The Housing Crisis Isn't A Crisis. By Peter Robinson
Stand back, says Todd Zywicki, and let the markets clear.
Forbes, Apr 10, 2009, 12:01 AM EDT
Law professor Todd Zywicki of George Mason University is composing a book, Bankruptcy Law and Policy in the Twenty-First Century, in which Zywicki picks a couple of fascinating fights.
One involves former Fed Chairman Alan Greenspan; the other, the entire band of academics, former business executives and career bureaucrats who make up the Obama administration's economic apparat.
Zywicki's altercation with Greenspan requires a word of background.
After retiring from the Fed in 2006, Greenspan enjoyed the kind of semi-divine status that used to be reserved for Roman emperors. Then a number of economists, notably John Taylor of Stanford, began to argue that the monetary policy Greenspan pursued from 2001 to 2004, when Greenspan expanded the money supply dramatically, represented a proximate cause--maybe even the principal cause--of the housing bubble.
Last month, Greenspan descended from his plinth to defend himself. As Fed chairman, he had only lowered short-term interest rates, he argued in the Wall Street Journal, not the long-term rates on which mortgage prices are based. "No one, to my knowledge," Greenspan huffed, "employs overnight interest rates--such as the Fed Funds rate--to determine the capitalization rate of real estate."
Enter Todd Zywicki.
"What Greenspan overlooks," Zywicki says, "are adjustable-rate mortgages. ARMs are really sensitive to shorter-term interest rates."
"Look at the data going back to nineteen-eighties," Zywicki continues. "When the spread between regular mortgages and ARMs is less than about 150 basis points, people tend to take out regular mortgages. But when that spread widens, they switch to ARMs.
"What Greenspan did was artificially drive down the prices of ARMs, widening the spread. Low interest rates on ARMs enabled ordinary Americans to get bigger mortgages than they would otherwise have believed they could afford. That pushed up home prices. And that created the updraft that brought in speculators."
From loose money to cheap ARMs to rising housing prices.
"Nobody acted nefariously," Zywicki says. "Greenspan was trying to save the economy, not wreck it. But he still created a bubble."
This brings us to Zywicki's disagreement with the Obama administration. Treasury Secretary Timothy Geithner, Director of the National Economic Bureau Lawrence Summers and the other adepts in the administration all argue that the bursting of the housing bubble amounts to a national tragedy. According to President Obama himself, the "crisis" is "unraveling homeownership, the middle class and the American Dream itself."
Zywicki's reply? Nonsense.
His research has revealed three distinct types of housing markets--and only one of the three shows real signs of distress. Even then, that distress is only in a limited number of areas.
The first type of market behaves the way markets are supposed to behave, with smooth adjustments between supply and demand. When prices rose in places such as Dallas and Charlotte, builders constructed new houses. When prices softened, builders stopped. "Prices in these markets rose gradually," Zywicki says, "and now they're settling back to earth. There hasn't been any tragedy."
The second type of market, which appears in New York, Boston, San Francisco and Washington, D.C., demonstrates a long history of price volatility. "The housing stock in these markets is constrained," Zywicki says, "either by geography--San Francisco is surrounded on three sides by water, for example--or land use controls." When demand in such a market increases, prices soar. And when demand weakens, prices plummet.
"But the people who live in these markets expect big price swings," Zywicki says. "They've learned to live with them. They're holding onto their homes because they're confident prices will eventually recover. Again, there hasn't been any tragedy."
The third type of market displays both the ability to expand the supply of houses that characterizes the first type of market and the price swings that characterize the second type. "Type three markets," Zywicki says, "are concentrated in the Sun Belt. Ordinary investors seem to have calculated that a lot of people would either retire or buy second homes in these places. And when prices went up, speculators moved in. Pure bubbles developed."
In type three markets, hundreds of thousands of new homes went up. This oversupply will now keep prices low for years. "Las Vegas, Phoenix, Tampa--those are the places you'll find the tragedies," Zywicki says.
Instead of frightening people by talking about the end of the American dream, Zywicki argues, the Obama administration should offer reassurance, stressing the specific, limited nature of the foreclosure problem. "Heck," Zywicki says, "41 out of the 50 states have foreclosure rates below the national mean."
Next, the administration should think long and hard about just who it wishes to bail out and why. "If we bail out anybody, they should only be people who want to stay in their homes but can't make the payments, not people who could make the payments but want to walk," Zywicki argues. The administration should consider helping homeowners, in other words, but not speculators--"and if you put no money down and don't have any equity in your house, you're not a homeowner."
The most important step the administration could take? To resist intervening in the housing market as a whole.
"Assistance for the relatively small number of people who are facing really tragic circumstances makes sense," Zywicki says, "but if the administration tries to push overall housing prices back up, it will only be asking for trouble. We overbuilt. That's the reality. And not even Obama can change it."
In short, the administration should learn from the example of Alan Greenspan. Even when it intervenes in the economy with the very best of intentions, the government has a way of producing disastrous consequences.
Stand back, says the professor at George Mason University--stand back and let the markets clear.
Peter Robinson, a research fellow at the Hoover Institution at Stanford University and contributor to RobinsonandLong.com, writes a weekly column for Forbes.
Saturday, April 11, 2009
Politics is driving the destruction of the District's school voucher program
Presumed Dead. WaPo Editorial
Politics is driving the destruction of the District's school voucher program.
WaPo, Saturday, April 11, 2009; A12
EDUCATION SECRETARY Arne Duncan has decided not to admit any new students to the D.C. voucher program, which allows low-income children to attend private schools. The abrupt decision -- made a week after 200 families had been told that their children were being awarded scholarships for the coming fall -- comes despite a new study showing some initial good results for students in the program and before the Senate has had a chance to hold promised hearings. For all the talk about putting children first, it's clear that the special interests that have long opposed vouchers are getting their way.
Officials who manage the D.C. Opportunity Scholarship Program sent letters this week to parents notifying them that the scholarships of up to $7,500, were being rescinded because of the decision by the Education Department. Citing the political uncertainty surrounding vouchers, a spokesperson for Mr. Duncan told us that it is not in the best interest of students and their parents to enroll them in a program that may end a year from now. Congress conditioned funding beyond the 2009-10 school year on reauthorization by Congress and approval by the D.C. Council. By presuming the program dead -- and make no mistake, that's the insidious effect of his bar on new enrollment -- Mr. Duncan makes it even more difficult for the program to get the fair hearing it deserves.
That's not to mention the impact of the last-minute decision on these families. Many of the public charter schools already have cut off enrollments for the upcoming school year; the deadline for out-of-boundary transfers for the public schools has passed. No doubt Mr. Duncan is right about possible disruption for new students if the program were to end. But scholarship officials have been upfront with parents about the risks, and the decision really should be theirs. Let them decide whether they want to chance at least one year in a high-quality private school versus the crapshoot of D.C. public schools.
