The blackmailer always has the upper hand

Citing reports that two dozen financial institutions in Asia had voluntarily cut back or terminated their business with North Korea, Treasury Undersecretary Stuart Levey declared last September: "The result of these voluntary actions is that it is becoming very difficult for the Kim Jong Il regime to benefit from its criminal conduct."

The North Koreans stuck to a simple message in their negotiations with the US: "We want our money."

Pundita took a wait-and-see stance with regard to the agreement that emerged from the six-party talks on North Korea's nuclear program. But it's looking as if State and the Bush administration are so heavily invested in claiming the agreement as a US victory that they've abandoned the basic rules of negotiation. The US Treasury's hit at Pyongyang's counterfeiting operations brought North Korea negotiators back to the bargaining table, and kept them there. Things went haywire on Tuesday when the US government agreed to give up their only bargaining chip in the negotiations.

At issue is not "a dispute over a relative pittance" but the counterfeiting of 'supernotes' -- counterfeit US $100 bills that are very hard to detect as counterfeits -- and the complicity of a bank in a government's counterfeiting of supernotes.

If the six-party talks had extracted an agreement from North Korea to destroy their nuclear weapons, conceding a point to a blackmailer might have been worth the gamble. But in this case Pyongyang has only agreed to shut down a nuclear reactor that might not even be in working condition.

Granted, supernotes are not as serious as a nuke but aside from WMD, supernotes cranked out by a government rank as a great security risk to the United States.

I heartily wish State would send Christopher Hill back to Eastern Europe and find a lead negotiator in the six-party talks who understands the Chinese. In any event, Secretary of State Rice should instruct Hill that there should be no more private negotiations with his North Korean counterpart. Any cop could tell Hill that it's loco to engage in backdoor negotiations with a blackmailer after the authorities are on the case.

To Prod N. Korea, U.S. Relents in Counterfeiting Case

By Washington Post Staff Writer Glenn Kessler with additional reporting by Edward Cody in Beijing, Wednesday, April 11, 2007

Two months before North Korea tested its first nuclear weapon, President Bush was asked about a Treasury Department investigation of North Korean counterfeiting of $100 bills, which had ruptured talks on ending Pyongyang's nuclear programs. "Counterfeiting U.S. dollars is an issue that every president ought to be concerned about," he replied bluntly during an August news conference. "And when you catch people counterfeiting your money, you need to do something about it."

Yesterday, the Bush administration agreed to allow those suspected counterfeiters, along with other North Koreans suspected of money laundering and other fraud, to get their money back -- with no strings attached -- in the hopes it will ensure that North Korea shuts down its nuclear reactor by the end of the week. About $25 million had been frozen by Macau authorities, with about half clearly derived from criminal enterprises, U.S. officials said.

The outcome is the kind of messy, unsatisfactory dealmaking that Bush disdains. Even as U.S. officials were publicly portraying the final arrangement as necessary to salvage a nuclear deal reached two months ago, it sparked controversy within the administration and led some to question whether the result sets a bad precedent.

The story of how a tiny bank in Macau named Banco Delta Asia became the center of a diplomatic battle over nuclear weapons is in many ways a tale of unintended consequences -- and of how Bush, so focused on the idea of combating North Korean fraud, allowed a dispute over a relative pittance to thwart progress on an issue central to U.S. national security.

"The United States started on this path not understanding what the impact would be," said Alan D. Romberg, senior associate at the Henry L. Stimson Center and an expert on Asia. "This should be an object lesson: Be careful what you do, and play through how you would undo it."

The counterfeiting investigation started during Bush's first term. By coincidence, it came to fruition just as diplomats were set to strike a deal on ending North Korea's nuclear programs. At the time, U.S. officials said, Bush decided not to let diplomacy derail a criminal investigation. But the effect of the resulting crackdown was much greater than administration officials expected, painfully damaging North Korean international business ties.

When Bush earlier this year reversed himself, agreeing to end the investigation to strike an accord with North Korea, unraveling the probe became much more difficult than expected. North Korean officials dug in their heels, insisting that no progress would be made on the nuclear accord until the money was in their hands. Ultimately, the administration blinked.

John R. Bolton, the former U.N. ambassador who has emerged as a critic of the nuclear deal, said the retreat is "an image of surrender that is going to be hard to erase." Returning the money to entities that committed fraud "will have a [debilitating] effect on bringing sanctions against Iran and other rogue states," he said. "It is a terrible symbol."

The investigation started in 2003, when Colin L. Powell's State Department was under attack from conservatives for not being tough enough on North Korea. Officials there latched on to the idea of targeting North Korea's illicit activities, and an interagency group was formed to track the country's counterfeiting operations and then figure out ways to cut it off, officials said.

In July 2005, Treasury informed the task force that it was ready to target Banco Delta Asia, which it had identified as the main conduit for bringing North Korean counterfeit currency into the international system.

The U.S. government had seized more than $45 million in highly deceptive counterfeit $100 bills, known as super notes, that were produced in North Korea with the approval of top officials.

But officials delayed taking action in July, fearing it might conflict with a separate Justice Department sting against North Korean counterfeiters that was planned for August. The Macau announcement was set for September -- just when negotiators were set to reach a landmark accord on ending Pyongyang's nuclear programs.

Virtually unnoticed at first, Treasury's designation that Banco Delta Asia was a potential money-laundering concern appeared in the Federal Register on Sept. 15, 2005, four days before the nuclear negotiators from six nations announced they had struck a deal.

The Treasury announcement nearly toppled Banco Delta Asia, as banks around the world cut their ties for fear of being tainted by the North Korean connection. To the delight of Treasury officials, many banks stopped handling North Korean transactions for fear of Washington's wrath.

Citing reports that two dozen financial institutions in Asia had voluntarily cut back or terminated their business with North Korea, Treasury Undersecretary Stuart Levey declared last September: "The result of these voluntary actions is that it is becoming very difficult for the Kim Jong Il regime to benefit from its criminal conduct."

But another result was that North Korean officials refused for months to return to the nuclear negotiations, citing the investigation. Finally, after the country's nuclear test in October, North Korea agreed to renew talks but would not discuss substantive issues until the banking case was resolved.

In January, Assistant Secretary of State Christopher R. Hill met privately in Berlin with his North Korean counterpart to work out an agreement that the banking investigation would end before North Korea froze its nuclear reactor.

Treasury announced March 14 that the probe was finished, with Levey citing a "gamut of illicit activities." But that was not enough for North Korea. Speaking yesterday to reporters in Seoul, Hill said that the United States thought it had fulfilled its pledge, but North Korea "had a concept that was far more literal, which was they wanted to see the money."A high-level Treasury team was dispatched to Beijing, including Chief of Staff Jim Wilkinson, Deputy Assistant Secretary Daniel Glaser and James Fries, deputy assistant general counsel. Wilkinson had been a former senior adviser to Secretary of State Condoleezza Rice, and his presence was intended to signal that Treasury and State were united on the issue.

Yet the Treasury team encountered a series of roadblocks on a nearly two-week trip, as they searched unsuccessfully for a way to ensure the money was used for humanitarian purposes. Glaser at one point had issued a statement saying that the Bank of China would be a repository for $25 million in North Korean funds, but when the team arrived, Chinese authorities made it clear that no mainland bank would be involved in holding the money.

The North Korean diplomats, meanwhile, resisted the U.S. proposal of setting up a humanitarian fund with the money. They would not fill out forms, provide bank account numbers, or sign waivers that would allow the money to be released to a humanitarian fund. They stuck to a simple message: "We want our money."

The Treasury officials left China thinking no deal was possible, but over the weekend the administration agreed to let the Macau Monetary Authority, which had frozen the money because of the U.S. investigation, to simply release it to account holders. There were 52 Banco Delta Asia account holders whose money had been frozen; $12 million, belonging to 17 account holders, is considered tainted.

Some of the $25 million, however, is held by third parties, such as $7 million associated with Daedong Credit Bank, which is being bought by a British investor. Thus not all of the money will go to the North Korean government, leaving some U.S. officials wondering whether the deal yesterday will still keep the nuclear agreement on track.

France teaches the world a lesson on cutting carbon emissions

Interestingly, a discussion of nuclear power will not be on the agenda at this year's G8 summit -- or at least, as of several months ago there were no plans for such discussion. If the discussion is indeed tabled, one could speculate that the G8 nations pushing for cap-and-trade on carbon emissions don't want to hear a lecture from France about nuclear energy. But the Easter Sunday 60 Minutes segment on CBS delivered the lecture. The segment also discussed a technology that makes a nuclear plant meltdown impossible and looked at France's way of recycling nuclear plant waste. Medical researchers are always asking why the French live so long. Gee, maybe breathable air has something to do with it --

France: Vive Les Nukes
Steve Kroft On How France Is Becoming The Model For Nuclear Energy Generation

(CBS) With power demands rising and concerns over global warming increasing, what the world needs now is an efficient means of producing large amounts of carbon free energy. One of the few available options is nuclear, a technology whose time seemed to come and go and may now be coming again.

For the first time in decades, new nuclear plants are being built, and not just in Iran and North Korea. With zero green house gas emissions, the U.S. government, public utilities and even some environmental groups are taking a second look at nuclear power.

And as correspondent Steve Kroft reports, one of the first the places they are looking is to France, where it has been a resounding success and the attitude is "Vive Les Nukes."

