Candle Power

This essay summarizes Pundita's points, scattered through several essays, about US foreign aid and development policy as applied to helping the world's poorest. I saw the need for this exercise after reading a blogger's published thoughts on Pundita's Finger of Shame essay. The blogger, Dave Schuler at The Glittering Eye blog, refers to Joseph Nye's 'hard-soft power'concept and places Pundita's outlook in the soft power category:

The notions of hard and soft power derive...from the work of Joseph Nye. Hard power—military and economic power—is making other people do what you want them to. Soft power is making them want what you want. You don't employ or deploy soft power. You either have it and it's working or you don't and it won't...Hard power and soft power can work together synergistically. In what is certainly the most lucid article on the World Bank (and development banks generally) that I have ever read, Pundita suggests foregoing our hard power(in this case economic) strategies in the developing world in favor of a soft power approach...

Clearly Dave was unaware that Pundita nominated Eliot Spitzer for World Bank president. Short of dropping a bomb on World Bank headquarters, my suggestion doesn't get more hard power than that. Schuler closes by observing:

It's pretty clear that we have not made an opening in attacking the problem of the poverty of the poorest of the poor. Can it be accomplished with a soft power strategy? Do we have the wit and skill (and faith) to exploit it?

Pundita's reply: Not unless the wits are considerably sharpened. Development policies for the world's poorest haven't made headway because the policies are on the moon. They're on the moon because they're thought up by people who live inside theoretical bubbles, which float high above the doings of mortals down here on earth.

Yet there are many good-hearted, brilliant and well educated people from all over the world laboring in sustainable development. These are people who eat, sleep, and breathe the problems of the world's downtrodden. So how is it that so many smart, concerned people ended up on the moon?

Part of the answer lies in the development 'system' and mechanisms by which development policy is actualized; e.g., the development loan model, which was not created to solve the most pressing problems of the world's poorest.

Part of the answer is that developed nations have used foreign aid/development banks not so much to help the poorest but to further strategic aims. There's nothing wrong with trying to further such aims. But when this impulse is mixed with development policy it sets up a mental screen, which makes it hard to see things simply as they are.

A famous example of this type of blindness is shown in a movie based on a Graham Greene novel set during the Cold War. The US delivered food aid to a Third World country as part of a strategic initiative. The food was delivered to the docks in crates stamped in English "A gift from the United States of America."

During the night Soviet operatives crept onto the docks and stamped on the crates "A gift from the Soviet Union" in the native language of the people who were to receive the aid.

The other part of the answer can be hard to grasp; as soon as one tries to explain people interrupt with, "Oh I see. It's prejudice, bigotry."

Then how come dogs put in charge of minding small children display the same attitude? Within a few weeks the dog starts treating the kid like an idiot. The dog's not a bigot. There is something deeply rooted in mammalian nature that you don't want to mess with, but which when poured into looking after people who are perpetually in a weak position manifests in behaviors that are something like benevolent paternalism.

Of course the paternalism can mix with bigotry, class-consciousness and the Enclave mentality. When you put all that together, you get the attitude famously associated with West European colonialism. Pundita terms this brew of traits Sahibism.

Now one would think that Sahibism is not found among aid and development bank workers who come from the very regions of the world that were under Colonial rule. But as any Indian or African who remembers the tail end of Empire can tell you, there you would be very wrong. The 'natives' elevated by the Colonialists to administrative positions eventually took on much the same attitude toward their fellow natives that the Colonials displayed.

That makes sense if you realize the attitude is not rooted in bigotry. It's rooted in human nature. But when the attitude is mixed with development policy or even charitable giving, it sets up another mental screen--one that also makes it hard to see facts on the ground.

That is why, for decades, the World Bank simply replaced valuable equipment that was repeatedly stolen from the same Bank project construction sites in 'third world' countries. That is why an otherwise intelligent Western Christian missionary defended the Africans who repeatedly stole from his hospital by saying it was their culture to steal.

How can you arrive at intelligent aid policy, if you hold in your mind the attitude that the people you're trying to lift out of abject poverty are overgrown children? Thus, President Bush's approach, which is remarkably free of Sahibism, is a breakthrough. That is why Pundita supports the general idea behind Bush's Millennium Challenge Account, which tags US aid to governments that make strides in adopting and strengthening democratic government.

To return to Nye's concept, the Millennium Challenge Account is hard power--bone-cracking economic clout. Bush doesn't want to hear the laundry list of excuses from national leaders who've learned to play US administrations and the World Bank like a fiddle. Bush's position is either get with the democracy program or forget getting more money. That's treating leaders from nondemocratic poor countries as if they're adults in full possession of their mental faculties.

The Millennium Challenge Account doesn't have much funding, which for the short run leaves US aid/development policy still dependent on the USAID agency and international organizations such as the World Bank. That means things are still not looking up for the world's poorest. However, Pundita can't give unqualified support to the MCA because I don't know exactly how the program works out in practice. Giving money to governments that have made strides in democratic reforms doesn't necessarily equate to strides with real transformative value.

To think intelligently about helping the world's poorest requires first a different way of categorizing the poor. If you look through the list of the 77 "poorest" countries that make up the G-77 (See Pundita's sidebar), you'll note that some of those countries have oil wealth and other valuable exportable resources. Other countries on the list are narco states or Money Laundering, Inc., which means they're rolling in dough.

In short, there are oceans of money sloshing around in several of the countries that the World Bank and other international organizations categorize as the poorest. So clearly there's something screwy with the criteria for determining poverty. A close inspection shows that many countries, including several in OPEC, are poor because their governments spent decades making a complete mess and blowing export revenues on the wrong projects.*

But I think the majority of poorest countries are poorest because the class that put the government in power doesn't like to cough up at tax time, and because crime syndicates don't file tax returns. Yet pouring development and aid money into countries that don't have an adequate tax base to develop and maintain infrastructure and basic social programs is pouring into a bottomless pit.

Intelligent development policy should be grounded in that observation. Here we come to a snag. Multilateral development lending agencies and US aid programs are not set up to go after tax cheats. Nor do they have the authority to strong-arm governments into hounding the richest in their country to pay up on back taxes and raise taxes on the rich from a pittance percentage.

That is why development policy is on the moon. It's like the fable of the man who searched under a street lamp for a lost object in his darkened house because the lamp threw more light on his search. So making headway in helping the world's poorest is not really a matter of hard or soft power. It's a matter of lighting a candle to guide thinking back to earth.

Thanks to Dave Schuler's essay for galvanizing Pundita to summarize her writings to this point on aid/development policy.

* Seven of the 11 nations that make up the Organization of Petroleum Exporting Countries (OPEC) are poorer (or no richer) today per capita than they were in 1974. For an overview on why OPEC nations are crying poor these days, see the Christian Science Monitor report at http://www.csmonitor.com/2005/0324/p16s01-cogn.html

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Why Vicente Fox is going straight to Hell

In the wake of recent essays about poverty and the World Bank, Pundita has received a flurry of letters asking for ideas on how to improve US policy on helping the world's poorest. One writer asked, "If you could only do one thing to better the world, what would it be?"

Well, given that the United States is at war, I think it's more helpful to tell what the world's smartest terrorists want to do to better the world. They want to shoot all the government leaders who depend on diaspora remittances to keep the poorest in line.

Smart Islamofascists understand the connection between diaspora remittances, tax cheating by the richest in their countries, and the plight of the poorest. They're building coalitions with communists. The only thing that's holding them back is the communists' slowness to realize what century this is, which prevents them from modernizing communist doctrine. The rich per se are not the problem. The problem comes when the rich demand government-built infrastructures but don't want to pay their fair share in taxes to build and maintain the structures. They want the middle class and the poor to pay for them.

Western governments are studiously blind to the connection between diaspora remittances, narco states, terrorism, and the plight of the world's poorest. The US State Department (and the Bush administration) crowed about an initiative under the US-Mexico partnership, which makes it cheaper for poor Mexican immigrants working in this country to send remittances back home. Why don't they just line up Mexico's poor and shoot them? Oh but that's right, Pundita forgot! If you shoot them, you can't bleed them dry.

The US-Mexico initiative is small chips next to what China has done. They set up a program which 'encourages' Chinese working abroad to contribute a portion of their remittances to infrastructure projects in China. The Indian government wants to copy China's program (without the 'encouragements' of course) if they haven't done so already. So, the crime syndicates that have a big say in running those two countries will have even more heat taken off them when tax time comes around.

As to what would happen to Vicente Fox if he pushed to raise and enforce taxes on Mexico's richest--well, he'd have to take the same precautions that President Alvaro Uribe has had to take while standing up to Colombia's drug lords. So, okay, he'd have to live every moment as if it was his last. But this is not the chairmanship of Coca-Cola that Vicente Fox has got. He's supposed to be a national leader--a concept that implies moral and physical courage. And if he was on the level, he could get the Mexican people at this back. Once that happened, he could get the United States government squarely at this back.

But I don't wish to single out one national leader. Go down the list of governments that rely on remittances from their diaspora populations to keep their citizen unrest at bay. You see the same story again and again, whether it's Philippines, Burma, Algeria--you name it.

Education is a part of the solution; immigrants naturally want to send money back home. They need to learn in detail what their acts of generosity support, which is the very system of government that makes life in the old country Hell for their relatives. Yet the situation calls for more than palaver. It calls for Draconian measures on the part of nations that greatly profit from the cheap labor of diaspora populations.

