Saturday, 7 November 2009

1989 Changed the World

Nineteen eighty-nine was the biggest year in world history since 1945. In international politics, 1989 changed everything. It led to the end of communism in Europe, of the Soviet Union, the cold war and the short 20th century. It opened the door to German unification, a historically unprecedented European Union stretching from Lisbon to Tallinn, the enlargement of Nato, two decades of American supremacy, globalisation, and the rise of Asia. The one thing it did not change was human nature.

In 1989, Europeans proposed a new model of non-violent, velvet revolution, challenging the violent example of 1789, which for two centuries had been what most people thought of as "revolution". Instead of Jacobins and the guillotine, they offered people power and negotiations at a round table.

With Mikhail Gorbachev's breathtaking renunciation of the use of force (a luminous example of the importance of the individual in history), a nuclear-armed empire that had seemed to many Europeans as enduring and impregnable as the Alps, not least because it possessed those weapons of total annihilation, just softly and suddenly vanished. But then, as if this were all somehow too good to be true, 1989 also brought us Ayatollah Khomeini's fatwa on Salman Rushdie – firing the starting gun for another long struggle in Europe, even before the last one was really over.

Such years come only once or twice in a long lifetime. 2001, the year of the 9/11 terrorist attacks, was another big one, of course, above all because it transformed the priorities of the US in the world, but it did not change as much as 1989 did. As the cold war had affected even the smallest African state, making it a potential pawn in the great chess game between east and west, so the end of the cold war affected everyone too. And places like Afghanistan were forgotten, neglected by Washington since they no longer mattered in a global contest with the now ex-Soviet Union. The mujahid had done his work; the mujahid could go. Except that a mujahid called Osama bin Laden had other ideas.

The epicentre of 1989 was Europe between the Rhine and the Urals, and it's there that most has changed. Every single one of Poland's neighbours today is new, different from what it was in 1989. In fact, many of the states and quite a few of the frontiers in eastern Europe are now more recent than those in Africa. And the lived experience of every man, woman and child has been transformed out of all recognition: nowhere more so than in the former German Democratic Republic, whose death warrant was written 20 years ago next Monday night, with the breaching of the Berlin wall.

So, closest to the ground, we have the stories of those individual human lives: of the young Czechs, Hungarians and east Germans, born in 1989, who are seizing and enjoying the chances of freedom, and of the many older, less well-placed people, who have had a rough time since, and are angry and disillusioned.

At the other extreme, we have the global dance of old and new superpowers. Potentially, there are now three of them: the US, China and the EU. The US is still the only genuine, three-dimensional superpower. When former presidents Gorbachev and George H W Bush got together with former chancellor Helmut Kohl in Berlin last week, Bush senior paid fulsome tribute to his friend "Mikhail". He could afford to be generous; after all, America won.

More accurately, the US emerged the winner, thanks partly to its own policies but also to the work of others. But it would be hard to argue that the US has used its subsequent two decades of supremacy very well – least of all, under Bush, son of Bush. The country has lived high on the hog, running up a pile of both household and national debt. It has not created a durable new international order. Now it has a wonderful president who wills that end, but probably no longer has the means.

China is the most unexpected winner of them all. Remember that when Gorbachev visited Beijing in the early summer of 1989 he had to be smuggled into the communist party leaders' Zhongnanhai compound through a side entrance, because so many protesters were filling Tiananmen square. China seemed to be on the brink of some kind of a velvet revolution of its own. But then came the 4 June massacre. A shudder reverberated across Eurasia, from Beijing to Berlin. China and Europe dramatically parted ways.

Traumatised both by the Tiananmen protests and by the collapse of communism in the Soviet Union and eastern Europe, China's communist party leaders systematically learned the lessons in order to avoid their European comrades' fate. Seizing the economic opportunities offered by globalisation, which itself was decisively catalysed by the end of European communism, they marched further down the road on which Deng Xiaoping (an individual to rank with Gorbachev in his impact on history) had launched them.

The result: a hybrid that can crudely be summarised as Leninist capitalism – something we simply did not imagine in 1989. And an emerging superpower with $2 trillion of reserves, holding the US in a financial half-nelson.

This is a fragile superpower, to be sure, with many internal tensions and contradictions, and too little freedom, but still a formidable competitor for western-style liberal democratic capitalism. Far more formidable, incidentally, than backward-looking, militant Islamism, which is a real threat but not a serious ideological competitor.

And then there is us: old Europe, where it all began. I have suggested before that 1989 was the best year in European history. That's a bold claim, and readers are invited to point to a better year. But two decades later, and in my darker moments, 1989 sometimes seems to me like the last, late flowering of a very aged rose. To be sure, we have done some big things since. We have enlarged the EU. We (or at least, some of us) have a single European currency. We have the largest economy in the world. On paper, Europe looks good. But the political reality is very different.

This is not the big-hearted Europe of which visionaries like Vaclav Havel dreamed in 1989. It is the Europe of the other Vaclav – Vaclav Klaus – signing the Lisbon treaty with gnashing teeth, after exacting some small, provincial concessions. It is the Europe of David Cameron, who, in the defensive, national narrowness of his European vision, is actually a rather representative contemporary European. (Churchill! Thou shouldst be living at this hour: Europe hath need of thee.) Sunk in the narcissism of minor difference, only half awake to the world of giants emerging around them, your average politician in France, Germany or Poland is little better.