That, after all, is what this program is about: giving poor families the choice that others, with higher salaries and more resources, take for granted. It's a choice President Obama made when he enrolled his two children in the elite Sidwell Friends School. It's a choice Mr. Duncan had when, after looking at the D.C. schools, he ended up buying a house in Arlington, where good schools are assumed. And it's a choice taken away this week from LaTasha Bennett, a single mother who had planned to start her daughter in the same private school that her son attends and where he is excelling. Her desperation is heartbreaking as she talks about her daughter not getting the same opportunities her son has and of the hardship of having to shuttle between two schools.
It's clear, though, from how the destruction of the program is being orchestrated, that issues such as parents' needs, student performance and program effectiveness don't matter next to the political demands of teachers' unions. Congressional Democrats who receive ample campaign contributions from the National Education Association and the American Federation of Teachers laid the trap with budget language that placed the program on the block. And now comes Mr. Duncan with the sword.
Politics is driving the destruction of the District's school voucher program.
WaPo, Saturday, April 11, 2009; A12
EDUCATION SECRETARY Arne Duncan has decided not to admit any new students to the D.C. voucher program, which allows low-income children to attend private schools. The abrupt decision -- made a week after 200 families had been told that their children were being awarded scholarships for the coming fall -- comes despite a new study showing some initial good results for students in the program and before the Senate has had a chance to hold promised hearings. For all the talk about putting children first, it's clear that the special interests that have long opposed vouchers are getting their way.
Officials who manage the D.C. Opportunity Scholarship Program sent letters this week to parents notifying them that the scholarships of up to $7,500, were being rescinded because of the decision by the Education Department. Citing the political uncertainty surrounding vouchers, a spokesperson for Mr. Duncan told us that it is not in the best interest of students and their parents to enroll them in a program that may end a year from now. Congress conditioned funding beyond the 2009-10 school year on reauthorization by Congress and approval by the D.C. Council. By presuming the program dead -- and make no mistake, that's the insidious effect of his bar on new enrollment -- Mr. Duncan makes it even more difficult for the program to get the fair hearing it deserves.
That's not to mention the impact of the last-minute decision on these families. Many of the public charter schools already have cut off enrollments for the upcoming school year; the deadline for out-of-boundary transfers for the public schools has passed. No doubt Mr. Duncan is right about possible disruption for new students if the program were to end. But scholarship officials have been upfront with parents about the risks, and the decision really should be theirs. Let them decide whether they want to chance at least one year in a high-quality private school versus the crapshoot of D.C. public schools.
That, after all, is what this program is about: giving poor families the choice that others, with higher salaries and more resources, take for granted. It's a choice President Obama made when he enrolled his two children in the elite Sidwell Friends School. It's a choice Mr. Duncan had when, after looking at the D.C. schools, he ended up buying a house in Arlington, where good schools are assumed. And it's a choice taken away this week from LaTasha Bennett, a single mother who had planned to start her daughter in the same private school that her son attends and where he is excelling. Her desperation is heartbreaking as she talks about her daughter not getting the same opportunities her son has and of the hardship of having to shuttle between two schools.
It's clear, though, from how the destruction of the program is being orchestrated, that issues such as parents' needs, student performance and program effectiveness don't matter next to the political demands of teachers' unions. Congressional Democrats who receive ample campaign contributions from the National Education Association and the American Federation of Teachers laid the trap with budget language that placed the program on the block. And now comes Mr. Duncan with the sword.
Friday, April 10, 2009
In Defense of Partisan Politics
In Defense of Partisan Politics. By Pietro S. Nivola, Senior Fellow, Governance Studies
The Brookings Institution, Apr 06, 2009
Pietro Nivola outlines an upside to the intense polarization taking shape in U.S. politics. William Galston offers a response in “ One and Half Cheers for Bipartisanship .”
From the steps of the Capitol on January 20th, President Barack Obama appealed for an end to the politics of “petty grievances” and “worn-out dogmas.” The year 2009 was supposed to mark the dawn of a post-partisan era. With any luck, Democrats and Republicans would stop quarreling, and would finally get down to work together. The time had come, exhorted the new president drawing from Scripture, to lay “childish” polemics aside.
But childish or not, America’s partisan politics have remained as stubbornly intense and polarized as ever. To paraphrase more Scripture, the lambs remain unwilling to lie down with the lions. And there are few signs of partisan swords being turned into plowshares. Far from opening a new age of bipartisan comity in the House of Representatives, the president and the Democratic majority received not a single Republican vote in their first big legislative test, the roll call on the so-called American Recovery and Reinvestment Act (the “stimulus”). More recently, not one Republican in the Senate or the House voted for the concurrent resolution on the president’s budget. More, not less, of such party-line voting probably lies ahead.
So here’s a heretical thought: Maybe, among the many inflated expectations that we attach to the Obama presidency and should temper, those about the advent of “post-partisanship” ought to be lowered, drastically. In other words, get over it. The rough-and-tumble of our party politics is here to stay. What’s more—and this is even greater heresy—not everything about that fact of political life is horrible.
Majoritarianism
The Democratic and Republican parties today are each more cemented in their ideologies and more distinct than they were a generation ago. In Congress, party lines used to be blurred by the existence of so-called liberal Republicans and truly conservative Democrats. Now those factions are dwindling species. Why they are dying out is a long story that has been the object of an extensive study titled Red and Blue Nation? cosponsored by Brookings and the Hoover Institution at Stanford University. For present purposes, suffice it to recognize that the disputes between Republicans and Democrats are about more than “petty grievances” (though there are plenty of them, too); the party differences run deep and fundamentally reflect differing convictions held by large blocs of voters, not just their elected representatives. An example: Whereas a staggering 84 percent of Democrats seem to believe “it’s the government’s responsibility to make sure that everyone in the United States has adequate health care,” only 34 percent of Republicans evidently concur, according to a reputable national poll taken last November.
Because both parties are more cohesive, they are also more disciplined. If you are a member of Congress and you basically agree with your party’s position on most salient issues, why defect to the other side on key votes? Americans of the baby-boom generation are not accustomed to seeing this high degree of party unity. They remember the old days when the main way to do business on Capitol Hill was to cobble together ad-hoc coalitions. Want a civil rights bill? Get northern Democrats and Republican moderates on your side, and hope that you have enough votes to overpower the conservative phalanx of southern Democrats and states’-rights Republicans. Want more money for the Vietnam War in the 1960s? Combine solid support from that bipartisan conservative bloc with plenty of other hawkish stalwarts in both parties (think reliable GOP loyalists like Everett Dirksen but also Scoop Jackson Democrats), and you’d get the funds.
Increasingly, the contemporary party system bears scant resemblance to the one that prevailed a half-century ago. What it resembles instead is politics in most other periods of American history, for example the late nineteenth century when the two parties were also internally coherent and keenly at odds. During such periods, the American parties have behaved more like political parties in parliamentary regimes—where the in-party (the governing majority) rules, and the out-party (the minority) consistently forms a loyal opposition.
Notice this distinctive feature of the parliamentary model: Not only can the majority, voting in lockstep, prevail with no help from opposition members; all it needs on board in order to legislate is a simple majority of the legislators. Supermajorities—the requirement in the U.S. Senate to override a filibuster—are never the norm. A parliamentary system, in other words, operates much like our congressional budget reconciliation process where as little as a one-vote margin in the House and as little as 51 votes in the Senate suffice to adopt a bill.
