We're not slaves to China

ARTICLE: China Leading Global Race to Make Clean Energy, By KEITH BRADSHER, New York Times, January 30, 2010

Bradsher is normally very astute, but this is a downright asinine piece.

The PG ranks fifth as an oil source behind Africa, South America, North America and the US itself. So that "dependency" is a myth.

Worse, pretending China's price advantage in cleaner techs would somehow make us dependent on Beijing's good graces is just goofy. We get pissed at China and guess what? We simply buy elsewhere or build at higher cost, but it'd hardly be the case where China could deny us anything.

This is classic misrepresentation of supply-equaling-power, when, in globalization, demand determines real power.

An oddly subpar piece from a great reporter whom I cannot remember chastising before.

Shows you how bad the MSM bandwagoning is right now on "demon" China, and it is truly pathetic.

Serious analysts DO NOT get caught up in politicized cap like that.

We made our Chinese bed

EDITORIAL: The key to dealing with Iran: Press ties with opposition, Washington Post, January 30, 2010

Imagine how much help we get from the Chinese after the Taiwan arms sale.

You pick your fights, and then you better not bellyache.

Encouraging Afghan news

ARTICLE: Afghan president plans meeting on reintegrating, reconciling with insurgents, By Karen DeYoung, Washington Post, January 29, 2010

The one thing we don't want to see is lack of urgency and drift. The sum of recent reports is greatly encouraging in this regard, especially the aggressive courting of tribal and Taliban leaders who want to come in from the cold.

Dealing with democracy within The Party

LEADERS: "Democracy in China: Control freaks; A growing dilemma for Hu Jintao: how should he deal with democracy inside the Communist Party?" The Economist, 19 December 2009.

ASIA: "Democracy, China and the Communist Party: Big Surprise; Attempts to democratize the Communist Party have failed. Again," The Economist, 19 December 2009.

INTERNATIONAL: China: Official Suggests Tighter Grip, Reuters, December 28, 2009

Experts in the West already speak of "one party, two factions" when referring to the CCP, the basic breakdown conforming to the economic landscape (interior versus coastal).

Just like America, China's "red states" tend to be distant from the shoreline, as Core-v-Gap is always about connectivity and oceans are the original global commercial network (and still the biggest by freight).

Inside the Party, worry abounds. Leaders know that they're losing the young, who only join to check career boxes (thus the decision, years ago, to allow entrepreneurs into the COMMUNIST PARTY--spin, Mao, spin!), and they know that the vast bulk of what the Party does is completely irrelevant to how China the economy and society actually run themselves. When the Party allows cells to form inside private businesses, the ideological battle has been completely lost and the CCP becomes nothing more than a bureaucratic function.

So yeah, a political dictatorship with a guardian military, but not a social or economic one. (And if Iran's Revolutionary Guards had any sense, they'd dial back down to this level and be happy with that level of limited control.)

The big problem? Despite all this change in society and the economy, the Party still operates internally like Mao was still around. Everyone knows this is a huge weakness WRT continued rule. It's just too slow, too deaf and too dumb (you can't run such complexity with BOGSAT-style--as in, a bunch of guys sitting around a table). Cause if it were that simple, then Washington really would rule both America and the world.

Despite the recent retrenchment news coming out of Vietnam, apparently the party's internal efforts at increasing competition have attracted the CCP's look-see. Hu himself has spoke of the need for "inner-party democracy," which is a Ralph Nader nightmare edition whereupon a single party may house factions but feels the need to circumscribe all of their behavior (and yes, I know many critics of our two party system believe it's all a fix over here too). The press have heaped praise on the ideas, but, as The Economist states, we've seen no real efforts from the 4th Gen bunch.

No surprise to me. As I've long stated, these are the homebodies who never traveled abroad for their tertiary education (Cult Rev period). So, nice to see the dawning realization, but this progress awaits the 5th Gen bunch coming online in 2012.

Do I expect that to go smoothly? Yes, because the Party knows its history (two post-Mao transitions result in the Gang of Four and Tiananmen, so Hu's succession will be only the second time it goes smoothly--after his own). So the caution is understandable, even as we logically hope for so much more from the next crew.

Nice point that dovetails with my single-party argument from Great Powers:

Optimists in China have suggested that internal democracy could help the party evolve into something like Japan's Liberal Democratic Party, which ruled for 54 years with only a brief interruption until its defeat this year.

So, most realistically, we must expect the 4th Generation to handpick the 5th and hope the 5th accedes to what I know will be demands from the 6th (targeting 2022) for something more open in terms of internal competition.

Remember the old rule about democracies being stable only after two successful transitions. China gets #2 under its belt in 2012 and then we can and should expect better the next iteration.

