP: Economic stability as the key to social harmony
For the Party leadership under Hu Jintao, 2009 is hardly an ideal year for audacious change in political institutions. It is the twentieth anniversary of the 1989 Tiananmen Incident and the fiftieth anniversary of the Liberation of Tibet. As the global economic crisis continues, it will also be a year of social and economic dislocations. For Party leaders, “social harmony,” a synonym for maintenance of the status quo and suspension of diversity, is the priority. Contrary to the ideas of liberals who see political freedom and democracy as the solution to conflicts and tension, the Party regards economic stabilization as a more reliable option for preserving order.
Central to the response to the trying time ahead is a 4-trillion-yuan ($586 billion) plan to boost the national economy and a drastic increase in public expenditure, as outlined in Premier Wen Jiabao’s Report on Government Work to the NPC. Generous support has been bestowed upon sectors directly related to people’s livelihood. For example, the plan calls for an 18% increase in social security spending and similar rise in direct subsidies to farmers in 2009. Another 850 billion yuan will be allocated for medical and healthcare reforms over the next three years. These “people-centered” policies, as phrased by Wen, do not come cheap however. The 24% increase in public expenditure this year has to be financed by a deficit of 950 billion yuan ($139 billion), the largest since the founding of the People’s Republic of China in 1949. Yet, for the Party, this is an expensive but effective strategy of governance. For the Chinese leaders and the CCP, the unabated economic growth and steady rise in living standard over the last 30 years provided a new lease of life following the ideological bankruptcy of the 1970s; economic growth is the proven way to placate the people and preserve the Party’s legitimacy.
Political reforms that may help strengthen the administrative competence of the Chinese bureaucracy or contribute to a more business-friendly environment are deemed as relevant and thus welcomed by the regime. Political liberalization, as advocated by vocal intellectuals and dissidents in exile, is not. History tells us that those in power may contemplate sharing power when popular pressure for change has reached the boiling point and there is a threat of violent takeover. Social tension in China may have been rising and grievances against rampant corruption and social injustice are growing fast, but – given its tenacity and because success in delivering economic progress has remained by and large intact – it is debatable whether the Communist Party has already lost the mandate to rule and is prepared to concede to pressure for fundamental political reform. Realistically, an opening for political reforms will only emerge when the Party feels comfortable with its power position and is confident of its ability to control the pace and direction of those reforms. The turbulence and adversity inherent in the current global financial meltdown hardly seem conducive to these sentiments.
WaPo: The super-rich can't plug the budget gap on their own
Who Pays Taxes. WaPo Eitorial
The super-rich can't plug the budget gap on their own.
WaPo, Friday, April 10, 2009; A16
THE CONGRESSIONAL Budget Office recently released some details of U.S. tax liabilities that should dispel myths on both sides of the budget debate. The numbers will be particularly useful in informing the discussion when tax increases for households other than the super-rich are finally on the table -- and like it or not, once the economy has recovered, they will be.
In 2006, the top 20 percent of earners paid 70 percent of all federal taxes. On average, they paid 26 percent of their income to the government. The very richest -- the top 1 percent of taxpayers, with household incomes of over $332,000 -- paid 28 percent of all taxes, with an effective tax rate of 31 percent. The middle three quintiles paid rates of 10, 14 and 18 percent. The lowest 20 percent of households paid only 0.8 percent of all federal taxes -- and the bottom 90 percent of households paid only 45 percent.
Based on these numbers, it would be hard to argue that the country doesn't already have a significantly progressive tax system. Taxes aren't just for suckers, with cashiers paying more of their income than corporate chief executives. Nor is the system egregiously stacked against the wealthy -- who, after all, receive the bulk of the income. The top quintile earned over 55 percent of the income, and the top 1 percent earned a full 19 percent of all income.
This matters because the simple truth is that in the coming years, taxes will have to go up to help close the government's gaping fiscal hole. Much of the budget gap should be covered by spending cuts, but judging from recent budget proposals by both parties, neither has an appetite for reductions anywhere near what will be needed.
When taxes go up, they should be increased in a way that makes the tax code more progressive. Income inequality has widened for the past three decades, and it only makes sense for those who have benefited to pay more. But there is a limit to how much the tippy top should bear. President Obama has promised that taxes will not be increased for families making under $250,000. That is a promise that will probably have to be dropped down the road. There just isn't enough revenue to be found above that figure unless we create a system so lopsided that voters would always want more government spending because it would come at such a low price.
The commonly used political definition of "rich" has crept up in recent years from $100,000 to $250,000. Either that definition is going to have to change again, or we will have to come to terms with the fact that the middle class will have to face higher tax burdens, too.
The super-rich can't plug the budget gap on their own.
WaPo, Friday, April 10, 2009; A16
THE CONGRESSIONAL Budget Office recently released some details of U.S. tax liabilities that should dispel myths on both sides of the budget debate. The numbers will be particularly useful in informing the discussion when tax increases for households other than the super-rich are finally on the table -- and like it or not, once the economy has recovered, they will be.
In 2006, the top 20 percent of earners paid 70 percent of all federal taxes. On average, they paid 26 percent of their income to the government. The very richest -- the top 1 percent of taxpayers, with household incomes of over $332,000 -- paid 28 percent of all taxes, with an effective tax rate of 31 percent. The middle three quintiles paid rates of 10, 14 and 18 percent. The lowest 20 percent of households paid only 0.8 percent of all federal taxes -- and the bottom 90 percent of households paid only 45 percent.
Based on these numbers, it would be hard to argue that the country doesn't already have a significantly progressive tax system. Taxes aren't just for suckers, with cashiers paying more of their income than corporate chief executives. Nor is the system egregiously stacked against the wealthy -- who, after all, receive the bulk of the income. The top quintile earned over 55 percent of the income, and the top 1 percent earned a full 19 percent of all income.
This matters because the simple truth is that in the coming years, taxes will have to go up to help close the government's gaping fiscal hole. Much of the budget gap should be covered by spending cuts, but judging from recent budget proposals by both parties, neither has an appetite for reductions anywhere near what will be needed.
When taxes go up, they should be increased in a way that makes the tax code more progressive. Income inequality has widened for the past three decades, and it only makes sense for those who have benefited to pay more. But there is a limit to how much the tippy top should bear. President Obama has promised that taxes will not be increased for families making under $250,000. That is a promise that will probably have to be dropped down the road. There just isn't enough revenue to be found above that figure unless we create a system so lopsided that voters would always want more government spending because it would come at such a low price.
The commonly used political definition of "rich" has crept up in recent years from $100,000 to $250,000. Either that definition is going to have to change again, or we will have to come to terms with the fact that the middle class will have to face higher tax burdens, too.
Thursday, April 9, 2009
The G-20 and the End of Ideology: From Washington to London to New York
The G-20 and the End of Ideology: From Washington to London to New York. By Daniel Kaufmann
The Brookings Institution, Apr 09, 2009
The Summit of the G-20 heads of states had just come to a conclusion in London last Thursday, April 2, having reached agreement on a joint communiqué. The U.K. Prime Minister, Gordon Brown started his major media briefing announcing that the Washington Consensus has been declared dead, and suggesting the dawn of a new consensus era—akin to a London Consensus.
Without belittling some concrete achievements at this London Summit, beyond expectations in fact, there is always a significant dose of political rhetoric, such as in this case declaring the Washington Consensus dead, and the advent of a new paradigm.
In actuality, the most tangible result of the London Summit is the empowerment of the IMF as a global financial supervisor, stabilizer, and aid provider, through a revamped mandate and a vastly larger resource base. There is a tinge of irony in this, since historically the IMF and the U.S. Treasury Department were inextricably linked to the Washington Consensus.
A counter-argument to this apparent paradox would point to the expected shift in internal governance and in the menu of prescriptions (if there are any left…) at the IMF. This line of thinking would argue that such changes would be expected to distance the future “revamped” IMF from the main “Washington Consensus” mantra of combining prudent fiscal and monetary policies with liberalized markets.
Yet there is little doubt that in the coming years one can expect a move toward broadened voice and representation by governments of powerful emerging economies within the IMF, so to redress the current over-representation of (mostly) Europe. The head of the IMF will be selected according to merit and not nationality. Its ability to assess and warn prior to a large scale financial crisis would need to dramatically improve. Such efficiency and governance reforms are likely to result in some changes in how the IMF operates. An inkling of this is already in the offing through the recommendations of the Trevor Manuel Commission.
But other than abandoning orthodox dogma and embracing more pragmatism, it would be a mistake to expect a dramatic substantive shift in terms of what works for an economy, and what does not—particularly once the global economy steadies. After all, the IMF will still reflect the collective (economy-) weighted will of its shareholders. Rather than a mirror of a G-1, G-2 or G-7, its mantra may move closer to some weighted average of the G-20.
The End of Ideology
On economic matters, the world at large, proxied by the G-20, does not currently have a real counter-ideology to the Washington Consensus. Rather, the process leading to the two recent G-20 Summits, and a close reading of the agreements just reached in London, suggests the end of ideology in the global economy arena, and the advent of pragmatism instead. Notwithstanding political expedient grandstanding, the end of ideology is taking place in the economic policy-making approaches within the main individual countries in the G-20 as well as in the G-20, collectively.
Take the fiscal and monetary policies in the U.S. and the U.K. For the short term, they have vastly deviated from the strictly conservative neoclassical and monetarist mantra, and are squarely in a very Keynesian corner of the spectrum. Not too far are Japan and China. All four differ from Germany and France, who have taken a more conservative fiscal stance, although even they have engaged in a non-trivial fiscal expansion. Virtually without exception around large countries, Keynesian fiscal expansion is under implementation in different degrees.
Yet once the global economy is clearly in a recovery path, expect the mantra to turn quickly to fiscal and monetary conservatism. This will most notably be evident in the U.S. in the medium term, given the country’s onerous debt burden and the recognition that its historical dis-savings and lax past fiscal policies contributed to the crisis. No other country is likely to take issue with such a medium-term conservative turn in U.S. economic policy-making.
The risk is in the reverse: that some countries may go too far in mimicking the U.S. in its medium-term conservatism. This is a risk because the global macro-economic structural imbalances that were a determinant of the crisis still loom large and remain unaddressed globally. The U.S. and the U.K. need to move away from their status as a large financial deficit country, while the large financial surplus countries (such as Germany and China) need to move toward overall financial balance (at the national level, including the current account). So the fiscal and monetary policies of countries such as Germany and China should not be as tight. Addressing such structural imbalance challenges will require political leadership and global coordination. It is not a matter of ideology.
On trade policy, commitments to conduct global trade devoid of protectionism were already made during the Washington G-20 Summit last November. Those commitments were consistent with the old Washington Consensus. Yet the promises were not honored, even if the protectionist “damage” over the past few months was not large. In London last week, while proclaiming the death of the Washington Consensus, the G-20 leaders restated their commitments to shy away from protectionism and extolled freer global trade. In practice, we may expect to see some creeping (but not fatal) low-grade protectionism, and continuing delays in concluding the Doha Round.
On financial regulation, as compared with the U.S. and the U.K., Europe has been pressing for more of a mandate to be given to global regulatory institutions, and also for more regulatory intervention at the country level. But in spite of the expansion in representation in the Financial Stability Forum, and its renaming as the Financial Stability Board, and in spite of the renewed mandate of the IMF, these are not becoming global regulatory institutions, and there are no others in the offing.
Further, the U.S., through the recently unveiled Geithner regulatory reform blueprint, has sent a clear message of financial regulation reform convergence to Europe (and beyond). There is consensus that the laissez-faire era of financial sector regulation is over. As an interesting aside, in the economic development field it was accepted wisdom long ago that the systemic characteristics of the financial sector set it apart from the enterprise sector, and thus justified some regulation.