When much of the world spurned nuclear power, 30 years ago, the French, being French, decided to go their own way and embrace it. Paris, the "City of Light," is lit by nuclear energy, which powers just about everything else in France: its homes, its factories, even its high speed railroads.

Nearly 80 percent of the country's electricity comes from 58 nuclear power plants, crammed into a country the size of Texas. Pierre Gadonniex, the head "Electricite de France," the country’s national utility says it all began with a French obsession for energy independence.

"In France, we have nearly no coal. We have no oil. So clearly, nuclear appeared to be the best way," Gadonniex explains. "And 30 years later, it appears to be a very smart decision."

Because nuclear plants emit no greenhouse gases, France has the cleanest air in the industrialized world, and because the price of oil is now around $60 a barrel, it has the lowest electric bills in Europe. In fact, France has so much cheap electricity, it exports it to its European neighbors. French nuclear plants supply power to parts of Germany, Italy and help light the city of London.

"It is a very competitive way of producing electricity when oil prices are beyond, I would say, around $40 a barrel," Gadonniex tells Kroft.

And the rest of the world has taken notice. Nearly a dozen countries, including the United States, are either building or planning to build new nuclear plants, and some of that business will go to AREVA, the French government monopoly that controls every step of its nuclear industry from uranium mining to plant design construction to radioactive waste disposal.

Deep in the wine country of Burgundy, in a massive factory, AREVA is building the first European reactors since the 1986 Chernobyl disaster.

Bertrande Durrande, the Executive Vice President for Manufacturing, tells Kroft the business is "definitely growing."

Besides the new reactors it is building for France and Finland, Durrande says, AREVA is bidding on a project to build four new nuclear reactors in China.

Asked how many plants he thinks might be built in the next 20 years, Durrande says, "A minimum of 20. Which is quite a change when you compare it to the past."

And some of them will almost certainly be in the United States, which hasn't built a new nuclear plant since the 1970's. With energy prices and global temperatures near their reported highs, and the possibility that greenhouse gases will be regulated, the Bush administration is pushing a nuclear revival.

In many respects, the nuclear industry in the United States has disappeared. Over 100 plants were cancelled in the 1970's.

Kroft talked to Clay Sell, the Deputy Secretary of Energy and the administration's point man on nuclear power. With world energy demand expected to rise 50 percent over the next 25 years, he says it is the only practical option for producing huge amounts of electricity with no carbon emissions.

"No serious person can look at the challenge of greenhouse gases and climate change and not come to the conclusion that nuclear power has to play a significant and growing role in meeting that challenge worldwide," Sell says.

Asked how much interest there is right now in building new plants, Sell says, "There is a tremendous amount of interest. Two years ago there was exactly zero plants on the drawing boards here in the United States. Today, there are about 15 companies talking about building over 30 commercial nuclear power reactors. Now, all of those won't get built. But we think there's a significant chance that many of them will be built."

But so far, no one has signed up to actually build one, an undertaking that requires a huge investment of capital and a certain amount of faith. In the 1980's and 90's political opposition, regulatory delays, cost overruns, and a drop in electricity demand forced utilities to pull the plug on dozens of projects, and the industry has a long memory.

"I recall one story, a man who is a CEO today of one of our leading companies," Sell says, "And he described the pain associated with beginning what he thought would be a billion-dollar plant in the 1970's, and bringing it online as a $9 billion plant 20 years later. And he made the point to me that that is not a lesson that'll quickly be forgotten in the industry."

(CBS) To try and assuage those concerns the government is offering utilities financial incentives, risk insurance and a streamlined regulatory system, which has borrowed a page from the French by pre-approving four basic reactor designs from which the utilities can choose, knocking years off the process. And some of those new plants could be built on existing sites where reactors are already licensed and operating.

But apart from economics, there is the issue of public acceptance. The Chernobyl disaster, and one barely averted at Three Mile Island nearly 30 years ago when a reactor core suffered a partial meltdown, severely damaged the industry's reputation.

"Forget technology for the moment," Kroft says. "Forget energy. Forget greenhouse gases. A lot of the problems of this industry have been political. I mean, people are afraid of them. Fair statement?"

"It is a fair statement," Sell acknowledges. "There is some level of concern. But what we found out and what we have seen is the more educated the public is, the more they understand the technology, the more comfortable and the more accepting they are."

Americans, he says, tend to forget that there are 103 nuclear plants operating in the United States, that have produced 20 percent of the nation's electricity without major incident in the 28 years since Three Mile Island.

"And in fact, they have an outstanding record. There has never been a radiation-related death in the commercial nuclear sector in the United States, ever," Sell points out.

David Jhirad, the head of science and research for The World Resources Institute, an environmental think tank in Washington, acknowledges that the industry’s safety record has been pretty good.

Why are so many people afraid of it?

"When there's a small probability of a catastrophe people think about the catastrophe and not the small probability," Jhirad says.

"Then why have the French accepted it? And what is there about the two cultures that may influence that?" Kroft asks.

"The French love high technology. Whether it be nuclear power. Or supersonic airplanes. Or high-speed trains. They love that," Jhirad explains. "And they love, they accord huge respect and credibility to scientists and engineers. And scientists and engineers actually run these programs."

One of them is Anne Lauvergeon. She is an engineer, a onetime political aide to former French President Mitterrand and chairman of the nuclear giant AREVA, which dominates an industry that employs 150,000 people, and is a key exporter in the French economy. She may be the most powerful businesswoman in France, where everyone knows her as "Atomic Anne."

Asked what the safety record in France is, Lauvergeon tells Kroft, "The safety record in France is excellent. We have not known very important accidents. We are very, very careful."

"But one accident could change everything, right?" Kroft asks.

"Of course," Lauvergeon agrees. "One accident, one very serious accident could affect the nuclear industry as a whole."

"You must either be very good or very lucky," remarks.

"Maybe mix of both," she says. "You cannot bet on the luck. No luck in nuclear. Only work."

And right now she is working hard to convince the world that nuclear power can help solve some of the world’s environmental problems.

"One of the things the French tell us is that they consider nuclear power to be a green energy source. Accurate?" Kroft asks David Jhirad from The World Resources Institute.

"Accurate, except for one thing. Which is perhaps the Achilles' heel of nuclear power. It's certainly accurate that the plants emit no carbon dioxide," Jhirad says. "The one thing that needs to be solved is the issue of long term radioactive waste storage and management."

(CBS) For decades, Americans have stored their radioactive waste on-site at power plants, awaiting a permanent solution, the Yucca Mountain Repository in Nevada. It's years behind schedule, will cost $30 billion to open, and is already too small to hold all the waste. The French have taken another approach to the problem.

While the United States decided to store its nuclear waste, the French embraced the idea of reprocessing it. Instead of burying the spent fuel rods underground or underwater, they decided to build a massive plant on the coast of Normandy and recycle the used fuel and reuse it.

The high security facility stretches for two miles along the coast. All of France's spent nuclear fuel eventually ends up at the plant in pools of water.

After the fuel rods have cooled five years, the French recycle them to make new fuel. The process drastically reduces the amount of nuclear waste, but one of the by-products of this is high-grade plutonium that can be used for nuclear weapons.

"In our judgment, we have to recycle waste eventually. And recycling makes a lotta sense," Sell says.

"The big argument against reprocessing has been the fact that some high-grade plutonium that could be used in making a bomb could be stolen from the plant," Kroft remarks.

"And we're quite concerned about that as well. And that's why the president has pursued a policy that says we shall develop advanced recycling technologies that do not result in separated plutonium," Sell replies.

The United States is leading an international effort to develop the process, but large-scale, plutonium-free reprocessing is still decades off, and just one of a number of research projects the industry hopes will improve a still young technology.

"Five years ago, nuclear was dead. Now people are really buzzing about it," says MIT Professor Andrew Kadak, who is working on a new generation of nuclear technology, called the Pebble Bed reactor. Instead of conventional fuel rods, the uranium is contained in hundreds of thousands of graphite balls, which would make it safer than than conventional reactors.

"This type of reactor is very unique in the sense that there's no way to melt this down," Kadak explains. "The power inside each little pebble is so low that the temperatures here don't get high enough to reach the melting temperature of uranium, these reactors are exactly what people really wanna see, and that is no meltdowns."

For now the French are pushing an interim generation of nuclear reactors that are safer, simpler and more efficient than the ones that were built in the United States in the 1960's and 70's and they have partnered up with the American nuclear plant operator Constellation.

"It's difficult to fight against climate change. And at the same time to be against nuclear power because you have not a lot of ways to produce energy without CO2 emissions," says AREVA chief Anne Lauvergeon. "You have hydro, you have nuclear, you have wind and you have solar. But wind and solar are you know, temporary sources of energy. It works when you have wind, it works when you have sun. No sun, no wind, no energy. You don't want watch TV only when you have wind."

Plausible deniability and The Hell and Damnation Summit

"Pundita, dear, dare I ask for your thoughts on the latest UN climate change report? I see it places much of the blame for global warming on human activity.
Boris in Jackson Heights"

Dear Boris:
You've been reading this blog long enough that you should be able to look at a calendar to understand how the world works. Remember: If it's April, the Brussels-UN dog-and-pony show is readying the world for the agenda they want to push hardest at the G8 Summit.

Every April at least one dire report is issued under UN auspices that by coincidence happens to relate to a major theme at the summit. So three guesses what the big theme will be at the 2007 meet?