There is much handwringing about the trend toward majoritarian—that is, parliamentary-style—politics in the United States. Democrats moaned when the GOP, led by George W. Bush, drove tax cuts through Congress on nearly a party-line vote with Vice President Cheney casting the tie-breaker. Now, Republicans will groan if the Obama administration and the Democratic congressional leadership opt to use the reconciliation procedure to ram health-care reform into law.
But is all the lamentation justified?
Accountability
One of the advantages of parliamentary democracy is that the electorate knows what to expect. What you see (or vote for) is what you get. As America becomes parliamentary, if voters elect a Republican president and congressional majority, here’s a good bet: Tax cuts will be on the way. If voters elect a Democratic president and congressional majority—running on a party platform that declares universal health care to be a “moral imperative”—guess what? Health-care legislation to extend coverage will happen. Now, granted one can debate the policy merits of either party’s priorities. Robotic tax-cutting runs up deficits—and so almost certainly will health care that covers everybody. But if the voters have explicitly empowered their elected officials to do either of these things, who are “we” to stand in the way?
Further, the voters have plenty of opportunity to change their minds. If they decide that mistakes are being made—or that they prefer an alternative agenda to the one being proffered by the party in power—they can throw the rascals out. Indeed, in this country, unlike practically every other democracy, the public gets a chance to entertain that option with extraordinary frequency: every two years.
Nor, from the standpoint of democratic theory, is it easy to make an airtight case for why Congress and the president should be forced to muster supermajorities to enact their most important priorities. Ours, like any sound democracy, has to balance principles of majority rule with minority rights. But a political order in which technically just over 7 percent of a legislature—that is, a sub-group that possibly represents as little as 10 percent of the population—can have the last word, as our Senate arithmetic can imply, raises serious questions of democratic accountability and even legitimacy. Let’s face it; making a regular practice of putting, in effect, veto-power in the hands of a minority is hard to square with a government of the people, by the people, for the people.
The Virtues of a Choice, Not an Echo
There is one other thing to say in defense of heightened partisanship: It has succeeded in making elections more interesting.
Voters have a tendency to become indifferent and apathetic when asked to choose between alternatives that display not “a dime’s worth of difference,” as the old saying went about our two-party system during the heyday of bipartisan comingling.
By contrast, as Marc J. Hetherington of Vanderbilt University demonstrates in a key chapter of Red and Blue Nation?, voter participation has surged as the partisan divide has grown sharper.
The electorate is not turned off by the chasm, and contestation, between the parties. On the contrary, Hetherington finds, the polarized political parties have animated voters of all stripes—liberals, conservatives, and moderates. Growing civic engagement and voter turnouts are hallmarks of a vibrant democracy, not of a “broken” one.
The Brookings Institution, Apr 06, 2009
Pietro Nivola outlines an upside to the intense polarization taking shape in U.S. politics. William Galston offers a response in “ One and Half Cheers for Bipartisanship .”
From the steps of the Capitol on January 20th, President Barack Obama appealed for an end to the politics of “petty grievances” and “worn-out dogmas.” The year 2009 was supposed to mark the dawn of a post-partisan era. With any luck, Democrats and Republicans would stop quarreling, and would finally get down to work together. The time had come, exhorted the new president drawing from Scripture, to lay “childish” polemics aside.
But childish or not, America’s partisan politics have remained as stubbornly intense and polarized as ever. To paraphrase more Scripture, the lambs remain unwilling to lie down with the lions. And there are few signs of partisan swords being turned into plowshares. Far from opening a new age of bipartisan comity in the House of Representatives, the president and the Democratic majority received not a single Republican vote in their first big legislative test, the roll call on the so-called American Recovery and Reinvestment Act (the “stimulus”). More recently, not one Republican in the Senate or the House voted for the concurrent resolution on the president’s budget. More, not less, of such party-line voting probably lies ahead.
So here’s a heretical thought: Maybe, among the many inflated expectations that we attach to the Obama presidency and should temper, those about the advent of “post-partisanship” ought to be lowered, drastically. In other words, get over it. The rough-and-tumble of our party politics is here to stay. What’s more—and this is even greater heresy—not everything about that fact of political life is horrible.
Majoritarianism
The Democratic and Republican parties today are each more cemented in their ideologies and more distinct than they were a generation ago. In Congress, party lines used to be blurred by the existence of so-called liberal Republicans and truly conservative Democrats. Now those factions are dwindling species. Why they are dying out is a long story that has been the object of an extensive study titled Red and Blue Nation? cosponsored by Brookings and the Hoover Institution at Stanford University. For present purposes, suffice it to recognize that the disputes between Republicans and Democrats are about more than “petty grievances” (though there are plenty of them, too); the party differences run deep and fundamentally reflect differing convictions held by large blocs of voters, not just their elected representatives. An example: Whereas a staggering 84 percent of Democrats seem to believe “it’s the government’s responsibility to make sure that everyone in the United States has adequate health care,” only 34 percent of Republicans evidently concur, according to a reputable national poll taken last November.
Because both parties are more cohesive, they are also more disciplined. If you are a member of Congress and you basically agree with your party’s position on most salient issues, why defect to the other side on key votes? Americans of the baby-boom generation are not accustomed to seeing this high degree of party unity. They remember the old days when the main way to do business on Capitol Hill was to cobble together ad-hoc coalitions. Want a civil rights bill? Get northern Democrats and Republican moderates on your side, and hope that you have enough votes to overpower the conservative phalanx of southern Democrats and states’-rights Republicans. Want more money for the Vietnam War in the 1960s? Combine solid support from that bipartisan conservative bloc with plenty of other hawkish stalwarts in both parties (think reliable GOP loyalists like Everett Dirksen but also Scoop Jackson Democrats), and you’d get the funds.
Increasingly, the contemporary party system bears scant resemblance to the one that prevailed a half-century ago. What it resembles instead is politics in most other periods of American history, for example the late nineteenth century when the two parties were also internally coherent and keenly at odds. During such periods, the American parties have behaved more like political parties in parliamentary regimes—where the in-party (the governing majority) rules, and the out-party (the minority) consistently forms a loyal opposition.
Notice this distinctive feature of the parliamentary model: Not only can the majority, voting in lockstep, prevail with no help from opposition members; all it needs on board in order to legislate is a simple majority of the legislators. Supermajorities—the requirement in the U.S. Senate to override a filibuster—are never the norm. A parliamentary system, in other words, operates much like our congressional budget reconciliation process where as little as a one-vote margin in the House and as little as 51 votes in the Senate suffice to adopt a bill.
There is much handwringing about the trend toward majoritarian—that is, parliamentary-style—politics in the United States. Democrats moaned when the GOP, led by George W. Bush, drove tax cuts through Congress on nearly a party-line vote with Vice President Cheney casting the tie-breaker. Now, Republicans will groan if the Obama administration and the Democratic congressional leadership opt to use the reconciliation procedure to ram health-care reform into law.
