The Global Buzz

Invisible changes

David Brooks:

Most of the time, foreign relations are kind of boring — negotiations, communiqués, soporific speeches. But then there are moments of radical discontinuity—1789, 1917, 1989—when the very logic of history flips.

At these moments — like the one in Iran right now — change is not generated incrementally from the top. Instead, power is radically dispersed. The real action is out on the streets. The future course of events is maximally uncertain.

The fate of nations is determined by glances and chance encounters: by the looks policemen give one another as a protesting crowd approaches down a boulevard; by the presence of a spontaneous leader who sets off a chant or a song and with it an emotional contagion; by a captain who either decides to kill his countrymen or not; by a shy woman who emerges from a throng to throw herself on the thugs who are pummeling a kid prone on the sidewalk.

The most important changes happen invisibly inside peoples’ heads. A nation that had seemed apathetic suddenly mobilizes. People lost in private life suddenly feel their public dignity has been grievously insulted. Webs of authority that had gone unquestioned instantly dissolve, or do not. New social customs spontaneously emerge, like the citizens of Tehran shouting hauntingly from their rooftops at night. Small gestures unify a crowd and symbolize a different future, like the moment when Mir Hussein Moussavi held hands with his wife in public.

Khamenei: You just can't rig an election by 11 million votes, I swear!

"There is 11 million votes difference," the ayatollah [Khamenei] said. "How one can rig 11 million votes?"

That's his argument?  That's despicable. But here's a theory: Some analysts have wondered why the regime didn't just rig the election so the incumbent Ahmadinejad got 51% of the vote, which is surely more plausible than the 62.6% he apparently garnered.  By rigging it big they can claim that what they did is humanly impossible, ergo they could not have possibly rigged the vote.  (This requires one to suspend disbelief: how many dictators manage to receive 99% of the vote?)  Of course, anyone with the foresight to assume that this justification might be deployed should have had the clairvoyance to understand that rigging an election big would probably provoke an outcry.

Boeing's tragicomedy

What a difference a few years make.  In 2006, press coverage of the aerospace industry was almost universally down on Airbus and bullish on Boeing.  Airbus's new A380 was running behind schedule while Boeing's bet on the 787 Dreamliner was ostensibly destined to pay dividends in the very near future.  Not anymore.  In the current economic climate, Airbus has shown some punch while Boeing languishes behind schedule on the 787.  The American aerospace company's advanced business model of outsourcing most production to companies around the world has run into problems with quality control (with the threat of trade protectionism none too distant).  This recent article offers up a broad illustration of Boeing's fall from grace:

Despite Boeing’s recent failures, its innovative spirit—reflected in the 777 and in the Dreamliner’s design—remains praise­worthy. If the economy rebounds by the time the Dreamliner makes its first commercial flight next year, the plane could still become the blockbuster Boeing envisioned. But so far, it’s just a cautionary tale. “The lesson is that manufacturing programs cannot operate as islands,” McNerney says, but must meet companywide standards. “I think we are centered on that now,” he notes ruefully. “A little later than we needed to be for the 787.”

BRIC still <3 the IMF

It's usually a good sign when the largest economies of the developing world want to remain part of the international financial institutions and reform them from within.

The Leveretts want you to know that they know more than Mousavi supporters

I don't think Flynt and Hillary Leverett's snarky piece on the Iranian elections deserves much of a response.  But I do want to point out that its title is rather cheeky: "Ahmadinejad Won. Get Over It."  Who exactly are the Leveretts addressing this to?  Because I see hundreds of thousands of Iranians marching in the streets who would beg to differ.

This is the tone-deaf foreign policy we voted out of office

From niacINsight:

Rep. Mike Pence of Indiana went on CNN today and said President Obama should take sides publicly in the disputed election in Iran.

“First and foremost, we need to take a half step back from this administration’s olive branch-and-apology approach to enemies and countries that have been hostile to the United States of America and our allies,” Pence said Sunday on CNN’s State of the Union.

“I’m hoping, before the end of the day today, the President of the United States will speak a word of support for Mr. Moussavi and for the dissidents and the reformers within Iran,” said Pence, referring to the defeated challenger to incumbent Iranian President Mahmoud Ahmadinejad.

Pence, of course, is a Republican: a party with no moral credibility to lecture President Obama on US foreign policy in the Middle East.  What Pence is proposing is exactly what Ahmadinejad, Khamenei and their supporters would want.  Even as popular as Obama is among Americans, that isn't necessarily the case in Iran.  A statement from an American president would play into the Iranian hardliners' hands by allowing them to portray the demonstrators as tools of the American government, the "Great Satan."  Obama's studied distance thus far is exactly right in my opinion.  Things are moving too fast on the ground in Iran for the president to officially pick sides in this fight.

As for Pence, scoring cheap political points on one of the most pressing issues in American foreign policy isn't leadership; it's crass opportunism.