The pending questions and debates on financial regulation are more in terms of crucial details, mostly devoid of ideology: how best to attain an improved regulatory system with proper disclosure, oversight and supervision? What is the proper balance between transparency and disclosure-related measures, on the one hand, and regulatory control by fiat, on the other? How to regulate across financial institutions, products and jurisdictions in a manner that avoids perverse incentives and a race to the bottom?
In terms of the pending bank clean-up and restructuring, the G-20 London communiqué is rather circumspect. But the evidence is already clearly pointing to a major new role for government intervention and ownership, albeit temporary. Paradoxically, this major deviation from the Washington Consensus model, at least in the short term, is taking place in a particularly pronounced fashion in the Anglo-Saxon countries and preceded the London Summit.
It was particularly telling that the most contentious issue at the G-20 Summit last Thursday in London had nothing to do with any overarching ideological mantra (or with one of the top priorities, for that matter): the closing down of tax havens and publishing a list of offending jurisdictions. This issue almost derailed the overall G-20 accord. At the last instance, it was “solved” by somehow ensuring that no jurisdiction linked to any G-20 member stayed on the list of offenders (Jersey and the Isle of Man have not been in the latest list, while Hong Kong and Macao were dropped on Thursday evening…).
Toward a New York Consensus?
The expectation is that the G-20 will meet again in the fall for a summit in New York. By then there may be further consensus on some of the pending issues, such as regulatory reform and the approach to clean-up the banks, although countries will tailor their actions to their needs. Given the track record of some aid donors, the pledges to help the poorest and most afflicted countries will need monitoring, and actual progress on trade policy will also require close scrutiny and, where needed, recourse.
At the same time, two large issues that have remained unaddressed will need particular attention. Neither is ideologically laden, rather they are both politically sensitive. First, tackling the challenge of macro-economic structural imbalances alluded to above. And second, beginning to put in place at the national level, priority governance reform measures that mitigate future prospects of regulatory (and state) capture and corruption. Such capture and legal corruption played an important role in leading to the financial crisis, and instituting proper safeguards, transparency reforms and incentives against such capture will be important to restore trust and attain institutional resilience. And for this there are also useful lessons that can be drawn from well governed countries outside the G-20.
It would be fitting that the very site of much of the capture and legal corruption that took place prior to the crisis becomes the venue for a “New York Consensus.”
The Brookings Institution, Apr 09, 2009
The Summit of the G-20 heads of states had just come to a conclusion in London last Thursday, April 2, having reached agreement on a joint communiqué. The U.K. Prime Minister, Gordon Brown started his major media briefing announcing that the Washington Consensus has been declared dead, and suggesting the dawn of a new consensus era—akin to a London Consensus.
Without belittling some concrete achievements at this London Summit, beyond expectations in fact, there is always a significant dose of political rhetoric, such as in this case declaring the Washington Consensus dead, and the advent of a new paradigm.
In actuality, the most tangible result of the London Summit is the empowerment of the IMF as a global financial supervisor, stabilizer, and aid provider, through a revamped mandate and a vastly larger resource base. There is a tinge of irony in this, since historically the IMF and the U.S. Treasury Department were inextricably linked to the Washington Consensus.
A counter-argument to this apparent paradox would point to the expected shift in internal governance and in the menu of prescriptions (if there are any left…) at the IMF. This line of thinking would argue that such changes would be expected to distance the future “revamped” IMF from the main “Washington Consensus” mantra of combining prudent fiscal and monetary policies with liberalized markets.
Yet there is little doubt that in the coming years one can expect a move toward broadened voice and representation by governments of powerful emerging economies within the IMF, so to redress the current over-representation of (mostly) Europe. The head of the IMF will be selected according to merit and not nationality. Its ability to assess and warn prior to a large scale financial crisis would need to dramatically improve. Such efficiency and governance reforms are likely to result in some changes in how the IMF operates. An inkling of this is already in the offing through the recommendations of the Trevor Manuel Commission.
But other than abandoning orthodox dogma and embracing more pragmatism, it would be a mistake to expect a dramatic substantive shift in terms of what works for an economy, and what does not—particularly once the global economy steadies. After all, the IMF will still reflect the collective (economy-) weighted will of its shareholders. Rather than a mirror of a G-1, G-2 or G-7, its mantra may move closer to some weighted average of the G-20.
The End of Ideology
On economic matters, the world at large, proxied by the G-20, does not currently have a real counter-ideology to the Washington Consensus. Rather, the process leading to the two recent G-20 Summits, and a close reading of the agreements just reached in London, suggests the end of ideology in the global economy arena, and the advent of pragmatism instead. Notwithstanding political expedient grandstanding, the end of ideology is taking place in the economic policy-making approaches within the main individual countries in the G-20 as well as in the G-20, collectively.
Take the fiscal and monetary policies in the U.S. and the U.K. For the short term, they have vastly deviated from the strictly conservative neoclassical and monetarist mantra, and are squarely in a very Keynesian corner of the spectrum. Not too far are Japan and China. All four differ from Germany and France, who have taken a more conservative fiscal stance, although even they have engaged in a non-trivial fiscal expansion. Virtually without exception around large countries, Keynesian fiscal expansion is under implementation in different degrees.
Yet once the global economy is clearly in a recovery path, expect the mantra to turn quickly to fiscal and monetary conservatism. This will most notably be evident in the U.S. in the medium term, given the country’s onerous debt burden and the recognition that its historical dis-savings and lax past fiscal policies contributed to the crisis. No other country is likely to take issue with such a medium-term conservative turn in U.S. economic policy-making.
The risk is in the reverse: that some countries may go too far in mimicking the U.S. in its medium-term conservatism. This is a risk because the global macro-economic structural imbalances that were a determinant of the crisis still loom large and remain unaddressed globally. The U.S. and the U.K. need to move away from their status as a large financial deficit country, while the large financial surplus countries (such as Germany and China) need to move toward overall financial balance (at the national level, including the current account). So the fiscal and monetary policies of countries such as Germany and China should not be as tight. Addressing such structural imbalance challenges will require political leadership and global coordination. It is not a matter of ideology.
On trade policy, commitments to conduct global trade devoid of protectionism were already made during the Washington G-20 Summit last November. Those commitments were consistent with the old Washington Consensus. Yet the promises were not honored, even if the protectionist “damage” over the past few months was not large. In London last week, while proclaiming the death of the Washington Consensus, the G-20 leaders restated their commitments to shy away from protectionism and extolled freer global trade. In practice, we may expect to see some creeping (but not fatal) low-grade protectionism, and continuing delays in concluding the Doha Round.
On financial regulation, as compared with the U.S. and the U.K., Europe has been pressing for more of a mandate to be given to global regulatory institutions, and also for more regulatory intervention at the country level. But in spite of the expansion in representation in the Financial Stability Forum, and its renaming as the Financial Stability Board, and in spite of the renewed mandate of the IMF, these are not becoming global regulatory institutions, and there are no others in the offing.
Further, the U.S., through the recently unveiled Geithner regulatory reform blueprint, has sent a clear message of financial regulation reform convergence to Europe (and beyond). There is consensus that the laissez-faire era of financial sector regulation is over. As an interesting aside, in the economic development field it was accepted wisdom long ago that the systemic characteristics of the financial sector set it apart from the enterprise sector, and thus justified some regulation.
The pending questions and debates on financial regulation are more in terms of crucial details, mostly devoid of ideology: how best to attain an improved regulatory system with proper disclosure, oversight and supervision? What is the proper balance between transparency and disclosure-related measures, on the one hand, and regulatory control by fiat, on the other? How to regulate across financial institutions, products and jurisdictions in a manner that avoids perverse incentives and a race to the bottom?
In terms of the pending bank clean-up and restructuring, the G-20 London communiqué is rather circumspect. But the evidence is already clearly pointing to a major new role for government intervention and ownership, albeit temporary. Paradoxically, this major deviation from the Washington Consensus model, at least in the short term, is taking place in a particularly pronounced fashion in the Anglo-Saxon countries and preceded the London Summit.
It was particularly telling that the most contentious issue at the G-20 Summit last Thursday in London had nothing to do with any overarching ideological mantra (or with one of the top priorities, for that matter): the closing down of tax havens and publishing a list of offending jurisdictions. This issue almost derailed the overall G-20 accord. At the last instance, it was “solved” by somehow ensuring that no jurisdiction linked to any G-20 member stayed on the list of offenders (Jersey and the Isle of Man have not been in the latest list, while Hong Kong and Macao were dropped on Thursday evening…).
Toward a New York Consensus?
The expectation is that the G-20 will meet again in the fall for a summit in New York. By then there may be further consensus on some of the pending issues, such as regulatory reform and the approach to clean-up the banks, although countries will tailor their actions to their needs. Given the track record of some aid donors, the pledges to help the poorest and most afflicted countries will need monitoring, and actual progress on trade policy will also require close scrutiny and, where needed, recourse.
At the same time, two large issues that have remained unaddressed will need particular attention. Neither is ideologically laden, rather they are both politically sensitive. First, tackling the challenge of macro-economic structural imbalances alluded to above. And second, beginning to put in place at the national level, priority governance reform measures that mitigate future prospects of regulatory (and state) capture and corruption. Such capture and legal corruption played an important role in leading to the financial crisis, and instituting proper safeguards, transparency reforms and incentives against such capture will be important to restore trust and attain institutional resilience. And for this there are also useful lessons that can be drawn from well governed countries outside the G-20.
It would be fitting that the very site of much of the capture and legal corruption that took place prior to the crisis becomes the venue for a “New York Consensus.”
The history of arms 'control' isn't good
Naïveté Invites Aggression. By David Lewis Schaefer
The history of arms 'control' isn't good.
WSJ, Apr 09, 2009
In response to North Korea's rocket launch, President Barack Obama has committed the U.S. to reducing our supply of nuclear weapons, urged the passage of a ban on nuclear weapons testing, and through Secretary of Defense Robert Gates, proposed scaling back our missile-defense program. In short, Mr. Obama apparently believes that the chief lesson to be learned from Pyongyang's missile launch is the need for more arms-control initiatives.
As a means of reducing the dangers of nuclear proliferation and nuclear war, this makes no sense. Once a country passes a minimal threshold, there is no reason to suppose that increasing its nuclear arsenal heightens the likelihood of its use. The only means of deterring rogue states from using (or more likely, threatening to use) nuclear weapons once they have acquired them are first, the capacity to threaten a much more massive response, and second, an effective program of missile defense.
Reducing our nuclear arsenal only gives outlaw states (including China) the incentive to increase theirs, to try to rival ours. And eliminating nuclear-weapons testing reduces the reliability of our arms and hence their effectiveness as a deterrent.
Mr. Obama's flight to arms control demonstrates the persistence of a dangerous illusion of the 20th century -- the notion that reducing a democratic nation's armaments is a means of mitigating the threat of war. Here's some of the history:
Mr. Schaefer is professor of political science at College of the Holy Cross.
The history of arms 'control' isn't good.
WSJ, Apr 09, 2009
In response to North Korea's rocket launch, President Barack Obama has committed the U.S. to reducing our supply of nuclear weapons, urged the passage of a ban on nuclear weapons testing, and through Secretary of Defense Robert Gates, proposed scaling back our missile-defense program. In short, Mr. Obama apparently believes that the chief lesson to be learned from Pyongyang's missile launch is the need for more arms-control initiatives.
As a means of reducing the dangers of nuclear proliferation and nuclear war, this makes no sense. Once a country passes a minimal threshold, there is no reason to suppose that increasing its nuclear arsenal heightens the likelihood of its use. The only means of deterring rogue states from using (or more likely, threatening to use) nuclear weapons once they have acquired them are first, the capacity to threaten a much more massive response, and second, an effective program of missile defense.
Reducing our nuclear arsenal only gives outlaw states (including China) the incentive to increase theirs, to try to rival ours. And eliminating nuclear-weapons testing reduces the reliability of our arms and hence their effectiveness as a deterrent.
