Chart of the day: smartphone operating system world shares

FT story.

I was just attracted to the notion that fighting over smartphone operating systems shares is now as important in many people's minds as the same fight over OSs in personal computers.

Theme of piece: Mac has ruled here over Microsoft, with Android now replacing previously dominant RIM as the great alternative.

To me, just a fascinating evolution.

The big reason why I tried a Blackberry and then shifted to Android:  I wanted the experience of using them.  I love the Apple OSs in general (my family has four Macs and no PCs), and I love my iPod, but I didn't want to go all-Mac and lose that sense of the alternatives. 

Also why I still use MS Office.

Obama popular abroad where it really counts: New Core pillars

NYT story on global poll (Pew) that indicates Obama is popular abroad, with a particular strength in New Core pillars like Russia and China but a growing weakness in the Middle East.

Frankly, this is more than enough improvement in US standing abroad. Given what is going on in the Middle East and will continue to go on there for years as globalization's embrace deepens, we will never be popular there because of our bodyguarding role (to include our support for Israel). 

But it's absolutely crucial that the image-mending and bridge-building continue with the rising great powers--China especially as its own arrogance and hubris balloons in coming years (an inevitable cost of all that success).  I know it's not easy to play the humble card right now, but it will pay off over time in ways that our own past assertiveness never could.

So no complaints on this score.

I continue to give Obama high grades on the realignment--my theme in "Great Powers."  I nonetheless remain ambivalent if we need 4 or 8 years of this.  His success works against a second term, in my mind, even as I appreciate it greatly.

Deep Reads: "Religious Literacy" (2007)

Great book that I used in "Great Powers," the basic thesis is that as Americans become more religious over time, they nonetheless know less about their faiths.  So we believe more intensely even as we observe less and understand less.  The "illiteracy" theme is so strong that I frequently refer to the book as "Religious Illiteracy."

That theme can get a bit tedious (How crucial is it really to know the Bible is all its arcane and conflicting imagery?), but what really marks this book as great is the short history of religion in the United States that is Chapters 3 and 4.  Without those, the book would have been a waste of time in many ways, but with them, you get a history lesson that's worth the entire book's somewhat bitchy and condescending attitude.

So I say read the opening chapters that describe "The Problem" and most definitely read the two chapters (pp. 59-124) for the history (fascinating), but skip the proposal part that follows.  The "dictionary of religious literacy" is a cool skim.

Movie of My Week: Shutter Island (2010)

Hard not to like or be intrigued by anything Scorsese does, but I've really liked him more and more over the years, as I found the early stuff just TOOO gritty and dark.  So big fan of "Goodfellas," "Casino," and especially his remake of the Asian films ("Infernal Affairs" series) in "The Departed."

Being a fan of Hitchcock, I felt this was going to be Scorsese' homage in that direction, and I wasn't disappointed.  I didn't see this in theaters, although my wife and daughter did, so I came at it totally fresh (no knowledge of Lehane novel) in my home theater last week, and I simply loved it--almost frame by frame. Thelma Schoonmaker, as always, is the film editor, with Robert Richardson as cinematographer. From the opening shot, I fell in love with the texture, the crisp lighting, the swooping camera work (there is an opening shot as DiCaprio approaches the facility in a truck that is textbook stunning), and especially the eye-popping clarity of the shots--all very Hitchcock. Music sometimes overwhelmed but was nonetheless fascinating, because it was all pre-recorded stuff adapted--a Scorsese trademark but here a lot of classical and some Brian Eno tossed in!

DiCaprio is a worthy muse for Scorsese, and I've liked everything they've done together (incl. "Aviator").  Mark Ruffalo was at his best, and totally sold the time-frame (1950s).  Kingsley and Sydow their usual fab.

But again, it was the way the film was shot that really grabbed my attention, right from the start. It had a dream-like quality to it that served the film's purposes incredibly well.  

My advice: get and watch but learn nothing beforehand about the plot, because it's worth all the surprises and guessing. Having now seen it and been blown away by all the plot twists, I still want to view it again, just to drink in the look and feel and the acting--a sign of a classic.

I have no idea why the film wasn't embraced more by audiences, although it did well. To me, the best film I've seen so far this year.

The long pole in the tent of markets' emergence

India: "When's that train coming?"

NYT story with the usual gripe for emerging markets:  external infrastructure better than internal.

S. K. Sahai’s firm ships containers 2,400 nautical miles from Singapore to a port here in four or five days. But it typically takes more than two weeks to make the next leg of the journey, 870 miles by rail to New Delhi.

For most of that time the containers idle at the Jawaharlal Nehru Port near Mumbai because railway terminals, trains and tracks are severely backlogged all along the route. Counting storage and rail freight fees, Mr. Sahai estimates the cost of moving goods from Mumbai to Delhi at up to $840 per container — or about three times as much as getting the containers to India from Singapore.The problem is presented as a symptom of democracy, in contrast with China's authoritarian ability to build networks on demand.

Old story:  dictators good at building networks, but democracies/markets better at running them.

Brief Reminder: From the diamond to the hourglass

Classic PNM slide:  our capabilities "thick" at the state level during Cold War, but in post-Cold War era, we tend toward the extremes (renewed fear of system-level weapons and focus on non-state-actors).

RMA refers to the Revolution in Military Affairs; GWOT refers to Global War on Terror.

Blast from my past: "Globalization and Maritime Power" (2002)

Chapter 10

of

Globalization and Maritime Power
Sam J. Tangredi, editor (Washington DC: National Defense University Press, 2003), pp. 189-200.

Asia’s Energy Future: The Military-Market Link

Thomas P.M. Barnett

Globalization has resulted in the expansion of market capitalism throughout much of the world, particularly in East Asia.¹ Even China, with its recent entry into the World Trade Organization, appears poised to open its markets and unleash its commercial potential. China could be the world’s largest auto market by 2020, increasing the oil needs of its enormous population by 40 percent. Obviously, this would have significant effects on the already-globalized energy market. In light of these global effects, both the Pentagon and Wall Street must understand their interrelationship: economic and political stability are crucial to reducing energy market risk.