German Chancellor Angela Merkel, who is also serving a term as the European Union president, wants to use the summit to hammer out a successor agreement to the Kyoto Protocol on climate protection, which runs out in 2012, and get the US on board the newest version.

See this handy cheat sheet from the University of Toronto on the proposed agenda items for the summit, which will have "Growth and Responsibility" as the theme.

As to what growth and responsibility mean in this context -- see if you can figure it out; Pundita got cross-eyed after plowing through the third explanation. But taking a shot in the dark, I think it has to do with finding ways to sit on growth globally without seeming to do so. And without mentioning the verboten term "sustainable development." The term has been off-limits since somebody piped up and asked, "Hey, isn't sustainable development actually genocide against the poorest peoples of the world?"

Anyhow, we're all going to hell and damnation if we don't take up carbon swap trading in earnest; that will be the big news coming out of this year's summit.

Where and when is the summit? It will take place June 6-8 in glorious downtown Heiligendamm in Mecklenburg-Western Pomerania. That's in Germany. The town has its back to the water and it's got basically one road into the place. The site was chosen to flummox the anti-globalists and other colorful characters who show up each year to scream obscenities at the G8 participants and hop up and down.

Also, whenever you think of April, you should think "World Bank-IMF Spring meetings," which are taking place this weekend in Washington. Three guesses -- never mind the guesses; the World Bank has gone gaga over carbon emissions trading.

Do I think that putting a cap on carbon emissions will save the world from all the wild weather and natural disasters we've been seeing since the Earth's magnetic shield started collapsing? I suspect that the most significant research on the Earth's weather patterns is classified. Some small indication of the direction of the research is found in this hodgepodge of hard data and speculation, which also includes the text of a 2004 Fortune magazine article with the fun title Climate Collapse.

You can also refresh your memory about an earlier Pundita discussion of the topic by plowing through the 2003 Nova transcript on the collapse of the magnetic shield and speculation that the Earth's poles are starting the long grinding process of reversing themselves.

The big question is whether the magnetic shield collapse at this time is part of a relatively short cycle or a harbinger of a pole reversal. I am not convinced by a New York Times 2003 article assuring us that the collapse of the magnetic shield doesn't portend dire changes in the weather, but the article has useful background information.

It could be that the connection between carbon emissions and global warming is hoodoo, which is not necessarily a bad thing -- if one doesn't want to accept LaRouche's thesis that it's plot to carry out genocide in Africa.

The human race has kept itself going not on faith but on hoodoo. Hoodoo is what you do when you haven't a clue as to what to do. The idea behind hoodoo is that you have to do something, but if it doesn't work you have to maintain plausible deniability to explain the failure.

For example if what's in my medicine bag doesn't cure your illness, I tell you to sacrifice three goats. If your illness has not cured by then, well, you didn't do the ritual right, or the goats were too old, or the gods wanted more goats. And I can always fall back on, "The demon is too powerful" and the ever-popular, "You're being punished for something your older brother did."

The nice thing about the carbon emissions-global warming thesis is that it provides endless excuses for why capping carbon emissions does not halt the wild weather patterns: China cheated on their emissions cap, India cheated, the United States didn't meet the emissions guidelines, and on and on. And through this application of hoodoo the human races lurches onward, despite wild weather.

See you in Heiligendamm.

Why Saudi King Abdullah felt he could snub a recent dinner invitation from the White House and say nasty things about the US in Iraq

I will be publishing another post by 10:00 AM, but for those who didn't see yesterday's Washington Post, I want to share Afshin Molavi's op-ed, The New Silk Road, which presents great advice for Washington's foreign policy establishment and a look at the trade dynamic arising between Asia and the Middle East Gulf states.

DUBAI, United Arab Emirates -- When Chinese President Hu Jintao visited the oil giant Saudi Aramco last year, he didn't need a translator. Plenty of Chinese-speaking Saudis were on hand. A few years earlier, Saudi Aramco had sent dozens of employees to study in Beijing. After all, China, not the United States, represents the future growth for Saudi oil exports.

Meanwhile, the Saudis are sponsoring students to study in India, China, Malaysia, Singapore and South Korea. Three of those countries -- India, China and Malaysia -- were among King Abdullah's first four foreign visits after he ascended the throne in 2005.

The Saudi students represent one small part of the growing trade and business corridor between the Middle East and Asia. Dubbed the "new Silk Road," trade and investment between the regions has quadrupled in the past decade and will continue to rise dramatically through 2020, according to the management consultant McKinsey & Co.

Here in Dubai, newspaper headlines last month spoke not of Iraq or of Arab-Israeli peace diplomacy but of the historic visit to India by Sheik Mohammed bin Rashid Maktum, Dubai's CEO-like ruler. Among the dozens of agreements signed on the trip: a nearly $20 billion real estate project to create three townships on 40,000 acres in India's Maharashtra state.

This new Silk Road is not only boosting economies (the India deal is expected to create 100,000 jobs) but is changing the geoeconomic and geopolitical landscape of the East, with serious ramifications for U.S. policy.

The new Silk Road is largely the result of the confluence of China's and India's economic growth and high oil prices. China and the six oil-rich members of the Gulf Cooperation Council (GCC) -- Saudi Arabia, Bahrain, Oman, Kuwait, Qatar and the United Arab Emirates -- are flush with cash. What's more, Chinese and Indian energy needs will ensure that the GCC region -- the equivalent of the world's 16th-largest economy -- continues to grow.

By 2025, forecasts show, China will import three times as much oil from the Persian Gulf as the United States.

Key "caravan posts" on the new Silk Road are regional economic "winners" or rising stars: Dubai, Beijing, Mumbai, Chennai, Tokyo, Doha, Kuala Lumpur, Singapore, Hong Kong, Riyadh, Shanghai, Abu Dhabi.

The old Silk Road civilization centers such as Persia (Iran), the Levant (Lebanon, Syria, Jordan) and Mesopotamia (Iraq) lag behind.

Dubai, it might be argued, is the unofficial Middle East capital of the new Silk Road -- a gathering place of capital, ideas and traders fueling the growth -- and Iran, once a central force, is the sick man, albeit with enormous potential.

Investors from the GCC have been pouring money into real estate, banking and infrastructure across Asia. The Kuwait Investment Authority, the largest foreign investor in the Industrial and Commercial Bank of China, has doubled its Asia investments in the past two years.

A Dubai official said last month that some GCC states are contemplating buying the yuan to diversify their reserves. Meanwhile, Chinese, Korean, Indian and Japanese companies are active in Middle East real estate, consumer products and industrial investments. China and Egypt -- another Silk Road laggard, just now sputtering to life -- have pledged to double trade in the next few years.

Undersecretary of State Nicholas Burns said in February that the crisis in Iraq, the Israeli-Palestinian conflict, discord in Lebanon and the containment of Iran are "at the heart of our engagement right now in the Middle East."

He said the State Department's top officials spend "a huge percentage" of their time managing those crises.

Fair enough, those are critical issues. But when our foreign affairs bureaucracy focuses mainly on putting out fires, we miss out on important trans-regional trends and links. And it's not only business. A great benefit of the new Silk Road is its potential for expanding American security.

Security in the Persian Gulf is now as important to Beijing and New Delhi as it is to Washington. China will no longer be content to perch under America's security umbrella, and the Indian navy now more assertively patrols the Arabian Sea. What's more, China and India have far more influence with Iran than we do -- and less tolerance for a disruptive war. Many of the Islamic republic's political elites are also business elites, eager to find a way out of conflict.

Charting a path toward greater integration on the new Silk Road will probably be a more moderating force on the Iranian leadership than isolation. Iran's president, Mahmoud Ahmadinejad, may not be too concerned, but more powerful conservative establishment players are more interested in stability (and making money) than war.

Washington might also consider efforts to lure GCC capital to our hemisphere. President Bush recently pledged to assist Latin American economic development. Let's leverage our contacts to link emerging Latin markets to GCC capital networks -- creating a global Silk Road.

As the new Silk Road grows, more such opportunities will arise. But we might be too busy putting out fires to see them.

Dave Schuler connects the dots between China, US defense, and contaminated pet food

Dear Pundita:
I've been following your recent ruminations on China with interest. You make a critical point: US (and European) companies are instrumental in propping up the regime and actively preventing political reform.

As you may have noticed The Glittering Eye has been nearly all pet food recall all the time [...] I look at my coverage of the story as a public service.

However, I'm trying to connect the dots between the Menu Foods pet food recall and homeland security. Your Chinese friends are in the thick of things.
Dave Schuler
The Glittering Eye

Dear Dave:
Pundita worried that you were going dotty in the LaRouchian sense until I read the post. The connection you've drawn is a central issue to national defense but I hadn't -- er, connected the dots, until your reading your observations.

I was also interested in your remarks on the issue of China's intellectual piracy. I was particularly struck by your statement that "Chinese theft of U. S. intellectual property may be as large as the total trade deficit (in favor of the Chinese) between the two countries."

Nancy Pelosi, the next Pussycat Doll? And a new view of multipolarity.

Only Dan Riehl would think to caption a pix of a scarfed Nancy Pelosi with the words, "I went to Syria and all I got was this lousy scarf." A reader asked why I had no comment on Nancy Pelosi's strip -- er, trip -- to Syria. Why should I comment when Dan says it all? And in such evocative language!

Pelosi Got Played
Speakerette San Fran Nanny Pelosi has embarrassed the United States by misrepresenting important details of her visit to the Middle East and allowed herself to be played like a strung out pole dancer in a sleazy night club not even on the main strip.

