WPR's The New Rules: Qatar World Cup a Return on Investment

 

The decision by FIFA, soccer's world governing body, to award the 2022 World Cup to Qatar was momentous on many levels, but historic on one key score: Never before has a global sporting event of such stature been awarded to a country so clearly stuck in a "bad neighborhood" like the Persian Gulf, where the potential for large-scale regional war between now and 2022 is far from theoretical. FIFA's decision was bold alright, but it also signals the international community's growing faith in what Gulf Cooperation Council countries like Qatar have achieved in promoting economic and network connectivity with the outside world. You could say that the 2022 World Cup is globalization's way of returning the favor.

Read the entire column at World Politics Review.

Op-ed in China Daily: "China, US as strategic collaborators"

China, US as strategic collaborators

by Thomas P.M. Barnett

The word "war" has been appearing increasingly in American debates about China, with the range of potential venues expanding with each new "intractable" issue that arises. Pile enough of these wooden scenarios atop one another, and eventually someone will strike the match. There will always be self-interested parties eager for confrontation, even though the two countries' peoples seek nothing but peaceful coexistence.

Today we share a world more prosperous and more at peace than at any time in human history, so why are we on this undesirable path? Besides the Cold War and the legacy issues retained to this day (Taiwan, the Democratic People's Republic of Korea), there is no historical enmity between our peoples. Since neither situation logically triggers direct military conflict, all of our potential conflicts must be recognized as wars of choice.

An objective examination of globalization's current state and future evolution reveals far more complimentary interests than conflicting ones. As the global financial crisis revealed, China and the United States face shared dangers that must be eliminated - whether we welcome this joint responsibility or not. Neither side's political system presents an ideological threat to the other. Each country's internal structural challenges are its own business or choice, and each will force evolution at a pace its society can handle or demands. Despite these current rumblings, let me tell you why strategic collaboration between China and the US is essential.

In the business world, companies seek partnerships when the proposed relationship is:

• Critical to a core goal of the enterprise;
• To exploit a core competency;
• To effectively counter a competitive threat;
• To provide flexibility regarding future choices; and
• To reduce a significant risk.

The US' grand strategy for the past seven decades has been to create the globalization we know today. Our firm belief being that the world is a better and more prosperous place when everybody has an "open door" on trade and investment. This is how the United States of America truly united.

Starting with Deng Xiaoping's historic reform, China integrated its economy with that of the rest of the world, marking the tipping point between an international liberal trade order built on the West and finding completion with the "rest".

But China's participation comes at the cost of a dangerous resource dependency far greater than the US has known. Over time, China's economy will depend ever more on energy and minerals. For now, the US essentially covers that security risk through its global policing role, but that effort is unsustainable. For China to succeed in its core goal of creating a well-off society, globalization must be simultaneously advanced and stabilized.

Sino-US strategic collaboration plays to each nation's current core competencies. China does not have a military with global reach, but the US has one now and it is deeply experienced. Yet the US forces struggle with nation building, while Chinese multinationals clearly excel at creating infrastructure, markets and opportunities for income growth in developing economies. China is also a major contributor of peacekeeping troops to the United Nations.

Today, as the primary face of globalization, the US is targeted by virtually every threat mounted by the enemies of global integration and economic modernization. China has already surpassed the US as globalization's primary integrating force - and inevitably its face too. Irrespective of China's intent, it will become the main target of violent extremists bent on keeping globalization at bay. Today the "long war" belongs to the US; tomorrow it will burden China.

For years I have written of Washington's need to "lock in China at today's prices", meaning the cost of China's cooperation would rise with time. Back then I believed that, without such cooperation, the US' strategic choices would narrow considerably.

That day has arrived, meaning the choice is now China's: lock in US cooperation in safeguarding China's vital global export and supply lines or watch your own strategic choices narrow. Imagine a Middle East regional war years from now that the US chooses not to manage because it's primarily China's energy that's at risk. That burden will be devastating for China.

Thus, Sino-US collaboration on stabilizing less-developed regions mitigates significant strategic risk to both nations. Globalization, buttressed by Sino-US strategic cooperation, cannot possibly fail. But globalization, when divided in spheres of influence, dissolves into zero-sum contests where humanity is the ultimate loser.

About such danger, our collective past speaks clearly to our shared future.

The author is the chief analyst of Wikistrat, an Israeli startup company that offers strategy consulting, and has several books, including Great Powers: America and the World After Bush, to his credit. 

Find the original 12/9 post at China Daily.

COMMENT:  I love the cartoon and will probably have it framed.  I am also getting used to having the word "Israeli" follow my name, which . . . is different.  Actually, I like it in that "I'm Spartacus!" kind of way.  I mean, who doesn't want to be part of an Israeli start-up?

WHERE IT HAS ALREADY BEEN PICKED UP (these being ones my contacts at China Daily found significant):

• Xinhuanet
• People's Forum (of People's Daily Online)
• Chinataiwan.org
• Indiatimes
• U.S. edition of China Daily
• European edition of China Daily
• China.org.cn
• The Press Enterprise

Indian Express on the Sino-American grand-strategy term sheet

Piece by K. Subrahmanyan, a name you might recognize from his frequent publications.

From his Wikipedia entry:

K. Subrahmanyam (Tamil:கிருஷ்ணசுவாமி சுப்பிரமணியம், born 1929) is a prominent international strategic affairs analyst, journalist and former Indian civil servant. Considered a proponent of Realpolitik, Subrahmanyam has long been an influential voice in Indian security affairs. He is most often referred to as the doyen of India's strategic affairs community, and, more contentiously, as the premier ideological champion of India's nuclear deterrent.

Somewhat unsurprisingly, Subrahmanyam takes the "G2" approach, assuming the zero-sum outcome for India and the rest of the world.  Nothing could be further from the truth, but one must expect this sort of response.

The Sino-American relationship is central to globalization's success or failure--hard to deny that.  That relationship is not in good shape right now, for a lot of reasons.  Trying to address that cluster of macro-imbalances is a worthy goal, but such effort does not--on the face of it--automatically insinuate the creation of G2, and when that charge is so reflexively slung, you have to say that it tells us more about the provider of the feedback (as in, this is how this proposal makes me feel!) than the effort itself.

It is certainly in some people's best interests to keep the U.S. and China at odds, but I honestly don't believe that to be the case for India, when the facts and trends are viewed objectively.

From his piece ("The return of G-2"), I limit the exerpts more to his commentary than his recitation of the proposal, which--of course--is a work in progress and is already significantly altered as we receive significant feedback here in Beijing.  Suffice it to say, nobody here in Beijing is interested in "G2," even as they are highly interested in a more productive relationship with the U.S. 