As is evident in chapter 6, the Department of Navy is continuing its effort to enunciate the presumed linkage between the Navy’s worldwide operations and the progressive unfolding of economic globalization. The goal is nothing less than the Holy Grail of naval presence arguments: proof positive that ship numbers—especially aircraft carriers—matter to international stability.² Some of this analytic effort will be rightly dismissed as pouring old wine into new bottles because many “Navy-as-the-glue-of-globalization” formulations sound an awful lot like the old bromides about the “Navy as the glue of Asia.” Nice work if you can get it, but given the relative lack of naval crisis response in East Asia since the end of the Vietnam War, it is a hard story to sell. Simply put, once the Shah of Iran fell in 1979, U.S. naval crisis response activity quickly became concentrated on Southwest Asia—a pattern that continues to this day.³ As far as “proving” the utility of naval presence, East Asia has long remained the dog that did not bark.

But all that is about to change, if you believe the stunning Department of Energy projections of growing Asian energy consumption over the next 20 years.⁴ Not only do a lot of bad things have to not happen over the next 2 decades, but also a lot of good things must occur in both East Asia and the Middle East—and across all paths in between—to ensure the region’s much-anticipated economic maturation will actually occur. In short, if you want a Pacific Century, you will need a U.S. Pacific Fleet—strong in numbers and forward deployed.

Asian Energy: A Globalization Decalogue

For several years, a Naval War College project (NewRuleSets.Project) on how globalization alters definitions of international security has provided considerable opportunity for an examination of the views of Wall Street executives, as well as of regional security experts (both military and civilian), on Asia’s future economic and political development.⁵ The following decalogue (summarized in table 10–1) distills the essential rule sets our project has identified concerning Asia’s energy future:⁶

Global energy market has the necessary resources

Asia as a whole currently uses about as much energy as the United States, or about 100 quadrillion British thermal units.⁷ By 2020, however, Asia will roughly double its energy consumption, while U.S. consumption will rise just more than 25 percent. Asia’s plus-ups are significant no matter what the energy category, as evidenced in the following current estimates:

• oil consumption to increase by roughly 88 percent
• natural gas by 191 percent
• coal by 97 percent
• nuclear power by 87 percent when Japan is included, but 178 percent for the rest
• hydroelectric and other renewables by 109 percent.

This is a genuine changing of the guard in the global marketplace—a shifting of the world’s “demand center.” Today, North America accounts for just under a third of the world’s energy consumption, with Asia second at 24 percent. But within one generation, those two regions will swap both global rankings and percentage shares. In short, Asia becomes the world’s center of gravity for energy flows, giving it virtually the same market clout as the North Atlantic Treaty Organization countries—or North America and Western Europe combined.

The good news is that there’s plenty of fossil fuel to go around. Confirmed oil reserves have jumped almost two-thirds over the past 20 years, according to the Department of Energy, while natural gas reserves have roughly doubled. Meanwhile, our best estimates on coal say we have enough for the next 2 centuries. So supply is not the issue, and neither is demand, leaving only the question of moving the energy from those who have it to those who need it—and therein lies the rub.

Slide from old NewRuleSets.Project brief

But no stability, no market

Asia comes close to self-sufficiency only in coal, with Australia, China, India, and Indonesia the big producers. All told, Asia self-supplies on coal to the tune of 97 percent, a standard it will maintain through 2020. That is important, because virtually all of the global growth in coal use over the next generation will happen in Asia, mostly in just China and India.

Natural gas is a far different story. In 2001, Asia will used around 10 trillion cubic feet, with Japan, South Korea, and Taiwan representing the lion’s share of consumption. The three of them already buy virtually all of the region’s currently available methane (for example, from Australia, Brunei, Indonesia, and Malaysia). The trick is this: Asia’s demand for natural gas skyrockets to perhaps 25 trillion cubic feet by 2020, with the majority of the increase occurring outside of that trio. So if those three countries already buy what is available in-region, that means the rest of Asia will have to go elsewhere—namely, the former Soviet Union (Russia with 33 percent of the world total) and the Middle East (Iran with 16 percent). This is what futurists might call an historical inevitability.

Finally, even though oil will decline as a percentage share in every major Asian economy over the coming years, absolute demand will grow by leaps and bounds. Asia currently burns about as much oil as the United States, or roughly 20 million barrels/day (mbd). Since oil is mostly about transportation nowadays, and Asia is looking at a quintupling of its car fleet by 2020, there is a huge swag placed on this projection. The latest Department of Energy forecast is roughly 36 mbd, but even that means Asia as a whole has to import an additional 12 mbd from out of region, or close to double what it imports today from the Persian Gulf region.⁸

Asia already buys roughly two-thirds of all the oil produced in the Persian Gulf, and by 2010 that share will rise to approximately 75 percent.⁹ Meanwhile, the West’s share of Gulf oil will drop from just under a quarter today to just over a tenth in 2010. The strategic upshot is that the two most anti-Western corners of the globe are inexorably coming together over energy and money over the coming years. Increasingly, the Middle East becomes dependent on economic stability in Asia, and Asia on political-military stability in the Gulf. If either side of that equation fails, the energy market is put at risk.

No growth, no stability

All this predicted growth engenders social expectations. In other words, Asia’s developing societies have been placed on consumption trajectories that are nothing short of revolutionary. As a middle class develops in these countries (small as a percentage but enormous as an absolute number), a significant portion of the global population is being rapidly promoted from an 18th- or 19th-century lifestyle into a 20th- or even 21st-century consumption pattern—and they will get used to it pretty darn fast.

Moreover, if Thomas Friedman’s “electronic herd” of international investors decides to take it all away one afternoon in a flurry of currency attacks and capital flight, the struggling segment of the population that suddenly finds itself expelled from the would-be middle class is likely to get upset. This is basically what happened in Indonesia following the tumultuous events of the Asian Flu of 1997–1998. Huge portions of Indonesia’s economy had experienced rapid development in the preceding generation, only to see it disappear virtually one fickle market day.

