Tuesday, January 30

The rise of the Purple Team and China's Ponzi scheme

In the last post I quoted Bill Gertz's comments on the Red Team, to which the Red Team would surely snort, "Gertz is Blue Team." The Blue and Red teams, which take their names from colors assigned during China's war games, are on opposite sides of the question: Does China pose a military threat to the United States? The Blue team argues on the yes side and Red says no.

It should be noted that while the teams are simply a way of categorizing the China views of influential American intelligence and policy advisors, journalists, congressionals, and military decision-makers, the disagreements between the teams are not academic.

Since the Nixon era, the Red Team shaped US defense policy toward China and US relations with China. The Blue Team views began to gather steam in the 1990s but in the wake of 9/11 the Red Team managed to reassert their view except at the Pentagon. (At State, Blue Team members are as scarce as hen's teeth.)

The battle lines hardened long ago between the teams, which boils down to calling your opposite crazy in place of reasoned discussion. Then came China's spectacular test of their antimissile satellite. It wasn't just the test itself that sat the Red Team back on their heels; it was Beijing's stony silence about the test and its meaning that alarmed Washington and threw a clinker into Red Team arguments that you had to be madder than a hatter to believe that China posed a military threat to the US.

Finally Elizabeth Economy, senior fellow at the noted cooking school, the Council on Foreign Relations, and director of their Asia studies program, organized a rescue. In a January 25 The Washington Post opinion piece titled China's Missile Message, Economy mixed Blue Team and Red Team views until they came out a nice shade of purple.

If you want to join the Purple Team, how should you be thinking? China's rise as a global power is going to be a big headache for every country and yes, China could pose a military threat to the United States but the best way to handle China is for the United States to become a perfect nation so China has no excuse not to follow suit.

The last is a nod to Red Team's reply to all concerns that China could pose a threat to the US: China can only become a threat if they believe the US perceives China as a threat.

Economy's effort is a typical fusion dish to expect from the cooks at CFR, but I doubt that members of the Red and Blue teams, which view each other as Satan Incarnate, will eat it up. Yet Economy works sound points into her essay:
[...] the truth is that China, with its rapidly growing economy and large population, already exerts an unsettling and often negative impact on the world. China is the largest or second-largest contributor to many of the most vexing global environmental problems, including climate change, the illegal timber trade, ozone depletion and marine pollution in the Pacific. It is squeezing manufacturing industries from South Africa to Thailand to Mexico, placing stress on economies ill-equipped to compete. And its weak public health infrastructure but strict media regulations rank it at the top of potential incubators for the next global health pandemic.

While such effects might be excused as unintentional consequences of China's rapid growth, others cannot be so easily dismissed. China's insistence that it doesn't mix business with politics in its foreign relations, while sounding benign, has the perverse effect of contributing to violence and repression throughout much of the world. Its political and financial support for regimes in Sudan, North Korea, Zimbabwe and Burma, among others, cannot in any way be construed as contributing to global peace and stability. Moreover, China's export of unsavory environmental and labor practices in countries where it is aggressively extracting natural resources has contributed to anti-Chinese demonstrations from Peru to Zambia.
All that and much more about China's threat to the global order is tenaciously ignored by China's apologists. I was struck by that again when I reviewed a portion of a guest blog posted at Simon World in the summer of 2005. I have lost the link, so I will have to look up the author's name and the link and post them later, but here are the passages I find amazing for their blindness to facts on the ground:
I'd like to share a recent piece written by my very first boss, Dr. William Overholt, today director of RAND's Center for Asia-Pacific Policy, on why China's rise is good for the world. Entitled "China and Globalization", he explains in a very pithy, cogent report why the world needs a strong China, and why a weak, unstable China was much worse. As the testimony was for a Congressional hearing, he put it in very simple language that American politicians could understand. He states:

"Before reform, China was the world's most important opponent of globalization. It had an autarkic economy. It opposed the global economic order. It opposed the global political order and the major global institutions such as the IMF and the World Bank. It believed that global disorder was a good thing, and under Mao Zedong it actively promoted disorder throughout the world, including promotion of insurgencies in most of China's neighbors, in Africa and Latin America, and even in our universities. [...]"
Mr Overholt needs to learn the difference between simplification and blowing smoke. Yes, China became a member of the IMF and World Bank -- and then Beijing mounted a policy of undercutting the IMF and the Bank as part of China's policy with regard to other developing nations. And are we to believe that modern China's promotion of repressive regimes and outright dictatorships is preferable to Mao's promotion of insurgencies?

Why is it so hard for US policymakers to develop a clear-eyed view of China? Elizabeth Economy proffers a thesis in her essay:
[...] senior U.S. officials, with a growing list of challenging issues on their China agenda, are reluctant to focus for too long on the reality of China's rise. Doing so would only make cooperation more difficult and provide support to an often obstreperous anti-China lobby in Congress. It is easier to paint China's rise as a work in progress -- one that the United States has the ability to influence.
That's one part of the explanation, but there are several reasons why Washington skids away from objective analysis of China. However, one of Simon World's readers ("Tamquam Leo Rugiens"), in commenting on the Simon World post I quoted, presents some bald facts about China that form the most telling reason of all: studying China with too much objectivity means noticing that Pandora's Box is open:
China is not competing on the level playing field as it claims to be. As long as the vast majority of Chines enterprises are dummy corporations which are in fact wholly owned subsidiaries of the Chinese government market reforms can never truly penetrate their economic system.

Secondly, the level of lying, cheating and corruption endemic to the Chinese cultural system cuts it off from reality based standards necessary to truly become a member of the World Economy. Nobody, and I do mean literally nobody, has a clue as to what is really happening to China's economy. As far as I can see, the whole of the Chinese economy is a titanic Ponzi scheme which will not only devastate China itself, but all those whose economies are linked with it. [...]
You do not want to think about the size of the financial interventions that will be necessary, when the Ponzi scheme collapses.

Friday, January 26

The enemy within and a question about John Negroponte

"Montaperto's conviction [for espionage] was a blow to the influential group of China affairs specialists in the U.S. government and private sector who share similar benign views of China. The group has been called the Red Team by critics and are known to harshly criticize or discredit anyone who questions or criticizes China's communist government and its activities."(1)

Ronald Montaperto's treason was punished by loss of his job at the Defense Intelligence Agency and three months in prison. That was in June 2006. A year earlier, a report for John D. Negroponte, the director of national intelligence, concluded that US intelligence agencies had failed to recognize more than a dozen key military developments in China during the previous decade.

The report blamed the intelligence failures on China's "excessive secrecy" about their military affairs and US spies for not gathering enough intel on China's military and for failing to work their way into China's government. But Bill Gertz of The Washington Times noted that officials who criticized the report claimed that it wasn't spies or China's secrecy but US intelligence analysts who were to blame for the failures. The analysts played down or dismissed growing evidence of growing Chinese military capabilities.
[The officials said] the report looks like a bid to exonerate analysts within the close-knit fraternity of government China specialists, who for the past 10 years dismissed or played down intelligence showing that Beijing was engaged in a major military buildup.

"This report conceals the efforts of dissenting analysts [in the intelligence community] who argued that China was a threat," one official said, adding that covering up the failure of intelligence analysts on China would prevent a major reorganization of the system.

A former U.S. official said the report should help expose a "self-selected group" of specialists who fooled the U.S. government on China for 10 years.

"This group's desire to have good relations with China has prevented them from highlighting how little they know and suppressing occasional evidence that China views the United States as its main enemy."(2)
Bill Gertz added that the report had been sent to Thomas Fingar, "a longtime intelligence analyst on China who was recently appointed by John D. Negroponte, the new director of national intelligence, as his office's top intelligence analyst."

Yesterday, 18 months after he filed that report, Gertz reported for The Washington Times:
A senior U.S. intelligence analyst has been formally criticized for "poor judgment" after writing a letter and e-mails in support of a convicted former Defense Intelligence Agency analyst, U.S. intelligence officials said.

Lonnie Henley, the deputy national intelligence officer (NIO) for East Asia, was given a letter of reprimand several months ago after an investigation within the Office of the Director of National Intelligence (DNI).

Mr. Henley, who could not be reached for comment, was a close friend and protege of former DIA analyst Ronald Montaperto, who was convicted in June on espionage charges that included supplying secrets to Chinese military intelligence. Mr. Henley wrote a letter to the judge supporting Montaperto, and an e-mail that criticized the FBI investigation of the former analyst. [...]

Montaperto's admissions of passing highly classified data to the Chinese coincided with the loss of a major U.S. electronic eavesdropping operation against China in the late 1980s, U.S. officials said.

Mr. Henley is in line for promotion to the top post of NIO for East Asia, but the appointment could be derailed by the reprimand, officials familiar with the internal inquiry said.

Mr. Henley is favored for the job by National Intelligence Council Chairman Thomas Fingar, who officials say shares the views of Mr. Henley and Montaperto on China.(1)
Just to be clear, the military advances somehow missed by US intelligence were not things like new camouflage uniforms and an advance in hand grenade technology. This was major stuff, which included:
> China's development of a new long-range cruise missile.
> The deployment of a new warship equipped with a stolen Chinese version of the U.S. Aegis battle management technology.
>Deployment of a new attack submarine known as the Yuan class that was missed by U.S. intelligence until photos of the submarine appeared on the Internet.
> Development of precision-guided munitions, including new air-to-ground missiles and new, more accurate warheads.
> China's development of surface-to-surface missiles for targeting U.S. aircraft carrier battle groups.
> The importation of advanced weaponry, including Russian submarines, warships and fighter-bombers.(2)
The DNI office refused to comment on Mr Henley's reprimand, saying that it was an internal administrative matter. It's not just an internal matter, when Mr Henley is line for promotion to a very influential position with regard to China affairs, and when the man favoring his promotion is the chair of the National Intelligence Council and a fellow member of the Red Team.