The main story makes a dumb point, though, saying that local village experiments in democracy have proceeded nicely but not made the peasants any happier. Well, duh! Democracy below doesn't work in combination with autocracy at the top.

So, rather than look for this thing from below, I'm more in line with the thinking that says this begins as a factional split where both sides agree to compete within the Party. It'll be a long time before anything like direct elections of top officials are trusted with the populace at large, but the underlying economics are driving the factionalism and I put my faith in that--Marxian that I am (though no Leninist: as I believe in the Devil, I just don't care to follow him).

Time for China to grow up

ANALYSIS: China's strident tone raises concerns among Western governments, analysts, By John Pomfret, Washington Post, January 31, 2010

Nice piece from Pomfret that dovetails with my WPR column this week.

Trial shift

ARTICLE: Trial of alleged Sept. 11 conspirators probably won't be held in Lower Manhattan, By Peter Finn, Carrie Johnson and Anne E. Kornblut, Washington Post, January 30, 2010

I think this is smart. I had no trouble with the civilian court venue, but nobody wants anything that complex and tricky right in Manhattan. A venue change to something more remote and controllable--and cheaper--makes a lot of sense.

A very contemplative Wolf on the post-crisis road ahead

COMMENT: "The challenges of managing our post-crisis world," by Martin Wolf, Financial Times, 30 December 2009.

Starts out by talking about his Jewish past and how families on both sides lost damn near everybody in the Holocaust. As such, he defends his strong focus on averting a rerun of the Great Depression last year, saying the world basically succeeded in this effort.

But what are the big tasks ahead?

1) dealing with the balance-sheet recession still ongoing in Old Core West

2) dealing with reality that we substituted public-sector borrowing for the private-sector version in the recovery

3) tackling the still highly imbalanced global trade flows whereupon China, Japan and Germany mostly export and the rest of the Core mostly imports.

4) pushing surplus countries toward needed policy changes, like China's pegged currency, and

5) still working the financial system that contains plenty of toxic assets.

Thus the need to avoid complacency at this juncture.

Naturally, I always listen closely when Wolf speaks.

The part of autocracy that drives Chinese crazy

ARTICLE: Chinese Businesses Resist Eviction by Developers, By ANDREW JACOBS, New York Times, December 30, 2009

You want a sense of what drives most Chinese crazy, as opposed to the lack of democracy inside the Party? It's this kind of stuff, stuffed with all the corruption the system can sustain.

The old Tip O'Neil notion that all politics is really local.

Question of whether or not China will abide by WTO ruling on media

WORLD NEWS: "China Plea Dismissed By WTO," by John W. Miller, Wall Street Journal, 22 December 2009.

WORLD NEWS: "Beijing Preserves Limits on Movies: WTO Ruling Seem Unlikely to Halt China's Strictures on Sales of Imported Media," by Ian Johnson and Loretta Chao, Wall Street Journal, 23 December 2009.

Beijing wants to be able to continue restricting the distro of Hollywood movies and other Western media inside China. The WTO struck that notion down.

China is a huge market, but only allows 20 or so foreign films a year and disallows any music sales over the Internet.

China has a year to comply with the ruling, but is already indicating it might blow it off. And that'll mean retaliation--and justifiably so--from the West.

BTW, friends in China tell me that the Chinese edition of Blueprint for Action hit bookstores last October!

Nice, but the Chinese have to let in other, lesser media too!

Correcting imbalance doesn't mean seeking a perfect balance? Duh!

OPINION: "The 'Global Imbalances' Myth," by Zachary Karabell, Wall Street Journal, 21 December 2009.

EDITORIAL: "How to rebalance the world economy: the job ahead is to make the global recovery sustainable," Financial Times, 23 December 2009.

Bad logic from Karabell, who, unlike Ferguson, seems unwilling to part with his "Chimerica"-like notion of "superfusion" between the U.S. and Chinese economies. Thus he feels the need to attack the idea of balancing by saying that a perfect balance is unachievable and therefore effort in that direction is pointless--truly doofus logic.

If I have high cholesterol but cannot achieve a perfect average number for my age and size, does that mean I still don't try to lower it?

The tortured logic here extends to trying to prove that the recent financial contagion was completely unrelated to the imbalance--also goofy. The underlying cheapness of money caused the bad behavior, pure and simple. Saying we should have known better is cute, but irrelevant. The incentives were simply perverse and they'll remain as such so long as the imbalance is that profound.

The crux of the crude logic here:

Today's consensus sounds very much like the orthodoxy of yesteryear--let each nation be its own system in equilibrium, interacting with other systems to create one mega-balanced system. Yet such balance has only existed in theory and only ever will.