Yes, some good resulted; Suharto’s crony capitalism collapsed, but with it went much of the country’s emerging middle class. Now, as the country disintegrates into pockets of chaos, the machetes are flying as disoriented villagers work nightly to dispatch the “sorcerers” and “black ninjas” purported to be behind this continuing economic decline. In short, Indonesia loses its growth trajectory and suddenly finds itself transported back in time several centuries.¹⁰

No resources, no growth

Asia cannot grow without a huge influx of out-of-area energy resources. The quintupling of cars is impressive enough, when you consider that General Motors predicts China will indeed be the world’s largest car market in 2020.¹¹ But even more stunning is the three-fold increase in electricity consumption, which will be generated mostly by coal and—increasingly—natural gas. Put those two together, and we are talking about an Asia that must open up to the outside world to a degree unprecedented in modern history. Or to put it in another way, Asia’s choice of energy will largely determine its attitude on globalization. China is the classic example here.

One can think of China’s decisions about its pattern of energy consumption as a choice between the past (coal), the present (oil), and the future (methane, or natural gas). If China chooses to remain, as much as possible, in the “past” with coal, this decision will essentially delay its full-fledged absorption into the global economy. This is clearly the path of least resistance for Beijing, and there lies the temptation, for the perception of autonomy afforded by coal allows China to:

• remain more opaque to outside scrutiny
• retain more control over its energy future
• continue the more easily directed top-down path of extensive growth (that is, more inputs versus more productivity).

If China chooses to move—as much as possible—into the “future” with natural gas, this decision will speed up its full-fledged absorption into the global economy. This is obviously a far more difficult path, because it:

• opens the country to greater interdependency with the outside world
• forces more transparency upon its financial systems
• asks it to trade control for calculated risk (nothing is guaranteed in the free market)
• demands a far greater push for intensive-style economic growth.

The bigger point, however, is this: neither China nor Asia as a whole can develop without opening to the outside world economically, and energy is the essential driving force in this process.

No infrastructure, no resources

Asia’s infrastructure requirements over the next 2 decades will be unprecedented in human history. Simply put, never have so many people developed an economy at such a rapid pace in such a concentrated chunk of global real estate. This rough doubling of energy consumption will place extraordinary demands on the environment. The combination of rapid rises in energy consumption, population, urbanization, and water usage (especially for agriculture) will further damage an already battered regional ecosystem, creating great political pressures on national governments—both from within and outside—to limit the pollution associated with energy production.

Cleaner cars and more mass transportation are important, but even more so is the choice of how all that electricity is to be generated. Asia will attempt to grow its nuclear and renewables capacity to the fullest extent possible, but as a combined share of total energy production (that is, 10 percent), these categories will not grow—even as they double in absolute amounts to keep pace with economic development. The story is roughly the same with coal, which stands at just over 40 percent of total energy production now and still will in the year 2020. The real shift in Asia’s energy profile comes in oil and natural gas, with the former declining from roughly 40 percent to 30 percent, and the latter basically doubling from 10 to 20 percent.

This 275 percent increase in the absolute amount of methane energy employed across the region highlights the story-within-the-story of Asia’s energy future: the push for energy is really a push for infrastructure. Regarding natural gas, this infrastructure comes in three forms:

• For the near term, the vast majority of natural gas that flows into Asia will arrive in a liquid form on ships. That means port facilities on both ends of the conduit, plus liquidification plants on the supplier’s end and regasification plants on the buyer’s end.
• Over the longer haul, pipelines become the answer to meet the rising demand—both by land (for example, Kazakstan-to-China, Russia-to-China) and sea (Russia-to-Japan, Iran-to-India).
• Finally, there is the domestic infrastructure required to pipe all that gas to the final consumers.

None of this comes cheaply, and as the recent history of regional electricity development makes clear, lots of outside money is required.¹²

No money, no infrastructure

Foreign direct investment (FDI) is the most significant scenario variable for Asia’s energy future. Energy infrastructure requirements could easily top $1 trillion by 2020, according to many estimates. Such numbers will overwhelm the region’s ability to self-finance, and that means Asia will have to open up its energy generation and distribution markets to far more joint or foreign ownership—a touchy subject, as former global energy giant Enron’s experience in India demonstrated.¹³

Right now, Asian states invest in one another to a very high degree, as many developing regional economies funnel upward of 90 percent of their external capital investments into their neighbors. But their combined resources are very limited compared to the West. A good estimate of Asia’s current outward stock—meaning the cumulative value—of foreign direct investment would be roughly $750 billion. In contrast, the United States and the European Union—even when one discounts intra-European investments—control roughly three times that amount of capital.¹⁴

Until now, Asia has relied on intra-Asian FDI for almost two-thirds of its cross-border capital needs, keeping the West at a certain distance in the mergers and acquisition trade. But this will have to change for Asia’s ambitious energy future to unfold according to plan. On an annual basis, the European Union and the United States routinely account for over 80 percent of all cross-border direct investment flows, far outdistancing their combined share of global gross domestic product, which sits as just under 60 percent.¹⁵ These two economic giants mostly invest in one another (and Europe in itself), creating an unbreakable trans-Atlantic bond. So if it seems inevitable that Asia must turn to the former Soviet Union and the Middle East for energy in the coming decades (the energy triad), it is just as inevitable that it must turn to the West for the money to finance this trade (the capital triad).

No rules, no money

Many on Wall Street voice the opinion that Asia has not sufficiently “cleaned up its act” as a result of the 1997–1998 financial crisis. The buzzword here is transparency, which refers primarily to internationally accepted accounting practices in the financial and corporate sectors. This is a huge challenge for Asia to overcome in terms of attracting the necessary foreign direct investment for future energy needs. Simply put, institutional investors need to feel confident in their ability to get a long-term return ofinvestment and not just a short-term return on investment, and that sort of confidence comes only with the firm rule of law.

