The next redefinition of global supply chains

EDITORIAL: "The collapse of manufacturing: The financial crisis has created an industrial crisis. What should governments do about it?" The Economist, 21 February 2009.

The breakdown of global supply chains as part of the economic crisis is real, so much so that when they come back--as they inevitably will--we're likely to see a rewired world.

The supply chains represent the globally integrated nature of manufacturing today, and that giant net reflects the structure of trade: Asia exports and barely consumes and the West--relatively speaking--consumes and barely exports. The lack of domestic consumption in Asia means that the internal traffic there is nil, except for the connectivity that pushes exports outward. That simply has to change in the post-crisis world, so the chains will be suitably configured.

Does that portend a certain amount of re-regionalization?

Hard to see otherwise.

But regionalization is hardly the reversal of globalization. America had state economies that became sectional economies that became a continental economy. That's a natural progression.

In terms of globalization's initial two big pillars, Europe and America, that's been the natural trajectory. But with rising third pillar Asia, the state economies went straight into global nets with little development of regional integration.

So we saw the same "external improvements" in each state without the commensurate regionalization. America the Leviathan obviated the need for the NATO equivalent, and without that, the economic integration is muted--so no equivalent of the EU.

All of this means that this crisis caught Asia way too early in its development and--yet--really was a necessary precursor to such development. So a real chicken-v-egg problem: globalization can't advance any further with Asia's integration because of the imbalances it creates in its current, decidedly focused form (export-driven), especially when that structure means that the current reserve currency of note, the U.S. dollar and the global demand center attached to that automatically cheap credit, is likewise imbalanced.

In short, a deglobalization phenomenon, resulting in a rewiring of global supply chains, is the next logical step in globalization's advance. We simply could not go any further with the structure we had.

The eco-migrants: new name for age-old process

NATIONAL WEEKLY EDITION: "In Search of a Better Place to Live: Across the globe, people are relocating to escape climate change and environmental disasters," by Shankar Vendantam, Washington Post, 2-8 March 2009.

Moving in response to environmental stress is hardly a new concept; indeed, it defines much of human history.

At the media forefront of any such movement today are the truly fear-filled, who ditch their home in the U.S. for one in New Zealand, believing it will be spared our Mad Max future (better keep an eye on Australia, next door, mate, because that's where that particular imagery was born), but the vast majority of movement will happen inside nations, not across them. All this push to the lowlands of recent decades, concentrating so much population in coastal areas, will simply be reversed.

End of the world as we know it?

I think not.

Prager--sweet and short

Basically two 15-min segments. Both were dominated by talk of Iran.

Forewarned that he does not read books and likes to go off current events and that he's a strong hawk on Iran, I was prepared to pretty much talk Iran the entire time.

His questions indicated a certain desire to poke and see how dovish I could be construed to be re: Iran, but you handle that approach simply by playing the cynical realist, committing yourself to stating reality as clearly as you can and emphasizing that, just like there's no silver bullet on the military side (the fabulous strike that makes all our cares go away!), there is no corresponding version in terms of the political side.

All there really is, at the end of the day, is an unhappy population inside Iran to be co-opted (we did not reach this point in the discussion). You can try to scare them into some sort of action/further submission by making the nuke issue the be-all and end-all of your relationship, inviting Iran's obstructionism in both Iraq and AFPAK, and my sense is that you'll be fabulously frustrated by this pathway.

Or, you can start a detente-like dialogue process where you build confidence in small ways here and there, just like we did with the Sovs, another badly-aging revolutionary movement that mostly craved regime security and "recognition" of their "grand achievements." Meanwhile, you tap into that overwhelmingly young population and "infect" them with desires for a better life (consumerism, for lack of a better term), and then let generational change from within (already greatly advanced in our favor) plus your consistent containment strategy (to include a nuclear umbrella for Israel and strong efforts to buy-off Syria) work its prosaic magic over time. All along, you make temporary deals and understandings and alliances on issues of common concern, while playing down the rhetoric. Done well, there's no question you get your way in the end and there's no question that the mullahs are screwed.

