The competitive landscape inside the States: How dire the picture?

BUSINESS: "Innovation in America: A gathering storm? Confronted by Asia's technological rise and the financial crisis, corporate America is losing its self-confidence. It should not." The Economist, 22 November 2008.

Growing consensus says America's technological lead is shrinking and once gone, we'll be sunk.

Counterview from Amar Bhide of Columbia's B School in new book, The Venturesome Economy.

Our continuing advantages?

1) obsessing over PhD stats is useless, because "even if China spends a fortune to train more scientists, it cannot prevent America from capitalizing on their inventions with better business models."

2) the commercialization, diffusion and use of inventions is more valuable to companies and economies than the original act of invention (hmm, I believe we call that the "Microsoft effect"), so more MBAs than PhDs

3) "the extraordinary willingness of its consumers to try new things"--aka "venturesome consumption" (vilified right now)

Example: Jeffrey Immelt says GE is not great at invention but is great at "turning $50m businesses into billion-dollar businesses."

Having worked for a start-up-growing-into-something-bigger for the past three-plus years, taking it abroad the past couple of years, I guess I would agree with this positive assessment.

Upshot? Blow off the dire predictions of "techno-nationalism."

Notice how we always talk about America losing all its technology to the world but then assume that rising New Core powers like India and China will somehow be able to hoard theirs?

Bottom line: innovation is the most globalized part of globalization.

Booz & Company rank global companies by innovation every year and their data shows no correlation between spending on R&D and better financial performance. The key, the company finds, is that multinationals that do best are the ones that take a global approach to accessing research vice concentrating such spending and effort in their home market.

This is the exact opposite of what many experts argue in the national security realm, but it's been my argument for years: America can't have the best defense in the world twenty years from now if we pretend that concentrating such R&D here and preventing such "proliferation" is the answer. Defense R&D went global a long time ago, because the market--along with globalization--went global a long time ago.

The glass-half-full on Sudan . . . drink up!

BRIEFING: "Sudan: A gleam among the ruins; After years of civil war, three new factors may bring hope to Africa's biggest country," The Economist, 22 November 2008.

The three factors are Obama's election, Omar al-Bashir's indictment by the ICC, and the upcoming national elections. The optimistic picture goes like this: al-Bashir gets voted out, then falls into ICC hands, and Obama--meanwhile--makes good on his promise to care more about humanitarian disasters.

Hmmm.

The pessimist in me says Obama's got way too much on his hands right now to afford a serious new intervention in Sudan. I also see most southerners in Sudan focused on the promised secession vote in 2011 rather than next year's election, which I think al-Bashir is now highly incentivized to win at all costs--given the ICC alternative.

So I see the situation being effectively punted until the 2011 plebiscite, by which time Obama may be in a better position to actually do something when al-Bashir tries to prevent that vote from unfolding fairly and leading to Sudan's demise as a fake state.

And yes, meanwhile, there will be a goodly amount of preventable deaths.

But the same will be true in Ethiopia-Somalia due to the drought/famine and ongoing instabilities, plus the eastern Congo mess being reignited.

But ignoring all this death is the price we continue paying for the choices Bush-Cheney made in the GWOT: the unilateralism and primacy stuff creating a strategic overhang that will take some time to burn off, much like the financial deleveraging.

A Turk is a Turk is a Turk is the leader of Germany's Green Party

EUROPE: "The Greens in Germany: Cem difference; Germany's first party leader an ethnic minority," The Economist, 22 November 2008.

First off, ouch on the pun!

Cem Ozdemir steps up to the plate as head of Germany's powerful Green Party, giving hungry Europe its first true Obama-like figure. Bonus points for being young, (43), thin, good-looking, charismatic and a devoted family man.

Being Green means he's unlikely to rise above Foreign Minister in Germany's political system, but who knows?

You know, in America in the years running up to the Civil War, any white foreigner in the U.S. heartland was known as a "German." It was just a blanket term for anyone speaking a foreign tongue, just like "Turk" has long been for many European countries when any Muslim in concerned.

Funny how these things evolve.

Short end of stick

Thought I'd be in the Gulf for the first Bears-Packers game at Lambeau in Nov., so gave my tix to brother-in-law and his son. Pack won 37-3. Reasonable weather.

