Does Asia stall or fulfill the dream of the Pacific century?

Warnings from officials at the Asian Development Bank (Reuters by way of Stewart Ross):

Home to 3.3 billion people, Asia has led the global economy in recent years, and the rise of China and India has lifted the region's profile and influence in world markets.

But the region also has nearly 2 billion people living on less than $2 a day, including in China and India, who are most at risk from sharp rises in food and fuel prices this year.

"Sure we have had a tremendous growth story, incomes have increased, and Asia has a lot to be proud of," ADB Managing Director General Rajat Nag told Reuters.

"But you also 700 million people without access to clean water, you have 1.7 billion people without access to sanitation, you've got maternal mortality which is high, you've got child malnutrition," he said.

Around 3,000 people will gather in Hanoi for the May 3-6 meeting, and the ADB, charged with fighting poverty in Asia and the Pacific, will push the case for the region to face up to its responsibilities.

The message, Nag said, was clear: "Your rise is not preordained; it is plausible, but you've got to earn it."

"You've got to make some policy decisions now to reduce inequity, increase the basic education, address issues of governance and corruption, show leadership, have strong regional integration if you are going to avoid the middle-income trap."

That trap, where per capita income levels rise to about $7,000-10,000 and then stall, had afflicted countries in Latin America and the Philippines in Asia, he said.

By avoiding the trap, Asia would account for half of world output by 2050, from 27 percent now, with per capita income of about $39,000, in purchasing power parity terms, and billions lifted out of poverty, an ADB-commissioned study found.

"If on the other hand you get caught in the middle-income trap, the per capita income will only be about half, about $20,000 per capita, and Asia's output will account for about 32 percent," Nag said. "So the potential loss is huge."

When I talk about the big shift from extensive growth (more stuff) to intensive growth (more innovation), this is really what I'm describing.  You accomplish the basic stuff with a segment of your economy (i.e., there are still plenty of rural poor) and then it's a question of whether you can take it to the next level by cleaning up a lot of bad practices you've still got or accumulated in the process of development.  That's the progressive-era point that America hit in the late 1800s, and either you muscle past that or you get stuck.  

Essential to the process:  democracy that allows the effective articulation of society's demands for improvements, a professional civil service that reduces the corruption factor, rise of an environmental movement, effective taxation to raise funds for the public-goods improvements needed for those who aren't moving ahead, sound public education, good rules to attract investment beyond the early basics (commodities, cheap manufacturing, etc.)

All of this is to say:  there is no "Asian way" that circumvents these problems, and please, don't toss Singapore in my face, because city-states are not countries.  They will need to travel the same progressive territory that the West once did - and they will end up in the same place.  

Good news for Asia:  outside of China, Japan, Australia/NZ and South Korea, the rest of the place is just hitting its demographic dividend - that sweet spot of about 25 years in the transition from high fertility/mortality to low fertility/mortality.  One has to take advantage to make as much advance proceed as possible during this window, otherwise you run into the Chinese get-old-before-you-get-rich problem.

A grain of salt please on the Assassin's Mace

Nice reporting by Paul Roberts at ThreatPost (Kaspersky Lab Security News Service, HT to Dave Emery) of some analysis of China's own cybersecurity amidst all this talk in Washington that the PLA is readying its killer opening "Assassin's Mace" blow in any fight over Taiwan or thereabouts.  It opens nicely:

The official line in Washington D.C. is that there's a new Cold War brewing, with an ascendant China in the place of the old Soviet Union, and cyberspace as the new theater of war. But work done by an independent security researcher suggests that the Chinese government is woefully unprepared to fend off cyber attacks on its own infrastructure.

The gist that follows:

For the last 18 months, Dillon Beresford, a security researcher with testing firm NSS Labs and divorced father of one, has spent up to seven hours a day of his spare time crawling the networks of China's state and provincial governments, as well as stealthier networks belonging to the PLA and the country's top universities. Armed with free tools like Metasploit and Netcat, as well as Google Translate, he's pulled back the curtains on the state of cyber security in China. What he's discovered may come as a surprise to many U.S. policymakers and Pentagon officials. 

Dillon BeresfordContrary to the image of China as a nearly invincible cyber powerhouse, Beresford says in an interview with Threatpost Editor Paul Roberts, that the fast-growing nation suffers from woeful cyber security practices at home that leave, literally, thousands of networks and databases vulnerable to even trivial, remote attacks. Beresford, whopublicized holes in domestic Chinese SCADA systems in September, 2010, said the country's aggressive cyber offense abroad, he said, is in stark contrast to an almost total lack of basic cyber defense at home that has left both classified and unclassified government networks vulnerable to attack and compromise. 

Great post (really an interview with Beresford) and worth reading in full.

I have had some very smart people in DC warn me ominously about all of China's continuing military advances and I'm buying almost none of it.  I see them putting up a Potemkin village of a defense designed, as Beresford suggests, to hide great weaknesses.  It is a lot of wasted effort because the US has no intention of doing anything other than to scare China (deterrence), which makes China's showy counter-efforts to do the same all the more pointless.

As if there's nothing else to be done in this world that the planet's two biggest and highly interdependent economies insist on pursuing this asinine sideshow!

This is business as usual in the PNT, which hopefully Panetta disciplines better than Gates did.  On the Chinese side, it's poorly supervised generals with too much money on their hands.  The fiscal pain will solve the issue on our side, and the right crisis will inevitably reveal China's misaligned military - as in, not appropriate to their actual emerging global security needs.  They remain in fighting-the-last-war mode - a good indication of their complete lack of recent operations that matter whatsoever (thus no learning).  Let them field their carrier design alongside their new carrier-killer missile and think themselves so clever.  I find most of it pathetically unimaginative and unbefitting their rise.  They desperately need better military leadership on top.

CoreGap 11.11 Released - What to Do With Despots Who Fight to the Bitter End?

Wikistrat has released edition 11.11 of the CoreGap Bulletin.