But is all the lamentation justified?
Accountability
One of the advantages of parliamentary democracy is that the electorate knows what to expect. What you see (or vote for) is what you get. As America becomes parliamentary, if voters elect a Republican president and congressional majority, here’s a good bet: Tax cuts will be on the way. If voters elect a Democratic president and congressional majority—running on a party platform that declares universal health care to be a “moral imperative”—guess what? Health-care legislation to extend coverage will happen. Now, granted one can debate the policy merits of either party’s priorities. Robotic tax-cutting runs up deficits—and so almost certainly will health care that covers everybody. But if the voters have explicitly empowered their elected officials to do either of these things, who are “we” to stand in the way?
Further, the voters have plenty of opportunity to change their minds. If they decide that mistakes are being made—or that they prefer an alternative agenda to the one being proffered by the party in power—they can throw the rascals out. Indeed, in this country, unlike practically every other democracy, the public gets a chance to entertain that option with extraordinary frequency: every two years.
Nor, from the standpoint of democratic theory, is it easy to make an airtight case for why Congress and the president should be forced to muster supermajorities to enact their most important priorities. Ours, like any sound democracy, has to balance principles of majority rule with minority rights. But a political order in which technically just over 7 percent of a legislature—that is, a sub-group that possibly represents as little as 10 percent of the population—can have the last word, as our Senate arithmetic can imply, raises serious questions of democratic accountability and even legitimacy. Let’s face it; making a regular practice of putting, in effect, veto-power in the hands of a minority is hard to square with a government of the people, by the people, for the people.
The Virtues of a Choice, Not an Echo
There is one other thing to say in defense of heightened partisanship: It has succeeded in making elections more interesting.
Voters have a tendency to become indifferent and apathetic when asked to choose between alternatives that display not “a dime’s worth of difference,” as the old saying went about our two-party system during the heyday of bipartisan comingling.
By contrast, as Marc J. Hetherington of Vanderbilt University demonstrates in a key chapter of Red and Blue Nation?, voter participation has surged as the partisan divide has grown sharper.
The electorate is not turned off by the chasm, and contestation, between the parties. On the contrary, Hetherington finds, the polarized political parties have animated voters of all stripes—liberals, conservatives, and moderates. Growing civic engagement and voter turnouts are hallmarks of a vibrant democracy, not of a “broken” one.
Keeping older employees will help maintain success
Aging Your Work Force, by Jeffrey Joerres
Keeping older employees will help maintain success.
WSJ, Apr 09, 2009
It's too soon to tell how the current global recession will affect the one of the greatest challenges facing corporate leaders over the next decade: the coming explosion in the number of workers at retirement age, and the inadequate pool of younger workers to fill those roles. Companies that haven't started planning for this transition have some catching up to do.
The loss of productivity and intellectual capital as baby boomers leave the work force could devastate some businesses. Europe's work force will begin shrinking in the coming years and is expected to become 15% smaller within five decades, according to the Organization for Economic Cooperation and Development. The countries that face the biggest threat are those with the oldest populations, particularly Germany and Italy.
Yet most firms seem woefully unprepared for this development. A 2007 Manpower survey of more than 28,000 employers across 25 countries and territories revealed that only 14% have strategies in place to recruit older workers, and only 21% have retention strategies to keep these workers on board.
More troubling, employers still seem to view coming retirements as cost-saving opportunities. This view is dangerous and shortsighted. Employers will need to shift their mindset and, in the short term, take steps to slow the exodus of older workers whose skills and knowledge are most valued. The conundrum is that the people with the skills that companies most need to retain are those who have the greatest financial flexibility to retire.
Part of the problem is that employers assume that all employees want to exit the work force as soon as they are financially able. However, especially given the current economic climate, a growing number of employees may be willing to work for years to come. Even in countries with state-funded pensions, which traditionally have encouraged earlier retirement, retirees may struggle in the future. Many national governments project pension-funding shortfalls as too few active workers pay for retirement programs with their payroll taxes.
The best way to stem the flow of older workers is to provide the type of employment they seek, and to keep them engaged by emphasizing their place as valued members of the team.
One of the biggest mistakes companies make is to alienate employees aged 50 and older by assuming they are no longer interested in training and career development. CEOs and other senior executives tend to be in their 50s or 60s, yet it is regularly assumed that middle managers of the same age are no longer interested in challenging work and development. If a former CEO is qualified to serve on a Fortune 500 firm's board of directors in his 70s, why wouldn't a manager at a comparable skill and experience level be just as capable of working in another capacity at the same age? Employers should not assume that retirement-age workers are only qualified for, or interested in, roles with low responsibility, such as volunteering at a hospital or serving as a "greeter" at a store.
The key to retaining older workers is to recognize that their priorities are changing, and to find roles that are of value to both them and the organization. Today, there are too few options available for individuals who wish to remain with their current employer, but in a modified working relationship as they transition toward retirement. This is a key reason why employers are losing older workers to self-employment. To date, the typical corporation's answer has been to offer the individual more money to stay and perform the same full-time job for an extended period of time, when he might prefer to work in a part-time arrangement.
An employer that offers flexible work options to both older and younger employees may find a distinct competitive advantage in recruiting and retaining employees. As the talent shortage grows, the balance of power in the employer-employee relationship continues to shift toward employees. They may be more likely to stay with their companies if they can improve their work-life balance, perhaps by having the flexibility to attend a grandchild's school play or care for an ill spouse.
At the same time, employers need to prepare successors to perform in critical roles and learn as much as possible before these expert resources leave the workplace. Long before key older employees leave, firms should develop transition and knowledge-transfer plans to ensure that they retain as much intellectual capital as possible. This should involve determining which roles are at highest risk of "brain drain," identifying high-potential candidates to succeed retirees, and ensuring their development is aligned with the retirees' exit cycle.
Developing a plan to preserve critical information, processes and contacts is vital. This can be done through mentoring programs or by building companywide groups that meet in person and online to share information. Another option is to develop a pool of retired employees to work as needed on specific projects, enabling the company to tap into their collective experience and retain this knowledge longer.
Longer term, employers will need to better use the talent of each employee throughout his career. Companies might do this by offering periodic skill and career-interest assessments and training programs, and by aligning individuals' interests and abilities to the needs of the organization so that they remain relevant and engaged. There will be no room for wasted talent in tomorrow's streamlined and talent-poor organizations.
This new approach to talent management will affect how individuals prepare for retirement. The second half of life must be planned just as carefully as the first half, particularly given changes in life expectancy and in some state pensions. To remain relevant to retirement-age workers, employers might offer to help them plan for the transition to the next phase of their lives. Such programs could address a host of possible work-life balance options, and a variety of potential financial impacts from both the individuals' choices and their personal situations.
There is also a clear need for national governments to focus their attention on these issues if they want a competitive labor market that will strengthen the country's future economy.
Some governments are already developing initiatives and incentives for companies to employ older workers, which in turn promote those workers' welfare and job security. The challenge for national governments is to align the interests and abilities of mature adults with the interests and requirements of employers -- and to do this before the pension bubble bursts, wreaking havoc on other areas of society.