The heist

Roger Cohen provides some context on the electoral fraud perpetrated on the Iranian people:

Throughout the country, across regions of vast social and ethnic disparity, including Azeri areas that had indicated strong support for Moussavi (himself an Azeri), Ahmadinejad’s margin scarcely wavered, ending at an official 62.63 percent. That’s 24.5 million votes, a breathtaking 8 million more than he got four years ago.

No tally I’ve encountered of Ahmadinejad’s bedrock support among the rural and urban poor, religious conservatives and revolutionary ideologues gets within 6 million votes of that number.

Will civil war break out among the Iranian political elite?

Steve Clemons meets an Iranian contact at London Paddington:

But the scariest point he made to me that I had not heard anywhere else is that this "coup by the right wing" has created pressures that cannot be solved or patted down by the normal institutional arrangements Iran has constructed. The Guardian Council and other power nodes of government can't deal with the current crisis and can't deal with the fact that a civil war has now broken out among Iran's revolutionaries.

My contact predicted serious violence at the highest levels. He said that Ahmadinejad is now genuinely scared of Iranian society and of Mousavi and Rafsanjani. The level of tension between them has gone beyond civil limits -- and my contact said that Ahmadinejad will try to have them imprisoned and killed.

Likewise, he said, Rafsanjani, Khatami, and Mousavi know this -- and thus are using all of the instruments at their control within Iran's government apparatus to fight back -- but given Khamenei's embrace of Ahmadinejad's actions in the election and victory, there is no recourse but to try and remove Khamenei. Some suggest that Rafsanjani will count votes to see if there is a way to formally dislodge Khamenei -- but this source I met said that all of these political giants have resources at their disposal to "do away with" those that get in the way.

Iran's political coup?

Gary Sick reconstructs a timeline of what happened in Iran on Friday:

On the basis of what we know so far, here is the sequence of events starting on the afternoon of election day, Friday, June 12.

• Near closing time of the polls, mobile text messaging was turned off nationwide
• Security forces poured out into the streets in large numbers
• The Ministry of Interior (election headquarters) was surrounded by concrete barriers and armed men
• National television began broadcasting pre-recorded messages calling for everyone to unite behind the winner
• The Mousavi campaign was informed officially that they had won the election, which perhaps served to temporarily lull  them into complacency
• But then the Ministry of Interior announced a landslide victory for Ahmadinejad
• Unlike previous elections, there was no breakdown of the vote by province, which would have provided a way of judging its credibility
• The voting patterns announced by the government were identical in all parts of the country, an impossibility (also see the comments of Juan Cole at the title link)
• Less than 24 hours later, Supreme Leader Ayatollah Khamene`i  publicly announced his congratulations to the winner, apparently confirming that the process was complete and irrevocable, contrary to constitutional requirements
• Shortly thereafter, all mobile phones, Facebook, and other social networks were blocked, as well as major foreign news sources.

All of this had the appearance of a well orchestrated strike intended to take its opponents by surprise – the classic definition of a coup.

H/T: Andrew Sullivan, whose blog has become a central aggregator of news out of the Islamic Republic.

Electoral nonsense in Iran

C/o Andrew Sullivan, check out this graph plotting the amount of Ahmadinejad and Mousavi votes at each official announcement.  There is little doubt in my mind that these results do not fully reflect the will of the people.

UPDATE: Nate Silver casts doubt on the utility of the graph above.

China's non-interference vs. China's interdependence

HOW times change. When George Bush’s treasury secretaries first visited China, Wall Street was booming, America’s economy was growing and the president’s emissaries routinely lectured their Chinese hosts on the need for freer financial markets and a more flexible yuan. But as Tim Geithner, the current treasury secretary, prepares to make his maiden trip to Beijing on May 31st, Wall Street is synonymous with greed and failure, America’s economy is on its knees and it is the Chinese who have been doing the lecturing. With America’s budget deficit soaring and the Fed’s printing presses running at full speed, China is complaining loudly of the risks that inflation and depreciation pose to its huge stash of dollars, and arguing for an alternative to the greenback as the world’s reserve currency.

Just a question: When does China's non-interference-in-other-countries'-domestic-affairs policy give way to the recognition that China now has an active interest in interfering with U.S. domestic economic policy?  When Chinese officials lecture Timothy Geithner on America's profligate ways, it would be fitting for him to tell the Chinese to stop interfering in the country's domestic affairs.  Alas, that wouldn't be constructive, would it?

Ghosts in the closet

FT:

Life under Francisco Macías Nguema, who took over as [Equatorial Guinea's] president [in 1968], was as terrifying as it was bizarre. Calling himself the “The Great Sorcerer”, on several documented occasions he ordered the executions of all his mistresses’ former lovers. Catholic priests were forced to recite: “There is no God other than Macías.” Being a journalist was a capital offence. As his administration collapsed, Macías built up a huge collection of human skulls and declaimed lengthy monologues to colleagues he had murdered. Before Mr Obiang staged a coup in 1979 and had him killed, a third of the population is estimated to have died or fled.