So, 20 years on, the question before us Europeans is this: can we recapture some of the strategic boldness and historical imagination of 1989? Or shall we now leave it to others to shape the world, while we snuggle down, Hobbit-like, in our national holes, and pretend there are no giants yomping overhead?

Thursday, 2 July 2009

Invent Invent Invent

June 28, 2009
OP-ED COLUMNIST
By THOMAS L. FRIEDMAN

I was at a conference in St. Petersburg, Russia, a few weeks ago and interviewed Craig Barrett, the former chairman of Intel, about how America should get out of its current economic crisis. His first proposal was this: Any American kid who wants to get a driver’s license has to finish high school. No diploma — no license. Hey, why would we want to put a kid who can barely add, read or write behind the wheel of a car?
Now what does that have to do with pulling us out of the Great Recession? A lot. Historically, recessions have been a time when new companies, like Microsoft, get born, and good companies separate themselves from their competition. It makes sense. When times are tight, people look for new, less expensive ways to do old things. Necessity breeds invention.
Therefore, the country that uses this crisis to make its population smarter and more innovative — and endows its people with more tools and basic research to invent new goods and services — is the one that will not just survive but thrive down the road.
We might be able to stimulate our way back to stability, but we can only invent our way back to prosperity. We need everyone at every level to get smarter.
I still believe that America, with its unrivaled freedoms, venture capital industry, research universities and openness to new immigrants has the best assets to be taking advantage of this moment — to out-innovate our competition. But we should be pressing these advantages to the max right now.
Russia, it seems to me, is clearly wasting this crisis. Oil prices rebounded from $30 to $70 a barrel too quickly, so the pressure for Russia to really reform and diversify its economy is off. The struggle for Russia’s post-Communist economic soul — whether it is going to be more OPEC than O.E.C.D., a country that derives more of its wealth from drilling its mines than from tapping its minds — seems to be over for now.
At the St. Petersburg exposition center, showing off the Russian economy, the two biggest display booths belonged to Gazprom, the state-controlled oil and gas company, and Sberbank, Russia’s largest state-owned bank. Russian companies that actually made things that the world wanted were virtually nonexistent: Two-thirds of Russia’s exports today are oil and gas. Gazprom makes the money, and Sberbank lends it out.
As one Western banker put it, when oil is $35 a barrel, Russia “has no choice” but to reform, to diversify its economy and to put in place the rule of law and incentives that would really stimulate small business. But at $70 a barrel, it takes an act of enormous “political will,” which the petro-old K.G.B. alliance that dominates the Kremlin today is unlikely to summon. Too much rule of law and transparency would constrict the ruling clique’s own freedom of maneuver.
China is also courting trouble. Recently — in the name of censoring pornography — China blocked access to Google and demanded that computers sold in China come supplied with an Internet nanny filter called Green Dam Youth Escort, starting July 1. Green Dam can also be used to block politics, not just Playboy. Once you start censoring the Web, you restrict the ability to imagine and innovate. You are telling young Chinese that if they really want to explore, they need to go abroad.
We should be taking advantage. Now is when we should be stapling a green card to the diploma of any foreign student who earns an advanced degree at any U.S. university, and we should be ending all H-1B visa restrictions on knowledge workers who want to come here. They would invent many more jobs than they would supplant. The world’s best brains are on sale. Let’s buy more!
Barrett argues that we should also use this crisis to: 1) require every state to benchmark their education standards against the best in the world, not the state next door; 2) double the budgets for basic scientific research at the National Science Foundation, the Department of Energy and the National Institute of Standards and Technology; 3) lower the corporate tax rate; 4) revamp Sarbanes-Oxley so that it is easier to start a small business; 5) find a cost-effective way to extend health care to every American.
We need to do all we can now to get more brains connected to more capital to spawn more new companies faster. As Jeff Immelt, the chief of General Electric, put it in a speech on Friday, this moment is “an opportunity to turn financial adversity into national advantage, to launch innovations of lasting value to our country.”
Sometimes, I worry, though, that what oil money is to Russia, our ability to print money is to America. Look at the billions we just printed to bail out two dinosaurs: General Motors and Chrysler.
Lately, there has been way too much talk about minting dollars and too little about minting our next Thomas Edison, Bob Noyce, Steve Jobs, Bill Gates, Vint Cerf, Jerry Yang, Marc Andreessen, Sergey Brin, Bill Joy and Larry Page. Adding to that list is the only stimulus that matters. Otherwise, we’re just Russia with a printing press.

Friday, 1 May 2009

Tryst with Destiny

Jawaharlal Nehru

14th August 1947 Speech delivered in the Constituent Assembly, New Delhi, on the eve of the attainment of Independence.

Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stoke of the midnight hour, when the world sleeps, India will awake t life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance. It is fitting that at this solemn moment we take the pledge of dedication to the service of India and her people and to the still larger cause of humanity.

Sunday, 26 April 2009

Understanding Balochistan

Understanding Balochistan

Qurat ul ain Siddiqui
Thursday, 23 Apr, 2009 | 02:29 PM PST |

As tensions flare in Balochistan and the government alleges foreign involvement in the nationalist movement there, Dawn.com talks to Sanaullah Baloch, the Central Secretary Information of the Balochistan National Party – Mengal.