Sustainable and growing economies will not be possible in the future without strong and vibrant labor markets, including those workers who helped contribute to growth in the past.
Mr. Joerres is chairman and CEO of Manpower Inc.
Keeping older employees will help maintain success.
WSJ, Apr 09, 2009
It's too soon to tell how the current global recession will affect the one of the greatest challenges facing corporate leaders over the next decade: the coming explosion in the number of workers at retirement age, and the inadequate pool of younger workers to fill those roles. Companies that haven't started planning for this transition have some catching up to do.
The loss of productivity and intellectual capital as baby boomers leave the work force could devastate some businesses. Europe's work force will begin shrinking in the coming years and is expected to become 15% smaller within five decades, according to the Organization for Economic Cooperation and Development. The countries that face the biggest threat are those with the oldest populations, particularly Germany and Italy.
Yet most firms seem woefully unprepared for this development. A 2007 Manpower survey of more than 28,000 employers across 25 countries and territories revealed that only 14% have strategies in place to recruit older workers, and only 21% have retention strategies to keep these workers on board.
More troubling, employers still seem to view coming retirements as cost-saving opportunities. This view is dangerous and shortsighted. Employers will need to shift their mindset and, in the short term, take steps to slow the exodus of older workers whose skills and knowledge are most valued. The conundrum is that the people with the skills that companies most need to retain are those who have the greatest financial flexibility to retire.
Part of the problem is that employers assume that all employees want to exit the work force as soon as they are financially able. However, especially given the current economic climate, a growing number of employees may be willing to work for years to come. Even in countries with state-funded pensions, which traditionally have encouraged earlier retirement, retirees may struggle in the future. Many national governments project pension-funding shortfalls as too few active workers pay for retirement programs with their payroll taxes.
The best way to stem the flow of older workers is to provide the type of employment they seek, and to keep them engaged by emphasizing their place as valued members of the team.
One of the biggest mistakes companies make is to alienate employees aged 50 and older by assuming they are no longer interested in training and career development. CEOs and other senior executives tend to be in their 50s or 60s, yet it is regularly assumed that middle managers of the same age are no longer interested in challenging work and development. If a former CEO is qualified to serve on a Fortune 500 firm's board of directors in his 70s, why wouldn't a manager at a comparable skill and experience level be just as capable of working in another capacity at the same age? Employers should not assume that retirement-age workers are only qualified for, or interested in, roles with low responsibility, such as volunteering at a hospital or serving as a "greeter" at a store.
The key to retaining older workers is to recognize that their priorities are changing, and to find roles that are of value to both them and the organization. Today, there are too few options available for individuals who wish to remain with their current employer, but in a modified working relationship as they transition toward retirement. This is a key reason why employers are losing older workers to self-employment. To date, the typical corporation's answer has been to offer the individual more money to stay and perform the same full-time job for an extended period of time, when he might prefer to work in a part-time arrangement.
An employer that offers flexible work options to both older and younger employees may find a distinct competitive advantage in recruiting and retaining employees. As the talent shortage grows, the balance of power in the employer-employee relationship continues to shift toward employees. They may be more likely to stay with their companies if they can improve their work-life balance, perhaps by having the flexibility to attend a grandchild's school play or care for an ill spouse.
At the same time, employers need to prepare successors to perform in critical roles and learn as much as possible before these expert resources leave the workplace. Long before key older employees leave, firms should develop transition and knowledge-transfer plans to ensure that they retain as much intellectual capital as possible. This should involve determining which roles are at highest risk of "brain drain," identifying high-potential candidates to succeed retirees, and ensuring their development is aligned with the retirees' exit cycle.
Developing a plan to preserve critical information, processes and contacts is vital. This can be done through mentoring programs or by building companywide groups that meet in person and online to share information. Another option is to develop a pool of retired employees to work as needed on specific projects, enabling the company to tap into their collective experience and retain this knowledge longer.
Longer term, employers will need to better use the talent of each employee throughout his career. Companies might do this by offering periodic skill and career-interest assessments and training programs, and by aligning individuals' interests and abilities to the needs of the organization so that they remain relevant and engaged. There will be no room for wasted talent in tomorrow's streamlined and talent-poor organizations.
This new approach to talent management will affect how individuals prepare for retirement. The second half of life must be planned just as carefully as the first half, particularly given changes in life expectancy and in some state pensions. To remain relevant to retirement-age workers, employers might offer to help them plan for the transition to the next phase of their lives. Such programs could address a host of possible work-life balance options, and a variety of potential financial impacts from both the individuals' choices and their personal situations.
There is also a clear need for national governments to focus their attention on these issues if they want a competitive labor market that will strengthen the country's future economy.
Some governments are already developing initiatives and incentives for companies to employ older workers, which in turn promote those workers' welfare and job security. The challenge for national governments is to align the interests and abilities of mature adults with the interests and requirements of employers -- and to do this before the pension bubble bursts, wreaking havoc on other areas of society.
Sustainable and growing economies will not be possible in the future without strong and vibrant labor markets, including those workers who helped contribute to growth in the past.
Mr. Joerres is chairman and CEO of Manpower Inc.
Do not renew licenses for New Jersey & New York nuclear plants
Go Ahead, Close Oyster Creek, by William Tucker
Thursday, April 09, 2009
Don’t get me wrong. I’m a big advocate of nuclear power. I just published a book called Terrestrial Energy: How Nuclear Power Will Lead the Green Revolution and End America’s Energy Odyssey and spend my time touring the country trying to convince people nuclear is the best thing that could happen for the environment, and debating those who want to see it banned from the planet.
But after listening to both sides of the argument, I’ve made another decision. I think the Nuclear Regulatory Commission should deny a license renewal to the 650-megawatt Oyster Creek Nuclear Reactor in southern New Jersey, the license for which is scheduled to expire today. And then let’s see what happens.
The NRC should also think careful before relicensing the 620-MW Vermont Yankee plant in southern Vermont — and Indian Point Units1 and 2, which provide 2,000 MW in Westchester Country, just north of New York City. Oyster Creek generates 12 percent of New Jersey’s electricity, the two Indian Point reactors provide 25 percent of New York and Westchester’s electricity and Vermont Yankee provides nearly all of Vermont’s electricity, making it the cleanest state in the country. (Coal-rich Wyoming emits more air pollution in a day than Vermont produces in a year.)
Closing all four reactors, of course, would devastate both the environment and the economy of the whole Northeast. But the point is this. All four of these are aging reactors whose growing vulnerability risks strangling the current nuclear revival in its cradle. There are now applications for 26 new reactors before the NRC, and the industry is straining to start new construction. Who wouldn’t be when existing reactors are making more than a million dollars a day? Nuclear electricity is nearly competitive with coal and natural gas and the economics can only get better if the Obama administration imposes a national carbon regime. Safety and operating procedures at nuclear reactors have improved so much since Three Mile Island that they now run nearly two years without shutting down.