Has Washington already lost Tehran?

Flynt and Hillary Leverett have a punchy op-ed on Obama's Iran policy in today's New York Times.

Deadline

Alan Dowty on the Obama-Netanyahu meeting:

Netanyahu obviously pressed for a deadline in the diplomatic channel [on Iran]. Obama’s public response was to reject the idea of a precise deadline, but to indicate that there should be a clear sense of success or failure by the end of the year. The clock will probably run, then, until sometime in mid-2010. By this time it will be clear whether Iran’s enrichment program has been contained, and in particular whether any of the low-enriched uranium has been upgraded or not (one possible outcome is that Iran would remain in possession of low-enriched uranium, which is not illegal in itself and which fits the Iranian fiction that it is destined for use as fuel). If there is evidence of production of high-enriched uranium or active weaponization efforts, there would still be time before the first usable device could be tested. And, as it happens, the Israeli Iron Dome missile defense, against short-range rockets, is also scheduled for first deployment in mid-2010.

Is the U.S. over-committed to Persian Gulf security?

Today China, India, Asia, and Europe all import more Gulf oil than does the US.  Typically 10-12 percent of Gulf exports go to the US.  Yet the US continues to seek to provide the political and military support for the region on what is essentially a unilateral basis.  It is an open question as to how long this divergence between economic interests and strategic commitments can be sustained, given the rising costs that the latter have come to entail since 2003.

That's the late Duane Chapman writing in this book, page 90.  However, the real issue is not the geographic source of a country's oil imports or the amount a country imports from a particular region.  Since oil is a fungible, mostly interchangeable commodity that is traded on a global market, where a country gets its oil is not as important as how sensitive its economy is to swings in the oil price and what percentage of global oil production is concentrated in particular regions.  From this perspective, the United States' "investment" in the security of the Persian Gulf (what with pushing Saddam Hussein out of Kuwait, ensuring the security of Saudi Arabia and the other Gulf monarchies, and attempting to contain Iranian influence) might be helpful to US economic and political interests.  Though less than before, the United States' economy is still sensitive to the oil price and the Persian Gulf region makes up a large share of global oil production.  As China's economy becomes more oil-dependent, Beijing will develop a keener interest in developing strong ties with the Gulf governments; the United States, if it wishes to avoid direct confrontation, will need to find mechanisms for policy coordination in the region.

Hungarian FM: Protestants > Orthodox

How typical:

"Russian methods are based on Byzantine traditions and not on Protestant ethics. It is really difficult to negotiate with this culture," [Hungarian Foreign minister Péter Balázs] told EurActiv Hungary in a recent interview.

This is a standard chauvinistic attitude in Hungary: the belief that Hungary is the eastern border of Western Christendom, Catholics and Protestants on one side and Orthodox Christians on the other.  Out of this comes the affectation that Hungarians are a part of the West (they usually say "Western Europe," by which they mean the "West") while Romanians, Ukrainians, Russians, Greeks, Bulgarians, etc., are not.  This is cultural and religious chauvinism, alive and well in the heart of the EU.

An additional problem with logic like this is that it is overly deterministic: because the Russians and other Orthodox Christians do not share the same "Protestant ethics," they will never be able to learn new ways of doing business, conducting diplomacy, etc.  As an American, I find the idea that people are locked into cultural/religious prisons grossly unfair and bigoted.  The expansion of the EU and NATO into Orthodox Christian countries has shown that the West is not religiously pre-determined.  The spread of Western values and practices to such culturally diverse societies as Japan, Chile, Indonesia, India, Ghana, Botswana and many other places is a testament to their normative force, not their cultural and geographic exclusivity.  (To a certain extent, it is this chauvinism that allows European politicians to couch arguments against Turkish membership in the EU in cultural and religious terms: the Turks are Muslim! Egads!)

It's shameful.  This is the 21st century.  Hungary, and Europe as a whole, would do well to extirpate this kind of thinking from its population at large and especially its political elite.

Bringing India back into the Pakistan-Taliban picture

The New York Times reports this morning that Pakistan, facing a strong domestic Islamist insurgency, is ramping up the production of nuclear warheads:

Members of Congress have been told in confidential briefings that Pakistan is rapidly adding to its nuclear arsenal even while racked by insurgency, raising questions on Capitol Hill about whether billions of dollars in proposed military aid might be diverted to Pakistan’s nuclear program.

Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, confirmed the assessment of the expanded arsenal in a one-word answer to a question on Thursday in the midst of lengthy Senate testimony. Sitting beside Defense Secretary Robert M. Gates, he was asked whether he had seen evidence of an increase in the size of the Pakistani nuclear arsenal.

“Yes,” he said quickly, adding nothing, clearly cognizant of Pakistan’s sensitivity to any discussion about the country’s nuclear strategy or security.