Pack hasn't won a game since, losing four in a row on late-4th quarter drives by opposition.

When I gave my relative the tix, I went out and bought two nice mid-field seats for Kev and I for the 22 Dec. game at Soldier Field. Kickoff temp is supposed to be right around zero, not factoring wind chill off Michigan.

We are breaking out the heavy-duty winter gear ...

This better be an historic game if it's gonna cost me a pinky toe.

Column 133

Obama not Bush's 3rd term on foreign policy

The Wall Street Journal has been running an editorial campaign designed to convince the American public that President-elect Barack Obama's administration will constitute a third Bush term in foreign policy. Arguing that Obama's cabinet choices in national security portend more continuation than change, we are treated to a highly deceptive repackaging of the Bush legacy.

The truth is that the Bush administration bankrupted America's international standing through a half-decade of vigorous unilateralism that began before 9/11 and was turbocharged thereafter, the most stunning example being our government's withdrawal from the Anti-Ballistic Missile Treaty with Russia in December 2001 -- the first time we've ever broken a strategic arms limitation agreement.

Read on at KnoxNews.
Read on in the Scripps Howard network.

The Great Game around Afghanistan

ARTICLE: All roads lead out of Afghanistan, By M K Bhadrakumar, Asia Times, Dec 20, 2008

All fairly logical analysis from the other (e.g., Indian, Russian, Iranian) perspectives. To the extent these conjectures are real and come true, it would signal to me an Obama administration that is already captive to a neocon perspective and likely to experience huge frustrations in Afghanistan (meaning wasted American lives and a distinctly suboptimal outcome that ultimately will be deconstructed by regional players over time--perhaps in great similarity to Iraq).

To me, this really would be a third Bush term in foreign policy. By pursuing such a strategy in Central Asia, you could pretty much kiss goodbye any great power cooperation for the U.S. beyond our usual Western powers. In that case, I would have preferred McCain, because this will be a very risky business indeed, likely to spur follow-on conflicts where proxies are employed at will.

Frankly, if such a scenario unfolds, then we're talking a JFK-like start heading to its own Bay of Pigs fiasco (any number of scenarios could fit the bill), except the damage and the legacy here would be far larger.

On the other hand, it's hard to believe Obama is that dumb or that weak-willed or that lacking in self-confidence to be talked into this path (Gates too), because what's the great upshot here? A lot more geographic responsibility in order to engage in intimidating relationships with Iran AND Russia AND China AND ultimately India? Where in the hell do you go with that plan over the long haul? I mean, if we were sitting pretty financially and in terms of our economics right now, I might give a longer listen to this logic, but given our current situation, I don't see the argument for dealing the SCO a delegitimizing blow or any other such nonsense.

That's where the logic breaks down for me--almost comically so, because this presumed trajectory argues that Obama-Biden will simply rerun all the deadly sins of Bush-Cheney, as if no learning has occurred.

In some ways, this is a great description of what a Big Bang strategy would have looked like for Afghanistan absent the redirection in 2003 to Iraq. If you sell me this vision at the end of 2002, then we have a different, more serious conversation. But given everything that's happened since then, it comes off as rather fantastic--like a neocon time capsule dug out of the ruins of the Bush-Cheney administration. It has all the hallmarks of primacy, hubris, etc.

That's not to say that the U.S. shouldn't or won't seek additional access rights as a result of ramping up our effort in Afghanistan, because that's pretty straightforward in logic, including the bit about the Caucasus. But if all this is pursued in an FU! attitude toward interested regional powers, then we're just setting ourselves up for their spoiler efforts. It would be the opposite of regionalizing/socializing the problem, or a complete rerun of the neocons' strategy on Iraq. Frankly, it'd be so strategically obtuse that I have a hard time thinking Petraeus and the Chiefs would stand for it, because it would make our forces wage their struggle in Afghanistan/Pakistan under the worst possible strategic circumstances--again, a repeat of our follies in the Persian Gulf.

Of course, one takes the whole analysis with a grain of salt when you see that the author is veteran Indian ambassador. Indians are like the Turks in their capacity for weaving fantastically complex scenarios of attempted U.S. domination (like some demented "Frontline" special on PBS!), so the entire article may be simply a sort of worst-casing info operation designed to elicit all appropriate fears from each player--sort of letting all your fears hang out in a pre-emptive bid at therapy.