Closing Oyster Creek, Vermont Yankee, and Indian Point, of course, would leave the entire Northeast importing electricity at exorbitant prices from who-knows-where along transmission lines that haven’t been built. Of the 5 million megawatt-hours of electricity generated last year in New Jersey, 3 million came from nuclear reactors — 675,000 of them from Oyster Creek. The state would have to fire up every aging coal boiler, or suffer summer brownouts.
New York City and Westchester would suffer a much worse fate without Indian Point, and Vermont would go from being the cleanest state to one of the dirtiest without Vermont Yankee. For years I’ve argued that the easiest way to absorb the loss of these reactors would be for everyone give up air conditioning, but that’s not likely to happen.
Anti-nuclear activists dream that nuclear and coal can be replaced by wind, solar, and other “renewable” things. That’s because nobody has seen what these plants would look like. A 45-story windmill produces 1 megawatt of electricity. Windmills must be spaced several hundred feet apart so they don’t interfere with each other. To replace Oyster Creek’s 650 megawatts, New Jersey would have to cover 300 square miles of land or ocean with 45-story windmills. Even then, they’d only work when the wind blows, which is about one-third of the time. To replace just one of Indian Point’s reactors, you’d have to cover every square inch of Westchester County or Long Island Sound. Windmills would work blanketing Vermont’s Green Mountains, but then the state could likely kiss its fall-foliage tourism goodbye.
Solar collectors face the same problem. In New York and New England, you could rely on them only for summertime peak loads, since there are too many cloudy days the rest of the year. California had big plans to build 500 MW of solar capacity in the Mojave Desert — until California Senator Diane Feinstein announced two weeks ago she would seek legislation banning solar collectors from the Mojave, with nature groups having suddenly realized what a 25- to 30-square-mile facility would do for the desert environment.
It’s the same everywhere. Environmentalists will support any form of energy generation as long as it’s over the horizon. Once it comes into view, however, they find it objectionable. Robert F. Kennedy, Jr., the most visible and vocal opponent of nuclear power in the New York metropolitan area, also opposes wind farms in Long Island Sound and off Cape Cod (where he summers). Breakthroughs in extracting natural gas from shale deposits have opened the possibility that the Northeast can once again become a producing area, but Kennedy’s group, Riverkeeper — the leading opponent of Indian Point — is already opposing that, as well.
Veterans of the nuclear industry say they are very concerned that relying on aging reactors like Vermont Yankee, Oyster Creek, and Indian Point is eventually going to lead to an accident, which will kill nuclear power in this country forever. What they want instead is new construction incorporating all the technological and safety improvements that have been made since we stopped building reactors in the 1980s. We should have built replacements for these reactors long ago.
So it’s time to call the opponents’ bluff. Let’s close Oyster Creek, Indian Point, and Vermont Yankee and see what life is really like without nuclear power.
— William Tucker is author of Terrestrial Energy: How Nuclear Power Will Lead the Green Revolution and End America’s Energy Odyssey.
Thursday, April 09, 2009
Don’t get me wrong. I’m a big advocate of nuclear power. I just published a book called Terrestrial Energy: How Nuclear Power Will Lead the Green Revolution and End America’s Energy Odyssey and spend my time touring the country trying to convince people nuclear is the best thing that could happen for the environment, and debating those who want to see it banned from the planet.
But after listening to both sides of the argument, I’ve made another decision. I think the Nuclear Regulatory Commission should deny a license renewal to the 650-megawatt Oyster Creek Nuclear Reactor in southern New Jersey, the license for which is scheduled to expire today. And then let’s see what happens.
The NRC should also think careful before relicensing the 620-MW Vermont Yankee plant in southern Vermont — and Indian Point Units1 and 2, which provide 2,000 MW in Westchester Country, just north of New York City. Oyster Creek generates 12 percent of New Jersey’s electricity, the two Indian Point reactors provide 25 percent of New York and Westchester’s electricity and Vermont Yankee provides nearly all of Vermont’s electricity, making it the cleanest state in the country. (Coal-rich Wyoming emits more air pollution in a day than Vermont produces in a year.)
Closing all four reactors, of course, would devastate both the environment and the economy of the whole Northeast. But the point is this. All four of these are aging reactors whose growing vulnerability risks strangling the current nuclear revival in its cradle. There are now applications for 26 new reactors before the NRC, and the industry is straining to start new construction. Who wouldn’t be when existing reactors are making more than a million dollars a day? Nuclear electricity is nearly competitive with coal and natural gas and the economics can only get better if the Obama administration imposes a national carbon regime. Safety and operating procedures at nuclear reactors have improved so much since Three Mile Island that they now run nearly two years without shutting down.
Closing Oyster Creek, Vermont Yankee, and Indian Point, of course, would leave the entire Northeast importing electricity at exorbitant prices from who-knows-where along transmission lines that haven’t been built. Of the 5 million megawatt-hours of electricity generated last year in New Jersey, 3 million came from nuclear reactors — 675,000 of them from Oyster Creek. The state would have to fire up every aging coal boiler, or suffer summer brownouts.
New York City and Westchester would suffer a much worse fate without Indian Point, and Vermont would go from being the cleanest state to one of the dirtiest without Vermont Yankee. For years I’ve argued that the easiest way to absorb the loss of these reactors would be for everyone give up air conditioning, but that’s not likely to happen.
Anti-nuclear activists dream that nuclear and coal can be replaced by wind, solar, and other “renewable” things. That’s because nobody has seen what these plants would look like. A 45-story windmill produces 1 megawatt of electricity. Windmills must be spaced several hundred feet apart so they don’t interfere with each other. To replace Oyster Creek’s 650 megawatts, New Jersey would have to cover 300 square miles of land or ocean with 45-story windmills. Even then, they’d only work when the wind blows, which is about one-third of the time. To replace just one of Indian Point’s reactors, you’d have to cover every square inch of Westchester County or Long Island Sound. Windmills would work blanketing Vermont’s Green Mountains, but then the state could likely kiss its fall-foliage tourism goodbye.
Solar collectors face the same problem. In New York and New England, you could rely on them only for summertime peak loads, since there are too many cloudy days the rest of the year. California had big plans to build 500 MW of solar capacity in the Mojave Desert — until California Senator Diane Feinstein announced two weeks ago she would seek legislation banning solar collectors from the Mojave, with nature groups having suddenly realized what a 25- to 30-square-mile facility would do for the desert environment.
It’s the same everywhere. Environmentalists will support any form of energy generation as long as it’s over the horizon. Once it comes into view, however, they find it objectionable. Robert F. Kennedy, Jr., the most visible and vocal opponent of nuclear power in the New York metropolitan area, also opposes wind farms in Long Island Sound and off Cape Cod (where he summers). Breakthroughs in extracting natural gas from shale deposits have opened the possibility that the Northeast can once again become a producing area, but Kennedy’s group, Riverkeeper — the leading opponent of Indian Point — is already opposing that, as well.
Veterans of the nuclear industry say they are very concerned that relying on aging reactors like Vermont Yankee, Oyster Creek, and Indian Point is eventually going to lead to an accident, which will kill nuclear power in this country forever. What they want instead is new construction incorporating all the technological and safety improvements that have been made since we stopped building reactors in the 1980s. We should have built replacements for these reactors long ago.