Why? People prefer our way of life and its freedoms and connectivity to that of authoritarianism, no matter how it's cloaked. Nationalism will often mask this desire, so you choose your points of contest carefully, but in the end, you know you'll win.

I had expected two segs and then Q&A. Without telling me beforehand, Prager simply switched to a third segment on Obama's press conference.

I liked the discussion with Prager, but--as a rule--don't particularly care if the Q&A is skipped, so no skin off my nose--as it were.

So two of three radio shows done for week. Taping Hewitt (network chapter) Thursday night at 2100 EST. Expect it will air on Friday.

Got my 2100-word prepared statement into the House Armed Services Committee's Subcommittee on Seapower and Expeditionary Forces. Spent a lot of time on that.

Then I broke that down into a 635-word column--natch.

Then I enlarged the font to where I had a page-a-minute reading length for my opening statement (limited to five minutes) and added back to the column enough words to fill that space.

Tonight is reception with big defense contractor. Tomorrow I speak at their conference, opening it. Then cab to Rayburn for hearing.

Allergies doing great. I am being very good about using my nasal antihistamine at full strength (it helps a ton) and taking my Zyrtec, so I'm cruising right now.

Back almost to the point where I can start exercising again.

Took a look today at Indy airport at Rosetta Stone for Russian. Vonne and I are looking at July-Aug timeframe for month or so in Kazakhstan on adoption trip (no guarantees) and I need to buff up the Russian.

On that score, we're looking into cheap PC laptops for the trip. Macs have bad rep on connectivity in the more distant regions of Kazakhstan (we are talking Siberia). Lead contenders are smallish Dell or Acer. Any thoughts?

Reminder: Tom on Dennis Prager today

Tom will be on Dennis Prager's show today. You'll have to check your local listings to listen on the radio. Looks like you can listen live on Dennis' home station. Tom says he'll be on at 2pm ET. And, as usual, we should have the chance to listen on demand (v. live) later.

Study of Israeli strikes on Iran

REPORT: Study on a Possible Israeli Strike on Iran's Nuclear Development Facilities, Abdullah Toukan and Anthony H. Cordesman, Center for Strategic & International Studies, March 14, 2009 [via James Fallows]

Having read through the brief, it's highly technical but good stuff. Lays out the scenarios in all their complexity.

Bottom lines would seem to be: Israel can strike with bombers or missiles and damage the three top nuke sites (Arak, Natanz, Esfahan) either way. Bigger strike packages could encompass a total of two dozen nuke sites (north, central, west and south) and two dozen missile sites (pretty much all over). Deaths would be even more substantial then. The environmental fallout from just Bushehr (Russian nuclear power plant) would be substantial, stretching across the PG to the small Gulf states. Even in the smaller strikes, Iran would likely suffer immediate deaths in the range of 5-10k and long-term deaths possibly reaching six figures. Again, wider strike packages would yield substantially higher death totals. Success would be measured in how delayed Iran's program became as a result. Problem? Once struck, Iran is likely to go overt and speed up the effort substantially, essentially erasing the gain.

Of course, Israel, if it used bombers, would have to cross Arab/Muslims states (northern route through Syria and Turkey, central route through Jordan and Iraq, and southern route through Jordan and Saudi Arabia). Some losses would occur en route. Then there is the high likelihood that Iran would second-strike with missiles. A given is retaliation by Hamas and Hizbollah. Israel could suffer significant losses in aggregate, but let's bet Israel does better and suffers far less.

In sum, none of this pretty and all scenarios are unlikely to yield a decisively good (for Israel) outcome. Question is amount of delay and how fast Iran decides to erase that perceived "victory" margin.

Having read it, I don't change my mind about Iran basically having--now--the equivalent of a sloppy, asymmetrical nuke deterrent. Or that it will grow substantially stronger by the time America is done unwinding the Bush-Cheney strategic tiedown of Iraq/Afghanistan/Pakistan.

So it all comes down to how much Israel perceives it can gain in delay in the meantime versus the costs incurred.

Personally, I expect the attempt, and I expect history to judge it a failure.