To my knowledge there hasn't been much written recently about the issue of diaspora remittances--at least, not for the general public. That is why I recommend that Pundita readers look at two very short articles by Barbara Walker (links below). The articles are a few years old and look at remittances pretty much within the narrow context of Mexican workers in the US. But the articles are reader-friendly and a good if highly opinionated introduction to a complex subject.

The second Walker article I've listed provides a reading list for those who want to go deeper into the subject. However, I recommend that next you glance through the report from the UK Parliament House of Commons (third link below). If I recall the data is a few years old but the report is a primer on the subject of diaspora remittances. The bonus is that the report is well written and has cool charts, which at a glance can teach you a lot.

The caveat is that the Parliament report looks at everything upside down. The consensus in the development community (which the US-Mexico partnership follows) is to find ways to better use remittances to help poor countries. This is refusing to acknowledge that remittances are like methadone; they provide just enough of a cash flow fix so that corrupt/inefficient governments can avoid going after the biggest tax cheats in their country--the biggest being the crime bosses.

Once you realize what the avoidance has created for the poorest, you can see why the terrorists and radicals are building a broad platform that transcends cultural/religious boundaries. The platform is more sophisticated than the anti-globalist one because it's targeted, and more in tune with the fact that globalized business is here to stay.

Not to raise your blood pressure any more than it might rise after reading the Walker essays, but at the end of the following list is the link to a 2003 Time article on how Western Union got wildly rich off remittances. The data helps fill in some blanks.

http://www.vdare.com/walker/mexico_the_rich.htm

http://www.libertypost.org/cgi-bin/readart.cgi?ArtNum=86122

http://www.publications.parliament.uk/pa/cm200304/cmselect/
cmintdev/79/7908.htm

http://www.time.com/time/archive/preview/0,10987,1101030623-458779,00.html

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"A bureaucrat's dream and a human being's nightmare"

Dear Reader, Pundita hopes you study the Belmont Club blogger's March 22 observations on Kofi Annan's plan to reform the United Nations. That's if you have a serious interest in helping the world's poorest and want to see the war on terror end in your lifetime. Wretchard observes in part:

In my own opinion Kofi Annan's proposals are a recipe for disaster for two reasons. His entire security model is philosophically founded on a kind of blackmail which recognizes that the only thing dysfunctional states have to export is trouble. He then sets up the United Nations as a gendarmarie with 'a human face' delivering payoffs to quell disturbances. This is the "bargain whereby rich countries help the poor to develop, by promoting the Millennium Development Goals, while poor countries help alleviate rich countries' security concerns."

Second, his model flies in the face of the recent experience in Afghanistan, Iraq and the entire democratizing upheaval in the Middle East. It is by making countries functional that terrorism is quelled and not by any regime of international aid, inspections, nonproliferation treaties, declarations, protocols, conferences; nor by appointing special rapptorteurs, plenipotentiary envoys; nor constituting councils, consultative bodies or anything else in Annan's threadbare cupboard.

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But Kuchma was our tyrant

Pundita! Would you stop fiddling with your sidebar! It’s driving me nuts! I went to click on the website for World Bank president and it was gone. And by the way, can we please take a vacation from talking about the World Bank? And Europe and China? We get the picture. We can’t trust the World Bank, Germany, France, Russia, Ukraine and China any further than we can throw them. Now can we please move the foreign policy discussion to someplace closer to home? What about Canada and Mexico? They’re our neighbors, you know. Also, we’ve never once discussed any country in Latin America, but now I suppose we’ll have to spend the next week discussing Kuchma’s sales of missiles to Tehran. [Signed] Not Born Yesterday in New York”

Dear NBY:

Canada and Latin American countries have not been selling weapons and weapons/dual use technology to terror sponsoring regimes. Nor to Pundita’s knowledge has any regional development bank connected with Latin America been writing loans/grants to such regimes. We’ve been prioritizing foreign policy discussion according to threats to US national security. However, Pundita takes your point. We will soon turn to discussion of our neighbors.

With regard to your comment about Kuchma, Pundita has not been doing her job properly if you automatically assume that it was Kuchma’s government that sold the missiles in question to Tehran. Yushchenko’s administration is busily working to blame everything from solar flares to male pattern baldness on Kuchma’s government.

You need to remember that at one time, Cold War warriors such as Breziznski viewed the mullacracy in Tehran as a ‘green belt’ against encroachment of the Soviets on Middle East oil. You might also want to bone up on the Iran-Contra affair. And recall the divide-and-conquer strategy favored by Washington and London, which saw the standoff between Baghdad and Tehran as very useful to keeping the rest of the Middle East in line.

Of course all that was before 9/11; US policy toward the Middle East has changed greatly since then. Yet you need to keep all the above history in mind, and keep a large salt shaker handy, when considering bombshell data that governments plop into the daily news these days.

This said, it wouldn’t surprise Pundita to learn that someone in Kuchma’s government sold some missiles. The surprise is hearing Americans sputter that Kuchma’s government was a democracy-hating tyranny of the most evil order. Then why did NATO admit Ukraine under Kuchma’s tyranny?

Kuchma was our boy; he did everything Washington wanted up to the point where he risked having Russia shut off energy supply to Ukraine. One look at US aid and World Bank loans to Ukraine during Kuchma’s years shows that he had instituted democracy reforms. He sought and gained entry for Ukraine into NATO. But one day Washington soured on Kuchma. We still don’t know why. We’ve discussed this issue before. Washington’s turn could have been due to a number of converging factors—which could include learning about the missile sales to Tehran. And there is still the accusation floating around that someone in Kuchma’s government sold weapons technology or whatever to Saddam Hussein. However, the French sold weapons to Saddam during the embargo and allegedly even after they knew the US was to invade Iraq. Doubtful that France was the only NATO ally engaged in such practice.

In any case, it's not a really a matter of trust. We can’t blame countries for acting in what they perceive is their best interest—although we can try to convince them to adopt a better set of priorities, if they’re doing weapons trade with US enemies. We need to save blame for the US Department of State, which gained far too much power during the Clinton era and combined this with dangerously uninformed views of post-Soviet Russia, oligarch clan politics in former Soviet regions, the European Community, and the Middle East entire.

With regard to your complaint, Pundita has not made changes to her sidebar for five days—a record, I believe.

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Paul Wolfowitz and the Arab Problem

“Pundita, dear, the Japanese had signed off on Wolfy even before Bush formally nominated him [for World Bank president]. So what kind of president do you think he’ll make? [Signed] Boris in Jackson Heights”

Dear Boris:

At the moment of this writing it seems likely that Wolfowitz has the job but the Bank vote has not yet been cast. Unwise to underestimate Brussels in this matter because so much is at stake for them. Behind the polite response from Brussels to the Wolfowitz nomination is a battle to determine how to use the World Bank to work on the Arab Problem. The Arab Problem is not part of the US war on terror, although it intersects with it. The Arab Problem is the result of Arab migration patterns, demographics, widescale poverty, and a host of grave social problems connected with Arab culture.

Discussion of the problem has been muted in the Western press and officialdom even though it was Arabs who formally identified the problem with the publication of the first Arab survey for the United Nations. The survey was launched several months prior to 9/11 but by the time it was published, in July 2002, government leaders were loath to publicly discuss the topic because Arabs are of course Muslims.

However, President Bush did try to propose a solution to the Arab Problem, which he dubbed The Middle East Initiative. This was met with howls of “Helsinki Initiative!” from Brussels, Arab leaders egged on by Brussels, and the Cold War Warrior crowd in Washington, which wanted to keep US resources focused on making Russia into a corn patch on the map.

Amending the name to “Greater” Middle East Initiative didn’t mollify the critics. The Arab Street picked up the howls, charging that America was trying to pave over the Middle East with American culture. Thus, the Bush stab at working on the Arab Problem would have to proceed in piecemeal, tiptoe fashion instead of as a comprehensive, explicitly stated plan. That’s a shame because the Arab Problem went untended for so long and has so many facets that it’s best dealt with in coordinated fashion.

Wolfowitz understands at a deep level the Arab Problem and the Middle East. Thus, his name surfaced in Washington even before Bush’s reelection during discussion of possible candidates for next World Bank president. The question at that time was whether Bush would want to reshuffle leadership at the Department of Defense if he won reelection. And I think a lot rode on the Iraqi election. If the election process went reasonably well, then Bush could really push for Paul Wolfowitz as next World Bank president.

Official EU response to the Wolfowitz nomination has been muted, but Brussels is not happy with the nomination. As soon as the nomination was announced, a well organized ‘grassroots movement’ sprang into action in Europe to ‘pressure’ Brussels into making a strong protest to Washington about the nomination. Clearly the movement was ready to spring into action well in advance of the nomination but probably would have sprung no matter which candidate Bush announced.

The question is whether the movement, or elements of it, is concerned with promoting the Brussels view on how best to address the Arab Problem. The answer would be sheer guesswork because again Brussels has (to my knowledge) continued to avoid public discussion of the problem. But taking a shot in the dark, it might be that the plan for ending world poverty that Jeffrey Sachs outlined in his latest book indicates how Germany and France want the US to deal with the Arab Problem.

In any case, the Arab Problem is certainly worse in Arab regions that don’t have much or any petroleum resources. But it would be confusing distinct issues to apply that point to how the Bank can be used to work on the Arab Problem.