So it’s time to call the opponents’ bluff. Let’s close Oyster Creek, Indian Point, and Vermont Yankee and see what life is really like without nuclear power.
— William Tucker is author of Terrestrial Energy: How Nuclear Power Will Lead the Green Revolution and End America’s Energy Odyssey.
US State Dept on Fiji: Abrogation of Constitution
Fiji: Abrogation of Constitution. By Richard Aker, Acting Deputy Department Spokesman
US State Dept, Office of the Spokesman, Bureau of Public Affairs
Washington, DC, April 10, 2009
The United States is deeply disappointed by the collapse of Fiji's political dialogue process and the abrogation of Fiji's constitution, which we see as movement away from the goal of returning Fiji to democratic governance and its formerly leading role in the Pacific. We are concerned by the implications this abrogation holds for the future of judicial independence, media freedom, and democracy itself in Fiji.
We call upon Fiji's interim authorities to respect the protections afforded the people of Fiji by the 1997 Constitution until the country can once again hold free and fair elections. The United States reiterates its call for Fiji to adhere to the timetable and benchmarks articulated by the Pacific Islands Forum. The United States believes that the return of democracy in Fiji will depend on an open and transparent process that includes the participation of all political parties in a genuine dialogue that is independent, inclusive, time-bound, and with no pre-determined outcome.
PRN: 2009/316
US State Dept, Office of the Spokesman, Bureau of Public Affairs
Washington, DC, April 10, 2009
The United States is deeply disappointed by the collapse of Fiji's political dialogue process and the abrogation of Fiji's constitution, which we see as movement away from the goal of returning Fiji to democratic governance and its formerly leading role in the Pacific. We are concerned by the implications this abrogation holds for the future of judicial independence, media freedom, and democracy itself in Fiji.
We call upon Fiji's interim authorities to respect the protections afforded the people of Fiji by the 1997 Constitution until the country can once again hold free and fair elections. The United States reiterates its call for Fiji to adhere to the timetable and benchmarks articulated by the Pacific Islands Forum. The United States believes that the return of democracy in Fiji will depend on an open and transparent process that includes the participation of all political parties in a genuine dialogue that is independent, inclusive, time-bound, and with no pre-determined outcome.
PRN: 2009/316
The Pentagon's New Priorities
The Pentagon's New Priorities. WSJ Editorial
Bob Gates proposes, Congress disposes.
WSJ, Apr 10. 2009
Defense Secretary Robert Gates, a man not known for having his head in the stars, announced his strategic Pentagon blueprint this week, saying his proposals "will profoundly reform how this department does business." We hope he informed Congress, home to 535 procurers in chief.
The Defense procurement system is a mess, and previous Pentagon reforms have faltered thanks mostly to the micromanagers on Capitol Hill who are often more interested in funneling money to their home states than in spending dollars most effectively. Democrats and Republicans both belly up to this bar, usually while castigating the executive branch for failing to make "tough choices."
So give the Defense Secretary an A for optimistic effort, even if we have our disagreements with some of his strategic choices. In announcing his spending priorities, Mr. Gates said he wants to focus on the current wars in Iraq and Afghanistan, rather than on the unknown wars of the future. Among his cuts are the Army's Future Combat Systems and a gold-plated new Presidential helicopter that is late and way over budget. Meanwhile, he added money for unmanned aerial vehicles, increased the number of special forces and announced plans to recruit more cyberwarfare experts.
These seem like reasonable judgment calls, and the focus on combating asymmetrical threats will help the U.S. in Iraq and Afghanistan. But it's worth remembering that the reason our enemies have resorted to terrorism and insurgency is because U.S. conventional forces overwhelmingly dominate on the ground, in the sea and in the air.
That's not an advantage we can take for granted as the Clinton Administration did in the 1990s, when it slashed defense spending to 3% from nearly 5% of GDP. China and Russia are upgrading their conventional forces, and China in particular is aiming to build a navy that can neutralize U.S. forces in the Western Pacific.
Mr. Gates's strategy implies a shrinking Navy with fewer ships and perhaps one fewer carrier group. It's good that he wants to build more Littoral Combat Ships, which are handy for operations such as tracking pirates. Even so, the Navy is left with a fleet of fewer than 300 ships, which strikes us as perilously small. When a U.S.-flagged container ship was briefly taken by pirates off Somalia this week, the Navy's nearest vessel was hours away.
Mr. Gates's decision to kill the stealthy F-22 fighter jet, which outclasses everything in the sky, is also troubling. We already have 183 F-22s -- original plans called for 750 -- and Mr. Gates wants to order just four more before shutting down the production line. His proposal to double the number of F-35 Joint Strike Fighters the Pentagon buys next year -- to 30 from 14 in 2009 -- is no quid pro quo. The F-35 is a cheaper, more multipurpose plane but it can't begin to compete with the F-22 as a fighter jet.
Pentagon spending is now about 4% of GDP and is expected to decline, which means too little investment against potential threats. In particular, Mr. Gates's budget priorities give no indication of how the Pentagon will ensure that U.S. military dominance extends to the battlefield of the future, outer space. President Obama has said he opposes the "militarization of space," but space is already a crucial area of operations and China is looking for advantages there.
The $1.4 billion in cuts to missile defense are especially worrisome, with losers including the Airborne Laser, designed to shoot down ballistic missiles in the boost phase, and additional interceptors planned for the ground-based system in Alaska. Instead, Mr. Gates favors theater defenses for soldiers on the battlefield with $700 million more in funding, arguing that this will address the near-term threat of short-range missiles. But as North Korea's weekend launch showed, rogue regimes aren't far away from securing long-range missiles that could reach the U.S.
Mr. Gates shrewdly made no budget recommendations on nuclear forces, except to say that he'll defer judgment until after the forthcoming Nuclear Posture Review. Perhaps he's counting on being able to change President Obama's mind on the need for updating U.S. strategic weapons and going forward with the Reliable Replacement Warhead for America's aging nuclear arsenal.
Mr. Gates's budget proposals now go to Congress. Since the end of World War II there have been more than 130 studies on procurement reform. Good luck.
Bob Gates proposes, Congress disposes.
WSJ, Apr 10. 2009
Defense Secretary Robert Gates, a man not known for having his head in the stars, announced his strategic Pentagon blueprint this week, saying his proposals "will profoundly reform how this department does business." We hope he informed Congress, home to 535 procurers in chief.
The Defense procurement system is a mess, and previous Pentagon reforms have faltered thanks mostly to the micromanagers on Capitol Hill who are often more interested in funneling money to their home states than in spending dollars most effectively. Democrats and Republicans both belly up to this bar, usually while castigating the executive branch for failing to make "tough choices."
So give the Defense Secretary an A for optimistic effort, even if we have our disagreements with some of his strategic choices. In announcing his spending priorities, Mr. Gates said he wants to focus on the current wars in Iraq and Afghanistan, rather than on the unknown wars of the future. Among his cuts are the Army's Future Combat Systems and a gold-plated new Presidential helicopter that is late and way over budget. Meanwhile, he added money for unmanned aerial vehicles, increased the number of special forces and announced plans to recruit more cyberwarfare experts.
