The Utopian - Blog

Reinventing the European Dream

theutopian — Sun, 08 Jul 2012 11:51:25 -0400

By Anne-Marie Slaughter.

Natural-gas fields in the Eastern Mediterranean are big enough to supply the entire world for a year. But Europe needs another Monnet or Schumann to realize their potential.

The euro crisis and Queen Elizabeth’s recent Jubilee seem to have nothing in common. In fact, together they impart an important lesson: the power of a positive narrative – and the impossibility of winning without one.

Commenting on the Jubilee’s river pageant and horse parade, historian Simon Schama talked to the BBC about “little boats and big ideas.” The biggest idea was that Britain’s monarchy serves to connect the country’s past to its future in ways that transcend the pettiness and ugliness of quotidian politics. The heritage of kings and queens stretching back across more than a millennium – the enduring symbolism of crowns and coaches, and the literal embodiment of the English and now the British state – binds Britons together in a common journey.

Cynics might call this the old bread-and-circuses routine. But the point is to fix eyes and hearts on a narrative of hope and purpose – to uplift, rather than distract, the public. Are Greeks, Spaniards, Portuguese, and other Europeans really supposed to embrace an austerity program imposed on them because prevailing wisdom in Germany and other northern countries considers them profligate and lazy? Those are fighting words, creating resentment and division just when unity and burden-sharing are most needed.

Greece, in particular, now needs a way to connect its past with its future, but no monarch is forthcoming. And, as the cradle of the world’s first democracy, Greece needs other symbols of national renewal than scepters and robes. It is through Homer that virtually all Western readers first encounter the Mediterranean world: its islands and shores and peoples knit together by diplomacy, trade, marriage, oil, wine, and long ships. Greece could once again be a pillar of such a world, using its current crisis to craft a new future.

That vision is more plausible than one might think. Natural-gas fields in the Eastern Mediterranean are estimated to hold up to 122 trillion cubic feet, enough to supply the entire world for a year. More gas and large oil fields lie off the Greek coast in the Aegean and Ionian Seas, enough to transform the finances of Greece and the entire region. Israel and Cyprus are planning joint exploration; Israel and Greece are discussing a pipeline; Turkey and Lebanon are prospecting; and Egypt is planning to license exploration.

But politics, as always, intervenes. All countries involved have maritime disputes and political disagreements. The Turks are working with Northern Cyprus, whose independence only they recognize, and regularly make threatening noises about Israel’s drilling with the Greek Cypriot government of the Republic of Cyprus. The Greek Cypriots regularly hold the EU hostage over any dealings with Turkey, as has Greece. The Turks will not let Cypriot ships into their harbors and have not been on speaking terms with the Israelis since nine Turkish citizens were killed on a ship that sought to breach Israel’s blockade of Gaza. Lebanon and Israel do not have diplomatic relations.

In short, the riches, jobs, and development that would flow to all countries in the region from responsible energy exploitation may well be blocked by the insistence of each on getting what it regards as its fair share and denying access to its enemies.

The vision of a Mediterranean Energy Community thus seems destined to remain a pipedream. Yet July will bring the 60th anniversary of the ratification of the Treaty of Paris, which established the European Coal and Steel Community (ECSC) among France, Germany, Italy, Belgium, the Netherlands, and Luxembourg only six years after the end of World War II. During the previous 70 years, Germany and France had fought each other in three devastating wars, the last two of which ruined Europe’s economies and decimated its population.

These countries’ mutual hatred and suspicion was no less bitter and deep-seated than that afflicting the Eastern Mediterranean. Yet French Foreign Minister Robert Schuman, with the assistance of his counselor Jean Monnet, announced a plan for the ECSC in 1950, only five years after German troops had left Paris, with the aim of making “war not only unthinkable but materially impossible.” Schuman proposed putting Franco-German coal and steel production under a common High Authority, thereby preventing the two sides from using the raw materials of war against each other, and powering a common industrial economy. The ECSC became the core of today’s European Union.

The EU today is on the ropes, but only a few concrete steps by European leaders might open the door to similarly bold diplomacy that could restore EU and Mediterranean economies and transform the energy politics of Europe and Asia. If the European Parliament and the European Council were to take steps to make direct EU trade with northern Cyprus subject to qualified majority voting rather than consensus (and hence veto by Cyprus), the EU would be able to begin trading with northern Cyprus, and Turkey could begin trading with Cyprus as a whole. These steps could lead in turn to a Turkish, Cypriot, and Greek energy partnership that would provide positive incentives for Turkish-Israeli reconciliation.

The Schuman Plan took two years to crystalize and a decade to implement. But it gave war-torn and desperately poor Europeans a positive vision of a new future, something that Greece and Cyprus, not to mention Middle Eastern and North African countries, desperately need. Europe’s leaders will not surmount this crisis by pounding their citizens with bleak demands for austerity. They must take concrete steps, with Greece as a full and equal partner, to create a vision of real rewards from a rejuvenated EU.

The EU does not have a Queen Elizabeth. What it needs is another Schuman and Monnet.

Anne-Marie Slaughter, a former director of policy planning in the US State Department and a former dean of the Woodrow Wilson School of Public and International Affairs, is Professor of Politics and International Affairs at Princeton University.

This article first appeared at our partner site, Project Syndicate.

If You Don't Publish, Others May Perish

theutopian — Sun, 08 Jul 2012 11:44:14 -0400

By Iain Chalmers.

At least half of all clinical trials involving patients and healthy volunteers remain unpublished years after completion. This self-censorship can lead to distorted clinical-practice recommendations, suffering, and death.

A few years ago, two Norwegian researchers presented their version of a scientific-research slippery slope, with honest errors (mistaken observations and analyses) at the top and intentional fraud (plagiarism, falsification, and fabrication) at the bottom. They placed “publication bias” about halfway down the scale – but it should have been much lower. Indeed, failure to publish research results is by far the most common and worrying form of scientific and ethical misconduct in health research – and it has had lethal consequences.

Anecdotal evidence of publication bias has existed for a long time. But, as requirements for registering clinical trials have become more stringent, its magnitude has become quantifiable: the results of at least half of the clinical trials involving patients and healthy volunteers remain unpublished years after completion. Studies with “negative” results are particularly unlikely to see the light of day. But neglecting to report research can lead to distorted clinical-practice recommendations, suffering, and death.

For example, anti-arrhythmic drugs were prescribed widely – with the United States Food and Drug Administration’s approval – to heart-attack victims for more than a decade, under the assumption that reducing heart-rhythm abnormalities would decrease mortality rates. But, as the investigative journalist Thomas J. Moore reported in his book Deadly Medicine, at the peak of their use, these drugs were killing more Americans each year than were killed during the entire Vietnam War.

Following this revelation, a British research team reported a clinical trial that they had carried out more than a decade earlier. Their study had found a higher death rate among patients receiving a new anti-arrhythmic drug than among those receiving a placebo. They had not published the results, they explained, because the drug’s development had been abandoned for commercial reasons. In retrospect, however, they observed that their results “might have provided early warning of trouble ahead.”

Beyond avoidable suffering and death, failure to report research also slows the pace of scientific discovery. It is widely acknowledged that the high current level of investment in pharmaceutical research is yielding too few substantive discoveries.

At a meeting on “translational research,” a senior member of a contract-research organization – a company that provides outsourced research services to the pharmaceutical and biotechnology industries – articulated the problem. “What really frustrates us,” he commented, “is to be commissioned by a pharmaceutical company to design an early-phase trial when we know already that it is going up a blind alley. And the reason we know that is that we’ve been up the blind alley with another company; but that experience remains unreported for commercial reasons.”

In other words, the drug-discovery process suffers from built-in inefficiency, owing to inadequate reporting. But, while waste may be tolerable, avoidable harm to patients is not. Drug-trial volunteers should not accept this abuse of their participation in research. Failing to publish the results of clinical trials is a betrayal of the implicit trust that they have placed in researchers to use their contribution to increase and improve the stock of scientific knowledge.

Nor should the public accept this squandering of resources. There is simply no justification for withholding the results of health-research studies. Publication is a moral imperative.

Iain Chalmers is a British health-services researcher, a founder of the Cochrane Collaboration, and the coordinator of the James Lind Initiative.

This article was first published on our partner site, Project Syndicate.

Putin's Ironic Potential

theutopian — Sun, 08 Jul 2012 11:40:19 -0400

By Lilia Shevtsova.

Given his open contempt for Russian society, the autocrat’s return to the Kremlin could yet prove to be Russia’s best hope for change.

Vladimir Putin’s recapture of the Russian presidency has been met with widespread derision, both at home and abroad. But the autocrat’s return to the Kremlin could be Russia’s best hope to escape stagnation.

With his open contempt for Russian society – exemplified in his mocking response to widespread demonstrations – as well as his arrogance, readiness to stifle dissent, and fear of competition, Putin has singlehandedly quashed the long-held myth that he himself propagated: personalized power can modernize the country while preserving stability.

To be sure, Putin’s Kremlin – and his corrupt cohorts – still calls the shots. And, while his decision to return to the presidency has vexed the most dynamic elements of Russia’s urban population, the rest of the country’s citizens remain unhappy but quiescent. Likewise, Russia’s demoralized intellectuals and political class, on whom the population relies to advocate change, neglect to act. The global rise in oil prices, endemic fear of change, lack of a viable alternative, and reliance on state hand-outs are keeping Russia in a state of inertia.

Moreover, Putin’s Kremlin has used the West – eager for engagement and a policy “reset” with Russia – to legitimize its authoritarian rule and to provide opportunities for its venal cronies’ integration into Western society. Indeed, by using the West to launder their dirty money, Putin and his cohorts have, in a way, avenged the Soviet Union’s collapse by undermining the West’s principles and discrediting liberal democracy in the eyes of the Russian population.

But cracks are forming in Russian society, threatening the status quo. And it is not the opposition or a popular rebellion that are beginning to destabilize Putin’s regime, but the very forces that have helped to keep it afloat.

After waiting 12 years for change from the top, Russians finally understand that their political system can be transformed only from the bottom – through popular revolution. In the absence of institutional channels for expression of their grievances over the corrupt concessions that have preserved the ruling elite’s power, they must take to the streets.

But the question remains: Will Russia this time escape its traditional final act, in which the new regime turns out to be more predatory than the previous one? Or will Russians find a way to pursue peaceful revolution?

Today, the Kremlin is contributing to its own violent demise, intentionally demoralizing Russian society. It discredits liberalism by employing liberal rhetoric and appointing liberal leaders to administer its authoritarian rule, leaving political opposition to leftist parties and nationalists.

And Putin’s return to the Stalinist practice of sending police to search opponents’ homes, combined with his attempts to ignite hostility between social groups – for example, between provincial Russia and the urban middle class – is deepening antagonism and distrust among citizens. In this way, Putin’s regime intensifies political dissenters’ longing for retaliation – thereby hindering peaceful change.