Contrary to popular perception, the Bank is not an aid organization. It’s a financial institution and a sound one. It has to remain sound if it wants Bank bonds to have a high rating because the Bank does not only finance projects through grants from member countries. To keep their credit rating high, the Bank has to get returns on their investments—in other words, they have to collect on loans they make to governments.

The worst-case countries really can’t afford to qualify for Bank loans—even with the softest repayment terms and zero interest. Those countries are best helped by outright aid. Yet it seems Brussels wants to remake the Bank into more of an aid organization. That trend got seriously underway during Wolfensohn’s tenure; the Bank has made outright grants. That’s like trying to make your electric blender into a bread toaster. The World Bank can raise big loan amounts just because it’s a financial institution with a good credit rating. If you mess with the formula, you undercut or even destroy the Bank’s capacity to make big-ticket loans.

Post-Ba’athist Iraq, which of course is situated in the Middle East proper, is a perfect candidate for the classic big-ticket IBRD model of development and reconstruction, which does best at helping countries that have fallen backward. Years of Ba’athist rule, which included a long war with Iran, left the country’s infrastructure in ruins even before the US bombing campaign. Yet because Iraq has large oil reserves, they can be expected to make timely repayments on big Bank loans. And because Iraq manifests all the problems that have been noted with other Arab countries, the World Bank could, in theory, make fast inroads on the Arab Problem by lavishing loans of all kinds on Iraq.

If you take the darkest view of Brussels, which is that they are bent on destroying US power in the world, it’s easy to read dark motives into what is surely their lukewarm support for rebuilding Iraq with Bank loans. However, the bottom line is that Brussels is trying to find money to build up the EU military and tend to the many administrative expenses of running the European Union. There might be no immediate payoff for Germany and France in supporting big loans to Iraq because the two Euro nations stood on the wrong side of history on the matter of Bush’ plan to deal with the Iraqi Ba’athist regime. The Iraqi government will remember that when it comes time to okay contractors for big Bank projects--unless Germany and France greatly extend themselves to be helpful to Iraq, which to my knowledge they haven’t yet done.

Does all this mean that Wolfy at the helm of the Bank would result chiefly in a flurry of loans to Iraq? His diplomatic stint in Indonesia, core beliefs, and understanding of the Arab Problem suggest otherwise. But let’s not jump ahead of ourselves. Because America is at war Brussels has cards to play. Washington’s priorities do not place the World Bank or the Arab Problem at the top of their To-do list. So now, we wait.

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Still Waiting for Pasha

“I am writing to respond to your essay “The Emperor is Naked.” You should visit Iran. I assure you we have running water there. We even have modern cities just like those in America. Most Iranians love democracy and America. We don’t love the Western arrogance and condescension that your viewpoint represents. [Unsigned]”

Dear Unsigned:

Pundita’s regular readers know that she takes poetic license when steamed. But clearly Pundita is slipping if you mistook insults for condescension, so let me rephrase. You say you have modern cities like those in America. Show me the city in America where the residents gather 100,000 strong to watch the stoning death of children. Show me that city.

Pundita has met people in a remote region in Asia who live in caves and wear animal skins. They are just a few steps up from the Stone Age but they have more civilization in their social customs than the Iranians. So what does it matter if German engineers showed you how to make water run? You’d be just as well off drinking from a stream.

Iranians do not “love” democracy. They covet democracy, in the way a pasha covets an expensive bauble. Others have it, so why can’t you? You’re waiting for the whole package and if your leaders won’t give it to you, you’ll keep looking for a leader who will. That’s why Iranian students find nothing strange about prancing around in American jeans and discussing American cinema, then writing up a petition as their response to barbaric tribal customs including stoning deaths of children for the crime of nothing at all. They’re waiting for the democracy bauble to arrive, as if possession of this gem will purge them of tolerance for barbarism and restore conscience and dignity to their society.

You tell Pundita that most Iranians love Americans. Most Iranians don’t know Americans. Once you get to know us, I guarantee you’re not going to like us because we represent the inverse of the Pasha mindset, which is still entrenched in your part of the world.

Boiled down, the Pasha mindset is “Only slaves and women take out the garbage.”

In one sentence the American mindset is “Do it yourself.”

That’s the real reason the Persians had contempt for the Greeks, particularly by the time of Alexander’s era. They saw him running around taking soil samples and making notes and said to each other, “Only slaves and paid retainers work up a brain sweat. Real men write poetry and command others to do their bidding.”

Now in the old days, it wasn’t like that. Persian kings tilled their own field and busted their brains figuring out how to repair a plough. Then along came the 900 Lazy Bastards, who always appear on cue when a large group of humans show a spark of collective intelligence.

So it came down to a day in 1985, when Pundita met a German who earned money on his annual vacation by driving a German-made van from Germany to Nepal. His route took him through a part of Iran. He told me that the villagers were starving and praying for the return of the Shah’s son. Last year I recounted the story to an Iranian expat. He told me, “I’ve got news for you. The villagers are still starving and still praying for the return of the Shah’s son.”

Still waiting for pasha, after all those years.

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The Kaiser Soze model of democracy

Pundita is only halfway through embroidering a sampler of the following quotes for hanging above the fireplace. My apology to The Scotsman newspaper and Jim Cusak for breaking protocol by posting lengthy quotes from their piece . I hope they'll forgive me this one time, in honor of the day and the gravity of the article's implications.

The quotes speak volumes about where democracy is headed in small countries in these days of globalized crime syndicates, if citizens don't keep a very close watch. Supporters of 'managed' democracy revolution please take note of which century this is. The days are long past when only a handful of wealthy governments could afford to stage-manage the overthrow of governments in small countries.

It's a good thing the bank robbers overlooked that it's not possible to launder tens of millions of stolen bank notes in a small country, else the police might not have discovered the larger scheme.

Members of the Garda [Ireland's police] Special Branch, Fraud and Criminal Assets Bureau had just launched its biggest ever set of raids on the offices of accountants, solicitors and finance companies across the country, looking for documents linked to offshore accounts, property deals, business ownerships and money transactions estimated to run into hundreds of millions of euros.

Ostensibly linked to the search for the £26.5m [$39m] stolen recently in Belfast, in reality the raids were about something more. There is said to be a massive amount of financial activity, ranging from pubs to trading corporations, situated in countries outside the EU in order to avoid the scrutiny of EU financial regulations. And they all have one thing in common: they are linked to the IRA.

The amounts involved were evidently for a purpose far beyond personal enrichment. There is now a belief that the finance operation uncovered is intended to fund a massive campaign to subvert politics in the Republic of Ireland, undermining its political parties and institutions. Gardai now talk in apocalyptic terms. The scheme is, they say, the IRA’s banking system to be used to overthrow the government of Ireland.

A key part of the grandiose plan was the subverting of Sinn Fein’s political opposition. The IRA is in the process of building a black propaganda campaign to attack members of the Irish parliament and other elected representatives. Across the country, the IRA has been spying on members of Fianna Fail, Fine Gael, Labour and the Progressive Democrats. Units of IRA volunteers, under the guise of Sinn Fein "activists", have been building up dossiers on members of opposing political parties.

This information is to be used to destroy the careers of politicians and public figures at key points in the run-up to the next Irish general election, in which Sinn Fein hopes to establish itself as a major presence in the Dail.

Gardai and Irish army intelligence believe the leadership of the Provisionals has decided it has completed its strategic project in Northern Ireland, having overthrown the SDLP to become the biggest nationalist party, and has now turned its attention to its grand plan of taking power in the Republic. Within republican circles this project is referred to as the "re-conquest of the south".

This project requires hundreds of millions of euros to pay for the small army of activists of all shades, ranging from the local "community" workers to high-flying financiers handling the organisation’s money

The truth has finally dawned on Bertie Ahern’s government that, rather than be content with a political agreement that would have seen Sinn Fein in a Stormont Executive in the north, the Provisionals were intent on an altogether bigger prize.

-- 02/20/05 article, "IRA's dirty cash funds power grab," The Scotsman.

Happy St. Patrick's Day, everyone.

In case you missed the details of the heist:
http://www.cnn.com/2004/WORLD/
europe/12/22/ireland.bank.robbery/

How the money laundering scheme unraveled:
http://news.scotsman.com/
latest.cfm?id=4156391

The Scotsman piece quoted above:
http://news.scotsman.com/
opinion.cfm?id=193642005

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Kofi Annan and Jeffrey Sachs hissing mad

"If you can't have Eliot Spitzer as World Bank President, will Paul Wolfowitz do? Sachs went through the roof over Wolfy's nomination. Looks like Kofi Annan, Time magazine and Jeffrey Sachs failed to head off Bush at the pass. Maybe Bush got more than Bolton in exchange for sacrificing "two knights, a bishop and rook."
[Signed] Chicago Dan

Dear Dan:

Yes, this has been a bad month for the Mercantile School of foreign policy. But if what you're implying is true, think what that means. The World Bank and the United Nations were supposed to be US foreign policy instruments. While Americans were sound asleep, the Franco-German alliance in the European Union walked off with them. If Bush felt the need to agree to back the EU's offer of concessions to Tehran in exchange for muted resistance to the Bolton and Wolfowitz nominations, that would show how much ground the US lost during the past 15 years.