This CoreGap edition features, among others:

• Terra Incognita - What to Do With Despots Who Fight to the Bitter End?
• Bahrain Repression Indicates Just How Scared of Iran the Saudis Truly Are
• IMF and Standard & Poors Both Issue Warnings on Unprecedented US Debt
• As Libyan Stalemate Looms, NATO Increases Involvement
• South Africa Formally Joins BRIC Group, Signaling China’s Dominance

And much more...

The entire bulletin is available for subscribers. Over the upcoming week we will release analysis from the bulletin to our free Geopolitical Analysis section of the Wikistrat website, first being "Terra Incognita - What to Do With Despots Who Fight to the Bitter End?"

Whether or not the planet’s ongoing wave of political revolt ultimately earns the moniker, the “fourth great wave of democratization,” intervening great powers ponder the question of what to do with leaders who are deposed or in extreme jeopardy. The realist is more willing to cut a deal for immunity, so long as a quick departure is achieved and bloodshed subsequently ended.  The idealist tends to be uncompromising, demanding a trial suitable for the “many crimes” committed by the despot over the years – or perhaps just the preceding few weeks.  In truth, there are no easy answers – just historical precedents that rarely translate across political border.

One thing seems clear:  if the leader and his family are not hurried out of the country, eventually the rebels or revolutionaries get around to levying their charges.  On this score, one has to wonder if it would not have been better for the US and Saudi Arabia to have whisked the Mubarak family from Egypt.  Now facing charges that conceivably result in death penalties, the fate of father Hosni and son Gamal has to weigh heavily elsewhere in the region, where historically most leaders are either killed or die in office. Already we see similar dynamics at work.

Read the full piece here

More about Wikistrat's Subscription can be found here

To say that President Barack Obama’s foreign policy plate is full right now is a vast understatement, and it couldn’t come at a worse time for a leader who needs to revive his own economy before trying to resuscitate others (e.g., Tunisia, Egypt, South Sudan, Ivory Coast – eventually Libya?). Faced with the reality that America’s huge debt overhang condemns it to sub-par growth for many years, Washington enters a lengthy period of “intervention fatigue” that – like everything else, according to the Democrats – can still be blamed on George W. Bush.

Referenced from Wikistrat: http://www.wikistrat.com/geopolitical-analysis/obamas-chinese-menu-of-past-presidential-doctrines/#ixzz1Gs4QTx6a

Nestle gets in on the feast

FT story on a "bolt-on deal" for Nestle:

Nestlé underlined its determination to expand in fast-growing emerging markets with the acquisition of a majority stake in one of China’s best-known regional foods groups.

Nestlé said the deal to buy 60 per cent of family-owned Yinlu Foods Group would spearhead its push into products geared to local tastes. Yinlu, which has had a long association with Nestlé as a co-manufacturer of ready-to-drink Nescafé instant coffee, makes ready-to-drink peanut milk and ready-to-eat canned rice porridge.

No price for Yinlu, which is based in China’s south-east Fujian province, was revealed. Analysts’ estimates for the value of the stake in Yinlu, which has annual sales of about SFr750m ($835m), ranged between SFr540m and SFr1bn.

The deal will deepen Nestlé’s penetration in China, where the Swiss group is already known for its international Nescafé, Maggi and Kit Kat brands, as well as some products sold only domestically.

Paul Bulcke, Nestlé’s chief executive, said the deal “demonstrates our long-term investment in China and our commitment to further developing local brands.”

Analysts said the transaction was another example of multinationals keen to grow in China trying to make or acquire products to suit local consumer tastes.

Nestle is an interesting company, what with the move into pharmanutricals (pharma inserted into foods to make therapy and eating one--sounds weird but it has huge applications in developing regions where nutrients are hard to get, as are drugs) and its aggressive push onto the table of the emerging global middle class.

Nestle has been in China for 20 years and employs 14,000 workers there in 23 factories, but it still feels the need to make buys like this to take full advantage of the growth of the middle class, which likes to eat better, use more electrical appliances, drive cars - for the first time, etc.

I always like to keep an eye on these guys.They think ahead nicely, which is why Nestle is the world's biggest food company. Started in 1867 by Henri Nestle in Switzerland. He makes the first milk food for a baby and uses it to save his neighbor's child. Nestle is also one of the most boycotted companies in the world. Why? Food is a very touchy subject - as are babies.

Being the global demand center has its perks

FT story on how "China influence on design growing fast."

Fundamental tenant of my vision since the late 1990s:  when the global demand center shifts in an industry, everything changes for that industry.  Now, it's Chinese tastes and desires that shape design, not so much the American consumer.   Yes, some customization by market, but the underlying dynamics shift.

At the Shanghai car show that opens today, General Motors and PSA Peugeot Citroën will both launch global models for the first time in China, a symbol of how the car industry’s centre of gravity continues to shift to the mainland, the largest car market.

But it is not just about launching the new-generation Chevrolet Malibu or Citroën DS-5 first in China, to attract more Chinese buyers.

The shift goes both ways.

When GM on Monday unveiled its Buick Envision SUV concept car, it revealed a car designed in China, for the world.

Chinese tastes are increasingly influencing the design of cars driven not just in China, but around the world.

China is having the greatest influence on luxury cars.

Demand for premium cars is soaring in China, making it crucial for luxury carmakers to satisfy them first.

When Mercedes-Benz set out to design a new S-Class luxury saloon, to hit showrooms in 2014, Daimler flew 100 Chinese consumers to customer clinics in Germany and the US to ensure they had input in the car’s design.

But the Chinese car boom is shaping the look of some mass-market cars too.

When General Motors designed its LaCrosse saloon, the brand, which is popular in China, devised a roomy and plush rear seat of the kind that Chinese owners – many of whom have chauffeurs – prefer.

“It’s a natural extension of the size and importance of the China market,” Kevin Wale, head of GM in China, says.