Already, longstanding tensions have begun to boil over; tens of thousands of people have taken to the streets since Putin’s 2011 announcement that he would reclaim the presidency. His return to the Kremlin has incited some of the largest protests that Moscow has seen since the 1990’s. And, while popular demonstrations have diminished – largely as a result of draconian new anti-protest laws – the more conflict accumulates beneath the surface, the more devastating the eventual explosion will be.

By censoring the media, discrediting moderate opposition, and provoking popular discontent, Putin is playing with fire. It is impossible to predict when Russia will detonate, but the system’s fissures are undeniable – and growing.

The Kremlin, far from being able to control the situation, does not fully grasp what is happening. Russia is moving toward precipice. Massive capital flight and efforts by Kremlin cronies to engineer a safe landing for themselves in the West show that, even in the eyes of Putin’s cohorts, the end of his époque is approaching.

Yet Putin’s Kremlin continues to work tirelessly to prevent the formation of a strong opposition – increasing the risk that the regime will collapse without a viable alternative. The longer Putin remains in power, the more devastating his regime’s final act will be.

Both Russia and the West must begin to plan ahead. Regrettably, Russia’s awakening corresponds with the beginning of the West’s seeming decline. Still, rather than remaining complicit in Putin’s corrupt regime, the West must help the Russian people to seek their new destiny.

And Russia’s citizens must not give up hope. Putin’s return to the Kremlin, although painful, could end up curtailing their agony by triggering the regime’s destruction. When the choice is between an outdated system’s implosion and its slow degradation, a swift, clean break typically offers better prospects for a new start.

Lilia Shevtsova is Senior Associate of the Carnegie Endowment for International Peace in Moscow.

This article was first published on our partner site,Project Syndicate.

Reading your fortune

uri-ferruccio — Thu, 17 May 2012 23:44:00 -0400

By Juan Gabriel Vásquez / Tr. by Jeremy Osner.

Juan Gabriel Vásquez reflects on the continued prevalence of sortes vergilianæ, a form of bibliomancy, or choosing a passage from a book at random in the belief that the verses one finds will describe one’s fate.

Last Tuesday, amid the closing gasps of the Feria del Libro, we were chatting with Conrado Zuluaga; Juan Esteban Constaín mentioned the ancient practice of sortes vergilianæ, a form of bibliomancy based on opening Virgil’s Aeneid at random, in the belief that the verses one finds will describe one’s fate.

Many other books have been used in the same way — needless to say the Bible is one such, perhaps the Koran is used this way among Muslims. We know the Greeks would do the same thing with Homer’s poems — would take the Odyssey, for example, open it at random, would be scared to death or die of happiness, would make their important decisions based on what they saw happening to poor Ulysses. I’ve known people, more or less reasonable adults — granted they were writers — who in moments of doubt or uncertainty would dip into Rememberance of Things Past — a book apparently possessed of no lesser prophetic ability than that of ancient Virgil. At one point I asked a friend whether Proust’s novel could really offer answers to any question; “In seven volumes of 300 pages each,” came the rationally superstitious reply, “it would be difficult for it not to contain everything.”

To be sure, prophecy is not what it once was: the beauty of the Virgilian Lottery has little in common with Google’s “I’m Feeling Lucky”; where once we combed through the pages of the Aeneid, we now turn to the self-help section, to Chopra and Coelho. But this is not to say that we (we who live our lives among books) have given up on older forms of superstition; we turn to them ironically, playfully, (perhaps) without believing in them. Every author of fiction is familiar with these moments — walking aimlessly around your house, pacing in circles in your hotel room, wondering what the next line of your story will be; it is not unheard-of to resolve the problem, in the end, by opening at random some other writer’s volume. I have found Crime and Punishment and Anna Karenina to be of use from time to time; also an anthology of Irish poetry edited by Seamus Heany; also Philip Roth’s novels. But one book has never failed me, a nine-pound tome that I always keep within reach: The Complete Works of Shakespeare. I find that opening this book will loosen the most stubborn writer’s block.

My friend Hisham Matar, the Libyan author, has hit on an infallible method for discovering the character — the literary character, that is to say — of any book: the 11th line of the 99th page. What is written here is, according to Matar, the soul of the book, indeed it may well be a commentary on the author of the book as well. Thinking I will test it out, I dip in to some books that I have on hand at the moment. In Disgrace, by J.M. Coetzee: “He does not understand.” In Putrid Fatherland, essays by W.G. Sebald, the 11th line is a blank line between paragraphs; this strikes me as elegant. In A Week of 15 Years, Vladdo’s memoir about the Revista Semana journal, I find a group of people playing Tetris — is journalism the art of fitting the blocks together? I don’t know; suddenly I decide to bring the two methods together, Virgil’s and Matar’s, and I look at the 11th line of the 99th page of my Aeneid. I find the following words: “Where are we bound, with this dispute? Why not agree, better, to a lasting peace?”

What are they meaning to tell me? Who knows?

Greece's Election and Its Aftermath

theutopian — Wed, 09 May 2012 13:00:00 -0400

By Harris Mylonas and Akis Georgakellos.

After Greece’s elections, everything suddenly looks very different. But it remains unclear whether anything much will actually change.

Greece’s elections last Sunday are a historic low for the country’s two traditionally dominant parties, PASOK and Nea Demokratia (ND), which have ruled the country since the collapse of the Junta in 1974. Together they garnered only 32% of the vote. To put this result in perspective, one has to consider that their combined total was less than what ND alone received three years ago—when it was beaten into second place by PASOK!

According to polling companies, the collapse of support for the two main parties accelerated in the last week leading to the election. This is why the final result—and especially the strong showing for the Coalition of the Radical Left (SYRIZA), which ended up as Greece’s second strongest party with close to 17% of the vote—was hard to anticipate. (SYRIZA got a final boost once it proposed a “Government of the Left” and—given the popularity of its young leader—managed to position itself as a more modern left-wing party than the Greek Communist Party (KKE), whose vote stagnated compared to the 2009 elections.) Less unexpected was the electoral success of the Independent Hellenes (10.6%) on the right and the Golden Dawn on the far right (7%, a 2400% increase from its 2009 tally!).

What all four of these parties have in common is their absolute rejection of the terms of Greece’s bailout. Other than that one single fact, their political platforms could not be farther apart. It is highly unlikely that they’ll be able to form a joint government.

In fact, if one takes into account the latest statements by various party leaders, any coalition government now seems highly unlikely. ND and PASOK, with 108 and 41 seats respectively, aren’t strong enough to govern alone—even if they could reach an agreement on a common agenda. Given the anti-bailout stance of four out of the seven parties elected to parliament, the only remaining hope now is that the Democratic Left party (DIMAR) could join ND and PASOK. But as of now, DIMAR’s president, Fotis Kouvelis, shows no signs of being willing to cooperate with PASOK and ND. Nothing is decided yet, but the next few days will determine whether Greece will delay further elections and form a makeshift coalition government—a coalition government that may lend the country an appearance of stability for a few weeks, but is likely to be stillborn—or whether there will be new elections in June.

Another thing to note is is that the current electoral law produces odd and hardly representative results. For instance, ND received 2 percentage points more than the Coalition of the Radical Left. But this resulted in the party gaining 56 more parliamentary seats. This difference is explained by a 50-seat bonus that the current electoral law gives the party with the most votes in order to ensure stable governments. Clearly, however, this law was created for an electoral landscape dominted by two large parties, and is now outmoded.

It is also interesting to note that, because a party has to garner at least 3% of the vote to enter parliament in Greece, more than 19% of the electorate supported parties that did not ultimately make it into parliament. These include: Popular Orthodox Rally-LAOS, Democratic Alliance, DRASI (Action), Dimiourgia Xana (Recreate Greece), Social Agreement (Koinoniki Symfonia), and the Green Party (Oikologoi Prasinoi). So extreme is the fragmentation of Greece’s party system now that the parties that did not manage to enter parliament collectively received a higher percentage of the vote than the party with the most votes—a party that nevertheless received 108, as opposed to zero, seats in parliament! (The liberal parties who failed to enter parliament in this election—Democratic Alliance, DRASI, and Dimiourgia Xana—would be able to form a relatively strong center-right faction in parliament if they formed an alliance for future elections.)

Many messages could be drawn from this mess. For one, Greeks turned against the two established parties in part because they are no longer able to uphold their end of the bargain in the traditional “patronage contract,” which rewards their reliable supporters with favors from public coffers. For another, Greeks voted against austerity measures. And yet they voted—at least nominally—in favor of a European future. This may appear extremely contradictory, but for many voters and party leaders it is not. Time will tell if theirs—Europe: yes; Austerity: no—is a realistic aspiration.

The paradoxical truth is that the result, while to a great extent a protest vote, was for many a vote of hope: hope for something different. In any case, we should not consider these results as solidified partisan identities on the part of the voters. According to pre-election polls, many voters decided their votes in the last days leading up to the election. On top of this, there are people who—especially after learning the results—had second thoughts about the parties they had ended up voting for. This is the most volatile the Greek party system has been since the early 1950s. The result of the next elections could look very different.

Combining the Greek result with the friction in Franco-German relations that will likely result from Francois Hollande’s electoral victory in France, it is little wonder that European leaders have so far remained largely silent about Greece’s elections. Before they react to the result, they want to see whether a stable government can be formed. For now, it looks unlikely that Greece will be able to form such a stable government. The outcome of the Greek elections therefore increases uncertainty about the Euro’s future. The markets will most likely react negatively and remain volatile until things clear out.

Since the election everything looks different. But it remains to be seen whether anything much has actually changed.

Harris Mylonas is an Assistant Professor of Political Science and International Affairs at George Washington University and an Academy Scholar at the Harvard Academy for International and Area Studies. Akis Georgakellos is a Political Analyst/Strategy consultant and a directing partner at Stratego—a Greek company.

Has Russia Gone Back to Sleep?

uri-ferruccio — Wed, 02 May 2012 09:12:00 -0400

By Georgy Satarov

The widespread protests against electoral fraud and state malfeasance that spread throughout Russia nine months ago are largely over. However, Putin and his regime may be celebrating “stability” too early. Russian society has become a dry peat bog, waiting for a spark to ignite it.

In just six months, from the end of September 2011 to March 2012, Russia was transformed. The state’s gradual decomposition – its degenerate ethos of rent-seeking and appropriation of public goods – finally pushed Russia’s citizens, especially its young post-communist middle class, into the streets. Soviet-era deference to paternalistic leaders gave way to self-confidence and distrust of established authority.

Or did it? Vladimir Putin and his regime, caught off guard by last winter’s massive protests, were on the verge of panic. But, after last month’s presidential election returned Putin to the office, the protest wave rapidly subsided. Rallies shrank to one-tenth their previous size. With expectations of immediate success unmet, the romantic impulse wilted. It was clear what to do in confronting electoral fraud; what to do later, after the defeat, was not. The protests’ leaders could formulate no new goals and slogans.