This is obviously problematic.  First, it may suggest that Islamabad is more worried about the Indian threat than the domestic Islamist threat.  Second, when the stability of one's own country is at risk, expanding your nuclear repertoire is not an effective counter-measure.  Third, if the government in Islamabad were to fall, more nukes than before in the hands of the Pakistani Taliban would be all the more worrisome (in the region, it would freak the Indians, Israelis, and Iranians out, among others).

But I would like to expand the scope of this story to include India.  It has become very easy (and fashionable) in the Western press to blame Pakistan for just about everything that troubles it.  Its intelligence organization, the Inter-Services Intelligence (ISI) directorate, has trained Islamist militants to fight the Indians in Kashmir and the Soviets in Afghanistan.  Its democratically elected governments have proven incompetent, corrupt and effective at further balkanizing the country.  Its military has been too eager in the past to depose democratically elected governments out of concern that India was intent on using Pakistani domestic instability as a pretext for invasion (aside: might that logic be governing Islamabad's thinking on its current nuclear expansion?).  All this is true and it looks like a coherent indictment of past Pakistani behavior.

But more broadly, Pakistan has chosen to do these things because of its bloody history with India.  I would like to remind the reader that it is India that has avoided settling the Kashmir dispute, because India controls most of the territory; the status quo seemed just fine to Delhi.  It is India that demands the Kashmir dispute not be mediated by a third party because that would entail concessions on the Indian side; US special envoy to "Afpak" Richard Holbrooke's original portfolio was supposed to include India (and by extension Kashmir), but that idea was dropped at Delhi's request.  It is India that first exploded a nuclear weapon, back in 1974, thereby escalating the India-Pakistan rivalry to a new level of potential bloodshed.  A lot of the domestic problems with regards to Islamist militancy we see in Pakistan today are of Pakistan's own creation, but it was India who was midwife to these Pakistani tactics.

India has always been the bigger, more muscular player in the relationship with Pakistan.  Therefore, it has had the clout to lead the relationship out of the woods; time and again, it has chosen not to.  From my perspective, it will take initial confidence-building measures on the part of India to shift this troubled relationship.  Negotiating over an equitable distribution of Kashmir would be a good start (with, by the way, the Kashmiris themselves at the table).  But, in the meantime, I think it behooves the non-South-Asian reader to remember that Pakistan doesn't exist in a vacuum.  Many of its problems are of its own creation, but they are borne out of opposition to an obstructionist India.

Our men in Washington

While we're on the topic of Stephen Walt, he might find this unsurprising:

Speaking of Iran and that region, House Majority Leader Steny H. Hoyer (D-Md.) and Minority Whip Eric Cantor (R-Va.) sent out a "Dear Colleague" e-mail Tuesday asking for signatures "to the attached letter to President Obama regarding the Middle East peace process."

The letter says the usual stuff, emphasizing that Washington "must be both a trusted mediator and a devoted friend to Israel" and noting: "Israel will be taking the greatest risks in any peace agreement."

Curiously, when we opened the attachment, we noticed it was named "AIPAC Letter Hoyer Cantor May 2009.pdf."

Seems as though someone forgot to change the name or something. AIPAC? The American Israel Public Affairs Committee? Is that how this stuff works?

Ah, bipartisanship...

The climate race

I like how Bill Clinton frames climate change policy in this quote:

“They’re [China's] already doing a lot of things better than we are,” Mr Clinton said. “All of their new coal plants are going to be at higher technology than our own coal stock . . . They have already invested more than we have in high-speed rail. The only thing they are still behind us on is vigorous energy efficiency.”

This is an appeal to our competitive instincts (with a good dose of American Sinophobia): China's ahead of us, they're going to win, freak out now!  It has a bit more ring to it, and might prove more effective with the American public, because it avoids the economic consequences of combating climate change and instead turns the debate into a race between the world's only superpower and its next potential superpower competitor -- for the betterment of the environment.

A brief introduction to strategic sufficiency

This insight from Stephen Walt is particularly sound:

Unlike Preble, I still think a margin of superiority is a good thing, but I agree that [America's] got a much bigger margin than we need and we often use it in the wrong way. Instead of exploiting our favorable geopolitical position and acting like an offshore balancer, and playing hard-to-get so that other major powers will bear a greater share of the burden, the United States has declared itself to be the "indispensable power" and decided that it’s got to take charge nearly everywhere. The result, as you may have noticed, has not been all the salutary. Instead of stabilizing the key strategic areas of the world -- something we used to be pretty good at -- in recent years the United States has been an actively destabilizing force. And instead of spreading U.S. values, we've ended up undermining them here at home and discrediting them abroad.