The Prime Minister's Office has strongly denied that Israel relayed a message to Syria, accepting its calls to renew peace negotiations.

In a special statement of clarification, the bureau stressed that Olmert had told Pelosi that Israel continued to regard Syria as "part of the axis of evil and a party encouraging terrorism in the entire Middle East."

According to sources at the Prime Minister's Office, "Pelosi took part of the things that were said in the meeting, and used what suited her." [...]

Aaargh! I can't get an image out of my mind of Ms. Pelosi pole dancing while wearing a pink feather boa.

I can't blame Dan for the boa; Pundita mentioned recently that she's been gorging on reality shows, which include Search for the Next Pussycat Doll. Now just see what an education I'm getting; a Pussycat Doll is never far from a pole and her pink feather boa.

Eeek! I've just had a vision of ambassadors from governments that espouse multipolarity wearing pink feather boas and pole dancing. Why O why did I visit Dan Riehl's site this morning! lol

The Bridge on the River Tigris

I have been thinking of The Bridge on the River Kwai since taking in the US debates about a timetable for US withdrawal from Iraq. I remember that my mother, a World War Two veteran, was terribly upset about the ending of the movie. She'd gotten caught up in the building of the bridge, and to the point where she forgot it had to be blown up if you were on the Allied side.

She understood on one level, but the bridge building was such a triumph of ingenuity and will in the face of severe adversity that she couldn't bring herself to think about -- well, to think about what was actually going on.

What's actually going on in Iraq? The overriding situation is that the United States ignored the Number One rule of regime change, which is that if you're going to topple a government, you are responsible for security until the country gets on its feet.

So why are we having debate about how long to stay in Iraq and what we're going to do if Maliki's government does not perform according to US-set benchmarks about taking over security responsibilities?

I don't consider that toppling Saddam's regime was an imperial act. But it is the height of imperial hubris for the US to hold another government to a standard that the US refuses to meet.

Again and again over a period of years, and from every quarter in Iraq, the Iraqis asked the US for one thing: to provide adequate security. We flagrantly refused to do this while our Secretary of Defense concentrated on modernizing the US military. Now, after years of occupation, we're mustering military actions to create adequate security amid much US debate about whether to stay on Iraq.

There is a mad quality to all this debate. We have hundreds of excuses about why we screwed up in Iraq, but given the terrible situation we found in the country and the understandable resistance to our presence from Iraq's neighbors, even the best-managed stabilization program might have floundered.

So is there something in the American DNA that prevents us from acknowledging that you can't just flounce away when you screw up in the course of a regime change your government brought about?

If Maliki's government is a mess, if Turkey and the Kurds are causing problems, if sectarian violence and ethnic cleansing stalk the land, if the Iraqi police force is stuffed with death squads and half the Iraqi military is in league with Baathists or Tehran -- what does any of that have to do with the US responsibility to maintain order in Iraq?

Why don't we try something new? Set out benchmarks for the US bringing security to Iraq, then act to meet them? After we have met the objectives, then is the time to question how Iraq's government is doing and when we should leave. But it is so obvious that America has the greatest responsibility for security that debates on Iraq external to the issue are as mad as the story of The Bridge on the River Kwai.

Machinations of US corporate interests in China and the collapse of economic determinism

James Mann's The China Fantasy: How Our Leaders Explain Away Chinese Repression lays out three viewpoints on the future of China:

"Soothing Scenario": China is going to evolve and develop toward political liberalization and democracy, and that trade will help with this change.

The second is what I call the "Upheaval Scenario": to use the vernacular, that China is going to "blow up" - for example, that some serious rupture in their banking system will in turn lead to dramatic political change.

There is what I call the "Third Scenario": politically, what we see in China is what we are going to get - one political system, no organized opposition, no independent judiciary. There are all kinds of nuances on the ground within China, so I don't mean to say that China is not changing. Small-scale changes are taking place, but these may not lead to fundamental changes.

Pundita has a fourth viewpoint, which is based on the Chinese people's passive-aggressive streak: We support the Dear Leader until we can murder him in his bed. This is not China's 'future,' it's the reality -- look at all the actions that Hu Jintao has taken against Jiang Zemin and Jiang's supporters since Hu took power.

The Chinese do things by revolution and purge -- as true today as during Mao's era. Not all the revolutions are especially bloody but the passive-aggressive way of bringing about change has more impact on China's politics than any other phenomenon.

Will the Chinese revolt themselves into democracy? Not if American businesspeople have anything to say about it and unfortunately they have great say. In In Fear of Chinese Democracy, Harold Meyerson delivers news on the latest machinations by our business community to deprive Chinese of rights that Americans consider fundamental in this country -- rights such as the freedom to change jobs.

[...] since March of last year, the government has been considering a labor law that promises a smidgen of increase in workers' rights. And since March of last year, the American businesses so mightily invested in China have mightily fought it.

Beyond the Starbucks of Shanghai, the China of workers and peasants is a sea of unrest, roiled by thousands of strikes and protests that the regime routinely represses. Cognizant that they need to do something to quell the causes of unrest, some of China's rulers have entertained modest changes to the country's labor law.

The legislation wouldn't allow workers to form independent trade unions or grant them the right to strike -- this is, after all, a communist regime. It would, however, require employers to provide employees, either individually or collectively, with written contracts. It would allow employees to change jobs within their industries or get jobs in related industries in other regions; employers have hitherto been able to thwart this by invoking statutes on proprietary information. It would also require that companies bargain with worker representatives over health and safety conditions.

It's not as if Chinese unions would use these laws to run roughshod over employers. Chinese unions are not, strictly speaking, unions at all. They remain controlled by the Communist Party. Their locals can be and frequently are headed by plant managers, whether the workers want them or not. And yet, these changes proved too radical for America's leading corporations.

As documented by Global Labor Strategies, a U.S.-based nonprofit organization headed by longtime labor activists, the American Chamber of Commerce in Shanghai and the U.S.-China Business Council embarked on a major campaign to kill these tepid reforms.

Last April, one month after the legislation was first floated, the chamber sent a 42-page document to the Chinese government on behalf of its 1,300 members -- including General Electric, Microsoft, Dell, Ford and dozens of other household brand names -- objecting to these minimal increases in worker power.

In its public comments on the proposed law, GE declared that it strongly preferred "consultation" with workers to "securing worker representative approval" on a range of its labor practices.

Based on a second draft of the law, completed in December, it looks like American businesses have substantially prevailed. Key provisions were weakened; if an employer elects not to issue written contracts, workers are guaranteed only the wages of similar employees -- with the employer apparently free to define who, exactly, is similar.

Business is relieved: Facing "increased pressure to allow the establishment of unions in companies," Andreas Lauff, a Hong Kong-based corporate attorney, wrote in the Jan. 30 Financial Times, "comments from the business community appear to have had an impact."

Meyerson goes on to make three good points:

> Because roughly a quarter of the global workforce is in China, suppressing the wages of so many people via acts against unionization seriously impacts the global workforce;

> By blocking reforms that can lead to a civil society in China, US businesses are contributing to the security threat that China poses to the US; and

[...] since the Bush administration champions the spread of democracy globally, why hasn't it taken America's leading corporations to task for retarding democracy's growth in China?

Regarding the last point, there have been many factors at work since the Nixon administration contributing to the situation; see James Mann's February op-ed The three futures of China in The Los Angeles Times for a review of the most obvious factors. However, there is no reason you can think of that does not trace back to the skewed thesis of economic determinism. World Bank-IMF programs and the unthinking application of neoliberal schemes to poor countries rest on the idea that once a certain level of business prosperity is achieved, the society naturally embraces democracy.

I don't foresee a collapse of China's government -- if nothing else Japanese, Taiwanese and Hong Kong bankers will bail enough water to keep the Mainland government afloat. I do foresee a collapse of economic determinism as a guiding principle in US foreign relations.

It's a shame that so much has to be accomplished through the mechanism of backlash, but as leftists in this country and around the world gain more power, their rejection of economic determinism will be virulent.

The truth is that US businesspeople have been guided by their government's acceptance of economic determinism. So until there is a US policy change, global US corporations will continue to justify their support of oppressive government policies in the nations they use as industrial plantations.

On news fatigue, dottiness, Lyndon LaRouche, John Batchelor, and the Real Housewives of Orange County.

April 3
Pundita: You know, I'm still reeling from the shock of the terror bombing in Tal Afar. The town had been a showcase for peaceful coexistence between the Sunnis and Shiites until the attack. Then today I saw a photo of a sobbing Burmese child fleeing violence and a photo of two sobbing Iraqi schoolgirls bloodied by a terror attack. Then I went to Bill Roggio's site and read about the further inroads the Taliban are making in Pakistan.[1] I don't know why it was the final straw but it was. I can't do this blog anymore because I can't take in any more bad news.

Michael Wright: Do what you have to do. I think you've taken in millions of news stories since 9/11 about every troubled region in the world. So before taking an extreme step, why not just lay off the news for a week, then see how you feel?

Pundita: But then I'll miss so much.

Michael Wright: Oh I see! You don't want the additional work of catching up!

Pundita: I tuned out of the news for a few years before 9/11 --

Michael Wright: Do you think the terrorists will attack the US again if you stop doing news penance?

Pundita: Don't make fun of me. I'm suffering from bad news fatigue.