Mr. Obama's flight to arms control demonstrates the persistence of a dangerous illusion of the 20th century -- the notion that reducing a democratic nation's armaments is a means of mitigating the threat of war. Here's some of the history:
- Beginning in 1906, Britain cut back an ambitious program of naval construction, begun under a previous administration, in the hope of thereby avoiding an "arms race" with Germany. But the change in British policy actually encouraged Germany's Adm. Alfred von Tirpitz to redouble his efforts to build a navy that would rival Britain's. This perception of British weakness may well have buttressed the confidence that led the Germans to launch World War I.
- The Washington Naval Conference of 1922 set limits on battleship construction by the U.S., Japan, Britain, France and Italy. But as a result, Japan instead focused on building other kinds of warships, paving the way for Pearl Harbor.
- Britain's policy of restraint in military production during the 1930s -- combined with the refusal of British and French governments to send forces to turn back Hitler's then weak army when it violated the Versailles Treaty by remilitarizing the Rhineland in 1936 -- did not placate Hitler. It only whetted the dictator's appetite, generating what Winston Churchill called the "unnecessary war," World War II, which might never have occurred had the Western allies maintained their armaments and a firm policy during the years that led up to it.
- The U.S. signed the Strategic Arms Limitation Talks antiballistic missile treaties with the Soviet Union in 1972, expecting they would produce a "stable" balance and ultimately a reduction in nuclear armaments. Instead the Soviets continued their race for nuclear superiority, as summed up in congressional testimony by Jimmy Carter's Defense Secretary Harold Brown in 1979: "[W]hen we build, they build. When we cut, they build." As President Ronald Reagan observed in a 1985 radio address on the Strategic Defense Initiative missile defense program the Soviets never accepted the "innocent" American notion "that being mutually vulnerable to attack was in our common interest."
- As soon as the Soviets signed the 1972 convention banning the manufacture of biological weapons, they immediately (secretly) ramped up their production of such weapons.
- The end of the Cold War and the collapse of the Soviet empire were brought about not by arms reductions, but by Reagan's unwillingness to give up work on SDI. Soviet Prime Minister Mikhail Gorbachev recognized the Soviets simply lacked the means to compete.
The likelihood that reducing America's strategic forces is going to elicit reciprocal behavior from our antagonists is nil. Nor will anything short of forceful sanctions (such as the George W. Bush administration applied, but then withdrew, against North Korean financial assets), have any effect in halting their march towards nuclear status.
In the words of the Joan Baez antiwar song from the 1960s: When will they ever learn?Mr. Schaefer is professor of political science at College of the Holy Cross.
Death tax on the WSJ Editorial Page: These days, the political class is so voracious that even taking 35% of a man's lifetime savings is insufficient
Death Blow. WSJ Editorial
Even 35% isn't enough for the envy club.
WSJ, Apr 09, 2009
We'll take pro-growth victories wherever we can find them these days, and last week saw a small one in the U.S. Senate, of all places. The Members voted 51-48 to cut permanently the death tax rate to 35% and exempt all estates of less than $10 million per couple ($5 million for a single taxpayer) from any tax. President Obama wants a 45% rate with only a $7 million exemption.
Every Republican voted for the lower rate, and so did 10 Democrats. This is the closest thing to bipartisanship we've seen so far this year on Capitol Hill, but naturally the White House and most of the media are appalled. Their idea of bipartisanship is when three Republicans cross party lines to pass $780 billion in "stimulus" spending.
Perhaps this explains why Majority Leader Harry Reid blew a gasket during the floor debate, calling the death-tax amendment by Jon Kyl (R., Ariz.) and Blanche Lincoln (D., Ark.) "outrageous," a "stunning act of hypocrisy," and a tax cut for those "at the very top of the food chain."
Then he actually said: "We can only turn the page from recession to recovery if we watch every single taxpayer dollar the way families watch every dollar in their budget." We'd say Mr. Reid was being deliberately ironic, but Harry doesn't do irony. He's an outrage man. And speaking of which, he was at that very moment working to pass a 2010 budget outline that includes record spending and trillions of dollars in new debt.
We've long argued that the fairest death tax rate is zero, because the money was already taxed when it was earned. Assets, such as stocks or property, in estates that have appreciated in value over time should be taxed at the capital gains rate of 15% in the year of the sale. These two changes would prevent the all-too-common and tragic firesale of businesses and farms when a family member dies. Senator Jim DeMint of South Carolina proposed an amendment to abolish the estate tax, but Mr. Reid blocked even a vote. Ah, the new bipartisanship.
He should listen to Senator Lincoln, who talked about the Arkansas companies and farmers whose assets are looted by the estate tax. "These are the people," she explained, "who employ more than half the workers in Arkansas. These are the people who, if we reform the estate tax, will invest in their businesses and create more jobs." Evidently, if they aren't government jobs, Mr. Reid isn't much interested. The battle now goes to a House-Senate conference, where liberals plan to strip the lower death tax rate. These days, the political class is so voracious that even taking 35% of a man's lifetime savings is insufficient.
Even 35% isn't enough for the envy club.
WSJ, Apr 09, 2009
We'll take pro-growth victories wherever we can find them these days, and last week saw a small one in the U.S. Senate, of all places. The Members voted 51-48 to cut permanently the death tax rate to 35% and exempt all estates of less than $10 million per couple ($5 million for a single taxpayer) from any tax. President Obama wants a 45% rate with only a $7 million exemption.
Every Republican voted for the lower rate, and so did 10 Democrats. This is the closest thing to bipartisanship we've seen so far this year on Capitol Hill, but naturally the White House and most of the media are appalled. Their idea of bipartisanship is when three Republicans cross party lines to pass $780 billion in "stimulus" spending.
Perhaps this explains why Majority Leader Harry Reid blew a gasket during the floor debate, calling the death-tax amendment by Jon Kyl (R., Ariz.) and Blanche Lincoln (D., Ark.) "outrageous," a "stunning act of hypocrisy," and a tax cut for those "at the very top of the food chain."
Then he actually said: "We can only turn the page from recession to recovery if we watch every single taxpayer dollar the way families watch every dollar in their budget." We'd say Mr. Reid was being deliberately ironic, but Harry doesn't do irony. He's an outrage man. And speaking of which, he was at that very moment working to pass a 2010 budget outline that includes record spending and trillions of dollars in new debt.
We've long argued that the fairest death tax rate is zero, because the money was already taxed when it was earned. Assets, such as stocks or property, in estates that have appreciated in value over time should be taxed at the capital gains rate of 15% in the year of the sale. These two changes would prevent the all-too-common and tragic firesale of businesses and farms when a family member dies. Senator Jim DeMint of South Carolina proposed an amendment to abolish the estate tax, but Mr. Reid blocked even a vote. Ah, the new bipartisanship.
He should listen to Senator Lincoln, who talked about the Arkansas companies and farmers whose assets are looted by the estate tax. "These are the people," she explained, "who employ more than half the workers in Arkansas. These are the people who, if we reform the estate tax, will invest in their businesses and create more jobs." Evidently, if they aren't government jobs, Mr. Reid isn't much interested. The battle now goes to a House-Senate conference, where liberals plan to strip the lower death tax rate. These days, the political class is so voracious that even taking 35% of a man's lifetime savings is insufficient.
At the G-20 meeting in London, officials from many nations said that the US is to blame for the world recession
It Didn't Start Here. By Alan Reynolds
This article appeared in the New York Post on April 9, 2009.
At the recent meeting of G-20 nations in London, officials from many nations agreed on one thing -- that the United States is to blame for the world recession. President Obama agreed, speaking in Strasbourg of "the reckless speculation of bankers that has now fueled a global economic downturn."
One problem with this blame-game is that last year's recession was much deeper in many European and Asian countries than it was in the United States.
By the fourth quarter of 2008, as the nearby table shows, real US gross domestic product was just 0.8 percent smaller than it had been a year earlier. The contraction was twice as deep in Germany and Britain and much worse in Japan and Sweden.
In February, US industrial production was 11.8 percent lower than a year before -- while Singapore was down by 22.4 percent, Sweden by 22.9 percent and Japan by 38.4 percent.
What was the mechanism by which US problems were supposedly spread to other countries? It wasn't international trade. The dollar value of US imports didn't start to fall until August 2008, and imports of consumer goods didn't fall until September -- many months after Japan and Europe fell into recession.
Indeed, most of the economies that fell first and fastest were not heavily dependent on exports to the United States. Even Japan accounted for just 6.6 percent of US merchandise imports last year, compared with 15.9 percent for both Canada and China -- whose economies fared relatively well.
Even if all of the weakest European and Asian economies could plausibly blame all their troubles on the relatively stronger US economy, how could anyone possibly blame banks? There were no bank failures last year in Japan, Sweden, Canada or any other country on this list except Britain. And US and British banks didn't fail until September-October -- at least nine months after the Japanese and European recessions began.
Yet it's clearly US/UK banks being fingered as the villains. German Finance Minister Peer Steinbrueck, for example, criticized an "Anglo-Saxon" attitude in America and Britain that encouraged risky lending and investment practices because of "an exaggerated fixation on returns."
But Germany's GDP and industrial production was down 19.2 percent for the year ending in January -- versus an 11.4 percent decline in Britain and a similar US drop. Are we supposed to believe that German (and Japanese) firms are more dependent on US and UK banks than American and British firms?
Another problem with blaming the United States is that the timing is all wrong. If the US recession had simply spread to other countries like a mysterious infection, shouldn't the US economy have been the first to start contracting?
Yet US industrial production only started to decline from its peak after January 2008 -- long after production began to slow in Canada (July 2007), Italy (August 2007), France (October 2007) and the Euro area as a whole (November 2007). Aside from a one-month uptick in February 2008, Japan's industrial production peaked in October 2007.
By January 2008, when both the US and European recessions are said to have begun, the OECD leading indicators were lower by nearly 0.8 points from a year before in the US -- but down 2.3 points in Sweden, 2.8 points in Japan, 2.6 points in Korea and 4.1 points in Ireland.
Those leading indicators correctly anticipated much deeper recessions in the latter four countries. And the most famous leading indicator -- monthly stock prices -- peaked in October 2007 in the US and UK, four months after stocks had peaked in Japan and the Euro area.
What did all the contracting economies have in common? Not all had housing booms -- certainly not Canada, Japan, Sweden or the other countries at the bottom of the economic-growth list.
What really triggered this recession should be obvious, since the same thing happened before every other postwar US recession save one (1960).
In 1983, economist James Hamilton of the University of California at San Diego showed that "all but one of the US recessions since World War Two have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum." The years 1946 to 2007 saw 10 dramatic spikes in the price of oil -- each of which was soon followed by recession.
In The Financial Times on Jan. 3, 2008, I therefore suggested, "The US economy is likely to slip into recession because of higher energy costs alone, regardless of what the Fed does."
In a new paper at cato.org, "Financial Crisis and Public Policy," Jagadeesh Gokhale notes that the prolonged decline in exurban housing construction that began in early 2006 was a logical response to rising prices of oil and gasoline at that time. So was the equally prolonged decline in sales of gas-guzzling vehicles. And the US/UK financial crises in the fall of 2008 were likewise as much a consequence of recession as the cause: Recessions turn good loans into bad.
The recession began in late 2007 or early 2008 in many countries, with the United States one of the least affected. Countries with the deepest recessions have no believable connection to US housing or banking problems.
The truth is much simpler: There is no way the oil-importing economies could have kept humming along with oil prices of $100 a barrel, much less $145. Like nearly every other recession of the postwar period, this one was triggered by a literally unbearable increase in the price of oil.
This article appeared in the New York Post on April 9, 2009.
At the recent meeting of G-20 nations in London, officials from many nations agreed on one thing -- that the United States is to blame for the world recession. President Obama agreed, speaking in Strasbourg of "the reckless speculation of bankers that has now fueled a global economic downturn."