Moreover, between the parliamentary elections of last December and the presidential election in March, the authorities began to seize the initiative. Putin’s presidential placeholder, Dmitri Medvedev, proposed political reforms and started meeting with representatives of opposition parties, which also had a demobilizing effect.

The authorities no doubt perceived the decline in street activity as a victory, which they immediately sought to consolidate by using the security forces to suppress future protests. Courts hearing allegations of falsified election results generally ignored clear evidence of legal violations. To many, the protest movement had been defeated.

But there was no real victory for the country’s power elite; nor was society defeated. The protests reflected irreversible changes. Russian society has become a dry peat bog, waiting for a spark to ignite it.

Of course, the reforms announced by the government were the simulated sort that have been a staple of Putin’s rule. But, even as the authorities try to dilute their own initiatives – for example, resumption of elections for regional governors, removal of barriers to party registration, or the establishment of independent public television – they have provided new opportunities for political participation.

But what is happening in Russian society is more important. In Moscow, the presidential election coincided with the election of municipal leaders. Those in power, concerned about alienating voters, increasingly sought to hide their affiliation with Putin’s United Russia party. And the municipal elections, previously the object of widespread indifference, attracted educated, active young people – the first “unwhipped generation” in Russian history – who not only challenged the incumbents, but won.

This bottom-up process is inestimably important to Russia’s future. And Moscow is not the only example. In several Russian cities, the opposition won mayoral elections. In Astrakhan, where the opposition candidate lost because of widespread voting fraud, the scale of street protests grew ten-fold, and the entire country has been stirred by the scandal. Nowadays, opposition leaders from Moscow and elsewhere travel to other cities and join the protests or become election observers.

That activity will need to continue. When asked in a recent interview about the fate of the Putin-Medvedev regime, Medvedev, now the prime minister, said: “It is now time to calm down, because the tandem is here for a long time.” But, while the “tandem” continues to see its main achievement as “stability,” what they now mean is the regime’s ability to stay in power “for a long time.”

To guarantee their understanding of “stability,” the tandem contrasts the continuous middle-class protests with a wave of regime-orchestrated demonstrations. As a result, the country is now swollen with all sorts of phobias – against sexual minorities, against the so-called “propaganda of sex” among young people, against critics of the Orthodox Church, and, as always, against the West.

It is difficult to predict the fate of such a blinkered regime. What we can say for sure is that only a democratic Russia will be able to survive within the country’s current borders. The alternative is collapse, unpredictable and merciless. Fortunately, the awakening of Russian society, the geographic broadening of political opposition, and the advent of a new generation unshackled by Soviet habits of mind and behavior has given the country an opportunity for genuine democratic reform that 12 years of Putinism had seemed to bury.

But Russia will choose not only between Putinism and democracy. Trying to ensure stability, the regime is awakening forces that it will not be able to control. The nationalism and homophobia that Putin and Medvedev have mobilized against the liberal wave is more dangerous to them – and their plan to swap jobs with each other indefinitely – than the liberals and leftists are.

Russia can go down three paths: democracy, which would preserve the country and provide prosperity for its citizens; the dead end of Putininism; or an orgy of nationalist obscurantism. Either of the second two scenarios would increase dramatically the likelihood of Russia’s eventual disintegration.

This article first appeared on our partner site, Project Syndicate.

Europe's Implementation Problem

uri-ferruccio — Fri, 27 Apr 2012 08:20:41 -0400

By Alex Gourevitch and Chris Bickerton

The unravelling of political support for Eurozone agreements is not just a product of a far right surge across Europe. Elite opinion lacks consensus on the modalities of austerity and the deficit-reduction assumptions of the EU’s fiscal compact, and national governments are finding it increasingly difficult to implement unpopular fiscal policies.

In recent days, we have seen an unravelling in the political foundations of the Eurozone’s fiscal compact. The most recent casualty was Mark Rutte’s government in the Netherlands. Precarious at the best of times, the government’s proposed budget cuts of up to 16 billion Euros failed to win over the Freedom Party leader, Geert Wilders. Wilders withdrew his support for the government, leaving it to rely on a spattering of small parties across the Dutch parliament. Rutte claims that the country must pass the new budget by the 30^th April, the deadline given to the Hague by the European Commission, the latter donning its hat as agent of budgetary approval for national governments. Many in the Netherlands disagree and any election is likely to be cast as a referendum on the Euro.

In France, the success of the far right National Front in the first round of the Presidential elections last Sunday has put France’s role in Europe under the spotlight. One of Marine Le Pen’s most publicized demands was that France leave the Euro. Turning their attention to National Front supporters, both second round candidates – Nicolas Sarkozy and François Hollande – have taken the anti-EU sentiment on board. Hollande promises to redesign the fiscal compact so that it focuses more on growth and job creation. Sarkozy has begun to speak about politically controlling the European Central Bank and has taken a tough line on Europe’s immigration laws.

In Ireland, as a referendum on the fiscal deal approaches, a large part of the population is undecided. Recent polls suggest that up to 40% of the population is unsure how it will vote on the 31^st May. And in Greece, the forthcoming elections may well challenge the political consensus built up behind the country’s deal with its creditors.

This unravelling of political support for Eurozone agreements is not just a product of a far right surge across Europe. Many of the criticisms of the austerity measures reflect divided opinion at the very top of public life. That more austerity only leads to lower growth, which in turn leads to higher debt levels and thus a need for even more austerity, is recognized by many as a downward spiral associated with extreme cost-cutting by governments. The IMF has for a long timewarned against draconian cuts in government budgets that could stifle rather than encourage growth. In Greece, we have heard this argument coming from the opposition for some time and in the UK the Labour and Conservative Parties agreed in the run up to the 2010 election on the need for balanced budgets but disagreed about how quickly budgets should be brought back into balance. Elite opinion lacks consensus on the modalities of austerity policies and today’s disagreements reveal some of the problems with the deficit-reduction assumptions of the EU’s fiscal compact.

It is also clear that implementation problems are an inherent feature of European governance. Taking the case of the Eurozone, the fiscal compact reflects the way in which political decision-making has become separated from the ugly business of implementing unpopular policies. EU crisis management concentrates policymaking powers within the hands of executives. In the form of agreements between heads of state, brokered behind closed doors and in ways that are intended to mutually support each other in the difficult task of ruling in uncertain times, these policies are then passed down to the level of national ministries where the cuts and belt-tightening takes effect. And it is not coincidental that the focus at the EU level is on government spending. The far more difficult and longer term task of raising competitiveness is left up to national governments.

Such a radical separation between the decisions made and their implementation is evidence of the weak authority national governments command across Europe. They hope that by presenting at the domestic level something that has already been agreed by most member states, implementation will be made easier. The pan-European nature of the deal thus reflects the crisis in authority felt by national governments. They need this separation of policymaking from implementation in order to make implementation easier at the national level. We are seeing today that it does not always work.

Alex Gourevitch and Chris Bickerton also blog at The Current Moment.

The Challenge of Islamic Finance

uri-ferruccio — Mon, 23 Apr 2012 06:42:45 -0400

By Andrew Sheng, Ajit Singh

With Britain now in talks to sell part of the government’s 82% stake in the Royal Bank of Scotland to Abu Dhabi sovereign-wealth funds, the Islamic world’s growing financial clout is once again on display. That clout also poses a systemic challenge to the dominant way that finance is now practiced around the world.

Despite skepticism regarding accommodation between Islamic and global finance, leading banks are buying Islamic bonds and forming subsidiaries specifically to conduct Islamic finance. Special laws have been enacted in non-Muslim financial centers – London, Singapore, and Hong Kong – to facilitate the operation of Islamic banks and associated financial institutions.

How should these developments be viewed from the perspective of Western finance and mainstream economic analysis? Does Islamic finance really constitute a viable alternative financial system?

The very fact that such a question is asked nowadays is significant. Not so long ago, Islamic finance was superficially dubbed a zero-interest-rate system that would lead to inadequate and inefficient resource mobilization and utilization. Ironically, mainstream central bankers today routinely use precisely such policies when pursuing massive “quantitative easing.”

There are two central precepts of Islamic finance: absolute prohibition on charging interest on financial transactions, and high moral standards on the part of lenders and borrowers. Interestingly, the best economic rationale for a zero-interest-rate system is provided in John Maynard Keynes’s The General Theory:

“Provisions against usury are amongst the most ancient economic practices of which we have record….In a world, therefore, which no one reckoned to be safe, it was almost inevitable that the rate of interest, unless it was curbed by every instrument at the disposal of society, would rise too high to permit of an adequate inducement to invest.”

Keynes suggested that only a very low or zero interest rate could ensure continuous full employment and distributional equity. Keynes’s endorsement of such a policy does not necessarily make it right, but his analysis does suggest that it should be regarded as a serious proposition.

Importantly, although interest is prohibited under Islamic finance, profit is not; the latter is derived from various arrangements that combine finance and enterprise. In essence, this is a profit-sharing and risk-sharing system that is based entirely on equity finance.

Islamic finance thus contrasts with the current dominant system based on interest-bearing debt, in which risks are theoretically transferred to debt holders, but in practice are socialized during crises. Other things being equal, most economists will agree that debt finance leads to greater instability than equity finance.

It follows from the second major tenet of Islamic finance that if people adhered strictly to its ethical requirements, there would be fewer moral-hazard problems in Islamic banking. Moral hazard exists in all systems in which the state ultimately absorbs the risks of private citizens.

But, whether any particular system is efficient in avoiding moral hazard is a matter of practice, rather than of theory. Many would agree that, historically, Christian morality played an important role in the rise of Western capitalism. Secular capitalism, however, has experienced an erosion of values, whereby the financial sector has put its own interests above those of the rest of society.& If the ethical values in Islamic finance – grounded in sharia religious law – can further deter moral hazard and the abuse of fiduciary duties by financial institutions, Islamic finance could prove to be a serious alternative to current models of derivative finance.

Moreover, the basic tenets of Islamic finance force us to re-think the ethical basis of modern monetary arrangements, which have evolved into a global reserve-currency system founded on fiat money. In the past, gold had been the anchor of monetary stability and financial discipline, even if it was deflationary.

The test of any alternative financial system depends ultimately on whether it is – or can be – more efficient, ethical, stable, and adaptable than the prevailing system. For now, there is no Islamic global reserve currency and no lender of last resort. But the Islamic world is the custodian of huge natural resources that back its trading and financial activities.

As the Islamic world grows in stature and influence, Islamic finance will become a formidable competitor to the current financial system. The world would have much to gain if the two systems were to compete fairly and constructively to meet people’s needs for different types of finance.

How should these developments be viewed from the perspective of Western finance and mainstream economic analysis? Does Islamic finance really constitute a viable alternative financial system?

This article first appeared on our partner site, Project Syndicate.