Michael Wright: But there are Americans wounded and dying in Iraq, so you have to take on conscious suffering as a gesture of solidarity. I understand.

Pundita: No you don't. I don't have John Batchelor's show to keep me grounded. With Batchelor's format, along with all the bad news you took in news on space exploration, the arts, technological breakthroughs and ancient history and so on. Left completely to my own devices, I just go for the bad news. To give myself some relief I started watching cooking shows and the fluffiest reality shows I can find. I sit there and watch reruns of Top Design and The Real Housewives of Orange County. I'm turning into the world's best-informed fluff head.

Michael Wright: [laughing] We'll have to yank your cable subscription and get you a hobby.

Pundita: Or bring John Batchelor back. It's not only the format I miss; I didn't notice the loss at first because I was so busy at the time, but I realized a few months ago how much I miss not only John's commentaries but also his regular guests -- even the ones I don't like. Under John's leadership they created an atmosphere that balanced out the bad news. The world is full of stupid bad people and wrong actions, but listening to John's show over a period of time reminded you that the world is also full of good people of intelligence and right action.

Michael Wright: Batchelor had his negative moods on that show.

Pundita: He could be very dark. I called it the Welsh side of his family breaking out. But hearing his gloom always produced the opposite effect on me. I'd say, "It's not that bad," and remember many triumphs humanity is having in this era.

Michael Wright: There is the globalization of news -- 24/7 from countless sources highlighting the countless ways people screw up and do harm. Since 9/11 we finally entered the post-Cold War period in news.

Pundita: We're not out of that woods yet. I'll tell you what's really eating at me. Last week I was near Farragut North [subway stop in Washington, DC] and a LaRouchie handed me a free copy of Lyndon LaRouche's Executive Intelligence Review.

The issue highlighted LaRouche's war against Al Gore and the carbon emissions trading scheme. There was also the typical LaRouche rant about the Anglo-Dutch financiers taking over the world. I almost threw the rag in the trash. Then I came to three reports: The French presidential campaign, Bush's trip to Colombia, and the crisis in Syria caused by Iraqi refugees[2] --

Michael Wright: I didn't know there was a crisis.

Pundita: Yeah, and I'll bet you didn't know that President Uribe offered the United States 60,000 square kilometers of Colombian soil to cultivate sugar cane for ethanol while Bush was visiting. But the biggest shocker was EIR's report on Francois Bayrou.

Michael Wright: The moderate in the French race.

Pundita: Bayrou is not a moderate, for all his man-of-the-people routine. According to EIR they were the first news source to point out that Bayrou's economic prescription for France is lifted from financier Michel Pebereau's 2005 debt report for the economics and finance minister. Pebereau's austerity plan makes Margaret Thatcher's revolution look communist.

[According to EIR]the debt report says that one of the main reasons for the huge French debt is that there are too many elected officials and too many elections, creating pressure on officials to spend money.

Michael Wright: Bring back fascism, solve France's debt problem!

Pundita: Exactly.

Michael Wright: The problem is LaRouche is batty.

Pundita: He's not batty, he's dotty, and there is a difference.

Michael Wright: This I have to hear.

Pundita: A genius connects more dots than the rest of us, but then there's some who see so many dots to connect that they're dotty. You can't talk with these people on any subject without them bringing up so many connections that you get dizzy listening. What is the connection between Maurice Strong, Aristotle, Dr. Spock, and British financiers? Lyndon LaRouche sees the connection, and he can't talk about any world situation without hauling in all his connected dots and hurling them at you. He's dotty. In the end, it's all connected, but there has to be a limit on the number of dots you connect or else --

Michael Wright: Or else you go batty.

Pundita: Mike, LaRouche has one of the best nongovernment news-gathering organizations in the world.

Michael Wright: So you want to pay 500 bucks to glean a couple news stories a week that you can't find in the mainstream media or blogosphere?

Pundita: 360 dollars for a yearly subscription; $446 for one year of the rag plus acess to breaking news at the online site.

Michael Wright: Isn't that going against your vow after 9/11 not to use news sources that aren't available for free to the American public?

Pundita: Yes, but you know I've cheated sometimes.[3] But here's what has me so upset: it's not just bad news fatigue; it's all the bad and incomplete data piled on top of all the bad news I'm taking in.

You get a completely different view of the French presidential elections, the situation in Syria, and Bush's trip to Latin America when you read the reports in EIR. It's like stepping into an alternate universe of news.

When I think of the fluff I've seen churned out about the French election by The Economist and every other major rag generally available in the US -- how in the hell can I analyze fluff? So I might as well watch how Jo's romance is going with Slade, or whatever his name, on Housewives of Orange County!

We have a news profession in this country that is crap. So tell me what has changed about news reporting since the Cold War? Do you know that the trend is that newspapers are scaling back or shutting down their foreign news bureaus? No great loss, since it seems most foreign staff writers get their news from the BBC. But news gathering has not significantly improved since the end of the Cold War.

Michael Wright: The Internet has improved; the fact that you can see so much of what's wrong with US news reporting means that you have a more complete picture of what's going on.

Pundita: Not complete enough, and things happen so fast, Mike, because of instant communications platforms.

Michael Wright: The speed of information exchange influences events; the players in world events are increasingly reflexive.

Pundita: So why doesn't that apply to the US Department of State? They seem behind the curve in so many areas that they might as well be on the moon.

Michael Wright: State is getting much better at keeping up with the daily news.

Pundita: My dream of a well-informed populace influencing State's policies is slipping from me.

Michael Wright: I think you're more interested in influencing policy at the World Bank, if you don't mind the observation.

Look, these numbers are arbitrary but maybe LaRouche connects 500 dots; a genius stays maybe in the 200 dots range. Highly informed specialists hover around connecting 50 dots on a particular issue, and policymakers stick closer to connecting 10 situations. That's just about where the mainstream media is with connecting dots. The policymakers tend to drive the level and type of news gathering you find in major newspapers that influence other reporting media, such as TV.

Pundita: So you're saying that the people in place to deal with a crisis, and the people who generate crisis, are at roughly the same level of understanding of the implications about a situation as the mainstream media?

Michael Wright: Something like that. You saw an important connection between 9/11 and development issues in the Third World, and you applied that understanding to the Bush Democracy Doctrine. You said, "Hey, how you go about bringing in democracy in a developing country depends greatly on development policy."

You had a lot to say, and it came pouring out of you during the first year of your blog, but you told me that often you felt like you were yelling in a soundproof room. Then several people started to get your point, and then it became more accepted. You were able to connect more dots about a certain situation than people who didn't have their attention highly focused on both development trends and the war on terror --

Pundita: A lot of people in development circles tried to ignore the war --

Michael Wright: My point is that you're feeling frustrated because you don't have depth of knowledge about say, the political situation in France, and yet you believe it to be very important. So you want to beat up American journalists for not doing a better job of bringing you good data to analyze.

Pundita: You're saying I can't expect the same success at analysis about every situation and that I should stop trying?

Michael Wright: Not that you shouldn't try, but you should put a limit on how much you put into trying, and you shouldn't get frustrated when you don't feel you hit the mark.

Most people who follow the news closely, which includes officials, are pretty much in the same boat when it comes to how much data they take in and process, which means world events flow according to the number of dots they process, not the number that Lyndon LaRouche processes.

Pundita: LaRouche put the dots together in 2000 about Britain's capitulation to the terrorists --

Michael Wright: And he couldn't do a damn thing to stop 9/11 or the London and Madrid bombings -- any more than he could stop the Iraq invasion. No matter how far we see, most of the time we have to wait for macro events to reveal the microcosm of many connected dots.

2) Pakistan's Civil War, March 31

Talibanistan expands in the NWFP, April 3

2) From the March 30 EIR issue: Iraq's other tragedy: 2 million refugees. These EIR two reports from EIR are not availabe online: The French Election: How the Financiers Rigged the Game and Of Bushes and Ethanol Madness in Colombia

3) Since starting the blog I've stuck with discussing news reports that can be verified through free sources found on the Internet; the few exceptions are reports from John Batchelor's roster of intelligence specialists.

Fuzzy Wuzzy school of globalization

Sometimes Sebastian Mallaby writes as if he's been hit on the head by a soccer ball one too many times. But when he's on his game he is to globalization what Rush Limbaugh is to the American Right: a smart and engaging polemicist who should have been a teacher but stooped to the left-handed path of political commentary. In his April 2 Washington Post essay, Free Trade: Pause or Fast Forward? Mr Mallaby is not on his game.

Not to titter at a demagogue when he talks himself into a corner but Mallaby needs to straighten out his reasoning on whether a government's stand against patently unfair trade practice constitutes protectionism.

Mallaby stopped short of calling the US trade sanction on Chinese paper (which I discussed in yesterday's post) "protectionism;" he terms it "unilateralism." He's making a fuzzy distinction because he knows that if there are no holds barred in trade, forget about economic sanctions against repressive governments or governments that look the other way about illegal practices that end up in the global trade mart.

Examples of the latter -- both wafting largely from China -- are the use of animal fur in clothing marketed as fake fur and the wholesale destruction of forests in China and regions that border China. An example of the former includes using economic sanctions to punish Sudan's government for the Darfur genocide -- Mr Mallaby's pet project.

Not long ago I mentioned that Mallaby had blown a gasket about China's development policies in Africa, but he avoided mentioning China's trade policy on Africa, which amounts to reducing emerging industrial economies to bazaar ones. China is not just "dumping" cheap products in Africa; the government is actively engaged in stripping African societies of their manufacturing capacity and replacing it with African middleman who simply buy and resell China's products.