Naturally there are counterarguments to Walt's thinking.  The United States' hegemonic position, its "margin of superiority," did not allow us to prevent genocide in Rwanda, deter North Korea from chasing nuclear weapons, or kill Osama bin Laden before his organization perpetrated the attacks of 11 September 2001.  From this standpoint, the "indispensible power" is apparently not indispensible enough.  The problem with these counterarguments are two-fold.  First, some of them presuppose an American national interest in things like preventing genocide in places like Rwanda, which is a tenuous proposition.  (The humanitarian in me wants to say that we do, but the realist, ever mindful of scarce economic resources and political capital, tells me to be a bit more agnostic and clear-eyed about what is exactly in the United States' national interest; that is, in which conflicts is our survival as a state at risk?).  Second, even if there is a clear national interest at stake (as in, finding and killing Osama bin Laden pre-9/11, say), it is not clear that a huge margin of conventional military superiority would address the problem in the most politically effective and cost-effective way.

Walt's insight dovetails with something I call "strategic sufficiency" (I've written about it briefly here and the term has been used in the nuclear security field, but I wish to apply it on a broader scale).  In this view, strategic sufficiency is the criterion which ought to mediate our foreign policy making.  The principles for which we fight are debatable -- state/society survival would be a good place to start -- but once we agree on an operational principle or principles, we have to decide how to pursue them in a way that maximizes our gains and minimizes our costs.  In other words, we must do exactly the minimum necessary to achieve a strategically sufficient outcome; any outlay beyond the minimum necessary will only rob resources from other theaters where those resources could be employed with a better marginal return on investment.  This is an economist's way of thinking about foreign policy: resources are scarce; therefore maximize the return on any resources we employ.  "Resources" can be thought of as troops on the ground, brains in the White House, the President's time, the amount of airplay a particular issue receives in officials' rhetoric, and so on.

Of course, quantifying something like this is impossible.  Politics is an art; its practice is fluid and contingent on perception.  Nevertheless, the able foreign policy practitioner should attempt to feel out where along the "sufficiency frontier" a state's policy should lay.  In so doing, the state should not overextend itself in issue-areas that are not vital to its national interest, however defined (I define as state/society survival first and foremost), because doing so would undermine potential progress in other issue-areas.  That is strategic sufficiency.  And I believe it's what Walt is getting at in the quote above.

UPDATE: Judah Grunstein contributes his own two cents.

Ballot box Taliban?

An interesting data point from the Economist:

With much local power at stake in the concurrent provincial-council elections, it seems likely that there will be pressure on the insurgents to refrain from attacks on polling stations. Certainly the Taliban have generally avoided the sort of indiscriminate suicide spectaculars seen in Iraq.

There is even some evidence of a degree of internal dispute within the Taliban on how to proceed. In Uruzgan province, the commander of the Afghan Army, General Abdul Hamid, reports that many Taliban have registered to vote, and that there were clashes during registration between Taliban supporting and opposed to the election. The pro-election faction triumphed. NATO hopes that sets a trend.

What does Israel mean to the West?

Greg Sheridan lets off some steam:

That Israel of the Western mind (and indeed of the Arab mind) is a hateful place: right-wing, militaristic, authoritarian, racist, ultra-religious, neo-colonial, narrow-minded, undemocratic, indifferent to world opinion, indifferent especially to Palestinian suffering.

Yet the Israel I know is mostly secular, raucously, almost wildly democratic, has a vibrant left wing, having founded in the kibbutz movement one of the only successful experiments in socialism in human history. It is intellectually disputatious; any two Israelis will have three opinions and be happy to argue them to a lamp post. It is multi-ethnic, there is a great stress on human solidarity, there is due process.

I think Sheridan is overselling his point here: the Western mind (how do you define the "Western mind" in an aggregate way like this?) has mixed feelings about Israel because of its 60-year crucible.  Some of those mixed feelings include the descriptors Sheridan uses above, but those descriptors are not the only things Westerns think about Israel.  In my experience, Israel is certainly not considered a "hateful place," although the Israeli settler movement is increasingly considered just as radical as some Islamist groups.  Most Westerners (again, I'm treading onto unstable ground by using big, elusive words like "Westerners") want to believe that Israel is an outpost of Western civilization in the Middle East but are confused by its heavy-handed tactics.  Israel is a part of the Western fabric.  Naturally, you criticize your brother more for his missteps when you know that you are cut from the same cloth.

When it comes to the persistent prevalence of antisemitism, especially in the Arab world, Sheridan is definitely on the mark:

But for the purposes of this analysis, a meeting [Martin] Indyk describes in 1998 between Clinton and Crown Prince Abdullah of Saudi Arabia is most instructive. This was at the height of the Monica Lewinsky scandal. Indyk writes:

"Abdullah leaned across the table and explained to Clinton in a hushed voice that he had information that Monica Lewinsky was Jewish and part of a Mossad plot to bring the president down because of his efforts to help the Palestinians. He told the president that he intended to share this intelligence with senators he would meet after lunch in an effort to help forestall his impeachment."