Still, a fun read. Who knew everything in Afghanistan and Pakistan was actually going our strategic way!

(Thanks: Sudip Chowdhury)

Grrrl power in the House!

ARTICLE: "As Taboos Ease, Saudi Girl Group Dares to Rock," by Robert F. Worth, New York Times, 24 November 2008.

Cool article with dynamite start:

They cannot perform in public. They cannot pose for album cover photographs. Even their jam sessions are secret, for fear of offending the religious authorities in this ultraconservative kingdom.

But the members of Saudi Arabia's first all-girl rock band, the Accolade, are clearly not afraid of taboos.

The band's first single, "Pinocchio," has become an underground hit here, with hundreds of Saudis downloading the song from the group's Web site. Now, the pioneering foursome, all of them college students, want to start playing regular gigs--inside private compounds, of course--and recording an album.

Cracks in the wall, facilitated by the Web, with ground zero being the most cosmo Saudi city, Jidda.

There we find a "growing rock scene with dozens of bands." The culture cops are apparently less aggressive in the "kingdom's desert heartland."

When almost two-thirds of your population is under 25, such control is tricky.

Something to keep an eye on.

Correcting information ops

OP-ED: Persuasive politics: Revisit the Smith-Mundt Act, By Matt Armstrong, Washington TimesDecember 19, 2008

Blogroll member's (MountainRunner) argument for correcting a Cold War rule set that limits USG information ops in the Long War.

The line between terrorism and globalization

ARTICLE: Indian Businesses Push for Security, By Rama Lakshmi, Washington Post, December 17, 2008; Page A12

It gets easier to draw the line between terrorism and globalization when you spot far-side dynamics such as those we're now seeing with the business community in India.

The real target, as always, is connectivity. If I can disconnect you from others, you are mine to rule.

Smart woman with smart advice

POST: Suzanne Massie's Advice to President Obama: Adopt Reagan's Attitude toward Russia, By W George Krasnow, Russia Blog, December 15, 2008

Massie was advising Reagan around the same time Adam Ulam, my then boss at the Harvard Russian Research Center, was doing the same. Smart woman with smart advice both then and now for Obama. Nice to see she got a chance to brief him on thinking about Russia.

Sarkozy-the-slimy when it comes to ag subsidies

EUROPE: "The coddle and protect policy: France's sneaky plan to continue Europe's farming follies," by Charlemagne, The Economist, 22 November 2008.

Credit Sarkozy with taking on big issues (Caucasus, world financial crisis, etc.), but then condemn him for sleazy backdoor dealings designed to protect the EU ag subsidies.

French ran a recent EU farm ministers meeting to plot the common ag policy (CAP) beyond 2013, when the EU's next multiyear budget drill begins. With the G-20 leaders promising a restart of Doha at the recent DC summit, Sarkozy seems to be engineering an economic stab-in-the-back.

The tool is France's notion of maintaining "regional cohesion" in agriculture, a logic that says France must ensure the future of farming in every department (regional unit) of the state. To do that, France currently pulls twice as much money out of the EU's CAP program as any other member state.

That, plus the "sneakiest language" regarding the "wholesomeness" of the EU's food indicates that France is intent on blocking any advance within Doha on the question of agriculture.

Too bad. Sarkozy was looking like a real global leader, but this indicates he's the same old, same old French nationalist when push comes to shove. More to the point, he simply indulges France's "olive tree" obsessions.

The unwanted gift of missile defense in Europe

EUROPE: "Missile defence: A damp squib; American missile-defence plans falter in eastern Europe," The Economist, 22 November 2008.

Iran's missiles are said to possibly reach southern Italy or Moscow, but neither wants a defense shield. Now we get the Russians promising to place counter missile capacity in Kaliningrad, which naturally, isn't what America was hoping for by promising Poland a puny arsenal of 10 missiles and a radar in the Czech Republic.

Naturally, both of those states are under the delusion that such defense assets will mean an unlimited defense guarantee from the U.S. vis-à-vis Moscow--their real fear in this equation.

So we have a non-defense (too weak for Russia) triggering a destabilizing counter (Kaliningrad) by Moscow, whereas east European states, who face no logical threat from Iran (why threaten a Europe that already does such business with Iran?), see it as a gateway drug to modernization of their militaries by the Pentagon.