However, there shouldn't be too much resistance to Wolfowitz, if European and Japanese big-ticket contractors stop and think it through. Iraq needs a lot of reconstruction and development--and not penny-ante projects. They need to rebuild the entire country. With Wolfowitz at the Bank's helm, it's guaranteed that big-ticket Bank loans for infrastructure projects will flow in great number to Iraq.

That's the kind of work the World Bank loan model was created for. And because Iraq will soon be filthy rich from oil revenues, they can be expected not to default on the loan payments. So the Half a Bridge rule would not apply to Iraq. The Bank would lend enough money so that the projects would be top-quality.

Once the Iranians see what's going on in Iraq with Bank construction and development, they will be green with envy. In that event, all they have to do is get rid of their Taliban-syle government and give up the nuke program, and they can get in on the bonanza.

As for the hundreds of millions of the poorest in African countries--as Pundita has observed many times, the Bank was not set up to be an aid organization. Clean up the Bank and let it do what it was designed to do. The Bank can help, but rely primarily on other organizations, including USAID, to rescue the poorest.

As for Annan, that buzzard is lucky he's still got his job. He should chalk up the win to Bush over the matter of Wolfowitz.

As for the Merchantile School, Shaheen Fatemi of the American University in Paris has some choice words for the Brussels crowd in his essay Whose Side is Europe On?

Let's hope Secretary Rice sees Dr. Fatemi's essay and takes special note of the subtext in his observation:

In the collective memory of the Iranian people the images of European leaders happily and proudly posing in pictures with the criminal leaders of the Islamic Republic are bitter souvenirs for the future.

With an eye to the future, there should be fewer concessions to Brussels. It's not only the eyes of Iranians that are upon us. The whole world is watching to see if we will stand behind our fine words about democracy.

http://iranvajahan.net/cgi-bin/news.pl?l=en&y=2005&m=03&d=16&a=3

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Courtiers and Indentured Servitude

Dear Pundita, May I ask why you omitted the Second Rule of Foreign Policy from the list of essays on development? The list you put up on your home page? You brought out very important points in the essay. I think it should be included in the list. Also, I suggest you talk a little about the realities for the expats who work at the World Bank. That would help people understand why there's so much waste and inefficiency connected with Bank projects and why the Bank resists an external audit.
[Signed] Kumar in Bethesda

Dear Kumar:

We didn't put that essay on the sidebar because we forgot to do it. Thank you for the reminder; Pundita has corrected the oversight. Yes it might be a help, if Americans outside the international organization 'community' based in Washington, DC learn what happens to non-American Bank employees if they get fired. I forget how many days or hours they have to leave the USA, but they don't have much time to take their children out of school, collect all their belongings, and return to their own country.

If that brings forth, "Aw too bad" from American readers--well, how would you like to live with the thought that if you get fired from your job in the USA that means having to put your child in school in some place such Pakistan? And not in an 'enclave' school reserved for American children of diplomats and other Americans working there.

I'm not trying to elicit your sympathy but to convey why "Don't rock the boat" is the operating philosophy for World Bank employees. Most of the employees are not American and many are from LDCs--less developed countries, or what used to be called the Third World. If they screw up in their work or get on the wrong side of a Bank higher-up, it's back to wherever they came from. That place is usually a far cry from the safety and freedom that Americans enjoy.

The Bank looks after their employees well--great health benefits, and so on. But working for the Bank is a form of indentured servitude; it's a Golden Cage. And if you work at Bank headquarters in the USA, you're not free to tell the boss to go to hell then quit your job--not unless you want to lose everything you've built up in America.

This reality has created a culture inside the Bank that evokes to remarkable degree the courts of ancient imperial dynasties. This extends to the highly ritualized labyrinthian Bank language used in memorandums and reports. It's courtier language. The idea is to ensure that what you say is so hard to pin down that the ax can't find your head.

That culture doesn't make for reflexive responses to problems, which doesn't mean the Bank can't be reflexive. The World Bank has so much power, wealth and expertise that when the will is there, the Bank can move against a problem with awesome speed and efficiency. The hard part is getting the will to that point.

Very few people get fired from the Bank just because of the situation I outlined. But that means supporting a lot of bad job performance, a bloated workforce, and it means a work culture built on fear. If you justifiably fear speaking up at your job when you see things that are really wrong, what kind of organization can you expect to see evolve from a culture of fear?

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Democracy Stage Show Kit

The stage-managed Orange Revolution in Ukraine was a product of what could be called the Democracy Stage Show Kit. The kit comes complete with instructions on how to stage civil disobedience, how to use the media, and coaching on how to line up your talking points. The basic kit is not new. It's as old as big money buying mobs. In the modern era the kit was refined by Western governments and used to peel some former Soviet regions from the Kremlin's influence.

A problem with the kit (aside from the question of whether it's really a democratic revolution if a foreign government is behind it) is that it doesn't teach how democratic rule is administered. The problem is easily solved if the democracy revolution is stage managed by a powerful democratic foreign government. Such governments have the money and expertise to throw in after the revolution phase. They can teach the leaders how set up a real democratic government. When that situation is not the case, there's nothing more untidy than gaining the palace then having to ask each other, "Now what do we do?"

With that thought, it might be helpful if someone published, Democratic Government During the First Hundred Days for Dummies. To Pundita's knowledge, the Democracy Stage Show Kit is not yet available for sale on the Internet--not as a package for $294.95 plus shipping and handling. Yet things are approaching that point; there are now organizations (ostensibly) independent of any national government that will advise any movement worldwide calling themselves democracy advocates on how to confront their non-democratic government.

On paper, that's not such a bad idea--provided foreign government influence can be kept out of the confrontation process. Yet there is an insidious drawback to the packaging of democratic revolution, which works greatly against real democracy.

That people in a democracy have the right to stage mass protests is not the same as saying that mass protests are a demonstration of democratic government. They're demonstrating a benefit of such government. Yet many people who use the Democracy Stage Show Kit are not clear on the fact that democratic government requires the rule of law, not the rule of a crowd.--and that democracy demands increased personal responsibility on the part of the self-governed.

These two concepts--rule of law and personal responsibility--are strikingly absent in the sales pitch for the Democracy Stage Show Kit. What you hear most in the pitch is "freedom." People are encouraged to seek more freedom. But freedom is not free. It's a tremendous responsibility, which imposes considerable discipline on the individual and takes up much time.

That's just why dictators keep being returned to power. After the glow of a stage-managed democracy revolution wears off, the populace realizes how much work and responsibility it entails to make democracy work. Thus, many become willing to make a tradeoff between freedom and free time. They go looking for a hardworking fool to take on the burden of governing responsibility--preferably, a benevolent fool.

This impulse doesn't stem so much from laziness as from the need to conserve energy. Those who labor 12 hours a day in fields, coal mines and factories don't have much energy left over for the task of self-governance. But of course there is no such thing as a benevolent dictator when push comes to shove.

Thus, the conundrum. One might characterize the 20th Century as the era in which democracy won the argument about which form of government is best. The 21st Century will pound home the point that you can't have it both ways: you can't have the luxury of letting someone else take on responsibility for your governing and expect to have good government.

This argument is not easy for the developed nations to make. The majority in advanced countries have labor-saving devices and disposable income, which allow them to conserve enough energy to spend on activities that go beyond eking out an existence. So they have enough energy for the task of participating in the work of government, which democracy demands. Large swaths of humanity still don't have much energy beyond tending to survival basics. That means it's easy for them to hope that a benevolent dictator is a bearable compromise between lack of freedom and physical exhaustion.

Humanity will work through the conundrum; we have no choice, given our current population and where the figure is headed. Democracy is not only the best form of government in terms of protecting human rights, it's also the only workable form of government in the era of huge human populations. We have simply passed the era when a small elite could be counted on to properly manage the problems of governing a populace. It takes large numbers of people to efficiently govern populations that run into the hundreds of millions.

But you can't have responsibility for governing without attendant authority. Thus, the authority of the elite must be shared with the majority of the citizenry. That's what democracy does: it confers authority on the people along with the responsibility for government.

Today, and in country after country, the elite running non-democratic governments are simply overwhelmed with the everyday problems of managing hundreds of millions of people. The other side of the coin is that those millions can be too exhausted to undertake the weighty, time-consuming responsibility of choosing good government representatives and overseeing them.

Technology is one part of the solution. Satellite-linked town halls, computerized voting, talk radio stations in rural areas, and other technologies can reduce the amount of physical labor it takes for citizens to participate in government. Yet the technology is wasted, if the people using it are not clear on the nature and operation of democratic government.

So another part of the solution is education. That's the problem with kits. They don't teach the fundamentals--they're not meant to be educational; they're meant to be used. The Democracy Stage Show Kit doesn't teach the principles of the democracy gizmo and how to put the gizmo together and keep it working. Chanting "Freedom!" and flashing the "V" sign is no help to understanding the system and operations of democratic governance.

Unless more people learn how the democracy gizmo works, they will continue in the counterproductive practice of relying on an elite to make democracy work for them. Hello, that practice is obsolete, given our population number. Today, when the elite screw up, they can climb into their helicopter and fly away. The millions left behind have to clean up the mess. Flashing the "V" sign at it generally doesn't work.

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Finger of Shame

The author of The Glittering Eye website wrote Pundita to inform her that he'd added her thoughts to his roundup of blogosphere opinions about Jeffery Sachs's ideas for ending the worst poverty. The roundup is interesting because it shows quite a range of thoughtful opinion and provides some good source material for those wishing to go more deeply into the subject.