One problem with this blame-game is that last year's recession was much deeper in many European and Asian countries than it was in the United States.
By the fourth quarter of 2008, as the nearby table shows, real US gross domestic product was just 0.8 percent smaller than it had been a year earlier. The contraction was twice as deep in Germany and Britain and much worse in Japan and Sweden.
In February, US industrial production was 11.8 percent lower than a year before -- while Singapore was down by 22.4 percent, Sweden by 22.9 percent and Japan by 38.4 percent.
What was the mechanism by which US problems were supposedly spread to other countries? It wasn't international trade. The dollar value of US imports didn't start to fall until August 2008, and imports of consumer goods didn't fall until September -- many months after Japan and Europe fell into recession.
Indeed, most of the economies that fell first and fastest were not heavily dependent on exports to the United States. Even Japan accounted for just 6.6 percent of US merchandise imports last year, compared with 15.9 percent for both Canada and China -- whose economies fared relatively well.
Even if all of the weakest European and Asian economies could plausibly blame all their troubles on the relatively stronger US economy, how could anyone possibly blame banks? There were no bank failures last year in Japan, Sweden, Canada or any other country on this list except Britain. And US and British banks didn't fail until September-October -- at least nine months after the Japanese and European recessions began.
Yet it's clearly US/UK banks being fingered as the villains. German Finance Minister Peer Steinbrueck, for example, criticized an "Anglo-Saxon" attitude in America and Britain that encouraged risky lending and investment practices because of "an exaggerated fixation on returns."
But Germany's GDP and industrial production was down 19.2 percent for the year ending in January -- versus an 11.4 percent decline in Britain and a similar US drop. Are we supposed to believe that German (and Japanese) firms are more dependent on US and UK banks than American and British firms?
Another problem with blaming the United States is that the timing is all wrong. If the US recession had simply spread to other countries like a mysterious infection, shouldn't the US economy have been the first to start contracting?
Yet US industrial production only started to decline from its peak after January 2008 -- long after production began to slow in Canada (July 2007), Italy (August 2007), France (October 2007) and the Euro area as a whole (November 2007). Aside from a one-month uptick in February 2008, Japan's industrial production peaked in October 2007.
By January 2008, when both the US and European recessions are said to have begun, the OECD leading indicators were lower by nearly 0.8 points from a year before in the US -- but down 2.3 points in Sweden, 2.8 points in Japan, 2.6 points in Korea and 4.1 points in Ireland.
Those leading indicators correctly anticipated much deeper recessions in the latter four countries. And the most famous leading indicator -- monthly stock prices -- peaked in October 2007 in the US and UK, four months after stocks had peaked in Japan and the Euro area.
What did all the contracting economies have in common? Not all had housing booms -- certainly not Canada, Japan, Sweden or the other countries at the bottom of the economic-growth list.
What really triggered this recession should be obvious, since the same thing happened before every other postwar US recession save one (1960).
In 1983, economist James Hamilton of the University of California at San Diego showed that "all but one of the US recessions since World War Two have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum." The years 1946 to 2007 saw 10 dramatic spikes in the price of oil -- each of which was soon followed by recession.
In The Financial Times on Jan. 3, 2008, I therefore suggested, "The US economy is likely to slip into recession because of higher energy costs alone, regardless of what the Fed does."
In a new paper at cato.org, "Financial Crisis and Public Policy," Jagadeesh Gokhale notes that the prolonged decline in exurban housing construction that began in early 2006 was a logical response to rising prices of oil and gasoline at that time. So was the equally prolonged decline in sales of gas-guzzling vehicles. And the US/UK financial crises in the fall of 2008 were likewise as much a consequence of recession as the cause: Recessions turn good loans into bad.
The recession began in late 2007 or early 2008 in many countries, with the United States one of the least affected. Countries with the deepest recessions have no believable connection to US housing or banking problems.
The truth is much simpler: There is no way the oil-importing economies could have kept humming along with oil prices of $100 a barrel, much less $145. Like nearly every other recession of the postwar period, this one was triggered by a literally unbearable increase in the price of oil.
US Diplomats Discuss Humanitarian Situation in Sri Lanka with Tamil Diaspora Groups
Assistant Secretary Boucher and Ambassador Blake Discuss Humanitarian Situation in Sri Lanka with Tamil Diaspora Groups
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, April 8, 2009
Assistant Secretary of State for South and Central Asian Affairs Richard Boucher and U.S. Ambassador to Sri Lanka Robert Blake met with several U.S.-based organizations representing members of the Tamil diaspora to discuss the humanitarian situation in Sri Lanka.
Assistant Secretary Boucher and Ambassador Blake welcomed the opportunity to listen to the concerns and perspectives of the American Tamil diaspora community and to share the steps the United States is taking to address the humanitarian crisis. Assistant Secretary Boucher and Ambassador Blake emphasized U.S. concern about the plight of the civilians trapped in the “no fire zone” in northern Sri Lanka. They called on the Liberation Tigers of Tamil Eelam to release the civilians. They reiterated that both the Tamil Tigers and the Government of Sri Lanka should stop firing into and from the no fire zone. They outlined the steps the U.S. has taken to support the civilians in the no fire zone.
The United States has provided $23.6 million towards International Committee of the Red Cross (ICRC) regional activities, which includes ICRC activities in Sri Lanka, and $8.3 million to UNHCR for its South Asia appeal and its portion of the Common Humanitarian Action Plan (CHAP) for Sri Lanka. In 2008, the United States also provided $5.9 million in non-food support to the UN and international NGOs operating in Sri Lanka.
Assistant Secretary Boucher and Ambassador Blake emphasized the urgent need for the Government of Sri Lanka to engage Tamils, including diaspora communities around the world, to find a political end of the conflict. Assistant Secretary Boucher and Ambassador Blake concluded by saying that they would like to continue the dialogue with the diaspora community and urged participants to continue to share feedback.
The discussion took place at the State Department with Ambassador Blake speaking through via a digital video conference at the U.S. Embassy in Colombo.
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, April 8, 2009
Assistant Secretary of State for South and Central Asian Affairs Richard Boucher and U.S. Ambassador to Sri Lanka Robert Blake met with several U.S.-based organizations representing members of the Tamil diaspora to discuss the humanitarian situation in Sri Lanka.
Assistant Secretary Boucher and Ambassador Blake welcomed the opportunity to listen to the concerns and perspectives of the American Tamil diaspora community and to share the steps the United States is taking to address the humanitarian crisis. Assistant Secretary Boucher and Ambassador Blake emphasized U.S. concern about the plight of the civilians trapped in the “no fire zone” in northern Sri Lanka. They called on the Liberation Tigers of Tamil Eelam to release the civilians. They reiterated that both the Tamil Tigers and the Government of Sri Lanka should stop firing into and from the no fire zone. They outlined the steps the U.S. has taken to support the civilians in the no fire zone.
The United States has provided $23.6 million towards International Committee of the Red Cross (ICRC) regional activities, which includes ICRC activities in Sri Lanka, and $8.3 million to UNHCR for its South Asia appeal and its portion of the Common Humanitarian Action Plan (CHAP) for Sri Lanka. In 2008, the United States also provided $5.9 million in non-food support to the UN and international NGOs operating in Sri Lanka.
Assistant Secretary Boucher and Ambassador Blake emphasized the urgent need for the Government of Sri Lanka to engage Tamils, including diaspora communities around the world, to find a political end of the conflict. Assistant Secretary Boucher and Ambassador Blake concluded by saying that they would like to continue the dialogue with the diaspora community and urged participants to continue to share feedback.
The discussion took place at the State Department with Ambassador Blake speaking through via a digital video conference at the U.S. Embassy in Colombo.
Obama in Ankara: Turkey's Dangerous Drift
Obama in Ankara: Turkey's Dangerous Drift. By Ariel Cohen, Ph.D. and Owen Graham
Heritage WebMemo #2383
April 6, 2009
[Full article w/notes at the link above]
After attending the three summits--G-20, NATO, and the EU--President Obama arrived in Ankara, Turkey, Sunday for the final stop on his inaugural European tour. Obama's visit to Turkey highlights the importance Washington attaches to this country as a key regional player, a veteran NATO ally, and an influential state with a predominately Muslim population.
During the NATO summit on Saturday, the alliance unanimously chose Anders Fogh Rasmussen, Denmark's prime minister, as the next secretary general. Turkey was initially against the nomination, however, alleging that Rasmussen was insensitive to Muslims during the scandal over the Prophet Muhammad cartoons and due to his pessimistic views about Turkey's EU membership.[1] Turkey claimed to speak on behalf of the Muslim world, raising the larger question of Turkey's direction and its trajectory toward the West in general and NATO in particular.
Deterioration of U.S.-Turkish Ties
Until the Justice and Development Party's (AKP) rise to power in 2002, Turkey was considered a reliable U.S. partner. During the Cold War, Turkey's modernizing secular elites championed unpopular causes: the Korean War, support of U.S. operations during the 1991 Gulf War, and Operation Northern Watch in Iraqi Kurdistan (1991-2003).
Turkey also played a vital role in peacekeeping missions in Bosnia, Kosovo, Somalia, and Afghanistan. Likewise, the U.S. supported Turkey against the Kurdish terrorist organization PKK and the 1999 capture of its leader, Abdullah Ocalan. These relations contributed to major mutually beneficial projects, such as the Baku-Tbilisi-Ceyhan main oil export pipeline.
Today, the AKP appears to be moving Turkey away from its pro-Western and pro-American orientation to a more Islamist one. This drift has left many in Washington uncertain over the country's direction. The growing anti-Americanism within Turkey poses a major challenge to bilateral relations.
In 2007, for instance, according to public opinion polls, only 9 percent of the population held favorable views of the United States. The Turkish public was overwhelmingly against the Iraq war and also protested perceived U.S. inaction on Kurdish PKK terrorist attacks launched from northern Iraq. Anti-Semitism and vitriolic anti-Israel sentiment is also rising--often fanned by the AKP-controlled media and politicians--and threatening to destroy a close security relationship between the two countries.
Growing Illiberalism
Turkey's secular elites are increasingly concerned by the country's direction. They argue that the AKP is promoting a creeping Islamic agenda--one that is closer to Muslim Brotherhood fundamentalism than to the traditional Ottoman tolerant religious outlook.
In July 2008, the Constitutional Court, in a split decision, rejected an attempt by Turkey's chief prosecutor to ban the AKP. The prosecution accused the AKP of violating separation of mosque and state in public life, with the intention of leading secular Turkey down a path toward Shari'a law.[2]
While the AKP has enjoyed popular support since it came to power, for the first time since 2002, it lost support, dropping from 47 percent to 39 percent in the March 29 local elections. While the global economic crisis is in part responsible for this decrease in support, the outcome of these elections is also explained by discontent with AKP policies and recognition that the party has strayed from its promises of a more liberal Turkey in the European Union.[3] Prominent supporters of democracy are concerned that the right of dissent and the principle of government accountability are being eroded: The AKP is viewed as increasingly intolerant of opposing views.[4]
Turkey's Foreign Policy Drift
Regarding foreign policy, there are important signs that Turkey is drifting away from the West. In 2006, Turkey became the first NATO member to host the leader of Hamas, Khaled Mashaal. Turkey also enthusiastically hosted Iranian president Mahmoud Ahmadinejad and Sudanese President Omar al-Bashir, whose government has been accused of genocide. Turkey's geography explains its association with Iran but not with Hamas or Sudan; only Islamist solidarity and anti-Western sentiment can explain these ties.
Although Turkey has been trying to facilitate an Arab-Israeli rapprochement, it is losing its impartiality and, therefore, credibility. It is attempting to sponsor an Israeli-Palestinian industrial border zone and an Israeli-Palestinian hospital. It also sponsored an Israeli-Syrian proximity talks in Istanbul.
