Xenophobia All Over the Place?
The dictionary defines xenophobia as “fear or hatred of strangers or foreigners or of anything that is strange or foreign.” It seems to be an endemic plague everywhere in the world. But it infects larger numbers of people only sometimes. This is one of those times.
But who is a stranger? In the modern world, it seems that the strongest single loyalty is that to the state of which we are a citizen. It is called nationalism or patriotism. Yes, some people put other loyalties ahead of patriotism, but it seems they are in a minority.
Of course, there are many different situations in which people express their nationalist feelings. In a colonial situation, nationalism expresses itself as a demand for liberation from the colonial power. It seems to take similar forms in what some call a semicolonial situation, which is one in which the country is technically sovereign but lives under the shadow of a stronger state, and feels itself oppressed.
Then there is the nationalism of the strong state, which expresses itself in an assertion of technical and cultural superiority, and which its proponents feel give them the right to impose their views and values on weaker states.
We may applaud the nationalism of the oppressed as something that is worthy and progressive. We may condemn oppressive nationalism by the strong as unworthy and retrogressive. There is however a third situation in which xenophobic nationalism rears its head. It is that of a state in which the population feels or fears that it is losing strength, is somehow in “decline.”
The sentiment of national decline is inevitably particularly exacerbated in times of great economic difficulty, such as the world finds itself in today. So it is no surprise that such xenophobia has begun to play an increasingly important role in the political life of states around the world.
We see it in the United States, where the so-called Tea Party wants to “take back the country” and “restore America and…her honor.” At the rally in Washington on Aug. 28, the organizer, Glenn Beck, said: “As I look at the problems in our country, quite honestly, I think the hot breath of destruction is breathing on our necks and to fix it politically is a figure that I don’t see anywhere.”
In Japan, a new organization, the Zaitokukai, last December surrounded a Korean elementary school in Kyoto, demanding to “expel the barbarians.” Its leader says he has modeled his organization after the Tea Party, sharing the sense that Japan now suffers from a loss of respect on the world scene and has gone in the wrong direction.
Europe, as we know, has seen in almost every country the rise of parties which seek to evict foreigners from the country and return the country to the exclusive hands of the so-called true citizens, although how many generations of continuous lineage it takes to define a true citizen seems to be an elusive question.
Nor is this phenomenon absent from the countries of the South – from Latin America, Africa, and Asia. There is no point in spelling out the multiple and repeated instances of when and where xenophobia has reared its ugly head.
The real question is what, if anything, can be done to counter its pernicious consequences. There is one school of thought which essentially argues that one has to coopt the slogans, repeat them in a watered-down form, and simply await the cyclical moment when xenophobia will have died down because economic times are better. This is the line of most of what may be called the Establishment right and center-right parties.
But what about the parties of the left and center-left? Most, although not all, of them seem to be cowed. They seem to be fearful that once again they will be tarred as “unpatriotic,” as “cosmopolitan,” and worry they may be swept away by the tide, even if the tide may recede in the future. So they speak, feebly, of universal values and of practical “compromises.” Does this save them? Sometimes, but often not. They are often swept away by the tide. Sometimes, they even join the tide. The past history of fascist parties is replete with the numbers of “left” leaders who became fascists. This was after all the story of the man who virtually invented the word, fascist – Benito Mussolini.
The willingness fully to embrace egalitarian values, including the right of all kinds of communities to observe their autonomy, in a national political structure that accommodates the mutual tolerance of multiple autonomies, is a politically difficult position both to define and to sustain. But it is probably the only one that offers any long-term hope for humanity’s survival.
Contradictions in the Latin American Left
Latin America has been the success story of the world left in the first decade of the twenty-first century. This is true in two senses. The first and most widely-noticed way is that left or left-of-center parties have won a remarkable series of elections during the decade. And collectively, Latin American governments have taken for the first time a significant degree of distance from the United States. Latin America has become a relatively autonomous geopolitical force on the world scene.
But there has been a second way in which Latin America has been a success story of the world left. Movements of the indigenous nations of Latin America have asserted themselves politically almost everywhere and have demanded the right to organize their political and social life autonomously. This first gained world attention with the dramatic uprising of the neo-Zapatista movement in the Mexican state of Chiapas in 1994. What has been less noticed is the emergence of similar kinds of movements throughout Latin America and the degree to which they have been creating an inter-American network of their local organizational structures.
The problem has been that the two kinds of lefts – the parties that have achieved power in the various states and the movements of the indigenous nations in the various states – do not have identical objectives and use quite different ideological language.
The parties have made as their principal objective economic development, seeking to achieve this objective at least in part by greater control over their own resources and better arrangements with outside enterprises, governments, and intergovernmental institutions. They seek economic growth, arguing that only in this way will the standard of living of their citizens be enhanced and greater world equality achieved.
The movements of the indigenous nations have sought to get greater control over their own resources and better arrangements not only with non-national actors but also with their own national governments. In general, they say their objective is not economic growth but coming to terms with PachaMama, or mother earth. They say they do not seek a larger use of the earth’s resources, but a saner one that respects ecological equilibrium. They seek buen vivir – to live well.
It is no surprise that the movements of the indigenous nations have been in conflict with the few most conservative governments in Latin America – like Mexico, Colombia, and Peru. Increasingly, and quite openly, these movements have also come into conflict with the left-of-center governments like Brazil, Venezuela, Ecuador, and even Bolivia.
I say even Bolivia because that is the one government that has elected a president who is himself a person from an indigenous nation with massive support from the voters from indigenous nations in the country. And nonetheless, there has been a conflict. The issue, there as elsewhere, is whether and how natural resources are developed, who makes the decisions, and who controls the revenue.