Another problem with Asia’s energy investment climate is the current mix of private-sector investments and public-sector decisionmaking—in effect, too many bureaucrats with too much of other people’s money. In most Asian economies, the government still plays far too large a role as far as Western financiers are concerned. For the most part, Wall Street likes to see monopolies build networks but prefers them to be run by market forces once they are operational—their version of having a cake and eating it too. But so long as rule sets lag behind, the rise of private-sector market makers is delayed, for firm rules of play are required before deregulation of state-run energy markets can proceed.

Viewed from this angle, it might be said that the greatest long-term threat to Asia’s energy security is internal: its own proclivities for crony capitalism. Whether it is called Asian values, capitalism with Chinese characteristics, or globalization on ourterms, all Asian claims to a particular brand of capitalism are ultimately self-defeating. In sum, money has to behave in Asia just like it does in the West if the region hopes to attract the investment necessary to secure its energy future.

No security, no rules

Foreign direct investment does not occur in a vacuum. Long-term certainty is the greatest attraction a country can offer to outside investors, whereas war and political-military instability (especially leftist revolutions) are the best methods to scare them away. Not surprisingly, the strongest FDI bonds exist between the three main pillars of the Cold War’s trilateral alliance structure: the United States, Western Europe, and Japan.

This triad controls 80 percent of the world’s stock in foreign direct investment, keeping two-thirds of that total invested in one another. That means the other 90 percent of the global population has to get by on the remaining half of global FDI capital available. In a nutshell, investment follows the flag far more than trade. For example, the United States does about a third of its trade with Western Europe and Japan but concentrates closer to a half of its FDI in these two markets.¹⁶

Developing Asia, in contrast, readily presents a handful of potential and/or existing security trouble spots that could negatively impact the region’s FDI climate in significant ways:

• India-Pakistan nuclear standoff
• Indonesia’s disarray
• The Korean situation (especially the North’s nuclear/missile programs and/or “imminent collapse”)
• China-Taiwan
• Overlapping sovereignty claims in the South China Sea.

Bluntly stated, Asia is still a place where military conflict could dramatically alter the FDI landscape, unlike a Europe where the conflict in the former Yugoslavia had a negligible impact on economic integration and investment flows.

No (benign) Leviathan, no security

Many international experts agree that Asia’s current security situation belongs more to what Thomas Friedman calls the “olive tree” world, where backward tribes fight over little bits of land, even as its rising economic powerhouses clearly join the “Lexus” world, producing many of the global economy’s best high-end technology products.¹⁷ Lacking Europe’s crucible-like history of 20th-century warfare, as well as its currently robust regional security alliances, Asia remains the one place in the world where direct great power warfare seems possible over the next generation. This becomes especially true as previously authoritarian states experience greater amounts of political pluralism, typically the most dangerous time for interstate wars.¹⁸

In this region where the concepts of spheres of influence and security dilemma are still valid, there remains a viable long-term market for the services of an outside Leviathan—namely, the United States. In a part of the world where numerous states are still technically at war (dating back more than half a century), the United States enjoys healthier security relationships with virtually every government than any two governments there enjoy with one another. While it is easy to deride the notion of a “four-star foreign policy,” there is little doubt that the combatant commander of U.S. Pacific Command plays a special—even unique—role in working the security arrangements that underpin the region’s strong record of structural stability over the past quarter century (basically, since Vietnam was reunified).¹⁹

And if there was no U.S. military presence, then what? How comfortable could Japan be with China? Taiwan with China? South Korea with North Korea? India with Pakistan? India with China? Vietnam with China? The list goes on and on. Simply put, the U.S. military occupies both a physical and a fiscal space in Asia: our forward presence both reassures local governments and obviates their need for larger military hedges. Our presence is a moneymaker on two fronts: local governments spend less on defense and more on development (the ultimate defense), and FDI is encouraged, however subtly.

No U.S. Navy, no (benign) Leviathan

As noted earlier, what Asia needs in terms of future energy requirements is entirely available either in-region (for example, coal) or from the central portion of the Eurasian landmass (gas and oil from the Persian Gulf, Central Asia, and Russia). These distances are all feasibly conquered by pipelines, and most of the involved sea lines of communication lie within the reach of the region’s naval forces—for good or ill.

Meanwhile, the West, which has come to rely less and less on Persian Gulf oil, is likewise becoming more regionally focused in its energy trade patterns. The United States, for example, imports more energy supplies from Canada than any other nation, and gets the bulk of its imported oil from North and South America.

None of these statements are meant to suggest that East-versus-West energy blocs are forming. In reality, the regionalization of energy trade occurs precisely because the commodities in question are behaving more and more as one would expect of a globally traded, highly fungible good. If price determines all, then reducing transportation distance makes sense.

In the end, all this regionalization comes about because the energy trade is no longer confined to the sort of strategic bilateral relationships of the Cold War era, so the new rules of energy are nothing more than that sector’s joining up with the global marketplace and losing its special status as a strategic asset.

Having said all that, the U.S. Government—and the U.S. Navy in particular—faces a far more complex strategic environment in the 21st century, whether or not it yet realizes the change: our national security interests in the Persian Gulf, while increasingly important for the global economy, no longer hold the same immediate importance to our national economy.

In effect, U.S. naval presence in Asia is becoming far less an expression of our nation’s forward presence than our exporting of security to the global marketplace. In that regard, we truly do move into the Leviathan category, for the product we provide is increasingly a collective good less directly tied to our particularistic national interests and far more intimately wrapped up with our global responsibilities.

And in the end, this is a pretty good deal. We trade little pieces of paper (our currency, in the form of a trade deficit) for Asia’s amazing array of products and services. We are smart enough to know this is a patently unfair deal—unless we offer something of great value along with those little pieces of paper. That product is a strong U.S. Pacific Fleet, which squares the transaction quite nicely.

Understanding the Military-Market Connection

The collapse of the Soviet bloc and its longstanding challenge (or rejection) of the Western economic rule set made possible—really for the first time in human history—a truly global rule set for how military power buttresses and enables economic growth and stability.