(By the way, just calling it as I see it, but I have noticed a greater degree of antisemitism living in Great Britain than where I grew up in Tucson, Arizona.  Casual remarks from Brits at pubs and so on.  Nothing visceral, but still, there is an undercurrent that worries me.)

Everybody pile into Iraqi Kurdistan

[T]here's a certain irony to the fact that Iraqi Kurdistan, once a U.S.-enforced no-fly zone under Saddam Hussein's regime, has become a free-fly zone under the U.S. occupation. I suspect that might very much interest the Israelis, who I'm sure will be keeping a close eye on any shifts in U.S. coverage of the northern Iraq-Iran air corridor resulting from these incidents.

Here.

Response from Derek Scissors: Whither the Chinese economy?

Derek Scissors, a Research Fellow at the Heritage Foundation, responds to my criticism of his recent Foreign Affairs article on the Chinese economy:

--You are right about that instance of unclear writing and probably more.  The emphasis should have been long-term versus short-term.  The phrase “for the moment” was cut from the later paragraph in one of the dozen rounds of editing and I missed the deletion.

 --Your second point is weaker.  US regulation is hardly equivalent to Chinese price controls in the fields cited.  And there is no way to justify claiming there is a “focus” on public services.  Bad place at which to criticize me for not being nuanced.  

Now we can get to what matters.

--The Chinese plainly stimulated their economy too much before the financial shock.  So did others, of course, led by the US.  Sustained negative real interest rates in an environment of strong GDP gains.

--The pace of Chinese expansion 2003-2007 was artificial in that it was fueled in part by unsustainable US monetary expansion. It was artificial in the sense that growth led by urban investment boosted GDP more than comprehensive measures of national standard of living.  And in several other ways.

--You are using “domestic demand” in the incorrect, Chinese government fashion.  The stimulus package – read: state bank lending -- is not aimed at domestic demand, unless you think commodities purchases to fuel more production qualifies.  Even if so, that does not benefit the U.S.  What the world needs is maximized Chinese consumer spending and liberalized import access so foreign supply can tap Chinese demand.  The stimulus package aims at neither and, in terms of resource allocation, effectively discourages both.  Hence the 50% increase in the trade surplus. The paper was written pre-stimulus package, so the discussion was late and slight -- the drawback of reviewed journals.

--The alternative to urban investment taps into a major issue.  For consumption to replace investment as the lead, the emphasis must shift away from supporting firms, through suppressing competition, negative real rates, land grabs, and labor abuse, all of which harm consumer wealth.  The transition will be unpleasant.  One argument is that, environmental degradation aside, it is reasonable to keep investment in the lead -- though not as much in the lead as it will be end-2009 – until the roughly mid-decade demographic shift, when labor market pressure will ease and the transition will be less unpleasant. Reasonable, if embraced by the next regime.  This, unfortunately, was judged as too speculative by both sets of reviewers.

-- Your closing lines venture into unfortunate territory.  It’s absurd to compare Chinese investment restrictions to American.  (As a side note, I have criticized the U.S. for Unocal and other failures in a larger context of Chinese outward investment.)  You have company in pointing to the late 90’s speculative attacks as justifying a closed capital account, but only politicized company. I’m not sure how you would characterize that crisis but, just as an example, the precipitating attack on the [Thai] baht is not relevant to the present Chinese decision.

I can mostly buy into this criticism, and I appreciate the fact that Scissors took the time to air his thoughts.  The idea that the United States should place less short-term emphasis on getting Beijing to liberalize its exchange rate, instead opting for a "long-term commitment," is a sound one in that China is unlikely to move on its currency policy, especially when they have been under very public American (mainly Congressional) pressure.  Being seen to capitulate to the United States will only breed resentment.  And I appreciate the clarification on the use and abuse of the term "domestic demand."  I meant it in the sense of boosting consumption relative to investment.  A re-balancing of consumption vis-a-vis investment in the Chinese economy would go far in addressing the large current account surplus that China runs and the large current account deficit that the U.S. runs.  (By the way, there is plenty that the United States government could do to reduce its current account deficit, namely reining in government spending, but that correction ought to wait until we've pulled out of the recession.)

Scissors' last point is interesting.  As all discourse in the realm of international politics is "politicized," having "politicized company" in believing that restrictions on the capital account might be advantageous to developing nations is not actually a criticism.  Plenty of well-regarded economists including Dani Rodrik, Joseph Stiglitz and others have advocated post-1997 that imposing capital controls -- which is not the same as closing the capital account -- during times of crisis can be helpful in achieving macroeconomic stability.  For example, during a recession in a developing country, an open capital account will usually lead to mostly Western institutional investors pulling out their speculative capital, likely pushing the current account into deficit.  To address the current account deficit, the country's government may need to curtail government spending.  But it's a recession; you don't want to reduce government spending.  To stimulate the economy, you want to expand government spending.