The left parties tend to accuse the movements of the indigenous nations that come into conflict with them of being, wittingly or not, the pawns (if not the agents) of the national right parties, and of outside forces, in particular of the United States. The movements of the indigenous nations that oppose the left parties insist that they are acting only in their own interests and on their own initiative, and accuse the left governments of acting like the conservative governments of old without real regard for the ecological consequences of their developmentalist activities.
Something interesting has recently happened in Ecuador. There, the left government of Rafael Correa, which had won power initially with the support of the movements of the indigenous nations, subsequently came into sharp conflict with them. The most acute division was over the government’s wish to develop oil resources in an Amazonian protected reserve called Yasuni.
Initially, the government ignored the protests of the indigenous inhabitants of the region. But then President Correa decided to champion an ingenious alternative. He proposed to the wealthy governments of the global North that, if Ecuador renounced any development in Yasuni, these wealthy governments should compensate Ecuador for this renunciation, on the grounds that this was a contribution to the world struggle against climate change.
When this was first proposed at the Copenhagen climate summit in 2009, it was treated as being a fantasy. But after six long months of negotiations, five European governments (Germany, Spain, Belgium, France, and Sweden) have agreed to create a fund to be administered by the U.N. Development Program to pay Ecuador not to develop Yasuni on the grounds that this contributes to the reduction of carbon emissions. There is talk of inventing a new verb, yasunize, to denote such deals.
But how many such deals could one make? There is a more fundamental issue at stake. It is the nature of the “other world that is possible” – to use the slogan of the World Social Forum. Is it one based on constant economic growth, even if this is “socialist” and would raise the real income of people in the global South? Or is it what some are calling a change in civilizational values, a world of buen vivir?
This will not be an easy debate to resolve. It is currently a debate among the Latin American left forces. But analogous situations underlie much of the internal strains in Asia, Africa, and even Europe. It may turn out to be the great debate of the twenty-first century.
Ponzi Solitaire
Reading newspapers can be a startling experience. On July 26 this year, U.S. papers ran two quite contradictory stories. In the first news article, USA Today reported on its quarterly forecast of economists. The headline read: “Economists’ optimism wanes.” It seems that the combination of “turmoil in Europe, lackluster job growth, a weak housing market and a slowdown in factory output” make it very unlikely that the United States can recover the lost 8.5 million jobs “at a more-than-glacial pace.” In addition, they fear “global financial instability.”
So, quite reasonably, they are not optimistic. One could say that the economists’ congenital optimism about the world market has finally hit the hard rock of reality. Some of us came to this conclusion a lot earlier. So how is it possible that, the very same day, the New York Times ran a front-page story about the “surging profits” of U.S. industries?
The answer is again in the headline: “Industries find surging profits in deeper cuts.” It is not that the industries are selling more products. They are indeed selling fewer. But they have been cutting costs – that is, they have been firing workers.
They have found that, if they fire enough workers and make the remaining workers work harder, they may have fewer sales but they have greater profits. This is called a “triumph of productivity.” Ethan Harris, chief economist at Bank of America Merrill Lynch, is quite honest about it: “Companies are squeezing their labor costs to build profits.”
However, as the Times notes, the result is that “the benefits are mostly going to shareholders instead of the broader economy.” And the industries do not intend this to be a temporary solution. For even if sales improve, they are not planning to hire more workers. On the contrary, according to one chief executive of a large firm, “the last thing we’re worried about is when we are going to have to add more capacity.” Rather, we’re “reconfiguring our entire operational system for greater flexibility.”
So, have U.S. industries (and industries elsewhere in the world) found the magic bullet that will enable them to expand profits ever into the future? You’ve got to be kidding. In the 1920′s Henry Ford famously paid his workers higher wages than was the norm because, he said, he wanted them to be his customers. His successors at Ford today have reduced their North American work force by over 50 percent in the last five years. More profits – but fewer customers.
There’s the little problem of what Keynes and Kalecki wrote about – effective demand. In any medium-run calculation, if there are not enough customers, there will not be enough sales, and very soon the profits will dry up. The industries that are increasing their profits by reducing their work force and squeezing their remaining laborers are going to have surging profits for a very short run until they run into the hard brick wall of serious deflation. And then they’ll crash.
Can’t they see this? Sure, some can, but they are operating on the hedonistic principle of eat, drink, and be merry, for tomorrow we may die. It might be called “Ponzi solitaire.” In ordinary Ponzi schemes, the operator bilks other people until the house of cards collapses – as it did for Bernie Madoff. In Ponzi solitaire, you bilk yourself until you crash. And just as the investors in an ordinary Ponzi scheme (potential victims) hope that the crash will come only after they have gotten their profits, so the players of Ponzi solitaire (industry executives) hope they’ll escape with their personal profits before the whole industry collapses. Good luck!
Whose Taxes Are Going Up?
Everyone knows the old saying that there is nothing inevitable except death and taxes. But most of us spend a lot of energy trying to postpone both of them. Taxes are a very unpopular idea, everywhere. Few people complain that they are not being taxed enough. The problem is that almost everyone wants many of the things paid for by taxes.
Just recently, there were amazing poll results in France. France has one of the highest tax rates in the world, yet a majority of the population believes that further tax rises are inevitable. Even more surprising, despite the fact that France now has a rightwing government, more voters on the right expect a rise in taxes than voters on the left, more well-to-do voters than poorer voters.
The simple fact is that there is hardly any government in the world today, national or local, that has enough income to meet the level of expenses that are mandated by law plus those desired by the majority of their constituents. So, these governments borrow money and get (further) into debt, which is unpopular, and/or they reduce expenses at the expense of someone. However, the reality is that neither borrowing nor cutting expenses seems to be enough.
