Nagl on the new field manual

POST: FM 3.07: Stability Operations, By John Nagl, SWJ Blog, October 6, 2008

From the horse's mouth.

Proud path

ARTICLE: Standard Warfare May Be Eclipsed By Nation-Building, By Ann Scott Tyson, Washington Post, October 5, 2008; Page A16

This is what I described in a recent column, based on the brief I got from the FM team at Leavenworth.

The grand strategist, by design, is a bit player in his own career dreams. You can only provide vision and inspiration and spread the message. Others must deliver, given the vastness of the enterprise.

This is a proud day for all of us who believe in this path.

(Thanks: Gregory Kearns)

Column 123

The end of the boomer presidency

Whatever this national election's outcome, one thing seems clear: it marks the end of the boomers' presidential reign. As if applying a devastating coda to this era's highly leveraged lifestyle, our current financial crisis indicates that we have reached the end of that political generation's dysfunctional hyper-partisanship and lack of fiscal discipline.

Nothing displays our collective desire to move beyond the boomers more than the fact that the two most exciting national candidates fielded in this election are -- in effect --post-boomers: Barack Obama and Sarah Palin. Even the Republicans' turn toward John McCain represents an implicit rebuke of the boomers' political generation in that he promises a pre-boomer return to adult supervision in Washington.

Read on at KnoxNews.
Read on at Scripps Howard.

Can the Core do official developmental aid more poorly?

INTERNATIONAL: "The future of aid: A scramble in Africa; Donors and recipients try to get to grips with the chaos in international aid," The Economist, 6 September 2006.

Tough start:

The development-aid business is a shambles. Privately, most of the 1,200 delegates at the grandly titled High Level Forum on Aid Effectiveness, which met this week in Accra, agreed on that … The main problem is not the one poor countries and NGOs usually complain about: too little aid. In fact, official development assistance has been rising modestly since the mid-1990s, in real terms and as a share of donors' national incomes. Rather, the problem in that aid is fragmenting: there are too many agencies, financing too many small projects, using too many different approaches.

Ah, the idiosyncracies of cultural/regional experts: to each according to their uniqueness. The number of bilat donor projects rises from 10k to 80k worldwide over the past decade. Main culprit? The ballooning number of NGOs, and the lack of coordination among them is stunning.

SysAdmin zombies

POST: Air Force's New 'Killer Zombie' Drone (Updated), By David Hambling, Danger Room, October 4, 2008

Cool beans.

This is the USAF getting innovative regarding the SysAdmin's wide array of COIN needs.

(Thanks: Patrick Squire)

State of grace in Islamic finance

BRIEFING: "Islamic finance: Savings and souls; Muslims have a lot of money to invest. But it is a constant struggle to reconcile faith and finance," The Economist, 6 September 2008.

Islamic bonds are called sukuk. Malaysia pioneers and now Indonesia getting into act.

Even better:

Islamic banks are opening their doors across the Gulf and a new platform for sharia-compliant hedge funds has attracted names such as BlackRock. Western law firms and banks, always quick to sniff out new business, are beefing up their Islamic-finance teams.

Islamic finance now encompasses about $700 billion in instruments. Standard & Poor's thinks the upside is more like $4 trillion. As it is, Muslims are one-fifth of the world's population but possess only 1% of the world's financial instruments.

Disconnectedness defines opportunity here.

Plenty of improvements to be made, and you probably need to expand the preferred cohort of scholars (a mere 15-20) who approve most deals.

Here's the most interesting factoid: Iran has $155b in sharia-compliant assets. Saudis second with 69b, then Malaysia 65b, then Kuwait at 38b, UAE at 35b, Brunei at 32b, Bahrain at 26b, Pakistan at 16b, Lebanon at 14b, and Britain at 10b.

["Faith-based finance: The whys and wherefores of Islamic finance," source is The Banker]

Sukuk issuance grows from about $2b in 2002 to almost $50b in 2007.

Another response to Bacevich

OP-ED: Crusader Mentality: A Response to Andrew Bacevich, by Matthew E. Valkovic and Brian M. Burton, SWJ Blog, October 1, 2008

Nicely done, in a formal sense.

Opportunities in hysteria

EMAIL: Motley Fool Global Gains Team (reprint, no version available online)

Nice collection of insights that pretty much match my own expectations.