These seem like reasonable judgment calls, and the focus on combating asymmetrical threats will help the U.S. in Iraq and Afghanistan. But it's worth remembering that the reason our enemies have resorted to terrorism and insurgency is because U.S. conventional forces overwhelmingly dominate on the ground, in the sea and in the air.
That's not an advantage we can take for granted as the Clinton Administration did in the 1990s, when it slashed defense spending to 3% from nearly 5% of GDP. China and Russia are upgrading their conventional forces, and China in particular is aiming to build a navy that can neutralize U.S. forces in the Western Pacific.
Mr. Gates's strategy implies a shrinking Navy with fewer ships and perhaps one fewer carrier group. It's good that he wants to build more Littoral Combat Ships, which are handy for operations such as tracking pirates. Even so, the Navy is left with a fleet of fewer than 300 ships, which strikes us as perilously small. When a U.S.-flagged container ship was briefly taken by pirates off Somalia this week, the Navy's nearest vessel was hours away.
Mr. Gates's decision to kill the stealthy F-22 fighter jet, which outclasses everything in the sky, is also troubling. We already have 183 F-22s -- original plans called for 750 -- and Mr. Gates wants to order just four more before shutting down the production line. His proposal to double the number of F-35 Joint Strike Fighters the Pentagon buys next year -- to 30 from 14 in 2009 -- is no quid pro quo. The F-35 is a cheaper, more multipurpose plane but it can't begin to compete with the F-22 as a fighter jet.
Pentagon spending is now about 4% of GDP and is expected to decline, which means too little investment against potential threats. In particular, Mr. Gates's budget priorities give no indication of how the Pentagon will ensure that U.S. military dominance extends to the battlefield of the future, outer space. President Obama has said he opposes the "militarization of space," but space is already a crucial area of operations and China is looking for advantages there.
The $1.4 billion in cuts to missile defense are especially worrisome, with losers including the Airborne Laser, designed to shoot down ballistic missiles in the boost phase, and additional interceptors planned for the ground-based system in Alaska. Instead, Mr. Gates favors theater defenses for soldiers on the battlefield with $700 million more in funding, arguing that this will address the near-term threat of short-range missiles. But as North Korea's weekend launch showed, rogue regimes aren't far away from securing long-range missiles that could reach the U.S.
Mr. Gates shrewdly made no budget recommendations on nuclear forces, except to say that he'll defer judgment until after the forthcoming Nuclear Posture Review. Perhaps he's counting on being able to change President Obama's mind on the need for updating U.S. strategic weapons and going forward with the Reliable Replacement Warhead for America's aging nuclear arsenal.
Mr. Gates's budget proposals now go to Congress. Since the end of World War II there have been more than 130 studies on procurement reform. Good luck.
Job Sprawl Revisited: The Changing Geography of Metropolitan Employment
Job Sprawl Revisited: The Changing Geography of Metropolitan Employment. By The Brookings Institution, Apr 06, 2009
An analysis of the spatial location of private-sector jobs in 98 of the largest metropolitan areas by employment reveals that:
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An analysis of the spatial location of private-sector jobs in 98 of the largest metropolitan areas by employment reveals that:
- Only 21 percent of employees in the top 98 metro areas work within three miles of downtown, while over twice that share (45 percent) work more than 10 miles away from the city center. The larger the metro area, the more likely people are to work more than 10 miles away from downtown; almost 50 percent of jobs in larger metros like Detroit, Chicago, and Dallas locate more than 10 miles away on average compared to just 27 percent of jobs in smaller metros like Lexington-Fayette, Boise, and Syracuse.
- Job location within metropolitan areas varies widely across industries. More than 30 percent of jobs in utilities, finance and insurance, and educational services industries locate within three miles of downtowns, while at least half of the jobs in manufacturing, construction, and retail are more than 10 miles away from central business districts.
- Employment steadily decentralized between 1998 and 2006: 95 out of 98 metro areas saw a decrease in the share of jobs located within three miles of downtown. The number of jobs in the top 98 metro areas increased overall during this time period, but the outer-most parts of these metro areas saw employment increase by 17 percent, compared to a gain of less than one percent in the urban core. Southern metro areas were particularly emblematic of the outward shift of job share with a 2.6 percentage-point decline in urban core job share and a 4.8 point gain in the outermost ring, outpacing the 98 metro average (a 2.1 point decline and a 2.6 point gain, respectively).
- In almost every major industry, jobs shifted away from the city center between 1998 and 2006. Of 18 industries analyzed, 17 experienced employment decentralization. Transportation and warehousing, finance and insurance, utilities, and real estate and rental and leasing showed the greatest increases in the share of jobs located more than 10 miles away from downtown.
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The Beautiful Tree: A Personal Journey Into How the World's Poorest People Are Educating Themselves
The Beautiful Tree: A Personal Journey Into How the World's Poorest People Are Educating Themselves. By James Tooley
Cato, Apr 09, 2009
Everyone from Bono to UNESCO is looking for a silver bullet to bring schooling within reach of the poorest children on Earth. James Tooley may have found one.
While researching private schools in India for the World Bank, and worrying that he was doing little to help the poor, Professor Tooley wandered into the slums of Hyderabad’s Old City. Shocked to find it overflowing with small, parent-funded schools, he set out to discover if they could help achieve universal education. So began the adventure lyrically told in The Beautiful Tree—the story of Tooley’s travels from the largest shanty town in Africa to the mountains of Gansu, China, and of the children, parents, teachers and entrepreneurs who taught him that the poor are not waiting for educational handouts. They are building their own schools and learning to save themselves.
Named after Mahatma Gandhi’s phrase for the schools of pre-colonial India, The Beautiful Tree is not another book lamenting what has gone wrong in the Third World. It is a book about what is going right, and it offers a simple lesson: both the entrepreneurial spirit and the love of parents for their children can be found in every corner of the globe.
Cato, Apr 09, 2009
Everyone from Bono to UNESCO is looking for a silver bullet to bring schooling within reach of the poorest children on Earth. James Tooley may have found one.
While researching private schools in India for the World Bank, and worrying that he was doing little to help the poor, Professor Tooley wandered into the slums of Hyderabad’s Old City. Shocked to find it overflowing with small, parent-funded schools, he set out to discover if they could help achieve universal education. So began the adventure lyrically told in The Beautiful Tree—the story of Tooley’s travels from the largest shanty town in Africa to the mountains of Gansu, China, and of the children, parents, teachers and entrepreneurs who taught him that the poor are not waiting for educational handouts. They are building their own schools and learning to save themselves.
Named after Mahatma Gandhi’s phrase for the schools of pre-colonial India, The Beautiful Tree is not another book lamenting what has gone wrong in the Third World. It is a book about what is going right, and it offers a simple lesson: both the entrepreneurial spirit and the love of parents for their children can be found in every corner of the globe.
The Promise, and Peril, Ahead for Iraq - The parliament has learned how to use the power of the purse
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.
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.
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.
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