Ed Welburn, GM head of global design, says: “The trends here in China are having an influence on the design of our brands, but it is not a case of China dictating what cars are driven in Detroit.

“The influence is more subtle.”

Mr Welburn says one of the reasons Buick has become so successful in China – where owning a Buick is a status symbol – is that its fluid lines are more oriental in feel than the angular shapes of some other global auto models.

“China connected with Buick in a very positive way because . . . Buicks have a lot of flow in their design and Chinese artwork and calligraphy have a lot of flow,” he says.

“I’ve encouraged the design team here to . . . continue to play that up, and they have used that aesthetic in every detail [of the Envision SUV concept car], to give the same kind of feeling you get with a jade sculpture.”

Mike Dunne of Dunne & Co, an Asian motor industry consultancy, says: “Five years ago, no one would have imagined that China would have surpassed the US as the largest market.

“But now it’s natural that these cars are being developed for Chinese customers and sold globally.

This is such an amazing change in just a decade, but it signals globalization's immense power.  It is evidence such as this that always makes me laugh when people posit globalization's retreat because of this or that policy in the West, or the dividing up of the internet, etc.  There are some profound forces at work here and they mostly have to do with greed for a better life.  It's a demand function - not a supply one.

Paging Commissioner Roosevelt

I will admit that I wasn't that happy to hear the court ruling in favor of the players.  My small-town team, the Packers, need the owners to do fairly well, otherwise, like the Marines and their persistent bureaucratic fears of extinction, may face too tough a financial road.  The owners, who don't want to make public their finances, always use the Packers' data as proxy.  As a public corporation, the Packers are required to release the info.  Simply put, the Packers have progressively suffered under the Collective Bargaining Agreement, and either they get more revenue or their outlook is bleak.

But I suppose any movement is good movement at this point.  

The citation here is a WSJ op-ed about when Teddy Roosevelt stepped in and helped mediate a summit of sports luminaries who were considering banning football because of a death in play.  Teddy naturally saw a boys2men process in football and inserted himself like it was the Russo-Japanese war all over again, inviting the game's big shots for a summit at the White House.  As there, he dictated no demands.  He just pushed hard for agreement.

Today, of course, everything goes to the courts, which is its own progress and frustration.

I just feel a special concern for the Packers and - by extension - the League because of my grandfather's role in keeping the Packers alive and in Green Bay.

*                                   *                            *

Yesterday I got the results of my biopsy at the dentist: what was discovered on the underside of my tongue was just scar tissue from a scraggly back tooth pushed up because there isn't enough room on my right side. The dentist and I had agreed to crown that tooth no matter the outcome of the biopsy, so I was there yesterday for that procedure when the news came in.

Crown hurt less than having a piece of my tongue sliced away!

WPR's The New Rules: Long-Term U.S. Presence in Afghanistan a Mistake

The Obama administration has begun talks with Afghanistan designed to quell the Karzai government's fears about being abandoned by the West come 2014. Those talks are said to involve negotiations for long-term basing of U.S. troops involved in training Afghan security forces and supporting future counterterrorism operations. This can be seen as a realistic course of action, given our continuing lack of success in nation-building there, as well as our inability -- although perhaps unwillingness is a better term -- to erect some regional security architecture that might replace our presence. But there are good reasons to question this course.

Read the entire column at World Politics Review.

International Grand Strategy Competition - Last Week to Sign Up

As Wikistrat International Grand Strategy Competition is getting closer, more analysts representing leading universities and research institutes are coming on board. For all of you who still don't know what it's all about - have a look here. The first ever collaborative Grand Strategy Competition will take place online throughout June with select teams competing for the $10,000 prize.

This week is the last opportunity to sign up. The best teams will join an exclusive group of teams representing top institutes such as Georgetown University, CSIS, New York University, Columbia University CSIS, the Institute for World Politics, NATO's Atlantic Treaty Association and many more...

If you wish to join - Apply now.

Unbelievably nice new feature on PPT 2011

New feature allows you to visualize and access any and all layers in a slide.  For most people, not necessary, but I often have 60-100 layers in one slide, so accessing something for editing can be a nightmare (literally pulling aside all the layers to find the one way down you're looking for).  Now I can just bring to front, fix, and then stick back wherever I want, as the animation order in unaffected.

Brilliant!

Saleh agrees to step down in Yemen - we think

Good and smart deal, if it holds.  Immunity for himself and family.  In the grand scheme of things, this is a good give on the part of the opposition.  From the WAPO story:

Under a proposal by neighboring Arab states, Saleh would resign from office 30 days after a formal agreement has been signed. If Saleh, a vital U.S. counterterrorism ally, keeps his pledge, it would mark a rare negotiated transfer of power in a region where autocrats are increasingly resisting calls for their ouster by using violence and repression to suppress populist rebellions that are transforming the Middle East and North Africa.

Complaints from HR groups and youth movement reps, but getting him gone without substantially more violence is more important than prosecuting him for several dozen deaths.

The world should take note WRT Egypt, where Mubarak and family face a host of charges, and Libya, where negotiating the ultimate departure of the Qaddafis will invariably involve compromise.  I believe in the whole "truth commission" approach, but I think the information itself is more important than the defendants - especially in the Middle East where a zero-sum political mindset prevails.  You want to create a culture in which former leaders do okay, so better to establish the precedent - even at a loss - with current ones rather than make an example out of them.  Yes, exile them, but if we want to keep the ball rolling on this, better not to present the targeted leader with too dire a choice.

Waiting on a biopsy, working on the brief

Saw the dentist on Monday and ended up having a impromptu biopsy collection for the possibility of oral cancer. Don't figure the odds to be high, and yet it has preyed on my mind for the week - in part because they cut something out and damn it!  All of a sudden you've got this wound that hurts like hell and is a constant reminder of the biopsy in progress.

The danger of my position right now is that if I don't work, the money doesn't flow.  That's the inherent vulnerability of the sole proprietor, no matter how many clients he has.  It most definitely gets me thinking about 8 mouths to feed as the one provider.