Your name was placed on the Exit Control List (ECL) and your brothers were reportedly abducted by the agencies during the Musharraf government. Have you considered filing charges now that the judges have been reinstated?
My entire family, including my parents, was placed on the ECL. Our assets were frozen, my brother was abducted and kept in an illegal detention centre for six months, and I was physically attacked by Musharraf’s agents during a conference in London. My website and 36 other Baloch websites were blocked by Pakistan Telecommunications Authority.

As for filing charges, several Baloch political parties tried to file charges against Musharraf, but the country’s institutions lack the will or courage to accept our plea against him.

You advocate a non-violent, political struggle to accomplish BNP (Mengal)’s goals, but it was the Balochistan Liberation United Front that succeeded in pressurising Islamabad…

Unfortunately, our deaf regimes and policy makers are not used to logical arguments. They only understand the language of power, force, guns and canons. That is why several resistance movements in Pakistan have taken on an increasingly violent character. Unfortunately, this becomes the culture in states governed by dictatorial regimes.

However, I don’t think that the non-violent aspect of the Baloch struggle has been nonproductive. Our political struggle, media campaigns, diplomacy, extensive inquiries on Baloch deprivation and its expression has widened our support beyond Balochistan and Pakistan.

In that case, why did you resign from the Senate?

From 2002 to 2006, as an active member of the Senate, I did my best to highlight the Baloch people’s plight. I was elected by the people to protect their rights, but we could not stop Islamabad’s assault on Balochistan. We could not protect the innocent Baloch from disappearances, torture, displacement and we could not stop our resources’ unabated exploitation. That is why we decided to quit the parliament. It is better to be among the people and tell them the truth as opposed to giving them false hope.

You have previously said that the National Security Council (NSC) can ensure that Balochistan has greater autonomy over its resources. But you also emphasise on electoral politics. If the NSC is the deal-breaker, why bother with political deliberations?

Unfortunately, it is a reality in Pakistan that the corridors of power are outside the Parliament. The NSC is basically the visible face of the establishment that consists of civil-military elites. They approved the military operation against Balochistan and, without their consent, no political regime can undo their policy of continued suppression.

In Swat, the government has negotiated a deal with the Taliban. What message does this give to groups aspiring to a more autonomous Balochistan?

The establishment in Pakistan has always felt comfortable with religious groups as they do not challenge the centralised authority of the civil-military establishment. The demands of these groups are not political. They don’t demand economic parity. They demand centralised religious rule which is philosophically closer to the establishment’s version of totalitarianism.

Islamabad’s elite are stubborn against genuine Baloch demands: governing Balochistan, having ownership of resources, and control over provincial security.

Some people believe that Baloch nationalist groups are materially supported by India in its bid to destabilise the Pakistani federation. How do you respond to this allegation?

Unfortunately, this has been the culture in Pakistan that all legitimate political movements against injustice have been labeled as foreign machinations and leaders of those movements have been called traitors and agents. Even the credibility of the lawyers’ movement was questioned by the establishment. Human rights defenders have also been labeled foreign agents. These are old tactics that all despotic regimes use to undermine legitimate political movements.

The Pakistan People’s Party (PPP) has promised resolving the Balochistan issue and President Asif Zardari recently announced a Rs 46.6bn package for Balochistan. Can the government shift the current Balochistan policy?

I am not optimistic about the PPP’s Balochistan policy. Musharraf promised and even spent more money to expand Islamabad’s strategic control over Balochistan. He pumped billions and officially decentralised corruption at all levels in the province to buy artificial sympathy, but failed. Millions were spent on media campaigns to prove that the central government is spending billions to develop Balochistan, but years of defective policies have further deteriorated the masses’ lives. Poverty only increased in Balochistan during Musharraf’s rule. According to one study, rural poverty in Balochistan increased 15 percent between 1999 and 2005. The only ‘development’ Balochistan has witnessed during Musharraf’s rule is the 62 percent increase in police stations.

Meaningful development can only occur if there is political empowerment, adequate healthcare, educational and employment opportunities and peace. At this moment, there is no spending in these sectors.

You have listed eight confidence-building measures that the federation can adopt to ease political tensions with Balochistan. Have any been implemented?

No. Displaced people are still living in appalling conditions, disappearances are still occurring, the military operation has only intensified and more senior Baloch nationalists are being intimidated, harassed and killed.

In a more autonomous Balochistan, how might the life of an average Baloch improve?

Political and economic empowerment will bring positive social change. It is unfair to blame the Baloch or tribal system for illiteracy, violations of women’s rights and poverty. How can people benefit from the existing system when there are more soldiers than teachers, more military cantonments and naval bases than universities and colleges, more police stations than vocational training centres?

In December 2008, a group in Quetta circulated pamphlets directing women to observe purdah. How will the BNP-M ensure security and respect for women?

We condemn all kinds of discrimination against women. Historically, Baloch society has been liberal when compared to other groups settled in and around the region. We have maintained a moderate identity since 1920 and have never used religious slogans to gain public support. However, the establishment has used religious groups to change Balochistan’s social fabric. There is no restriction and control on the Taliban in Balochistan, but agencies continue to intimidate Baloch nationalists.

Some analysts say that Baloch groups have been inconsistent in their struggle…

I can call it a gap or a pause rather than inconsistency. There has been suspension in the movement for many reasons. But as compared to other nationalist movements the Baloch struggle is surviving after continuous state suppression. Moreover, there are forged nationalist groups that have recently been created by the agencies to continue their policy of dividing and ruling.