Shame

uri-ferruccio — Tue, 20 Mar 2012 10:04:00 -0400

by Juan Gabriel Vásquez/tr. Jeremy Osner

“War is hell,” said Leon Panetta, Secretary of Defense in the Obama administration: he said it following the killing of 16 civilians, among them children, by a deranged sergeant in the Afghan province of Kandahar. This massacre unleashed on the world a series of images that one cannot look at without being reminded of similar massacres from the Vietnam War — for instance, My Lai.

But let’s not go so far back, lest we be accused of being “obsessed with the past,” “unable to turn the page” — such things are anathema to the US media. We are dealing, in any case, with the worst massacre of civilians in the ten years of the US intervention in Afghanistan, a disgrace on the scale of Abu Ghraib. President Obama lost no time in apologizing, just as he had apologized a few days before for the burning of Korans — and in reaction, the Republican candidates came down on him. We can examine this reaction from a few different angles.

First and most obvious: Maybe the Republicans are chasing the vote of their party’s far-right base — but they are missing an excellent opportunity to keep their mouths shut. Mitt Romney and Rick Santorum, each in his own way, reproached Obama for his apology as if it were an act of treason, something reprehensible and anti-American — more anti-American, more reprehensible it would appear, than the massacre itself. They believe that offering an apology is a dishonor to the nation; and they have convinced the extremists who follow them that Obama is ashamed of the country he leads. And so they avoid questions of flesh and blood — questions about how to revive the economy which the Bush administration decimated, questions about how to conduct the war which the Bush administration started with untruths and distortions: The Republicans, with their love of abstract moralizing, have opened a debate over the sense of shame evidenced by the president’s apology.

Of course this is an exercise in willful hypocrisy. Just watching a few of the conservatives’ fainthearted debates, one can see that they too are ashamed. Whether they admit it or not, is another question. I refer to an eloquent omission: In none of the debates — and indeed not once in the campaign so far — has there been a single mention of the previous Republican president, a president who was in power not four years but eight. It seems for the present candidates, his long terms of office never happened: when it comes to Bush they remain silent, they pass him over, they blot him out like the crazy, filthy uncle locked away in the attic before guests come over. His name can only be handled with protective gloves; one must creep by his eight years on tiptoes, without looking. It is because of this — the exceptionally difficult problem presented by the previous Republican president’s legacy — that it makes sense to fill the debates with religion and sex and jingoism. The previous Republican president will make even the most confident candidate blush with shame.

I can’t imagine any of these candidates making an apology for the massacre at Kandahar. It’s more profitable for them to attack Obama when he shows sympathy for the victims. “War is Hell,” yes. But for the shameless Republicans, it would appear to be an agreeable hell: without it, how far would their demagogy go?

Jeremy Lin and the Political Economy of Superstars

uri-ferruccio — Sat, 03 Mar 2012 00:08:00 -0500

By Kenneth Rogoff

High salaries for athletes and movie stars are easily accepted by the public. So why, if a financial trader or a corporate boss is paid a fortune, does the public suspect that he or she must be undeserving or, worse, a thief?

The biggest news around Cambridge in recent weeks has been Jeremy Lin, the Harvard economics graduate who has shocked the National Basketball Association by rising overnight from “nowhere” to become a genuine star, leading a losing New York Knicks team to an unlikely string of victories.

Lin’s success is delicious, partly because it contradicts so many cultural prejudices about Asian-American athletes. Flabbergasted experts who overlooked Lin have been saying things like “he just didn’t look the part.” Lin’s obvious integrity and graciousness has won him fans outside the sport as well. The whole world has taken note, with Lin being featured on the cover of Sports Illustrated for two consecutive issues. The NBA, which has been trying to build brand recognition and interest in China, is thrilled.

I confess to being a huge Lin fan. Indeed, my teenage son has been idolizing Lin’s skills and work ethic ever since Lin starred on the Harvard team. But, as an economist observing the public’s seething anger over the “one percenters,” or individuals with exceptionally high incomes, I also see a different, overlooked facet of the story.

What amazes me is the public’s blasé acceptance of the salaries of sports stars, compared to its low regard for superstars in business and finance. Half of all NBA players’ annual salaries exceed $2 million, more than five times the threshold for the top 1% of household incomes in the United States. Because long-time superstars like Kobe Bryant earn upwards of $25 million a year, the average annual NBA salary is more than $5 million. Indeed, Lin’s salary, at $800,000, is the NBA’s “minimum wage” for a second-season player. Presumably, Lin will soon be earning much more, and fans will applaud.

Yet many of these same fans would almost surely argue that CEOs of Fortune 500 companies, whose median compensation is around $10 million, are ridiculously overpaid. If a star basketball player reacts a split-second faster than his competitors, no one has a problem with his earning more for every game than five factory workers do in a year. But if, say, a financial trader or a corporate executive is paid a fortune for being a shade faster than competitors, the public suspects that he or she is undeserving or, worse, a thief.

Economists have long studied the economics of superstars in fields where a company can lever enormously the decisions of a small number of individuals, making them valuable in a way that someone who can, say, chop down trees like the legendary Paul Bunyan, is not. But the political economy of what levels of income differences countries will tolerate remains uncharted territory.

Of course, there is a certain logic to the public’s disdain for superstar compensation outside of professional sports and entertainment. This is especially the case in some areas of finance that are essentially zero-sum games, in which one person’s gain is another’s loss. There are other areas, such as technology, in which someone like Apple’s late founder, Steve Jobs, arguably delivers real innovation and quality, rather than just employing lawyers and lobbyists to maintain a monopoly position.

As a basketball fan, I would not describe the sport as a zero-sum game, even though one team wins and one team loses. The best players have huge creative flair. But so do some “street ball” players who excel in slam-dunk theatrics; perhaps because they are not tall enough to compete, they make almost nothing.

Do fans tolerate outsize sports incomes because players are role models? Many certainly are, but not all high-paid sports celebrities are exemplary citizens. Michael Vick, a star quarterback in the US National Football League, served time in prison for running a vicious dog-fighting operation, and arrests of players on charges ranging from illegal possession of drugs and weapons to domestic battery have been a regular occurrence.

And, back on the field or court, serious infractions occur all the time. Think of Zinedine Zidane’s infamous head butt in the 2006 football World Cup. In the NBA itself, a star player, Ron Artest, was suspended for the remainder of the 2004 season after going into the stands and brawling with heckling fans during a game. (Artest has now changed his name to Metta World Peace, perhaps in response.)

Moreover, sports teams surely lobby governments as aggressively as any big business. Professional sport is a legislated monopoly in most countries, with top teams extracting free stadiums and other privileges from host cities. Indeed, Lin’s story, it should be remembered, grew out of a huge labor dispute between the NBA’s billionaire owners and its millionaire players over division of the league’s nearly $4 billion in annual revenues – more than many countries’ national income.

As the late University of Chicago economist Sherwin Rosen postulated, globalization and changing communication technologies have increasingly made the economics of superstars important in a variety of fields. That is certainly true in sports and entertainment, but it is also the case in business and finance.

I wish Lin a long and successful career as a superstar, though he will have already had a huge cultural impact even if his success proves meteoric. One can hope that, as Asian-Americans continue to break barriers in other arenas – they remain under-represented among corporate CEOs, for example – these rising superstars will be greeted with similar acclaim.

If the public is not happy about high superstar incomes, the obvious remedy is to improve the tax system, including for powerful sports-team owners, many of whom benefit from huge tax breaks in their day jobs. Who knows? With a more level playing field, superstars outside sports and entertainment might find themselves a bit better appreciated.

Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University

Weimar Europe?

uri-ferruccio — Sun, 26 Feb 2012 02:23:00 -0500

By Harold James

Germany’s position in Europe looks increasingly peculiar and vulnerable. In the chaos of German unification in 1990, when Germany’s neighbors were terrified of the new giant, then-Chancellor Helmut Kohl promised a European Germany, not a German Europe. Today, however, the terms of any European rescue effort are obviously set by Germany.

There is widespread recognition that Europe needs substantial economic growth if it is to emerge from its debt woes. But German concerns about stability – founded on its catastrophic interwar experience – push in the opposite direction. As a consequence, Germany-bashing is now in fashion.

Germany’s critics make two points: the real European problem is the German current-account surplus, and Germans are perversely obsessed with their past.

The German current-account position is in fact a long-standing issue that predates the monetary union. By the 1960’s, Germany had emerged as the strongest and most dynamic European economy, owing to robust export performance. German current-account surpluses, driven primarily by positive trade balances, appeared briefly in the 1950’s, were corrected after a currency revaluation in 1961, and then re-emerged in surges in the late 1960’s, the late 1970’s, the late 1980’s, and again in the 2000’s.

If the resulting imbalances could not be financed and sustained, there was a need for adjustment. At regular intervals since the 1960’s, Germany’s European partners, notably France, faced the prospect of austerity and deflation in order to correct deficits. This alternative was unattractive to the French political elite, because it constrained growth and guaranteed electoral unpopularity.

The French (and the other Mediterranean countries) preferred German monetary and fiscal expansion, which would attenuate Germany’s strong export orientation. But this course was always unpopular with Germans, who, given the interwar legacy, worried about inflation and its implications.

German policymakers thought that the issue would disappear with the monetary union’s launch, on the grounds that no one in the United States worries about a Californian boom that produces the equivalent of current-account surpluses (if anyone bothered to measure them). Nobody tells Californians to relax and go to the beach when times are good.

The second criticism, repeatedly voiced by the Nobel laureate economist Paul Krugman, is that the supposed German history lesson is chronologically false. It was not the famous hyperinflation of the early 1920’s that destroyed Germany’s fragile Weimar Republic and gave rise to the Nazi dictatorship. Rather, democracy was killed a decade later by depression and deflation.

This contemporary criticism misses an important element of the German policy predicament of the early 1930’s. By the Great Depression, Germany was already trapped, owing to previous bad choices. It is precisely that lesson which is deeply engrained in German political consciousness.

Germans are right to notice the parallels between conditions in Europe today and those in the interwar period. The similarities consist in the implications of the choice of currency regime for political behavior and democratic legitimacy.

At the end of its hyperinflation, Germany locked itself into a currency regime, the international gold standard, which was deliberately designed to be so limiting that exit was impossible. The anticipated consequence was that the country would appear credible and become attractive to foreign capital.

As the strategy worked, capital inflows sparked both public-sector and private-sector booms. Governments at all levels funded politically attractive but expensive infrastructure projects.

But there was a downside. The boom’s vigor, coupled with prior experience of inflation, led to wage increases that were not matched by productivity gains. As a result, Weimar Germany lost competitiveness in the late 1920’s, in the same way that Southern Europe did in the 2000’s. In both cases, it was clear that the capital inflows could not continue forever, and weakening competiveness meant brought the end forward.

When the reversal came, Germany was trapped. As foreigners and Germans alike withdrew deposits, banks were driven into insolvency and forced to liquidate their assets at very fire-sale prices. The government had to prop up failed banks; but it could fund deficits only by borrowing from the banks. Given its commitment to the fixed exchange rate of the gold standard, that meant that it had to impose ever more unpopular austerity measures.