However, at the recent Davos World Economic Forum, Turkish Prime Minister Recep Tayyip Erdogan called Israel's operation in Gaza "inhumane." The prime minister has verbally attacked the elderly, Nobel-prize-winning, dovish Israeli President Shimon Peres as a killer of children, thus positioning himself as a Hamas protector. He then stormed out of the Davos panel, only to receive a hero's welcome at home.
Turkey supports the development of a peaceful nuclear power program by Iran but wants transparency and dialog on the subject. However, Erdogan's judgment has been called into question after he stated last year that "those who ask Iran not to produce nuclear weapons should themselves give up their nuclear weapons first."[5]
The Bear Hug
There have also been worrisome developments in Turkey's Black Sea and Caucasus policies. During the Russian-Georgia war, the Turkish prime minister proposed the "Caucasus Stability and Cooperation Platform." The platform proposed a condominium of Russia and Turkey, together with the three South Caucasus countries, but it initially omitted the U.S. and EU, as well as Iran.[6] Moreover, the United States and the European Union were not consulted on these proposals beforehand.
Turkey also temporarily blocked the transit of U.S. warships delivering humanitarian aid to Georgia. And it prioritized rapprochement with the Russian ally Armenia over the ties with the secular, pro-Western Azerbaijan. These developments underscore Turkey's cozying up to Russia as Moscow is providing nearly two-thirds of its gas supplies. Indeed, Russia may have used multi-billion-dollar construction and gas supply contracts as leverage over Ankara.
Turkey is critical to Europe's efforts to reduce its dependence on Russian energy, including the proposed Nabucco gas pipeline that would bring Central Asian gas to Europe via Turkey, bypassing Russia. However, Turkey demanded to fill Nabucco with Iranian gas while it is currently stalling on signing an intergovernmental agreement on Nabucco. Thus, Turkey is throwing the "bypass Russia" gas transit strategy in limbo.[7]
If Turkey's terms do not improve soon, Azerbaijan may be forced to embrace Gazprom.[8] If that occurs, Ankara's actions will threaten to derail a decade of Western progress on East-West energy and transportation.
Afghanistan and Iraq
According to Prime Minister Erdogan, Turkey is open to discussing the withdrawal of U.S. forces from Iraq through Turkey.[9] Considering that Turkey refused to allow U.S. troops to enter Iraq from its territory, this is a questionable statement. Yet Turkey is a major logistical hub of efforts in Afghanistan. The planned withdrawal of troops from Iraq raises the importance of the Incirlik base.
Beyond this, Turkey has played a positive role in Afghanistan. Finally, President Obama is well aware that his statements on the Armenian genocide issue are being watched carefully. He avoided alienating a key ally not by using the "G" word (genocide) in his speeches. However, it is not clear whether the White House can prevent a congressional resolution on genocide from passing, primarily with Democratic votes, for domestic political reasons.
What Should the U.S. Do?
Despite Turkey's movement away from the West, the country continues to play a key role in NATO. Strong bilateral security relations are particularly important for cooperation on the Iraq withdrawal, Afghanistan, dealing with Iran, and addressing a resurgent Russia.
Washington should devote more attention to U.S.-Turkish relations. The Administration should stress that it is in Turkey's long-term interests to remain politically oriented toward the West. However, the timing of Secretary of State Hillary Clinton's and President Obama's visits have provided political support to the ruling anti-American political party at the time of crucial elections and increased criticism on behalf of pro-American secularists, who feel abandoned.
The United States should expand energy cooperation with Turkey. Yet it should also warn that excessive dependence on either Russian or Iranian gas will jeopardize Turkey's sovereignty and security. While U.S. support of the Turkish-Armenian normalization is justified, so is American reinforcement of the Turkish-Azeri ties.
When speaking before the Turkish Parliament, President Obama voiced support for Turkey's membership in the European Union, saying that it would "broaden and strengthen" Europe's foundation.[10]
Instead of sending mixed messages, the Obama Administration should specify clear terms under which Turkish cooperation with the U.S. is welcome. After all, it is up to the Turkish elites to decide whether they want to continue on the path of development with the trusted and powerful ally or seek new friends in Iran, Sudan, and Saudi Arabia.
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, and Owen Graham is a Research Assistant at the Katherine and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.
Heritage WebMemo #2383
April 6, 2009
[Full article w/notes at the link above]
After attending the three summits--G-20, NATO, and the EU--President Obama arrived in Ankara, Turkey, Sunday for the final stop on his inaugural European tour. Obama's visit to Turkey highlights the importance Washington attaches to this country as a key regional player, a veteran NATO ally, and an influential state with a predominately Muslim population.
During the NATO summit on Saturday, the alliance unanimously chose Anders Fogh Rasmussen, Denmark's prime minister, as the next secretary general. Turkey was initially against the nomination, however, alleging that Rasmussen was insensitive to Muslims during the scandal over the Prophet Muhammad cartoons and due to his pessimistic views about Turkey's EU membership.[1] Turkey claimed to speak on behalf of the Muslim world, raising the larger question of Turkey's direction and its trajectory toward the West in general and NATO in particular.
Deterioration of U.S.-Turkish Ties
Until the Justice and Development Party's (AKP) rise to power in 2002, Turkey was considered a reliable U.S. partner. During the Cold War, Turkey's modernizing secular elites championed unpopular causes: the Korean War, support of U.S. operations during the 1991 Gulf War, and Operation Northern Watch in Iraqi Kurdistan (1991-2003).
Turkey also played a vital role in peacekeeping missions in Bosnia, Kosovo, Somalia, and Afghanistan. Likewise, the U.S. supported Turkey against the Kurdish terrorist organization PKK and the 1999 capture of its leader, Abdullah Ocalan. These relations contributed to major mutually beneficial projects, such as the Baku-Tbilisi-Ceyhan main oil export pipeline.
Today, the AKP appears to be moving Turkey away from its pro-Western and pro-American orientation to a more Islamist one. This drift has left many in Washington uncertain over the country's direction. The growing anti-Americanism within Turkey poses a major challenge to bilateral relations.
In 2007, for instance, according to public opinion polls, only 9 percent of the population held favorable views of the United States. The Turkish public was overwhelmingly against the Iraq war and also protested perceived U.S. inaction on Kurdish PKK terrorist attacks launched from northern Iraq. Anti-Semitism and vitriolic anti-Israel sentiment is also rising--often fanned by the AKP-controlled media and politicians--and threatening to destroy a close security relationship between the two countries.
Growing Illiberalism
Turkey's secular elites are increasingly concerned by the country's direction. They argue that the AKP is promoting a creeping Islamic agenda--one that is closer to Muslim Brotherhood fundamentalism than to the traditional Ottoman tolerant religious outlook.
In July 2008, the Constitutional Court, in a split decision, rejected an attempt by Turkey's chief prosecutor to ban the AKP. The prosecution accused the AKP of violating separation of mosque and state in public life, with the intention of leading secular Turkey down a path toward Shari'a law.[2]
While the AKP has enjoyed popular support since it came to power, for the first time since 2002, it lost support, dropping from 47 percent to 39 percent in the March 29 local elections. While the global economic crisis is in part responsible for this decrease in support, the outcome of these elections is also explained by discontent with AKP policies and recognition that the party has strayed from its promises of a more liberal Turkey in the European Union.[3] Prominent supporters of democracy are concerned that the right of dissent and the principle of government accountability are being eroded: The AKP is viewed as increasingly intolerant of opposing views.[4]
Turkey's Foreign Policy Drift
Regarding foreign policy, there are important signs that Turkey is drifting away from the West. In 2006, Turkey became the first NATO member to host the leader of Hamas, Khaled Mashaal. Turkey also enthusiastically hosted Iranian president Mahmoud Ahmadinejad and Sudanese President Omar al-Bashir, whose government has been accused of genocide. Turkey's geography explains its association with Iran but not with Hamas or Sudan; only Islamist solidarity and anti-Western sentiment can explain these ties.
Although Turkey has been trying to facilitate an Arab-Israeli rapprochement, it is losing its impartiality and, therefore, credibility. It is attempting to sponsor an Israeli-Palestinian industrial border zone and an Israeli-Palestinian hospital. It also sponsored an Israeli-Syrian proximity talks in Istanbul.
However, at the recent Davos World Economic Forum, Turkish Prime Minister Recep Tayyip Erdogan called Israel's operation in Gaza "inhumane." The prime minister has verbally attacked the elderly, Nobel-prize-winning, dovish Israeli President Shimon Peres as a killer of children, thus positioning himself as a Hamas protector. He then stormed out of the Davos panel, only to receive a hero's welcome at home.
Turkey supports the development of a peaceful nuclear power program by Iran but wants transparency and dialog on the subject. However, Erdogan's judgment has been called into question after he stated last year that "those who ask Iran not to produce nuclear weapons should themselves give up their nuclear weapons first."[5]
The Bear Hug
There have also been worrisome developments in Turkey's Black Sea and Caucasus policies. During the Russian-Georgia war, the Turkish prime minister proposed the "Caucasus Stability and Cooperation Platform." The platform proposed a condominium of Russia and Turkey, together with the three South Caucasus countries, but it initially omitted the U.S. and EU, as well as Iran.[6] Moreover, the United States and the European Union were not consulted on these proposals beforehand.
Turkey also temporarily blocked the transit of U.S. warships delivering humanitarian aid to Georgia. And it prioritized rapprochement with the Russian ally Armenia over the ties with the secular, pro-Western Azerbaijan. These developments underscore Turkey's cozying up to Russia as Moscow is providing nearly two-thirds of its gas supplies. Indeed, Russia may have used multi-billion-dollar construction and gas supply contracts as leverage over Ankara.
Turkey is critical to Europe's efforts to reduce its dependence on Russian energy, including the proposed Nabucco gas pipeline that would bring Central Asian gas to Europe via Turkey, bypassing Russia. However, Turkey demanded to fill Nabucco with Iranian gas while it is currently stalling on signing an intergovernmental agreement on Nabucco. Thus, Turkey is throwing the "bypass Russia" gas transit strategy in limbo.[7]
If Turkey's terms do not improve soon, Azerbaijan may be forced to embrace Gazprom.[8] If that occurs, Ankara's actions will threaten to derail a decade of Western progress on East-West energy and transportation.
Afghanistan and Iraq
According to Prime Minister Erdogan, Turkey is open to discussing the withdrawal of U.S. forces from Iraq through Turkey.[9] Considering that Turkey refused to allow U.S. troops to enter Iraq from its territory, this is a questionable statement. Yet Turkey is a major logistical hub of efforts in Afghanistan. The planned withdrawal of troops from Iraq raises the importance of the Incirlik base.
Beyond this, Turkey has played a positive role in Afghanistan. Finally, President Obama is well aware that his statements on the Armenian genocide issue are being watched carefully. He avoided alienating a key ally not by using the "G" word (genocide) in his speeches. However, it is not clear whether the White House can prevent a congressional resolution on genocide from passing, primarily with Democratic votes, for domestic political reasons.
What Should the U.S. Do?
Despite Turkey's movement away from the West, the country continues to play a key role in NATO. Strong bilateral security relations are particularly important for cooperation on the Iraq withdrawal, Afghanistan, dealing with Iran, and addressing a resurgent Russia.
Washington should devote more attention to U.S.-Turkish relations. The Administration should stress that it is in Turkey's long-term interests to remain politically oriented toward the West. However, the timing of Secretary of State Hillary Clinton's and President Obama's visits have provided political support to the ruling anti-American political party at the time of crucial elections and increased criticism on behalf of pro-American secularists, who feel abandoned.
The United States should expand energy cooperation with Turkey. Yet it should also warn that excessive dependence on either Russian or Iranian gas will jeopardize Turkey's sovereignty and security. While U.S. support of the Turkish-Armenian normalization is justified, so is American reinforcement of the Turkish-Azeri ties.