Lost in this entire equation is Iran, of course, but no matter. The scheme was never about Iran. It was about justifying further spending on missile defense by making it a cause célèbre.

Your tax dollars idiotically at work.

Ah, but we're told we can't back down to Moscow and we must give into Warsaw's demands.

Certainly makes sense to me to put Warsaw in charge of U.S. global security strategy. Why not let that tail wag this dog?

Latest from Putnam on GP

Got the word from Putnam: they should have finished books on January 6th, so people on the advance copy list should have theirs by the end of that week.

Why Abu Ghraib and Gitmo matter

Killer statement on Andrew Sullivan's blog today from a now-radio host/back-then interrogator in Iraq.

Powerful stuff.

New POTUS is inevitable POTY

PERSON OF THE YEAR: Barack Obama, Time, December 16, 2008

Called it in the Good magazine election piece.

Not that it was a particularly hard call ...

Still, it all came down to the election. The guy who wins an "open" White House election usually gets picked as POTY by Time. It's somewhat inevitable. And yet, no win, no POTY for Obama and it's arguably McCain who is clear POTY and the subject now of everyone's fascination.

China fighting pirates right on cue

POST: China Will Fight Pirates Off Somalia, By Galrahn, USNI weblog, December 2008

Per my recent column, great to see.

This is a great and relatively easy opportunity to rebrand the PLA (Navy) and we should credentialize them and India's to the hilt, in whatever way we can.

That's how you get Mullen's "1,000-ship navy."

... But don't go light on the stimulus package?

EDITORIAL: "American fiscal policy: No time to waste; The American economy urgently needs a big fiscal stimulus. Too bad both parties are putting politics first," The Economist, 22 November 2008.

The quintessential editorial from the Economist on the need for the big USG stimulus package, and some warning about both the Dems and GOP acting partisan on the subject.

Piece starts off by saying that the G-20 states all promised "rapid" fiscal stimulus packages and that they seem to be delivering while America dithers. Stuff may be proposed in the House, it says, but deals seem to by dying in the Senate, with everyone waiting on 20 January for the dynamics to change.

The fear expressed here is that delays are too costly:

Americans' collective and sudden rediscovery of thrift is pushing the economy into its worst recession since at least 1982. And unlike the early 1980s, there is little prospect of a quick turnaround.

So the Economist asks for an additional (beyond the bank bailout) stimulus of at least $300B and an extension of unemployment benefits, picking up where states are forced to leave off. Plus, with plenty of state-based infrastructure projects dropping from "shovel-ready" status to postponed indefinitely, now is the time for the Fed to step into the void and start making all that infrastructure repair and upgrade that experts have been so long preaching.

Go easy on those first 100 days?

UNITED STATES: "How new a deal? Comparisons between Barack Obama and FDR are misguided," by Lexington, The Economist, 22 November 2008.

Again, most experts are saying, better to go overboard on the stimulus right now than go light--given that globalization's long-term coherence may depend on it.

But here the Economist (or at least Lexington) says, go easy on the comparisons to FDR's first 100 days.

Okay, okay, those arguing for a wholesale reinvention of the U.S. government are smoking ideological dope, and there's plenty to debate about any possible bailout of Detroit, but to me, the question of the stimulus mindset is clear: the USG must do anything it can to get the ball rolling, especially when the rest of the Core is scrambling to do the same. If we opt out of any such effort, the collective effort is doomed to underwhelm and/or unravel.

So yeah, I guess I get the point here: stay focused on the crisis and don't go hog wild on trying to reverse the entire Reagan legacy. But here--again--is where I see the Clinton economic ties helping out immeasurably. In many ways, Clinton's greatest legacy was the rapid expansion of globalization through financial connectivity. That legacy is now at risk.

So far, Obama is saying all the right things, and so long as the Dems in Congress don't get out of control, we should have the best possible political shot at making this crisis go away at a reasonable speed.

The "how bad?" question

UNITED STATES: "Spending and the economy: The end of the affair; America's return to thrift presages a long and deep recession," The Economist, 22 November 2008.

ARTICLE: "Great Engine of China Slows: A Global Downturn Puts the Brakes On an Economic Boom," by David Barboza, New York Times, 26 November 2008.