Sebastian Mallaby is in danger of representing for the Fuzzy Wuzzy school of globalization. Few of them have the nerve to come out and say what they really want: the United States military under the control of a global government centered in Europe. So they pick around the edges: making fun of US sovereignty, calling for free trade when it suits them and howling for the US to lead with sanctions when globalization's excesses endanger their interests (e.g., social dumping initiatives), and telling Americans we'll be even more unpopular if we act against 'global opinion.'

Mallaby argues that the United States has to be careful not to offend on trade issues, in case countries the world over flood the WTO with litigation against the US.

[...] a series of verdicts against the United States could stoke protectionism. Congress will yap about unelected foreign judges trampling U.S. sovereignty.

He goes on to warn that if the US undermines WTO legitimacy the results could be dire, with the world reverting to constant fights over trade. (As if there are no fights today.)

What does Mr Mallaby really want? He wants to restart the Doha round. But Doha needs to be scrapped in favor of discussions that concentrate more on trade issues and less on the pie-in-the-sky idea of using trade as welfare for developing nations. Until reality is restored, nations will continue with what they've been doing since Doha collapsed: signing bilateral trade deals. Of course these circumvent the WTO multilateralist approach.

The question is how far multilateralism can be applied to trade when there are vast disparities between how fairly nations represent in the act of trading. How far should we take the concept of fairness? At what point is a level of unfairness actionable; i.e., provoking sanctions against a foreign government or strong internal actions?

Well, it's very unfair for China to use trade deals with Sudan to help prop Omar Hassan al-Bashir's genocidal government. It's very unfair for China to use Burma's aid dependence on China to strip what's left of Burma's forests for China's trade purposes.

It's outrageously unfair for the United States to turn a blind eye to China's fascist method of increasing their global trade. And it skates close to criminal when US trade policy supports and encourages China's tyranny over their own citizens while making it impossible for American workers to compete with China's government.

The bottom line is that the WTO is not about fairness in all matters and it shouldn't be; it's a trade organization. By the same argument WTO cannot be the arbiter of issues that relate only in part to trade.

News flash! China heading for civilization!

In a March 2005 essay titled Pharaoh I made an issue out of the obvious fact that individual workers in democracies are not in competition with individual Chinese workers for jobs; they are in competition with China's government. I've pounded away on the issue ever since, and to no avail. But on Friday, under pressure from Democrats in Congress, the US Department of Commerce took a small step toward acknowledging that the US worker plays against a stacked deck when it comes to competing with China's workers:

Commerce announced that US manufacturers could seek penalty tariffs, known as countervailing duties (as distinct from anti-dumping sanctions), because Chinese government subsidies such as favorable loans, debt forgiveness, and low-cost loans to China's manufacturers constitute unfair trade practice with the US.

The decision is based on a case brought by US firm NewPage Corp., which contends that Chinese high-gloss paper imports are fueled by subsidies that constitute unfair competition to US-made paper.

Of course Beijing is screaming about the decision, and we can be sure that the Red Team is having conniptions, but at least some Democrats are hanging tough:

In a joint statement, House Ways and Means Committee Chairman Charles Rangel and Representative Sander Levin, both Democrats, called the sanctions a "long-overdue change in policy." They said they intended to push forward with legislation that would explicitly change US law to make sure the Commerce actions will withstand any court challenges.(1)

One can always hope but I'm not sure there is a substantive policy shift in the works and whether the penalty tariffs won't be scaled back under pressure from the Red Team, Washington's foreign policy establishment, and the very powerful China trade lobby. As late as March, US Treasury Secretary Henry Paulson was resisting calls for "protectionist" actions, even as the trade deficit with China rose to $232.5 billion, the highest trade gap ever recorded with a single country.

An editorial in Sunday's Washington Post Outlook section, The Limits of Bad Policy, lambasted the US State Department's assumption that the US could forge nondemocratic Arab countries such as Saudi Arabia, Jordan, and Egypt into an effective coalition to help the situation in Lebanon and Israel-Palestine negotiations, and stand up to Iran's aggression.

[...] attempting to achieve U.S. strategic ends through partnerships with Arab autocracies yields mixed results, at best, in the short term and is cancerous in the longer run. [...] When she first unveiled the new strategy, [Condoleezza] Rice described the Arab alliance against Iran as one of "moderates." She shouldn't have been surprised to find last week that in terms of America's fundamental interests, Middle Eastern dictators are neither moderates nor good allies.

True, all true, but is there something intrinsic to Arabs or might we plumb for a general principle? Methinks the Post editors practice selective logic, if they would be unwilling to also huff that China's military dictatorship makes a poor US ally of convenience. Oh but that's right! Silly Pundita; I forgot -- the Post doesn't see China's government as a military dictatorship, and neither does the foreign policy establishment they cater to.

I bring up the issue now because there are serious suggestions that the US partner extensively with China in helping the Africans. My response tracks with an observation by Yan Yu, a specialist in enterprise management at Beijing University. Speaking on another matter, he told a reporter that China is now "respecting individuals and respecting the will of common people, which means we are heading for democracy and civilization."

I'm glad to hear it, but let's wait until China arrives at a civilized juncture before we go partnering with them in African development and aid initiatives. We're already way too "partnered" with China at the World Bank and other multilateral development banks.

1) US imposes sanctions on Chinese paper products

America's Whatever Works school of foreign policy officially launches

Well, it's now official: the United States of America has embarked on the empirical era of foreign relations. On Tuesday, in his first speech in the US since taking office, Defense Secretary Robert M. Gates told the Turkish-American Council in Washington that henceforth American foreign policy must be a blend of all approaches -- realist, idealist, pragmatist, whatever, "with different emphases in different places and at different times. What matters are results."

What?! Results matter? Facts on the ground take precedence over theories propounded by schools of foreign policy? We'll see what our nation's most energetic foreign policy institutes and foreign lobbies have to say about that! Meanwhile, let's celebrate.

Democracy between the devil and the deep blue sea.

I'll preface this essay with the observation that if the problem I discuss were easy to solve, humanity could expect to be living in a golden age by the middle of this century.

Since the inception of this blog Pundita has periodically bashed US foreign policy initiatives that indiscriminately push onto developing countries neoliberal economic reforms such as privatization and ending subsidies to large industries. I haven't got much of a hearing in Washington. But now, writing in the current issue of Foreign Affairs, Ashutosh Varshney has laid out a discussion of my pet gripe that even a high school senior should be able to grasp.

Varshney illustrates exactly why it's working at cross-purposes for developed nations to promote democracy in a poor country while insisting that the country also be a model for privatization of industry and other neoliberal (market-oriented) reforms.

It is inarguable that all the world's poorest countries are in desperate need of neoliberal reforms. But the problem, as Varshney explains in India's Democratic Challenge, is that the more the poor get involved in voting, the more likely they are to block their government from making needed economic reforms that cause short-term pain to the poor or don't show results fast enough.(1)

It comes down to this: If you were poor and had the right to vote, would you vote yourself a huge pay cut or out of a job, if your vote brought in economic reforms that would benefit your entire society in the long run?

If you reply that America managed to accept the pain that went along with neoliberal reforms, you're overlooking many factors. As Varshney points out:

[...] market-based policies meant to increase the efficiency of the aggregate economy frequently generate short-term dislocations and resentment. In a democratic polity, this resentment often translates at the ballot box into a halt or a reversal of pro-market reforms.

In the West, such tensions have remained moderate for at least three reasons: universal suffrage came to most Western democracies only after the Industrial Revolution, which meant that the poor got the right to vote only after those societies had become relatively rich; a welfare state has attended to the needs of low-income segments of the population; and the educated and the wealthy have tended to vote more than the poor.

The Indian experience is different on all three counts. India adopted universal suffrage at the time of independence, long before the transition to a modern industrialized economy began. The country does not have an extensive welfare system, although it has made a greater effort to create one of late.

And, defying democratic theory, a great participatory upsurge has marked Indian politics, a phenomenon that is only beginning to be understood by scholars and observers: since the early 1990s, India's plebeian orders have participated noticeably more in elections than its upper and middle classes.

In fact, the recent wisdom about Indian elections turns standard democratic theory on its head: the lower the caste, income, and education of an Indian, the greater the odds that he will vote.

What about the Asian economic miracles? Varshney notes:

South Korea and Taiwan embraced universal-franchise democracy only in the late 1980s and the mid-1990s, two decades after their economic upturn began. Other economically successful countries in the region, such as China and Singapore, have yet to become liberal democracies.

[...] Democratic politics partly explains why, for example, privatization has gone so slowly in India compared to in China. In India, workers have unions and political parties to protect their interests. In China, labor leaders who resist job losses due to privatization are tried and jailed for treason and subversion [...]

If you ask, "What about Europe?" Well, the Europeans think just like all people everywhere. As The Economist notes in their report about the European Union at 50, which I quoted from on March 25:

The poor performers in Europe have been the core countries of the euro, in particular France, Germany and the Italy [...]

Nor is there much disagreement among economists about what [the] cures should be. In all three countries, labour and product markets are too highly regulated, holding back employment growth and making their economies less flexible. Both the IMF and OECD have been urging further liberalisation as the only sure route to better economic performance. Even Europe's political leaders understand this, though they are also swift to spot political obstacles to reform.