The Glittering Eye author also published praise for Pundita's blog, which will greatly please the team when I read it to them at our next policy meeting. Here we must take a moment to correct the author's guess that Pundita is an American female residing in the United Kingdom. Pundita is an American female who resides so close to Ground Zero that our commuting route was shut down by the 9/11 bombing of the Pentagon. We live a short Metro ride from downtown Washington, DC and the Pentagon. So as with all Washingtonians, Pundita is very heavily invested in the successful outcome of the war on terror.

I also note that the author indicated he had just begun to plumb the essays on Pundita's blogspot and thus could only give his readers his initial impression. He noted that Pundita's focus is "foreign affairs with a special concentration on international development."

Pundita's essays on development are in the manner of playing Dutch Aunt. The first time I heard about Barnett's Core & Non-integrating Gap thesis I blurted, "The Core is everyone who knows how the World Bank works. That leaves Americans and Arctic penguins to fill the Non-integrating Gap."

Amazon chieftains wearing nothing but feathers know more about the workings of the World Bank and the IMF than Americans. That's why I have written about development policy--not because I have a particular interest in the topic but because the system of development banks and what they've created is a piece of the puzzle that more Americans need. That's in order to gain a clear picture of today's world outside US shores and how US foreign policy intersects with it. The World Bank is not only a bank, it's also an instrument of US policy. But while nobody in America was paying close attention, some bright souls outside our shores said, "Wait a minute. If they can do it, we can do it."

So the situation today is akin to a favorite plot vehicle of horror movies. She wakes in the dark and nudges hubby: Dear, there's something in the room with us. Nah, it's just the house settling. Shhhsh; did you hear a floorboard creak? All right we can settle this by turning on a light.

African Development Bank
Asian Development Bank
Brazilian Development Bank
Caribbean Development Bank
Central American Bank for Economic Integration
Council of Europe Development Bank
Development Bank of Singapore
Economic Development Corp. of Goa
Eastern & South African Development Bank
European Bank for Reconstruction & Development
Hungarian Development Bank
Inter-American Development Bank
Islamic Development Bank
Korea Development Bank
National Development Bank of Sri Lanka
Nordic Development Bank
North American Development Bank
Russian Regional Development Bank
World Bank Group (IBRD, IDA & related)
I've gotten tired of adding to this list

For added scare effect I didn't separate the regional development banks from the multilaterals--the ones that lend to entire regions around the globe. And the mix helps illustrate the rise of regionalism and its challenge to the policies of the multilateral institutions.

So when critics talk about reforming the World Bank, they're treating the Bank as if it operates in a vacuum. And when they talk about reforming the International Monetary Fund, what about the Arab Monetary Fund? And what about Citibank and other commercial banks that follow in the wake of the development banks like sharks follow the wake of an ocean liner?

It's not only the development banks that lend to the poorest governments. If there's even a hint that a poor country can be mined for a valuable natural resource, the commercial banks throw loan money at the government. That's after they see that a MDB (multilateral development bank) is willing to risk writing loans to whatever dictator or junta controls the resource.

Regionalism has meant that the World Bank is not as effective a US policy instrument as it used to be. Governments have gotten good at playing one development bank against another to squeeze out more loans. And they've set up regional banks that resist multilateral policies.

Meanwhile, the development bank system set in motion conditions that at best treat only the symptoms of the worst poverty in the LDCs (less developed countries) and at worst, created horrors that almost defy description.

The tragic irony is that the horrors during more recent decades arose from well-thought projects. It's just that the planners overlooked a few factors that only emerged on their radar after the disaster struck.

Truly, if you want to play God, you need to consider an awful lot of factors when it comes to project planning and execution. That's what the Bank economist meant when he told me the Bank is proof that you can't fix anything in this world without breaking something, somewhere down the line. So you have to be really, really smart about how much breakage you'll allow and how to manage it.

It's possible that Jeffrey Sachs has the idea of circumventing the mechanism of development bank loans or least greatly supplementing them with outright aid. Without having read his book (or even the Time excerpt) I'm guessing he's envisioning a kind of global Manhattan Project to eradicate the worst poverty. But then the problem becomes, who runs the project?

This problem arose during US relief to the tsunami victims. The Indian government told the US, "Thanks but no thanks" because they saw the offer as an attempt by the US to gain more influence in India and make bereft Indians into poster children for American largesse.

Then an Indian Yogini who lives in a literal backwater peeled off 20 million dollars to throw into the relief pot for Indian victims. What she pulled out of her pocket is peanuts in India. There are temples in India that take in one million dollars a day. It's nothing for many Indians to blow a million bucks on a wedding. Stop and think how much money that translates to in rupees, and how far a rupee goes in India.

As for China--have you ever seen Shanghai? That's Bling Bling City. Last season an Amazing Race team had to beg on the streets in Shanghai as part of a game penalty. They made so much money so fast, one team member said she was returning to Shanghai to beg full time after the show ended. It's nothing for large numbers of Chinese to walk into car dealerships and plunk down the full price of an expensive imported car.

As for poor Africa--there's so much money sloshing around Africa you don't even want to think about it. So if you really want to know how to help the poorest of the world, Pundita will tell. The way is to stop making an industry out of helping the poorest. The way is to treat people as if they're people not much different from you.

What do you do, if you see someone in your neighborhood not lifting a finger to help with a much-needed community project? You point the finger of shame, isn't it so? You ask them, "What's wrong with you? Why don't you help?" And you don't take excuses.

As soon as poor Indian villagers hook up with talk radio, they start pointing the finger of shame right and left at greedy, corrupt officials in their village. That's how they get projects done--and without the money for the projects being ripped off.

Even 10 years ago, it was not possible to apply this time-honored method toward getting people in LDCs to show more heart toward each other. Today, with the Internet, satellite TV and talk radio, it's easy to point the finger of shame.

That's what Jeffrey Sachs is trying to do: point the finger of shame at America and the West about the horrible plight of Africa's poorest. But....what's wrong with the Africans? Do they lack a gene that renders the richest among them incapable of turning out their pockets to help their own poorest? Only when a World Bank official is around.

Now let's back up and take a closer look at the Amazing Race team begging in Bling Bling City. They were begging with a cameraman in tow. So of course Chinese lined up to be filmed giving money to begging Americans.

Human nature. Amazing thing about it is that it's the same for all. Time to stop treating peoples in the poorest countries as if they're a different species. That doesn't mean halting all development projects and aid. It means shifting much more responsibility for development and aid back to where the responsibility belongs. It also means ceasing to use aid as a foreign policy instrument.

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Pharaoh

"Pundita, I just read Juggernaut2. You're overlooking the Darwinian angle. Somebody has to lose in the global competition for big-ticket contracts. If you give good training to people in the poorest countries, as America has been doing in the developing countries like China and India, the people from the poorest countries won't be poor anymore but it's because they'll take away jobs from Americans.
[Signed] Tom in Sioux City"

Dear Tom:

Your argument might have held water a century ago. But industry is no longer materials-based in advanced societies, it's knowledge based. The latter creates more jobs than Americans can ever hope to handle. However, there is a way to tilt the playing field against America and against all democracies that engage in global trade. The unfair advantage comes when democratic peoples compete with despotic governments. This is because the despot can order his subjects to learn whatever profession and work in whatever industry gives an edge in exports. Thus, China graduated something like 300,000 engineers last year.

Do you get executed in China if you don't take up the career the communist party bosses deem necessary for the greater good of the Chinese people? It's a question intelligent Chinese don't ask. There are unpleasant penalties, if you don't do well in friendly communist party classes designed to help you mend unsociable thinking.

The treatment of peoples as a cog in the machine of state is an old story in communist countries; it's an old story even in the Old Testament. It's the story of Pharaoh, who could encourage his subjects to work on a building project and enslave those who said they'd rather be doing something else.

That's how the playing field is tilted against the American worker. A democratic government can't walk into your house and tell you what career your children will undertake. Red China's leaders can map out an industry in which they want to compete, and sequester as many Chinese as they need to learn and fill the job slots needed for that industry.

That's what the West created by putting regimes such as the one in China on equal footing with democratic nations. That's what you uphold, every time you buy a product made in China. That's what American business upholds, every time they set up a branch in China. That's what the World Bank and other development banks uphold, every time they write a loan to China. They uphold the rule of Pharaoh.

That is the problem India and other developing democracies face. India, for all it's flaws in government, is a free country. The Indian government doesn't force its citizens to work in a particular industry or learn a particular school subject. That puts India and other developing democracies at a big trade disadvantage with Pharaoh governments.

That, too, you and I and everyone else in the developed world uphold, when we don't demand that Pharaoh deliver his people from bondage before we'll trade with him, admit him to the United Nations, and write development loans to him.

Pundita hastens to add that the World Bank and other development banks shouldn't be blamed for the situation. The development banks are government-sponsored lending institutions. As long as the member countries supporting the development banks put Pharaoh on an equal footing with democracies, the development banks will continue to write him loans.

Oddly enough, American corporations and patent attorneys get huffy because India cuts corners on patent laws in the struggle to be competitive in global markets. So India must play by the rules, but it's okay for American corporations to increase Pharaoh's wealth and global power.