That is about as pure as straw man as you can construct--truly beautiful and completely irrelevant to the discussion.

Apparently, Karabell is deeply worried the CCP will shift its economy too fast--another spurious, straw-man fear with no basis in observed reality.

Guy really wants to sell his book, which I understand, but this comes close to intellectual prostitution.

I will stick with the FT's logic that "China is too important to continue with its present policy of pegging the renminbi to a weakening dollar."

Is it unfair to ask China to change, asks the FT? Maybe. "But it is the price of having become a huge economic power."

Talk to Spiderman's uncle, Mr. Karabell.*

* 'With great power comes great responsibility.'

Tom around the web

+ zenpundit linked The Zen of COIN.

+ The American Scene linked the TED talk.

+ Munro Ferguson linked The Fallacy of an Increasingly Dangerous World.
+ Drama Forum referred to the Leviathan.
+ Doom Soon disagreed at length with Wal-Mart and Globalization's Next Wave.
+ Booker Rising linked Shocking capitalism! It actually helps after disasters!
+ Ragbag recommended the weblog (and said Tom probably smokes a pipe).

Revolutionary Guards are next, best step in Iran

ARTICLE: Iran's Opposition Extends Olive Branch, Unrequited, By MICHAEL SLACKMAN, New York Times, January 28, 2010

If this is the route sought by the opposition, then I would say that the Revolutionary Guard's putsch is just about complete and Ahmadinejad, by holding fast, emerges far more powerful than before.

And honestly, my gut instinct has been all along that the Guard's creeping takeover of the system was the next, best iteration we could hope for (having stated that years ago when the first analytical stories appeared in the MSM about Ahmadinejad looking to create a more secular, single-party state based around the RG explicitly with the presidency being highly enhanced relative to the Supreme Leader--the loser in this dynamic but still the "revered" figurehead {remember how Mao took to that tactic in the 1960s?}). Why the best? It ends up being a de facto secularization of the system: the mullahs are progressively marginalized and we end up with a Brezhnevian--as in stall--one-party state that dominates the economy and wallows in sad corruption.

That is actually a state we can handle nicely because it's such a familiar presentation--all these many years since the Revolution!

(Via WPR's Media Roundup)

Finally getting some SysAdmin funding

ARTICLE: Draft Defense Department budget avoids weapons cuts, adds aircraft, By Greg Jaffe and Craig Whitlock, Washington Post, January 30, 2010

The opening:

The Obama administration's 2011 defense budget avoids the controversial weapons cuts of last year, according to a draft copy, and continues to shift modest amounts of money to weapons programs such as helicopters, unmanned planes and Special Operations units that are in heavy use Afghanistan and Iraq.

The more than $700 billion budget will be released Monday with a congressionally mandated review of defense spending. That review calls on the Pentagon to focus more attention on wars in which enemy forces hide among the populace and use roadside bombs and hit-and-run ambushes to attack U.S. troops. The Quadrennial Defense review also predicts a future dominated by "hybrid" wars, in which traditional states will fight more like guerrillas and insurgents will arm themselves with increasingly sophisticated technology, such as antitank weapons and missiles.

The bold pronouncements in the review, however, won't drive big changes in the Pentagon budget, which is dominated by massive weapons programs with powerful constituencies in Congress and the defense industry.

So hardly a death match between small wars and large, but a continuing modest shift of funds to SysAdmin-heavy programs.

The Leviathan is doing just fine, thank you very much, with cumulative operations favoring the SysAdmin slightly with each passing year.

The key thing is that the spigot is finally turned on, not how fast the water flows.

Afghan shift

ARTICLE: Afghan tribe signs pact to keep Taliban out, AP, Jan. 27, 2010

Would appear to be the new strategy in action.

(Thanks: Jeff Jennings)

Tin ear on Taiwan

ARTICLE: Clinton Warns China on Iran Sanctions, By MARK LANDLER, New York Times, January 29, 2010

Again, the timing of the arms sales to Taiwan suggests an administration that lacks interagency cohesion.

Clueless would be a simpler term.

Support the Haitian police

ARTICLE: In a turnabout, police are the good guys in post-quake Haiti, By William Booth, Washington Post, January 30, 2010

A hopeful sign: the police seem reborn as "good guys," surprising everyone.

Be nice if the responding world and the local government could build on this show of strength.

Trials of a road warrior

Flying out tonight (Saturday) for Capetown, South Africa and the world's biggest mining conference that I'll kick-off keynote Tuesday morning.

Brutal sked way out due to weather in Dulles: Indy to Dulles tonight, then overnight to Frankfurt, then quickie to London, and then overnight direct to Capetown. Ouch!