Fortunately, I have good healthcare through my continuing tie to Enterra, but like too many families in this country, I can easily scenarioize a financial collapse if the right person is hit with a medical calamity - namely, me.

Yes, I have good long-term disability, but frankly, that is always life support after you've taken the X-month hit of lost income and the policy finally kicks in.  It's designed to prevent bankruptcy but not much else.  I am life insured to a very high degree, but millions don't replace a father, so there's comfort there but not the sort you want in the here and now.

I'm not complaining so much about my personal economy right now, because it's good.  It's just that realization that if I were to disappear from my work engagements, clients won't pay for non-work.  I'm not at the full-time position, like at the Naval War College, where I could slide by for quite some time, doing the minimum to keep collecting the paycheck.  We eat what I kill and what I kill is a based on momentum.  Take me out of circulation for 12-18 months while I fight something and where are we?

It's not an abstract thought for me.  I remember going through my first-born's cancer.  It was all-consuming for both Vonne and I.  I could barely perform at work for almost two years.  Luckily, I was well-established enough that I skimmed by during that period.  I just don't have that construct now.  What I do isn't rewarded by the one position.  Like a lot of professionals I have to create my own network of work, making me the weak link - or more specifically my health.

Again, odds are low for me on this one.  I don't smoke, chew or pursue cigars.  I do have structural teeth issues from so-so orthodontics in my youth that I will probably end up correcting the harder way now.

The weird thing is, about 80 percent of my health issues in my life have occurred in maybe a ten-square-inch chunk on the right side of my head (ears, sinus, lymphs, teeth, eyes), with the original structural cause being that I'm systematically small on my right side, compared to my left.  It's a tiny difference; it's just systematic. A real medical expert can spot it by looking at my face.  It's about a one-in-one-thousand condition that's benign in general, and yet it creates these structural stress points on my right side.  I was simply born this way.  My lopsidedness has defined me, right down to my cock-eyed optimism (one eye being higher than the other)!  It reminds me of reading about the Apollo program (book I'm finishing now) where the original design flaws, made years earlier, combine with a host of small issues to create the one catastrophe at the worst time. The human body is an amazingly complex thing, with supreme powers of adaptation (like me squeezing my right eye for decades to achieve 20/20 vision before I got prisms).  But it all catches up to you in the end and the cascade eventually swarms you.  All you really have is the choice of how you define yourself - functioning or not?

And there we're talking the mysterious world of mental health, where I do find myself feeling glad that I have plenty of reasons to stay focused.  Emily, my eldest and 17-year-cancer survivor, came home last night from college and my house of eight felt so familiar - right out of my childhood (we were a family of nine).  I realize I've spent almost five decades recreating my youth and now that I have it, I would like to keep that achievement for a while, knowing that loss and additions are to come but treasuring the configuration right now - a sort of golden moment poised between what you know and what you anticipate, like getting to know all these wonderful people in their adult lives.  I would trade my entire career for ten minutes of that future; it's the only story that really interests me - along with the evolution of my marriage (coming up on 25 years this June & 29 years together).

I also fear that if there's something bad, I'll end losing something - like maybe my sense of taste. Then I realize all the major adjustments I've made over my life - stuff that other people would find amazing from their perspective (even as, of course, I'd find the same to be true about them).  Again, human will is amazing.  I recently achieved my life-long dream of being able to sleep with my mouth closed. It only took 48 years and about ten surgeries, none of which were performed for that reason and yet, I am given this small-but-significant gift in reply for the efforts, and I treasure the ability - the sense of peace I achieve by this act. And again, we lose everything over time.  It's just so great when you win one.

And so I feel a bit frozen: it's just that lull between somebody cutting something out of your body and awaiting the verdict. Issue is real enough, and I have a ready excuse of a recent trauma.  I just don't have any frame of reference to judge my story versus what may come back from the lab.  I just know that if it's bad, our entire collective existence pivots on a dime.

Again, been there and done that, and I wrote the book (which Vonne and I are talking to my agency now about serializing as eBooks).  In the end, we all go through it.  The question is only timing and circumstances.

But it does remind you of the refrain, "At least you've got your health," as well as the larger reality of the shift in risk from groups to individuals that has unfolded for most Americans these past several decades. A lot of us, whether we realize it or not, are "sole proprietors."

Something to get off my chest, I guess.  You tell yourself you're not going to worry, but when you're somebody who makes a living imagining unfolding futures that are both good and bad, your mind wanders.  So I write it here and it's gone from my head, and I can work done today instead of being trapped in this thought.

Meanwhile, I retool the brief for a six-pack of talks I'll be giving in IL, CA, PA, PA, VA and GA over the next six weeks. It just felt right to revamp.  You keep the core slides you cannot live without, but you have this sense that what people will want to hear right now is X, and so you build in that direction, the excitement being you are performing, for the first time, new slides.  Some of the slides I've had in mind for years, others came on lately.  But the look and feel will be decidedly different.  Office 2011 for Macs has some capabilities I've been waiting on for a while.  Naturally, I am already stressing this machine by asking the program to work on the edge of its capabilities.

But what else is new?

The inevitable escalation is Qaddafi's

Excellent instincts by Obama, as he senses the kill.  Rebels get their first substantial breakthrough in the West, so it's time to pile on--bootless-style.

Best part:  it eliminates all the nonsense we've heard about "never again."  The demand out there remains. What needed to change was our response. We are doing just enough to take advantage of the opportunity and keep the ultimate victory belonging to the Libyan tribes themselves. The SysAdmin never needed to be Powell's twins of: 1) overriding power; and 2) owning the aftermath all by ourselves.  That logic is dead and buried--and thank God Powell said no to SECDEF because he couldn't take Armitage along.  This is much more in line with the pre-Bush or Clintonian level of commitment:  yes, you are vilified when it fails or takes too long, but those costs are acceptable compared to the all-or-nothing mindset of the primacistic neocons, who, in their serious hubris, thought Washington was in charge rather than globalization.  If all we get from the Facebook Revs is clearing the deck in North Africa, that will be fantastic--and a serious legacy for Obama in the same manner as Eastern Europe was for George H.W. Bush.  It's all nicely opportunistic and going with the major flows of the age, and that is how it should be.