The net result is that all governments, everywhere, are increasing taxes, and will continue to do so in the coming years. But most of them are denying that they are doing this. How can one hide raising taxes? There are multiple ways to do this.
Way number one is to increase the cost of government services. If a government raises an application fee for a document or a license, that is a tax increase on the applicant. If the government postpones the age of eligibility for a pension, that is a tax increase on the prospective pensioner.
Way number two is for a government to eliminate a subsidy to which it previously committed itself. If this was a subsidy to an enterprise, that is a tax increase on the enterprise, which often (but not always) can be passed on to consumers. If the subsidy went to an individual – for example, unemployment insurance – eliminating or reducing it is a tax increase on the individual.
But the most important reduction of subsidy, because the least obvious, occurs when a national government reduces one of the pervasive monetary transfers to a local government. What this does is simply shift the locus of the tax increase from the national level to the local level. The local government has then two choices. It can increase its taxes to make up the shortfall, say by increasing property taxes. Or it can reduce its expenditures, say by reducing what it invests in education at the local level.
If the local government spends less on public education, it is reasonable to suppose that the quality of education being offered is thereby lowered. This may lead to a response by the better-off residents, those who can afford to provide privately for the cost of education of their children. The poorer people get poorer education or no education. The better-off people get increased costs, which are in effect a tax increase, but one that does not benefit the whole of the population.
Taxes are inevitable indeed, and no time more so than when the world-economy is in poor shape, as at present. What is not inevitable is the group or groups on whom the greater burden lays. It’s all a question of whose ox is being gored. Some people audaciously call this the class struggle. It is being waged rather ferociously these days.
The only slogan to which no one should give credence is the slogan, “lower taxes.” There is no way whatsoever to do this. There are however fairer and less fair forms of taxation. The question we all face is whose taxes will be raised, and via which channel. This is one of the key political battles of our time.
Why McChrystal Did It
Gen. Stanley McChrystal, the U.S. commander in Afghanistan, gave an interview to Rolling Stone magazine in which he and his staff insulted the civilian leaders of his country. He was fired for insubordination by Pres. Obama. Even his defenders said that McChrystal’s remarks were impolitic and a mistake. Given the fact that McChrystal is an exceptionally intelligent and very ambitious person, why did he do it?
McChrystal gave the interview in order that he be fired. And why did he want to be fired? He wanted to be fired because he knew that the policies he was pursuing and championing in the war in Afghanistan were not working, could not work. And he didn’t want to be the one tarnished with the public blame.
Consider the long history that led up to this interview. The military strategy the United States forged in Afghanistan and Iraq was originally that imposed by then U.S. Secretary of Defense, Donald Rumsfeld. The policy was one of unlimited machismo. Bomb the enemy from way up high and don’t worry about who gets killed. Use torture on those you capture. Don’t consult with anyone, even if they are so-called allies. Occupy the country, indefinitely.
Stanley McChrystal was a one-star general at the beginning of these wars, working in Washington as one of Rumsfeld’s “golden boys.” He had a long history, since his West Point days, of being a daring rebel who knew just when to stop – contemptuous of superiors he did not respect but always seeking to advance himself. Rumsfeld placed him in charge of the military’s most secretive elite units, engaged in “special operations” and known to be a “killing machine.” He performed brilliantly, as usual.
Then in 2006, if we still remember, the military, the politicians, and the press all began to say that the United States was losing the war in Iraq. Resistance seemed too strong, and the number of U.S. lives lost was steadily going up month by month. The Republicans did very badly in the elections of 2006. Something had to be done.
Something was done. Rumsfeld was fired by President Bush. Vice-President Cheney, Rumsfeld’s strongest defender, lost influence to Sec. of State Condoleezza Rice and Rumsfeld’s successor, Robert Gates, who championed more “moderate” views, emphasizing diplomacy. A new military strategy suddenly gained ground, counter-insurgency (referred to by an acronym COIN). It was developed by a previously obscure military officer, David Petraeus.
Petraeus is as ambitious and as driven as McChrystal but a quite different personality. He is what might be called a military intellectual. He won the award as the top graduate of the U.S. Army Command and General Staff College in 1983. He got a Ph.D. in international relations from Princeton in 1989. He taught international relations at West Point. At the same time, he has a long record as a seasoned combat officer. And he cultivated favor with Washington politicians.
Since the 1980s, his published articles and reports advocated counter-insurgency as a doctrine. He drew on the experiences of the French using it in Algeria and the United States using it in Vietnam. As Petraeus’ right-wing critics note, these were not notable successes. COIN emphasizes the need for “winning hearts and minds,” which means necessarily incorporating diplomatic and political considerations into military tactics. The writer of the Rolling Stone interview, Michael Hastings, described COIN this way: “Think the Green Berets as an armed Peace Corps.”
Pres. Bush turned to Petraeus in 2006 and allowed him to implement COIN in Iraq. This was the famous “surge” that involved increasing the number of U.S. troops in Iraq and changing strategy. Basically, Petraeus did two things that did indeed reduce the amount of violence against U.S. troops. The first was to bribe Sunni tribal elders in central and western Iraq to cease their tacit support of non-Iraqi al-Qaeda units. Since the Sunni sheikhs had never liked the al-Qaeda units, they were willing to forget their dislike of the Americans – for a price.
The second thing that Petraeus did was to permit ethnic cleansing in Baghdad, turning a multi-ethnic city into two segregated zones, a larger Shi’a zone and a beleaguered smaller Sunni zone. This reduced violence against the U.S. troops at the expense of increased inter-Iraqi violence. It also served the political interests of the most persistent and effective opponent of U.S. interests in Iraq, Mokhtar al-Sadr, who is emerging as the key broker in the newly-elected Iraqi parliament.