Given all of these constraints, there was no easy way out. The path immediately adopted in the wake of the 1931 banking crisis was to impose capital controls.

The crisis was a defeat for democracy. The democratic parties’ obvious response was to flee from political responsibility during the period of the greatest economic hardship. The Weimar Republic’s last fully parliamentary government had already collapsed in March 1930 under the political weight of an impossible fiscal dilemma. Spending cuts alienated the left; tax increases angered the right.

Democratic parties acquiesced in the use of the constitution’s emergency provisions to bypass parliament and enact legislation in the form of decrees. In this way, democracy was already substantially eroded before the appointment of Adolf Hitler as Chancellor in January 1933.

Banking and budget problems, fiscal constraints, and the emergence of “non-political” technocratic governments: all are horribly familiar to Germans with a sense of the past. The negative lesson of the interwar experience – that piling up more fiscal liabilities does not solve the problem – is already apparent in today’s Europe. But there is a positive lesson to be drawn as well: the possibility of an international order that supports rather than undermines democratic regimes at the moment when they take unpopular measures.

That was the lesson drawn from Weimar by Konrad Adenauer, Germany’s first post-war Chancellor, and a man who – as mayor of one of Germany’s high-spending cities in the 1920’s – had seen the German catastrophe up close. Now, as then, Europe – a community of shared values – is needed to maintain democracy in nation-states threatened by economic breakdown.

Harold James is Claude and Lore Kelly Professor in European Studies at Princeton University.

This article first appeared on our partner site, Project Syndicate.

Too Big to Jail

uri-ferruccio — Wed, 22 Feb 2012 23:09:00 -0500

By Simon Johnson

Breaking an oath to tell the truth is perjury, and lying in official documents is both perjury and fraud. These are serious criminal offenses, but apparently not if you are at the heart of America’s financial system.

Among the fundamental principles of any functioning justice system is the following: Don’t lie to a judge or falsify documents submitted to a court, or you will go to jail. Breaking an oath to tell the truth is perjury, and lying in official documents is both perjury and fraud. These are serious criminal offenses, but apparently not if you are at the heart of America’s financial system. On the contrary, key individuals there appear to be well compensated for their crimes.

As Dennis Kelleher of Better Markets has argued, the recent so-called “robo-signing” settlement – in which five large banks “settled” their legal liability for carrying out fraudulent foreclosures on mortgages – is a complete sell-out to the financial industry.

First, there was no serious criminal prosecution – meaning that no one will be charged with a felony, and no one will go to jail. In terms of affecting executives’ incentives, this is the only thing that matters.

Even the terminology used to frame the discussion is wrong. Kelleher, an attorney with extensive experience in private practice and the public sector, tells it like it is: “‘robo-signing’ is massive, systematic, fraudulent, criminal conduct.” Alternatively, as he points out, we could just call it “lying, cheating, and stealing.”

Second, the civil penalties in this settlement – a form of fine – are minuscule relative to the size of the companies involved. As Shahien Nasiripour, one of the best reporters on this issue, dryly put it: “None of the five lenders have said they expect to incur a material charge due to the settlement.” In other words, from a corporate perspective, the penalty is a trifling affair.

Third, such fines are, in any case, paid by the companies’ shareholders, not by their executives or board members (all of whom carry insurance). In the rare cases in which fines have been levied on individuals, either their insurance policies picked up most of the bill, or the penalties were trivial relative to the cash compensation that they received while committing their crimes – or both.

As if all of this weren’t bad enough, the banks reportedly will be able to use government money to write down the value of mortgages, which amounts to subsidizing them to pay their own meaningless fines.

The Obama administration and its allies have worked hard to sell its roughly $20 billion settlement with the banks as one that will have a meaningful impact on the housing market. But nothing could be further from the truth. As Kelleher points out, the United States has “more than 10 million homes under water” (the outstanding mortgage exceeds the house’s value). “Twenty billion dollars doesn’t make a dent in that: one million homes at $20,000 loan forgiveness is it.”

In fact, the Obama administration’s settlement with the mortgage lenders is consistent with its track record on all of its policies related to the financial sector, which has been abysmal. But it is also puzzling. Why would the administration continue to bend over backwards to be lenient towards top bankers under these circumstances?

I honestly do not believe that the administration’s stance reflects any form of corruption – payments made to individuals or even to political campaigns. And, in this case, it does not even appear to reflect the lobbying power of big financial players. That power certainly explains why the Dodd-Frank financial reforms enacted in 2010 were not stronger, and why there is now so much opposition to effective implementation of that legislation (for example, there is currently a huge fight around the “Volcker rule,” which would limit proprietary trading by megabanks). But mortgage lenders’ criminal activities are another matter.

Indeed, at stake in the mortgage settlement are fundamental and systemic breaches of the rule of law – perjury and fraud on an economy-wide scale. The Justice Department has, without question, all of the power that it needs to prosecute these alleged crimes fully. And yet America’s top law-enforcement officials have consistently – and now completely – backed off.

The main motivation behind the administration’s indulgence of serious criminality evidently is fear of the consequences of taking tough action on individual bankers. And maybe officials are right to be afraid, given the massive size of the banks in question relative to the economy. In fact, those banks are bigger now than they were before the crisis, and, as James Kwak and I documented at length in our book 13 Bankers, they are much larger than they were 20 years ago.

Top bankers want to make a lot of money. They also want to stay out of prison. Political leaders can huff and puff as much as they want, but, without a credible threat of poverty and time behind bars, bankers have no reason to comply with the law. For them, it’s all about the trade – and you can be the sucker in public policy as easily as you can be the sucker in an individual loan agreement.

The message to bank executives today is simple: build your bank to be as big as possible – and then keep growing. If you manage to become big enough, you and your employees are not just too big to fail, but also too big to jail.

The Obama administration has just made everyone else the sucker.

Simon Johnson, a former chief economist of the IMF, a professor at MIT Sloan.

This post first appeared on our partner site, Project Syndicate.

Is the Web Closing?

uri-ferruccio — Tue, 21 Feb 2012 00:35:10 -0500

By Esther Dyson

Within the tech community, there is much angst about whether the Web is about to be “closed.” However, the Web’s openness or closure is not a matter to be settled once and for all, but rather a fluctuating situation

Within the tech community, there is much angst about whether the Web is about to be “closed.” Will it be controlled by companies like Apple, Facebook, and Google, or will it remain “open” to all? Will individuals be able to reach any content they choose? Will developers be able to serve users on any platform?

These questions are not new. Fifteen years ago, in the United States at least, it was America Online (now AOL) that was closing the Internet. Millions of people were relying on it for Internet service and content. Today, AOL’s purported control of the Internet looks like a joke, but it was considered a real threat at the time.

The threats nowadays come from both new companies and new models. (More about governments some other time!) Facebook is getting a lot of press, owing to its omnipresence and its pending stock offering. Increasingly, many people go online to use Facebook and little else, while Facebook encourages people to stay on Facebook to play games on Zynga, shop through Facebook commerce pages, and so on. Will Facebook control who gets to talk to us?

Likewise, Apple not only sells hardware; it controls, through its AppStore, what applications we can use on our iPads and iPhones. Amazon determines which books we read. Google, for its part, is filtering our search results – both by focusing our attention on what also interests our friends, and by excluding Twitter and Facebook results from what we see (mostly because Google and Facebook/Twitter cannot agree on whether Google should pay them or they should pay Google).

Beyond these big players, smaller startups are increasingly focusing on apps – applications that capture a user and keep him or her safe from the open Web. These apps are typically cleared and registered by big players. For many people, Apple’s App Store is a benefit, because it ensures (for the most part) the quality and security of the apps. Various app stores perform the same function for Android phones, but with fewer restrictions and less security.

In short, you can choose from along a spectrum, with more security at one end and more freedom at the other. The Web’s openness or closure is not a matter to be settled once and for all, but rather a fluctuating situation (even if the Web takes on some other name). CompuServe and FTP (file transfer protocol, remember that?) were not the end of Internet history. The same is true of the World Wide Web. Nor will Google or Facebook and apps be the last word of the digital age.

The great thing about Internet companies is that they, unlike governments, can be relatively easily deposed. They cannot outlaw competition, and, though they can engage in anti-competitive practices and filter content for their users, eventually consumers and startups fight back.

Consider the Web site Pinterest – “Organize and share things you love” – which has recently gone from startup to 11 million visitors a week. Even morerecently, it has attracted negative attention for secretly profiting from its users’ behavior and spamming their Facebook friends. Should we wait for users to notice, or should we call on some government to save them from their own blissful ignorance?

How can we distinguish between paternalism and our duty to protect people from companies with incomprehensible privacy statements? If people are happy with Facebook, why should we disturb them?

In a world where Facebook can go from dorm-room project to $100 billion IPO in seven years, it may seem careless to suggest that we can just wait for a backlash to come if one is necessary. But I think we can.

Of course, we can also be part of the backlash. In fact, paranoid bloggers and self-styled consumer advocates are all part of the workings of the broader market, which includes not just companies and activists, but also pundits and politicians, each with proposals to address perceived dangers.

Don’t get me wrong: collective action in the form of government interference will sometimes be necessary. The problem is that we are as likely to get bad measures – like the recently abandoned US attempt to enact anti-piracy laws that would have fostered wholesale Web site closures – as we are to get a freer Internet. (In general, antitrust enforcement is the best approach to ensuring an open market in a world where technology changes even faster than election cycles, though it, too, can be driven more by sentiment and fashion than by economics.)

We are now moving slowly from open data to a closed online world of Facebook and apps. Use of the Domain Name System (the address bar) will likely diminish, owing not only to apps, but also to a tragedy of the commons in which new Top-Level Domain names (.whatevers and .brands) confuse users and lead them to rely on the search box or links within apps instead.

At the same time, Facebook is responding (in its own way) to user and advertiser demands. Blogger Robert Scoble likes Facebook because it lets him manage and calculate his online popularity; I like it because I can limit comments (mostly) to people who are not totally crazy. And I can also write for Project Syndicate to reach (and hear from) a broader audience. None of this is all or nothing. Different individuals have different preferences; sometimes even the same individual has different preferences.

I don’t believe that we are actually facing a world of no choices; we have many, and it is up to us to select from them. I despise many people’s choices, but I prefer the world of the so-called long tail. By contrast, the short, fat front – where content is homogenized and individuals get either one central broadcast or something so tailored for them that they never learn anything new or encounter a disagreeable idea – is always more popular. But then, just when it seems no alternative is possible, some fearless entrepreneur comes along with something outrageous that, ten years later, dominates everything.

Esther Dyson is CEO of EDventure Holdings.

This article first appeared on our partner site, Project Syndicate.

Bullies and their certainties

uri-ferruccio — Sun, 19 Feb 2012 01:11:00 -0500

By Juan Gabriel Vásquez; translated by Jeremy Osner.