This sort of response sends a lot more signal than the heavy hardware or brigades.  It says America will continue to fight as it always has: by generating more stuff than you can possibly imagine.  The old model was big stuff.  The new model is small and disposable and unmanned stuff.  It comes with willpower attached.  It's staying power is its dwell time.

China thinks it has a grip on the future with a carrier killer, but it's protecting itself from the 20th century. The name of the game going forward is what it has been these past two decades:  globalization's advance, the remapping of fake states, the liberation of people long oppressed by their conditions and cruel leaders, and the new matrixing of supply chains and labor pools as this magnificent process continues to unfold.

We remain the world's most comfortably revisionist power, and that it what separates us--and has always separated us--from everybody else who pretends to similar global influence.  We just have needed to update the toolkit.

What escalation remains is Qaddafi's as he considers exit strategies.  He should take the money and the freedom, otherwise he will be made THE example.

Failed states keep neighborhoods bad, allowing AQ sanctuary, while rising states allow connections, but it's civil strife that remains AQ's bread-and-butter dynamic

Trio of articles worth differentiating in their meaning. First via Chris Ridlon and other pair from WPR's Media Roundup today.

Underlying question is, Which states do we care about in the Gap?

Some argue that failed states are THE threat. The Patrick piece is clear enough on the record and it's right out of PNM: Yes, at any one time there are several dozen failed states, but, on average, only about a half-dozen fall into the transnational terrorism pool. Why? Only so many in the al-Qaeda network worth mentioning.  

The same dynamic was true in the 1990s, or what I cited in PNM: Usually about three-dozen failures out there, and, on average, the US gets involved in some short-to-medium duration intervention in about a half-dozen each year, mostly on humanitarian grounds.

Why tend to these states?  They are the crack house on the inner-city block:  they bring everybody down to their level on trust, criminality, bad investment climate, and the like.  Regions hook up to the Core in clumps, not individually.  A critical mass of improvement is needed in a region, and failed states prevent that critical mass.  They do, therefore, create conditions that encourage backwardness, disconnectedness, corrupt, smuggling, and civil strife.  These are where AQ do their real business.  Yes, we are concerned about their ability to strike inside the Core, but these are episodes and nothing more.  There is no real struggle to be had there, just good police work. The real struggles are in the Gap.  And so we deal with failed states when they get above the crap-line, otherwise we mostly ignore and hope they eventually present something the Chinese want so they'll come in and rehab the place a bit, like they did in Sudan.  I know, I know. China in Sudan is evil, except Sudan is much better now and the only big delta in experience is Chinese investment and purchasing of oil.  And China has gone along with the divorce - a very good precedent.

Patrick is also right that AQ prefers up-and-comers, or states with just enough connectivity and technology and corruption to give them access to the Core.  Pakistan is perfect in this regard, much better than Afghanistan (my column Monday).  Under the right conditions, we need to worry far more about Pakistan than Afghanistan, which is a solution for locals.  

But as the Yemen article shows, a certain amount of strife is necessary for a semi-connected state (Yemen is valuable for its close location in the Persian peninsula) to be truly useful.  If the state comes together and gets itself a decent government, then the Core security aid will flow and AQ will have its moments but no great advantage.

Better, as the third article suggests, to work a true civil war, where, in the heat of battle, sides get less picky about their allies.

It's been my argument for a while now (meaning about a decade), that AQ is doomed in the Middle East due to demographics - or the middle-aging of the youth bulge. That forces revolutionary change and job creation, because the alternative is too scary for the world, especially with the coming nuclearization of the PG.  In that overall dynamic, AQ becomes an element but a small player. It needs to go "back in time" a bit, like any revolutionary group that is seeing its moment pass (think Lenin looking at Germany and then recognizing the opportunity in Russia).

As the Middle East middle-ages, AQ goes to either Central Asia or Africa.  I say Africa, because in Central Asia, there are too many great powers willing to kill and repress to keep it out (actually, all of them).  In reality, that was the dynamic that led to the creation of the Shanghai Cooperation Organisation.

Africa, by way of contrast, is a looser and easier place to infiltrate.  Fortunately, for us, most of the Islam there is relatively mellow and not easily whipped into AQ shape, and yet, AQ must try, because here is the last gasp. What Africa provides is huge churn, a lot of globalization remapping and plenty of opportunities for civil strife - like Libya.  Central Asia will be a backwater by comparison.

No, I'm not worried about Africa.  Many great things happening there, but with the good comes the bad and the processing must occur along the way.  But not any "WWIII" or "perpetual war" or any of that nonsense. It's just what is left over with globalization's continued advance.

State capitalism's real weakness: an inability to control the economy

Interesting piece in the WSJ on China's inability to control inflation, which is really taking off.  Food, for example, is 10% higher than this time last year (which is nothing compared to gas in the US).

Basics of the piece notes that China's Central Bank must kowtow to the Party's wishes, and the Party tends to be captive to the interests of the exporters and "free-spending local governments," both of whom feel they've got their marching orders too regarding growth.

So you basically have China's Bernanke going around begging for help and not really participating in the top decision-making meetings, most of which occur in the ten-person State Council headed by Premier Wen or the nine-person Politburo Standing Committee headed by GenSec Hu.  While the PBOC (People's Bank of China) would prefer to push harder on inflation, the party and government fear triggering a downturn.  Two different views, of course, point being that the political overwhelms the economic logic - the main point of Ian Bremmer's book, "End of the Free Market."

Watching a political system refuse to deal with economic reality doesn't exactly mark China's state capitalism as superior - just differently incentivized.  We don't have the same fears of social unrest over economics here that they do.