A Pundita Prize to the first reader who can tell me the downside to the Pharaoh method of staying competitive in global trade. And I'll give you three guesses as to which countries and financial institutions have to bail out Pharaoh, every time his industry map doesn't keep up with leapfrogging advances in technology.

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The Juggernaut, Part 2: Half a bridge is better than none

In Part 1 Pundita looked at the World Bank as part of the 'system' of development banks. I explained that the basic development bank model is actually designed to benefit the industries--represented on projects by contractors--that work on projects the development banks underwrite, execute, and oversee for governments. It is the system that must be examined when asking how the World Bank can better serve the poorest countries. Those who suggest dismantling the Bank don't understand the system, which is so successful at employing industries that if the Bank closed down, other development banks would arise to take up the shortfall.

Yet the proliferation of development banks set in motion a destructive cycle that is hard to break and keeps the LDC ('least developed country') governments hooked on development bank loans. In this essay I examine a spinoff cycle that doesn't get attention from the public because it's not part of the most glaring mistakes of past development bank projects. Yet this cycle is the most damaging in the long run because it tamps down human potential. And it is connected with entrenched social problems in both LDC and developed countries--problems that range from drug addiction to terrorism cells. West Europe has become a backwater for these problems. So to begin:

Many people outside the banking community don't realize that the World Bank is much more than a bank in the general understanding of the term. The Bank not only loans money for development projects, the Bank is also involved in every aspect of the project. The Bank has their own engineers who specialize in particular projects, their own procurement specialists and project financial analysts. This is on the theory that the poorer countries cannot fully provide the pool of expertise needed to properly execute the projects, even though the projects do make use of local talent.

So on paper World Bank projects have a valuable educational component. Bank project engineers, other Bank professionals and contractors from advanced countries work with the locals, who use that route to learn about modern technologies and methods. The catch is that the LDC governments can't afford to borrow the kind of money that uses state-of-the-art building methods, materials, and technologies.

I remember a Bank power engineer telling me that he couldn't leave the Bank to work in private industry because the advances in his field were so rapid that he no longer had the qualifications to be competitive. This was despite all the dams he'd helped build in developing counties. He explained that the dam projects he worked on for the Bank used technologies 20 years behind current ones.

But it's not only Bank engineers who can find themselves stuck behind the times. The LDC locals who work on the projects are not getting the information/technology transfer that helps them become competitive in the modern world. They are only competitive in trade with countries that are in the same boat.

Now one might argue that advanced societies don't owe technology transfer to the backward countries, and that any teaching element connected with development bank projects is gravy. True on both counts, if you keep the discussion narrowed to the actual projects. But if development and foreign aid pours trillions over decades into bringing the poorest countries out of abject poverty, and the countries stay in abject poverty, this signals a flaw in the approach. The Half a Bridge approach to development lending institutionalizes business and lending practices that provide poor-quality infrastructure. This sets up a destructive cycle. The practice:

1. Contributes to an inferior pool of local workers, so that LDC governments continue to hire contractors from advanced countries for projects that must be done right (e.g., Sahib Zone buildings, oil industry infrastructure).

2. This creates a brain drain: the brightest and most determined nationals flee their LDC to receive education abroad and work in advanced countries.

3. This shrinks the LDC's tax base, meaning that educational institutions remain inadequate for turning out skilled workers.

4. This further entrenches bad conditions for the LDC poorest, who flee to advanced countries and take the most menial jobs or go on the dole.

5. This creates an immigrant underclass in the developed countries.

6. The underclass supplies crime and terrorism syndicates with an inexhaustible supply of cheap, disposable labor.

Then people in developed countries ask, "Why are we overwhelmed with illegal drugs, child prostitution, gangs of thieves, and nut cases who think it's fashionable to blow themselves up?"

To understand the part that development banks play in these situations, walk the cat backward through the above cycle. Then keep walking back through the cycle outlined in Juggernaut Part 1. To review:

1. At some point governments have to pay for the loans they receive from development banks,

2. they can't pay without an adequate tax base and expanding economy,

3. hard to expand a 'commanding heights' (socialist) economy,

4. but if governments move away from socialist government, the contract pie shrinks for contractors--the ones who depend on getting business from governments that get loans from development banks,

5. when the contract pie shrinks, many contractors go belly up,

6. that shrinks the country's tax base,

7. return to "1" and repeat the cycle several times,

8. the government defaults on the loan payments,

9. the development banks stop writing loans,

10. more contractors go out of business,

11. the tax base shrinks even more,

12. the broke debtor governments stand outside the annual G7/8 meetings and rend their clothing and gnash their teeth,

13. the G7/8 put together some kind of debt relief (i.e., refinancing the loans and writing more loans),

14. Return to "1" and repeat the cycle.

Then Americans ask, "Why is it so hard for these poor countries to get away from socialist government, which is killing their countries?"

If you keep walking the cat backward, you can stop before reaching Bretton Woods. When the IBRD model was applied to advanced countries that had simply fallen backward, as happened in West Europe during WW2, it was a success. The trouble began with Robert S. McNamara's tenure as president of the World Bank.

McNamara did not understand how the IBRD gizmo worked. He believed the myth about the IBRD, which leaps over the critical factor of how the Bank really works. To review, when studying the Bank's failures, it's chasing red herring to think in terms of "development." The IBRD was not designed to "develop" a country. It was designed to keep businesses afloat by giving them contracts financed by loans to governments.

McNamara didn't understand this, which is not a slur on his intelligence. The World Bank is so complex in its workings that it takes Bank employees about two years to learn to navigate the basics of the Bank's way of doing things. (Reading books on how the Bank works only shaves a few months off the learning curve.) So when Americans are put in the president's chair they are at the mercy of the Bank's mandarins--senior management who have been working at the Bank for years. That's what happened to McNamara.

To cut a story, Robert McNamara assumed that the IBRD could apply their loan model to "developing" the world's poorest countries out of abject poverty--countries that had not fallen backward but had always been backward, by modern standards. However, what the IBRD gizmo does, when applied to the LDCs, is the same thing it does when applied anywhere: provide gainful employment for many skilled contractors from advanced countries. So to blame the Bank for failing to develop the LDCs is akin to blaming your electric blender because it doesn't toast bread. The Bank wasn't set up to do what McNamara wanted done.

But it compounds the error of misapplying the IBRD model, if the Bank underwrites projects that operate according to the theory that half a loaf is better than none. What use is it to build a bridge with outmoded materials, structural design, and inefficient building methods--a bridge that when completed is insufficient to handle the vehicular traffic?

Pundita will tell the use: the need for major repairs within a year of the bridge's opening requires the development bank to write yet another loan to the government. That loan will be serviced by contractors using technologies 20 years behind the times. That will create the need for another loan....

Again, all this works splendidly to keep many contractors gainfully employed. But if the goal is to help the LDCs pull themselves up, this is not the way to go about it. The highest cost of the Half a Bridge theory is that it wastes human intelligence. It condemns minds to learning things that are obsolete in the modern world.

The reader might ask whether this Half a Bridge style of business also holds back the contractors from the developed countries--the ones who specialize in servicing highly technical projects for development loans. I doubt there's ever been a study done on the question. But I imagine if an engineering firm can coast on projects that don't require the employees to be at the cutting edge and don't require R&D--that would leave the firm dependent on doing work that is obsolete in the advanced countries.

For a very brief and cutting overview of Robert McNamara's contributions to the World Bank, see:
http://www.techcentralstation.com/072904E.html

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Keeping Up Appearances

"I am writing in response to your Friday post. You seem to view the European Community as completely unprincipled and on the side of America's enemies. This view is wrong and very disturbing, and I hope it's not shared by many Americans.
[Signed] Henry in Leeds"

Dear Henry:

I stated that the EU is founded on the principle of trade; that to be true to the principle Brussels can be counted on to side with their (important) trading partners, even if this pits them against America. And, I should add, even if this pits them against the foreign policy of certain EU governments. Brussels, as the seat of EU government, is currently dominated by the views of the chief founders of the EU, which are Germany and France. That situation might change over the years but that's the way things are now. And the EU is in the process of adopting a single foreign policy.

Pundita fails to see what's wrong or disturbing about the above statements. What's disturbing is that Washington doesn't recognize the fact of the European Union's growing power and cohesiveness. They don't recognize that during the past decade, Brussels has been moving toward placing the United Nations alliance above the NATO alliance. Many in Washington have not confronted that Brussels isn't only talking about giving the UN more power. Brussels is implying that the UN, not NATO, is the premier alliance for the European Union.

If that's Brussels' choice, that's their prerogative, but that calls for a revision of the US view of NATO. At the least it calls for Brussels to clarify their position at the official level. But we can't call for that clarification until Washington confronts where we are now. Until there is clarity, the US Department of State will continue to adhere to the clearest position, which is to treat the NATO alliance as if it's frozen in time, even though the position is irrational.

All right, that's enough chat about the price of tea in Outer Mongolia and the best weather to plant corn. Tehran is blackmailing Brussels. That's why the US shouldn't go along with the so-called negotiations.

If you had told Brussels in August 2001 that by 2003 the US would be camped in Baghdad, they would have laughed 'til they cried. But once they saw it might come true then it was, "Uh oh. Saddam keeps really accurate records of his weapons purchases. We need to head off the US at Turtle Bay Pass!"

Now the same crew is trying to head us off over Tehran. The French, German and British governments need to stop playing the role of Hyacinth. We're going to find out sooner or later which companies the Tehran regime contracted with to build their nuke weapons facilities.