Instead of always blaming Islamabad, why don’t Baloch leaders claim some responsibility for the current state of Balochistan?

There has been no fair opportunity for Baloch nationalists to govern Balochistan. The first Baloch government headed by Sardar Ataullah Mengal was toppled in 1973 just before completing nine months. The second coalition government of Nawab Bugti worked for 18 months. The third, of Akhtar Mengal, was removed after 14 months. Not a single Baloch government was allowed to continue for a complete parliamentary period. That is why we hold Islamabad responsible for the Baloch people’s plight. Without giving authority to genuine Baloch leaders, we cannot blame them for the appalling state of affairs in the region.
http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/pakistan/balochistan/Understanding-Balochistan--qs
Copyright © 2009 - Dawn Media Group

Tuesday, 14 April 2009

The end of Prosperity? Nial Ferguson

Congress' initial rejection of Bush adminsstration's $700 billion bailout plan calls to mind an unhappy precedent. Back in 1930, the Senate passed the Smoot-Hawley Tariff Act, which raised duties on some 20,000 imported goods. Historians define this as one of the critical steps that led to the Great Depression — a tipping point when the world realized that partisan self-interest had trumped global leadership on Capitol Hill.

It's fair to ask whether America's lawmakers could do it again. The bursting of the debt-fueled property bubble and the crippling losses suffered by banks, together with the political dithering of recent days, have set in motion a chain reaction that, in the worst-case scenario, could lead to something like a 21st century version of the Depression — even if a bailout package does eventually get approved.

The U.S. — not to mention Western Europe — is in the grip of a downward spiral that financial experts call deleveraging. Having accumulated debts beyond what's sustainable, households and financial institutions are being forced to reduce them. The pressure to do so results from a decline in the price of the assets they bought with the money they borrowed. It's a vicious feedback loop. When families and banks tip into bankruptcy, more assets get dumped on the market, driving prices down further and necessitating more deleveraging. This process now has so much momentum that even $700 billion in taxpayers' money may not suffice to stop it.

In the case of households, debt rose from about 50% of GDP in 1980 to a peak of 100% in 2006. In other words, households now owe as much as the entire U.S. economy can produce in a year. Much of the increase in debt was used to invest in real estate. The result was a bubble; at its peak, average U.S. house prices were rising at 20% a year. Then — as bubbles always do — it burst. The S&P Case-Shiller index of house prices in 20 cities has been falling since February 2007. And the decline is accelerating. In June prices were down 16% compared with a year earlier. In some cities — like Phoenix and Miami — they have fallen by as much as a third from their peaks. The U.S. real estate market hasn't faced anything like this since the Depression. And the pain is not over. Credit Suisse predicts that 13% of U.S. homeowners with mortgages could end up losing their homes.

Banks and other financial institutions are in an even worse position: their debts are accumulating even faster. By 2007 the financial sector's debt was equivalent to 116% of GDP, compared with a mere 21% in 1980. And the assets the banks loaded up on have fallen even further in value than the average home — by as much as 55% in the case of BBB-rated mortgage-backed securities.

To date, U.S. banks have admitted to $334 billion in losses and write-downs, and the final total will almost certainly be much higher. To compensate, they have managed to raise $235 billion in new capital. The trouble is that the net loss of $99 billion implies that they will need to shrink their balance sheets by 10 times that figure — almost a trillion dollars — to maintain a constant ratio between their assets and capital. That suggests a drastic reduction of credit, since a bank's assets are its loans. Fewer loans mean tighter business conditions on Main Street. Your local car dealer won't be able to get the credit he needs to maintain his inventory of automobiles. To survive, he'll have to lay off some of his employees. Expect higher unemployment nationwide.

Anyone who doubts that the U.S. is heading for recession is living in denial. On an annualized basis, real retail sales and industrial production are both declining. Unemployment is already at its highest level in five years. The question is whether we're headed for a short, relatively mild recession like that of 2001 — or a latter-day version of what the world went through in the 1930s: Depression 2.0.

The Historical Parallels
We tend to think of the Depression as having been triggered by the stock-market crash of 1929. The Wall Street crash is conventionally said to have begun on "Black Thursday" — Oct. 24, 1929, when the Dow Jones industrial average declined 2% — though in fact the market had been slipping since early September. On "Black Monday" (Oct. 28), it plunged 13%, the next day a further 12%. Over the next three years, the U.S. stock market declined a staggering 89%, reaching its nadir in July 1932. The index did not regain its 1929 peak until 1954.

On Sept. 29 of this year, as investors and traders reacted to Congress's rejection of the bailout plan presented by Treasury Secretary Hank Paulson, the stock market sell-off was dramatic: the Dow fell nearly 7% that day, a one-day drop that has been matched only 17 times since the index's birth in 1896. From its peak last October, the Dow has fallen more than 25%.

Yet the underlying cause of the Great Depression — as Milton Friedman and Anna Jacobson Schwartz argued in their seminal book A Monetary History of the United States: 1867-1960, published in 1963 — was not the stock-market crash but a "great contraction" of credit due to an epidemic of bank failures.

The credit crunch had surfaced several months before the stock-market crash, when commercial banks with combined deposits of more than $80 million suspended payments. It reached critical mass in late 1930, when 608 banks failed — among them the Bank of the United States, which accounted for about a third of the total deposits lost. (The failure of merger talks that might have saved the bank was another critical moment in the history of the Depression.)