After Salman Rushdie cancelled his trip to the Jaipur Literary Festival due to apparent death threats, a writer named Hari Kunzru downloaded passages of Rushdie’s novel The Satanic Verses, which is banned in India, and read them in public at the festival. While many disagreed with his actions, he did something important: he kept the bigots from winning.

In the Indian state of Rajasthan, the Jaipur literary festival is happening this week. It started out in 2006 with a few hundred attendees; currently 20,000 visitors come each day on the weekend. But this year the big news was not these impressive statistics, but rather something that is not ordinarily news during a literary festival: an author read selections from a novel. (True, the novel was not his own, and he read it with admiration. One author admiring another, proclaiming this admiration publicly, well yes, that’s news.) The reader was Hari Kunzru, the great Anglo-Indian, or Indo-British, novelist; the novel was The Satanic Verses, by Salman Rushdie. And you’ll be asking — Why is this news, this reading aloud of Rushdie’s novel? I’ll tell you: Because The Satanic Verses is banned in India. If one is going to be reading from a banned novel, most likely one will be carrying a copy. If one is carrying a copy of a banned novel, one runs the risk of ending up in jail.

The Satanic Verses, aside from being a great novel, is well known for having led the Ayatollah Khomeini to sentence Rushdie to death, by the pronunciation of a fatwa in 1988. Rushdie was forced, from that time on, to live an underground life, surrounded by bodyguards, not trusting anyone, astonished to see intellectuals saying that the fatwa was in some sense justified, that he “got what he was asking for,” that “one must respect religious beliefs.” For the past few years Rushdie has, at last, been able to appear in public again, to lead a normal life; but recently in Barcelona, when I had the pleasure of introducing him at the launch of the Spanish translation of one of his latest novels, I came to understand that there is nothing normal about the life he leads. When we got to the bookstore where the launch was taking place, armored cars full of police were waiting for us along with a riot squad; when the event was over, Rushdie could not sign books, by express order of the security staff. One never knows who could be in the crowd. But be that as it may, Rushdie was close to believing that this 20-year nightmare was over. Then it was announced that he would be speaking at Jaipur. This announcement was followed by protests from various Islamist organizations; and one fine day came word that Rushdie had cancelled the visit. Why? He believed that three assassins were on their way from Bombay with orders to kill him.

It now appears that this information was false. But the risk was sufficiently great that Rushdie, in an act of responsibility (not to mention self-preservation), cancelled his visit. This was what led Kunzru — and not only him — to download passages from The Satanic Verses, and read them at the festival: it was a way of keeping the victory from those who do not speak, but rather scream; those who do not discuss, but rather threaten. In Great Britain, many people whom I respect believe that Kunzru erred, that his actions only inflamed the situation. I disagree: it took courage to do what Kunzru did, and I believe that he achieved something important. He kept the bigots from winning, those who would silence one whose only crime is to question established doctrine; those who have only certainties, and wish to kill anyone who does not share their certainties.

Nixon Then, China Now

uri-ferruccio — Tue, 14 Feb 2012 01:15:01 -0500

By Minxin Pei

Nixon himself was probably not bothered by the nature of the Chinese regime four decades ago. The fact that the question must be addressed now attests to China’s astonishing progress since then. But it also shows that China’s long march toward global integration remains unfinished.

When US President Richard Nixon embarked on his historic trip to China 40 years ago, he could not have imagined what his gamble would unleash. The immediate diplomatic impact, of course, was to reshape Eurasia’s geopolitical balance and put the Soviet Union on the defensive. But the long-term outcome of America’s rapprochement with China became visible only recently, with the economic integration of the People’s Republic into the world economy.

Had Nixon not acted in 1972, China’s self-imposed isolation would have continued. Deng Xiaoping’s reform and opening of China to the world would have been far more difficult.

Four decades after the “Nixon shock,” no one disputes that China has benefited enormously. Today, the impoverished and autarkic country that Nixon visited is history. Global reintegration has turned China into an economic powerhouse. It is the world’s largest exporter in volume terms, and is the world’s second-largest economy. China’s presence is felt around the world, from mines in Africa to Apple stores in the United States.

As we reflect on China’s remarkable progress since 1972, it is also an opportune time to consider how China continues to fall short in overcoming systemic obstacles to long-term success. Because China is widely regarded as a winner of globalization, it is natural to assume that the country has developed the means to meet its challenges. But, while China has implemented policies to maximize the benefits of free trade (undervaluing its currency, investing in infrastructure, and luring foreign manufacturing to increase competitiveness), the country remains unprepared for deeper integration with the world.

One sign of this is China’s lack of the necessary institutions and rules. For example, China has become a significant player in providing economic development assistance (often tied to its strategy for acquiring natural resources). Its loans and grants to Africa have now surpassed those made by the World Bank. But China has no specialized agency in charge of international development assistance. As a result, its foreign-aid programs are poorly coordinated and often seem counterproductive. Instead of earning goodwill, they are viewed as part of a sinister neocolonial plot to grab natural resources in poverty-stricken nations.

Another example is China’s lack of an immigration policy. Even though China is beginning to attract labor from around the world, it has yet to promulgate a comprehensive legal framework that would allow the country to compete for the most talented people or to deal with the complexities of international migration.

A third example is the absence of independent policy-research organizations. Owing to political control and inadequate professional development, government-run research institutions can seldom provide the high-quality, unbiased analysis of global issues on which sound policymaking depends.

Perhaps most importantly, two decades of rapid GDP growth have masked serious weaknesses on the economic front. Because China continues to favor state capitalism and discriminates against the private sector, it lacks strong private firms that can take on Western multinational giants. Except for Huawei, Lenovo, and perhaps Haier (which is nominally collectively owned), there are no private Chinese firms with a global footprint.

Until now, China has not paid dearly for this. Its role in the global economy is confined to low-to-medium-end processing and assembly functions. The most critical, sophisticated, and profitable parts of the value chain – research and development, product design, branding, marketing, service, and distribution – are occupied by American, European, Japanese, South Korean, and Taiwanese companies. China simply “outsources” these high value-added functions to the likes of Apple and Walmart.

Of course, China does have huge firms, but they are inefficient state-owned behemoths that owe their size and profitability to their legal monopolies and government subsidies. They may have the heft needed for global operations, but they lack the motivation to compete with world-class Western firms and are greeted with suspicion and fear around the world.

A China deeply embedded in globalization also needs a large pool of talented people, comparable to the best that the West can produce. Today’s China lacks that pool. While tens of millions of Chinese young people display impressive innate abilities, the country’s system of higher education does an abysmal job cultivating their talents. For most, the curriculum is largely obsolete, and skewed toward rote learning of theory at the expense of basic analytical and critical-thinking skills.

Education in social sciences and humanities is particularly deficient, owing to lack of investment in these disciplines and excessive political control of curricula. As a result, Chinese graduate from colleges and universities having learned relatively little about the outside world in fields such as anthropology, sociology, international relations, comparative literature, and history. Unless China reforms its ossified system, the country will not be able to produce enough highly trained talent to compete with the world’s best and brightest.

None of these shortcomings – the lack of globalization-friendly institutions, rules, corporations, and talent – is an insurmountable obstacle. The real question is whether China can remove them under a one-party regime that is hostile to the liberal values that inspire and underpin globalization.

Minxin Pei is Professor of Government at Claremont McKenna College

This article first appeared on our partner site, Project Syndicate.

China’s Syrian Folly

uri-ferruccio — Thu, 09 Feb 2012 23:39:38 -0500

By Steve Tsang

A rising great power like China taking on a proactive global role is, in principle, a positive development. But the world will not be a better place if China’s newfound assertiveness is focused – or, just as importantly, is perceived to be focused – almost exclusively on helping autocrats to stay in power through brutal repression of their citizens.

In vetoing the United Nations Security Council’s draft resolution on Syria, China claims that it has acted in the interests of the Syrian people, a position articulated in the People’s Daily, the newspaper of the Communist Party’s Central Committee, in a commentary appearing under the penname Zhong Sheng. The characters for “Zhong Sheng” mean the sound of a bell, but they are phonetically the same as “the voice of China.” The word play was no accident: the voice of China on this issue is as clear as a bell.

The commentary’s main points are that it is wrong for the great powers to use the UN as an instrument of regime change in Syria, and it is better for the country’s multi-faceted and highly complex problems to be resolved by political means and internal negotiations. If China (and Russia) had not used their veto, a re-run of Libya would have occurred, with European powers, supported by the United States, going beyond the UN mandate and using local “rebels” to oust Syria’s government.

What is important about China’s move in the Security Council is that vital Chinese national interests were not at stake, at least not directly or immediately. This marks a departure from its past use of its UN veto. The commentary in the People’s Daily also reflects that new sense of confidence. The Chinese government now wants the rest of the world to know why it has used its veto – and expects its decision to be respected.

The problem with China’s position is that the UN resolution was aimed at ensuring precisely the outcome that Chinese leaders claim to seek. With Syrian government forces killing civilians indiscriminately and in increasing numbers under orders from President Bashar al-Assad, the resolution sought to restrain Assad from using force to “resolve” the country’s political problems.

China insists that its goal is for the people of Syria to escape violence, conflict, and the flames of war, but its veto will do just the opposite. The world has already seen the use of even greater and more wanton force against civilians in the city of Homs following China’s veto in the Security Council.

By using its veto power, the Chinese government has effectively ensured that atrocities in Syria will continue and increase in intensity. Contrary to what its leaders expect, China’s standing among most people in the Middle East – and its ambition to project soft power globally – will be gravely damaged.

If China were genuinely eager to see Syria’s people determine their own political future without Assad’s forced removal, it should have pressed for a modification of the resolution, calling for a ceasefire and the start of a political process that worked towards a settlement and Assad’s eventual departure from power. Would the US, Britain, or France have vetoed such a resolution?

Why, then, did China force a showdown in the Security Council? China’s rise, coming at a time of self-doubt and apparent decline in Europe and North America, has given its leaders confidence that they no longer need to tolerate the post-Cold War international order.

China’s communist rulers have always resented the advent of “humanitarian intervention.” After all, if the Western powers can impose regime change on authoritarian states on humanitarian grounds, why would this stop at China’s borders? But, until now, there was little that China’s leaders could do about it. Now, with the costs of the West’s misadventures in Iraq and Afghanistan (and, to a lesser extent, in Libya) compounded by its major economies’ weakness, China’s leaders appear to see an opportunity to push back.

With Russia on its side, the Chinese government can take a stand without appearing isolated. And, while a long-term strategic alliance between Russia and China may not be in the offing, tactical cooperation to stop the West from imposing its values on the global community is likely to persist, so long as Vladimir Putin retains power in Russia.

Steve Tsang is Director of the China Policy Institute and Professor of Contemporary Chinese Studies at the University of Nottingham.

This article first appeared on our partner site, Project Syndicate.

Seizing Sustainable Development

uri-ferruccio — Tue, 07 Feb 2012 23:44:00 -0500

By Jacob Zuma and Tarja Halonen

The world is on an unsustainable path, and must urgently chart a new course forward, one that brings equity and environmental concerns into the economic mainstream. To do so, we must put sustainable development into practice now, not in spite of the economic crisis, but because of it.