Even as President Obama and Prime Minister Manmohan Singh talked of a 21st century world order based on their shared values as leaders of the world’s two largest democracies, a newspaper run by the Chinese Communist Party published a plan for an alternative world order, based on a mutuality of interests between China and the US. It asserted, though, that the article, in the November 22 edition of People’s Daily Online, represented only the views of the authors — who include John Milligan-Whyte and Dai Min, authors of China and America’s Leadership in Peaceful Coexistence, and Thomas P.M. Barnett, the author of The Pentagon’s New Map, and leading Chinese policy experts.

The article describes the benefits of the grand strategy they propose: “[it] will promote US economic recovery, increase US exports to China, create 12 million US jobs, balance China-US trade as well as reduce US government deficits and debt. Furthermore, it will stabilise the US dollar, global currency and bond markets. It will also enable reform of international institutions, cooperative climate change remediation, international trade, global security breakthroughs . . . 

There is no doubt that while this is not a formal proposal from Chinese official circles; this is kite-flying, to test public reaction in the US. It is possible that the idea is to suggest that the US and China can accommodate each other to mutual benefit — and China shares the US view that a war between two such powers in the 21st century would not make sense. It also holds out certain assurances that China will accommodate the US’s concerns on Southeast Asia as well as on North Korean and Iranian proliferation, provided the US reciprocates on Taiwan, Tibet, Xinjiang, and human rights. The US must also forget down its desire for regime change in North Korea and Iran. And, in return for the US lifting its high-technology trade ban, China will invest $1 trillion in the US, presumably in new technologies, as well as help in balancing trade and enabling the US to manage debt reduction.

But the glaring gap in the proposals is that there is no mention of Pakistani proliferation and Pakistani sponsorship of terrorism. While all the other issues listed by China are important to the US, casualties are being incurred by the US on the Pakistan front, and the US homeland is under threat from Pakistani terrorist organisations that are fielded by the Pakistan army behind the nuclear-missile deterrence shield that China provides to Islamabad. This may have one of two implications: either Pakistan, unlike North Korea and Iran, is not under Chinese influence; or Pakistan, in Chinese strategic interests, is a non-negotiable factor.

There is also no mention of US interests in India — even after the development of the Indo-US strategic partnership. Does this mean that China hopes to wean the US away from its strategic partnership with India, as part of the price for the deal? Or do they hope to frighten India into a non-aligned submission to China’s hegemony over the mainland of Asia (less Asean)?

China’s, and the authors’, value systems are evident from their advocacy that such a Sino-US deal should be outside the purview of the US Congress purview: they say it should be “agreed upon by the presidents of both nations through an ‘executive agreement’ not subject to US Senate ratification.” Surely, now that these ideas have been publicised, the present US president — with two years to go before seeking re-election — will find it difficult to move in this direction, as there will be accusations of his selling out to China.

It is also clear that there are sections in China who are of the view that, just as the US helped China’s rise to second position in the world so that its resources and cheap labour could benefit US multinationals and US consumers — both by way of cheap consumer goods and credit expansion in the US — now the US will help China by releasing high technology, and thereby help themselves, benefiting through job creation and debt reduction. And once China has access to US high-tech, its demographic advantage over the US will ensure it will become the superior knowledge power this century.

A significant number of people in this country imagine that there is an adversarial equation and a conflict of interest between China and the US, and thus, it will benefit India to be non-aligned. This article — published, significantly, on the eve of Prime Minister Wen Jiabao’s visit to India and Pakistan — holds out the possibility that China thinks it is possible to use the US to attain hegemonic power. Let us wake up to reality!

What to say?

First, the non-inclusion of the Pakistan-India dyad hardly amounts to signaling any desire to leverage this relationship to their collective or singular advantage or disadvantage.  It simply reflects the reality that when people on both sides of the Sino-American dialogue speak to its ups and downs, those issues aren't considered central. Important? Sure.  But not central.  No one is saying that Pakistan and/or India constitute the core of what's wrong or going wrong with the Sino-American relationship right now.  Reflective of it, perhaps, but not among its primary causes.

Noting the suggestion that the proposal be done as an executive agreement (longstanding practice of U.S. presidents for such matters) hardly suggests something extra-constitutional or politically devious.  Just the opposite!  It says we see no purpose in suggesting something on the level of a treaty requiring Senate ratification.  None of this is intended as "law of the land"-caliber stuff:  we simply come to certain understandings that allow an economic rebalancing to proceed.  That is classic, within-the-president's-foreign-policy-purview stuff.  Suggesting otherwise is sheer ignorance of how our political system works and has worked for decades. The economic rebalancing itself would need some political direction from above, but it would be overwhelmingly a private-sector-driven affair.  If you're a U.S. business and don't want any investment from Chinese companies, then don't ask for any and none could ever be forced upon you. From the Chinese side, they simply will not enter into alliances or treaties implying any such commitment, so no sense in supposing such grandiose mechanisms are useful here.  

It's as simple as that.  

Yes, you will get some of this, "the Chinese will own America" fear-factor, but if majority ownership is out of the question (and we don't suggest that--just the opposite), then the question becomes, Should Chinese money flowing into America be used to facilitate even more public debt and welfare payments or should it be put to use putting Americans to work?

I honestly believe that it's much easier to argue that China does a great job of destroying America's competitiveness by enabling our addiction to federal debt right now than it does by being stubborn on the renminbi's value. History (especially past history with Japan) tells us that revaluing the RMB will not solve our trade deficit with China.  We also screw ourselves by restricting high-tech exports to China due to military concerns, because they simply turn around and buy the same from the EU (like most such sanction efforts, we only hurt ourselves in this globalized economy, achieving nothing on the security side).  But somehow we've let ourselves be convinced that China's potential military threat outweighs all such considerations--as if Mutual Assured Destruction somehow gets invalidated in the process!  To me, that's just nuts, or--put more prosaically--bad leadership in Washington.

Again, the proposal is driven by a simple logic:  There is a profound imbalance of easily-accessible investment capital in the world system right now.  China's got a ton and America (and Europe) are somewhat starved by comparison and wracking up unsustainable public-sector debt that is already causing default crises in the EU, soon to be followed by some variant at lower levels of US government (cities, states).  You can judge that dynamic from a lot of angles, but just to say, "Ahah!  Now China has the West in its grips!" is rather silly. China presses its temporary advantage too much in the short term and all those trillions can end up being worth nothing.  Business is about parties and counterparties--as in, you need two to tango.  

Judged objectively, China has let in a lot of foreign direct investment over the past two decades, to the point where majority portions of its exports in certain sectors are actually controlled by foreign firms!  Imagine the U.S. putting up with that?

On the other hand, it's clear that the U.S. has shouldered the bulk of the global policing role over the past two decades.

So in both instances, we need something more balanced, more reasonable, and more sustainable.

This proposal simply begs the question:  if such rebalancing is necessary, what would the nature of such transactions look like if they weren't simply conducted according to America's preferred outcomes but actually reflected a compromise between the U.S. way and world vision and the Chinese way and world vision?

I know, I know. This is kowtowing to those communist Chinese! But more seriously, didn't we just try a long stretch of my-way-or-the-highway BS with Bush-Cheney?  And how well did that work?