In view of the opportunities such hysteria has created, following are six assumptions we're making about the markets that govern how the team is looking at both our portfolio and new ideas:

1. The risk is real. The financial markets have taken a serious beating and will go through a painful deleveraging process. Investment theses could take much longer to play out than initially expected. With this in mind, avoid companies with substantial hedge fund ownership, as they stand to see significant and artificial downward pressure.

2. Additional -- perhaps more extreme -- shocks could take place. Europe's banking industry might actually be in worse shape than that of the United States. It's possible that the euro will not survive.

3. Global decoupling is happening more slowly than predicted. Decoupling is the theory that developing markets no longer require a healthy American consumer to drive their own growth. The decoupling process is clearly taking place, but it still has a way to go. International markets have become increasingly correlated as countries have less and less relevance to their companies' manufacturing bases or their main markets.

4. The United States' place in the global economy is rapidly diminishing.What we're witnessing today is a violent outcome as the world adjusts to this undeniable fact. The true underlying cause of the economic crisis isn't greed or stupidity or even overleverage -- though each of these factors plays a role. For the past decade, credit-driven consumption has masked the decline in the United States' relative importance to the global economy.

Oddly enough, the market has punished U.S.-based equities much less than it has most foreign ones, perhaps because of the expectation that this country -- as it has in the past -- will weather a recession better than anyone else. That means there is almost no speculative interest in many of the developing or commodity-dominated economies,so investors are being paid extraordinarily well to take risks in many of these markets, including China, Brazil, Taiwan, and Canada.

5. Investment in infrastructure in many developing markets will continue to be supernormal for the next decade. Companies that supply goods and services to these sectors should serve as excellent areas of investigation.

6. China, Brazil, Mexico, and India will have many times the number of middle class families in 2028 as they do today. Today's climate won't last forever, and those who invest in the inevitable renaissance of these economies -- and others -- will profit mightily.

While the stress on the global markets was clear to us, we've been stunned by the speed and violence of the unwinding. Know that we take your trust in us and our judgment very seriously. Although the events of the past three months have hammered stocks worldwide -- including the ones on our scorecard -- we remain very proud of Global Gains and know that there will be better times ahead.

As always, we remain at your loyal service on the discussion boards should you have questions, comments, or even a terrific investment idea.

More pressure on Iran

ARTICLE: US think tank 'to open in Tehran', BBC, 3 October 2008

So fascinating to me, reminding me of pre-detente posturing with Sovs, right down to the academics accused of spying.

(Thanks: Michael Griffin)

Visualize China's size

POST: 312 - The Population of China's Provinces Compared, Strange Maps, September 23, 2008

A nice corollary to the map that shows U.S. states and their equivalent economies.

That emerging middle class—nice snapshot of Brazil's contingent

THE AMERICAS: "Brazil: Half the nation, a hundred million citizens strong; What the middle class plans to do with its money—and it votes," The Economist, 13 September 2008.

Brazil is actually becoming more equal, as measured by the Gini coefficient.

Who is the middle class in Brazil?

… in Brazil, the middle class describes those with a job in the formal economy, access to credit and ownership of a car or motorbike.

Measured by a monthly income ranging from 1k reais to 4500, the percentage has risen from 44 to 52% since 2002, with the bulk of growth coming in the cities.

A key factor is the migration of workers from the informal to the formal economy—very Hernando De Soto.

Who drives brand consciousness? Night-time soap operas, a key player in many New Core societies.

The middle class politics shift mildly from center-left to center-right.

Good stuff.

China's labor decline—extended by an echo?

ECONOMICS FOCUS: "Reserve army of underemployed: Is China's pool of surplus labour drying up? The Economist, 6 September 2008.

The argument is an echo boom of today's aging workforce will extend the number of 20-29-year-olds entering the workforce through 2015, meaning the total working age pop doesn't peak until about 2025.

Big key? Continuing to modernize ag to force underemployed labor into the cities.

When global trade talks fade, regional and bilateral thrive

FINANCE AND ECONOMICS: "Afta Doha: Should free traders applaud the rise of preferential trade deals?" The Economist, 6 September 2008.

EDITORIAL: "Regional trade agreements: A second-best choice; India's new trade deal is a good example of why bilateral trade deals are less useful than multilateral ones," The Economist, 6 September 2008.

The Indians say no to Doha out of fears they couldn't protect 200m farmers, but soon after say yes to a deal with ASEAN, which also inks deals with Australia and NZ.