As Hastings said in an interview with the Huffington Post about his article, “Petraeus is sort of a genius. He managed to turn what could have been catastrophic defeat in Iraq into a face-saving withdrawal.” But of course, a face-saving withdrawal is not a victory, even if Sen. John McCain insisted so when running for president in 2008 – unsuccessfully.
When Barack Obama ran for office, he said quite clearly that he was against the war in Iraq and for the war in Afghanistan. So obviously he had to pursue it. He promoted Petraeus, adopted COIN, and named McChrystal commander in Afghanistan. True to his “rebel” style, McChrystal publicly demanded 40,000 more troops from Obama who, after months of reflection, gave him 30,000 – plus a withdrawal date.
At this point, however, McChrystal abandoned his previous machismo style and became the enthusiastic, perhaps over-enthusiastic, implementer of counter-insurgency in Afghanistan. He issued super-strict directives to avoid civilian casualties, a policy not at all appreciated by U.S. infantry units. He developed warm relations with Pres. Hamid Karzai, whom other U.S. leaders held at a distance. He thought he could win a quick victory in Marja and turn the area over to Afghan forces. Instead, it was a failure. And he recently announced that the key operation in Kandahar province, heartland of the Taliban forces, had to be postponed until September.
Even McChrystal’s Chief of Operations, Maj. Gen. Bill Mayville, says Afghanistan will be like Vietnam: “It’s not going to look like a win, smell like a win or taste like a win….This is going to end in an argument.” Hastings ends his article this way: “Winning, it would seem, is not really possible. Not even with Stanley McChrystal in charge.”
So, what would you do if you were McChrystal? You’d invite a reporter for a rock-and-roll magazine, considered to be on the left, to accompany you on airplanes and to drink fests, and sneer at the government. This was guaranteed to get you fired. And it meant that the future “argument” would not involve you.
What could Obama do? He had to fire McChrystal. Then, he tossed the hot potato to Petraeus, who couldn’t refuse it. The next year or two are going to be a fast-moving game in which Obama and Petraeus are going to try to shift the public’s blame for the defeat on the other.
The far right, the friends of Cheney and Rumsfeld, are not fooled. Diana West, one of their pundits, says: “The COIN nightmare continues.” For her, COIN means ordering troops “to exercise fantasies of cultural relativism that makes lefty sense in a PC classroom, but are nothing short of appalling on the front line.” A slightly less acerbic view was that of retired Col. Douglas Macgregor: “The idea that we are going to spend a trillion dollars to reshape the culture of the Islamic world is utter nonsense.”
Of course, Macgregor is right. What are the policy choices? The far right wants perpetual war. The only alternative is early and complete withdrawal. Obama doesn’t want the first and is politically afraid to embrace the second. So he sends CIA Director, Leon Panetta, out to give ABC News an interview, saying that making progress in Afghanistan is “harder” and going more slowly than anticipated. Indeed, it is.
Commentary No. 284, July 1, 2010
Impossible Choices in a World Depression
As the world’s leaders and pundits continue to deny the reality of the world depression – they won’t even use the word – the impossible choices that are faced by government after government become more and more obvious every day. Consider what has happened in just the last month.
The United States had its worst unemployment figures in quite a while. Yes, there were some new jobs, but 95% of them were of temporary census workers. Private employers added just 10% of the jobs they were expected to add. Despite this, it has now become politically impossible to get further stimulus money voted by Congress. And the Federal Reserve has ceased to buy Treasury securities and mortgage bonds. These had been the two main strategies to increase jobs. Why? The call for deficit cuts has grown too strong.
The most immediate consequence can be seen at the level of the budgets of the separate state governments. The cost of Medicaid has gone up because of the economic crisis. This cost is borne by the separate states. They have been helped in the past year by increased federal subsidies of state spending on Medicaid. Congress won’t renew this. Gov. Edward Rendell of Pennsylvania says this will increase his state’s budgetary shortfall by two-thirds, and force it to lay off 20,000 teachers, police officers, and other government workers. Of course, this is in addition to lost medical services for many people.
In Great Britain, the new Prime Minister, David Cameron, says that cutting down on borrowing is “the most urgent issue facing Britain today.” The Financial Times sums up his proposals in its headline: “Cameron pitches an age of austerity.” Its assessment of this policy: “If the government is to make such steep reductions in spending, it cannot avoid visibly damaging frontline services. The cuts will be more savage than anything contemplated by even the Thatcher government.”
Germany’s Chancellor Merkel has announced her version of austerity: deep public spending cuts immediately, rising in amount each year for the next four years. She has also announced new taxes on airlines, which the world’s airlines immediately announced would seriously hurt their ability to reduce their negative balance-sheets and save them from bankruptcy. Germany’s unemployment rates will increase, but its unemployment benefits will be reduced. Other governments in Europe plus the United States have been urging Germany to spend more and export less, in order to restore world demand. Merkel rejected these demands, saying that debt reduction was her priority.
Japan’s new Prime Minister, Naoto Kan, warned the country that the debt situation is so bad that Japan could face a situation comparable to that of Greece. To remedy this, he proposed some increased taxation, more regulation of the financial arena, and new kinds of public expenditures.
In the middle of all this super-austerity in the North, a most remarkable thing has occurred, which seems to have escaped almost all notice. As everyone knows, Spain is one of the many European countries now in economic difficulty because of very large debt ratios. On May 30, Fitch Ratings joined other ratings companies in reducing Spanish bond ratings from AAA to AA+. The question is why. Just the day before, the Spanish parliament had voted the country’s deepest budget cuts in 30 years.