(Thanks: Patrick O'Connor)

Galrahn's preview of Tom's Thursday testimony

POST: Now That Will be an Interesting Navy Discussion, By Galrahn, Information Disseminaton, March 20, 2009

Here's the first part about Tom:

I wonder if the members of the House realize this has the potential to
be one of the most interesting non-budget Navy discussions in
Washington DC in many years. I wonder if CSPAN is paying attention, and
sees how this could be one of the best made for TV debates we ever see
regarding the defense debate. Hell, I wonder if FoxNews, MSNBC, or ABC
even gets it. Think about it.

Essentially, Gene Taylor has
created a panel that will almost certainly contrast very different
perspectives on the national security debate in this country. The panel
will offer Dr. Loren B. Thompson's very industrial view in what will almost certainly be in enormous contrast to Dr. Thomas P.M. Barnett's strategic view.
Those two may not agree on any single question asked by any member of
the House, which is why this panel has all kinds of potential. The
panel will also include Bill Houley and Ronald O'Rourke. If it was me,
I'd sit Dr. Thompson and Dr. Barnett in the middle of the panel beside
each other, and the other two on the ends so they don't get burned by
any spontaneous fireworks that might break out in the creative friction.

I love this panel. Let us not forget Dr. Loren B. Thompson was one of SECNAV Winters biggest critics, because Winter was too critical of the shipbuilding industry. Let us also not forget Dr. Thomas P.M. Barnett was who wrote about The Seven Deadly Sins of Network-Centric Warfare,
which btw, 10 years and 2 months later is a very interesting historical
reflection of where we have been and where we are today.

Be sure to check back at 10am tomorrow when I'll be posting Tom's prepared statement for this hearing.

Rwandan hope

ARTICLE: Rwanda Rising: A New Model of Economic Development, By: Jeff Chu, Fast Company, Mar 18, 2009

SIDEBAR: Rwanda to Obama: Emulate George W. Bush, Not Bill Clinton,
BY Jeff Chu, Fast Company, Sat Mar 21, 2009

This is a great article based on solid reporting. The crux of Rwanda's strategy is less catch-up and more connect-up, so very much in the vein of my work with Steve DeAngelis and Enterra on Development-in-a-Box™ in Kurdish Iraq.

Definitely worth reading. Gives you a lot of hope and optimism in these trying days.

Iranian sangfroid

OP-ED: From Tehran to Tel Aviv, By ROGER COHEN, New York Times, March 22, 2009

Pretty good piece by Cohen, advancing the sort of emotionless-logic on rapprochement with Iran that I've been pushing since late 2004.

I got skewered for my first article on the subject then (March 2005) and I still get skewered for it.

But the logic is getting undeniable for more and more experts and observers.

(Thanks: Jarrod Myrick)

Consultant drop

ARTICLE: BearingPoint to Sell Off Its Key Businesses, By Michael S. Rosenwald, Washington Post, March 24, 2009; Page D01

Sign of the crisis: consulting firms lose business big-time, and since they're only as strong as current earnings (butts in seats), they drop with the market.

Some survive the fall, but many will not.

The rise of a third global currency

ARTICLE: China Takes Aim at Dollar, By ANDREW BATSON, Wall Street Journal, MARCH 24, 2009

Ultimately, this or something like this will happen. I have always viewed the interim to be the rise of a third global reserve currency based on Asia, then we'd have three reserve currencies whereby two would always be balancing the third.

How hard to make unfold?

The Euro is introduced ten years ago and becomes now almost one-third of the global reserve. One would think you could do the same with an "Asian" and within a decade, it would grab a third and reduce America's dollar to about a third (we sit now at about 70%.

What this suggestion means is that China foresees the day when the dollar is not the big answer, but because Asia cannot put up one of its own, they ask for a make-believe global reserve currency in the meantime.

Key para:

China's proposal is likely to have significant implications, said Eswar Prasad, a professor of trade policy at Cornell University and former IMF official. "Nobody believes that this is the perfect solution, but by putting this on the table the Chinese have redefined the debate," he said. "It represents a very strong pushback by China on a number of fronts where they feel themselves being pushed around by the advanced countries," such as currency policy and funding for the IMF.