How so? For the first time in human history, we have a true global military Leviathan in the form of the U.S. military, and no peer competitor in sight—not even a coherent alternative economic philosophy (although one clearly brews in the anti-globalization protests that started with Seattle). This unparalleled moment in global history both allows and compels the United States to better understand the national security-market nexus, in large part because of its complete reversal of the priority from that of the Cold War era. During the strategic standoff with the Soviet Union, economic might was seen as supporting military power, but now that situation has been turned on its head: to the extent that the military matters, it matters because of the stabilization role it can play in the global economy.

How do we define this yin-yang relationship between the military and business worlds? First, we speak of stability, which flows from national security, and then we speak of transparency, which is both demanded and engendered by free markets. These two underlying pillars form the basis of the single global rule set that now essentially defines the era of globalization.

Within those two pillars, the United States clearly plays a crucial role:

• The U.S. Government, through the U.S. military, supplies the lion’s share of system stability through its Leviathan-like status as the world’s sole military superpower.
• The U.S. financial markets, which lead the way in fostering the emergence of a truly global equities market that will inevitably operate all day, every day, play the leading role in spreading the gospel of transparency—any country’s best defense against the sort of financial currency crises that have periodically erupted over the last decade (Mexico 1994, Asia 1997, Russia 1998, Brazil 1999, Turkey 2001).

As such, it is essential that these two worlds—the Pentagon and Wall Street—come to better understand their interrelationships across the global economy. Uncovering and comprehending this fundamental relationship is especially important because—the vast majority of the time—the security and financial communities operate in oblivious indifference to one another.

One is tempted to counter, “So what? They don’t need to be aware of one another on a day-to-day basis.” And in a basic sense, that is true. But if you consider the rise of system perturbations as a new form of international security threat, and if you understand that many of these perturbations first appear in the form of financial crises that can engender serious subnational violence (for example, Indonesia today), then perhaps this connectivity seems more pertinent. Ultimately, the global economy operates on trust, which is based on certainty, which in turn comes from the effective processing of risk.

In the end, the national security and financial establishments are in the same fundamental business: the effective assessment and mitigation of international risk. For the military, it is the risk of conflict and the disruption of normal life by large-scale violence, while in the financial world, it is the risk of bankruptcy (insolvency) and the disruption of normal business by large-scale panics or meltdowns.

Invariably, these two problem sets merge in the historical process that is economic globalization, so understanding the military-market connection is not just good business, it is good national security strategy. Osama bin Laden understood this connection when he selected the World Trade Center and the Pentagon as his targets. We ignore his logic at our peril.

Thomas P.M. Barnett is professor and senior strategic researcher at the Naval War College. He directed the NewRulesSet.Project, an effort to draw new “maps” of power and influence in the world economy through collaboration with financial corporations such as Cantor Fitzgerald. Currently, he is serving as the assistant for strategic futures in the recently formed Office of Force Transformation within the Office of the Secretary of Defense. His articles appear with frequency in the U.S. Naval Institute Proceedings, and an abbreviated version of this chapter appeared in the January 2002 issue. The author would like to thank Bradd Hayes and Rear Admiral Michael McDevitt, USN (Ret.), for their comments on the original draft.

Notes

¹ For the purposes of this article, the author defines Asia as extending from Afghanistan to Japan, but not including Australia and New Zealand (Oceania), although he identifies Australia as an in-region supplier of energy (coal and natural gas) due to its proximity. 

²For a good example of this sort of work, see Thomas P.M. Barnett and Linda D. Lancaster,Answering the 9–1–1 Call: U.S. Military and Naval Crisis Response Activity, 1977–1991 (Center for Naval Analyses Information Memorandum 229, August 1992). 

³For the best analysis on this subject, see Henry H. Gaffney, Jr., et al., U.S. Naval Responses to Situations, 1970–1999 (Center for Naval Analyses Research Memorandum DOOO2763.A2/Final, December 2000). 

⁴ See the Energy Information Administration’s International Energy Outlook 2000: With Projections to 2020, DOE/EIA–0484 (2000), March 2000, accessed at <www.eia.doe.gov/oiaf/ieo/index.html>.

⁵The NewRuleSets.Project was a multi-year research effort designed to explore how globalization and the rise of the New Economy are altering the basic “rules of the road” in the international security environment, with special reference to how these changes may redefine the U.S. Navy’s historic role as security enabler of America’s commercial network ties with the world. The project was hosted by the online securities broker-dealer firm, eSpeed (an affiliate of Cantor Fitzgerald LP), and involved personnel from the Decision Strategies Department of the Center for Naval Warfare Studies. Adm. William Flanagan, USN (Ret.), and Philip Ginsberg of Cantor Fitzgerald (then-senior managing director and executive vice president, respectively) served as informal advisers to the project, actively participating in all planning and design. The joint Wall Street-Naval War College workshops in the series involved energy, environmental issues and foreign direct investment in Asia. All research products relating to this effort can be found at <www.nwc.navy.mil/newrulesets>.

⁶ All the energy data presented in the decalogue, unless otherwise specified, comes from the Department of Energy’s International Energy Outlook 2001. 

⁷ A good rule of thumb for thinking about a quadrillion British thermal units (Btus) is that you can take the annual number for a region and divide it by two, giving you the rough equivalent in millions of barrels of oil per day the region would need to burn if it was achieving that entire energy amount by oil alone. For example, North America used about 110 quadrillion Btus in 1997, so that would equate to approximately 55 million barrels a day (mbd) of oil if that entire amount was achieved by oil alone. For point of comparison, note that the United States currently uses about 20 mbd, importing roughly half that number. 

⁸ For an excellent exploration of this, see Daniel Yergin, Dennis Eklof, and Jefferson Edwards, “Fueling Asia’s Recovery,” Foreign Affairs 77, no. 2 (March/April 1998), 34–50. 

⁹ The Middle East currently accounts for roughly 90 percent of all Asian oil imports; on this see Fereidun Fesharaki, “Energy and Asian Security Nexus,” Journal of International Affairs 53, no. 1 (Fall 1999), 97. 

¹⁰ For a frightening description of this situation, see Nicholas D. Kristof’s chapter, “Search for the Sorceror,” in Thunder from the East: Portrait of a Rising Asia, ed. Kristof and Sheryl WuDunn (New York: Alfred A. Knopf, 2000), 5–23. 