How anybody can feel threatened by such dialogue is beyond me, given the seriousness of the current imbalances in the world system and how their solution is in everybody's best interest. Again, let's get our inner FDR on and have some faith in who we are and stop being such wimps on dealmaking.  Our inability to motivate ourselves beyond sopho-moronic internal arguments is our greatest weakness right now.  Oooh wee! The GOP just nailed Obama on tax cuts!  So now we get to extend unemployment benefits while refusing to pay for it.  What a fab signal to send the world!

Honestly, the immaturity factor in Washington right now is almost unbearable to witness.  It's just so embarrassing to endure when you travel abroad--especially in China.  How can we be taken seriously when we act this way?  We are just kidding ourselves if we think no one takes note.

India cannot want a U.S. and P.R.C. turning on each other and destroying globalization in coming years, because India cannot possibly prosper in that environment.  You can say, such a bad thing would never happen, but to me, this is a head-in-the-sand sort of optimism.

The Global Financial Crisis does not disappear simply because of the somewhat successful (less in West, more in East) public-sector stimulus push in the initial phase.  Much of the crisis's underlying causes are simply transmuted into the current/looming sovereign debt crises that worry so many leaders and--quite frankly--a decent chunk of the American middle class as captured in the Tea Party anger (which you can ridicule at your own risk, because history says that, when the U.S. middle class ain't happy, ain't nobody gets to be happy in our political system).

You can also say, China is right to lecture America now on its bad economic behavior.  But such lecturing gets both sides--and the world--nowhere.  For China to expect all the adjustment to happen now solely on America's side is unreasonable, just as unreasonable as the U.S. expecting somehow that all the adjustments should be on China's side.

But the dialogue, as it current stands, consists of both sides talking past each other and hoping that--somehow--this all balances out on its own over time.  I think such a mindset it truly naive.  Both sides have plenty of incentives and reasons not to budge, leaving both with increasingly unpleasant tools/weapons for seeking redress.  I think that pathway is a bad one, and so I got together with the Center for America-China Partnership to change the conversation.

Such an attempt can be criticized from numerous angles, and the Indian Express piece offers one such angle. But we've got to get over the fear of exploring real solutions with real compromises and real adjustments on both sides--simply because it will make others around the world nervous.  That would be the opposite of global leadership, which both countries owe the world right now.

Personally, I will always be warned not to get involved in this sort of manner, because it will cost me my credibility as a strategic thinker.  My response to that logic is, What is the use of being a credible strategic thinker if all you do is sit on the sidelines at such moments?  I hope to leave behind six kids who'll need a strong America and stable world to live and work and prosper within.  I see no reason to amass a reputation (such as it is!) that can suffer no risks.  Geez, anybody who knows me knows how much I like being an unreasonable troublemaker!

I have no fear of altering my positions and vision to fit reality as it unfolds.  I marry myself to as few core interest propositions as possible, because the more you accumulate, the more dead your thinking becomes.  I want America at all times to succeed to the best of its ability in prospering and continuing to shape this world for the better.  I think we do that better than anybody, but I also think our approaches have to change when success/failure stare us in the face (usually at the same time, as we now face the great success of our globalization process AND the addiction to cheap money created by the dollar's standing as reserve currency).  I cannot, for example, logically argue for regime-change in NorKo right now like I did in 2004-05.  The system wouldn't handle it well right now, the Sino-American relationship couldn't handle it right now, and there's just bigger fish to fry.  

You see such vaunted and highly-respected figures like Krugman, Tom Friedman, Niall Ferguson and Zakaria expressing extreme alarm on all these same issues, so this is exactly the sort of nexus where strategic thinking that posits win-win scenarios has to be employed.  Just this week on Zakaria's GPS, Ferguson raised the issue of the EU possibly needing a huge flow of Chinese capital down the road.  So this proposal is in the right zip code even as we hammer out its weaknesses with a steady stream of sit-downs with Chinese experts this week in Beijing.

As for personal risks, you've got to get over that stuff (and yourself, quite frankly).  I don't get 50 lives to test out various pathways for useful application of my ideas.  I get this one, and this one has this big issue staring it right in the face right now, and so I participate with likeminded people in China--none of them perfect and all with their biases, but likewise all with their hearts in the right place. I'm still unduly Catholic:  I prefer to sin first and seek forgiveness later.  

I believe in having your own foreign policy and have said so many times on this blog.  This is the point of being in the field in the first place. If I were good at following the command chain, I wouldn't have gotten fired from the Naval War College and I'd probably being living some quiet existence as a CIA analyst (the organization correctly turned me down in 1990 for having the "wrong personality type"!).  

Frankly, this sort of bold scenario work is exactly why I linked up with Wikistrat.  I want nothing better than to undermine conventional thinking at this point in history, because I believe it to be America's worst enemy in these tumultuous, system-shaping times (the second biggest danger being the lack of competent strategic-thinking counterparties around the world because we've so long been the only country blessed with the strategic means to encourage such strategic thought--a situation changing rapidly before our eyes).  

Personally, I think this is the best time to be in this business--the best time since WWII.

WPR's The New Rules: Globalization, Air Hubs and the City of Tomorrow

H.G. Wells’ futuristic 1933 classic, “The Shape of Things of Come,” predicted a post-apocalyptic world in which humanity’s recovery would depend on the airplane as the primary mechanism for both travel and political rule -- the benevolent “dictatorship of the air.”  The book reflected Wells’ prescient fears of catastrophic world war and his faith in technology’s capacity to tame mankind’s worst instincts.  

A book due out in March entitled, “Aerotropolis: The Way We’ll Live Next,” is the closest thing to a real-world vision to rival that of Wells. The book, written by journalist Greg Lindsay, is based on the visionary ideas of business professor John Kasarda, a latter-day Wells who dreams of building future cities around airports instead of the other way around.

Read the entire column at World Politics Review.

WPR's The New Rules: Globalization's Massive Demographic Bet

By calling the Chinese out explicitly on their currency manipulation in his concluding address to the G-20 summit last week, President Barack Obama may have torpedoed his relationship with Beijing for the remainder of what China's bosses most certainly now hope is his first and only term. Burdened by a Republican-controlled, Tea Party-infused House, and bathed in hypocrisy thanks to the Fed's own, just-announced currency manipulation (aka, QE2), Obama seems not to recognize either the gravity of his nation's long-term economic situation or the degree to which his own political fate now hinges on his administration's increasingly stormy ties with China. 

Read the entire column at World Politics Review.

WPR's The New Rules: Using China to Scare Ourselves Straight

Judging from the accounts of virtually every pundit, the Chinese emerged as the foreign threat of choice in the just-concluded U.S. elections, with the breakthrough “Chinese Professor” ad being compared by the always-calm James Fallows to such incendiary hall-of-famers as “Daisy Girl” (1964) and “Willie Horton” (1988).  I’m with Fallows:  The exceedingly clever ad represents a crystallizing moment in our increasingly contentious relationship with China, elevating the Chinese far beyond Iran’s mullahs and Osama Bin Laden as the pre-eminent fear-driven threat dynamic motivating calls to get our house in order.

