Around the dial

Dateline: Pentagon City Mall, Arlington VA, 7 April 2005, (1045)

First up is the latest development in the formation of a government in Iraq. The Kurds got their way and pulled off getting their man as president. This guy's a militia leader who fought Saddam's regime for decades. Saddam watches the national assembly proceedings from his jail cell. Pretty amazing stuff ("A Kurd Is Named Iraq's President As Tensions Boil: Hussein Sees Vote on TV," by Edward Wong, NYT, 7 April 05, p. A1). The biggest immediate tensions with this development seem to be the impatience of the newly formed government for the disbanding of the interim one, which tends to have its share of former Baathists. When you've got an insurgency that similarly populated and Kurds and Shiites are the primary targets of these killers, you understand the sense of urgency underlined by anger. Allawi, the current PM is, BTW, a secular Shiite but a former Baathist. We are nearing the point, it would seem, when keeping the "good" Baathists around because they're so experienced and willing to act tough in a tough situation is at an end. Iraq for Iraqis, not Baathists, and so a purge seems in the offing. Bit scary? Sure. Awfully inevitable? Yes. For every action a reaction, and Saddam was one nasty action. Expect an equally difficult reaction on many levels. But overall a good step for us, making it easier to reduce our troop presence as we look ahead.

Second story about a belligerent China? ("China Rejects Plans to Expand Security Council," by Warren Hoge, NYT, 7 April 05, p. A3). Don't pretend to see the connectivity on this one. We ask Japan to join our defense guarantee on Taiwan, its colonial possession for the first half of the 20th century and the country taken over by the losing side of the Chinese civil war (45-49) and operated as an alternative China (owning its UNSC seat until the early 1970s) ever since. So when Japan pushes to join the UNSC, what does China do? A little payback, my friends. For Taiwan, for changing its school textbooks to reduce by half the number of Chinese killed by the occupying Japanese forces during its brutal rule in Manchuria in the 1930s and WWII, and likewise inserting new language about a couple of rock outcroppings in the South China Sea that Japan now claims out of fear that it won't otherwise join in the exploitation of large reserves of natural gas sitting under them. We can deal with those issues directly, or we can use them as levers to "contain" China's rise, as Japan seems to be doing. But don't expect China to return any favors for this treatment. WSJ story on similar dynamics ("Japan Takes Heat Amid Shift in Asia," by Sebastian Moffett et. Al, WSJ, 7 April 05, p. A12) notes that it's not just Japan that's doing this sort of balancing in the region, but South Korea too, reminding us that the solution on North Korea is part of this equation too. You watch these tensions rise and you have to wonder, Is the U.S. picking the right fights with China? Is it choosing the right opportunities? Are we forging what needs to be the most important strategic relationship of the 21st century? Or are we wasting the chance to create a much better future?

Fascinating op-ed in WSJ from Nobel-prizewinning economist Douglass North ("The Chinese Menu (for Development): Beijing's experience tests basic economic tenets," p. A14). Key part of the explanation was how China incentivized peasants toward solving food issues and freeing up labor to move into cities. Did this through individual economic empowerment without much (yet) in the way of commensurate public institutions and political pluralism typically assumed to be a prerequisite of such positive and rapid development. So China's disconnect with Old Core (Europe, US, Japan) is that economically, we're all increasingly in the same boat even as our political rule sets are quite different. North's point: it's all about rules. Try this section on for size and see if it sounds familiar:

Institutions are the way we structure human interactionópolitical, social and economicóand are the incentive framework of a society. They are made up of formal rules (constitutions, laws and rules), informal constraints (norms, conventions and codes of conduct), and their enforcement characteristics. Together they define the way the game is played, whether as a society or an athletic game. Let me illustrate from professional football. There are formal rules defining the way the game is supposed to be played; informal normsósuch as not deliberately injuring the quarterback of the opposing team; and enforcement characteristicsóumpires, refereesódesigned to see that the game is played according to the intentions underlying the rules. But enforcement is always imperfect and it frequently pays for a team to violate rules. Therefore, the way a game is actually played is a function of the underlying intentions embodied in the rules, the strength of informal codes of conduct, the perception of the umpires, and the severity of punishment for violating rules.

This is basically how I explain rules in my brief and in PNM, and I am often reviewed by "serious" academics as being superficial. Humphf! Say I. If it's good enough for Mr. North and his Nobel, it's good enough for me.