Henley sent his email to:
[...] a closed group of more than 100 China specialists known as "Chinasec" that included several high-ranking CIA and other U.S. intelligence officials and private China affairs specialists.

The two-page e-mail criticized the FBI for investigating Montaperto. Mr. Henley stated that he had spoken with Montaperto and that he regarded his passing of secrets to Chinese intelligence as inadvertent and minor security violations.(2)
Let us assume for the sake of discussion that Henley's view of Montaperto's espionage activities is correct. After all, why shouldn't we extend the benefit of the doubt, given that it's US policy to adhere to a double standard on China?

The Red Team is not a rogue element in the US government; the Chinasec specialists are supposed to shape intelligence so that it supports the State Department's line on China and the line favored by successive Democratic and Republican administrations going back to Nixon. During the Cold War, the US military outright gave China US military secrets as part of the effort to play China against the Soviets.

From that perspective, anything Montaperto handed the Chinese was espionage only on a technicality. But the issue of espionage is almost beside the point. The central question is how US intelligence agencies failed to report on a country's weapons buildup that was as obvious as a herd of elephants galloping across a plain. By 2000 China's big military buildup was open knowledge in Washington. It's just that the knowledge was blocked from official intelligence reports and analysis, so that it could not be worked into policy decisions on China -- and US defense.

If all the above sounds familiar, substitute "Saudi Arabia" for China and you have the willful blindness during the 1990s that led to US intelligence failures on the Arab threat to the US. In the same manner as China, the Arabists in successive US administrations demanded intelligence reports that were shaped to downplay and dismiss the threat from state sponsors of Arab terrorism.

In fact, you can go down the list of massive US intelligence failures since the late 1980s and see the same pattern in effect with regard to the entire Middle East, the entire FSU region, and all of Latin America, and Africa.

The pattern is the same, no matter which country is involved: an analysis conclusion gets written up as policy, then all acceptable analysis follows the same conclusion -- no matter how much new data emerges since the policy was formed!

So my question is whether John Negroponte wants to downplay the role that analysis played in the intelligence failures on China. If yes, this does not bode well for his role at State, where he'll have the number two position there, and where one of his specific duties will be overseeing the China desk and negotiations with North Korea, which is a Chinese satellite.

It is perfectly possible to massage the data and arrive at the conclusion that China poses no military threat to the US. It is equally possible derive the opposite conclusion from the same data. So what is the guideline? Is there an objective filter that can be applied for analysts?

Sure. All Messrs Henley and Montaperto needed to insure their objectivity was to study their I.D. badge, which had "defense" written on it, not "China policy." Their job at the defense agency was not to analyze China, but to analyze possible threats to the United States from China. A big part of their job boils down to plowing through mountains of data in search of bad news. Then it's for people much higher on the decision tree to determine whether the intel adds up to a threat to the US. The analysts just needed to do their job, but clearly they lost their job description.

If they say they couldn't do their job without being fired -- then it's the job of the Congress to impress on US intelligence directors that intelligence analysis needs to oriented to the empirical viewpoint. Studiously ignoring the viewpoint at the official level is America's greatest enemy within.

1) Analyst rebuked over his support of spy for China

2) Analysts missed Chinese buildup

Wednesday, January 24

Michael Wright chases away the Bogeymen

Pundita: I've been having nightmares recently. Last night I had another one.

Michael Wright: What was it?

Pundita: I dreamed Robert Gates was running the Pentagon.

Michael Wright: He's just a place marker.

Pundita: That's the most dangerous sentence in the English language.

Michael Wright: Dick Cheney and Russian military advisors will be running the war.

Pundita: That's not funny!

Michael Wright: So what is that sound? A Pundita sneeze? Stop worrying. You got your wish; McCain's plan was chosen.

Pundita: My biggest wish was to seal Iraq's borders.

Michael Wright: I've told you before that's not going to happen.

Pundita: Then they're still emptying the ocean with a sieve. You got your wish also; one part of the new plan is to pile equipment on Iraq's military.

Michael Wright: I'm not sure the equipment includes attack helicopters.

Pundita: It better not happen, or there won't be a Sunni village left standing.

Michael Wright: You said yourself that the Saudis won't let that happen.

Pundita: Thomas Ricks is reporting that the new plan is doomed to fail because it will be successful. The military observers he interviewed say that the plan will work initially to quell the violence and then by the summer, when al Qaeda and the militias have figured out the new tactics, they'll strike again with renewed force.

Michael Wright: By the summer Lukoil will be back in business in Iraq.

Pundita: Are you pulling my leg?

Michael Wright: No, it's in the papers, at least in Europe.[1] Iraq's parliament is set to ratify their hydrocarbon law, which honors any preexisting contracts to develop Iraqi oil fields. Lukoil is already in negotiations with [Iraq's] oil ministry. That didn't happen without US okay.

Pundita: Then you weren't joking about Russian military advisors.

Michael Wright: If the US doesn't provide the attack helicopters you can bet Russia will gift them to Iraq's military. Everything's been on hold while Iraq's new government crystallized; now that the government is legit, they can start honoring old contracts, including those with France and Germany -- and Russia.

It's all over but the shouting once reinforcements descend on Baghdad.

Pundita: But Zawahiri is crowing about the new plan! He said to send in the entire US military and al Qaeda would make dog food out them.

Michael Wright: So he's making a fool out of Pelosi. This is cause for worry? [Nancy Pelosi said recently that the war on terror is in Afghanistan.]

Pundita: Wait a minute; if Russian military advisors are going to descend on Iraq, what does that do to Russia's relations with Iran?

Michael Wright: Let's see -- Iran backs off in Iraq, Russia continues to block harsh penalties for Iran, which doesn't matter anyhow because the EU and China don't support being tough on Iran.

Pundita: Chaos rules.

Michael Wright: Expediency rules and actions tend to cancel out other actions on the diplomatic front in war. The best thing [Condoleezza] Rice ever said was, "One war at a time."

Pundita: She doesn't see Iraq as part of the war on terror.

Michael Wright: Yes she does; she reads intelligence reports. I'll rephrase: "One theater of war at a time."

Pundita: You don't think the US will bomb Iran this spring?

Michael Wright: If we allowed China to help Kimmy build a nuke, if we allowed France, Germany and Russia to help Iran build their nuke facilities, do you think we'll risk a shooting war with Iran over the issue of the Bomb? Have you considered the souring of relations between Syria and Iran, and between Qaeda and Iran? Qaeda is backing the Sunnis.

Pundita: My head is spinning from trying to keep the sides straight.

Michael Wright: Alliances are very fluid in war. Now what else is worrying you?

Pundita: The coalition between Venezuela and Iran.

Michael Wright: Thanks to Hugo Chavez, the world's Leftists are now in the position of defending a theocracy. Trust me when I tell you, this is not where any self-respecting Leftist wants to be.

Pundita: The Iranian oil bourse. I'm worried it's going to happen.

Michael Wright: That old chestnut! The bourse is supposed to be a futures market, which is against Sharia, so now it's war between Iran's technocrats and the theocrats. So what, if it does happen. It doesn't matter whether they trade in euros or rials or wombats; Iran's financial infrastructure is three clerks strapped to a treadmill.

If Iran wants to fight the US on the economics front, first they have to join us -- specifically, join the WTO. Before they can do that, they have to institute financial modernizations up to the yingyang. They can't do that, until they ditch the theocrats.

Pundita: So you're not worried about a petrocurrency war?

Michael Wright: Currency traders aren't nuts -- not the ones who trade for central banks. You were the one who said back in 1990 -- or was it 1979 -- that a basket of currencies for oil trades was on the way and overdue.

If the EU wants to take on the burden of being the world's reserve currency, which they can't do at this time, this will make US exports all the more attractive. There will be central bank interventions to prevent the dollar from going into a tailspin. So Chavez can plot and scheme all he wants; he can't take the US down through petrocurrency plays. What else is worrying you?

Pundita: I can't think of anything at the moment. Do you have any advice?

Michael Wright: Stop eating pepperoni pizza just before going to sleep.

1) Lukoil set to revive $4bn Saddam oil deal

Tuesday, January 23

This one's for the idiots at the US Department of State

I am having trouble with this post, on account of throwing things across the room every time I start writing, I am so upset with State. So what I'm going to do at this point is just republish two reports without my added comments, except to note:

> Yes, Russia's decision to renege on their promise to the US regarding the gas shipments is a terrible blow to US energy policy. However, the decision was not motivated by anti-US sentiment at the Kremlin, nor was it motivated by a desire to play the US against Europe. You will see this if you read -- not skim but read -- the second report.

> Get it straight: China is the Borg. From that viewpoint, you should be breaking out the champagne every time you see Russia making a move to strengthen their ties with the EU.

Got it? Don't make Pundita get down on her tummy and draw little stick figures in the effort to explain more clearly.
Russia gives Germany a role as strategic partner
by Judy Dempsey
International Herald Tribune, October 12, 2006

BERLIN -- As both sides of the Atlantic compete for reliable energy sources, Russia appears to be playing off Europe against the United States by favoring Germany as its most important strategic partner and the main transit country for Russian gas to lucrative markets in Western Europe.

The goal of linking Europe's largest economy much more closely to Russia emerged clearly this week: Moscow shut American firms out of development of a major gas field and reneged on previous plans to send liquefied natural gas from that field to the United States, and President Vladimir Putin spelled out priorities to Russian and German political and business leaders in Dresden.