This is fundamentally why China is a lot farther away from creating an international reserve currency than imagined.  To have one is to send more capital abroad than you take in (giving others to hold in reserve) and China will simply have a devil of a time reorienting from their Japan-plus growth model of publicly-enabled investment and export-driven growth, in large part for the same dynamics cited here:  the Party and Government are too influenced by industrial concerns.

The beautiful irony here persists:  China is more the Marxist ideal of capitalism run amok than America is today - by a ways.  It's also far more indicative of industrialists/financiers having taken over the government, in that Marxian fear, than America is today as well.  Again, you have to go back to the late 19th-century US history to find similarities that hold true.

Larger point:  state capitalism remains - at best - an evolutionary precursor to our mix of big firms/small firms (see Baumol Et. al, "Good Capitalism, Bad Capitalism"). 

WSJ: "The Chinese want our nuts." Roast 'em if you got 'em!

Sometimes China feels like a nut (2009), sometimes it doesn't (2005).  But when it does and that nut is the pecan, then an entire US industry changes - overnight.

Pecans are very American, the WSJ piece begins, as the pecan is the state nut of Arkansas, Alabama and Texas. Since forever, the price of pecans has followed the usual ag pattern of boom-and-bust. That all changed a few years back when the Chinese and their burgeoning middle class entered the picture.

Why do the Chinese get so turned on to pecans?  Advertising. Retired Chinese woman:  "We used to eat only walnuts, and then we saw on TV that pecans are more nutritious than walnuts." 

And an industry is reshaped.

The underlying dynamic that will increasingly knit the two nations together:

Nearly $1 of every $5 China spent on U.S. items last year went to buy food of some sort, $16.6 billion worth, according to the U.S. Department of Commerce. U.S. exports of goods of all sorts to China more than doubled between 2005 and 2010. Exports of crops and processed foods—soybeans, dairy, rice, fruit juice—more than tripled. Exports of pecans rose more than 20-fold.

Naturally, fears arose in the industry - or at least among its middlemen.  Check this out:

American shellers complained that selling so many premium pecans to China—the Chinese want the biggest, best nuts—would undermine both the domestic market and export markets in Europe. So they held back orders. China responded by going directly to growers. As Texas A&M pecan expert Jose Pena puts it: "It's kind of hard to tell a grower not to sell to the highest bidder."

There is a larger lesson in there:  US could use a new partner but prefers the seemingly safe "known known" of Europe.  Then China comes along and upsets the dynamics, but still the industry's insiders say, we must stick with what we know.  China goes directly to suppliers, and this is a bit threatening, but who can argue with sales?

Same is true for a lot of what America seeks to do in the Gap/developing world.  We assume our only allies are our old allies.  China shows up and creates all this positive change, but we find it upsetting and have a hard time interacting with them on the subject, preferring our known knowns from Europe. But the path ahead is clear enough:  the market has shifted and we've got some new friends - if we choose to get past the fear and recognize them as such.

This has been my underlying logic going back to "Blueprint for Action" (2005, but started briefing in late 2003). "Implausible!" and even "impossible" in the pol-mil realm, because we prefer the enemy image (AirSea Battle Concept), but the solution for our having too few resources to throw against too many fake states undergoing remapping in the Gap is clear enough: you ally yourself with the great demand producer in the system right now.

WPR's The New Rules: Strategic Balancing vs. Global Development

The World Bank's 2011 World Development Report is out, and this year's version highlights the interplay between "conflict, security, and development." That's a welcome theme to someone who's spent the last decade describing how globalization's spreading connectivity and rules have rendered certain regions stable, while their absence has condemned others to perpetual strife. But although the growing international awareness of these crosscutting issues is long overdue, the report ultimately disappoints by focusing only on the available tools with which great powers might collaborate on these stubborn problems, while ignoring the motivations that prevent them from doing so. 

Read the entire column at World Politics Review.

Quoted in Time magazine article on US defense budget

Very sharp article by Mark Thompson.

The opening:

On a damp, gray morning in late February, Navy admirals, U.S. Congress members and top officials of the nation's biggest shipyard gathered in Norfolk, Va., to watch a computerized torch carve bevels into a slab of steel as thick as your fist.

The occasion: the ceremonial cutting of the first piece of a $15 billion aircraft carrier slated to weigh anchor in 2020. That ship — still unnamed — will follow the just-as-costly Gerald R. Ford, now 20% built and due to set sail in 2015.

Meanwhile, on the other side of the world, China is putting the final touches on a new class of DF-21 missiles expressly designed to sink the Ford and its sister ship as well as their 5,000-person crews. China's missiles, which will likely cost about $10 million each, could keep the Navy's carriers so far away from Taiwan that the short-range aircraft they bear would be useless in any conflict over the tiny island's fate.

Aircraft carriers, born in the years before World War II, are increasingly obsolete platforms of war. They feature expensive manned aircraft in an age when budgets are being squeezed and less expensive drones are taking over. While the U.S. and its allies flew hundreds of attack missions against targets in coastal Libya last month, cruise missiles delivered much of the punch, and U.S. carriers were notable only for their absence. Yet the Navy, backed by the Pentagon and Congress, continues to churn them out as if it were still 1942.

"It's just tradition, the industrial base and some other old and musty arguments" that keep the shipyards building them, says Thomas Barnett, a former Pentagon deep thinker and now chief strategist at Wikistrat, a geopolitical-analysis firm. "We should scale back our carrier design to something much cheaper and simpler. Think of mother ships launching waves of cheap drones — that would actually be more frightening and intimidating." Even Defense Secretary Robert Gates warned last year of "the growing antiship capabilities of adversaries" before asking what in Navy circles had long been the unaskable question. "Do we really need 11 carrier strike groups for another 30 years when no other country has more than one?"

Across Washington, all sorts of people are starting to ask the unthinkable questions about long-sacred military budgets . . .