As Friedman and Schwartz saw it, the Fed could have mitigated the crisis by cutting rates, making loans and buying bonds (so-called open-market operations). Instead, it made a bad situation worse by reducing its credit to the banking system. This forced more and more banks to sell assets in a frantic dash for liquidity, driving down bond prices and making balance sheets look even worse. The next wave of bank failures, between February and August 1931, saw commercial-bank deposits fall by $2.7 billion — 9% of the total. By January 1932, 1,860 banks had failed.

(See the ten steps to the financial meltdown here and TIME's photos of the global financial crisis here.)

(See TIME's Pictures of the Week here.)

Only in April 1932, amid heavy political pressure, did the Fed attempt large-scale open-market purchases — its first serious effort to counter the liquidity crisis. Even this did not suffice to avert a final wave of bank failures in late 1932, which precipitated the first state "bank holidays" (temporary statewide closures of all banks).

When rumors that the new Roosevelt Administration would devalue the dollar led to widespread flight from dollars into gold, the Fed raised the discount rate, setting the scene for the nationwide bank holiday proclaimed by President Franklin Roosevelt on March 6, 1933, two days after his Inauguration — a "holiday" from which 2,500 banks never returned.

The obvious difference between then and now is that Fed Chairman Ben Bernanke has learned from history — not surprising, given that he once studied the Great Depression intensively. Since the onset of the credit crunch in August 2007, Bernanke has repeatedly cut the federal-funds rate from 5.25% down to an effective rate at one point last week of about 0.25%. He has pumped money into the financial system through a variety of channels: in all, about $1.1 trillion over the past 13 months.

The Treasury is also active in ways it wasn't during the Depression. Back then, conventional wisdom held that the government should try to run a balanced budget in a crisis, even if that meant cutting welfare spending and raising taxes. A generation of economists inspired by John Maynard Keynes taught us that this is precisely the wrong thing to do. Government deficits in a recession are good, the Keynesians argued, because they stimulate demand. The Bush Administration, which ran substantial deficits in the boom years, looks set to run an even larger deficit now.

Indeed, even without the $700 billion bailout, Paulson has already written some big checks — to cover the subsidized sale of Bear Stearns to JPMorgan, the nationalization of mortgage monsters Fannie Mae and Freddie Mac, the bailout of insurance giant AIG and the sales of Washington Mutual to JPMorgan and Wachovia to Citigroup. All of this will cost somewhere between $200 billion and $300 billion.

Some say you can't solve a problem by throwing money at it. But that's what the Fed and the Treasury are attempting. Faced with the potential debacle of Depression 2.0, they have tried to calm the fears with up to $2 trillion of liquidity. Call it the Great Repression: a Depression denied.

Why Depression 2.0 Can Still Be Avoided
At the moment, a reworked bailout deal seems likely to pass. But the world may still be heading for a severe downturn. Interbank lending remains stubbornly frozen, despite the Fed's liquidity fire hose. With WaMu and Wachovia wiped out, the stampede out of bank stocks and bonds will surely claim new victims. As the recession bites, Main Street firms will start going bust too. And the impact on the $62 trillion market for credit-default swaps could be explosive.

What's more, this is no longer an exclusively American crisis. European banks are going under as well. Growth rates in the euro zone and Japan have fallen further than in the U.S. Emerging markets too are suffering. With the exception of Brazil, stock markets in the BRIC economies (Brazil, Russia, India and China) are now down about 40% or more on the year.

The notion that Asia has somehow "decoupled" itself from the U.S. now seems fanciful. China and America have come so close to merging financially that we can almost speak of "Chimerica." When Fannie and Freddie were on the brink of collapse, many were surprised to learn that fully a fifth of China's currency reserves was composed of their bonds. Small wonder. Having spent much of the past decade intervening on currency markets to prevent the appreciation of its renminbi, China has accumulated a huge hoard of dollar-denominated bonds. No foreign nation stands to lose more from a U.S. financial collapse.

In the end, what made the Great Depression so greatly depressing was that it was global. The combined output of the world's seven biggest economies declined nearly 20% from 1929 to 1932. The unemployment rate soared in the U.S. and Germany to a peak above 33%. World trade collapsed by two-thirds, not least because of retaliation to the Smoot-Hawley tariff.

But while we certainly face a global slowdown, we may yet avoid another depression. Now, unlike in the Great Depression, central banks and finance ministries know it's better to run deficits and print money than to suffer massive losses of output and jobs. And the introduction of U.S.-style deposit insurance in many countries means banks are less vulnerable to runs by depositors than they once were. Finally, the possibility still exists (though the odds are slimmer than they were a year ago) that the Asian and Middle Eastern sovereign wealth funds could step in to recapitalize U.S. and European banks before they succumb to another great contraction.

Given the immensity of the crisis, a Congress-approved bailout may be just a short-term fix. But a short-term fix is better than no fix. If nothing else, it would signal to the world that — unlike in 1930 — the U.S. is doing what it can to avoid financial calamity and sidestep Depression 2.0.

(See the ten steps to the financial meltdown here and TIME's photos of the global financial crisis here.)

(See TIME's Pictures of the Week here.)