Budget cuts are presumably what Germany and others have been calling for in Greece, Spain, Portugal, and other countries threatened by too much debt. Spain responded to this pressure. And just because it did, Fitch Ratings downgraded it. Brian Coulton, Fitch’s person in charge of ratings for Spain, said in the statement downgrading Spain: “The process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term.”
So there it is – damned if you do, and damned if you don’t. The financial speculators have created a disastrous fall in the world-economy. The ball was then thrown to the states to solve the problem. The states have less money and more demands on them. What can they do? They can borrow, until those who lend money won’t do it, or demand too high a rate of interest. They can tax, and the businesses say that this will cut back their ability to create jobs. They can reduce expenditures. And in addition to the terrible pain this inflicts on everyone, but especially on the more vulnerable, this action also will reduce the possibility of growth, as Mr. Coulton points out for Spain.
Of course, there is one big place to reduce expenditures – the military. Military expenditures do provide jobs but far fewer than if the money were used otherwise. This does not apply only to the biggest spenders like the United States. A virtually uncommented aspect of Greece’s debt problems was its heavy expenditure on the military. But are governments ready to reduce significantly military expenditures? It doesn’t seem too likely.
So, what can the states do? They are trying one thing today, and another thing tomorrow. Last year, it was stimulus. This year, it’s debt reduction. The year after, it will be taxation.
In any case, the overall situation will be worse and worse.
Can China save us? Stephen Roach, Morgan Stanley’s very acute analyst, seems to think so, provided the government “stimulate(s) private growth.” In that case, rising wages will be offset by higher productivity. Maybe. But the Chinese government has been resistant to such a policy up to now, not for economic but for political reasons. Its drive to maintain political stability has been paramount up to now. Furthermore, even Roach has one great fear – China-bashing in Washington leading to trade sanctions. Myself, I think that’s a high probability, as the U.S. economic situation continues to deteriorate.
The way out of all of this is not some small adjustment here or there – whether of the monetarist or the Keynesian variety.
To emerge from the economic box in which the world finds itself requires a fundamental overhaul of the world-system. This will surely have to come, but how soon?
Iran and North Korea Again: The Perils of Brinkmanship
Commentary No. 282, June 1, 2010
The United States has been clamoring for almost two decades that it is determined to prevent Iran and North Korea from becoming nuclear powers. In-between more urgent issues, the U.S. government regularly reasserts the importance of this objective. Since both Iran and North Korea are clearly unwilling to cede to these periodically-reasserted U.S. demands, the United States constantly makes threats of further action of some sort.
After all this time, should we take this seriously? What has been going on is best summarized as brinkmanship, sometimes called a “game of chicken.” Each time the game is replayed, it is always a question of who will blink first, and call off the implied ultimate escalation into warfare. Usually the United States plays this game with Iran and North Korea one at a time. Right now, it is playing it with both simultaneously. On the one hand, the simultaneity makes it more difficult to believe the seriousness of U.S. intent. On the other hand, it makes the game more perilous.
What are the current stories? In the case of Iran, the United States has been trying for some months now to obtain from the U.N. Security Council a new resolution imposing further sanctions on Iran for refusing the Security Council’s resolution demanding that Iran suspend the enrichment of uranium. To get such a further resolution, the United States has been negotiating with Russia and China for their support. At the moment, these two countries seem to have agreed to support a resolution, but one weaker than the one the United States wants, and in return for diverse concessions on other issues.
The United States has assumed up to now that once it got the support of Russia and China, it would be able to get a unanimous resolution from the Security Council. Suddenly, two of the non-permanent members – Brazil and Turkey – entered the picture and engaged in very public diplomacy on this issue. Their leaders arranged with Iran to swap about half its low enriched uranium for nuclear fuel. Brazil, Turkey, and Iran argued that this deal goes a long way towards meeting U.S. demands. The United States does not agree at all and has said it will proceed with pushing for its resolution in the Security Council.
The United States does not know how to deal with the Brazilian/Turkish entry into the public game. They are both supposed to be friendly countries. They are both supposed to be junior nations who should leave such matters to the permanent members of the Security Council. It seems the United States may even have endorsed their initiative on the assumption it would fail and the U.S. argument would be fortified. This didn’t happen. Brazil and Turkey succeeded. At least they think so. And they don’t intend to be treated as junior nations who have to wait on their elders. They actually think that the United States should hail their agreement with Iran as a success and withdraw the resolution.
In the meantime, all eyes are on Korea. There, on March 26, a South Korean warship sank. At first, the South Koreans said they thought it was an accident. But then, two months later, which is a suspiciously long time, they announced they have proof that a North Korean submarine sank the ship with a torpedo. Some South Korean analysts suggest that the ship, which was engaged in a joint military exercise with the United States, was actually sunk in error by a U.S. submarine. This suggestion has been ignored by the world press, which rather is debating the motives of North Korea for doing this. Hillary Clinton says she can’t understand why they would do such a thing.
Whatever the case, South Korea has broken its existing ties with North Korea, which has reciprocated. South Korea’s present conservative government has now scuttled whatever remained of the previous president’s “sunshine policy” toward North Korea. The United States wants a Security Council resolution. North Korea says that, if one is passed, they will withdraw from cooperation with international inspections of their nuclear facilities.
So, we’re into high-level brinkmanship. And the world’s markets reflect extreme nervousness. What will happen now? Obviously, everyone is playing to their home audience. The U.S. government wants to show the U.S. Congress that it is “doing something” serious. So does the South Korean government. So do the Iranian and North Korean governments. And so, no doubt, do the Brazilian and Turkish governments.