200 regional and bilats now in place, with half coming since Doha was launched. All distort trade somewhat, because they lack the global deals' granting of universal MFN status. They also create the "spaghetti bowl" effect of conflicting rules.

Regionalism and multilateralism can advance hand in hand, but clearly, says the Economist, regionalism now has the upper hand.

The interesting thing about the map showing density of participation in regional trade agreements: heavier in the Core and lighter in the Gap.

Calling off the divorce in Bolivia—for now

THE AMERICAS: "Bolivia: Now put it back together; A political standoff turns deadly, but bloodshed may bring both sides to their senses," The Economist, 20 September 2008.

Opposing camps fighting in the streets and open threats of secession from richer provinces in the east.

Meanwhile, Chavez is threatens to intervene.

Ramadan's continued evolution

MIDDLE EAST AND AFRICA: "Time for tall tales on television: The Muslim month of fasting allows for ever-juicier fare at night," The Economist, 6 September 2008.

It's basically becoming sweeps month for Islamic markets, because the fasting means people often sleep in or nap during the day and then stay up more overnight.

With free-air channels and satellite TV proliferating, the Ramadan month now absorbs as much as "half the annual production budgets of some networks and generates a similar proportion of advertising revenue."

How to view this system perturbation

ARTICLE: Global Stocks Sink as Crisis Spirals; Fed Moves to Thaw Credit, By Steven Mufson and Neil Irwin, Washington Post, October 7, 2008; Page A01

The analyst in me detaches in fascination: the profound interdependency of global economics being asserted negatively, it makes everything that came before it (9/11, Afghanistan, Iraq, SARS/avian flu, tsunamis, Russia/Georgia) seem minuscule in comparison.

This is the financial Y2K of our nightmares: demonstrating an undeniable, inescapable connectivity that renders all fantasies of great power conflicts essentially moot. The "common wealth," as Sachs would put it, is simply made manifest.

Arguably, this is the first great, system-perturbing crisis of globalization, because it truly captures all the main players in a way that previous ones did not.

As always, the question will be: What new rules and rule-setting venues emerge? Because eventually they must. The Asian Flu didn't do it, nor have any of the other more regional shocks since, but eventually you need some entities to emerge to monitor and manage these cross-border financial flows. This gap has been clear for many years, but as long as informal collusion among the largest economies has worked--just well enough--no one's been willing to surrender the power. Maybe this perturbation, then, is really the one.

That's how you need to view this global churn in a grand strategic sense: the opportunity to fill in profound rule-set gaps generated by all this rising connectivity.

In the right hands, this crisis becomes a huge impetus for new political understanding among the world's great powers, reminding them all that what really matters in this age is protecting and expanding the wealth among those being lifted out of centuries of poverty.

You either meet the expectations of that emerging global middle class or all of the other preferred "trainwrecks" are made insignificant.

This crisis reminds me of a Talking Heads' song that begins with Byrne yelling, "Everybody! Get in line!"

If anything, it reminds us of how irrelevant the whole "league of democracies" concept is.

It's called a "league of capitalist great powers," and it needs to be called to order--truly--for the first time in history.

A carbon-dating of China's economic development

ON ECONOMIST.COM: "Streets of plenty: A new ranking compares business conditions in mainlain China's bigger cities," The Economist, 6 September 2008.

Interesting bit as ranking creators say there is a growing gap between well-run and less-polluted cities and poorly-run and more-polluted ones. Naturally, the latter feature more state-run enterprises, while the former feature more private enterprises.

The result? "A patchwork of distinct regional markets," placing China around 1870-1880 America.

The August surprise that didn’t surprise McCain

INTERNATIONAL: “Why McCain Loves Misha: Georgia’s president is a man after the Republican nominee’s heart. That’s what worries some advisers,” by Owen Matthews, Newsweek, 29 September 2008.