Read the rest of the column at World Politics Review.

WPR's The New Rules: A Zero-Sum Future Doesn't Add Up

Writing recently in the Financial Times, long-time economic journalist Gideon Rachman lamented the passing of a post-Cold War "golden age," in which "countries shared a belief in globalization and Western democratic values." In Rachman's calculation, that consensus has been battered by the global financial crisis, which ushered in a "new, less-predictable era."

Rachman, whose book entitled "Zero-Sum Future" comes out next February, is clearly prepping the literary battlefield by positioning himself as an "anti-Robert Wright." The latter's book, "Non-Zero: The Logic of Human Destiny," argued that human progress has been characterized by -- and thus depends on -- our increasing appreciation for and adoption of cooperative behaviors. So when Rachman predicts more unpredictability, he's really predicting less cooperation and more conflict -- today's currency wars translated into tomorrow's shooting wars.

Read the entire column at World Politics Review.

This week in globalization

Clearing out my files for the week:

• Martin Wolf on why the US is going to win the global currency battle:  "To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US."  We win because we have infinite ammo.  But better that we come, per my Monday column, to some agreement at the G-20. 

• Sebastian Mallaby, also in FT, says that, despite the current currency struggles, the "genie of global finance is out of the bottle" and not to be stuffed back in.  Wolf had noted $800B capital inflows to emerging markets 2010-2011, which is gargantuan, thus the crazy struggle of some places to keep their currencies low.  As for America stopping China from buying US bonds in retaliation for our not being able to buy Chinese assets?  China holds only about one-third of the US T-bonds abroad ($3T total), so it can buy all its wants from others in the system.  There is no turning back, he says.

• Meanwhile, the Pentagon makes plans to turn back the clock on the globalization of defense manufacturing.  A new spending bill provision--inserted at DoD's request--includes the power to exclude foreign parts suppliers (read China). Just about every US-based defense firm uses offshore suppliers, so this is going to get very expensive very fast.  It'll be a lot harder to find that $100B in savings over five years. This is almost a fifth generation warfare version of shooting yourself in the foot--first, before the other guy can.  China does nothing here, that frankly we shouldn't be able to handle, but we move down a path that instantly adds a significant tax to everything we buy in the growing-by-leaps-and-bounds IT realm.  One hopes there's a half-billion for that American rare earths mining co. that's looking for a new investor.  Interesting how China's becoming vulnerable to, and dependent on, so many unstable parts of the world for resources, and we're going to cut off the tip of our IT nose to spite our face.  I can imagine a cheaper way, but that would be so naive in comparison to spending all this extra money.

• China continues to buy low, as a ruthless capitalist should. Giving us a taste of what it could be like if we don't get too protectionist, it's buying up Greece's "toxic government bonds."--and plenty more in Europe. All of the EU is getting a taste, says Newsweek, as Chinese investors are snapping up bankrupt enterprises and--apparently--putting people back to work.  China also, like a ruthless capitalist, seeks to make bilats reduce the chance of EU-wide restrictions on its trade. Old American trick.

• Another sign of globalization on the march:  emerging economies buying up food and beverage companies in the West that would otherwise naturally be targeting them for future expansion. Bankers expect the trend to continue.  Gotta feed and water that global middle class that keeps emerging at 70-75m a year.  Emerging economies are buying up the companies from equity firms that had previously bought them during down times.

• Great FT story on how Turkey has the Iranian middle class in its sights.  Long history of smuggling inTurkey dips a toe in, would like to drink entire tub eastern Turkey.  Sanctions hold up what could be a major trade, so the black-marketing local Turks mostly smuggle gasoline--and a certain amount of heroin.  But the official goal is clear enough:  be ready to take advantage whenever Iran opens up.  A local Turkish chamber of commerce official floats the notion of a free trade zone at the border. Those 70m underserved Iranian consumers beckon.

• Bloomberg Businessweek stories on how China's working aggressively to get western technology and cooperation to allow it to work its significant coal-bed and shale gas reserves.  Russia's exporting nuclear reactors like nobody's business, and Mongolia's beginning a long boom as "one of the last places on earth with huge, untapped metal ore resources" (guess who's showing up in numbers--with cash).

• India's airline industry can't keep up with demand generated by itsGet me planes and pilots--now! booming middle class. Boeing says Indian airlines will buy over 1,000 jets in the next two decades. Already they're forced to have one-in-five pilots be foreigners.

• Fascinating WSJ story on how China's car economy is going wild, with ordinary Chinese exploring the freedom of the road.  Drive-in service is taking off, weekend jaunts mean hotel business, etc. In past visits I saw a lot of this coming down the pike.  Just like when America's car culture went crazy after WWII, this is a serious social revolution.

Don't forget your meal of eternal happiness!

• "Brazil and China banks join list of world's top credit card issuers."  And so it begins.

• Funny thing about all this South China Sea hubbub: "Corporate ties linking China and Japan have never been stronger," says the WSJ.  Serious driver?  Japan is exporting its mania for golf to China--the fastest growing market for the sport.  It's what middle-class guys do.

Coming soon: the "golf wars"

• WSJ story on Vietnam creating its own Facebook to keep a closer eye on its netizens.  Defeat the anti-capitalist insurgents!What caught my attention: "The team has added online English tests and several state-approved video games, including a violent multi-player contest featuring a band of militants bent on stopping the spread of global capitalism."  I would say we finally won the Vietnam War.

Report: NATO members foil Mumbai-style wave of attacks on Europe

From Michael Smith, the gist of the Sky News report:

Intelligence agencies have intercepted a terror plot to launch Mumbai-style attacks on Britain and other European countries, according to Sky News sources.

... militants based in Pakistan were planning simultaneous strikes on London and major cities in France and Germany . . . the plan was in the advanced but not imminent stage and the plotters had been tracked by spy agencies "for some time".

Intelligence sources told Sky the planned attacks would have been similar to the commando-style raids carried out in Mumbai . . . the European plot had been "severely disrupted" following intelligence sharing between Britain, France, Germany and the US.

It is not known whether the attackers are already in Europe.

News of the planned strikes came as the Eiffel Tower in Paris was evacuated because of a bomb scare for the second time in two weeks . . .

When the terror plan came to light, the US military began helping its European allies by trying to kill the leaders behind the plot in Pakistan's Waziristan region.

There have been a record 20 missile attacks using drone aircraft there in the past 30 days.

Why it's important to pay attention:

• It's long been my contention that extremists operating in NW Pakistan, most likely in some collusion with al Qaeda (not a big leap), will keep trying to make some big splashy strike in the West.  Many experts saw the Times Square bombing attempt as a practice run using an expendable. Figuring how hard that is to pull off--in a relative sense, and with AQ and its net falling from our collective memory thanks to the economy, the default alternative for such groups to regrab the headlines is to do something easy and cheap like Mumbai II and to do it in Europe.  So yeah, I find this whole logic believable.