When speaking before the Turkish Parliament, President Obama voiced support for Turkey's membership in the European Union, saying that it would "broaden and strengthen" Europe's foundation.[10]
Instead of sending mixed messages, the Obama Administration should specify clear terms under which Turkish cooperation with the U.S. is welcome. After all, it is up to the Turkish elites to decide whether they want to continue on the path of development with the trusted and powerful ally or seek new friends in Iran, Sudan, and Saudi Arabia.
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, and Owen Graham is a Research Assistant at the Katherine and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.
Wednesday, April 8, 2009
CEI Comment on EPA’s Reconsideration of California’s Request for a Waiver to Establish Emission Standards for new Motor Vehicles
CEI Comment on EPA’s Reconsideration of California’s Request for a Waiver to Establish Emission Standards for new Motor Vehicles, by Marlo Lewis, Jr.
CEI, April 6, 2009
EPA should stick to its guns and deny California’s request for a waiver of federal preemption of State motor vehicle emission standards. Granting the waiver would allow the California Air Resources Board (CARB) to impose potentially lethal burdens on an industry in crisis. California has no “extraordinary conditions” with respect either to atmospheric greenhouse gas concentrations or the potential impacts thereof, and consequently does not “need” a waiver. The CARB program massively and directly regulates fuel economy, and thus violates the Energy Policy and Conservation Act (EPCA), which prohibits State law and regulation “related to” fuel economy. Granting the waiver would allow CARB and other “California” States to nullify the fuel economy reforms Congress adopted through EISA, violating the Supremacy Clause. Finally, granting the waiver would create a State-by-State patchwork of vehicle rationing programs, an economically-ruinous policy clearly at odds with congressional intent.
Docket ID No. EPA-HQ-OAR-2006-0173
California State Motor Vehicle Pollution Control Standards; Greenhouse Gas Regulations; Reconsideration of Previous Denial of a Waiver of Preemption
Full report: Marlo Lewis - CEI - Comment on California Waiver Request - 2009-04-06.pdf
CEI, April 6, 2009
EPA should stick to its guns and deny California’s request for a waiver of federal preemption of State motor vehicle emission standards. Granting the waiver would allow the California Air Resources Board (CARB) to impose potentially lethal burdens on an industry in crisis. California has no “extraordinary conditions” with respect either to atmospheric greenhouse gas concentrations or the potential impacts thereof, and consequently does not “need” a waiver. The CARB program massively and directly regulates fuel economy, and thus violates the Energy Policy and Conservation Act (EPCA), which prohibits State law and regulation “related to” fuel economy. Granting the waiver would allow CARB and other “California” States to nullify the fuel economy reforms Congress adopted through EISA, violating the Supremacy Clause. Finally, granting the waiver would create a State-by-State patchwork of vehicle rationing programs, an economically-ruinous policy clearly at odds with congressional intent.
Docket ID No. EPA-HQ-OAR-2006-0173
California State Motor Vehicle Pollution Control Standards; Greenhouse Gas Regulations; Reconsideration of Previous Denial of a Waiver of Preemption
Full report: Marlo Lewis - CEI - Comment on California Waiver Request - 2009-04-06.pdf
Rise of the Luddites
Rise of the Luddites, by Fred Smith
Open Market/CEI, April 07, 2009 @ 3:57 pm
When it comes to things such as environmental policy, the Progressives have been rather successful at promoting their world view. They realized that it would be futile to argue that property rights and human ingenuity could not solve anything - so they did not try (immediately) to socialize oil or other sub-surface minerals but they did succeed in derailing the evolutionary process by which institutions emerged to resolve emerging problems. The economist Ronald Coase noted this in an essay pointing out that the EMS (Emergency Medical Services) was well on its way to being homesteaded with rules for allowing multiple uses - and then the Feds created the Federal Communication Commission and the spectrum is still terribly managed to this day.
The environment is valuable and valued by many. The difficulty is that we have relegated its “protection” and “management” to bureaucrats - and suppressed the evolution of property rights in environmental resources (wildlife, groundwater, fisheries). These resources remain as common property resources - and we experience repeatedly the Tragedy of the Commons. However, the most distressing aspect of the debate over environmental policy, is that the view gaining prevalence from the Progressive side is decidedly anti-human, and anti-technology at its core.
There are many features of the growing anti-human-relevant-science campaign.
* One is the selection of the fearful – the Malthusian wing of this movement that sees “technology” as change, as a move into an untested future and, thus, to be slowed if not banned. These people champion the Precautionary Principle – a totally Luddite rule. Has there ever been a market innovation (one that we hoped people would buy) that created more harm than good?
* The Economic Rational wing, which has championed “comparative effectiveness” and so on. After all, they argue, it would be foolish and wasteful to approve a new drug or device that was not “cost effective for the median individual.” A wonderful capture of the rational language but, of course, that approach argues that we can know in advance that a specific innovation will or will not prove beneficial (the French minitel system comes to mind). Most – all – innovations appear first as clunky, expensive toys or (for a very few) necessities. The purchasers are the ‘Early Adopters’ – often rich or eager to “be the first on their block.” However, the freedom to create an infant market for a product that would be too expensive and too inefficient for most people made it possible for the thousand dollar 1940s television sets with tiny blurry pictures and very low quality to become the few hundred 34-inch flat screen marvels of today. We will suffer in many areas for this loss but the greatest losses may be in the medical innovation area.
* The Government Research Must be Dominant school is characterized by those who sought on “scientific” grounds for removal of any restraints on stem cell research – not because such research was banned (private parties were largely free), but rather because it meant that their approved source of scientific funding – the government – was kept from the field. Indeed, this group is much more ambitious – their effort to drive the market from the marketplace of ideas is one of the most threatening themes. Research that has been funded by a company, individuals who have done consulting or worked for a company, groups who’ve received support from a company – all inherently more suspect that a government-funded scientist. One can expect that such individuals and the research work they do will soon have to wear a yellow C (for corporate) patch on their clothes, appended on every page of their journal articles.
* The Science Good, Technology Bad sub-class. This refers to the observations of Joel Mokyr and others. That it has been the close link between (largely) non-economic driven science and (largely) economic-driven technology that transformed the slow progress of most of mankind’s history to the exponential growth we have experienced in the last several centuries. Brilliant individuals have popped up from time to time throughout history. They expand man’s knowledge and some small use is made of that knowledge to improve man’s welfare. In the Industrial Revolution, however, the growth of economic freedom created a more receptive and attentive audience for such knowledge. Electricity would be discovered and Edison and others would immediately begin to think, “What is it good for?” Then, in turn, they would go back to the science and note – “this worked OK but … why?” and those questions would both prompt and interest the science community in expanding knowledge in directions more likely to prove human beneficial. The resulting positive “feed back loop” is critical to progress. This group would sever that link — Science Good, Technology Bad!!
As I have stated above, the environment is valuable, and its preservation is valuable to many. Therefore, at CEI, one of the things we have tried to do in our work is not ridicule the environmentalists or argue that environmental values are irrelevant. We simply make the point that the Malthusian goals - less people, less consumption, less technology - is far less inspiring that the view of mankind as the Ultimate Resource.
I am proud of the work we have done, but we have much work to do to improve our marketing skills. The other side of this debate seems rather adept at garnering popularity, and is much better funded. My message to those who may share our views is that we needed to find ways to create a more effective and powerful alliance between the entrepreneurial elements of the business community and the free market community. We face many problems. Keep up the good work – and help find the scientist-entrepreneurs who have not succumbed to this insanity. There must be a handful of people who recognize that the politicization of science by conservatives was stupid, but the politicization of science by the Luddites is suicidal.
Open Market/CEI, April 07, 2009 @ 3:57 pm
When it comes to things such as environmental policy, the Progressives have been rather successful at promoting their world view. They realized that it would be futile to argue that property rights and human ingenuity could not solve anything - so they did not try (immediately) to socialize oil or other sub-surface minerals but they did succeed in derailing the evolutionary process by which institutions emerged to resolve emerging problems. The economist Ronald Coase noted this in an essay pointing out that the EMS (Emergency Medical Services) was well on its way to being homesteaded with rules for allowing multiple uses - and then the Feds created the Federal Communication Commission and the spectrum is still terribly managed to this day.
The environment is valuable and valued by many. The difficulty is that we have relegated its “protection” and “management” to bureaucrats - and suppressed the evolution of property rights in environmental resources (wildlife, groundwater, fisheries). These resources remain as common property resources - and we experience repeatedly the Tragedy of the Commons. However, the most distressing aspect of the debate over environmental policy, is that the view gaining prevalence from the Progressive side is decidedly anti-human, and anti-technology at its core.
There are many features of the growing anti-human-relevant-science campaign.
* One is the selection of the fearful – the Malthusian wing of this movement that sees “technology” as change, as a move into an untested future and, thus, to be slowed if not banned. These people champion the Precautionary Principle – a totally Luddite rule. Has there ever been a market innovation (one that we hoped people would buy) that created more harm than good?
* The Economic Rational wing, which has championed “comparative effectiveness” and so on. After all, they argue, it would be foolish and wasteful to approve a new drug or device that was not “cost effective for the median individual.” A wonderful capture of the rational language but, of course, that approach argues that we can know in advance that a specific innovation will or will not prove beneficial (the French minitel system comes to mind). Most – all – innovations appear first as clunky, expensive toys or (for a very few) necessities. The purchasers are the ‘Early Adopters’ – often rich or eager to “be the first on their block.” However, the freedom to create an infant market for a product that would be too expensive and too inefficient for most people made it possible for the thousand dollar 1940s television sets with tiny blurry pictures and very low quality to become the few hundred 34-inch flat screen marvels of today. We will suffer in many areas for this loss but the greatest losses may be in the medical innovation area.
* The Government Research Must be Dominant school is characterized by those who sought on “scientific” grounds for removal of any restraints on stem cell research – not because such research was banned (private parties were largely free), but rather because it meant that their approved source of scientific funding – the government – was kept from the field. Indeed, this group is much more ambitious – their effort to drive the market from the marketplace of ideas is one of the most threatening themes. Research that has been funded by a company, individuals who have done consulting or worked for a company, groups who’ve received support from a company – all inherently more suspect that a government-funded scientist. One can expect that such individuals and the research work they do will soon have to wear a yellow C (for corporate) patch on their clothes, appended on every page of their journal articles.
* The Science Good, Technology Bad sub-class. This refers to the observations of Joel Mokyr and others. That it has been the close link between (largely) non-economic driven science and (largely) economic-driven technology that transformed the slow progress of most of mankind’s history to the exponential growth we have experienced in the last several centuries. Brilliant individuals have popped up from time to time throughout history. They expand man’s knowledge and some small use is made of that knowledge to improve man’s welfare. In the Industrial Revolution, however, the growth of economic freedom created a more receptive and attentive audience for such knowledge. Electricity would be discovered and Edison and others would immediately begin to think, “What is it good for?” Then, in turn, they would go back to the science and note – “this worked OK but … why?” and those questions would both prompt and interest the science community in expanding knowledge in directions more likely to prove human beneficial. The resulting positive “feed back loop” is critical to progress. This group would sever that link — Science Good, Technology Bad!!
As I have stated above, the environment is valuable, and its preservation is valuable to many. Therefore, at CEI, one of the things we have tried to do in our work is not ridicule the environmentalists or argue that environmental values are irrelevant. We simply make the point that the Malthusian goals - less people, less consumption, less technology - is far less inspiring that the view of mankind as the Ultimate Resource.
I am proud of the work we have done, but we have much work to do to improve our marketing skills. The other side of this debate seems rather adept at garnering popularity, and is much better funded. My message to those who may share our views is that we needed to find ways to create a more effective and powerful alliance between the entrepreneurial elements of the business community and the free market community. We face many problems. Keep up the good work – and help find the scientist-entrepreneurs who have not succumbed to this insanity. There must be a handful of people who recognize that the politicization of science by conservatives was stupid, but the politicization of science by the Luddites is suicidal.