Our conversation was mostly about carriers.  I'm not the great hardware man, but I know enough that we're continuing to buy in the very-few-and-ridiculously-expensive mode rather than the many-and-the-cheap mode that's clearly emerging in cutting-edge technologies.  I know also that we're deeply impressed with China's efforts to catch-up on that same track, which, of course, is truly meaningful if you believe major conventional war with China is in the offing.  I do not, and so I find that spending on both sides to be largely a waste, less so for us because we seek to keep high the threshold to great-power war and that's a good thing. Problem is, we teach China the same path and now we're increasingly locked into this idiotic arms race that serves neither of our actual national security interests and actually denies us the cooperation that would enable both to accomplish more in the global security arena at less cost.

But why save money - and the world, when we can waste it in large amounts?  We're stuck in our QWERTY pathway because it's what we know and love, and it's what our Congress loves to buy.  And so China follows us stupidly down that rabbit hole, and we both dream of future missile wars over no-man's lands, while the reality of globalization's rapid expansion stares us in the face in Africa and the Middle East and we're largely irrelevant to the process because we continue to buy billion-dollar platforms to tackle $100 enemies.

This is my favorite part of the piece, worth getting into the blog for later use:

We are spending more on the military than we did during the Cold War, when U.S. and NATO troops stared across Germany's Fulda Gap at a real super-power foe with real tanks and thousands of nuclear weapons aimed at U.S. cities. In fact, the U.S. spends about as much on its military as the rest of the world combined.

And yet we feel less secure. We've waged war nonstop for nearly a decade in Afghanistan — at a cost of nearly a half-trillion dollars — against a foe with no army, no navy and no air force. Back home, we are more hunkered down and buttoned up than ever as political figures (and eager defense contractors) have sounded a theme of constant vigilance against terrorists who have successfully struck only once. Partly as a consequence, we are an increasingly muscle-bound nation: we send $1 billion destroyers, with crews of 300 each, to handle five Somali pirates in a fiberglass skiff.

While the U.S.'s military spending has jumped from $1,500 per capita in 1998 to $2,700 in 2008, its NATO allies have been spending $500 per person over the same span. As long as the U.S. is overspending on its defense, it lets its allies skimp on theirs and instead pour the savings into infrastructure, education and health care. So even as U.S. taxpayers fret about their health care costs, their tax dollars are paying for a military that is subsidizing the health care of their European allies.

Not only is our government becoming an insurance company with an army (some DC wag's great line), but we're enabling others to do the same while they cut down their own army.

And yes, China is headed on the same path.  It dreams of a moment in the sun, but it will be cruelly brief and then the realities of accelerated aging and global security vulnerabilities sets in, and then all this arms build-up over Taiwan and the island chains will seem like so much nonsense.  But, most definitely, the PLA has a few good years of stupid, uncontrolled spending ahead of them, and it will act like any bureaucracy in that mode:  it will waste money catching up somewhat to America's Leviathan force, and when it gets close enough to matter, Beijing will realize it was all a colossal waste of time and money that bought them nothing, because they will never pull that trigger, and even giving the impression that they will triggers a counter-balancing across the region that America is only too happy to provide in terms of arms sales.

Pointless, pointless, pointless.

Meanwhile, globalization moves on, creating the real global security landscape out there.

I say, thank God our budget mess arrived earlier than theirs, because it will force the logical change earlier than theirs.  We will be renewed; they will drop off a demographic cliff - and globalization will move on.

Mentioned in the piece one more time:

But $1 trillion in cuts wouldn't really be as drastic as it sounds — or as the military's no-surrender defenders insist. Such a trim would still leave the Pentagon fatter than it was before 9/11. Besides, there are vast depots of weapons that are ready for the surplus pile. The number of aircraft carriers could be cut from 11 to eight, and perhaps all could be scuttled in favor of Barnett's drone carriers. The annual purchase of two $3 billion attack submarines to maintain a 48-sub fleet as far as the periscope can see also could be scaled back. The $383 billion F-35 program really isn't required when U.S. warplanes remain the world's best and can be retooled with new engines and electronics to keep them that way. Reagan-era missile defenses and the nuclear arsenal are largely Cold War relics with little relevance today. Altogether, Congress could save close to $500 billion by smartly scaling back procurement over the next decade.

It's a bold and intelligent argument from Thompson, and I really think this is one of the best pieces of his that I've ever read.  It comes very close to opinion journalism - but at its best.  These are fair questions, and he poses them well.

Plus, I just like the phrase, "Barnett's drone carriers."

As the acrimonious debate gets even nastier, a stern warning from the IMF

Interesting to track this debate, as there seems to be three camps: one that thinks Obama is a terrible leader and that the GOP proposals are worth considering (WSJ), one that thinks he's the man and the GOP proposals amount to "sadism" (see Esquire's The Politics Blog in a virtuoso display of ad hominem attacks- and no, I am most definitely not part of that "Collective" and wish the writers there would simply identify themselves) and then there's the tiny apparent middle that wants serious action and hopes some actual negotiations come about, but since our adjectives and adverbs lacks the same hyperbole as the extremes, if we open our mouths we are ridiculed for not condemning the "obvious" threat to humanity/decency on this one.

So much for post-partisanship.  The politicians and punditry seem as out of control as ever.

Meanwhile, the IMF, in which we own the most votes, says we lack a "credible strategy" to stabilize our public debt, noting that we're the only major economy that is increasing its budget deficit when its growth is sufficient to start decreasing its debt accumulation.  And as it looks, we'll be the only advanced country, along with messed-up Japan, still increasing our public debt come 2016.

The IMF says we're less than halfway there on both the cuts and the tax increases needed.  Conveniently, we have two parties deeply committed to preventing both solutions but no leadership among the collective able to forge the combined solution.

We can get away with this for a while, but it is a selfish track that will increasingly engender blowback from the world - as it should.  We're behaving and speaking like children, and it's embarrassing to be an American these days.