The scary part, beyond the fact that Georgia is paying McCain’s senior foreign policy advisers as lobbyists:

Mikheil Saakashvili, his eyes bloodshot from sleeplessness and his face caked with television makeup, summoned his closest advisers into his office above Tbilisi’s Old City. It was 2 a.m. on Aug. 12 and columns of Russian tanks were rolling down the highway toward the Georgian capital. “I am never going to flee,” the president told his team. “I will not live my life regretting that I abandoned my own country at war.” Then he sent them home to change out their suits and ties so they could fight the invaders. Swigging a can of Red Bull, Saakashvili grabbed a phone and called the trusted friend and mentor he had turned to every night since Aug. 8, when the war began: John McCain. A source close to the Republican standard-beared, asking not to be named discussing a private conversation, says McCain voiced support for diplomatic and political pressure against Moscow. “Hang in there,” the senator said, according to a Saakaskvili aide on condition of anonymity. “We are not going to let this happen … We are doing everything that we can to stop this aggression.” It’s not surprising that Saakashvili, 41, known to Georgians by the nickname Misha, would turn to McCain at a moment of crisis: their decade-long friendship is among the closest McCain has with any foreign leader.

Nice to hear. A rogue, maverick senator advising foreign leaders—on the side—on how to restart the Cold War. Imagine if Obama did this, how the Republican realists would howl in contempt!

Misha the impatient and intolerant, we are told, “has lost patience with dissenters”:

His government is now a one-man show, former allies complain. “Misha is the only one making decisions in Georgia,” says former foreign minister Salome Zourabichvili, now an opposition leader. “He was alone when he made a decision to start the war, and he is alone now. The world needs to beware.”

No Salome, Misha’s hardly alone in his quest.

Here’s the best stuff:

Russia plainly wanted to lure Saakashvili into a war he couldn’t win. So why did he take the bait? “There has always been a section of the Georgian leadership who believed the only way to internationalize this problem was to start a fight,” says a senior U.S. official who’s not authorized to speak on the record. “We’ve been telling them all along: Don’t do it!” One senior Saakashvili adviser saw the showdown coming a year ago and told friends he was close to quitting in frustration. “They’re going to start a war in order to lose it,” the aide warned two colleagues, who spoke to NEWSWEEK on condition of anonymity. Nevertheless, Saakashvili denies any intention of dragging Georgia’s allies into war. “I absolutely don’t want Europe to fight for us,” [thus the request to join NATO, notes Barnett] he says. “But Europe faces a choice: to stop [Russian] aggression here to wait for it to claim its next victim.” [Thank you for your opinion, Archduke Ferdinand!]

Still, GOP realists aren’t sure his version of events can be trusted. Some natives of the breakaway regions say Georgian troops targeted civilians—as Moscow repeatedly argued. “What worries me is that Senator McCain did not talk to senior Russian officials,” says [Dmitri] Simes. “I always thought if you’re a combat pilot, you’d want to understand the enemy. But neither he nor his advisers are interested in getting the Russian side of the story.”

Again, isn’t it nice to let Saakashvili declare war between Russia and the West. And why not take our strategic cues from Osama bin Laden too, deciding the “central front” of the Long War is wherever he declares it to be. And why not let Ahmadinejad run our strategic choices throughout the Persian Gulf. Hell, why not let every piss-ant populist collectively determine our entire grand strategy?

I mean, we have to take their propaganda at face value, right?

Otherwise we might get played like fools.

The Bush abdication, viewed from the Petraeus angle

ARTICLE: “Our Main Man in Baghdad: Petraeus succeeded in Iraq because he looked at the situation from a political standpoint,” by Linda Robinson, Washington Post National Weekly Edition, 22-28 September 2008.

Linda Robinson clearly trailed Petraeus for a long stretch, and unsurprisingly writes a book that is Petraeus-centric.

One nice and straightforward takeaway:

The extra surge brigades certainly helped, but the number of U.S. troops was far less important than the new ways in which they were used. The most important new tactical move still gets scant Beltway attention: Petraeus’s initiative to reach out to the Sunni insurgency and its base. “We cannot kill our way to victory,” he said.

So yes, Mr. McCain, there is a difference between tactics and strategy, and it’s important to understand it.

And no, Neocon camp, the “surge” did not prove that there are military solutions to political problems—just the opposite.

In the end, Robinson argues, “Petraeus’s willingness to grapple with Iraqi politics made all the difference. His replacements’ tasks will be more than ever political, not military.”

Key finish to remember as the presidential campaign argument continues:

No, the Iraqis can’t finish the job on their own now; at the same time, no, we don’t need 100,000 U.S. troops to stay in Iraq and do it for them. It would be heartening if we could understand the real record of Iraq’s turnaround—and talk about its future like grown-ups.