Returning to the city where he was a KGB agent from 1985 to 1990, Putin dwelled on the new North European Gas Pipeline that Russia and Germany are building under the Baltic Sea. Once in place, he said, Germany will gain a special role in Europe's energy market.

"This would mean that Germany is not only a consumer of natural gas but would make it a big European distributor of Russian gas," Putin said. "It would transform the energy face of Germany and strengthen its role in European energy matters."
Gazprom, Russia's state-owned gas monopoly, already supplies a third of Germany's energy and a quarter of all gas consumed in the European Union.

While West Germany started developing trade and energy contacts with the Soviet Union in the 1970s, the current big push by both countries to forge closer economic ties is thrusting well beyond traditional realms. At €25 billion, or $31.4 billion, German-Russian trade for the first six months of this year almost equaled that for all of 2005.

"Putin and Gazprom have a lot of cards in their hands," said Jonanthan Stern, director of research at the Oxford Institute for Energy Studies. "This is their time."

Two American oil companies, ConocoPhillips and Chevron, were dealt losing cards this week when Gazprom -- in line with earlier Russian moves to renege on deals giving Shell oil from fields it is developing in Sakhalin -- said it would exclude foreign companies from shares in the Shtokman gas field and instead develop the field alone.

Two European oil firms, Total of France and Norsk Hydro of Norway, had also hoped for a Shtokman deal. But the United States suffered the added blow of being denied liquefied natural gas supplies from the field once it is developed.

"Shtokman will be the resource base for Russian gas exports to Europe via the North European pipeline," said Alexei Miller, the Gazprom chairman. Foreign firms will participate only on specific technical contracts, he added. "This decision is an additional guarantee of the Russian gas supply to Europe, security in the long term, and proof that the European market is of dominating significance for Gazprom."

Stern said that this decision, announced on Monday just before Putin met Chancellor Angela Merkel in Dresden, marked a return to Russia's original plan. "Instead of sending gas to the U.S., it will now send the gas from Shtokman via the new pipeline to Europe," he said. "There is no doubt about it. Europe and Russia will become even more dependent, as Europe buys more gas from Russia and Russia depends on Europe as a reliable market."

Alexander Rahr, an analyst at the German Council for Foreign Relations in Berlin, said: "Russia is changing the rules of the game when it comes to energy."
The Kremlin is "squeezing foreign companies out of Shtokman," Rahr said. "Maybe Putin is playing off Europe against the U.S."

Certainly, European governments and companies are now keen to do business with Moscow - none more so than the 1,000 German companies who have already established offices in Russia.

Despite outcry over such events as the murder last weekend of the investigative Russian journalist, Anna Politkovskaya, Germany and Russia are forging a new strategic relationship.

A former physicist in East Germany, Merkel is keenly aware of human rights issues and critical of the weak rule of law in Putin's Russia.

In Dresden, however, she expressly favored a "partnership," based on a level playing field. "It is important for me to have realized that we are acting on the same business principles as the Russian government in this cooperation," Merkel said. Both sides, she added, were working out "a joint charter in which these principles will be enshrined."

The terms of this partnership, first raised by Merkel in Moscow last January, are taking shape. Gernot Erler, state secretary at the foreign ministry and a Russia expert, said that when Berlin takes over the rotating presidency of the European Union in January, it will seek support for a special free-trade zone between the 25-member bloc and Russia. The EU has rejected such zones in the past, saying they do not comply with WTO rules.

Erler also said the government wanted to help German and Russian companies swap stakes in a bid to encourage stability and mutual profit. "We are considering a program of intertwined companies," Erler said in Dresden. "We hope to develop a win-win situation based on mutual dependency."

For 30 years, there have been German political and business leaders anxious to pursue this strategy in hopes of bringing Russia closer to Europe.

"This has been one of our long term aims," said Klaus Mangold, chairman of the East Committee that actively promotes German business interests throughout the former Soviet bloc.

During the Cold War, such contacts were viewed with suspicion on both sides of the Atlantic by some who argued that this was giving in to Russia's attempts to weaken the NATO alliance.

But now, with Russia reaping cash from high energy prices, German officials and companies sense that Putin will start using the windfalls to diversify and modernize Russia's energy-dependent economy.

"Germany could hold the key," said Stern. "Germany has long experience in Russia."

Putin told business leaders on Wednesday in Munich: "One of the most important tasks of the Russian economy in the short term is its diversification, forging new fields of activity. Germany can be a special motor here for investment." He added without further explanation that these goals "don't meet with a positive attitude everywhere."

Mangold said afterwards that "the future outlook for German-Russian economic relations is excellent."

"Russia has the world's biggest reserves of natural resources," Mangold said. "It is also one of the world's fast- growing economies and is close to Germany geographically. I am confident that German firms will increase their commitment in the years ahead
Now we turn to the Energy Charter, which received not one mention in the IHT report:
Gazprom’s Strategy

by Anders ├ůslund, Peterson Institute
Testimony before Hearing on EU Economic and Trade Relations with Russia, Committee on International Trade, European Parliament, Brussels
November 21, 2006

I am happy to fill in for a Gazprom representative to discuss Gazprom's strategy, but I must make clear that I do this as an independent analyst and not as a representative of Gazprom. Yet, I have chosen the Gazprom perspective to explain what this company is doing.

Gazprom is a peculiar corporate giant. It is a ministry that has become a corporation, and the fundamental question is to what extent it represents the state and business interests, respectively. The last Soviet Minister of Gas Industry Viktor Chernomyrdin formed Gazprom out of the Russian part of his ministry. It incorporated all the elements of the old ministry—production, transportation, distribution, sales, research, and even regulation. This corporation produces close to one-fifth of all natural gas in the world. Unlike oil production, which plummeted by almost half from 1987 to 1996, gas production held up well.

In the mid-1990s, a large minority share of Gazprom was privatized to managers and employees, but share sales were restricted. As a result, a considerable price differentiation evolved between domestic, restricted shares and the few internationally tradable shares. Another consequence was that all Gazprom shares were extremely cheap in relation to the purported asset values. Arguably, Gazprom remained a ministry until President Vladimir Putin changed the management in 2001.

Since 2001, the Gazprom management has been divided into three roughly equal groups. One group, led by CEO Alexei Miller, consists of young economists who worked with Miller and Putin in the mayor's office in St. Petersburg. A second group consists of KGB people from St. Petersburg, while old Gazprom hands form a third group. President Putin takes a very active interest in Gazprom's management, and its split into these three groups gives him great leeway to balance them.

My argument is that the main objective of Gazprom's new management is to boost the stock price. They have done so very successfully. The stock price has increased more than ten times in the last three years. Such a spectacular result cannot be accomplished without being focused on it, however large your assets happen to be. At present, Gazprom has a market capitalization of $250 billion, rendering it about the third most valuable company in the world. It is currently worth three times more than the most valuable German companies, Siemens and Eon.

pany's stock price [sic]. Initially, it focused on recovering assets that had been sold off cheaply to other companies by the old management, and it managed to recover most of them.

Another important step was to liberalize the stock trade so that domestic and international stocks could be traded freely. That was accomplished early this year, which greatly contributed to the stock's price rise.

While Gazprom's Western European customers have paid negotiated market prices all along, former Soviet republics have paid highly differentiated prices, which could only be explained by old political inclinations. In the last year, Gazprom has undertaken radical changes in this price structure. To judge from its dominant public statements, it aspires to eliminate all political discounts and more or less homogenize its prices of natural gas on the Russian border to about $150 per 1,000 cubic meters (mcm), which is currently the approximate netback price from Europe.

These prices are set to rise significantly in the next year. European countries pay much higher prices, but they include large transportation costs in pipelines and substantial taxes. This offensive has led to a number of incidents that appear political, notably aggressive tactics against Ukraine, Moldova, and Georgia, but Gazprom has been approximately as aggressive against supposed friends such as Belarus and Armenia [emphasis mine]. While politics undoubtedly played a role in these dramas, and bluster over prices was standard, the overarching impression is that Gazprom raises the prices relatively fast to a plausible market level.

The next key task to enhance Gazprom's profitability and thus stock price is to raise the domestic Russian gas price. At present, the wholesale price for gas, without taxes is some $42 per mcm. The current government policy is to let the gas price rise by 15 percent next year. After a couple of postponements, the Russian government was to discuss its price policy for gas on November 22.

Three important constituencies are arguing for a partial deregulation of the domestic gas market, namely Gazprom itself, Minister of Industry and Energy Viktor Khristenko, and the Unified Energy System, which despairs at the shortage of gas in Russia.

The minimum solution is that the domestic price rise accelerates, so that it reaches $90 per mcm in 2010. But I do not think it will take that long. Russia may experience a shortage of natural gas as early as this winter, and the domestic price is just too low. The Russian discussion over the domestic gas price is the key drama to watch today.

Meanwhile, Gazprom has invested little in the development of new major findings of gas. One reason is that these fields are very expensive to develop, and if the domestic price is Gazprom's marginal price, it is not worth doing so. Another reason is that Gazprom's current main objective is to raise the domestic gas price, which is most easily done if a real shortage of gas erupts. Therefore, the European Union has a common interest with Gazprom in the domestic Russian gas price going up, because such a price hike will help safeguard Europe's supply of natural gas. In addition, it will contribute to energy saving in Russia and thus lessen emission of greenhouse gases.

Naturally, Gazprom wants to maintain and if possible extend its monopoly over gas pipeline transportation. It wants to take over trunk pipelines in other countries, and it works hard on doing so. Gazprom and thus Russia are dead against the European Energy Charter and its Transit Protocol, because it will reduce Gazprom's monopoly powers. In this regard, Gazprom and the European Union have contradictory interests. For years, the European Union has demanded that Russia ratify the Energy Charter, but Russia will never do so.