Indeed, capital account liberalization was one of those perverse developments of the 1990s that wasn't even a part of the original Washington Consensus, as Paul Williamson, the economist who coined the term "Washington Consensus," mentions in this book.  Rawi Abdelal, in this book, points out that capital account liberalization was spearheaded by the French (no kidding) in the OECD in the late 1980s and early 1990s.  While I fall on the side of those who, on principle, want to restrict government interference in the market economy, I do see a role for interference in global financial markets, which are incredibly volatile, for ensuring macroeconomic stability.  I think the Chinese are trying to strike this balance between openness to foreign investment and maintaining macroeconomic stability.  In a review of the first book mentioned above, to be published in the upcoming issue of the St Antony's International Review, I argue:

A semi-liberalised capital account in which “sticky” foreign direct investment is favoured over speculative portfolio capital flows would be more likely to offer the best of both worlds: an attractive investment climate without the risk-laden volatility of global finance.

In sum, liberalizing the capital account has become a matter of faith for many economists and policymakers.  There is a strand of thinking in development economics that doing so may have more negative consequence than positive consequences for a developing economy.  A balance must be struck.  I leave the exact balance to the experts.

Sun Tzu for the 21stC

I would like to see a broader explication of this point:

China’s strategic tradition is based on the perspectives of Daoism, bureaucratic Confucianism, the Mandate of Heaven, and Marxism, all of which point to a need to monitor global trends and try to be in synch with them. What stage of history are we in? or what is the trend of the time? The tradition teaches that when a regime appears to be out of step, seizing the initiative and acting boldly at such a decisive moment can not only head off disaster but guarantee victory. Therefore, China has often seen fit to initiate war, typically through surprise attacks. The Harvard political scientist Iain Johnston has pointed out that given China’s place in the international system, the PRC was especially likely to be involved in militarized interstate disputes in the latter half of the twentieth century. So there is an element of insecurity that leads China to be war-prone from our point of view.

Change we can believe in

Thomas PM Barnett:

There are those who diagnose this emerging "Obama Doctrine" of accepting our national limits as the second coming of the Carter administration or, more tragically, as the Americanized version of Mikhail Gorbachev's swan song of Soviet empire. Such thinking miscasts America's grand strategy since WWII as a quest for global control, while ignoring its truest ambition of global liberation. What these analysts don't understand is that America's global experiment has reached the point where further attempts at monopolizing the levers of international power are both self-limiting to globalization's maturation and self-defeating to our ultimate aim: namely, a thoroughly networked and reasonably marketized world that empowers individuals rather than elites.

World politics is the battle between different value-systems.  The United States' -- and more broadly, the West's -- value-system still animates the aspirations of people worldwide.  Not everyone, of course, but a critical mass.  The concept of dominance in world affairs is anathema to a vision of global order based on the individual as the paramount moral unit.  We've based our own societies on the idea that the individual should never be dominated by other social structures; as a principle, our membership as individuals in social structures (e.g., the state, society, religion, etc.) is always voluntarily entered into.  Remember: It was not the West Germans that needed to build the Berlin Wall, but rather the East Germans, to keep their own citizens from defecting to the West.  In international affairs, as Barnett points out, it is not the grand strategy of the United States to dominate all the levers of power, as tempting as it might be during a unipolar moment.  Instead, we seek to expand the geographic and normative reach of our value-system.  The only way to do that is to live by the very mantras we espouse, which may indeed require the voluntary and responsible relinquishing of power to other governments and societies in order to integrate them into a larger Western-oriented global framework.

It was Amitai Etzioni, I believe, who first divided state power into three sub-categories: coercive power, remunerative power, and normative power.  The first -- coercive power -- is the threat and exercise of violence through military means.  The second -- remunerative power -- entails the economic wherewithal of the state.  Both forms of state power are important, but it is the final form -- normative power -- that defines a state or society's ideational reach.  Normative power implies the attraction of the ideas and value-system on which a society is based.  Normative power is where the future (and the past) of the West reside.  It is where we must focus our main energies.

It is for this reason that I applaud the recent crusade of Andrew Sullivan and others (and others) to get to the bottom of the torture issue in the United States.  A society -- a civilization -- that aspires to global leadership does not defecate on the principles on which it was founded.

Keynes (1935)

Via Matthew Yglesias and Tyler Cowen, Keynes' Chapter 12 of The General Theory of Employment, Interest and Money has been making the rounds in the blogosphere. Money quote:

Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market.

Criticizing China for criticism's sake

Derek Scissors' piece "Deng Undone" in the most recent Foreign Affairs is a muddle of confusion.  Take, for example, these two sentences one paragraph apart:

1. SED [Strategic Economic Dialogue] talks should focus on obtaining from the Chinese leadership an explicit long-term commitment to liberalizing interest rates, exchange rates, and energy prices.

2. Washington should switch its emphasis from getting Beijing to liberalize its exchange rate to convincing it to liberalize its capital account, and Washington should ask Beijing for a full schedule of steps it will take to open its capital account.