¹¹ Cited in Clay Chandler, “GM’s China Bet Hits Snag: WTO (Car Shoppers Await Discount From Trade Deal),” The Washington Post, May 10, 2000, E1.

¹² See “Foreign Investment in the Electricity Sectors of Asia and South America,” in International Energy Outlook 2001, 120–21. 

¹³ For a good description of Enron’s difficulties in the Indian electricity market, see Celia W. Dugger, “High-Stakes Showdown: Enron’s Right Over Power Plant Reverberates Beyond India,”The New York Times, March 20, 2001, C1. 

¹⁴ These figures are derived from United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2000. 

¹⁵ In contrast, Asia accounts for less than 10 percent of global foreign direct investment flows, even though its gross domestic product share sits at 25 percent.

¹⁶ Estimates based on the figures taken from UNCTAD, World Investment Review and CIA, World Factbook, various years.

¹⁷ See Thomas L. Friedman, The Lexus And The Olive Tree: Understanding Globalization (New York: Farrar, Strauss and Giroux, 1999). 

¹⁸ On this subject, see the data analysis by Edward D. Mansfield and Jack Snyder, “Democratization and War,” Foreign Affairs 74, no. 3 (May/June 1995), 79–97. 

¹⁹ For an excellent exploration of this concept, see Dana Priest, “A Four-Star Foreign Policy? U.S. Commanders Wield Rising Clout, Autonomy,” The Washington Post, September 28, 2000, A1. See also the second and third articles in the series (September 29–30).

Co-opting Turkey and Iran--in tandem

Fascinating Stephen Kinzer piece in The American Prospect, by way of WPR's Media Roundup.

The subtitle makes the statement boldly:

Why America's future partners in the Middle East should be Turkey and Iran -- yes, Iran.

Underlying argument:  two countries in the region have a long history of struggling with democracy--Turkey and Iran.  Both currently sport the Islamist veneer, but beneath lies a restive and vibrant civic culture.

In the future, it is not Turkey alone where "they come together." Improbable as it may seem right now, given the current regime in Iran, a partnership that unites Turkey, Iran, and the United States is the future and makes sense for two reasons: The three countries share strategic interests, and their people share values. Our evolving relationship with a changing Turkey offers a model for the kind of relationship we might one day--not necessarily tomorrow--have with a changing Iran. This is the tantalizing possibility of a new way for the U.S. to engage with the Middle East in the 21st century.

Why explore?  Because our Cold War stalwarts aren't working out:

Today we work in the region primarily through two bilateral relationships--with Israel and with Saudi Arabia. These pairings served Washington well during the Cold War. They have not, however, produced a stable Middle East. 

I like this piece very much.  Very intelligent, unemotional, and strategic in vision.

Also adapted from a new book (Reset: Iran, Turkey, and America's Future).

Another American nation birthed--casino optionable!

pic here

NYT story of Long Island Native American tribe that successfully got recognized, after long battle, as the newest member of America's 500-plus collection of embedded independent nations.

Usual story nowadays: prime motivation is ability to build and operate a gambling casino.

What an American story!

But the dynamic is not that different when globalization births new nations: they too want a better deal with the larger economy and see independence as crucial to winning that.

So, in essence, a perfect American tale in a globalized age.

Sad story for Rhode Island's cliff walks

NYT story on courts clearing way for lawsuit by tourist against city of Newport for allegedly not having enough safety measures WRT its famed Cliff Walk.

Usual dumbass behavior by off-islanders: guy walks off trail down to water, slips and paralyzes himself.  Usual trick is to stand very close to edge of water for picture-taking, and while back to water, sneaker wave sucks person off shore to watery death. 

Having lived on the island for 7 years and spent countless hours on various cliffs and beaches and shorelines, I'd see this behavior all the time.  And I'd just shake my head and make my polite warnings, but my advice was just as quickly blown off by know-it-alls as would be any additional signs or fences.  People will just not be told what to do when they're on vacation, and then they want somebody else to pay for their mistakes.

Don't get me wrong, me and mine would engage in all sorts of similar behavior--just with our eyes wide open (I will confess to slipping past the cops with my kids to surf during hurricane surges).  And we loved RI's landscape for all those opportunities afforded to commune with nature. But nature is nature, not a Disney ride.

The deficit/debt as national security "threats"

James Galbraith in the LA Times, by way of WPR's Media Roundup.

He takes on the notion that the deficit is now a national security threat, a notion the Obama administration raised in its new National Security Strategy.

Was World War II, for example, won with balanced budgets? No. Deficits ran about 25% of GDP every year of the war, and the national debt had reached 121% of GDP by 1946. Was the United States weakened by this? Hardly. America had never been stronger than it was in 1946. And afterward, the economy didn't implode. The debt-to-GDP ratio merely declined, year after year, until it reached a low of about 33% of GDP in 1980.

Was America stronger in 1980 than in 1946? No again. That year we elected Ronald Reagan, who campaigned on a promise to restore the United States to a position of strength. To that end, he promptly cut taxes and boosted military spending, actions that pushed the deficit back up to about 50% of GDP even as the economy recovered.

It's true that nowadays China, Japan and other countries hold large piles of Treasury bonds. But why? Only because they run trade surpluses with the whole world and have chosen to stockpile those earnings in dollars. This is a sign of confidence in us. And reducing budget deficits wouldn't change anything about that, unless those Asian trade surpluses were also reversed. But the folks at Brookings weren't calling for a trade war with Asia, just about the only step (however unwise for other reasons) that might plausibly cut the surpluses.

Do China's debt holdings give China leverage over us? Not at all. Realistically, China can do nothing with its Treasuries except roll them over. China is not going to dump U.S. bonds in order to buy those of Spain or Greece. And paying interest on them is not, for us, a burden, since the money is never spent and probably never will be.

Speaking of interest, it's also obvious that the capital markets don't take the deficit scare-talk seriously; otherwise, they wouldn't be lending to Uncle Sam for 30 years at just over 4%. And the dollar wouldn't be rising, as investors seek safety from the European crisis in Treasury bonds — a sure sign that the world's wealthy don't find U.S. deficits all that worrisome.