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Pundita plays Alice to Condoleezza Rice's Red Queen

"The Europeans have a strategy which is to show the Iranians that if they are prepared to live up to their international obligations there is an alternative path to confrontation and there is a path to a better future. We are supporting that diplomacy but this is most assuredly giving the Europeans a stronger hand, not rewarding the Iranians." --US Secretary of State Condoleezza Rice

But the Europeans are rewarding Iran by offering them concessions. Wait, let's speak with more precision--granted, the enemy of diplomacy, but in the interests of defending the logic of the English language and indeed the logic of all language, let's name something for what it is: the Europeans are rewarding Iran by offering them bribes.

So if the United States supports the European offer of bribes....isn't that rewarding the Iranians? Asks Alice of the Red Queen.

Can we wring logic from Rice's first major executive decision as secretary of state? Within the concept of a chess game, yes. Brussels looks at John Bolton in the way they look at Genghis Khan. So the exchange of chess pieces is that the US sacrifices support of democratic principles in exchange for muted resistance from Brussels to the Bush nomination of Bolton as the US ambassador to the UN.

If you tell me that's not logical, given that sending Bolton to the UN is meant to bolster Bush's democracy doctrine--it's Red Queen logic. You get to make your own laws of logic when you're the world's most powerful nation. However, it occurred to Bush that there's something screwy about sacrificing two knights, a bishop and rook in exchange for a pawn. Thus, the White House directed everyone to notice that today's announcement came from the State Department, not the White House.

In this way, the White House hopes to divert attention from the fact that State's announcement studiously omitted the Bush administration's red-line position on Iran. Up until today, the White House demanded the complete and permanent end to Iran's nuclear fuel cycle activities. The demand was not specified in the State Department's official announcement today.

Thus, Iran and Brussels won a huge tactical victory. The bone to Washington is a leaked EU classified document that says the EU will back US calls to refer Iran to the UN Security Council if Iran does not scrap programs linked to nuclear arms. But this position is not official--again, it's stated in a leaked internal document. And neither the document nor any statement by Brussels puts a time limit on when Brussels will decide that Iran has refused to scrap their nuclear weapons program--a program that Iran refuses to acknowledge.

Is there any other logic to Rice's decision to capitulate to Brussels? Logic no, hope yes. The hope is that by backing the EU approach to negotiations with Tehran, this will tamp down calls building in Germany to leave the NATO alliance.

Thus, the true face of the US Department of State is clearly revealed. The State Department is NATO spelled backward. So there's no mystery to Secretary Rice's approach to Brussels--or Moscow, for that matter. It is a Cold War approach, which is at the heart of NATO.

For all the talk of Rice being a new direction for State, she is simply a different label on the same system. On paper, there are good reasons for the US continuing the NATO alliance. The reasons ignore the actual situation, which is that the most powerful European members are not allied with the US. In 2002, Germany and France clearly demonstrated that they were allied with Saddam Hussein's regime. Along with the United Kingdom, they now show that they're allied with the regime in Iran.

The catch is that one can't be allied with the Tehran regime and the US. Indeed, one can't be allied with both the European Union and the United States--a fact that Tony Blair had to acknowledge by backing the Franco-German approach to Tehran's clandestine nuclear weapons program.

Let's be clear about what the European Union is. It's the third-largest governing institution in the world. It's the world's largest economy, even though its land mass is half the size of the continental United States. The EU is also the world's leading exporter and largest internal trading market.

In short, the EU a trading bloc which is now in the process of ratifying a constitution that will bring all its members under one military and one foreign policy run from Brussels. It's a union of countries founded on trade principles.

The union represented by the United States is founded on democratic principles. So there is an inherent conflict between the two unions. The Brussels approach to Tehran's nuclear weapons program is a perfect example of the conflict. When push comes to shove, Brussels will side with whatever position supports their trade.

That's consistent with the European Union's founding principles. But if the United States allies itself with those principles, we sacrifice our founding principles. To avoid confronting this reality Washington clings to NATO, which is founded on more transcendent ideals than the EU. And thus, Secretary Rice's attack on logic today. That the attack came on the anniversary of the Madrid train bombings is not a good day for those who took Bush's Inaugural promises seriously.

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3/11

In memory, in condolence, to the people of Spain. Americans have not forgotten your outpouring of sympathy on America's darkest day. Faith and courage will carry us through these troubled times.

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Creatures from the Theoretical Bubble Lagoon

"Pundita! Where is the Juggernaut 2 essay you promised us? You're not going to go wandering off talking about Russia again, are you?"
[Signed] Not Born Yesterday in New York

Dear NBY:

Yes yes Pundita hasn't forgotten. It's just that we've been plunged into a dark mood, which ruffles the calm mien required to discuss the World Bank. We don't approve of burdening the reader with our personal problems but so far this week a dear colleague attempted suicide, there was a storm in the Atlantic Ocean, and Pundita learned that the Council on Foreign Relations managed to steal the Theoretical Bubble machine from the Pentagon and get the contraption working again.

The colleague was coaxed from a window ledge on his office building, which is not situated in this country. He held out for five hours, all the while screaming at police and bystanders that the Washington Post is in the pay of Russian oligarchs. His wife told me by satphone that with time and beadwork he'll recover but right now he's under heavy sedation.

The Theoretical Bubble Machine has always had a bug. Once it's switched on, it keeps making bubbles. These drift on the air currents to Geneva, where over time the bubbles formed a lagoon. Every once in a while the creatures who live in the lagoon mass for an attack on Washington, which they are doing as I write these very words. An ominous sign is this New York Times headline:

Data is Lacking on Iran's Arms, U.S. Panel Says WASHINGTON, March 8 - A commission due to report to President Bush this month will describe American intelligence on Iran as inadequate to allow firm judgments about Iran's weapons programs, according to people who have been briefed on the panel's work....

Now study this paragraph from an article published in the International Herald Tribune of March 8, 2005. Ray Takeyh, a Senior Fellow at the Council on Foreign Relations recommends that:

The United States should officially participate in the EU-Iran discussions and put on the table its economic sanctions, acknowledgment of Iran's territorial integrity and recognition of its existing regime.

Taken together, what do these March 8 stories mean? They mean that the US contingent in NATO is sucking up to the Euro contingent in a bid to hold the alliance together.

Is it all that wrong to want to make concessions to NATO allies? Up to a point, no. But as Shaheen Fatemi pointed out on John Batchelor's show and in his response to Takeyh's piece, there's plenty wrong with assigning legitimacy to the Tehran regime:

Appeasement of the regime in Tehran will not stop them from pursuing their weapons policy, nor will it diminish their support of terrorism. But it will keep them in power longer and will allow them to prolong their oppression of the Iranian people.

Now what does this have to do with a storm in the Atlantic and Pundita's bad mood? Well, every time the Creatures slosh their way toward Washington, this sets up a disturbance in the Atlantic Ocean. This causes a storm, which drives the seagulls into downtown Washington, DC. The situation is not so bad in the warm months but when the storm rises in the winter, as it did earlier this week, this creates what passes for dangerously cold and windy weather in the Greater Washington, DC region. It wouldn't be dangerous weather in say, Chicago or Albany, but this region is the only place in the galaxy where local meteorologists refer to 3 inches of snow as "The White Death."

When the weather gets dangerously cold in Washington this means the squirrels have trouble scrounging croissant crumbs and French fries. The seagulls have every fast food outlet and Starbucks in Washington mapped out. Then can spot a croissant crumb from two miles up and if a squirrel is there first, well, the squirrel is toast.

All this falls back hard on Pundita. We once made the mistake of explaining to the squirrel member of the team what is meant by the term, "World Bank consultant." Since then, every time there's a winter storm Pundita has to run policy meetings with scores of consultants scampering across the conference table.

Why don't they simply dig up the nuts they spent the Fall burying instead of asking to get beat up by seagulls? Pundita has a theory. The Winter and Spring finds the squirrel accusing Pundita and the other team members of stealing his hoard. One day it hit me: he can't remember where he buried most of the nuts. Perhaps the effect of junk food and pastry on the squirrel brain.

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We're so glad you enjoyed the G8 luncheon, India and China! With wine and tip that comes to 5 billion dollars.

Pundita received a number of emails in response to the Juggernaut essay. Some readers wanted to know if I made up the story about the origin of the IBRD. Other readers asked whether I had read the Time magazine cover story on Jeffrey Sachs's book (The End of Poverty) and whether I agreed with his proposals for ending the worst poverty in the world by 2025.

Pundita learned about the Sachs book from the Guardian Unlimited, which is the only newspaper to read if you want to know what the Democrat Party and the left wing of the Supreme Court are up to these days.

We have yet to read the Sachs book but from the Guardian column about the book it's clear that the Creatures from the Theoretical Bubble Lagoon are massing for another attack on Washington. After all, this is the run-up to the IMF Spring meeting, the White House decision on the next World Bank president, and the upcoming G7/8 meeting. Pundita warned her readers months ago that this is the Trifecta. If you think the Sachs book wields a sledgehammer, you ain't seen nothin yet.

President Bush is partly to blame. He agreed in 2002 to give 0.7% of the US national income to foreign development goals. Why he should agree without first demanding an independent audit of every development bank to which the US belongs is beyond a reasonable mind. But Jeffrey Sachs is an economist so he doesn't need to be reasonable. Thus, according to the Guardian, he argues that there is little evidence that corruption has been the main obstacle to development in Africa.