Our challenges today are many. Economies are teetering, ecosystems are under siege, and inequality – within and between countries – is soaring. Taken together, these are symptoms that share a root cause: speculative and often narrow interests have superseded common interests, common responsibilities, and common sense.

As Co-Chairs of the United Nations’ High-Level Panel on Global Sustainability, we have been asked by UN Secretary-General Ban Ki-moon to work with 20 of the world’s most eminent leaders in grappling with these issues. Our task is clear: propose how to provide greater opportunity for more people with less impact on our planet.

A quarter-century ago, the Brundtland report, named for former Norwegian Prime Minister Gro Brundtland, called for a new paradigm of sustainable development. It stated that durable economic growth, social equality, and environmental sustainability are mutually interdependent. Human well-being depends on their integration.

We are convinced not only that this concept is sound, but also that it remains more relevant than ever. Now we need to put theory into practice by moving sustainable development into mainstream economics and making clear the costs of action – and inaction – today and in the future.

By 2030, as the human population swells and appetites increase, the world will need at least 50% more food, 45% more energy, and 30% more water. Our planet is approaching, and even exceeding, scientific tipping points. This has serious implications for how we manage the global commons – and for reducing poverty: if developing countries are to realize their legitimate growth aspirations, they will need more time, as well as financial and technological support, to make the transition to sustainability.

Yet we remain optimistic. Representative democracy is now the world’s dominant form of government. Advances in science have given us a better understanding of climate and ecosystem risks. Billions of people are connected by technologies that have shrunk the world and expanded the notion of a global neighborhood. We believe that we can summon the wit and the will to choose our future, rather than have it choose us.

The greatest risk lies in continuing down our current path. In 2030, a child born this year will come of age. We cannot mortgage her future to pay for an inherently unsustainable and inequitable way of life.

So, how do we begin to tackle the massive challenge of retooling our global economy, preserving the environment, and providing greater opportunity and equity, including gender equality, to all? The Panel’s report, Resilient People, Resilient Planet, offers suggestions.

First, we need to measure and price what matters. The marketplace needs to reflect the full ecological and human costs of economic decisions and establish price signals that make transparent the consequences of action – and inaction. Pollution – including carbon emissions – must no longer be free. Price- and trade-distorting subsidies should be made transparent and phased out for fossil fuels by 2020. We also need to build new ways to measure development beyond GDP, and propose a new sustainable development index by 2014.

Second, we must put science at the center of sustainability. We live in an era of unprecedented human impact on the planet, coupled with unprecedented technological change. Science must point the way to more informed and integrated policy-making, including on climate change, biodiversity, ocean and coastal management, water and food scarcities, and planetary “boundaries” (the scientific thresholds that define a “safe operating space” for humanity). To see the big picture, we propose a regular Global Sustainability Outlook that integrates knowledge across sectors and institutions.

Third, we need to provide incentives to take the long view. The tyranny of the urgent is never more absolute than during tough times. We need to place long-term thinking above short-term demands, both in the marketplace and at the polling place.

Limited public funds should be used strategically to unlock greater private investment flows, share risks, and expand access to the building blocks of prosperity, including modern energy services. The UN’s Millennium Development Goals – aimed at, among other things, halving global poverty by 2015 – have served us well. Governments should develop a post-2015 set of universally applicable Sustainable Development Goals that can galvanize long-term action beyond electoral cycles.

Fourth, we should prepare for a rough ride ahead, because extreme weather, resource scarcity, and price volatility have become the “new normal.” We need to strengthen our resilience by promoting disaster risk reduction, adaptation, and sound safety nets for the most vulnerable. This is an investment in our common future.

Fifth, it is crucial to value equity as opportunity. Inequality and exclusion of women, young people, and the poor undermines global growth and threatens to unravel the compact between society and its institutions. Empowering women has the potential to reap tremendous benefits, not least for the global economy.

Ensuring that developing countries have the time – and the financial and technical support – to make the transition to sustainable development ultimately benefits all. Promoting fairness and inclusion is the right thing to do – and the smart thing to do for lasting prosperity and stability.

No expert panel, including ours, has all the answers. But if we work together, we can help to steer our world onto a safer, more equitable, and more prosperous course. We call on leaders across all sectors of society to join us. The need is urgent; the opportunity, enormous. Let us seize it.

Jacob Zuma is President of the Republic of South Africa. Tarja Halonen is President of the Republic of Finland.

This article first appeared on our partner site, Project Syndicate.

The Decline of the West Revisited

uri-ferruccio — Thu, 02 Feb 2012 23:34:00 -0500

By Schlomo Ben-Ami

The West faces serious challenges – as it always has. But the values of human freedom and dignity that drive Western civilization remain the dream of the vast majority of humanity.

Since the publication in 1918 of the first volume of Oswald Spengler’s The Decline of the West, prophecies about the inexorable doom of what he called the “Faustian Civilization” have been a recurrent topic for thinkers and public intellectuals. The current crises in the United States and Europe – the result primarily of US capitalism’s inherent ethical failures, and to Europe’s dysfunction – might be seen as lending credibility to Spengler’s view of democracy’s inadequacy, and to his dismissal of Western civilization as essentially being driven by a corrupting lust for money.

But determinism in history has always been defeated by the unpredictable forces of human will, and, in this case, by the West’s extraordinary capacity for renewal, even after cataclysmic defeats. True, the West is no longer alone in dictating the global agenda, and its values are bound to be increasingly challenged by emerging powers, but its decline is not a linear, irreversible process.

There can be no doubt that the West’s military mastery and economic edge have been severely diminished recently. In 2000, America’s GDP was eight times larger than China’s; today it is only twice as large. Worse, appalling income inequalities, a squeezed middle class, and evidence of widespread ethical lapses and impunity are fueling a dangerous disenchantment with democracy and a growing loss of trust in a system that has betrayed the American dream of constant progress and improvement.

This would not be, however, the first time that America’s values prevailed over the threat of populism in times of economic crisis. A variation of the fascist agenda once appeared in America, with Father Charles Coughlin’s populist onslaught in the 1930’s on Franklin Roosevelt´s “alliance with the bankers.” Coughlin’s National Union for Social Justice, whose membership ran into the millions, was eventually defeated by the American system’s powerful democratic antibodies.

As for Europe, the eurozone crisis has exposed democracy’s weaknesses in dealing with major economic emergencies, as well as the flaws in the European Union’s design. In Greece and Italy, technocratic governments have taken over from failing politicians. In Hungary, Prime Minister Viktor Orbán has pressed for an authoritarian “re-establishment of the state.” Such cases seem to point to the return of a European past in which democracy’s failures gave way to more “expedient” forms of government.

And yet, while Europe remains a question mark, economic growth and job creation, however fragile, are back in America. Moreover, even if China becomes the world’s largest economy in, say, 2018, Americans would still be far richer than Chinese, with per capita GDP in America four times higher than in China.

To be sure, income inequality and social injustice are a concomitant of capitalist culture throughout the West. But challengers like China and India are in no position to preach. Compared to Indian capitalism, capitalism’s ethical failures elsewhere look especially benign. A hundred oligarchs in India hold assets equivalent to 25% of GDP, while 800 million of their compatriots survive on less than a dollar a day. Politicians and judges are bought, and natural resources worth trillions of dollars are sold to powerful corporations for a pittance.

Having the largest economy is vital for a power aspiring to maintain military superiority and the ability to define the international order. Hence, the receding power of the West means a tougher fight to uphold the relevance of key components of its value system, such as democracy and universal rights.

Europe, with its almost post-historical mentality, has long abandoned the pretension of being a military power. The same cannot be said of the US. But, rather than reflecting a decline in its military superiority, America’s setbacks in Iraq and Afghanistan are the result of wrongheaded policies that sought to use hard power to solve conflicts that were simply not amenable to it.

The recent massive cuts to the US military budget need not signal decline; they can launch an age of smarter defense, one that relies on innovative ideas, strong alliances, and building partners’ capacity. The shift of US military priorities to the Asia-Pacific region is an understandable strategic rebalancing, given America’s excessive focus on the Middle East and its maintenance of an unnecessary military presence in Europe.

Tempered by the US public’s fatigue with overseas adventures, America’s missionary zeal to save the world from the wickedness of faraway autocrats will be reduced substantially. But this does not necessarily mean that China will automatically take over ground from which America withdraws. Despite the recent cuts, America’s defense budget is still five times higher than China’s. More importantly, China’s long-term strategy requires that it focus in the short term on satisfying its vast appetite for energy and raw materials.

Make no mistake: Euro-centrism and Western hubris have been dealt severe blows in recent years. But, for those in the West overtaken by fatalism and self-doubt, a message of hope is now emanating from the Arab Spring, and from the resumption in Russia of the unfinished revolution that ended communism. Nor has the inconsistency between China’s capitalism and its lack of civil liberties been resolved yet. A Chinese Spring cannot be ruled out.

The West faces serious challenges – as it always has. But the values of human freedom and dignity that drive Western civilization remain the dream of the vast majority of humanity.

Shlomo Ben Ami is a former Israeli foreign minister who now serves as the vice-president of the Toledo International Centre for Peace.

Austerity vs. Europe

uri-ferruccio — Tue, 31 Jan 2012 01:07:41 -0500

By Javier Solana

Ominously, the same arguments that turned the 1929 financial crisis into the Great Depression are being used today in favor of austerity at all costs. We cannot allow history to repeat itself.

It is now increasingly clear that what started in late 2008 is no ordinary economic slump. Almost four years after the beginning of the crisis, developed economies have not managed a sustainable recovery, and even the better-off countries reveal signs of weakness. Faced with the certainty of a double-dip recession, Europe’s difficulties are daunting.

Not only is Europe running the risk of lasting economic damage; high long-term unemployment and popular discontent threaten to weaken permanently the cohesiveness of its social fabric. And, politically, there is a real danger that citizens will stop trusting institutions, both national and European, and be tempted by populist appeals, as in the past.

Europe must avoid this scenario at all costs. Economic growth must be the priority, for only growth will put people back to work and repay Europe’s debts.

Understandably, there is a debate about how to achieve recovery. Advocates of austerity argue that debt has a negative impact on growth; proponents of further stimulus counter that it is low growth that generates public debt, not the other way around, and that austerity in times of recession only makes things worse.

But Europeans do not have to agree on everything to find a common course. We can disagree about the long-term effects of liquidity injections, but we can all agree that it is not right to allow profitable companies to fail because credit markets are not working. We do not have to see eye to eye on fiscal policy to understand that it makes more sense to promote investment than to see our productive structure languish. And we all know that it is more cost-effective to invest in retraining the jobless than to allow long-term unemployment.

In any case, doubts about the negative impact of austerity are becoming impossible to ignore. History shows that in a deep recession it is far more dangerous to withdraw economic stimulus too early than too late.