Sunday, 15 March 2009

Our skewed world view won't let us see the real Pakistan

The west can no longer afford to impose its values and notions of democracy on countries that neither want nor need them

First for the good news: Pakistan is not about to explode. The Islamic militants are not going to take power tomorrow; the nuclear weapons are not about to be trafficked to al-Qaida; the army is not about to send the Afghan Taliban to invade India; a civil war is unlikely.
The bad news is that Pakistan poses us questions that are much more profound than those we would face if this nation of 170m, the world's second biggest Muslim state, were simply a failed state. If Pakistan collapsed, we would be faced by a serious security challenge. But the resilience of Pakistan and the nation's continuing collective refusal to do what the west would like it to together pose questions with implications far beyond simple security concerns. They are about our ability to influence events in far-off places, our capacity to analyse and understand the behaviour and perceived interests of other nations and cultures, about our ability to deal with difference, about how we see the world.
Pakistan has very grave problems. In the last two years, I have reported on bloody ethnic and political riots, on violent demonstrations, from the front line of a vicious war against radical Islamic insurgents. I spent a day with Benazir Bhutto a week before she was assassinated and covered the series of murderous attacks committed at home and abroad by militant groups based in Pakistan with shadowy connections to its security services. There is an economic crisis and social problems - illiteracy, domestic violence, drug addiction - of grotesque proportions. Osama bin Laden is probably on Pakistani soil.
For many developing nations, all this would signal the state's total disintegration. This partly explains why Pakistan's collapse is so often predicted. The nation's meltdown was forecast when its eastern half seceded to become Bangladesh in 1971, during the violence that preceded General Zia ul-Haq's coup in 1977, when the Soviets invaded Afghanistan, when Zia was killed in 1988, during the horrific sectarian violence of the early Nineties, through sundry ethnic insurgencies, after 9/11, after the 2007 death of Bhutto and now after yet another political crisis. These predictions have been consistently proved wrong. The most recent will be too. Yesterday, tempers were already calming.
Some of the perpetual international hysteria is stoked by the Pakistanis themselves. Successive governments have perfected the art of negotiating by pointing a gun to their own heads. They know that their nation's strategic importance guarantees the financial life support they need from the international community. More broadly, our understanding of Pakistan is skewed. This is in part due to centuries of historical baggage. Though few would quote Emile Zola on contemporary France, Winston Churchill, who as a young man fought on the North-West Frontier, is regularly cited to explain today's insurgency. This legacy also includes stereotypes of "Mad Mullahs" running amok, an image fuelled by television footage that highlights ranting demonstrators from Pakistan's Islamist parties though they have never won more than 14% in an election.
For many Britons, Pakistan represents "the other" - chaotic, distant, exotic, dirty, hot, fanatical and threatening. Yet at the same time, Pakistan seems very familiar. There is the English language, cricket, kebabs and curries and figures such as Imran Khan. There are a million-odd Britons of Pakistani-descent who over four decades have largely integrated far better in the UK than often suggested.
It is the tension between these two largely imaginary Pakistans that leads to such strong reactions in Britain. We see the country as plunged in a struggle between the frighteningly foreign and the familiar, between fanaticism and western democracy, values, our vision of the world and how it should be ordered. Yet while we are fretting about Pakistan's imminent disintegration, we are blind to the really important change.
Recent years have seen the consolidation of a new Pakistani identity between these two extremes. It is nationalist, conservative in religious and social terms and much more aggressive in asserting what are seen, rightly or wrongly, as local "Pakistani" interests. It is a mix of patriotic chauvinism and moderate Islamism that is currently heavily informed by a distorted view of the world sadly all too familiar across the entire Muslim world. This means that for many Pakistanis, the west is rapacious and hostile. Admiration for the British and desire for holidays in London have been replaced by a view of the UK as "America's poodle" and dreams of Dubai or Malaysia. The 9/11 attacks are seen, even by senior army officers, as a put-up job by Mossad, the CIA or both. The Indians, the old enemy, are seen as running riot in Afghanistan where the Taliban are "freedom fighters". AQ Khan, the nuclear scientist seen as a bomb-selling criminal by the West, is a hero. Democracy is seen as the best system, but only if democracy results in governments that take decisions that reflect the sentiments of most Pakistanis, not just those of the Anglophone, westernised elite among whom western policy-makers, politicians and journalists tend to chose their interlocutors.
This view of the world is most common among the new, urban middle classes in Pakistan, much larger after a decade of fast and uneven economic growth. It is this class that provides the bulk of the country's military officers and bureaucrats. This in part explains the Pakistani security establishment's dogged support for elements within the Taliban. The infamous ISI spy agency is largely staffed by soldiers and the army is a reflection of society. For the ISI, as for many Pakistanis, supporting certain insurgent factions in Afghanistan is seen as the rational choice. If this trend continues, it poses us problems rather different from those posed by a failed state. Instead, you have a nuclear armed nation with a large population that is increasingly vocal and which sees the world very differently from us.
We face a related problem in Afghanistan where we are still hoping to build the state we want the Afghans to want, rather than the state that they actually want. Ask many Afghans which state they hope their own will resemble in a few decades and the answer is "Iran". Dozens of interviews with senior western generals, diplomats and officials in Kabul last week have shown me how deeply the years of conflict and "nation-building" have dented confidence in our ability to transplant western values. Our interest in Afghanistan has been reduced to preventing it from becoming a platform for threats to the west. In Afghanistan, as in Iraq, the west has glimpsed the limits to its power and to the supposedly universal attraction of its values.
The west's dreams of a comfortable post-Cold War era have been rudely shaken. We have been forced reluctantly to accept the independence and influence of China and Russia. These are countries that we recognise as difficult international actors pursuing agendas popular with substantial proportions of their citizens. Other countries, particularly those less troubled than Pakistan or Afghanistan, are likely soon to join that list.
This poses a critical challenge in foreign policy. Worrying about the imminent collapse of Pakistan is not going to help us find answers to the really difficult questions that Pakistan poses