As Luxembourg's Mr Juncker once said, "we all know what to do, we just don't know how to get re-elected after we've done it."

In short, low income European voters have the same distaste for further belt tightening that Indians experience, even when reforms promise to remove an obstacle that limits their country's economic growth.

And population number is a huge factor: a little foreign aid goes a long way in a small European country -- and massive amounts of aid, both outright and in the form of development loans, has been poured into Eastern Europe. In countries with large populations, such as Indonesia and India, giving aid can seem like trying to fill a bottomless pit.

The good news is that since India's statist government embarked on economic reforms 15 years ago, when roughly one-third of the country lived below the poverty line, poverty has greatly decreased. Yet today, a quarter of India's 1+ billion citizens still live on less than $1 a day. So, economic progress has been damnably slow, while at the same time voting among India's poor has boomed.

I hasten to stress that resistance to economic reforms among poor voters is not the only reason that India and other poor democratic nations are facing obstacles to economic growth. Mexico, for example, has hit a ceiling because their ruling political party is loath to press for economic reforms that put a squeeze on the elite. Ashutosh Varshney is simply pointing out an issue about democracy that has been ignored by economists and foreign policy wonks who push neoliberal reforms on poor democratic nations: when the poor greatly outnumber the rich and middle class at the voting booth, economic reforms that cause short-term dislocations tend to be rejected by the majority.

Another straw to the camel's back of democracy is that the demands of globalization exacerbate the need for economic reforms. Varshney explains:

A start toward privatization was made in 2001 [in India], but unions and some political parties have vigorously resisted it. To help millions of small producers, many manufactured products continue to be reserved for "small-scale investors" (a status that caps investment at $250,000 per industrial unit), although in 2001, garments, toys, shoes, and auto components were finally removed from the reserved list. No proposal for a complete dereservation of all industries has yet been seriously entertained, hampering the ability of many Indian companies to compete with their counterparts in other developing countries, notably China.

So does this mean that China's dictatorship model of government has the edge over democracy in the globalization era? In some ways in the short run, yes. But as Varshney points out, India's mature democracy "has a viable solution to the problem of political transition: the party, or coalition of parties, that wins elections will run the government. Transition rules are now deeply institutionalized in India, and [so] long-term political stability is a virtual certainty."

China, on the other hand, is a tinderbox waiting for another revolution from the disenfranchised masses. Keep in mind that:

In China, rural and urban inequality grows at alarming rates, stirring unrest amongst those hundreds of millions who remain impoverished. In fact, China, responsible for only 6 percent of world trade, has actually lost manufacturing jobs in the past ten years.(2)

In India, the impoverished can take to the voting booth to change the way their government does things. In China, there is no option but to revert to the Maoist revolutionary mode, which only sets the stage for another military dictatorship mouthing slightly different slogans.

If you find yourself thinking of the Middle East and Iraq in particular while reading this essay -- why yes. The prevailing wisdom in the US government is that since Iraqis are suffering so much anyhow, might as well build the country on the foundation of neoliberal economics. But Washington also wants Iraq to be a democracy -- and not just the stage show variety.

We want to see smiling Iraqis waving their purple-stained fingers after voting in fair elections. But most of those Iraqis are poor, so one shouldn't expect them to ponder in the voting booth, when asked whether they want their government to put them back to work or wait for private industry to give them a paycheck.

"Oh no," wail neoliberals. "If the Iraqis do that, they head right back to a centrally planned economy. The next thing is a return to Stalinism. Then come the death camps for Iraqis who don't want to starve while waiting for a ten-year plan to work!"

Is there a golden mean -- a way to balance economic reforms with immediate social needs? No. A golden mean exists only on paper when economic theories meet up with societies. But there are strategies to wiggle through reforms without toppling a democratic government.

There is the ice cream strategy. Brazil's president recently launched a painful economic reform while increasing a popular welfare-type program.

There is the nibble-around-the edges strategy, which concentrates on economic reforms affecting sectors that mostly concern the elite, such as stock market reforms. This, on the theory that a larger investor class eventually helps the entire economy.

There is the carpetbagger strategy, and the time-honored vote-buying strategy. But in the end of all strategies are the really painful realities. As Varshney puts it:

[...] if market-oriented economic reforms are to be embraced in areas directly relevant to the masses, politicians will have to answer the following questions: How will the privatization of public enterprises, the reform of labor laws, and the lifting of agricultural subsidies benefit the masses? And how long will the benefits take to trickle down?

All of these reforms are likely to enhance mass welfare in the long run. Therefore, for democratic politicians, this problem will effectively mean taking measures such as reserving a substantial proportion of the proceeds from privatization for public health and primary education, constructing safety nets for workers as labor laws are reformed, and coming up with a plan for a second green revolution in agriculture in return for drawing down the current agricultural subsidies.

The last one, in particular, will require both opening up agriculture to market forces and greater public investment in irrigation, agricultural research, and rural infrastructure and education.

Varshney's advice for India's government holds true as well for many other countries -- and for wealthy governments that invest significant development aid in the world's poorest democracies.

The basic formula is that the more a foreign donor government values democracy, the more carefully the government should promote economic policies that cause short-term pain to the donor country's poor.

President George Bush might have been acknowledging this formula during his recent tour of Latin America in his remarks about "social justice." But his notable silence on the high tariff that protects American corn farmers, and which makes ethanol more expensive to produce in the US than Brazil, illustrates that the basic principle underlying the formula applies to all democratic nations.

However, putting aid money behind social justice programs comes too late in the day to avoid the huge leftward turn in Latin America, which is largely a backlash against indiscriminately applied neoliberal theories.

The fault is not in the theories but in the Promised Land mentality that infests multilateral development institutions and Western foreign development planning. A half century ago, the promised land in development circles was the centrally planned economy "with a closed trade regime, heavy state intervention, and an industrial policy that emphasized import substitution," as Varshney puts it. Then development circles went gaga over capitalist reforms.

If the US wants the poorest democratic nations to modernize, we need to pay as much attention to the immediate demands of the poor in those nations as to the long-term benefits of economic reform.

This advice isn't rocket science. If lingerie makers can come up with different sizes for a bra, if dressmakers can make a pattern for several dress sizes, why can't the US government -- and, indeed, all wealthy governments -- construct foreign development policies on a case-by-case basis?

There is no promised land -- no one strategy or type of development policy that works to serve US interests while serving the needs of modernizing nations. There is only constant adjustment, which was not possible even 15 years ago. But in this era of the internet and global TV, it is relatively cheap to closely monitor how reforms and aid are working their way through a society, and adjust development aid accordingly. Change should no longer be the work equivalent of turning the Grand Canyon around.

1) India's Democratic Challenge

The entire essay is not available online, but the writing (which I've barely skimmed in this essay) is so important to so many issues that it is worth $5.95 to purchase the PDF version from Foreign Affairs magazine. See the purchase icon at the above link.

2) China, India Superpower? Not so Fast! Despite impressive growth, the rising Asian giants have feet of clay by Pranab Bardhan.

Ominous sign on Iran

Yesterday The Washington Post carried another of their rosy reports on the US Treasury-State Department financial strategy to soften up Iran at the nuclear bargaining table.(1)(2)

"More than 40 major international banks and financial institutions have either cut off or cut back business with the Iranian government or private sector" as a result of the campaign.

Iranian President Mahmoud Ahmadinejad's wild statements on the international stage have perhaps done as much to scare off the financiers as the US campaign, but the strategy is certainly putting the squeeze on financing for the Iranian government's petroleum development projects. And Iranian importers are suffering, "with many having to pay for commodities in advance when a year ago they could rely on a revolving line of credit."

However, embedded in the report is a very ominous sign about how things are really going in Iran: The Iranian Revolutionary Guard Corps (IRGC) "control and influence in the Iranian economy is growing exponentially under the regime of Ahmadinejad," according to Treasury undersecretary for terrorism and financial intelligence Stuart Levey.

The new [US financial campaign] particularly targets financial transactions involving the [IRGC], which is now a major economic force beyond its long-standing role in procuring arms and military materiel. Companies tied to the elite unit and its commanders have been awarded government contracts such as airport management and construction of the Tehran subway. The practice has increased since the 2005 election of [Ahmadinejad], U.S. officials say. The Revolutionary Guard -- of which Ahmadinejad is a former member -- is part of the hard-line leader's constituency.

It seems the IRGC represents the most fanatical faction in Iran, and now it seems as if their economic clout is strengthening their vise-like grip on the country. So Pundita worries that the UN sanctions and the US financial campaign could have the opposite intended effect -- unleashing the kind of bunker mindset and actions that characterized Saddam Hussein's response to UN sanctions.

I note that the 15 British troops wrongfully detained in Iran last Friday were seized by the IRGC navy unit, which operates separately from Iran's navy.

1) Iran Feels Pinch As Major Banks Curtail Business by Robin Wright, Washington Post Staff Writer.

2) See also Pundita's Treasury puts the whammy on Axis of Evil.

Shanghaied!

Nobody's clowning around anymore with language; the "independence" word is now openly used by UN negotiators with regard to Kosovo. The Kremlin is still hopping mad about the US-led UN plan to give Kosovo independence. Serbia has denounced the plan and Russia has threatened to veto the UN resolution when it comes to a vote in May and to demand a review of all previous UN resolutions on Kosovo.