Who will blink first? I don’t believe any of the front-line nations actually wants a war. There is too much to lose for each of them. The real decison however lies with none of these actors but with the Chinese government. China is calling the shots. What kind of a resolution will the Chinese support now in either of the two cases? China obviously wants very much for everyone to calm down, and to keep calm. The problem is that brinkmanship can be a dangerous game when the world – its geopolitics and its economy – is so chaotic and volatile. Accidents could happen. Some military officer somewhere, with his hand on the trigger, could make a mistake – either accidentally or deliberately.
We are living in interesting times.
The Anatomy of Fear
Commentary No. 281, May 15, 2010
Fear is the most pervasive public emotion in most of the world today. This fear is not irrational, but it doesn’t necessarily lead to wise ways of handling the presumed dangers. The way it operates can be clearly perceived in two notable events of the recent past. The first was the dramatic plunge of stock market values on the New York Stock Exchange on May 6 – a plunge that astonished everyone and lasted a mere few minutes. The second was the riots in Athens that have already led to three deaths and which are still continuing.
What happened on the Stock Exchange? It seems that on that morning the Dow Jones industrial average had gone down some 300 points. This was a considerable downturn (about 3%), but one that seemed a not unusual reaction to a combination of bad news on various fronts in the United States plus the growing uncertainties about Greece’s likelihood of avoiding bankruptcy.
But then, in late afternoon, the Dow went down another 700 points with incredible rapidity. It was the largest intraday decline on record. It was totally unanticipated and apparently left the traders “dumbstruck.” Some major stocks fell 90% to being worth a penny. Then, as traders “watched open-mouthed” and almost as quickly as the plunge happened, the Dow went up again, ending at a loss of “only” 371.80 points – to the market traders’ seeming relief.
Of course, everyone sought an explanation. The first one offered was that a single trader had a “fat finger” and may have entered a trade in billions when he meant millions. The problem with this explanation is that no one has been able to locate this person or demonstrate that he exists or did indeed have a “fat finger.”
Then, an alternative explanation began to circulate. The N.Y. Stock Exchange has a slowdown mechanism when trading seems to be too rapid. But other exchanges do not have the same mechanism. So, some suggest, traders faced with the slowdown on the N.Y. Stock Exchange decided to shift trading to other exchanges. Some suggest a further twist on this explanation: it was the fault of so-called algorithmic trading strategies, which involve automatic trading mechanisms pre-programmed to make such a shift. The lack of coordination between the various exchanges, it is said, is a fault with the regulations, and now some argue that all exchanges should have joint slowdown mechanisms. For others, the plunge might have been caused by an automatic mechanism, so one can blame machines and not persons.
All these explanations may or may not be valid. But they omit the fact that at various points, human decisions intervened – to react to the beginning of the plunge, to slow down the trading, to begin to buy again and allow the Dow to rise. And here is where the fear factor enters in.
A stock exchange involves by definition risk and uncertainty. But traders depend fundamentally on the sense that the fluctuations are relatively minor, that they occur within a certain expectable range. When the fluctuations begin to be wild, which means extensive and sudden, traders understandably panic. And when they panic, they inevitably accentuate further the fluctuations. It is a vicious circle.
At the very moment that the traders in New York panicked, they could view on their screens the riots in Athens. This upset them even further, for two reasons. They were deeply uncertain how the European Union countries would finally decide to aid Greece (or even if they would). They were deeply uncertain what the implications for U.S., west European, and Japanese banks of European action (or inaction) about Greece’s problems were. And they were deeply uncertain about whether Greece’s potential bankruptcy would entail a global unraveling of the world market.
But most of all, they were right to be fearful of the riots. The riots were the result of Greek fears. What concerned most Greeks was the distinct likelihood that their real income would be radically reduced in the coming years. They were angry about this and very afraid. And they were not at all convinced that this was somehow their fault, a fault for which they should pay.
But the fears of Greek citizens are clearly only the tip of a world iceberg, as government leaders around the world, and stock market traders, are well aware. The Greek government’s problem is quite simple. Its tax revenue is too small and its expenditure level too high for its current and prospective future income. So it must either raise taxes (if it could collect them) or cut expenditures or both – and drastically. This is however also the problem of Germany, France, Great Britain, the United States, and the list goes on. Nor are the few countries that seem to have their fiscal heads above water at the moment (such as Brazil or China) exempt from this contagion. The Greeks are taking to the streets to protest. But this will spread. And, as it spreads, the world market will become ever more volatile, and the fears will expand, not contract.
The major policy response everywhere has been to buy time with paper money that is borrowed or printed. The hope is that, somehow, during the borrowed time, renewed economic growth will occur and restore confidence, ending the real and latent panics. Politicians grasp every little sign of such growth and overinterpret it. A good example is applauding recent job creation in the United States, when that job creation was less than the size of the population growth in the same period.
The fear is not irrational. It is the consequence of the structural crisis of the world-system. It cannot be solved by the band-aids that governments are using to treat the serious ailments we confront today. When fluctuations get too great and too rapid, no one can rationally plan. So people no longer act as reasonably rational actors in a relatively normal world-economy. And it is this degree of heightened fear that is the fundamental reality of the present era.
Is Europe Imploding?