CoreGap 11.10 Released - How the Frugal Superpower Navigates Democracy’s Latest Wave

 Wikistrat has released edition 11.10 of the CoreGap Bulletin.

This CoreGap edition features, among others:

• Terra Incognita - How the Frugal Superpower Navigates Democracy’s Latest Wave
• Syrian Domino Displaying the Usual Dynamics, but West Hesitant
• China’s Democracy Crackdown Goes from Preventative to Pre-emptive
• Bold Republican Budget Proposal Sets Tone for US Presidential Campaign
• World’s Scientific Production Grows, Becomes Increasingly non-Western

And much more...

The entire bulletin is available for subscribers. Over the upcoming week we will release analysis from the bulletin to our Geopolitical Analysis section of the Wikistrat website, first being "Terra Incognita: How the Frugal Superpower Navigates Democracy’s Latest Wave"

In the rush to define President Barack Obama’s “doctrine” following his decision to lead NATO’s initial no-fly-zone operations in Libya, experts have latched onto every detail’s possible meaning.  But in the end, it’s easier to say what his strategy is not than what it is.  While frustrating, such ambiguity makes sense for a cost-conscious superpower navigating what is arguably democracy’s emerging 4^th great wave (see Samuel Huntington re: 1-3).

The Obama rule set clearly lacks rigidity.  It does not promise responses everywhere, but more like anywhere it can get away with them.  In application it is opportunistic: Obama sees a chance to finally put the US on the right side of history across the Arab world, and he intends on picking his targets carefully – and in logical sequence.  So old friend Hosni Mubarak is just that – until he isn’t.  And now the same switcheroo occurs with Ali Abdullah Saleh in Yemen.  Expect similar small talk about closet “reformer” Bashar al-Assad to disappear the instant conditions appear ripe in Syria.

Read the full piece here

More about Wikistrat's Subscription can be found here

To say that President Barack Obama’s foreign policy plate is full right now is a vast understatement, and it couldn’t come at a worse time for a leader who needs to revive his own economy before trying to resuscitate others (e.g., Tunisia, Egypt, South Sudan, Ivory Coast – eventually Libya?). Faced with the reality that America’s huge debt overhang condemns it to sub-par growth for many years, Washington enters a lengthy period of “intervention fatigue” that – like everything else, according to the Democrats – can still be blamed on George W. Bush.

Referenced from Wikistrat: http://www.wikistrat.com/geopolitical-analysis/obamas-chinese-menu-of-past-presidential-doctrines/#ixzz1Gs4QTx6a

The Gap is full of fake states, aka Yugoslavias

Thomas Friedman piece in NYT yesterday called "Pray.  Hope.  Prepare."

The gist:

That is to say, in Europe, when the iron fist of communism was removed, the big, largely homogenous states, with traditions of civil society, were able to move relatively quickly and stably to more self-government — except Yugoslavia, a multiethnic, multireligious country that exploded into pieces.

In the Arab world, almost all these countries are Yugoslavia-like assemblages of ethnic, religious and tribal groups put together by colonial powers — except Egypt, Tunisia and Morocco, which have big homogeneous majorities. So when you take the lid off these countries, you potentially unleash not civil society but civil war.

So he ends the piece by saying pray for Germany (homogeneous state revolutions), hope for South Africa (where past grievances are more peacefully dealt with), and prepare for Yugoslavias (more "Pentagon's New Map" material).

The Gap is full of Yugoslavias and not so many Germanys.  How many South Africas we can manage is the challenge, but one thing is for sure:  our current system of ad hoc responses only serves us so well.  While too many in the Pentagon still dream of fabulous high-tech stand-off wars with the Chinese, the future is full of Yugoslavias.

Globalization, meanwhile, continues to advance, and when it hits these fake states, it unleashes decades or even centuries of pent-up grievances.  The results will include plenty of civil wars, which in turn will birth more and more states.  These states will need to be bundled up into larger economic unions as part of their integration process--and for their survival. Eventually, there will be a "united states of everywhere."  That is the globalization replication process we unleashed, and it is the most potent marketizing/remapping process yet seen in the age of capitalism, so much so now that it advances with little to no effort on our part, as the impetus for its advance comes--ironically enough--from those ultra-conservative Chinese capitalists.

But China won't step into that fray unless forced to by our withdrawal from the world, now set somewhat in motion by the fiscal crisis long brewed by our decades-long deal with the world (you grow via export growth, we absorb that growth, you plow your winnings into our debt markets and accept a dollar-denominated financial order, and we fund and provide a Leviathan to manage global security).  We are victims of our own success, but we haven't raised our replacements.  We may take delight in France's recent muscular behavior, but it will not last. The burden must shift Eastward and Southward because that is where the money is (East) and that is where the action and thus incentives are (South).  So, from here on out, we manage the world through more small nudges, eschewing the big bets that no one else is game to join in on.

This is the "end of empire" to some, but to me, it's just the next logical evolution, success being harder than failure because it demands more changes from you and denies you obvious enemies.  

So there's no hoping or praying about it.  We know what lies ahead:  the hardest leftover work created by Europe's disastrous colonial orders of the 19th century.  You may imagine that reality, combined with growing multipolarism, creates a rerun of 19th-century balance of power, but you'd be wrong.  No one is really stepping up for any such competition and no one really seeks such control.  In truth, everybody would just as soon go back to the sole-policeman model, because that was easier on them and provided more certainty.  Now, responsibility is more dispersed but willpower is evaporating across the board, despite this glorious spurt from Europe.  

But, of course, there is no future reality to be found there.  So we enjoy it while we can, because the big adjustments and accommodations with the real risers like China, India, Turkey, Brazil, Indonesia - even Iran, those are yet to come.  So the near-term is more Yugoslavias, but few takers.

The pessimist in me says we enter a long period of let-it-burn tragedies, until the A-to-Z rule set for processing politically bankrupt states truly emerges.  But that's how things usually work out in this world:  you ignore the pain--until you can't.