Now banned on campus: bottled water
Now banned on campus: bottled water. By Angela Logomasini
Originally published in The Union Leader. April 6, 2009
There is a new “sin” industry on college campuses. It’s not beer, fast food or tobacco. It’s water! Universities around the nation have begun to deny students the option to drink bottled water, removing it from vending machines and campus stores.
Why? They are following the advice of environmental activist groups that say students should “drink responsibly” — which to them means tap water. Drinking bottled water is supposedly wasteful because you get basically the same thing from a tap. Yet their claims don’t hold water, and surely don’t warrant this silly prohibition.
At the extreme is Washington University in St. Louis, MO. As part of its “Tap It” campaign, the school took a symbolic step in promoting sustainability, according to student body representative, Kady McFadden. This “step” basically banned bottled water from campus stores and vending machines, except where sales must continue until bottled water contracts expire.
These actions ignore the important reasons why some people choose bottled water. Among them is predictable quality. Tap water, on the other hand, periodically experiences quality problems that cause governments issue health alerts.
In the spring of 2008, Penn State — a campus considering prohibitions on bottled water — declared a tap water health advisory, calling students to boil water or drink bottled water. Fortunately, it was eventually determined that the water was OK. Such incidents reveal that overreliance on tap water doesn’t make sense and why people appreciate other options.
Even places that claim to have exceptional tap water — such as New York City — experience problems. New York’s Columbia/New York Presbyterian Hospital has provided bottled water to its patients for drinking and brushing teeth since 2005 after two patients died from Legionnaire’s disease which transmitted via city tap water. Because tap water must travel through pipes, it can develop such quality problems along the way.
In addition to safety issues, piped water can suffer flavor defects from contaminants found in pipes, disinfectants, or from the water source. Some sources, such as the Potomac River next to Washington D.C., are home to species of algae that periodically impact tap water flavor.
This is not to suggest that most tap water isn’t generally pretty safe. The United States has some of the best quality tap water in the world. However, it is not correct for environmentalists to deny the unique challenges and quality differences that tap water possesses. Nor is it fair to deny students and other consumers the option to pick a product with fewer such issues or one they simply like better.
In fact, bottled water delivers consistent results. Seventy five percent of bottled water is drawn from non-municipal sources, such as springs and aquifers, which provide water on a sustainable long-term basis. Many of these sources have supplied quality water for decades. Other distributors purify municipal water, providing a higher quality product than simply opening the tap, and the packaging ensures the quality is maintained during delivery.
Still opponents of bottled water argue that plastic bottles have been the source of excessive waste. Yet the bottles contribute less than 0.3 percent of solid waste, which is managed safely via recycling and landfilling.
This debate over bottled water has taken calls for “dry” campuses to a whole new level! Many people desire their water will taste just as sweet or crisp as the last time they bought it. And why not? There is no good reason why anyone else should deprive them access to those products—on campus or anywhere else.
Charles Huang is a student at the University of California, Berkeley, and Angela Logomasini, Ph.D., is director of risk and environmental policy at the Competitive Enterprise Institute.
Originally published in The Union Leader. April 6, 2009
There is a new “sin” industry on college campuses. It’s not beer, fast food or tobacco. It’s water! Universities around the nation have begun to deny students the option to drink bottled water, removing it from vending machines and campus stores.
Why? They are following the advice of environmental activist groups that say students should “drink responsibly” — which to them means tap water. Drinking bottled water is supposedly wasteful because you get basically the same thing from a tap. Yet their claims don’t hold water, and surely don’t warrant this silly prohibition.
At the extreme is Washington University in St. Louis, MO. As part of its “Tap It” campaign, the school took a symbolic step in promoting sustainability, according to student body representative, Kady McFadden. This “step” basically banned bottled water from campus stores and vending machines, except where sales must continue until bottled water contracts expire.
These actions ignore the important reasons why some people choose bottled water. Among them is predictable quality. Tap water, on the other hand, periodically experiences quality problems that cause governments issue health alerts.
In the spring of 2008, Penn State — a campus considering prohibitions on bottled water — declared a tap water health advisory, calling students to boil water or drink bottled water. Fortunately, it was eventually determined that the water was OK. Such incidents reveal that overreliance on tap water doesn’t make sense and why people appreciate other options.
Even places that claim to have exceptional tap water — such as New York City — experience problems. New York’s Columbia/New York Presbyterian Hospital has provided bottled water to its patients for drinking and brushing teeth since 2005 after two patients died from Legionnaire’s disease which transmitted via city tap water. Because tap water must travel through pipes, it can develop such quality problems along the way.
In addition to safety issues, piped water can suffer flavor defects from contaminants found in pipes, disinfectants, or from the water source. Some sources, such as the Potomac River next to Washington D.C., are home to species of algae that periodically impact tap water flavor.
This is not to suggest that most tap water isn’t generally pretty safe. The United States has some of the best quality tap water in the world. However, it is not correct for environmentalists to deny the unique challenges and quality differences that tap water possesses. Nor is it fair to deny students and other consumers the option to pick a product with fewer such issues or one they simply like better.
In fact, bottled water delivers consistent results. Seventy five percent of bottled water is drawn from non-municipal sources, such as springs and aquifers, which provide water on a sustainable long-term basis. Many of these sources have supplied quality water for decades. Other distributors purify municipal water, providing a higher quality product than simply opening the tap, and the packaging ensures the quality is maintained during delivery.
Still opponents of bottled water argue that plastic bottles have been the source of excessive waste. Yet the bottles contribute less than 0.3 percent of solid waste, which is managed safely via recycling and landfilling.
This debate over bottled water has taken calls for “dry” campuses to a whole new level! Many people desire their water will taste just as sweet or crisp as the last time they bought it. And why not? There is no good reason why anyone else should deprive them access to those products—on campus or anywhere else.
Charles Huang is a student at the University of California, Berkeley, and Angela Logomasini, Ph.D., is director of risk and environmental policy at the Competitive Enterprise Institute.
The Advantages of Incremental Innovation in Drug Development
Pharmaceutical Evolution. By Albert I. Wertheimer and Thomas M. Santella
The Advantages of Incremental Innovation in Drug Development
CEI, April 7, 2009
Innovation is the lifeblood of the pharmaceutical industry. Over the last century, that industry has been responsible for thousands of new drugs, based on hundreds of thousands of smaller incremental innovations. The breakthrough “blockbuster” drugs taken by millions of patients today were not produced from thin air. Most represent the combined weight of seemingly small improvements achieved over time. The advantages of incremental improvements on existing drugs are paramount to overall increases in the quality of health care. As the pharmaceutical industry developed, classes of drugs—those with similar chemical composition and which treat similar conditions—have grown to provide physicians with the tools they need to treat diverse patient groups.
Still, critics have been highly condescending about what they call “Me-too” drugs—drugs within the same chemical class as one or more others already on the market—which they claim add little or no therapeutic value and are nothing more than an opportunity for pharmaceutical companies to fleece unsuspecting consumers. While some claim that there are too many similar drugs, and that pharmaceutical industry research and development could be more profitably directed toward developing entirely new classes of medicines, drugs based on incremental improvements generally represent advances in safety and efficacy. They also provide new formulations and dosing options that significantly increase patient compliance—both of which lead to improved health outcomes. From an economic standpoint, adding new drugs to a class of medicines also offers the possibility of lower drug prices as competition between manufacturers increases. Additionally, pharmaceutical companies depend on incremental innovations to provide the revenue that will support development of the riskier, capital-and research-intensive blockbuster drugs.
When critics refer to Me-too drugs, they do not mean exact generic copies of already existing drugs, or illegal counterfeits. Instead, Me-toos have a similar chemical composition to one or more others on the market, and have similar biological effects. But, in order to be approved, Me-too drugs must undergo the same extensive clinical testing as other new drugs to determine their safety and efficacy because they are chemically different. In addition, these differences, even if small, typically must represent a medical advancement—such as fewer side effects or improved efficacy for patient sub-populations—in order to attract a portion of the market away from the first approved drug in the class. Nevertheless, many drug industry critics have called for federal policies to inhibit the development and marketing of such incrementally improved medicines. But policies that curb incremental innovation will ultimately lead to a reduction in the overall quality of existing drug classes and could arrest the creation of truly novel drugs.
Research in any industry is a building process. Few scientists develop groundbreaking drugs from no prior research. Most work within, and respond to, existing knowledge—reading the same medical literature, and reacting to new technological breakthroughs at the same time. It is not hard to imagine, therefore, that many different companies would be working on similar drugs. In fact, it is often the case that the only reason why one drug is called novel and another a Me-too analogue is the speed at which each moves through the regulatory process.
Like other technological and value-added industries, the pharmaceutical industry depends on small steps for the creation of blockbuster drugs, which often result from a long series of small innovations. It also depends on these steps for the creation of drugs that provide slight, incremental improvements on existing drugs—thereby adding to a drug class, increasing competition among drugs, and incentivizing further innovation. As the National Research Council has observed, “the cumulative effect of numerous minor incremental innovations can sometimes be more transforming and have more economic impact than a few radical innovations or ‘technological breakthroughs’.” The net effect of increasing the number of drugs through innovation leads to advances in safety, efficacy, selectivity, and utility of drugs within a specific class.
Importantly, providing physicians with a variety of prescription options within a given therapeutic class is paramount to the provision of optimal health care. This is especially true for some drug classes, such as those relating to the central nervous system, for which overall response rates can be as low as 50 percent. For unknown reasons, certain patients respond differently to different drugs within a single class. If physicians have many options at their disposal, they can calibrate their prescribing patterns to better address the needs of specific patients. The existence of multiple similar molecular agents also provides backup in situations where the novel drug in a class is found to have unacceptable side effects and is thus removed from the market. As patients come to depend on a particular class of drugs, it is essential to make sure that they do not lose access to needed medication as a result of regulatory action.
One of the most vehement criticisms made against Me-too drugs is that they siphon money away from research that could be devoted to the creation of novel breakthrough drugs. This assumption is incorrect for a host of reasons, the most important of which is the fact that the pharmaceutical industry depends on selling the products of incremental innovations to provide the revenue for research and development of breakthrough drugs. Additionally, while it is unrealistic to presume that every incremental innovation leads to cost savings, the sum of all drug innovations can result in cost savings by reducing overall treatment costs, shortening or obviating hospital stays, increasing worker productivity and reducing absenteeism, and lowering drug costs through increased competition among manufacturers.
Ideally, every new drug would represent an unprecedented breakthrough and lead to the creation of a completely novel treatment. This, however, is not the reality of the pharmaceutical industry, or of any other development-based industry. Creating drugs based on incremental innovations provides pharmaceutical companies with a secure stream of revenue, which can be directed to higher-risk, potential blockbuster-yielding research. Policies aimed at reducing the industry’s ability to obtain revenues from incremental innovations could be self-defeating, as those industries will then have less revenue to reinvest in R&D for new drugs. Put simply, limiting incremental drug innovation is analogous to limiting competition. The ultimate result could have devastating consequences for the future of the pharmaceutical industry and for the millions of patients who depend on it.
The authors and CEI would like to thank the International Policy Network in London, which published an earlier version of this paper.
Full paper: Wertheimer and Santella - Pharmaceutical Evolution.pdf
The Advantages of Incremental Innovation in Drug Development
CEI, April 7, 2009
Innovation is the lifeblood of the pharmaceutical industry. Over the last century, that industry has been responsible for thousands of new drugs, based on hundreds of thousands of smaller incremental innovations. The breakthrough “blockbuster” drugs taken by millions of patients today were not produced from thin air. Most represent the combined weight of seemingly small improvements achieved over time. The advantages of incremental improvements on existing drugs are paramount to overall increases in the quality of health care. As the pharmaceutical industry developed, classes of drugs—those with similar chemical composition and which treat similar conditions—have grown to provide physicians with the tools they need to treat diverse patient groups.