Commentary No. 280, May 1, 2010
Europe has had its nay-sayers since it started on the long road to unification. There were many who believed it impossible. And there were many who thought it undesirable. Still one has to say that, in the long and sinuous path it has taken since 1945, the project of European unification has done remarkably well. After all, Europe had been torn apart by nationalist conflict for at least 500 years, conflict which culminated in the particularly nasty Second World War. And revenge seemed to be the dominating emotion. As of 2010, what is now called the European Union (EU) houses within it a common currency, the euro, which is used by 16 countries. It also has a zone with 25 members, called Schengen, which permits somewhat free movement without visas. It has a central bureaucracy, a human rights court, and is on track to having a president and a foreign minister.
One shouldn’t exaggerate the strength of all these structures, but one shouldn’t underestimate the degree to which all this has represented, for good or ill, the overcoming of nationalist resistance throughout Europe, especially in some of the stronger states. Yet, it is also the case that right now Europe seems in some important ways to be imploding. The code words for this implosion are “Greece” and “Belgium.”
Greece, as all the world is aware, is undergoing a severe sovereign debt crisis. Moody’s has declared Greek state bonds to be junk bonds. Prime Minister George Papandreou has said, very reluctantly, that he would probably have to turn to the International Monetary Fund (IMF) for a loan, a loan that would imply the usual IMF conditions requiring specific forms of neoliberal restructuring. This idea is very unpopular in Greece – a blow to Greek sovereignty, Greek pride, and especially Greek pocketbooks. It was also greeted with dismay in a number of European states that feel that financial assistance to Greece should come first of all from other EU members.
The explanation of this scenario is quite simple. Greece has a big budgetary deficit. Because Greece is part of the eurozone, it cannot devalue its currency to alleviate the problem. So it needs financial aid. Greece asked for European aid. The biggest and wealthiest European country, Germany, has been highly reluctant, to say the least, to give such aid. The German public is strongly opposed to helping out Greece, basically out of a protectionist reflex in a time of European stress. They also fear that Greece is the first of a line of others (Portugal, Spain, Ireland, and Italy) who will make similar demands if Greece gets such aid.
The German public seems to wish it would all go away, or at least that Greece somehow be thrown out of the eurozone. Aside from the fact that this is legally impossible, the country that would suffer most as a result, besides Greece, is surely Germany, whose own economic health is largely based on the strong export market it has within the eurozone. So, for the moment, we seem to be at an impasse. And the market vultures are hovering over all the eurozone countries that are in sovereign debt trouble.
In the midst of this, the now perennial Belgian crisis has reared its head in a particularly acute way. Belgium, as a country, came into existence as a result of pan-European politics. The collapse of the Habsburg empire of Charles V resulted in the partition of the so-called Burgundian Netherlands into the United Provinces in the north and the Austrian Netherlands in the south. The Napoleonic Wars led to the two parts being put together again in the restored Kingdom of the Netherlands. And the European conflicts of 1830 led to the two parts being split apart again, with the creation of Belgium in more or less the erstwhile Austrian Netherlands, with a king imported from elsewhere.
Belgium was always a composite of Dutch-speaking “Flemish” and French-speaking “Walloons,” largely but imperfectly located in two different geographical sectors (the north and south of Belgium). There was also a small German-speaking zone.
Up to 1945, the Walloons were the more educated, wealthier ones, and they controlled the major institutions of the country. Flemish nationalism was born as the voice of the underdogs fighting for their political, economic, and linguistic rights. After 1945, the Belgian economy underwent a structural shift. Walloon areas lost strength and Flemish areas gained strength. Belgian politics became as a consequence a never-ending struggle of the Flemish to obtain more political rights – devolution of powers, with the ultimate objective for many of dissolving Belgium into two countries.
Bit by bit, the Flemish got more and more of their way. Today, Belgium as a country has a common monarchy, a common foreign minister, and very little more. The sticking-point in this arrangement is that Belgium is now a confederal state with three, not two, regions – Flanders, Wallonie, and Brussels (the capital).
Brussels is not only the capital of Belgium. It is the capital of Europe, the locus of the European Commission. Brussels is also a very bilingual city. And the Flemish are insisting on making it less so. The problem is that, even if there were to be agreement on the dissolution of Belgium, there would be no easy way to arrange the fate of Brussels.
The latest negotiations were so intractable that Le Soir, Belgium’s leading French-language newspaper, proclaimed that “Belgium died on April 22, 2010.” Their lead editorialist asked “Does this country make sense anymore?” At the moment, the king is trying, perhaps vainly, to recreate a government. He may have to call new elections, without much hope that the elections will produce a really different parliament. On July 1, Belgium assumes the rotating six-month presidency of the EU, and it is not certain there will be a Belgian Prime Minister to preside over it.
The Greek problem is the problem of spread. Will Greece’s difficulties not be replicated – are they not already being replicated – elsewhere in Europe? Can the euro survive? The Belgian problem presents however an even greater problem of spread. If Belgium comes apart, and both parts are then members of the EU, will not other states consider coming apart? There are after all important secessionist or quasi-secessionist movements in many EU countries. Belgium’s crisis could easily become Europe’s crisis.
Of the two threatened implosions, the one symbolized by Greece is easier to solve. It basically only requires that Germany realize that its needs are better met by European protectionism than by German protectionism.
The Belgian crisis poses a much more fundamental question. If Europe were ready, right away, to move forward to a truly federal state, it could accommodate the break-up of any of its existing states. But it has not been ready up to now. And the world’s collective economic difficulties have much strengthened the narrow nationalist elements in virtually every European country, as all the recent elections have shown. Without a strong European federation, it would be extremely difficult for Europe to survive a stream of break-ups. Amidst the political havoc, Europe could go down the drain.
There is a certain Schadenfreude among U.S. politicians about Europe’s difficulties. What may however save Europe from any implosion is precisely the ever-increasing threat of the implosion of the United States. Europe and the United States are on a seesaw, on which as one goes up the other goes down. How this will play out over the next two to five years is not at all clear.