Friday, 20 February 2009

Sustainable Development: Prince Saddrudin

It will be my thesis today that the dogma of "sustainable development" is inherently misleading, and is now deluding our mindsets in much the same way as the flat earth theory once did -- but with implications which are infinitely more dangerous to our future survival.
Accordingly, I will refrain from the politically correct -- and attempt to highlight how the once noble notion of "sustainable development" has been diverted.
Despite all the rhetoric about basic needs and poverty alleviation -- and despite several decades officially dedicated to development -- the number of people in extreme or absolute poverty continues to increase.
The inclusive outcomes of the latest meetings in The Hague and Monterrey can hardly add to our optimism. This doesn't augur well for Johannesburg.
The time has come to end what Kofi Annan has aptly described as 'business as usual'. He is right in his analysis that "as our attention has been focused on conflict, on globalisation, or most recently on terrorism, we have often failed to see how these are connected to the issue of sustainability. That word has become a pious invocation, rather than the urgent call to concrete action it should be."
The irony is that those who promote sustainable development often do so under the guise of providing benefits to the poor nations of the south. The fact remains, however, that 80 countries now have per capita incomes lower than they were a decade ago, and the number of people living in poverty (those who earn less than $1 a day) is stuck stubbornly at 1.2 billion, while those earning less than $2 per day number almost 3 billion.
Someone on a daily wage of one dollar would take 109 years to earn what French footballer Zinedine Zidane is currently earning per day!
Sustainable development has been diverted in the following ways:
I) THE OXYMORON OF SUSTAINABLE GROWTH
Firstly by business -- to become synonymous with sustainable growth -- an oxymoron which reflects the conflict between a trade vision of the world and the environmental, social and cultural vision.
It has become a mantra for big business and multi-national corporations. Worse, it has unwittingly opened the door to a green backlash -- the gradual hi-jacking of the environment movement by so- called 'corporate realists'.
Even terms like 'environmentalist' or 'conservationist' are now not infrequently used to describe those who indiscriminately clear cut forests or kill animals for their skins. Such activities are now clouded in dubious euphemisms such as 'yields' or the 'harvesting' of natural and wildlife resources.
II) THE 'WISE USE' MOVEMENT
This leads me to the second negative evolution of 'sustainable development' into the term 'sustainable use' -- an anathema conjured by the so-called 'wise use' movement to mask activities which are exactly the opposite.
It is the alibi which facilitates lethal consumptive use and which has regrettably infiltrated key international fora such as CITES and the IWC 'sustainable use' of marine resources means killing whales and 'sustainable use' of native wildlife has spawned a multi-million dollar 'bushmeat' industry, particularly in Africa.
'Sustainable users' hope to convince poor Africans and Asians that they should not kill wildlife to collect the equivalent of several years' wages, while rich European and American trophy hunters kill the same animals for fun.
It is also the philosophy which has fragmented the movement -- dividing to rule by divorcing 'conservationists' (serious and 'scientific') from ethical causes such as fur and circuses (emotional idealists). The fact that an activity such as whaling may be economically sustainable does not make it desirable, or acceptable ethically.
In a speech to IWC delegates the assistant director general of the fishery agency of Japan -- and his country's IWC commissioner -- revealed that Japan had fishing agreements with eight countries, and has spent £400 million in aid -- 'fishing for votes' in the most literal sense of the words.
We have moved from a prudent, precautionary approach to a situation whereby our natural heritage has to 'pay its own way' and not form 'an impediment to free trade' if it is to have any chance of being preserved.
III) CORRUPTION
Thirdly, the sustainable development mindset indirectly fosters corruption.
Every year, businesses from OECD (organisation for economic and co-operative development) countries pay huge amounts of money in bribes to win friends, influence and contracts. These bribes are conservatively estimated to run to $80 billion a year -- roughly the amount that the UN has suggested is needed to eradicate global poverty.
The trade in banned animal parts is second only to the trade in illegal narcotics. Indeed, it has become a lucrative and low-risk sideline for international crime syndicates, such as the Yakuza in Japan, the Poon family in Hong-Kong, or the South American drug cartels -- especially as enforcement is relatively lax and discovery rarely involves more than a cursory fine. Already the trade has pushed species such as tigers and rhinos to the verge of extinction. Figures released last month indicate that the population of wild Asian elephants has been decimated by 80 per cent during the last decade.
An additional tragedy -- again reflecting the drugs trade -- is that war and the indiscriminate arms dealing that comes in its wake, invariably exacerbates the decimation of wildlife and its habitat.
IV) CORPORATE TAKEOVER OF GOVERNANCE
The fourth negative impact of 'sustainable development' is that it fosters the corporate takeover of governance. Has the new hymn indeed become 'he who pays the lobbyist calls the tune'? Just look at the corporate quid- pro-quo exacted after George W Bush's election as president of the United States.
Richard Parsons, head of Time AOL speaking at the world economic summit meeting in New York has been cited as declaring (without apparently a hint that there could be anything abnormal or worrying in the statement) that: "once the church determined our lives, then the state, and now it's corporations".
Everywhere we hear about the advantages of an essentially market-based response to the world's ills -- philanthropy, self-regulation, corporate social responsibility and voluntary codes of conduct. None of these can be deemed an acceptable proxy for state responsibility, policy and control.