Still, critics have been highly condescending about what they call “Me-too” drugs—drugs within the same chemical class as one or more others already on the market—which they claim add little or no therapeutic value and are nothing more than an opportunity for pharmaceutical companies to fleece unsuspecting consumers. While some claim that there are too many similar drugs, and that pharmaceutical industry research and development could be more profitably directed toward developing entirely new classes of medicines, drugs based on incremental improvements generally represent advances in safety and efficacy. They also provide new formulations and dosing options that significantly increase patient compliance—both of which lead to improved health outcomes. From an economic standpoint, adding new drugs to a class of medicines also offers the possibility of lower drug prices as competition between manufacturers increases. Additionally, pharmaceutical companies depend on incremental innovations to provide the revenue that will support development of the riskier, capital-and research-intensive blockbuster drugs.
When critics refer to Me-too drugs, they do not mean exact generic copies of already existing drugs, or illegal counterfeits. Instead, Me-toos have a similar chemical composition to one or more others on the market, and have similar biological effects. But, in order to be approved, Me-too drugs must undergo the same extensive clinical testing as other new drugs to determine their safety and efficacy because they are chemically different. In addition, these differences, even if small, typically must represent a medical advancement—such as fewer side effects or improved efficacy for patient sub-populations—in order to attract a portion of the market away from the first approved drug in the class. Nevertheless, many drug industry critics have called for federal policies to inhibit the development and marketing of such incrementally improved medicines. But policies that curb incremental innovation will ultimately lead to a reduction in the overall quality of existing drug classes and could arrest the creation of truly novel drugs.
Research in any industry is a building process. Few scientists develop groundbreaking drugs from no prior research. Most work within, and respond to, existing knowledge—reading the same medical literature, and reacting to new technological breakthroughs at the same time. It is not hard to imagine, therefore, that many different companies would be working on similar drugs. In fact, it is often the case that the only reason why one drug is called novel and another a Me-too analogue is the speed at which each moves through the regulatory process.
Like other technological and value-added industries, the pharmaceutical industry depends on small steps for the creation of blockbuster drugs, which often result from a long series of small innovations. It also depends on these steps for the creation of drugs that provide slight, incremental improvements on existing drugs—thereby adding to a drug class, increasing competition among drugs, and incentivizing further innovation. As the National Research Council has observed, “the cumulative effect of numerous minor incremental innovations can sometimes be more transforming and have more economic impact than a few radical innovations or ‘technological breakthroughs’.” The net effect of increasing the number of drugs through innovation leads to advances in safety, efficacy, selectivity, and utility of drugs within a specific class.
Importantly, providing physicians with a variety of prescription options within a given therapeutic class is paramount to the provision of optimal health care. This is especially true for some drug classes, such as those relating to the central nervous system, for which overall response rates can be as low as 50 percent. For unknown reasons, certain patients respond differently to different drugs within a single class. If physicians have many options at their disposal, they can calibrate their prescribing patterns to better address the needs of specific patients. The existence of multiple similar molecular agents also provides backup in situations where the novel drug in a class is found to have unacceptable side effects and is thus removed from the market. As patients come to depend on a particular class of drugs, it is essential to make sure that they do not lose access to needed medication as a result of regulatory action.
One of the most vehement criticisms made against Me-too drugs is that they siphon money away from research that could be devoted to the creation of novel breakthrough drugs. This assumption is incorrect for a host of reasons, the most important of which is the fact that the pharmaceutical industry depends on selling the products of incremental innovations to provide the revenue for research and development of breakthrough drugs. Additionally, while it is unrealistic to presume that every incremental innovation leads to cost savings, the sum of all drug innovations can result in cost savings by reducing overall treatment costs, shortening or obviating hospital stays, increasing worker productivity and reducing absenteeism, and lowering drug costs through increased competition among manufacturers.
Ideally, every new drug would represent an unprecedented breakthrough and lead to the creation of a completely novel treatment. This, however, is not the reality of the pharmaceutical industry, or of any other development-based industry. Creating drugs based on incremental innovations provides pharmaceutical companies with a secure stream of revenue, which can be directed to higher-risk, potential blockbuster-yielding research. Policies aimed at reducing the industry’s ability to obtain revenues from incremental innovations could be self-defeating, as those industries will then have less revenue to reinvest in R&D for new drugs. Put simply, limiting incremental drug innovation is analogous to limiting competition. The ultimate result could have devastating consequences for the future of the pharmaceutical industry and for the millions of patients who depend on it.
The authors and CEI would like to thank the International Policy Network in London, which published an earlier version of this paper.
Full paper: Wertheimer and Santella - Pharmaceutical Evolution.pdf
Getting drugs to market is much harder than the media lets on.
It's Time to Fight the 'PharmaScolds'. By David A Shaywitz and Thomas P Stossel
Getting drugs to market is much harder than the media lets on.
WSJ, Apr 08, 2009
Relationships between university researchers and medical product companies are under relentless attack by critics who portray these associations as a morality play in which noble academics struggle to resist the dark, corrupting influence of industry. So why are leading disease-research foundations increasingly choosing to partner with industry rather than condemn it?
The answer is that by prioritizing the needs of patients, these medical philanthropies remain keenly aware of something academic critics of industry may have forgotten as they've scaled the university ladder. The goal of medical research is not to publish papers, but to develop new treatments for people suffering from disease. And translating laboratory research into new therapies, in the words of Robert Beall, president of the Cystic Fibrosis Foundation, is something "academics are really not good at."
After years of extensive public investment of billions of dollars in medical research, we have generated thousands of scientific papers, but few important new treatments for dreadful conditions such as pancreatic cancer and Alzheimer's disease.
To be sure, we have won some important battles. Statins and blood pressure medications have dramatically improved the prognosis of patients at risk for heart attacks, while powerful antiviral medicines mean HIV is no longer a death sentence.
But behind these spectacular achievements is an arduous, expensive and underappreciated journey, occurring largely in industry, from an original scientific concept to an effective drug or device. Most promising ideas either never pan out or result in modest, incremental advances. Human biology is maddeningly complex, laboratory models are necessarily simplistic, and scientific understanding remains painfully limited.
Discerning which ideas have value and capturing this value is extraordinarily challenging and has a depressingly high failure rate. The complexity of product development as well as the scientific sophistication, regulatory oversight, and manufacturing consistency required to pull this off are astounding. That any new useful medical products emerge at all is nearly miraculous.
Given the vital role of medical products companies and the magnitude of their challenges, one might imagine that this industry would be admired. To some extent, it is. Leading research organizations such as the Michael J. Fox Foundation for Parkinson's disease proactively build bridges with industry leaders, solicit advice from industry scientists, and fund projects in industry labs.
But this enlightened view of industry is not widespread. This is largely because of the disproportionate influence of a coterie of prominent critics we have previously dubbed "pharmascolds," who routinely vilify the medical products industry and portray academics working with it as traitors and sellouts. These critics are pious academics, self-righteous medical journal editors, and opportunistic politicians and journalists. Their condemnation of anyone's legitimate profit -- it's all "corruption" in their book -- has in fact materially enhanced their own careers. They extrapolate from occasional behavioral lapses in industry -- which is equally, if not more prevalent, in universities -- to demonize the market and portray scientific medicine as an ascetic religion, which it is not.
The pharmascolds systematically discount the difficulties of product development. Meanwhile, each new barrier -- such as the National Institutes of Health's ban on paid consulting for industry -- erected between publicly funded researchers and companies, especially cash-strapped start-ups where many of the breakthroughs occur, slows the progress of potential treatments.
In response to these attacks, drug company spokespeople seem content to offer up measly press releases. When challenged by reporters, most academic consultants to industry refuse to comment or offer a meek explanation, instead of retorting that industry pays them because they add critically important value. This evasion has only emboldened industry critics, disheartened company employees, and caused even allies to wonder if there really is something to hide.
For the sake of the many patients whose diseases require innovative treatments -- and for the medical philanthropists determined to make it happen -- it's time for the leaders of the medical products industry to take pride in their purpose and start fighting back.
And discovering a few important new medicines wouldn't hurt either.
Dr. Shaywitz is a management consultant in New Jersey. Dr. Stossel is a professor of medicine at Harvard and a fellow at the Manhattan Institute.
Getting drugs to market is much harder than the media lets on.
WSJ, Apr 08, 2009
Relationships between university researchers and medical product companies are under relentless attack by critics who portray these associations as a morality play in which noble academics struggle to resist the dark, corrupting influence of industry. So why are leading disease-research foundations increasingly choosing to partner with industry rather than condemn it?
The answer is that by prioritizing the needs of patients, these medical philanthropies remain keenly aware of something academic critics of industry may have forgotten as they've scaled the university ladder. The goal of medical research is not to publish papers, but to develop new treatments for people suffering from disease. And translating laboratory research into new therapies, in the words of Robert Beall, president of the Cystic Fibrosis Foundation, is something "academics are really not good at."
After years of extensive public investment of billions of dollars in medical research, we have generated thousands of scientific papers, but few important new treatments for dreadful conditions such as pancreatic cancer and Alzheimer's disease.
To be sure, we have won some important battles. Statins and blood pressure medications have dramatically improved the prognosis of patients at risk for heart attacks, while powerful antiviral medicines mean HIV is no longer a death sentence.
But behind these spectacular achievements is an arduous, expensive and underappreciated journey, occurring largely in industry, from an original scientific concept to an effective drug or device. Most promising ideas either never pan out or result in modest, incremental advances. Human biology is maddeningly complex, laboratory models are necessarily simplistic, and scientific understanding remains painfully limited.
Discerning which ideas have value and capturing this value is extraordinarily challenging and has a depressingly high failure rate. The complexity of product development as well as the scientific sophistication, regulatory oversight, and manufacturing consistency required to pull this off are astounding. That any new useful medical products emerge at all is nearly miraculous.
Given the vital role of medical products companies and the magnitude of their challenges, one might imagine that this industry would be admired. To some extent, it is. Leading research organizations such as the Michael J. Fox Foundation for Parkinson's disease proactively build bridges with industry leaders, solicit advice from industry scientists, and fund projects in industry labs.
But this enlightened view of industry is not widespread. This is largely because of the disproportionate influence of a coterie of prominent critics we have previously dubbed "pharmascolds," who routinely vilify the medical products industry and portray academics working with it as traitors and sellouts. These critics are pious academics, self-righteous medical journal editors, and opportunistic politicians and journalists. Their condemnation of anyone's legitimate profit -- it's all "corruption" in their book -- has in fact materially enhanced their own careers. They extrapolate from occasional behavioral lapses in industry -- which is equally, if not more prevalent, in universities -- to demonize the market and portray scientific medicine as an ascetic religion, which it is not.
The pharmascolds systematically discount the difficulties of product development. Meanwhile, each new barrier -- such as the National Institutes of Health's ban on paid consulting for industry -- erected between publicly funded researchers and companies, especially cash-strapped start-ups where many of the breakthroughs occur, slows the progress of potential treatments.
In response to these attacks, drug company spokespeople seem content to offer up measly press releases. When challenged by reporters, most academic consultants to industry refuse to comment or offer a meek explanation, instead of retorting that industry pays them because they add critically important value. This evasion has only emboldened industry critics, disheartened company employees, and caused even allies to wonder if there really is something to hide.
For the sake of the many patients whose diseases require innovative treatments -- and for the medical philanthropists determined to make it happen -- it's time for the leaders of the medical products industry to take pride in their purpose and start fighting back.
And discovering a few important new medicines wouldn't hurt either.
Dr. Shaywitz is a management consultant in New Jersey. Dr. Stossel is a professor of medicine at Harvard and a fellow at the Manhattan Institute.
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