The Energy Charter was negotiated in 1991, before Russia's new energy interests had been formed. The United States and Canada never even signed the charter because of legal concerns, and Norway had other legal concerns, which made it not ratify the charter. The only sensible EU approach would be to renegotiate the Energy Charter so that at least Europe's main producer countries, Russia and Norway, can join it. An Energy Charter that only the consumers approve of cannot be of much significance, and Europe needs a common trade framework for energy, notably natural gas.

At present, Gazprom has only two outlets to its markets outside of the former Soviet Union, the pipeline through Ukraine, which accounts for 80 percent of Russia's gas exports to Europe, and the pipeline through Belarus and Poland, which takes care of the remaining 20 percent. To Gazprom this cannot be a satisfactory situation. Therefore, it has chosen the Baltic pipeline directly from Russia to Germany through the Baltic Sea. From a market economy perspective, a multitude of transportation options seems desirable.

More troublesome is the Russian ambition to block the construction of a Transcaspian gas pipeline from Central Asia to Europe. Such a pipeline would greatly enhance Europe's energy security and should be a key EU interest.

Other aspects of Gazprom's activities are even less attractive. Gazprom is picking up various assets within Russia quite cheaply because of its combination of monopoly power over pipelines, pricing and exports and state regulation. Small independent gas producers have been squeezed out and forced to sell their assets cheaply to Gazprom. In East Siberia, TNK-BP, half-owned by BP, is being hindered to develop the giant Kovykta gas field in East Siberia. In the Sakhalin II project, Shell Royal Dutch is under pressure to renegotiate its Product-Sharing Agreement, presumably being forced to give a large share of its investment to Gazprom.

So far, I have discussed Gazprom in business terms, but politics remain important. One example is President Putin's recent decision that Gazprom build one or two gas pipelines to China rather than building a liquefied natural gas plant designed for exports to the United States. The bluster in negotiations with the former Soviet republic does have many political overtones.

Recommendations for EU Policy on Gazprom
The ultimate question today is of course what the European Union should care about with regard to Gazprom. I would make three suggestions:

It makes no sense for the European Union to continue insisting that Russia ratify the Energy Charter when it is all too obvious that Russia will never do so. Instead, the European Union should open a renegotiation of the Energy Charter. The European Union needs to insist on its fundamental demands, a liberalization of the Russian (an European) gas market, free and nondiscriminatory access to pipeline systems throughout Europe, including Russia, commitments to uninterrupted supplies, and mutually equal conditions for investment in the energy sector.

But the European Union also needs to acknowledge justified Russian demand to reach a balanced and mutually beneficial agreement that can be ratified by consumers and producers alike. If Gazprom is to be allowed to buy downstream gas assets in EU countries, the European Union must demand the corresponding right to buy upstream gas assets in Russia, and vice versa.

The most serious conflict in Russia's negotiations with the European Union about its WTO accession was Russia's domestic price of natural gas. This was settled on conditions favorable to Russia, when the European Union signed its bilateral protocol with Russia, a milestone that was reached in May 2004. Russia has complied with that agreement, but international gas prices have risen further. Producers of mineral fertilizers around the world are now complaining anew that the Russian domestic gas price is too low [emphasis mine].

The European Union had better to return to the issue of the domestic Russia prices of natural gas in the multilateral part of the negotiations on Russia's WTO accession. The United States is likely to do so, and when Gazprom itself lobbies for higher domestic gas prices in Russia the chances of success are considerable. This price question has also bearing on Europe's energy security, the prospects for investments in Russia's gas production, and the transparency of the gas sector.

Finally, the European Union has an interest in multiple supply lines of energy to Europe. Therefore, the European Union should strongly support the construction of a Transcaspian gas pipeline from Central Asia to Europe outside of Russia's control

Monday, January 22

Weevils plot to gridlock foreign policy initiatives across the entire planet

On the eve of the President's Address to the Nation, Pundita thought it would be a good idea to prepare her readers for what's ahead on the foreign policy front. But first a few asides:

Fame is a harsh master, particularly when one counts a thin-skinned laboratory rat among one's loyal readers. Pundita has had to fall back on creativity when delivering insults -- having struck rat, donkey, weasel, wolf, vulture, and even snake from her arsenal; this, in the effort to avoid reading hate mail written with truly atrocious spelling. In this post I will experiment with using "weevil" as an invective, and hope that flies under Rugby's radar.

Now I will attempt to head off the Society for Short Words: No, I can't substitute "teamwork" for "multilateralism" because a team has a leader. The whole point of the multilateralism doctrine is that no country should lead the others.

And a few words to the Organization for Clear Thinking: Yes Pundita understands that the concept of "multipolarity" tends to undercut the concept of "poles." But those most responsible for promoting the term "multipolarity" as the defining reason for multilateralism do not have clear thinking as their goal. Their goal is bringing about gridlock in foreign relations across the globe.

Now who would want to do such a thing? The weevils among us. Who are the weevils? No, it's not Jacques Chirac and his crowd. And it's not Noam Chomsky and his crowd. Today's Leftists and the wonks connected with the Chirac School are now simply dupes for the weevils.

The weevils work for the biggest bucks transnational corporations and are charged with burrowing through foreign and domestic government legislation and WTO rulings that hamper their company's global business plans.

Weevils have a simple operating philosophy: No government, let alone a coalition of governments, is capable of running the world with any semblance of sense. In their view, the most that can be done is to keep things down to dull roar, so that businesspeople can go about their business. How to hamstring foreign relations policies across the international board? Instigate gridlock on a global scale.

The weevils are an inevitable byproduct of globalization. If American readers stop and think about it, the gridlock strategy has long been in effect in the US for keeping Congress on a leash. If you're an American running big business here, the best way to block a lot of government interference is to bring about gridlock in Congress by giving money in equal measure to both sides of an issue.

The weevils have transferred that tactic to a strategy for keeping the world's governments on a leash. They've hit on the concept of multilateralism, which is in essence just a strategy. Of course, all governments try to get as many other governments on board for a foreign relations initiative. However, the weevils promote an actual doctrine of multilateralism -- a philosophy of foreign relations, if you will.

Before discussing the philosophy, is there anything terribly wrong with the basic weevil viewpoint? After all, it's true that historically governments screw up many foreign policy initiatives, which leads to a bigger mess than the one targeted for solution. So why not find a way to get everything done by committee, which guarantees gridlock?

In a perfect world, the weevils have a sound point, but consider just a few of the failures of the multilateralism doctrine: the ongoing genocide in Darfur, the failed Six Party Talks involving North Korea; the failure of the EU3 to rein in Iran's clandestine nuclear weapons program, the collapse of the Doha Round, and ineffectiveness of the UN Security Council.

This is not a perfect world, and when megabucks transnational corporations get into deep trouble they run to their government to get them out of the jam. Ayn Rand was right: at the end of the maze of compromises always stands a thug in a cheap leather coat holding a gun on you.

Yet the weevils see multilateralism as a guiding philosophy of foreign relations and what's more, as the only moral philosophy for the modern era. This, despite the ruthless amorality of the multilateralism doctrine, which the Chirac School promoted.

Weevil Multilateralism doctrine, shall we call it in order to distinguish it from mere strategy, wraps itself in a cloak of morality on the theory that all good comes from bowing to the inevitable -- whatever the inevitable might be.

In this case, multipolarity is seen as the inevitable course of world affairs: the singular unchallenged power of the United States ("unipolarity") gives way to rising powers such as the European Union, Russia, China, India, Brazil, and from regional blocs in Asia and Latin America. So the locus of power will be multipolar, goes the argument.

Therefore, argue the Weevils, the only way to preserve order in a multipolar world is for the world's hyperpower (that's the United States) to do everything on the world stage by international committee and without a committee chair. That's an oversimplification or the bald truth, depending on how steeped you are in diplo-think. But it's in the ballpark.

I add that the Weevils are very serious. Some have gone so far as to brand the United States as evil for not re-embracing multilateralism, despite its failures. Multilateralist doctrine was practiced by the Bush 41 and Clinton governments. Yet it has been thoroughly discredited in the post 911 era.

How do the Weevils justify the failures? They argue that America was not practicing true multilateralism during the 1990s; we actually practiced hegemony. We just pretended to be multilateral; ergo, Americans brought 9/11 on themselves and inflicted all present-day evils on the world.

If you think I am making up any of this argument, you just wait until the next G8 summit and the runup to the US presidential election campaign.

Now how can you distinguish a weevil from a garden variety businessperson? Ask him whether he'd rather be stuck on a desert island with Osama bin Laden or President George W. Bush. If he tells you he'd rather kill himself than make that choice, ask him for his thoughts on multilateralism.

The idea underpinning the modern multilateralist doctrine, as promoted by the Chirac School, is that a country's global trade is the only objective criterion for admitting a government to decision-making on issues impacting the globe.

There is no greater enemy of the human rights movement, genuine democracy, and human progress than that idea. Yet the idea is pushed as the only way to avert wars over energy resources and water rights and save the world from onrushing chaos. There are many persuasive people pushing the idea and while relatively few are actual weevils, they are perfect dupes for the weevils.

As to what you can do to bring the weevils up short -- you can ask them whether they'd like to see their children indoctrinated by Osama bin Laden. The choice is not between Bush's Preemption Doctrine and world peace. The choice is between slavery and the freedoms that made globalized business possible.

You can also study the essay by the Belmont Club writer that inspired the Pundita blog, and which I re-read whenever I feel overwhelmed by the fight. More than any other analysis I've come across, Pro and Contra defines the real battlefield of foreign policy ideas in this century.