An excessive cut in public spending in the current circumstances can lead to a contraction in growth, which is already happening: the International Monetary Fund now projects that the eurozone will shrink by 0.5% in 2012. Structural reforms are important to guarantee future sustainable growth, but they do not generate growth in the short term, which is what Europe needs. Instead, in exchange for meager progress on debt reduction, Europe risks causing lasting damage to its growth potential.

Compared to a new recession, the long-term cost of stimulus policies is insignificant. In many countries, current budget deficits are the result not of reckless government overspending, but of temporary measures to deal with the crisis. With interest rates already low and the private sector deleveraging, there is little risk of expansionary policies causing inflation or crowding out private investment. By contrast, spending reductions could undermine economic activity and increase, not decrease, the public-debt burden.

Public debt, moreover, should not be demonized. It makes financial sense for states to share the cost of public investments, such as infrastructure projects or public services, with future generations, which will also benefit from them. Debt is the mechanism by which we institutionalize intergenerational solidarity. The problem is not debt, but ensuring that it finances productive investment, that it is kept within reasonable limits, and that it can be serviced with little difficulty.

Yet, ominously, the same arguments that turned the 1929 financial crisis into the Great Depression are being used today in favor of austerity at all costs. We cannot allow history to repeat itself. Political leaders must take the initiative to avert an economically driven social crisis. Two actions are urgently needed.

At a global level, more must be done to address macroeconomic imbalances and generate demand in surplus countries, including developed economies like Germany. Surplus emerging-market economies must understand that a prolonged contraction in the developed world creates a real danger of a global downturn at a time when they no longer retain the room for maneuver that they had four years ago.

Within the eurozone, structural reforms and more efficient public spending, which are essential to sustainable long-term growth and debt levels, must be combined with policies to support demand and recovery in the short term. The steps taken in this direction by German Chancellor Angela Merkel and French President Nicolas Sarkozy are welcome but insufficient. What is needed is a grand bargain, with countries that lack policy credibility undertaking structural reforms without delay, in exchange for more room within the EU for growth-generating measures, even at the cost of higher short-term deficits.

The world is facing unprecedented challenges. Never before in recent history has a deep recession coincided with seismic geopolitical change. The temptation to favor misguided national priorities could lead to disaster for all.

Only enlightened political leadership can avert this outcome. European leaders must understand that adjustment programs have a social as well as a financial side, and that they will be unsustainable if those affected face the prospect of years of sacrifices with no light at the end of the tunnel.

Austerity at all costs is a flawed strategy, and it will not work. We cannot allow a misconceived notion of “discipline” to cause lasting damage to our economies and inflict a terrible human toll on our societies. All of Europe must agree on a short-term growth strategy – and implement it quickly.

Javier Solana, former EU High Representative for the Common Foreign and Security Policy, Secretary-General of NATO, and Minister of Defense of Spain, is Distinguished Senior Fellow in Foreign Policy at the Brookings Institution and President of the ESADE Center for Global Economy and Geopolitics.

This article first appeared on our partner site, Project Syndicate.

Latin America’s Stymied Innovators

uri-ferruccio — Sun, 29 Jan 2012 02:01:47 -0500

By Andrés Velasco

Latin America’s challenge is to transform its huge natural-resource wealth into the kind of wealth that does not run out, because it is constantly enlarged by human creativity. The big question is how quickly its anti-innovation culture can change.

First, there was one disappointed foreign entrepreneur. In December, Israeli venture capitalist Arnon Kohavi, whose firm had been lured to Chile by a government program to promote startups, announced that he was leaving. “A handful of monopolistic families control the country,” Kohavi declared to an online magazine. “Worse, these families don’t care about anything except their money. They don’t have to: the country’s natural resources are a disadvantage here, because the rich don’t need to work hard.”

Though the interview generated a buzz in the startup business community, establishment papers were quick to dismiss Kohavi’s criticism as sour grapes. But Kohavi was not alone. One month later, Argentine entrepreneur Martin Varsavski, a bit of a guru in the tech world, had this to say about Chile: “The tendency is to copy old models rather than create new ones. Entrepreneurship has to do with non-conformity, and Chileans lack that. It is a small society of embarrassed people who are uncomfortable being different.”

Are Kohavi and Varsavski on to something? I certainly think so. And what they are on to applies not just to Chile, but to much of Latin America.

The region’s challenge is to transform its huge natural-resource wealth into the kind of wealth that does not run out, because it is constantly enlarged by human creativity. In recent years, a natural-resource boom fueled growth. Resource-rich countries in South America did well (even when, like Argentina, they had misguided policies). Resource-poor countries in Central America and the Caribbean stagnated.

But, with the crucial exception of Mexico, the composition of Latin American exports has not changed much in the last quarter-century. Contrast that with Singapore or Ireland, whose export baskets today bear little resemblance to those of 1985.

In a series of recent papers, Ricardo Hausmann of Harvard has shown that as countries get richer, their economies diversify: they widen their set of productive skills, and start making new things while continuing to make what they have always made. The more skills, the wider the range of what can be made in the future. Hausmann shows that a diversified economy is a strong predictor of future growth, which implies that Asia will grow much faster than Latin America for decades to come.

To understand Latin America’s weakness, it helps to go back to Kohavi and Varsavski. Natural-resource abundance bears at least some of the blame. Why run risks and innovate if you don’t have to? As Chile’s finance minister in 2006-2010, I spoke to local business audiences dozens of times, and received countless questions (sometimes less than friendly) about tax policy and labor-market regulation. I do not recall a single question about incentives for innovation or technology adoption.

This is not the optimal economic response to commodity abundance. Chile is well endowed with natural resources, but not that well endowed. Canada, Norway, Australia, and New Zealand have much larger per capita commodity exports than Chile. Yet that has not kept these four countries from diversifying their economies and developing the capacity to produce many complex, non-commodity goods.

Lack of domestic competition is also to blame. Innovators in Latin countries often face high prices for key inputs like energy or Internet access, provided by large local firms that may not be monopolies, but that sure act like they are.

Mexico is the poster child for this problem, but it is far from the only example of it in the region. Aggressive pro-competition policies – certain to be resisted by powerful business groups – are the order of the day. In the last few years, Chile has taken some promising steps in this direction. More are needed.

Last but not least is the persistence of a culture that impedes innovation. The firm started in a garage by two kids with big brains and little money is an American ideal that does not travel well, especially when heading south.

However good your startup business plan may be, obtaining the necessary financing is nearly impossible if you do not have the right connections or did not attend the right school. Bogotá, Buenos Aires, Lima, and Santiago have their networking parties and incubators. But all too often they resemble an alumni reunion for posh academies, rather than a gathering of hungry, lift-yourself-up-by-your-own-bootstraps types.

And, if their startup fails, young entrepreneurs don’t tell the story with pride at the next party, as they might have done were they in Palo Alto, Helsinki, or Tel Aviv. In Latin America, bankruptcy and fraud are still inextricably linked in too many people’s minds.

The big question is how quickly such an anti-innovation culture can change. Optimists point out that, once upon a time, Asia’s top-down culture was viewed as inimical to innovation and economic growth. That view is now a distant memory. Kohavi and Varsavski are not the only ones hoping for a similarly unexpected turn of events in Latin America.

Andrés Velasco, a former finance minister of Chile, is a visiting professor at Columbia University for 2011-2012.

Though the interview generated a buzz in the startup business community, establishment papers were quick to dismiss Kohavi’s criticism as sour grapes. But Kohavi was not alone. One month later, Argentine entrepreneur Martin Varsavski, a bit of a guru in the tech world, had this to say about Chile: “The tendency is to copy old models rather than create new ones. Entrepreneurship has to do with non-conformity, and Chileans lack that. It is a small society of embarrassed people who are uncomfortable being different.”

Are Kohavi and Varsavski on to something? I certainly think so. And what they are on to applies not just to Chile, but to much of Latin America.

The region’s challenge is to transform its huge natural-resource wealth into the kind of wealth that does not run out, because it is constantly enlarged by human creativity. In recent years, a natural-resource boom fueled growth. Resource-rich countries in South America did well (even when, like Argentina, they had misguided policies). Resource-poor countries in Central America and the Caribbean stagnated.

But, with the crucial exception of Mexico, the composition of Latin American exports has not changed much in the last quarter-century. Contrast that with Singapore or Ireland, whose export baskets today bear little resemblance to those of 1985.

In a series of recent papers, Ricardo Hausmann of Harvard has shown that as countries get richer, their economies diversify: they widen their set of productive skills, and start making new things while continuing to make what they have always made. The more skills, the wider the range of what can be made in the future. Hausmann shows that a diversified economy is a strong predictor of future growth, which implies that Asia will grow much faster than Latin America for decades to come.

To understand Latin America’s weakness, it helps to go back to Kohavi and Varsavski. Natural-resource abundance bears at least some of the blame. Why run risks and innovate if you don’t have to? As Chile’s finance minister in 2006-2010, I spoke to local business audiences dozens of times, and received countless questions (sometimes less than friendly) about tax policy and labor-market regulation. I do not recall a single question about incentives for innovation or technology adoption.

This is not the optimal economic response to commodity abundance. Chile is well endowed with natural resources, but not that well endowed. Canada, Norway, Australia, and New Zealand have much larger per capita commodity exports than Chile. Yet that has not kept these four countries from diversifying their economies and developing the capacity to produce many complex, non-commodity goods.

Lack of domestic competition is also to blame. Innovators in Latin countries often face high prices for key inputs like energy or Internet access, provided by large local firms that may not be monopolies, but that sure act like they are.

Mexico is the poster child for this problem, but it is far from the only example of it in the region. Aggressive pro-competition policies – certain to be resisted by powerful business groups – are the order of the day. In the last few years, Chile has taken some promising steps in this direction. More are needed.

Last but not least is the persistence of a culture that impedes innovation. The firm started in a garage by two kids with big brains and little money is an American ideal that does not travel well, especially when heading south.

However good your startup business plan may be, obtaining the necessary financing is nearly impossible if you do not have the right connections or did not attend the right school. Bogotá, Buenos Aires, Lima, and Santiago have their networking parties and incubators. But all too often they resemble an alumni reunion for posh academies, rather than a gathering of hungry, lift-yourself-up-by-your-own-bootstraps types.

And, if their startup fails, young entrepreneurs don’t tell the story with pride at the next party, as they might have done were they in Palo Alto, Helsinki, or Tel Aviv. In Latin America, bankruptcy and fraud are still inextricably linked in too many people’s minds.

The big question is how quickly such an anti-innovation culture can change. Optimists point out that, once upon a time, Asia’s top-down culture was viewed as inimical to innovation and economic growth. That view is now a distant memory. Kohavi and Varsavski are not the only ones hoping for a similarly unexpected turn of events in Latin America.

Andrés Velasco, a former finance minister of Chile, is a visiting professor at Columbia University for 2011-2012.

This article first appeared on our partner site, Project Syndicate.