Well of course there's little evidence. How can there be evidence without an audit? In any case, development banks are not set up to serve the poorest. They are set up to serve the trickle-down theory. The development banks are designed to keep contractors and subcontractors gainfully employed. The idea is that if enough businesses can stay afloat, the country will stay afloat and stay away from war.

So Pundita fails to see why Sachs assumes the IMF and the World Bank can be reformed and remade to help in the task of saving the world's poorest on the theory those organizations have accumulated useful expertise and experience. If your phone company has been trying for 40 years to get your service back on, the experience and expertise they've accumulated during those decades of trying is neither here nor there--if you want phone service. If the Bank and the IMF haven't gotten it right by now, clearly their expertise and experience have limited value for the task Sachs envisions.

Of course both organizations have tremendous expertise and experience, both of which are valuable at certain stages of a country's development. But Jeffrey Sachs is the wrong person to advise on such matters. Even the Guardian, which predictably supports any idea meant to squeeze more aid money out of the United States, can't avoid a glaring contradiction in their praise of Sachs.

Prof Sachs rose to prominence 15 years ago as the chief designer of "shock therapy" for the post-communist economies of Poland and Russia, emphasising an immediate transition to free markets and drastic cuts in state spending. In his new book he argues that the market-oriented prescriptions of the IMF have been part of the problem, by cutting away at the fabric of poor societies

The theory pushed by Sachs was as much a part of the problem as the IMF, a point which the Wikipedia encyclopedia alludes to in a chapter on shock therapy theory. The author points out the downside of the theory:

A developed Western economy rests upon and tends to take for granted a framework of law, regulation and established practice (including between parts of the domestic and international economy) that cannot be instantaneously created in a society that was formerly authoritarian, heavily centralised and subject to state ownership of assets. Even re-defining property law and rights takes time.

That's some downside. But establishing the framework is a thousand times harder in a country where the rule of law was only superficially applied by a colonial rule. That's what African countries faced, while they served for decades as experimental labs for IMF theories.

That was essentially Iraq's problem under Saddam Hussein, as Pundita has noted before. Behind the stage paint of the Europeanized Baathist fascist government stood a tribalized clan society.

That was also the situation in the Soviet Union. The shock therapy that Professor Sachs and his cronies shoved through in Russia created the oligarchs, who proceeded to vampire their country's wealth and retain inordinate power through clan affiliations.

Once the stage paint was scrubbed from the Europeanized fascist model of government, it turned out that Russia and the rest of the FSU countries had been running according to ancient clan laws. The structures of modern government simply weren't there--a situation which Sachs and his bubble-headed school of economics completely ignored.

So. Now Professor Sachs brings his intellect to bear on the plight of the world's poorest countries. Pundita will read his list of recommendations and report back to her readers. Point by point.

In the meantime, we impatiently await India's first luncheon at the G7/8 meeting. Yes, India has finally received an invitation to the lunch. If memory serves, this will be China's second lunch.

Pundita can't wait for the Chinese and Indian delegations to arrive. It's going to be music to hear the anti-Globalist protesters yelling, "Stop robbing the poor!" at the Chinese and Indians sneaking in the back entrance to the luncheon.

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The Juggernaut

"I knew you would go through the roof over Snow's mention of Bono but I bet Snow dropped the name as a nod to Europe. My money's on Paul Wolfowitz for next World Bank president. [Signed] Chicago Dan"

Dear Chicago Dan:

9/11 was all our tomorrows--all the problems we put off 'til tomorrow while fighting two world wars and the Cold War. Once you see the connection between the development bank business model and 9/11, I guarantee your first reaction will be, "Shut down the World Bank." But the World Bank is but one of many development banks. You can no more shut down the business model created at Bretton-Woods than you can return to before the atom was split.

We cannot and must not prepare ourselves to live with more 9/11s, but we can't deal with the most intractable problems in the developing world unless we grapple with the downsides of the development bank. The candidates now under consideration for Bank president show that Washington has not even confronted what the World Bank was set up to do. So we need to return to Ground Zero, the real Ground Zero, and build up understanding from there:

After the American command saw the first US casualty figures for the Normandy invasion, they looked at each other and said in effect, "The Three Strikes rule must not apply."

Less than two months later, the International Bank for Reconstruction and Development (IBRD) was signed into existence.

American commanders saw that the survival of civilization depended on assuming that if left to their own devices the Europeans would be at each other's throats again, as soon as they climbed out of the ruins of World War 2 and probably even before. Given the state of modern weaponry that meant another world war. That was untenable.

The question was how to ensure that the Europeans were not left to their own devices. There was talk of the US annexing Europe. There was consideration of the basic idea behind Hitler's Third Reich--the third Holy Roman Empire. The last time Europeans had more or less gotten along was under the Roman Empire.

I don't know who came up with the idea or how long before Normandy the idea might have been kicking around. But at some point people said, "Wait a minute. What are we really talking about, when we say Roman Empire?"

What comes first to your mind's eye when you visualize the Roman Empire? No, not troops. You see the Coliseum, roads, aqueducts, vast plazas of marble government buildings.

The Holy Roman Empire was Nirvana for building contractors. It was construction projects and materials procurement, not troops, which caused so many diverse peoples to put up with the Romans. Rome's mania for building was the gift that kept on giving to every outpost in the empire.

As soon as chieftains living in mud huts figured out that you didn't need to make raids on a neighboring tribe to get rich, humanity took a leap forward. Chieftains turned themselves into procurement specialists, building project managers, and entire industries to serve Roman building sprees.

The endurance of the Rome Empire rested on a business model that allowed peoples to sublimate war into competition for building contracts. That is the basic idea behind the IBRD.

So, contrary to myth, the IBRD, which along with spinoffs is now known as the World Bank Group, was not designed to reconstruct postwar Europe. It was not designed to develop Europe. The IBRD was designed to produce a business model that allowed European industries to compete for government building projects financed by low-cost loans.

If the Europeans wanted to go on bashing each other after two world wars, they could do it by competing for business contracts issued by governments--contracts paid for with money borrowed from a bank that loaned exclusively to governments.

Someday, a building materials procurement specialist will write a history of the world. Then many mysteries of history will be revealed. And it will be clear that one of the brightest ideas human brains ever hatched was signed into agreement at Bretton Woods. The development bank model of business is the biggest single factor in the relative peace the world has enjoyed during the past half century.

What's the catch? Many years ago, while first learning about the World Bank, I put that question to a Bank economist. I asked if the World Bank ran the world.

He replied, "No. The IMF runs the world. The World Bank fixes the world."

I observed that the Bank was like no bank I'd ever banked at, so he could he tell me in one sentence what the World Bank actually was?

He replied, "The Bank is a juggernaut."

After chewing that over I replied in the manner of Alice, "But a juggernaut is an engine of destruction. Doesn't your definition of the Bank conflict with the Bank's mission to fix the world?"

"Not at all," replied my guide to Wonderland. "The World Bank is irrefutable proof that you can't fix anything in this world without breaking something, somewhere down the line."

What the Bank can't fix about itself is the very success of its business model, which spawned numerous imitations. You've heard of nuclear proliferation. There is also development-bank proliferation. There is now a version of the World Bank in every world region you can conceive, including the "Islamic Region."

The proliferation set trouble in motion. As long as the IBRD model was serving a relatively small group of competing contractors--the Europeans and Americans--there was enough contract pie to go around. But once everybody and his uncle jumped in, that was a different game. Everybody's clamoring for contracts, which means writing more and more development loans. But there are only so many national governments on earth. Those governments can only contract to put up so many bridges, dams and buildings.

To see where this has led, an episode of the Amazing Race found the teams in a Gulf Arab state. One contestant blurted, "Look at this place! There's a mosque on every corner!"

Ah, but you mustn't think "mosque" when seeing a mosque, if you want to understand development banks. Think cement contract, steel girder contract, electrical contract, copper tube contract, plumbing contract, painting contract....

In short, there is now cutthroat competition among peoples all over the world to get government contracts funded by development bank loans. That means the contract pie is fast reducing to the size of a poptart.

When development banks proliferated, this set in motion a destructive cycle:

1. At some point governments have to pay installments on the development loans,

2. they can't pay without an adequate tax base and expanding economy,

3. hard to expand a 'commanding heights' (socialist) economy,

4. but if governments move away from socialist government, the contract pie shrinks for contractors--the ones who depend on getting business from governments that get loans from development banks,

5. when the contract pie shrinks, many contractors go belly up,

6. that shrinks the country's tax base,

7. return to "1" and repeat the cycle several times,

8. the government defaults on the loan payments,

9. the development banks stop writing loans,

10. more contractors go out of business,

11. the tax base shrinks even more,

12. the broke debtor governments stand outside the annual G7/8 meetings and rend their clothing and gnash their teeth,

13. the G7/8 put together some kind of debt relief (i.e., refinancing the loans and writing more loans),

14. Return to "1" and repeat the cycle.

Then Americans ask, "Why is it so hard for these poor countries to get away from socialist government, which is killing them?

There is also an insidious aspect to the development bank model as applied to LDCs (least developed countries). It keeps the LDCs always moving backward in relation to the developed countries, which sets up another destructive cycle. Pundita will discuss that cycle in Juggernaut, Part 2.

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