• I think Obama is right when he says, we can absorb another attack without freaking out.  I don't think we would, having gone through Afghanistan and Iraq since and understanding that such unilateralism just leaves us holding the bag.  So the next strikes, I believe, can lead to more interesting and better cooperative opportunities with Russia, China, India, Turkey, et. al, if done well.  Is Obama the guy to do it?  While I don't think Americans would freak, I fear another attack would simply give the man another chance to come off as far-too-Vulcan for the average American voter.  While I think we're still in philosopher-king political mode and will be for a while, I think his off-putting style will mean we'll stop reaching for the smartest-guy-in-the-room option, because that guy should be the brilliant adviser (which Obama lacks because his smartest-guy-in-the-room mindset attracts other big egos and sycophants and apparently not much in between) and not POTUS himself, who should be all about leading and not aspire to such a title.  Therefore, I do not see a rally-round-the-prez dynamic unfolding when it eventually happens.  That bad feeling will simply be piled upon the existing glut of bad feeling about the economy.

• The other side's ability to sked our counter-reactions is a real problem, because, in our habits, we feel the need to "keep all balls in the air," so terror competes with WMD in NorKo and Iran competes with our growing fears of Chinese military build-up competes with global warming competes with . . .. What was nice about the post-9/11 period was the willingness of great powers to clear the decks on most everything else, keeping them in some big-picture perspective mode, and exploiting the common threat opportunity embodied by AQ to contemplate a serious recasting of the great power relationships for the better.  But then Bush-Cheney went wild on the unilateralism/primacy and that moment was largely wasted.  Can it happen the next time a crystalizing attack occurs?  Sadly, I don't see the leadership anywhere in the world to take advantage, so we go on with the current situation, where everybody is juggling balls and no serious progress is being made on anything. Meanwhile, mutual suspicions pile up, and increasingly we've all got enough gripes with every other great power to make cooperation an almost tortured affair. I'm not secretly wishing for something bad to happen; that is a dangerous intellectual route to go for someone who thinks seriously about the future. The point is, I don't have to. Globalization's penetrating speed has not abated one whit with the great recession--anything but. We're only dimly aware of that here in the States because we think that drawing down in Iraq and hoping to do the same in Afghanistan is a big deal for the system, when, in truth, it barely notices it right now and continues down its aggressive integrating path.  In short, we assume it's Old-Core-does-Gap-or-nobody-does-Gap, when in truth, it's New-Core-does-Gap-systematically and compared to that, the West's efforts are marginal and concentrated in bits and pieces.  I'm not looking to go back to the frantic push the US made after 9/11.  I'm looking for a better marrying up of those two efforts, because the mismatches in resources are vast and the big opportunities for new collaborations are slipping away.  AQ or others will accommodate that need whether we want it or not.  That's the dynamic we're in right now with globalization pushing into previously disconnected places with such force that serious blowback will be the norm for the foreseeable future.  Yes, we can dream it'll all come down to some naval battle in the South China Sea, but that's just habit talking.  And that's what I find so sad right now:  that whole "juggling the balls and keeping all of them in the air" mentality of Clinton and Obama is just a placeholder for real leadership, which events will eventually demand.  Why?  Because they will keep trying and eventually they'll get our attention.  As always, what we'll do in that moment will be far more important than the vertical shock laid on us.  Nation-states still run horizontal scenarios to ground, meaning the question of the day is, "When the next vertical shock comes, where will go with it?"

• Then tack on Obama's statement to Woodward that "We need to make clear to people that the cancer is in Pakistan."  I guarantee you, the next scheduled-by-our-enemies response (when the drones aren't enough) will induce a serious calibration effort/opportunity with both China and India.

And that's why I pay attention to stories such as this.

Globalization cherry picks, and so do we on the failed-state carcass that is Somalia

Voice of America piece by way of reader Robert Prescott.

The opening (in more ways than one):

Somaliland’s Minister of Foreign Affairs said the willingness of residents living in the self-declared autonomous region to fully embrace democracy has played a pivotal role in making the area unattractive to hard-line Islamist insurgents, such as al-Shabab.

Mohammed Abdullahi Omar welcomed what he described as the renewed U.S. interest after a top official in the Obama administration said Washington wants to strengthen ties with both Somaliland and Puntland, located in the Horn of Africa.

The US official expressing interest is our top State diplo for Africa, Johnnie Carson.  Interest, for now, equals more diplomats and aid officials.  Our logic?  Keep the al Shabaab problem as small as possible geographically. 

These Somalis are more than happy to get direct US aid:

“Somaliland has been stable for the last 19 years and we have definitely adopted (a) system into our politics. And, we have had a free and fair presidential election a few weeks ago, whereby a new president won the election. This has demonstrated that Somaliland’s political system has matured.”

He added that Somaliland’s “matured” democracy has renewed interest not only from Washington, but also “other western countries, and made them change their view on Somaliland.”

And I would guess there is some eastern country interest as well.

Five points:

1) Note the pattern that where US troops go since the Cold War's end is to intervene mostly in fake states, and that one outcome of such interventions is that, where there was originally one state, now there are more than one state, meaning we effectively play mid-wife to the birthing of new countries--ones typically buried by past European colonial creations.

2) Globalization, which comes in many forms, has an interest in salvaging as much of Somalia as possible, making chunks open for business and access to East Africa, cutting down on the footprint of the pirates (not mentioned here so must not be a problem here), and keeping the al Shabaabh reach as small as possible. Somaliland really has been a break-away province going all the way back to our first intervention there at the junction of Bush-Clinton. It now presents just enough stability for the connectivity to happen.

3) This is my old story of the break-up of a fake or weak state when globalization shows up:  the more stable and ambitious parts are more than eager to break off and make a better life for themselves with globalization, thus ending--in their minds (and often in objective reality)--their tragic relations with the other "losers."

4) Somaliland's emergence shows that we and other Core powers will be in the nation-building business for the very long haul.  That doesn't--by any stretch--always result in troops or even aid, as most nation-building results from private-sector activity generating local public demand for government services--NOT THE OTHER WAY AROUND!  But yes, if you, the state in question, can put on a good show of a modicum of democracy and stability, that is highly attractive, because it means whatever public nation-building efforts are made will proceed with little to no controversy back home.

5) Our goal for places like East Africa is to encourage overarching economic union in a radial pattern, meaning from the inside of Africa to the coasts like slices of pie. We want to help stitch together a pattern of economic complimentarity wherever possible, so that even places with modest resources are at least selling their location for transit of other peoples' goods.  We want, in effect, to create larger associations to which these fledging states can belong.  So as Africa is remapped by globalization and more states appear (like South Sudan shortly), we help provide a larger regional pattern and structure for them to glom onto--local political disintegration married to regional economic integration.