Trying Skype seriously on this trip with family. We've got it up and working throughout the house.

I will be doing email off my BB and laptop when connected, but people need to consider me largely out of pocket until next Friday.

Is there a serious disjuncture between DoD and the administration on Afghanistan?

FRONT PAGE: "US advances Taliban role: McChrystal looks to force peace deal; General seeks backing from London summit," by Matthew Green, Financial Times, 25 January 2010.

AFGHAN CONFLICT: "Race against time for Nato strategy: Interview | Stanley McChrystal, Nato commander; Casualty rates add to pressure for a political deal," by Matthew Green, Financial Times, 25 January 2010.

AFGHAN CONFLICT: "US struggles to convey common enemy message: Pakistan and India," by Daniel Dombey, Financial Times, 25 January 2010.

Why I thought this: "uber ambassador" Holbrooke (not mentioned anywhere in this trio of pieces) speaks of creating a strong center in Kabul while Gates and McChrystal seem to be arguing for something quite different, to include making peace where they must with the more flexible Taliban.

Yes, Gates contradicted himself at times during his recent trip, but I sense a deeper divide between the Pentagon's vision of a successful drawdown and State's vision of a stable, coherent Afghanistan.

Two critiques on Obama's proposed financial regs package

EDITORIAL: "Obama erects a Maginot line: Overdue confrontation with banks is terrible thing to waste," Financial Times, 23 January 2010.

OPINION: "The President's Bank Reforms Don't Add Up," by Peter J. Wallison, Wall Street Journal, 25 January 2010.

OBAMA AND WALL STREET: "The Big Get Bigger | U.S. banks with more than $10 billion in assets are increasingly dominating the industry," FDIC data, Wall Street Journal, 23-24 January 2010.

OBAMA AND WALL STREET: "U.S. Plan Fuels Global Fire for Financial Regulation," by Stephen Fidler, Alessandra Galloni and Dave Kansas,

The FT says that banning banks from trading on their own book (deposits) will not stop them from putting those holdings at risk, so the so-called Volcker Rule is a Maginot Line-like barrier. The rule also is viewed as doing nothing to stop the non-bank parts of the financial system from creating danger.

Then this judgment, which I find especially damaging to Obama:

For all its warts, a genuine effort at regulatory reform was wriggling its way through Congress--and at least a modicum of attention was being paid to coordinating such reforms at a global level. All this has now been blown out of the water by a White House seized by political panic.

My last cite in the series suggests that global momentum toward reform has not been retarded by Obama's perceived panic.

And although Wallison's point is a good one (No one knows what "too big" really is), it is interesting to note how super-big banks are dominating more and more in terms of total assets, total liabilities, net interest income, non-interest income, net income--across the board. Most of the percentage shares held by the $10B-plus banks at the end of the 1990s ranged in the 60-to-70 percent band. Now all of those measures stand around 80% or higher (especially the noninterest income, where the share is almost 90%, meaning the biggies are dominating the experiments).

Who doesn't want a $600B contract?

INNOVATION & TECHNOLOGY: "A Power Play For China's Electrical Grid: With Beijing budgeting $600 billion to upgrade its network, global giants are racing to plug in," by Bruce Einhorn, Bloomberg BusinessWeek, 28 December 2009 & 4 January 2010.

Naturally, IBM is all over it. Why? If you want to be the best, you want to play in the biggest league, and the pro league always differs from the college game primarily on the basis of speed!

To cure a Texan of his belief that everything is bigger in Texas, send him to China. Four months ago, Brad Gammons moved from Amarillo to Beijing to help IBM land some of the $600 billion the Chinese government plans to spend over the next decade on its electrical network, especially on smart-grid technology to boost efficiency. Now the 50-year-old IBM vice-president marvels that "the scale and pace of how things move here is not something you experience anywhere in the world."

Awfully true, as China's demands are unprecedented. To compare, our smart grid effort rings in at about $8B.

Already, we're smarter though. China "consumes about four times as much electricity as the U.S. per dollar of gross domestic product and eight times what Japan does."

God bless those clever Japanese!

Of course, every Western giant flocks to China, so IBM can only corner so much (expecting $400M over the next four years). It's just that everybody wants to be part of this unprecedented effort at making a hugely inefficient system that much more smart. The scale of the effort alone means that the resulting market can be turned outward toward the rest of the world.

This has been my basic advice to Western companies for close to a decade: get to China and participate--whatever it takes--and then jump into the wider race of taking that technology to the rest of the emerging world. Because God knows the Chinese will steal everything they can and do the same if they can.

Which, of course, makes them the most capital of capitalists.