The danger?  The old bugaboo by which Social Security and Medicare are whacked to pay for increased military spending.

I like the contrarian attitude here.

Rwanda: healthcare on the cheap

NYT story on near-universal healthcare in poor Rwanda.  $2 a year buys it.

Nothing fancy, and yet impact:

Since the insurance, known as health mutuals, rolled out, average life expectancy has risen to 52 from 48, despite a continuing AIDS epidemic, according to Dr. Agnes Binagwaho, permanent secretary of Rwanda’s Ministry of Health. Deaths in childbirth and from malaria are down sharply, she added.

Shows the utility, no matter the level of development.

Doesn't work without some outside money help, and it's hard to get locals to pay in advance, but the larger point is, if it costs something, even if it's not much, people take it a lot more seriously--and use it.

Saudis likewise prep strike capacity vis-a-vis Iran

Media Line story via WPR's Media Roundup.

Gist:

As it denies cooperating with preparations for a potential Israeli attack on Iran, Saudi Arabia prepares for strike of its own. 

Saudi Arabia’s air force has signed a deal to upgrade its fleet of 150 strike aircraft and procure advanced weaponry to respond to an Iranian military threat while simultaneously denying reports that the country is coordinating with Israel over a possible strike against Iran’s nuclear sites.
    
“The Saudis are very worried about the growing power of Iran,” Arie Egozi, an aviation expert for the Israeli daily Yediot Ahronot, told The Media Line. “They want to protect their oil resources and other things. They have a very large air force and are upgrading their capabilities by installing new systems into their aircraft, mainly the Boeing F15s.”

Perfectly sensible stuff, and perfectly fine for US defense industry to be involved.

Chart of the day: too much deflationary pressure a bad thing

Economist chart.

For a long time, China's deflationary impact on prices was seen as a good thing:  it meant China's rise didn't lead to more expensive goods in the West--just the opposite.

But with the West is a slump, a vicious cycle sets in:  more belt-tightening means less demand, means lower prices still, means . . ..

So the view of economists rounded up online by the mag is, "deflation is the bigger short-term danger in big, rich economies, whereas inflation is an immediate worry in many emerging economies and, potentially, a longer-term danger in rich ones."

The future face of China captured in a perfect NYT headline

David Barboza (frequently brilliant) piece in NYT with perfect, crystalizing headline:  

In China, Unlikely Labor Leader Just Wanted a Middle-Class Life

Story comes out of the recent strike at a Honda factory.

The dynamics here are also perfect:

Tan Guocheng is hardly a self-styled labor leader. Age 23 and introverted, he grew up among rice paddies and orange groves far from China’s big factory towns.

But last month, an hour into his shift at a Honda factory in the southern city of Foshan, Mr. Tan pressed an emergency button that shut down his production line.

“Let’s go out on strike!” he shouted. Within minutes, hundreds of workers were abandoning their posts.

Colleagues described Mr. Tan’s leadership as an uncharacteristic act of courage; Mr. Tan said he simply wanted a pay raise. Regardless, he has helped touch off a wave of strikes at Honda plants and other workplaces in China that are still playing out in surprising and significant ways.

Though Mr. Tan has since been fired by Honda for “sabotage” and moved back to his village, striking workers at another Honda plant less than 100 miles away in Zhongshan marched in the streets on Friday and made a new demand: the right to form an independent labor union.

“This is a remarkable development,” said Anita Chan, a labor expert at the University of Technology in Sydney. “Most strikes in China tend to be about not being paid or being mistreated. This was different. The workers were demanding very high salaries. And they want to elect union leaders democratically.”

The two-week strike at Mr. Tan’s plant forced Honda to shut down its four assembly plants in China and to eventually offer 1,900 workers in Foshan a 24 to 32 percent pay raise. That got to the heart of Mr. Tan’s complaint.

Leaving his home in central China four years ago, Mr. Tan had hoped that working on an assembly line for a global company like Honda would be his path to a middle-class future.

But the pay was meager, he says, and inflation ate away at his earnings. And last January, when Honda offered to increase his $175 monthly salary by a mere $7, Mr. Tan, who planned to marry soon, was distraught. It was not enough money to buy a house or raise a child.

“I couldn’t understand how they could give us so little,” he said. So he decided to fight back.

This is a story about what China becomes when it's all grown up and industrialized.  

There will be countless more Tans in this story, and they will be the best thing that's ever happened to the country.

God bless the fellow for just wanting what he's due.

When you do SysAdmin by proxy in Somalia, you enlist children as warriors

NYT story says child soldiers exist "across the globe," but truth is, they exist only inside my Gap.

When people say it's not our role to do the SysAdmin work in these places, they just need to understand who gets pressed into service when Core great powers don't show up.

Take a good look at the kid's face, because he's working for you.

Feel any holier about our non-interference?

Will Pakistan uphold its end of the clear-and-hold effort?

Map here

Pakistani member of parliament via Times of India via Our Man in Kabul.

I quote at length:

There is a saying in Pakistan that if you can’t defeat your enemy, befriend him. This is particularly true in the tribal areas that border Afghanistan, where, in six agencies, there’s an unprecedented military offensive against militants. Despite many tactical alliances and ceasefire pacts in Waziristan, Pakistan has gone in with firepower backed by US drones. The cornerstone of the security policy here is to attack militants close to the al-Qaida, but spare armed syndicates that protect Pakistan’s flanks. 

The turbulence in the Af-Pak border zone has led Washington to put out strategic leaks about possible military intervention inside Pakistan. The heart of the problem is what could alter the dynamics of declining US-Nato successes in the Afghan theatre. North Waziristan agency (NWA), and what the Pakistan army is able to do there, seems to have become the litmus test for US-Pakistan relations. After Faisal Shahzad’s attempted bomb attack in Times Square, the pressure on Islamabad to act against anti-US Taliban in NWA has increased. Islamabad pleads capacity constraints; the US cites commitment gaps. 