Saturday, January 20

Latin American governments air differences at Mercosur summit; Hugo Chavez dominates meeting

Chavez ... promised to "decontaminate" South America's main trade bloc of its founding ideas: U.S.-supported free market policies and privatization of state industries.

I am republishing the entire report because it's a good snapshot of current government relations in the Mercosur region. See report and Wikipedia for background on Mercosur.
Mercosur leaders grapple over direction
by Michael Astor
The Associated Press via Business Week, January 19.
Venezuelan President Hugo Chavez called Friday for South America's governments to take greater control of their economies, while Brazil's president urged respect for differences at a summit marked by sharply divergent visions for the Mercosur trade bloc.

As the two-day summit ended with 11 of South America's 12 leaders on hand, the heads of state engaged in a rare bout of public squabbling at their final session, an exchange of nation-on-nation criticism that illustrated deep divisions and raised questions over whether the fractured bloc can be revitalized and expanded.In comments broadcast to reporters live on closed circuit television, Bolivian President Evo Morales complained about the prices Brazil pays for Bolivian natural gas, then criticized Colombia's conservative President Alvaro Uribe over U.S. anti-drug aid to Colombia.

A clearly irritated Uribe used his speech to defend himself. Meanwhile, the leaders of Paraguay and Uruguay -- which have the smallest economies in the Mercosur bloc -- complained that their nations are constantly patronized by Argentina and Brazil, which have the continent's two largest economies.

Silva tried to smooth over the differences, saying that the leaders must "respect the internal political differences that our countries adopt to confront the challenge of development."The leaders themselves, split politically by a continental drift to the left, are struggling to determine whether Mercosur should continue on the free market path it's been on since it was founded in 1991, or veer toward Chavez' vision of South American socialism.

"One of the proposals I will dare to make is that in each one of the our countries the state have a greater presence in the economy," Chavez said, adding that he thought too much of the region's economy was controlled by multinational corporations.

Silva, who was elected as a leftist but who embraces free market economics, said the bloc was essential for the region to advance and become a bigger player on the world stage.

Despite its problems, Silva said, Mercosur trade has grown to $30 billion (23 billion euros) in 2006 from $4 billion (3 billion euros) in 1990.

"There has never been such a promising political climate for the integration of Mercosur," Silva said.

However, the summit was overshadowed by Chavez, who accused the United States of using Venezuela's largest phone company to spy on him and promised to "decontaminate" South America's main trade bloc of its founding ideas: U.S.-supported free market policies and privatization of state industries.

Brian Penn, a spokesman for the U.S. Embassy in the Venezuelan capital of Caracas, declined to comment on the accusation about spying.

Chavez's recent moves to shut down an opposition television station and rule by decree even seemed to place the country at odds with the group's commitment to democracy. [1]

Venezuela became a full Mercosur member last year, but the country has still not met all the criteria in terms of the common tariff structure.

Despite their differences on economic policy, Venezuela has grown to be one of the largest trading partners with Brazil and Argentina. Today Venezuela accounts for more of Brazilian trade than Britain or France.

And Silva and Chavez signed important oil deals to build a refinery in Brazil, explore for oil in Venezuela and begin technical studies on a natural gas pipeline stretching 3,100 miles from Venezuela to the northeastern Brazilian city of Recife.

Silva also welcomed Bolivia, which has just requested full-membership in the bloc, as well as any other nations that wanted to join.But Argentine President Nestor Kirchner questioned the wisdom of granting Bolivia exemptions to the bloc's common tariff and said he preferred to do more for Paraguay and Uruguay.

Paraguay and Uruguay are pondering trade deals with the United States out of frustration with Mercosur, and analysts say the bloc would be hurt if they left.

The inclusion of Bolivia and possibly Ecuador could also tilt the trade bloc even further to the left.Morales, a strident leftist, suggested he won't support boosting Bolivia's association with Mercosur to full membership until the bloc outlines its future path.

The Southern Cone Common Market, or Mercosur, unites some 250 million people with an annual economic output of $1 trillion, or about 76 percent of the total for South America.

Mercosur's full members are Argentina, Brazil, Paraguay, Uruguay and Venezuela. Bolivia, Chile, Ecuador and Peru hold associate membership, meaning they don't have voting rights and do not have to comply with Mercosur tariff rules on goods imported from outside the bloc

1) Pulling the Plug on Anti-Chavez TV: Venezuela's Decision Not to Renew Station's License Draws Accusations of Censorship by Juan Forero, Washington Post Foreign Service, January 18, 2007
[...] The case has attracted widespread attention from officials in Washington and Latin America, for whom the non-renewal of a license has echoes of right-wing dictatorships of the past, when newspapers and broadcasters were closed if they veered from the party line. Though self-censorship and slayings of journalists remain common, particularly in Colombia and Mexico, the closing of a media outlet for political reasons has not occurred in years. [...]

Friday, January 19

Frankenstein at the United Nations: Confucius say you kowtow. And a few words about democracy's soft underbelly

Pundita, dear, your crystal ball seems to be working well these days. You launched your China Frankenstein series less than two weeks before China shot down their satellite. I am surprised you did not put up a "Frankenstein in Space" post. May I suggest that you place the Frankenstein series on your sidebar for handy reference?

I also note that the day before Bernanke warned Congress that the graying of America's population would have serious affects on the economy, you quoted Thurow's 1997 warning about the strains that the aging baby boomer population would place on democracy.

Not bad for a crystal ball you purchased at a yard sale.
Boris in Jackson Heights

Dear Boris:
The early warning came in August 2006, with a report that China had laser-illuminated a US satellite -- targeted it, in other words. China's action to shoot down their satellite is a sharp reminder on how a powerful military dictatorship does things on the foreign relations front. Hang the debris cloud from the satellite hit; China has been trying to set up a UN conference on heading off space weapons programs. The US has been blocking the effort on the grounds that there is no ams space race.

So to push the issue forward at the UN, China's generals okayed the hit on their satellite, despite the large debris cloud this would create, and with full knowledge that the action would set off an international uproar. And with full knowledge that the US and Russia abandoned anti-satellite testing in part because destruction of satellites causes so much space debris.

It's important for democratic governments to understand that China's "peaceful rising" does not mean they want to take their place alongside the Western powers. China wants to rise above today's powers.

China's dictators have a simple philosophy when it comes to dealing with the nations that were most responsible for pulling China out of ruin: We kowtowed to you for decades, now you kowtow.

Beijing does not want to be 'part' of the world community; they want to rule it. Part of this is because China's leaders have talked themselves into believing they have no choice but to continue to defend their oppressive government. They feel driven to demonstrate to the world that China's form of government is superior to democracy.

Another factor is China's old civilization, which the Chinese never tire of invoking. The civilization is one of emperors. Imperial thinking permeates Chinese philosophies. The Cultural Revolution did not purge the mindset because it is so deeply embedded in Chinese culture.

Until all this understanding translates into policy in Brussels, Tokyo, the US and Moscow, China's generals will continue to set benchmarks for their peaceful rise, of the kind we saw with the destruction of their satellite. China wanted to make a point at the United Nations, and now they've made it.

As for Ben Bernanke's remarks, he gave the same warnings in October 2006. The warnings have been building for decades from many quarters in the US.

The importance of Thurow's observations on the same theme is that they point to a larger issue: whether democracy and capitalism can continue to peacefully coexist in the US, once major entitlement programs dry up or are greatly curtailed.

The issue transcends US borders; it affects every democracy that is trying to make capitalism work. Thurow observes that globalized business chips away at the cement holding democracy and capitalism together, which is programs that benefit citizens who cannot survive under a capitalistic system without assistance from the state.

Once a business can move operations offshore to avoid, say, low-cost medical insurance for US employees, the cost for insurance transfers to the individual taxpayer, if the state picks up the tab. This situation can only play out in so many ways before the taxpayer revolts. The state is then forced to nationalize or re-nationalize key business sectors in order to come up with the revenue to fund assistance programs.

From there, it's a hop and a skip to the scenario in von Hayek's Road to Serfdom. At some point along the road, the state revokes liberties to impose more socialism than most citizens want. Poof! Democracy disappears or becomes a stage show.

Keeping democracy functioning smoothly is a balancing act between capitalism and socialism. Globalization is upsetting the balance. Thurow's comments point to the soft underbelly of democracy, which resists innovation when politician's votes are at stake. Fixing Medicare and Social Security prior to an outright collapse of the systems will mean pain; the solutions require leadership rather than politics, which runs on compromise and sticking with the status quo until a system finally collapses.

Thank you for the suggestion, Boris; as soon as I can find time I'll implement it.

Thursday, January 18

The Great Capitalist Peace has come and gone

Last week while I was working on the Capitalism vs Democracy essays, I received an email from a reader, Dr. Ernie, who mentioned the "great capitalist peace" policy promoted by Messrs. Anatol Lieven and John Hulsman in their book, Ethical Realism.

As I've stated before on this blog, I have not read the book. But if Dr. Ernie has correctly interpreted the relevant passages, it seems that Lieven and his buddy are proposing that US foreign policy ditch the democracy doctrine and replace it with a capitalist doctrine.

Evidentially they argue that (somehow) this would bring about a "Great Capitalist Peace," as the authors call it, in which American hegemony would be eclipsed by the sheer success of nations the world over. That happy state of affairs would then somehow result in homegrown democracies in nations that had previously resisted democracy.

In other words, if Kim Jong-il's government could only become as rich and powerful as the US one, democracy would bloom in North Korea.

I can't even dismiss that attempt to eclipse the democracy doctrine as a college try because I assume college students interested in the topic know about the infamous Washington Consensus.