While the biggest EU powers support the independence plan, Russia and Serbia aren't the only ones upset about it. EU members Spain, Greece, Romania, Slovakia and Cyprus are backing Belgrade's assertion that the Balkan country shouldn't be further -- balkanized.

China has remained silent about where they will stand the issue at the UN. Beijing might well remain mum, if only to keep Berlin happy. But given China's strong stance against separatism, the Kosovo deal is another spur to increased China-Russia cooperation, which is growing by leaps and bounds --

Russia’s more assertive, anti-Western foreign policy may increasingly push Moscow into the arms of countries with similar foreign outlooks (i.e. China and Iran). The growing importance of the Shanghai Cooperation Organization (SCO) -- whose members include China, Russia, Tajikistan, Kyrgyzstan, Kazakhstan, and Uzbekistan -- is one manifestation of this security reconfiguration. [India, Iran, Mongolia, Pakistan and Afghanistan have observer status.]

Begun as a sleepy mechanism to demilitarize China’s borders a decade ago, the SCO has slowly morphed into a powerful player in an energy-rich region teeming with terrorists and drug pushers.

The Shanghai club is retooling its mission statement to include counterterrorism operations, intelligence sharing, and even election monitoring. Meanwhile, the orientation of its members is increasingly aligning to project a more united front that experts say is, if not hostile to, then outwardly suspicious of U.S. military, economic, geopolitical interests in Central Asia. Iran, currently an SCO observer, is clamoring to join the club."
-- Lionel Beehner, staff writer for the Council on Foreign Relations

Here's Ria Novosti's recent take on the SCO:

The primary ambition of the SCO is to ensure regional security by combating drug trafficking, illegal arms trade, and trans-border crime. It also works to boost economic cooperation in the region and to create favorable conditions for trade and investment. Promotion of closer cultural and humanitarian ties is another important area of the alliance's activity.

Russia-China relations are blossoming. China's President Hu Jintao is in Russia for a three-day visit with Russia's President Vladimir Putin. Hu's visit kicks off Russia's "Year of China" exhibition, which reciprocates last year's "Year of Russia" in China. The Russia exhibition is the biggest sponsored by China in a foreign country. About 200 enterprises and organizations from around China, including the Hong Kong and Macao special administrative regions, will attend the exhibition, with more than 15,000 kinds of products on show.

Hu and Putin are also signing $4.3 billion in agreements and contracts, and issuing joint statements on international issues and their increased efforts regarding the Shanghai Cooperation Organization:

MOSCOW, March 26 (Xinhua) -- China and Russia on Monday pledged efforts to promote multilateral cooperation within the framework of the Shanghai Cooperation Organization (SCO). The SCO is becoming an influential force in the region and on the international arena, and promoting multilateral cooperation with the framework of the SCO is a foreign policy priority of both China and Russia, a China-Russia joint statement said.

As the SCO enters a new stage of development, close political dialogues on urgent international issues are of great significance, visiting Chinese President Hu Jintao and his Russian counterpart Vladimir Putin said in the statement issued on Monday. According to the statement, both sides agreed to take coordinating measures to expand and deepen trade and economic cooperation among the SCO members. China and Russia will also enhance cooperation with Central Asian countries in politics, trade and economy and security within bilateral frameworks and the framework of the SCO, it said.

First, know yourself

There is a similar ring to the stories of Ayaan Hirsi Ali and Hassan Butt. Hirsi Ali, a Muslim Somali, escaped to Holland in order to avoid an arranged marriage. After 9/11 she found herself questioning the tenets of Islam:

"I hated to do it," she wrote in her book Infidel, "because I knew that I would find bin Laden's quotations in [the Quran]."

Partly as a result she lost her faith, concluding that the Quran spreads a culture that is "brutal, bigoted, fixated on controlling women, and harsh in war," and that should not be tolerated by European liberals.(1)

Yet Ms Hirsi Ali became a pariah in her adopted country because of her resounding rejection of Islam and embrace of Western secular values:

Curiously, what seems to rankle Europeans most is the enthusiasm with which Hirsi Ali has adopted their own secularism and the fervor with which she has embraced their own Western values.(1)

Hassan Butt is an ex-recruiter for al Qaeda. Mr Butt, a Briton of Pakistani descent, began to question the rationale for killing civilians after the London Train bombings. From a 60 Minutes interview with correspondent Bob Simon, aired last night:

He began asking questions of his handlers, theological questions. He wanted to know whether the bombings could ever be justified in Islam. He waited and waited for answers. Months later, he was summoned by his handlers to a meeting in the Middle East. But he wasn’t given answers, only new orders.

"They were trying to force me into Iraq to fight basically," Butt says.

"So, to summarize, you're asking, basically, why should we be killing innocent people?" Simon asks.

"That's correct," Butt replies.

"And the answer you eventually received is go to Iraq and perhaps carry out a suicide mission?" Simon asks.

"Go to Iraq to basically – the actual word that they used was that I needed 'reprogramming.' And Iraq would give me the opportunity to basically be reprogrammed for what I needed, I mean. I was quite shocked at the analogy," Butt says.

"To think that ... firstly, I'm neither a computer nor a robot. And I don't know on your say so, I do on God's say so. And if you can't justify to me or prove to me that this is what God wants, then I'm gonna have to go my separate way." [...]

Butt says it was after that meeting that he began answering his questions, himself.

"What I've come to realize is that killing for the sake of killing, and killing in the name of Islam for the sake of killing, is completely and utterly prohibited. And there's a big disease, a big problem and a cancer in the Muslim world. And it's a very dangerous cancer, and it needs to be dealt with," he says.

How?

"And I really believe, if Muslims can pluck up their courage to ask questions, regardless of the consequences, then I do see that there is still hope, you know, to solve, to cure this cancer," Butt says. [...]

"The position of moderate Muslims is that Islam has nothing to do with terrorism. Do you buy that?" Simon asks.

"No, absolutely not. By completely being in denial about it's like an alcoholic basically. Unless an alcoholic acknowledges that he has a problem with alcohol, he's never gonna be able to go forward," Butt argues.

"And as long as we, as Muslims, do not acknowledge that there is a violent streak in Islam, unless we acknowledge that, then we are gonna always lose the battle to the militants, by being in complete denial about it."

Mr Butt's attempt to reform Islam from the inside has made him a pariah to his friends and family and placed his life in danger. He ain't seen nothin' yet in the way of resistance, if he continues to call Islam to task. If the experience of Hirsi Ali is any guide, Butt's biggest detractors will come from British and other European non-Muslims who were brainwashed by their government into believing that multiculturalism is the defining principle for humanity.

Hassan Butt detailed for 60 Minutes some of the tactics used by al-Qaeda recruiters, but what is most striking about his account is that until the London bombings, the very open and public recruitment went ahead with the full knowledge and approval of the British government. Mr Butt is by no means the first person to have made the observation, but it bears repetition as often as possible. From the 60 Minutes interview:

Butt was only 16 when he was recruited by the network. Like thousands of other young British Muslims, he became exposed to some of the most radical Imams in Britain – Imams who supported attacks on westerners all over the world and believed that they had a tacit agreement with the British authorities.

They could preach hatred, they could recruit followers, they could raise funds, and they could even call for Jihad – Holy war – as long as they didn't call for attacks on British soil. London became such a safe haven for Muslim militants that it came to be known as "Londonistan."

"Do you think this was an unspoken deal with the establishment? That, do whatever you want here as long as you don't blow us up?" Simon asks Butt.

"Absolutely. I believe that sincerely," Butt tells Simon. "That was an unspoken deal. And as a result of that, what tended to happen is the British government lost count of how many people were going abroad getting trained and coming back and going into operational mode as sleeper cells."

Writing in yesterday's Washington Post Outlook section, Professor Bruce Hoffman quotes Sun Tzu to make his point that we're fighting blind if we don't know the enemy -- "their motivation and mind-set, their decision-making processes and command-and-control relationships, their organizational dynamics and their ideological appeal." (2)

Spurred on by the quotation, I eagerly plowed through Mr Hoffman's essay on psyops, but found nary a sentence pertaining to the second part of Sun Tzu's advice: "If you know the enemy and know yourself, you need not fear the results of a hundred battles."

Of course it is important to know as much as possible about the enemy. Butt makes the interesting point that many Muslims he recruited were initially drawn to jihadist teachings because they didn't want an arranged marriage. The violence-preaching imams told them they could marry any woman they pleased, provided she was Muslim. However, the studious silence of non-Muslim British society about Islam's violent aspects aided and abetted the imams at every step.

How could this happen? It happens very easily, when you don't know yourself. From there it's a hop and a skip to accepting the propaganda that getting along with others is a higher priority than thinking for yourself.

Western civilization rests on the belief that it is the basic duty and right of every human to learn how to think for himself. Ayaan Hirsi Ali and Hassan Butt invoked their basic right and thus, rather easily broke free of the conditioning that caused them accept false teachings.

It will be much harder for the British and others in the European Union to break free of their conditioning because the union is held together as much by compromise with diverse cultural beliefs as by common economic interests.

At some point, EU governments raised compromise to the status of a kind of god, and now woe betide any citizen of the European Union who dares to place one set of cultural beliefs above another. It is this kind of thinking that delivered the West to the Muslim terrorist bombers. It is the kind of thinking that favors understanding others while you don't have a clue as to what you're all about.

1) Europe can't grasp Hirsi Ali, who has the gall to speak her mind by Anne Applebaum.

2) We Can't Win If We Don't Know the Enemy by Bruce Hoffman.