The stakes are high. After failing to build institutional structures in Afghanistan, the test for Washington is linking US-Nato ground offensives in the south and Loya Paktiya to Pakistan’s push on the militant Haqqani-led groups from NWA. The Obama presidency needs a game-changer in a theatre where success is elusive despite a COIN (counter-insurgency) strategy that focuses on population safety. The expected Taliban reversals have not happened despite a massive offensive in Marjah. In Washington’s view, Pakistan is pulling its punches as it may need the Taliban when the US exits Afghanistan. 

For Pakistan, this is a battle for its stability and survival. Action is overdue against terrorist and sectarian groups in Punjab, Balochistan and Khyber-Pakhtunkhwa. There is a compelling need to act against extremist groups after the massacre of nearly a hundred Ahmadiyas in Lahore recently. The Punjab government needs to do a counter-terror sweep of its cities . . . 

The challenge in NWA is that Islamabad does not have the military or civilian capacity to open all fronts at the same time. Enmeshed in a blighted strategic endgame, with a growing terrorist threat, tanking economy and India posturing to the east, the military option in NWA cannot be a hair-trigger decision . . .  Islamabad’s fear is that if it shoves a fist into this hornet’s nest, maintaining the fragile consensus against terrorists at home would be difficult, as well as protecting its cities from further attacks. 

This can be no “shock and awe” exercise that can be switched off by remote control. Pakistan has already lost over 3,000 people in two years as a result of the terrorist backlash; the economy has taken a $35 billion hit. The question is, will the US be around to help hold down Pakistan’s fist when its army swoops on al-Qaida strongholds such as Mir Ali? The military’s tactic in any counterinsurgency initiative in mountainous terrain is ‘pincer and choke’ the enemies’ escape routes . . . If the NWA is grand central for terrorists, then the Afghan border provinces provide strategic depth. While the US-Nato forces in Afghanistan need to do their bit, Pakistan will have to step up border checks and review unwritten peace deals with tribal leaders who change sides too often. 

The other question is: how long can the Pakistani army stay in the agencies it has secured? Is there a civilian ‘build, hold and transition’ component to the project? Once again, before putting pressure Pakistan with an escalating war, huge governance commitments such as ROZ (reconstruction opportunity zones) assistance will have to roll off the US machine . . .

What will help is a phase-by-phase plan for securing the area, holding it until the tribes that have been terrorized by the Taliban are able to return and do business. Second, though the elites in Waziristan’s tribal areas have been marginalized by the Taliban, they will resist governance models that diminish their pre-Taliban political powers. The military will have to stay in Waziristan until the police and frontier corps in that area is strengthened, and the tribal leadership prepares for critical reforms and political activity by mainstream parties. FATA (Federally Administered Tribal Areas) reform will only work if introduced incrementally, and the government’s recent announcements, if implemented, will be a brave start . . .

A glass-half-full take in the near-term, in the sense that Pakistan's serious efforts are acknowledged.  The usual doubts expressed about US staying power--sensible.

But what depresses is the realization that unless the two efforts match up, most of this will have been a complete waste of time--the same old, same old effort.

Most telling, none of this seems like it can credibly wrap up by the summer of 2011, when Obama wants to start leaving.

Practicing the mutually-assured-destructing dialogue

Chart here

The Times (London) has a story that's popping up everywhere now.  I got it via Michael Smith.

The supposition has always been there: the Saudis turn a blind eye toward Israel flying over its airspace (and perhaps even refueling on the ground at some makeshift landing site) in order to attack Iran's nuclear sites.

So now The Times reports:

Saudi Arabia has conducted tests to stand down its air defences to enable Israeli jets to make a bombing raid on Iran’s nuclear facilities, The Times can reveal.

In the week that the UN Security Council imposed a new round of sanctions on Tehran, defence sources in the Gulf say that Riyadh has agreed to allow Israel to use a narrow corridor of its airspace in the north of the country to shorten the distance for a bombing run on Iran.

To ensure the Israeli bombers pass unmolested, Riyadh has carried out tests to make certain its own jets are not scrambled and missile defence systems not activated. Once the Israelis are through, the kingdom’s air defences will return to full alert.

“The Saudis have given their permission for the Israelis to pass over and they will look the other way,” said a US defence source in the area. “They have already done tests to make sure their own jets aren’t scrambled and no one gets shot down. This has all been done with the agreement of the [US] State Department.”

No matter how Israel goes about it, we'll be complicit, and that's okay.  While it will not get us the outcome we seek, beyond temporary delay, it signals our seriousness and our ability/willingness to strike. Ditto for the Saudis.

I'm against the US mounting a big-time effort, but I don't have any problem with Israel getting their limited-strike stuff off their chest.  Israel wants the sensation of acting, and it dreams of a new president in the US come 2013 who would approach the problem differently, so this is a time-buying exercise like all the rest. Again, it won't accomplish much, but it does start the signaling process to come, when Iran does get its nukes.

Since I see that path as inevitable, I don't mind the early practice.

Ella . . . enchanted but protected

WAPO story on the next-generation morning-after contraceptive that's been available in Europe for a while and now looks to hit the street in America as a extending capability to the Plan B product we've already got.  FDA just approved, safety-wise.

Plan B, which works for up to 72 hours after sex, was eventually approved for sale without a prescription, although a doctor's order is required for girls younger than 17. The new drug promises to extend that period to at least 120 hours. Approved in Europe last year, ella is available as an emergency contraceptive in at least 22 countries.

This is a powerful and empowering product for women.  It would be a different world if this were available throughout the Gap, but at least we'll have it here--after the usual fight.

Foot-and-mouth threatens Japan's cattle industry

NYT story on foot-and-mouth (called hoof-and-mouth where I came from) outbreak in Japan threatening to tank it's prized beef industry.

The fear is legitimate.  Similar thing happened with mad cow in the US in the early part of last decade and our beef exports dropped dramatically overnight, and still haven't totally recovered--last time I checked.

You see the rising networks and the incredibly vulnerability and you think, this is where terrorism will go in this century.