This is a perfect example of SysAdmin function unfolding with merely modest US interest and resources.  It happens simply because globalization is coming to Africa whether or not America cares.  It happens because globalization will remap fake states whether or not America cares.  It happens because everybody and anybody, when given just the slightest chance by circumstances, reaches for connectivity and the options it brings.

All of this happening in a place where we've studiously avoided a military return.

Less absolutely, a deep reduction in flow/change in philosophy and a redirect to Twitter

Two triggers for yesterday's declaration:

1) interview with Canadian journalist (Globe and Mail; nice guy) where I found myself, as always, defending the SysAdmin concept from its usual caricatures (all military, all US or at best all West, and all public spending).  And you know, I just get tired of repeating myself after seven years, reminding everyone that I said from the start: more civil than mil, more USG than DOD, more rest-of-world than just US or West, and--duh!--overwhelming private-sector funded.  So what does Afghanistan tell us about Canada's future choices with its military?  It tells us that the West and the US in particular still myopically chooses to view the SysAdmin task as overwhelmingly military-centric, DoD-centric, NATO-centric, USG-centric, and official developmental aid-centric, and guess what? None of that, even piled on top of itself, constitutes a quorum for Afghanistan. The only package that works there will be heavy on Indians, Iranians, Turks, Russians and Chinese--in addition to the Pakistanis.  It will involve those countries building and defending networks and markets. Victory won't involve the creation of a democracy--at least not one we'd recognize any time soon. Instead, as usual, given our vast costs sunk thanks to our stubborn unilateralism and government-firstism, we'll view any such outcome along the lines of "We fought the war, but the X won!"  It's a stupid and petty mindset and eventually enough frustration with outcomes will drive it out of us, but such change tends to come generationally--go figure.  Anyway, I go on a long riff with this guy and I wonder why I'm still making these arguments in broadcast fashion to an audience that's apparently unready for it, when there are so many private-sector actors and non-US governments moving down this path with a vengeance--meaning better clients.  Why not run with them and pull back from this evangelical path here in the States, somewhat embodied in the time-intensive blog?

[As a side-rant, let me skewer the inane stupidity that says, "Barnett's SysAdmin concept was doomed from the start" by pointing you in the direction of Africa, where SysAdmin "forces" and "functions" are in evident display all over the place.  And guess what?  The vast majority of the work is being done by non-military, private-sector-funded non-Westerners, and IT WORKS JUST FINE DUMBASS!  But sure, if you want to reduce that force/function in all its complexity and breadth within globalization's advance to a small-unit operation in some remote Afghanistan valley and ask the question, What was Barnett thinking when he said a bunch of US Marines with guns could somehow "connect" Afghanistan to the world?  Then yes, all my vision was completely invalidated by that one apocryphal firefight!  Meanwhile, while you stare at your most American of belly-buttons, globalization continues to penetrate the Gap with stunning speed and integrating effect--and never the twain shall conceptually meet.  But understand this, I don't sell theory; I sell observed reality, which I name.  You can wallow in your caricatures and claim my defeat, and I will shake my head at your complete inability to read what I write and hear what I say--in every single brief I've ever delivered.

But I regress . . .]

2) As I move down this path, I run into days where I find the blogging requirement crowds out too much good personal and professional stuff.  Today I spent a long block of time thinking through cyber governance issues and it was great.  If I have the blog on the usual high-volume sked, that's impossible, as is a certain amount of parenting. Plus, after seven years of being in the evangelical mode, I simply want to move on.

Still, I like the site that I've built, and I like having a place to centralize certain things in terms of presentation and archiving.  I also want to put certain things out there regularly, like announcing latest columns and posts at Esquire and other stuff I write and publish.  Then there's always that simple desire to express myself and to record, diary-style, certain things I do (like a planned trip to China in October).

So I know I'm going to finally cave into my wife on the time-lost-to-the-blog complaint (there's the two new kids impact), especially since my career evolution (different role at Enterra as it matures and thus wider network of activities, which was my norm until a couple of years ago) demands both more focus and concentrated efforts and involves a lot of partners who are, as I stated yesterday, not much interested in this broadcast mode but desire more exclusive content more exclusively delivered.  And when I realize that my most circulated stuff on the Web is what I write for WPR and Esquire, then why maintain the blog at such a high level?  Simply put, it strikes me an outdated model:  I started it as pure analytical diary and it became too much the formal presentation as the field was quickly crowded by mainstream venues re-establishing their natural hierarchy (so every mag now has a blog and most bloggers of note operate within organized structures).

[Second side rant:  Why did I talk myself or let myself get talked into this pathway of formalizing the blog? Too many people complaining that I didn't take myself or my legacy seriously enough, which I think I do in my formal writings.  I just don't think I should have to adhere to that level of formality here.  I didn't in the beginning, and I'd like to go back to that and screw all the references and some of the visuals and instead go back to the analytic diary and pure self-therapy of writing for release.  Too many times in recent months I've found myself staring at the blog entry screen, saying to myself, "Type something profound, damn it!"  And you know what?  As soon as you say that you're doomed to be boring and trite and predictable. Plus it takes so long.]

So the question becomes, why not drop out from the old model and go to something more relaxed--as in, write what I want when I want, and shift the quick-and-dirty recording of semi-interesting articles via Twitter, where the lack of visual requirements and the restrictions on text length guarantees a modicum of effort and no more?

And so that is what I will do, and I'll see how that goes.  What I know is this: I don't want to fill this space like I used to.  I find myself needing to retreat mentally from that level of broadcasting/sharing.  I've spent 7 years doing the evangelic thing and it's been fun, but having done it, I will admit to a certain level of boredom with it--the usual seven-year-itch that seems to regularly relocate me in a geographic sense (from Wisconsin to New England to mid-Atlantic to New England back to the Midwest and now plotting a return to the mid-Atlantic).  I'm about seven years having left my job at the Naval War College (I really left in 2001 when I went to OSD, then again in 2003 when I left OSD, and finally--truly--in 2005, so let's split the difference) and I can feel the reinvention coming, which corresponds nicely to Enterra's nifty maturation and settlement into three core areas of exploitation (healthcare, supply-chain management of consumer products, and supplier-chain management of complex sustainment efforts in the defense sector).  So as things are simultaneously settling down and expanding and blowing up, I find that natural itch to reinvent and recast and rebalance.

And so that is the way it will be:  irregular posts here on stuff I really, truly, absolutely want to archive, with the rest going via Twitter, where I will limit myself--poetically--to as few syllables as possible (I thought I did pretty well today).  I will continue the archiving of formal pubs, along with their announcements here, and I will likely archive travel and other special stuff.