A wag noted that there never was a Washington consensus because economists disagreed on how to pull Latin America out of economic ruin. However, the Washington Consensus was overwhelmingly a laundry list of capitalist-oriented measures that were implemented with greater or lesser success in Latin America in the late 80s and the 90s. And they had applications outside Latin America and strongly colored US foreign policy in the 1990s and the runup to 9/11.

It was the list of measures that transformed the antiglobalist movement from a bunch of granola eaters and union bosses to where it is today, with ties to terrorist organizations and the clear-cut agenda of destroying the power of the United States of America. Indeed, the economist who coined the term "Washington Consensus" once noted that the antiglobalists couldn't even hear the term without "foaming at the mouth." He was barely exaggerating.

I don't know where Hulsman spent the 1990s, but I think Lieven is too sophisticated to have seriously proposed returning to September 10, 2001 and trying to pretend that the next day never happened, so I have no idea what he's up to in that book.

The world we knew on September 10 is gone, forever; it's gone because it was built on willful blindness. Many policy analysts in Washington and Brussels really believed at the time that globalization and its pro-free market orientation had already ushered in a great capitalist peace. And they took a patronizing attitude to the antiglobalist movement.

Again, I haven't read the book, but if the quotes Dr. Ernie sent me are indication, there have been more sophisticated attempts to get rid of the democracy doctrine, which is anathema to transnational corporations, antiglobalists, terrorists, state sponsors of terror, military dictatorships, and transnational crime syndicates.

The big question is whether the doctrine is still anathema to Brussels. Up until very recently I would have said yes. But in December a British analyst appearing on Fox Cable said bluntly that the new view in Europe is that immigrants assimilate or get out. He was speaking specifically of the Muslim immigrants, but the point is that Brussels might be looking at the democracy doctrine in a different light now that Europeans are getting their head screwed on straight.

If that is the case, the Eurocrats -- formerly the US Democrat Party -- will have to retrench because they follow the Brussels party line. I don't know where that would leave Mr Lieven.

"The business of America is business," it's said. But the foremost business of the US federal government is to defend America. US foreign policy needs to get its head out of economics books.

Wednesday, January 17

Capitalism vs democracy, Part 2: Help! Help! The ark is sinking!

The system that has held democracy and capitalism together for the last century has started to unravel.

In 1997, the same year that Fareed Zakaria coined the term "illiberal democracy," economist Lester Thurow gave a stark warning about the growing tension between capitalism and democracy in the era of globalization.

In the years since the tension has placed ever greater strain on newer democratic governments in developing countries, often leading to illiberal democracy that careens toward oppressive government. Poorly considered "cookie cutter" free market reforms packaged in aid and development assistance have only contributed to trends against genuine democracy in developing nations.

Yet US foreign policy has blithely continued to back free market reforms regardless of their applicability on a country-by-country basis. So it's as if we're bailing water on one side of the boat and pouring in buckets of water on the other. Slowly the democracy ark is sinking despite the large number of democracies to emerge in the past quarter century.

What is illiberal democracy? It's the kind I lampooned in the 2005 Democracy Stage Show Kit post; it looks like a duck but quacks like a moose. Put more formally:
[...] the term is almost always used to denote a particularly authoritarian kind of representative democracy, in which the leaders and lawmakers are elected by the people, but abuse their power while in office. This may be due to either widespread corruption or the absence of an adequate legal framework to restrain the power of the elected government. Thus, although free and fair elections do take place, the people are cut off from real power.(1)
What was Lester Thurow's warning?
[...] Historically the social welfare state and social investments in education have been used to make capitalism and democracy compatible. The state would take actions (progressive taxes, for example) to equalize market outcomes, and would help provide for necessities (with, say, a special tax benefit for home mortgages). The state would provide support when individuals are no longer wanted by the market (pensions, health care, unemployment insurance), and would help individuals get marketable skills (public education) so they could earn a good living. [...]

The elderly are putting this system at risk. Ever larger government expenditures on ever more numerous elderly voters have to be financed by reducing social welfare benefits for other groups, by cutting social investments in the future (education, infrastructure, and research), or by raising regressive payroll taxes.

The last becomes impossible with globalization. Higher payroll taxes raise the effective wages that firms have to pay and end up simply driving industries and employment abroad -- as is now dramatically visible in Europe. Those left behind have to pay higher and higher taxes to support the elderly. Lower social investments in education, skills, infrastructure, and knowledge generation (research) make American companies and workers less competitive in world markets. With lower earnings, both are less able and less willing to pay the taxes necessary to finance investments in their own future. [...]

The system that has held democracy and capitalism together for the last century has started to unravel. As earnings distributions widen due to globalization and a skill-intensive technological shift, and as government seems unable or unwilling to do anything about it, that majority of workers who face lower real earnings has to become disaffected sooner or later with democracy. [...] (2)
Now one can argue that in America there are forces mitigating the grim scenario Thurow describes but that's just the point: China and other big US trade partners are not buying up government debt in a newly emerging democracy trying to follow the free market prescription for prosperity. Yes, the vast and powerful American nation has options other nations don't, but you can apply Thurow's warning to say, present-day Latin America to appreciate his argument.

Does all this mean that the US should abandon our great emphasis on capitalism and focus instead on shoring up the most basic infrastructures of democracy? With the ghosts of von Mises and Ayn Rand scowling over my shoulder -- sometimes yes and sometimes no; it depends on the country situation and US objectives at the time.

What we need to abandon is the cookie-cutter approach to promoting US foreign policy goals. We don't need to cast off our ideals; we need to retire the theoretical bubbles in which the ideals are applied to vastly different situations. We need to modernize our approach by making it more empirical. We need to stop applying the same schema to vastly different phenomena.

An example of thoughtlessly applying the same schema to wildly different conditions is the economic 'shock therapy' theory pushed by Jeffrey Sachs. It worked in some cases; it had no hope of working in others. Yet the theory was prescribed and applied wholesale to every government that bought the idea that shock therapy was the new Promised Land -- no matter what the country conditions.

You can't prevent theoretical bubbleheads like Sachs from acting as advisors to governments, but it doesn't follow that the US Department of State and other US foreign policy organizations have to live in a theoretical bubble. Yet that's exactly where Paul Bremer was living while he oversaw the CPA, with infamous results. That's exactly where US envoys to Venezuela were living, with the result that Iran's military now stands behind a shrewd populist who is planning to make himself ruler for life.

Meanwhile, China's envoys run around the globe with open checkbooks and ask governments in other developing nations, "What do you want?"

Here we come to a snag. It's not just political exigencies that prevent State from adopting an empirical, case-by-case approach to foreign relations; it's also insufficient manpower and inadequate data filters. There's virtually limitless data readily available about any country you can name; the task is filtering the data so it becomes information useful to tailoring a US foreign policy initiative to a specific country.

Yet no amount of database wizardry and additional personnel will work, unless there's a change in mindset. The highly empirical information age arrived some time ago, but key US policy institutions have yet to join the modern era. They are still looking for the next new Promised Land: the one theory that will explain everything, fix everything.

Somewhere I hear laughter. Maybe it's the ghost of Bruce Lee, who transferred the empirical approach to martial arts. He taught that self defense is not a particular system of fighting; it's a fight for your life. From that view, you learn as many means of defense as you can and practice, practice, practice combining and applying them to every new fighting situation you meet with.

If US advisors would only remember that foreign relations are pegged to defense and not systems of economics and government, they'll avoid the land mines in US aid and development assistance without betraying core US principles.

1) Wikipedia

2) The Boston Globe, One nation divisible: As government's role recedes, capitalism and democracy clash. I am grateful to Michael Eisenscher for preserving the article on the Internet.

Tuesday, January 16

Capitalism vs Democracy, Part 1: What is a foreign policy, anyhow?

It is fair to say that for almost a quarter century prior to September 12, 2001, the United States of America did not have a foreign policy; we had economics theories fobbed off as foreign policy. So from the long view it could be considered a kind of cosmic comment on insane policymaking that America's twin cathedrals to neoliberalism, globalization and economics 'shock therapy' were blasted to rubble.

One would hope that the catastrophic attack on the World Trade Center marked the end of the Insane Era in US foreign policy, but at this time the application of defense doctrine to US foreign policy should be considered a blip. There is no guarantee that the policy will outlive the Bush presidency. What's more, there's no guarantee that US foreign policy won't revert to a showcase for economics policy once Bush leaves office.

There was much right about the Reaganomics revolution -- for America. There was much right about Thatcher's economics revolution -- for Britain. There was much right about unrestricted global trade -- for the rich countries. And when viewed on a limited basis, the revolutions had positive consequences when applied to several countries. The revolutions had terrible consequences for developing countries that did not have the government and private sector infrastructures in place to accommodate a radical shift to privatization and free market economics, which could not count on NATO to come to their defense, and which had big trouble coming up with enough petrodollars to purchase energy to fuel their experimental market economy.

The fall guy for the debacles should have been the International Monetary Fund and their structural adjustment program. (Here's a foreign policy tip for governments: If you're going to do something that you're only hoping will work, you need a front man.) But no, the US government under Bush 41 and Clinton wanted to be the world standard bearer for neoliberalism, shock therapy and globalization.

So here we are today, with a good portion of the world hopping mad at the United States for pushing disastrous economic policies on them. And with foreign policy advisors who are still seriously wondering whether it's strictly necessary to work the concept of national defense into a nation's foreign policy.

To be continued tomorrow.

Monday, January 15

Great leaps in China's civil rights movement

Today is Martin Luther King Day in America. I'm celebrating the life and legacy of Martin Luther King by highlighting two stories on China's progress on the civil rights front. Cynics will say that China's seeming turnaround on Darfur is due to arm-twisting. But those live in freedom are in the slog era of foreign relations, where patience and persistence are the most effective tools.