So please, stow the infantile argument about “winning,” “losing,” “surrendering” or any of that bullshit.

The more strategic analysis of the financial crisis emerges

ARTICLE: “What Not to Do in a Crisis: The U.S. tries to learn from Japan’s mistakes, which included ignoring stockpiled bad debt,” by Anthony Faiola, Washington Post National Weekly Edition, 22-28 September 2008.

THE FINANCIAL CRISIS: “Crisis Stirs Critics of Free Markets: Around the World, Calls to Reconsider U.S.-Style Policies,” by Peter Stein, Raphael Pura, Gregory L. White, and John Lyons, Wall Street Journal, 25 September 2008.

ARTICLE: “Lehman’s Demise Triggered Cash Crunch Around Globe: Decision to Let Firm Fail Marked a Turning Point in Crisis,” by Carrick Mollenkamp, Mark Whitehouse, Jon Hilsenrath and Ianthe Jeanne Dugan, Wall Street Journal, 29 September 2008.

THE GLOBAL VIEW: “Bloodied But Still Strong: Many overseas feel betrayed by Wall Street’s crisis. But most expect America to continue dominating the world economy,” by Jack Ewing, BusinessWeek, 6 October 2008.

THE FINANCIAL CRISIS: “EU Proposed New Bank Regulations Amid Bailouts: Cross-Border Banks Outgrow Oversight By Home Countries,” by Joellen Perry and Alistair MacDonald, Wall Street Journal, 30 September 2008.

OP-ED: “The Establishment Lives! Paulson, Volcker and the rise of Progressive Capitalism,” by David Brooks, New York Times, 23 September 2008.

Good stuff starts to appear.

The Japanese tell us that watching our response on the current financial crisis, when compared to their own slo-mo response across the 1990s, is like watching time fly by in dog years.

Actually, that’s a great quote from Adam Posen, deputy director of the Petersen Institute for International Economics:

The U.S. is moving in dog years compared to Japan. Every one year of action here is about equal to what it took Japan seven years to do.

By design, that's the point of this dialogue.

Of course, the Japanese tell us to expect worse down the road, but that’s not the point. As I wrote in either PNM or BFA: when you see danger/crisis, your best bet is to run toward it—not away. Because it will catch you in the end. So best to rip the band-aid off quickly.

Me? I see Obama’s first term starting with recession, but enjoying the good timing that Reagan did regarding his re-election campaign.

Naturally, we will be forced to endure all manner of knee-jerk declarations of the “end” of the American model, but the American model is a helluva lot more than just Wall Street’s latest machinations and the degree of government intervention they trigger. The real model remains the same: free trade, free markets, and big firms surrounded by small entrepreneurial ones.

Over time, there will be a lot of 20-20 vision offered on the Lehman non-intervention and whether it was a good call, but somebody was going to be selected—eventually—as the example fall-guy.

The sense of “betrayal” abroad is a bit much, as the BusinessWeek piece argues:

As the world grapples with the fallout from Wall Street’s shenanigans, there’s no shortage of consternation, and even anger. But so far the international image of the U.S. economic model has shown amazing resilience. Lehman Brothers may be in the morgue and AIG on government-funded life support, but most businesspeople think the U.S. is more about Silicon Valley and Hollywood than the erstwhile dynamos of Wall Street. Even in China—where broadcaster CCTV-2 has been running two hours of special programming every night about the financial crisis—the U.S. is still a land to be emulated. “I see two Americas: One is wealth-creating, innovative, with people with Bill Gates, and the other is made up of speculators,” says Wang Jianmao, an economics professor at China Europe International Business School in Shanghai. “China should learn more from the wealth-creating America.”

The real issue is who leads global capitalism by example if we don’t? It won’t be Europe, nor Russia or China, as the article argues. It still needs to be us.

Why? Because globalization will never be a post-American world. It’s our progeny, our creation, our order.

Will there by new regulations? Of course. Will Europe be a primary source? I hope so.

But where we need to go—and lead by example globally—is toward what David Brooks, in a brilliant op-ed, is calling the next era of “progressive corporatism.”

As the frontier closes, the competition gets too hot. First comes the populism, then the progressivism. That’s the American path, now applied to an American world.

Post-Caucasian is not post-American. Remember that.

And check out Cartoon Network or Nick if you don’t believe me, because the future is already here—and being handled quite adeptly, thank you—in the zero-to-5 age group.