But I will abandon the volume standard that I settled into (totally self-imposed) and let the rest migrate to Twitter (the pointing dog stuff).  That just doesn't interest me like it used to; been there, done that--done. Plus, when I compare my original posts from the spring of 2004 to now, I realize that, back then, I mostly riffed and made scant reference to MSM materials (just using them as launching points), and now the bulk of my text are excerpts, which feels like I'm playing fact checker. [Another triggering realization: I had a lot of fun riffing on that Andy Krepinevich piece recently, but I hardly go long like that any more in the blog; instead, I spend too much time cataloguing--and reminding--and watching what I say.  But again, what gets reposted mostly is the more careful, edited stuff I write on WPR and Esquire, so why not go back to the casual standard here--as in, I write-for-myself-so-f@3k-off!  Because that stuff I can write very fast when I choose to, meaning no real burden.

Anyway, I had long feared/hoped this would happen when I finished the Great Trilogy, and that day has finally arrived.

So I kill the formal blog and reclaim the diary, my debt to society and history fulfilled in the dead-tree Trilogy.

But yeah, I will still rant mostly about globalization, because it's the most interesting thing I know.

China confronts the green-eyed monster abroad

I've been preaching this one directly to the Chinese on trips going back to 2004: as you become the face of globalization, you will run into all the same hatreds that America has long endured--and then you'll want a different military than the one you've been wasting your money on.

From a WAPO piece earlier this month via reader David Emery:

In a spasm of violence this spring, an angry mob toppled the Kyrgyzstan president, torched his office and ransacked other buildings associated with his hated authoritarian regime. The crowd then turned on a less obvious target: a popular Chinese-owned shopping mall stuffed with cheap clothes and electronics from China.

An easy dynamic to spot, and even easier for me to have predicted years ago:

As China pushes beyond its borders in search of markets, jobs and a bigger voice in world affairs, a nation that once boasted of "having friends everywhere" increasingly confronts a problem long faced by the United States: Its wealth and clout might inspire awe and wary respect, but they also generate envy and, at times, violent hostility.

The "ugly Chinese" will compete, side by side, with the "China model"--bet on it.

Yes, no question that Central Asia's future is a whole lot more Chinese than Russian.  Just don't expect it to be a cake walk for anybody.

With great power comes great responsibility--and great envy.

WPR's The New Rules: Globalization's Staying Power a Triumph of American 'Hubris'

There’s no question that globalization, in its modern American form of expanding free trade, just went through its worst crisis to date.  But while economists debate whether or not we in the West are collectively heading toward a 1938-like “second dip,” it’s important to realize just how myopic our fears are about the future of a world economy that America went out of its way to create, defend, and grow these past seven decades.

Read the entire column, which you can consider my oblique response to Peter Beinart's "Icarus Syndrome" book, at World Politics Review.

See the references for my inspiration on this piece.

WPR's The New Rules: Listening to the Chinese Case for Strategic Partnership

The goal of global partnership between the United States and China, the cornerstone of my strategic vision for the past half-decade, has taken a beating lately.  The Great Recession has led too many Americans to doubt in our own economic system and political institutions, while encouraging undue appreciation of China’s.  Similar trends can be seen on the Chinese side, with our system unduly discredited and theirs fantastically exalted.  Is the world better-served by this growing Chinese hubris than it was by America’s recent bout of the same vice? Hardly. Zero-sum calculations have no place in this age of globalization’s rapid expansion.

But what “lithium” can we apply to this manic-depressive relationship lest it collapse into full-blown bipolar meltdown?

Read the rest at World Politics Review.

Find the book mentioned in the piece here.

Good globalization = $20T in annual trade; bad globalization = $130B in annual criminal trade

Fabulous chart in FT story meant to disconcert you: global crime gangs' muscle growing--yet another thing for me to fear!

So I look through the article for the summing up dollar figure and get $130B, with $105B of that being drugs.

Then I check the size of the global economy, because the number I have stuck in my head from my NewRulesSets.Project days with Cantor at the start of the 2000s is $30T.  Well, the global economy is now twice that size, or about $60T, and despite conventional wisdom, all that money didn't go into the pockets of Goldman Sachs (about $12B in profit in 2009).

Of that global economy, about 1/3rd is traded ever year.  For example, in 2008 (and 2010's numbers will be roughly similar after recovering from 2009) the global merchandise trade (stuff) came to $16T and the service trade was almost $4T, so a total of $20T (see this WTO report).  So you put $130B over $20T and get rid of all those matching zeros, and your equation becomes 130 over 20,000 (please catch any mistakes here), and when I reduce it further, I come up with 65 over 10,000, then 13 over 2,000, and then 1 over about 150.

And then my heart rate slows and I don't feel so freaked out. Global crime equals less than 1% of global trade?

Now let's assume the UN calculations are way off, and the global crime numbers are 5 times larger!

So I start with $650B and I come up with a fraction more like 1/30. Does anyone expect to live in a world where there isn't crime that equals 3% of legal economic trade (understanding that means the UN stats miss 80% of all global crime)

Again, please tell me where my math is wrong.

Does it sound to you like criminal gangs are running the world?

Yes, there are aggregate estimates of illicit activity that run higher than the UN's focus here, and they're always bulked up overwhelmingly by estimates of illegal financial flows (for example, there are credible estimates of $1T a year of illicit financial flows from developing to developed markets). If you want to run with such aggregate estimates, fine, but the UN's record on statistics is pretty good, and here I'm comparing apples (smuggling stuff and people) to apples (legal trade in merchandise and services), not adding in money flows and then comparing that fantastically boosted total to just global trade--a typical misleading trick of those who like to scare people. Because if you add up global financial flows, you're into a whole new scale and if you engage in legitimate apples-to-apples comparisons there, your percentages will yield the same small fractions.

The end of the Third World?

A map of the world distorted to depict projected shares of global GDP in 2015.

Economist piece.

Bob Zoellick, World Bank pres., says "2009 saw the end of what was known as the third world"--meaning the end of a distinct, separate part of the world that is aid-dependent and unimportant.

Is this a plausible notion? asks The Economist:

While the rich world stumbles out of recession, Asia, Africa and Latin America are accelerating and contributing more than ever to world output. Two fast-growing countries, Turkey and Brazil (“powers of the future”, says Iran’s president), struck a deal in May that was intended to break the deadlock over Iran’s nuclear programme. Though less than meets the eye, the agreement was still an intriguing case of emerging-nation diplomacy. And the football World Cup gets under way this week in South Africa, arguably the poorest country to host the event.

Yet at the same time, Mr Zoellick’s bank is not in any danger of going out of business. 

The simpler argument, says the paper, is that the Third World dies when the division between First and Second Worlds ends in 1989 ("end of history").

But the world is still "binary," says the paper, noting that 1B ("bottom billion" live on less than $1.25 a day (basically one half of the one-third of the world's population in my Gap).

Can we at least still buy the dependency theory?  Not when south-south trade (and south-BRIC trade) rises twice as fast as global trade.