Even the UN system has been jumping on the bandwagon through initiatives such as the 'global compact' with 50 of the world's biggest and most controversial corporations. As The Guardian commented, the UN "appears to be turning itself into an enforcement agency for the global economy, helping western companies to penetrate new markets while avoiding the regulations which would be the only effective means of holding them to account. By making peace with power, the UN is declaring war on the powerless."
V) CONSUMPTION
Everywhere the emphasis seems to be firmly on money and conspicuous consumption. This brings me to a fifth side--effect of sustainable development philosophy which has fostered a wholly abhorrent notion of 'sustainable consumption'. This in turn illustrates just how far the concept of sustainability has been allowed to stray down the path of Orwellian newspeak.
'Sustainable development', as defined following the Brundtland Report, calls not for a continuation of present growth patterns but a five to ten-fold acceleration thereof! But, surely, growth during maturity is either obesity or cancer.
Eight hundred million people are suffering from malnutrition while a small percentage of the world's population is choking on 'fast food'.
The food industry provides excellent focus for the themes of this session -- including consumerism, global disparities and the breakdown of governance.
The opening up of a great world market in the name of free trade, the rules of the WTO and the orientation of grants, all promote the consolidation and centralisation of the food industry. Sixty per cent of the international food sector is controled by 10 companies dealing in seed, fertilisers, pesticides, processing, manufacture and shipment.
Business has gone global -- but our systems of governance have failed to keep pace.
There currently exist more than 200 treaties of the environment -- three-quarters of which have been ratified during the last 30 years. But, for the most part, the commitments made with such a media splash in Rio and elsewhere remain a dead letter. Worse still, the effectiveness of these agreements is all too often undermined by vague commitments and lax enforcement.
Could the subtle shift in emphasis from focus on the 'Environment' (Stockholm 1972) to 'Environment and Development' (Rio, 1992) have anything to do with this?
It may not be popular to emphasise just before Johannesburg, but many processes are already probably irreversible. I wonder if it is not already too late for 'sustainable'.
Environmental crises, like climate change won't wait while we procrastinate for 'conclusive' scientific data. The gods' punishment for Hubris is blindness to warnings of impending doom.
Nor can we expect too much from technological lifeboats when the final SOS calls go out.
Must we be doomed to proceed by 'catastrophism'? To limit ourselves to dealing with symptoms rather than addressing the causes? Perhaps the time has come to impose a moratorium on new scientific or technological innovations that have potentially negative implications for the planet and society.
Indeed, science -- or what I fear we should increasingly term 'corporate science' -- always seems to be in on the verge of some major new breakthrough which, however ominous it may sound, is inevitably accompanied by reassuring noises regarding its ultimate potential to cure cancer, reverse climate change or end world hunger, if only we can keep the research grants flowing.
If the nations of the European Union are prepared to surrender part of their sovereignty to promote economic unity, why can't the nations of the world do the same to safeguard the ecological capital on which our survival depends?
Can't we identify a new direction? One which places greater emphasis on 'regeneration' rather than 'sustaining' an untenable status quo, on sound 'stewardship' rather than 'development' and relentless pursuit of growth? On quality of life rather than living standards? On being more rather than having more? About living more fully rather than faster? About multiplying our values rather than our possessions?
Stewardship has the advantage of going beyond mere economic values -- important as these may be -- by restoring the equilibrium and giving parallel emphasis to the environmental, ethical and spiritual values that are vital ingredients of any true and viable civilisation.
Look at how quickly progress was made in reducing violence in New York once the neighbourhoods were re-connected and re-involved. The same goes for restoring the urban landscape, as we heard yesterday from the mayor of Tirana.
Even 'stewardship', whilst already a significant improvement, could be taxed for its anthropocentric connotations. And besides, I wonder if any term -- however nobly conceived (like sustainable development) -- could not ultimately be diverted in the pursuit of human greed. Perhaps the world has had enough of slogans, soundbites and spin- doctors. Especially in an age when everything seems to have become urgent except for the essential.
We must strive towards a new mindset -- one which will allow us to challenge what we are trying to achieve, a new pact with nature -- one that restores our sense of balance, moderation and humanity.
Somewhere in our scientific confidence and economic gigantism, we have lost the plot -- lost our vision as well as the spiritual unity which these gatherings so rightly emphasise.
What is needed is a new renaissance -- on a par with that which moved us out of previous dark ages into a new spirit of enlightenment. As Einstein wrote, "you cannot solve the problems with the ways of thinking that led to their creation".
If globalisation has any positive merits, the creation of a universal social consciousness must be the greatest among them. Thanks to global communications, we are instantly aware of the slightest outbreak of injustice, hardship or abuse wherever it may be occurring on the planet. This has facilitated the emergence and global organisation of alternative movements exemplified by the Porto Alegre initiative. Here lie the seeds of hope.
Just as the key to human sickness is often in the mind, so the key to the planet's ills may be in our collective mindsets -- the priorities we give to our lives and our lifestyle choices.
In the final analysis, change can only come from within ourselves, and the only truly 'sustainable' progress must be that of the heart.
Reproduced with permission of the author.
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