So not exactly the end of the reserve dollar just yet, and yet it's the beginning of the end.

No room at the union

EDITORIAL: "The bill that could break up Europe: If eastern Europe goes down, it may take the European Union with it," The Economist, 28 February 2009.

BRIEFING: "Ex-communist economies: The whiff of contagion; Eastern Europe's woes are not unmanageable. But they are not being managed. The result could be catastrophe," The Economist, 28 February 2009.

The economic crisis just puts an exclamation point on the now, seemingly small events in the Caucasus: the EU ain't expanding any further east and will be lucky to stay coherent with the crew they've already absorbed.

When times were good, the absorption seemed a good deal. Now comes the harder part, especially when you're talking about relatively immature political systems without a long history of pluralism.

Sudan contract? No problem

ARTICLE: Sinohydro wins $300 million order in Sudan,
By Yu Hongyan, chinadaily.com.cn, 2009-03-06

China's SysAdmin-like approach to Africa continues to roll on.

(Thanks: Matthew Garcia)

Chinese collective values

POST: The Biggest Threat to China is not Social Turmoil but Social Decay (Part II), Sun Liping, China Digital Times, March 12, 2009

If you want an explanation of why Chinese won't reach for democracy during crisis, this is a good one. The fear regarding a loss of social cohesion is a biggie.

(Thanks: Craig Nordin)

Frontier innovation

POST: Kenya's Mobile Banking Revolution, Janko Roettgers, GigaOM, March 11, 2009

On the frontier of globalization, new ways of using old technologies are the norm. Why? There is no associated baggage or expectations or norms or traditions. Here, people value the connectivity of cell phones so much, they generate a form of alternative currency.

(Thanks: Steve Epstein)

Tom on Sins of Omission

Audio now available from last night. Download the mp3 or stream.

Nice back and forth with the host, Paulie Abeles (and nice 'Barracuda' intro and outro ;-). Give it a listen.

Economist echoes my baseline points on China

An editorial on rising China: How China Sees the World.

Two key lines that underline my basic arguments on China as a great power:

China's record as a citizen of the world is strikingly threadbare.

[and]

Over the past quarter-century no country has gained more from globalisation than China.

These are the two big points to remember going forward.

Nice point from Roger Cohen on Iran

OP-ED: "Iran, Jews and Pragmatism," by Roger Cohen, New York Times, 16 March 2009.

Quote:

What autocrats from the Gulf to Cairo fear most is an Iranian-American breakthrough, precisely because it would shake up every cozy, static relationship, including Washington's with Israel.

It is the logical next big bang.

Chavez sends military against his political opponents

INTERNATIONAL: "Chavez Tells His Navy To Take Over Key Seaports," by Simon Romero, New York Times, 16 March 2009.

Seaports needs to be seized because political opponents had won elections there and could thwart his plans for personal domination.

is there anybody still living under the delusion that this guy is anything but a dictator?

Latest on starving North Koreans

NATIONAL WEEKLY EDITION: "A Starving Nemesis: Food shortages are at the heart of North Korea's troubles," by Blaine Harden, Washington Post, 16-22 March 2009.

The "eating problem," as it is known inside the Hermit Kingdom, literally stunts the lives of people there. Teenagers who escape to the south appear five inches shorter and 25 pounds lighter than their contemporaries in South Korea.

Get this: "Mental retardation caused by malnutrition will disqualify about a quarter of potential military conscripts in North Korea," according to the National Intell Council.

As I have long argued, this is the equivalent of the stunted kid that the social workers find trapped in the apartment closet.

Meanwhile, Kim Jong Il seems to be losing control of the domestic economy, where profiteering rules thanks to the food shortages.

Small expectations

ANALYSIS: Japan looks inward, By Gavin Blair, GlobalPost, March 11, 2009

A cautious tale of a post-modern, aging state retreating from the world.

Another reason why our primary allies in Asia need to be younger societies on the make.

(Thanks: Neo-Trad Librarian)