But aren't these nations hopelessly in debt?  Public debt in emerging economies is 40% of GDP and flat, while Old Core public debt was 75% of GDP in 2007 and rising toward 110% by 2015, says the IMF.  So South Africa has a better credit rating than Greece.

Nice conclusion:

In 1826 the British foreign secretary, George Canning, boasted that he had “called the new world into existence to redress the balance of the old.” Now the third world has come into its own to redress the imbalances of the old. Canning and others also helped to transform the diplomatic architecture of Europe after the end of Napoleon. Far less has been done—in international financial institutions, in patterns of aid-giving and in diplomatic habits—to reflect the reality of the third world’s end.

As I've long argued:  dependency theory turned on its head, and if that's not the end of history, then it's the end of Leninism.

Alterman on the underlying challenge posed by globalization's embrace of the Middle East

Great Jon Alterman piece in World Politics Review.

It is not surprising that discussions with government officials from member states of the Gulf Cooperation Council often dwell heavily on security threats. Terrorism remains a persistent concern of theirs even if some of the urgency they feel has passed. A conventionally armed Iran is a constant source of worry. And the prospect of a nuclear-armed Iran is an unending nightmare.

Yet, among the most-senior leadership, there is also some perspective. The terrorism threat no longer feels existential, as a combination of effective security initiatives, internal cooptation and international cooperation have made their mark. On Iran, there is a sense of fatalism: The Gulf has relied on external guarantors to keep the Iranians at bay since the days of the Portuguese empire, and the Iranians have sufficiently agitated the world to ensure that external guarantors, in some form or another, will remain.

But in private conversations with senior GCC royals last month, it was clear that one security concern does indeed loom large. It is one not of physical security, but of human security. Their nations can almost certainly survive the other threats they face. But unless they can create dynamic, hard-working and creative populations over the long term, these countries will fail.

For the last half-century, the GCC's human security story has been a positive one. After World War II, today's gleaming Gulf capitals were impoverished collections of reed huts. Schooling was uncommon, and fresh water was scarce. Traffic-clogged roads did not exist, because traffic did not exist. Radios were a rarity, in contrast to the ubiquity of the satellite dishes that now deliver more than 500 channels in Arabic. Life expectancies doubled in the 20th century. Malnutrition and the endemic diseases of the 1950s have disappeared, and the diseases of the 2010s -- heart disease, kidney disease and diabetes -- are all diseases, not of poverty, but of plenty. For Gulf Arabs who came of age in the 1960s, the contrast between their youth and their adulthood could not be starker.

What will the future look like for today's youth? It is hard to imagine that they can enjoy a jump in living conditions similar to the one their parents and grandparents experienced, especially as oil and gas markets seem unlikely to expand as much over the next half-century as they did over the last. Much of it comes down to a basic problem of mathematics: Per capita income increased a hundredfold, from $500 in 1960 to $50,000 in 2010; it cannot increase another hundredfold, to $5 million, in the 50 years to come. 

Even more importantly, what might drive future growth? There is a growing recognition that oil has wrought about all that it can.

The GCCs are the natural lead geese on this evolution of thinking, so every step they consider or take is worth watching. Because when the world moves beyond oil, all the Middle East is left with are the people as a resource.  Nothing that's happened in the past decade has altered that reality; indeed, most of what's happened has accelerated it.

Excellent article.

WPR's The New Rules: Whatever Happened to Deglobalization?

In the midst of deep crisis, cooler heads rarely hold sway -- at least in the public discourse.  Thus it was that just a year ago, we heard from many experts -- and joyous activists -- that globalization was on its deathbed: The global economy was on the verge of a great and permanent unraveling.  It was to be an inexorable and exact reversal of everything that defined the go-go globalization of the 1990s, replete with social and political unrest of the highest order.  In effectively re-enacting the Great Depression of the 1930s, we even faced the incredible prospect of resumed great-power war.

Read the rest at World Politics Review's "The New Rules" column.

More evidence of the myth of de-globalization: outsourcing to India rebounds dramatically

WSJ story:  India's three top outsourcing firms (TCS, Infosys, Wipro) all experience big rebounds in revenue for work outsourced from West.  Each had negative first and second quarters in 2010 and each will have 10-20% boosts happening in 2010's 4Q.

Doesn't mean everything goes back to what it was; it never does.

The turn of events marks a reversal from a year ago, when Indian firms were reeling from a steep drop in orders for software services. But the tech-services sector differs now from the Indian firms' boom years of 2003 to 2007, and new hurdles have arisen. 

Long-term challenges include rising labor costs, sliding billing rates and currency-exchange risks. The upshot is that despite optimism in Bangalore and Mumbai spurred by the recent turnaround, the companies likely won't be able to return to 30%-plus annual revenue growth without restructuring their business models and the types of services they provide.

"Is there a revival? Certainly. But is it a return to the go-go days of offshoring three years ago? No," said Sid Pai of Houston-based outsourcing-advisory firm TPI.

Pricing will be a long-term issue. Indian firms cut billing rates 5% to 10% during the downturn to keep clients, and many analysts say increasing prices now won't be easy.

"There'll be niche services where you can charge a premium, but in other areas, the pricing pressure is only going to continue," said Forrester analyst John McCarthy.

Meanwhile, as they grow bigger, the top Indian companies are beginning to confront a problem that larger competitors like International Business Machines Corp. and Accenture Ltd. have struggled with for years: how to increase revenue faster than head count.

A sign that the outsourcing sector in India is moving off the easier challenges of extensive growth to intensive growth.

It happens to the best; it happens to the rest.

[name the movie by David Mamet in which that line appears!]

What history predicts regarding a revalued yuan

"Economics focus" column from The Economist.

Story is an old one:  US in the 1920s, West Germany in the late 1960s, Japan in the early 1970s, Asian tigers in late 1990s, and China today.

The description:

A big export-oriented economy is booming but its trading partners are livid. Year after year, they point out, it runs large current-account surpluses. The country regards itself as an export powerhouse whose goods are prized abroad. Others castigate it for mercantilism. Some argue that it subsidises its exports unfairly by giving exporters credit at cheap rates and by keeping its currency artificially undervalued. Pressure builds on the country to revalue its currency and boost domestic consumption, which makes up an unusually small share of its GDP.

Nor is the size of China's surplus unprecedented:  both Germany and Japan owned one-fifth of the world's export surplus in their day, just like China now.

All ended up revaluing their currencies, and as the charts show, China has little to fear by doing so:

The contribution of net exports to GDP will fall slightly, but growth not impacted much at all--in either direction.  The slack was picked up by private consumption and investment.

The fly in the ointment:  better to have pursued a monetary stimulus than just revaluing the currency.  If you only do the latter, then every 10% in appreciation takes a GDP growth point off.  When Taiwan and South Korea did the same, they proceeded to liberalize their financial markets--meaning China should continue to do the same now.

Classic example of connectivity driving code: you connect to globalization to enrich yourself, and you end up having to conform your internal rules to those of the global economy--or you get burned.