I'll tell you why it's so hard for Americans in particular to have patience for this kind of work: because it's in the American gene code to place a very high value on individual effort. So no matter how many times we have it explained to us, we have a hard time imagining what it's like not to believe in the vast power of individual effort.

The good news is that humans are a quick study, once we get in the swing of something. That's why Jeane J. Kirkpatrick was way off the mark, when she wrote in 1979:
In the relatively few places where they exist, democratic governments have come into being slowly, after extended prior experience with more limited forms of participation during which leaders have reluctantly grown accustomed to tolerating dissent and opposition, opponents have accepted the notion that they may defeat but not destroy incumbents, and people have become aware of government's effects on their lives and of their own possible effects on government. Decades, if not centuries, are normally required for people to acquire the necessary disciplines and habits.(1)
A few years after those words were written the Soviet Union dissolved and democracies sprang up among peoples who could barely the imagine the concept.

Kirkpatrick overlooked the power of human nature and individual effort. So keep talking; hear? Think of an hourglass you're filling with a tiny pinch of sand grains each time you talk. One day, just a pinch will finally fill up the glass. The talk doesn't have to be couched in the words of politics or social justice. A story about your personal struggle or the struggle of a relative or ancestor can be that final bridge to understanding.

For decades Chinese leaders have fallen back on the violent upheavals in America caused by our civil rights movement, when they argue for their authoritarian government. So if you're of a polemical bent, you can point out to Chinese acquaintances and colleagues that the civil rights protests of black Americans did not balkanize America just because this country is a democracy. So if China's leaders live in fear of a balkanization -- well then, get busy and democratize.

Most importantly, Jeane Kirkpatrick overlooked that time is a highly subjective phenomenon. When love and dedication are coupled with the human will, a century's needed efforts may collapse into months or even the wink of an eye.

Enough chitchat. Now it's time to celebrate progress in the human rights struggle. Americans, take special note in the following story of the Chinese emphasis on dignity and saving face, which do not have a high place in the modern American lexicon. Note also the concern about how China is perceived on the world stage. Now, during the runup to the 2008 Olympics in China, is the best time to redouble actions supporting China's civil rights efforts:
Public Shaming of Prostitutes Misfires in China: Traditional Discipline Draws Angry Outcry
By Edward Cody, Washington Post Foreign Service
December 9, 2006
BEIJING, Dec. 8 -- To local officials combating Shenzhen's reputation as a den of vice, it seemed like a good idea, the perfect way to dissuade provincial girls from turning to prostitution in the big city and frighten away the men who patronize their brothels. So after raiding the karaoke bars, saunas and barbershops where prostitutes often ply their trade, police officers in the southern Chinese boomtown paraded about 100 women and their alleged johns in the street, using loudspeakers to read out their names and the misdeeds they were accused of committing. News photographers snapped away while thousands of residents lined up to take in the show.

The spectacle, which took place Nov. 29 in the Shenzhen district of Futian, was in many ways unremarkable for a nation in which wrongdoers have long been subject to public humiliation. In particular, it recalled the Great Cultural Revolution of the 1960s and '70s, when Chinese accused of being intellectuals or reactionaries were routinely paraded in front of jeering crowds that found entertainment in ridiculing them, insulting them and sometimes beating them.

But times have changed, the Futian Public Security Bureau discovered. Instead of being praised for cracking down on vice, the Futian police came under a hail of criticism for violating the right to privacy of those who were paraded about in public.The swift outcry, in newspaper interviews and on the Internet, provided a dramatic illustration of the distance this vast country has traveled since the Cultural Revolution, when many people embraced such tactics and even those who opposed them were afraid to speak up for fear of retribution.

The reaction helped explain why U.S. and other Western complaints about human rights restrictions in China are sometimes ignored here. Although Chinese and foreign activists can point to many remaining abuses, particularly by police forces such as Futian's, many Chinese view the human rights situation as such an improvement over times past that they would rather emphasize how far they have come than how far they have to go.

"This shows that the public has a stronger sense of human rights and privacy protection," said Kang Xiaoguang, a sociologist with the Rural Development Institute at the People's University of China.

"Twenty years ago, this kind of parade would have been greeted with unanimous applause," he said. "But now it gets more criticism than support because more people realize their rights should be protected. And of course, they have more channels to voice their criticism, like the Internet."

An outraged Shanghai lawyer, Yao Jianguo, started the uproar over Shenzhen's tactics last Friday with an open letter to the National People's Congress, the Chinese legislature. In it, he charged that the Shenzhen parade was illegal under current laws and likely to have a "baneful influence" on the Chinese people and the country's reputation abroad.

"These people were just alleged criminals," Yao complained. "It was not yet determined that they had violated the law. The police publicly humiliated them, which violates the legal process. This brutal form of punishment has long been abandoned by our society with the development of civilization and a legal system."

The All-China Women's Federation also voiced a complaint, deeming the parade an insult to the image of Chinese women, news media reported.

"The public parade damages the criminal suspects' self-esteem," a spokeswoman said. "With the development of human civilization, such barbaric punishment has no place in modern society."

[...] many Chinese citizens thought the police went too far this time. Over the past week, they have spoken out -- with relative anonymity -- on the Internet. A few upheld the tactic as effective dissuasion and noted that the prisoners wore surgical masks to shield their identities. But most agreed with Yao.

"Even while carrying out the law, police should well respect human rights," one commentator said. "Is there any article in Chinese law saying that police can parade people in front of the public? If there isn't, then who empowered you to do that?"

Another upset writer accused the Futian police of going back to the bad old days. "Public exposure? That was the kind of thing that happened during the Cultural Revolution," he said. "Those who made prostitutes parade in the street lost face just as much as those who were put on parade."

Focusing on the law, another contributor noted that prostitution is usually considered a violation of the social order and is punished by administrative detention rather than a criminal conviction and formal prison time.

"These are legal citizens, enjoying dignity endowed by the constitution," the writer said, "so it is unlawful for the police to parade them in front of the public."
Now for the Darfur story:
China Given Credit for Darfur Role: U.S. Official Cites New Willingness to Wield Influence in Sudan
By Edward Cody, Washington Post Foreign Service
January 13, 2007
BEIJING, Jan. 12 -- The U.S. special envoy to Sudan said Friday that China has pushed the Sudanese government recently to help resolve the bloody Darfur conflict and ease the plight of the region's nearly 3 million refugees.

The Chinese intervention marked a shift from past policy under which Beijing seemed reluctant to use its influence in Sudan, according to the envoy, Andrew S. Natsios. "I think they're engaging much more aggressively," Natsios said at a news briefing after four days of talks here with Chinese officials.

President Hu Jintao announced during a Chinese-African summit conference last November that he had urged the Sudanese president, Omar Hassan al-Bashir, to work with U.N. and other envoys to end the fighting, Natsios recalled.

In addition, he said, China's U.N. ambassador, Wang Guangya, was critical to securing Sudan's participation in a recent international accord aimed at replacing a flagging African Union peacekeeping force in Darfur with a larger U.N. contingent.

The Bush administration has long urged China to put more pressure on the Sudanese government, citing large-scale Chinese oil purchases, investment and weapons sales as tools that could be used to persuade Bashir to cooperate more fully with U.N. attempts to broker a peace accord.

China, however, has viewed Sudan mainly as an important source of petroleum, a key element in Chinese foreign policy as the booming economy here creates a growing thirst for energy imports.
Human rights activists will point in answer to China's unusual use of their veto this weekend to help block the US-led resolution condemning Burma's human rights record. Yet it's to be kept in mind that China saw the venue for the resolution -- the UN Security Council -- as the big sticking point.

The argument is that the resolution should have been brought before the UN Human Rights Council -- that lame and corrupt commission -- because Burma does not pose a security threat to other nations. The argument is not quite true, considering Burma's proximity to India and the Burmese refugees in India.

In any case, putting the resolution before the security council was a resounding slap at the ineffectiveness of the human rights council -- a good move on the part of the US. That China dodged the issue does not change their position in Africa, which will increasingly come under fire from the African Union if China does not step up to the plate on Darfur. More than any other nation, China has influence with Sudan's government.

1) Dictatorships and Double Standards, Commentary Magazine, November 1979.

Friday, January 12

The chickens come home to roost for State's failed policies in Latin America

On Saturday Iran's President Mahmoud Ahmadinejad kicks off a four day visit with the presidents of Venezuela, Ecuador and Nicaragua, who are being sworn in within days of each other after recent election victories -- and who are sworn enemies of free market policies. Rafael Correa, a supporter of Mr Chavez and his anti-Americanism, assumes the presidency of Ecuador on Monday. Ahmadinejad will also meet with Evo Morales, the left-wing President of Bolivia who took office a year ago.

At least the Pentagon is getting their head screwed on straight and realizing Iraq is not Poland; they're trying to jump start state-owned Iraqi industries that Paul Bremer wanted privatized. But the US Department of State, the US Congress, and USAID still have a ways to go before they stop trying to act like Margaret Thatcher in their policy toward developing countries outside Europe.

Of course free markets are superior to ones that are rigidly state-controlled. But one cannot exclude millions of a developing country's poorest from an economic miracle, and not expect political repercussions that savage a young democracy.

I return to the theme of priorities, which I mentioned in my recent posts on the Millennium Challenge Account. First we sacrificed democratic principles at the drop of a hat in order to fight Soviet Communism. Then we were willing to deal with any ruling class around the globe, no matter how corrupt and oppressive, which agreed to sell out their country's key industries to foreign investors.

Why don't we try something new for a change, and set forth a defense-based foreign policy -- instead of an economics-based policy -- that sticks to the core issue of democracy?