Next story on China ("China Moves From Piracy to Patents: More Companies Are Trying To Be Product Innovators Rather Than Just Imitators," by Alex Ortolani, WSJ, 7 April 05, p. B4) speaks to their latest example of evolving from OEM (original equipment manufacturer) to ODM (original design manufacturer). To me, this is classic maturation for a New Core state. For now, many of these patents are filled in Old Core states, especially China's biggest market, the U.S., but over time more and more get filled in China itself, and this rising transaction rate forces positive government reform over time, because it puts laws above peopleóincluding the Party. The central government pursues this path because of increased foreign competition, the article says, and that competition comes about because China joins the WTO and has to open up its economy. Taiwan went through this sort of thing a few years back regarding its semiconductor industry. We should expect to see it across the dial in China.

Then a story on the "trading houses" of Japan, the Big 5 being Mitsuibishi, Mitsui, Sumitomo, Itochu and Marubeni ("New Tricks for Japan's Old Dogs: Once Written Off, Trading House Reinvent Themselves and Thrive," by Yuka Hayashi, WSJ, 7 April 05, p. A12). My eldest brother works for Marubeni as a corporate officer in their NY branch. In the past, these trading houses were mostly middlemen for Japan's corporations as they built and acquired things around the world, and I mean the biggest projects. A lot of that business went south along with Japan's economy in the 1990s. Now, the Big 5 play similar roles, but do it more and more as independent "merchant banks" instead of slavishly serving their associated keiretsu, or families of companies allied together in a giant family of firms. In effect, instead of just getting stuff for their company families, they now are "crucial suppliers of capital, a sort of private-equity industry in themselves, though they often provide services, from financing to consulting, to go along with their investments." Their biggest mainstays today are energy and other raw materials needed by such rising pillars as India and China. This is a new rule set for the Japanese financial community, and it shows how the Old Core is increasingly dependent on the New Core's continued growth for its own financial health.

Quickie AP entry on fourth straight day of Saudi government forces' shootouts with wanted radical Islamic militants operating within their borders ("Saudi Arabia: Fourth Day of Shootouts," NYT, 7 April 05, p. A9). To me, this is another example of how the Big Bang strategy works its magic by forcing local regimes to deal with what are really local problems. So it's not just a matter of getting Iraqis to deal with radical Islamic insurgents, a nice byproduct of the Big Bang is forcing neighboring regimes like Saudi Arabia to finally start dealing with their own status as wellspring for these bad actors. Remember, in the end as well as in the beginning: all terrorism is local just like all politics is local.

A pair of competing stories on India: 1) "Low Costs Lure Foreigners to India for Medical Care," by Saritha Rai, NYT, 7 April 05, p. C6; and 2) "Arson Attack Tries to Foil Start of India-Pakistan Bus Service," by Somini Sengupta, NYT, 7 April 05, p. A6. First one is about India's latest example of . . . I guess you'd call it "in and out sourcing": medical tourists who travel there for same procedures costing 2 to 3 times as much back home. Story describes 64-year-old man who had lived with hip pain for years but couldn't bring himself to do the full-up hip replacement, even though his insurer said it would pay. Instead, he researches on the web and finds this "joint resurfacing" procedure in India for $6.6k versus the $25k it would have cost to do the same thing back homeówith no coverage from his insurer (I guess they think it a bit too new). Great example of India driving technology in medicine, in effect setting some new rules. If you had described India ten years ago as a big future source for new rules in medicine (e.g., this sort of tourism, pharmaceuticals), you would have been laughed at, and yet here it is, the fascinatingly new form of connectivity between India and the Old Core, where itís the old dog that learns the new tricks. Second story is your classic tale of the forces of disconnectedness trying to wage war against those who would foster such connectivity to further the development of peace. A few months after the last close call on war between India and Pakistan over Kashmir, businessmen with an eye toward the solution forged a simple but direct link between the two countries: a busline. No good economic argument for it, just a simple statement of what should be possible. And naturally such attempts come under attack from those who'd prefer something more zero-sum, more exclusionary, more disconnected. So a bus station on the Indian side is set ablaze. As always, India remains a microcosm of globalization: some of the most amazing and cutting-edge connectivity and some of the oldest and most nonsensical violence designed to drive people apart and keep them disconnected.