ASIA: "Asian economies: Sittin' on the dock of a bay; Trade slows and gloom mounts. But Asia's economic downturn will be milder than the one it endured a decade ago," The Economist, 22 November 2008.

We seem caught in Keynes's "paradox of thrift," in which everybody's desire to save (or deleverage, in the case of Americans) means nobody wants to spend, thus triggering more dire overall economic conditions, thus strengthening the save vibe and a vicious circle is created.

When the American consumer is thus disabled, and the rest of the Old Core, predictably enough, precedes us in our distress and new monetary vigilance, then we're suddenly down to the New Core to rescue us with their spending. Problem is, of course, that their economies are largely export-driven, with the Old West as the primary markets, so our slowdown becomes their own--unless . . .

Unless they can sustain demand on their own.

This is the essential conundrum we face: the Bretton Woods II--as some dub it--informal arrangement by which the U.S. spends and Asia exports and we cover global security on the side in order to allow Asia's peaceful rise has come to its natural end--cataclysmically, of course, as long-term economic habits are wont to do.

So the prognosis is dire for now, absent the Old Core making big stimuli happen, for we are chicken to the New Core's egg (sorry, it doesn't get any more conclusive than that).

If the global economy--now truly near-global (with only the bottom billion truly disconnected)--ever needed some Keynesian leadership, now is it, with the conventional wisdom (always dangerous) saying, better to spend too much than too little in our attempts to jump-start activity. Because, simply put, the American consumer is feeling trapped and that feeling is unlikely to lift for quite some time.

Of course, our great Asian quasi-friend, China, is deeply motivated to "spend to save" itself right now, as every observer argues that anything less than 8% growth there (they have to create 24 million new jobs every year, or about 3x what Clinton did over eight years!) will lead to social tumult. So now, quite suddenly, they know what to do with their $2T in U.S. dollar reserves. The fear there, of course, is the lack of oversight and proper market mechanisms to make all that spending happen sensibly.

But act Beijing must, because predictions are that the economy drops from 10% growth to 5% fairly fast, and as that drop unfolds, excess supply will emerge across the dial--thus unemployment will rise. So yeah, I expect the CCP to cough up more than $600B.

Strike you as a future where China and the United States logically take time out for a war over resources? Much less Taiwan?

Now the intense logic of our interconnected economic fates becomes a lot more clear for a lot of people--at least those willing to learn finally.

But why, then, does the Economist say that the downturn in Asia won't be as bad as the 97-98 "flu." Was the flu that much worse than we remember, or is Asia really getting off easier?

Japan truly in recession (yet engaging in global M&A with all their cash, making out like bandits in a record year for mergers) and China halving its growth. Hong Kong and Singapore, befitting their high-end economies , are already in recession too. Plus the whole place is so reliant on exports.

So where is the love in this picture?

Well, 97-98 was really bad, with 6% drops in GDP in the tigers, and nobody's predicting that bad this time--for now. Most predictions say flat or slightly negative growth. Only Taiwan is predicted to have a harder time than in 1998. India is less dependent on exports but has less government leeway on spending.

Better news: more state control over sectors means more ability to stimulate, and debt-to-GDP ratios are low in the region, so indulging their inner Keynes will be easier to do. Everyone is promising or shaping up stimulus packages, which oddly enough, constitutes, in many instances, just a speeding up of their planned infrastructure build-outs anyway.

All in all, the planned responses "are a far cry from 1997, when rather than urging households to spend, governments in Asia begged them to hand over their gold jewelry to be melted down to bolster official reserves."

Again, the short version seems to be: the Old Core West needs the New Core East to grow up and act like a mature market economy as quickly as possible, shedding the mercantilism and adopting the Keynesian mindset.

And that is a lot to ask.

Ah, the balance

Tough time right now on writing project. Very tense interacting with others. Much frustration.

But I banged out a column today (about a book on Mubarek), and that helped.

Then the day is rescued completely by my receiving word that a big Enterra deal that I initiated (contact-wise, but not content-wise, as Steve is the maestro there and I happily stroke my second fiddle) had finally been approved by the partner entity. Historic deal for us; maybe for the world eventually.

Point being, it's good to have many masters, and you ain't the boss of me until I've tried to quit on you at least twice.