Nowhere are US foreign policy priorities more skewed than in Latin America. So how's that been working out for the US?
February 2006: "Bolivia has not previously had the close relationship with Iran that Cuba and Venezuela have been developing. But Bolivia's new president, Mr. Morales, has talked recently with Ahmadinejad about forming a trilateral energy alliance between Iran, Venezuela, and Bolivia. Among other things, it would provide Bolivia with expertise to nationalize its oil and gas industry."(1)

January 10, 2007: [President Hugo] Chavez said the constitution would be changed to allow the government to take control of the natural gas industry from foreign companies, which now have wide rights in the [Venezuela energy] sector. Earlier this week, he said he would increase state control over four key oil production projects. Those projects [...] are operated by U.S. firms such as Exxon Mobil and Chevron as well as foreign multinationals Total of France and BP. [...](2)

January 11, 2007: "During 16 years, the people endured the consequences of this neo-liberal economic model," [Nicaraguan President Daniel] Ortega said, referring to the free-market policies of his three conservative predecessors. "What benefits has this model brought us? Where is the wealth? [...] Poverty and hunger ... make the vast majority of Nicaraguans suffer, no matter what political party they belong to."

Many Nicaraguans expect new aid deals to be announced after Iranian President Mahmoud Ahmadinejad arrives in Managua for a visit Sunday.(3)
So what should the US government do in response? At the moment, envoys should haul suitcases full of cash, and attache cases full of the type of aid and development assistance proposals that Mr Ortega likes, when they pay their respects.

Then everybody concerned needs to put on their thinking cap and figure out the differences between privatization and democracy. Once they climb that mountain, figure out the differences between foreign investment and democracy.

1) Latin America's leftist regimes get cozy with Iran by John Hughes for The Christian Science Monitor.

2) Chavez Would Abolish Presidential Term Limit by Juan Forero for The Washington Post.

3) After Long Hiatus, Ortega Returns to Office in Nicaragua by Hector Tobar and Alex Renderos for the Los Angeles Times.

Thursday, January 11

Does Osama speak Mandarin? The Great Game, 21st Century style

(Today's planned post has been bumped to Monday.) The other day Baron Bodissey at Gates of Vienna published a piece titled The Middle Kingdom and the Crescent, which examines the murky question of whether the ETIM (East Turkestan Islamic Movement) has terrorist ties -- hey! Where are you going? Didn't you read Kipling when you were a child? Resign yourself to learning about peoples and places that are quaint only from a far distance. Where was I?

East Turkestan does not exist as far as China's government is concerned, but it's located in Xinjiang, China's largest province. East Turkestan, as it used to be called before Mao's troops overran it, is peopled mostly by the Muslim Uygur (pronounced 'weegur') people. The Uygurs want their own country back, and they have a pretty good case.

The question the Baron examines is whether ETIM, a violent separatist group, has ties with al Qaeda.

It's an interesting piece because it examines intel from different angles, including the US reasons after 9/11 for going along with China's designation of ETIM as a terrorist organization.

All I will add to the story is that one has to keep The Great Game in mind. It so happens that the Uygurs are sitting on top of large oil and gas reserves in Xinjiang. That's all we really need to know, isn't it, to see how the chips are falling.

Of course Beijing will slap the terrorist label even onto a Uygur knitting bee. And no matter how much the US government frowns on ETIM, unofficially Washington is giving a cordial welcome to Uygur activists.

But to return to the Baron's question, what about the Uygur connection to al Qaeda? Well, put yourself in the place of a Uygur: Help from bin Laden, help from the US Congress, help from bin Laden, help from the US --

Now put yourself in Osama's place: Should I take refuge in China while at the same time angering Beijing?

There have been too many Osama sightings in China -- in Xinjiang, no less -- to dismiss the stories. Then there is the history:
[...] It should be recalled that representatives of China’s Peoples’ Liberation Army (PLA) had met and struck a deal with Osama. Osama was to restrain an [Uygur] uprising in [Xinjiang]. In return, PLA had agreed to build the communication network in Afghanistan which was then ruled by the pro-Osama Taliban. The Memorandum of Understanding was signed on the 9/11 day itself. Nothing has happened subsequently to suggest a weakening of ties between Osama, Taliban and PLA. [...](1)
So, whatever ties ETIM had with al Qaeda years back, I doubt that Osama has many friends in ETIM at this time because the safest place for him right now is in China. And China's secret police are everywhere in Xinjiang. You can't take a pee in Xinjiang without this being noted by undercover agents and ratters.

Even if I am right, that says nothing about ETIM ties with other Muslims in other parts of the world sympathetic to the Uygur cause. And it says nothing about ETIM ties to other terrorist organizations, which they very definitely have. They really don't need to depend on help from al Qaeda.

But it all boils down to this: oil talks, nobody walks. Thus, the outline of today's Great Game.

1) Who's Hu in South Asia: Decoding India-Pakistan-China relations by Rajinder Puri, September 2006.

Wednesday, January 10

Bye-bye Venezuela: Shall we blame this on Negroponte or sunspots?

(If you missed yesterday's post, it's because I didn't publish it until after 3:00 EST.Technical glitches.)

"Mr Chavez also announced he would nationalise key businesses, declared himself a Trotskyist and cited the ideas of Marx and Lenin.[...] problems facing key Chavez allies - Bolivia, Ecuador's president-elect and Iran - may make him want to establish this phase of the [socialist] revolution before the 2014 deadline he has set.

Hugo Chavez denies that he wants to follow the Cuban model of government; I think he's telling the truth. It's early days, but it looks to Pundita as if he's working toward the Libyan model. That wouldn't exactly make Chavez a communist. It would make him a king. As long as the price of oil stays high, he might just get away with his revolution.

I am telling you with a straight face that some observers claim that Hugo Chavez's leap to the extreme left happened when he learned that John Negroponte was taking the number two job at the US Department of State -- such is his hatred of Negroponte, so the gossip goes.

Mr Chavez needed no encouragement to show his true colors once he was reelected. And, sad to say, Negroponte will not have the Latin American account when he arrives at State. He'll be responsible for Iraq and Northeast Asia -- including China and North Korea, freeing up Condoleezza Rice to concentrate on the Israel-Palestine issue and Iran. But one can assume that Negroponte's vast experience with commies such as Chavez will be useful to State's initiative in the Latin American region, if State can locate Latin America on a map.
Chavez accelerates on path to socialism
By Nathalie Malinarich
BBC News
Venezuelan President Hugo Chavez had always said that with his new term in office, beginning on 10 January, the socialist revolution would start in earnest. And, after his resounding victory on 3 December, he has wasted no time.

Before even being sworn in for the third time, Mr Chavez has said that he wants to merge all his coalition partners into a single party, warned he will not renew an opposition TV channel's licence and announced he will nationalise key businesses. He has also called on the National Assembly to give him the power to rule by decree and replaced his Vice-President, Jose Vicente Rangel, seen as a key figure in his previous administration. While some of the announcements themselves have not come as a complete surprise, for many, the intensity and pace of the change has.

Exactly what the so-called deepening of the Bolivarian Revolution - named in honour of the 19th Century independence hero - would entail was not made clear during the presidential campaign.

Whatever its shape, the notion of the socialist days to come fills Mr Chavez's supporters with hope and his opponents with dread. With each speech, Mr Chavez gives more details of what he plans to do. Swearing in his cabinet two days before his own inauguration, Mr Chavez explained that the new era would be backed by "five engines", which would:

> allow him to rule by decree
> lead to socialist constitutional reforms
> reinforce popular education
> change the geometry of power (a point which he has yet to explain)
lead to the "explosion of communal councils"

In the same address, Mr Chavez also announced he would nationalise key businesses, declared himself a Trotskyist and cited the ideas of Marx and Lenin. Chavez backers, or Chavistas, say the revolution will lead to social equality - his critics argue it will turn him into a Castro-like autocrat.

Political analyst Alberto Garrido says Venezuelans are likely to hear many more radical policy announcements in the coming days, months and years. "In this 'permanent revolution' we are in for endless surprises," he says.

Mr Garrido says the revolution that is being established in Venezuela is unique and does not follow the Cuban model, as many of the government's critics say. One of the innovations announced by Mr Chavez is his Cabinet, he adds. Its members are now "ministers of popular power" - they have a direct link to the people and are expected to operate more like a team than a classical Cabinet. The ministers - who are mostly younger than their predecessors - will be expected to spread the revolution from the streets.

Battles ahead
Another sign of the changing times, observers say, is Mr Chavez's decision to replace Mr Rangel as vice-president.

Mr Rangel was an important figure in the "transition period" that ended with the December elections - he was seen as someone who could reach out to other groups. His replacement, Jorge Rodriguez, is described as a radical who does not tolerate dissent. But Mr Chavez is not carrying out his revolution in isolation. Mr Garrido says international affairs may be playing a part in what he says is Mr Chavez's decision to go faster down the path of his "21st Century socialism". He says that problems facing key Chavez allies - Bolivia, Ecuador's president-elect and Iran - may make him want to establish this phase of the revolution before the 2014 deadline he has set.

Another possible factor behind Mr Chavez's recent announcements may have been the nomination to the US state department of John Negroponte - known to be very critical of the Venezuelan president - Mr Garrido says.

On the international front, Mr Chavez will also be keen to continue spreading his own brand of socialism abroad, which once again will set him on a collision course with the US and other Western nations. That will not be the only battle on his hands. Mr Chavez's recent announcement that he will not renew the licence of the country's most viewed terrestrial channel, RCTV - which he accuses of having backed a failed coup against him in 2002 - is likely to lead to a wider confrontation with the media.

Whatever happens, it looks likely that the world will be hearing a lot more about President Chavez's revolution.