Emphasis is mine.  That's only the most blatant contradiction.  Scissors also accuses Beijing of implementing excessive price controls:

The State Council sets and resets the prices for all key services: utilities and health care, education and transportation.

Of course, any good undergraduate course in public sector economics will tell you that certain natural monopolies ought to be regulated by the government.  In the United States, depending on the size of the local market, the government will regulate utility prices (electricity, natural gas, water), education (at least for the public schools system where the "price" is your property tax), and transportation (regulated fares for public transportation).  I'm sure Scissors has a more nuanced view, but it doesn't shine through in the Foreign Affairs article.  Of course China has far too many onerous price controls; why focus on public services?

He also criticizes Beijing for stimulating its economy too much before and after the onset of the financial crisis:

Before the financial shock, while the growth rate was still in double digits and the rate of inflation was climbing toward double digits, Beijing was trying to stimulate the economy further.

As consumer inflation began to ebb due to the crisis, real interest rates became less distorted.  But this happened while the government was further opening the fiscal tap. [...] "We need to actively boost domestic demand, to maintain steady economic growth," said the economist Wang Tongsan, of the Chinese Academy of Social Sciences, in August 2008.  "Investment is an indispensable part of boosting domestic demand."  This would have been a reasonable position if the baseline from which domestic demand were to be boosted had not been a GDP growth rate above ten percent and if the means of such boosting had not been urban investment growth, which was already at more than 25 percent.

A couple of things here.  First, Tongsan's economic logic aside, boosting domestic demand in China is exactly what the United States should want out of China right now.  Stronger Chinese domestic demand might reduce China's current account surplus and help get the world economy back on its feet.  Second, the two caveats that Scissors offers suggest that he thinks China is in need for a period of economic contraction -- i.e., the double-digit growth rates of the past half-decade were somehow artificial -- and that urban investment growth is untenable.  I can buy into the latter caveat, but unfortunately Scissors does not offer an alternative to urban investment growth.

In any case, I am sympathetic to the view that the Chinese economy needs more liberalization for its own sake, but Scissors' account doesn't do that view much justice.  It comes off as Sinophobic first and foremost.  For instance, he complains about lack of access to the Chinese market for foreign investment (because some sectors are "strategic") without mentioning CNOOC's abortive buyout of Unocal in 2005, which was killed by protectionist sentiment on Capitol Hill.  An article like this will be read in Beijing with disgust.  I mean, honestly, does Scissors really believe the Chinese will open up their capital account after witnessing the East Asian financial crisis of the late 1990s?

Shove Russia, embrace China

Curiously, [US special envoy for Eurasian energy Richard] Morningstar took a differentiated approach to China. With regard to the [Russian-backed] South Stream [gas pipeline], he was unsparing in voicing his discontent. He bluntly said, "We have doubts about South Stream ... We do have serious questions." But when it came to China, he was an altogether changed man.

"We want to develop cooperative relationships with all the countries that are involved," said Morningstar. "We are living in a time of financial crisis that is really a problem for all of us. We can't afford to be fighting about these issues, and we need to try to be constructive, and try to deal with the common issues together.

"China is a country that I think we in the United States want to engage with, with respect to energy issues. I don't think it is a bad idea that China is involved in Central Asia. I think it helps the Central Asian countries. Maybe there are opportunities that we can cooperate - European companies, American companies, European countries, the United States - maybe we can cooperate with China in that part of the world and it's something that we at least need to explore as an area of possible cooperation."

Only a week into his new job, Morningstar has begun to sprint. He has outlined an ambitious blueprint of US energy diplomacy in the Caspian that all but takes EU energy security under American wings and aims at neutralizing Russia's gains in the Caspian energy sweepstakes during the Bush era. But he sees China's inroads into Central Asia positively as they serve the US's geopolitical interests in isolating Russia and rubbishing Moscow's claims over the region as its sphere of influence.

Here.  The tone vis-a-vis China has changed since Moscow's August 2008 invasion of Georgia.  Steve LeVine predicted it.  I was thinking along those lines as well.

Why the Washington foreign policy community tends to bleed groupthink

From Cass Sunstein and Richard Thaler's book Nudge (page 60 in the international edition):

In the 1950s Solomon Asch (1995), a brilliant social psychologist, conducted a series of experiments in just this vein [having groups of people make a ridiculously easy judgment of whether or not two objects are the same].  When asked to decide on their own, without seeing judgments from others, people almost never erred, since the test was easy.  But when everyone else gave an incorrect answer, people erred more than one-third of the time.  Indeed, in a series of twelve questions, nearly three-quarters of people went along with the group at least once, defying the evidence of their own senses.  Notice that in Asch's experiment, people were responding to the decisions of strangers, whom they would probably never see again.  They had no particular reason to want those strangers to like them.

What's more, the Washington crowd tends to be composed of pleasers all trying to get ahead in a cut-throat atmosphere by not offending too many people.