Ahmadinejad says, Thank you America
Commentary No. 279, April 15, 2010
Relations between Iran and the United States have been turbulent for almost 60 years now. Before the Second World War, the Shah of Iran, Reza Shah Pahlavi, sought to maneuver between the outside demands and pressures of Great Britain, the U.S.S.R. and Germany. When the war broke out, he proclaimed neutrality. This led to an allied Soviet-British invasion in 1941. The allies forced the Shah to abdicate in favor of his son.
The Soviet forces remained in northern Iran and in 1946 made demands for an oil concession there. The British considered Iran to be part of their sphere of influence and controlled the very profitable Anglo-Iranian Oil Company (AIOC). The Cold War had started and the British did not wish to countenance such a demand. The Soviet forces withdrew from Iran, more or less as part of the implicit Yalta agreement on division of spheres of influence.
In 1951 however, Mohammed Mossadegh became Prime Minister, as head of a nationalist party, and he nationalized the AIOC, a move to which the Shah, Mohammed Reza Shah Pahlavi, was opposed. In the struggle between the two, Mossadegh obtained enough popular support to marginalize the Shah and force him into de facto exile.
The British were at this point in effect turning over their role everywhere in the Middle East to the United States. It was thus the CIA that orchestrated a coup in Iran on August 16, 1953 and arranged that the Shah return to Teheran and resume full political control. The oil nationalization was cancelled and the British firm reinstalled.
The Shah of Iran became a firm ally of the United States, suppressing all opposition. At this time, the United States was not objecting to the Shah’s nuclear ambitions, nor even was Israel. The Shah’s regime was increasingly oppressive and this resulted eventually in the nationalist revolution of 1979 led by Ayatollah Ruhollah Khomeini. One of the main grievances of the revolutionaries was the subordination of Iran’s national interests to U.S. policies, as incarnated in the CIA coup of 1953.
The Shah fled and soon thereafter, on November 4, 1979, the U.S. embassy was invaded. The diplomats inside it were held hostage by the Iranian regime. They remained hostage for 444 days. Relations between the two countries have been hostile ever since. In 1980, the Iraqi government of Saddam Hussein attacked Iran, supported materially by the U.S. government.
The war was long and bloody and ended after eight years more or less in a draw. Soon thereafter Iraq invaded Kuwait, in part to alleviate the costs of the war. Iraq expected U.S. “understanding” of its actions, and instead found itself in the first Gulf War.
The United States was now at odds both with Iraq and Iran at the same time. When Al Qaeda launched its attack of September 11, the Bush administration accused both Iraq and Iran of being in collusion with them, whereas Al Qaeda was in fact hostile to both regimes. The United States invaded Afghanistan in 2001 and Iraq in 2003 in the presumed hope of obtaining friendly regimes in both countries and their support in its ongoing struggle with Iran, which had begun serious efforts to obtain nuclear weapons.
So, where are we today? The Iraqis have just held elections and are currently negotiating the future government. When the various parties with a strong base in Shi’a areas wanted to hold political bargaining discussions, they went to Teheran. One of the reasons adduced was that they didn’t want to be overheard by U.S. listening devices. They apparently weren’t worried about being overheard by Iranian listening devices. The largest party that has strong support in the Sunni areas has just announced that it will visit Iran as well. And the Iranian government has urged Shi’a parties to include the Sunni politicians in any government that was formed.
It isn’t that Iran is controlling Iraqi politics. Far from it. But after a long U.S. occupation, the outcome seems to be that Iran has more influence in Iraq than the United States. Iran is especially thankful to the United States that it eliminated the one fearsome enemy it had in Iraq, Saddam Hussein.
In Afghanistan, the United States installed in power Hamid Karzai. He was, from the U.S. point of view, the ideal person, indeed the only one who could possibly hope to resist successfully the Taliban and hold Afghanistan together. He was himself a Pashtun by ethnicity, and was someone willing to make deals with the various warlords dominating non-Pashtun zones.
After recent elections, there were charges that Karzai had manipulated the results and was highly tolerant of both corruption and drug cultivation. The United States put strong pressure on him to modify some of his policies. What did he do? He invited Ahmadinejad to visit Kabul, said he might himself join the Taliban, and openly denounced the U.S. military for its wanton killings of civilians.
Since the United States has no one else who can fill the bill, it has backed down and tried to restore relations with Karzai. This is particularly true of Gen. Stanley McChrystal, the commander of U.S. forces there, who has much invested in achieving at least a partial victory over the Taliban. After nine years of U.S. (and NATO) involvement in Afghanistan, their surest ally plays the Iranian card against Washington, and there seems to be not much the United States can do about it.
Meanwhile, at home, Ahmadinejad faces a strong opposition which he has been working hard to suppress. And the United States is engaged in a major campaign to obtain sanctions against Iran because of its refusal to abandon the development of nuclear reactors. What results have there been for the campaign for sanctions (or more), led by the United States and vociferously supported by Israel?
At home in Iran, it has strengthened the internal political hand of Ahmadinejad greatly, as it enables him to pose as the defender of Iranian sovereignty. And despite all the pressure of the United States, it seems doubtful that Russia and China (especially China) will support serious, as opposed to nominal, sanctions. Meanwhile, as the Israelis correctly state, time is on Iran’s side in the attempt to become a nuclear power.
Thirty years of U.S. foreign policy vis-à-vis Iran seem to have backfired terribly. (Or perhaps we should talk of almost 60 years.) Iran is today stronger than ever, in large part because of U.S. policies. If you were Ahmadinejad, would you not say, thank you America?