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Gaddafi's Fellow Travelers James S. Henry

(An earlier version of this appeared today as a Forbes column.)

I recall one cold wintry Saturday evening about three years ago in Vermont,  and a dinner conversation among a small group of former business colleagues, including  HBS Professor Michael E. Porter, the eminent competitive strategist.

He’d just returned from Tripoli, where he’d been working on what he told us was a  “strategy project” for the Gaddafi regime with a raft of consultants from Monitor Group, the Cambridge-based consulting firm that he’d helped to found in the early 1980s.  

For about thirty minutes or so he shared with us how excited they all were to be working to reform the Libyan economy, and how Colonel Gaddafi and his sons now really seemed to “get it.”

Clearly Prof. Porter felt this was all pretty cool. When asked about the issue of democracy and the rule of law, he rather quickly brushed aside such concerns, suggesting that they were sort of beside the point – after all, as the case of China supposedly demonstrated, all those annoying traditional liberal values sometimes just need to get out of the way of progress.

At the end of all this, there was a brief silence. I suspect that most of those at the table were slightly discomforted by Prof. Porter’s blunt, hard-nosed neoliberal analysis, and certainly by his apparent intoxication with the infamous Libyan dictator. But he was,  after all,  an eminent Harvard professor. And unlike us, he’d not only been to the country, but had met its most senior leaders personally.

Finally, however, my friend Roger Kline, a wise old McKinsey partner, broke the silence with a simple, direct, slightly impolitic question,  which would be answered only by the silence that it provoked from Professor Porter:  “Doesn’t it ever bother you at all, Michael, to be working for a terrorist?”

***

As the spirit of doom hovers over the last remnants of Muammar Gaddafi’s 42-year-long dictatorship, and most Libyans are celebrating his departure with sheer delight, there is much less joy in a handful of top-tier academic and professional-class households in Cambridge, Princeton, Georgetown, Baltimore,  East Lansing, and London.

For Mighty Muammar has indeed struck out -- contrary to the hopes  and  expectations of some of our very best and brightest experts on  “competitive country strategy," “global democratic governance," "the idea that is America,” and “soft power.”

After all, from their perspective, whatever Gaddafi's flaws, his blood-stained but deep-pocketed regime was certainly not like that of Kim Jong Il.

Unlike Kim, Gaddafi had been willing to pay quite handsomely to hear them spout off about their pet aerie-faerie neoliberal theories of political and economic development.

 
Meanwhile, Gaddifi's  government also ordered up an expensive grab-bag of university grants, endowments, special education for Libyan police and diplomats, ginned-up degrees for his dim-witted family members, lots of slick lobbying and lawyering, plus a large number of custom press portraits by leading Western academics gurus – none of whom ever bothered to disclose the fact that they were all on Brother Leader's  payroll.

This sordid tale first began to trickle out about two years ago from the Libyan opposition,  but it really picked up steam after the Revolution began in February 2011.  The interested reader can look here, here, here, here, and here for  the gory details.

But right now, just as the Gaddafis are about to take their rightful place in history’s waste bin, it is worth recalling the highlights  for several reasons.

First, we’d like to make sure that all of the leading academic   collaborateurs who helped to legitimate Gaddafi's abattoir receive their due: the  very first installment of the “Milton Friedman/ "Putzi" Hanfstaengl Iron Cross Award.

Second, we'd like to require all these collaborateurs to donate the millions of dollars of blood money and the  thousands of frequent flier miles they accumulated as unregistered foreign agents for Gaddafi’s regime to Libya’s teeming hospitals and orphanages.

Together, these two simple steps might help to insure that this kind of totally uncool dictatorship rebranding is brought to a screeching halt.

REBRANDING GADDAFI

This tale really began in 2003, when the Gaddafi regime, seeking to end an annoying economic  boycott,  gave its solemn word  to swear off terrorism forever, cease dabbling in nuclear technology, pay compensation for the 1988 Pan Am 103/Lockerbie bombing, and "accept responsibility for the actions of its officials,” whatever that meant.

Not surprisingly, given Gaddafi's horrific track record, most ordinary Westerners, not to mention the hard-pressed Libyan opposition, were deeply skeptical.

But Western leaders and policy experts were curiously much more receptive to Libya’s extraordinary effort to upgrade its image from “terror camp” to “the West’s best new pragmatic partner in the Middle East."

Indeed, it turned out to be a very fertile time for this kind of rebranding effort. First, even though Libya’s U-turn had largely been  motivated by economic self-interest, George W. Bush, Tony Blair, and Silvio Berlusconi welcomed it as a badly-needed victory in the “war on terror.”  Berlusconi and Blair even flew directly to Tripoli to welcome the “reborn” Gaddafi back into the community of nations.

Nor, in the US, was the welcome committee just limited to Republicans. In July  2008, Democrats Carl Levin and (now Vice President) Joe Biden played a key role in guiding S.1330 through the US Senate.

This  scurrilous bill, signed into law by President Bush, controversially granted Gaddafi complete legal immunity for the Lockerbie bombing, so long as he paid a (rather paltry) agreed-upon sum to the victims’ families.

Second, Libya’s U-turn opened the door to a whole bevy of Holy-Water merchants and academic medicine men. These instant Libyan "experts" were eager to offer Gaddafi not only absolution, but also their very latest pet theories about everything from “competitive clusters" and "strong democracy" to “the Third Way.”

They were also eager to see test such theories in Gaddafi’s living laboratory -- especially if the dictator was willing to subsidize the  clinical trials. Not since Boris Yeltsin, General Suharto, and General Pinochet have neoliberal academics had such a golden opportunity to test their theories on real live human subjects at country scale.  

Third, to a large extent mainly for PR purposes,  Western experts also made much of their opportunity to "dialogue" in person with real live Libyans. Well, perhaps not so much with the nascent opposition, which was mainly abroad, in hiding,  in jail, or dead.

 Of course, according to Gaddafi & Sons, confirmed by US intelligence officials like John Negroponte – who got much of his info about Libya from his brother Nicholas, who got it from Gaddafi & Sons (see below) – the Libyan opposition consisted of radical "al Qaeda” sympathizers or the members of “dissident tribes” in Libya’s supposedly “very tribal” society, anyway.

Their received image of Libya, seen through Gaddafi-colored lens, was curiously similar to the self-image that South Africa’s apartheid regime used to project – a deeply “tribal” society that required strong-armed rule to preserve it  from the radical horde at the gates.

In any case,  Western experts were generally quite happy to take the Gaddafis’ word -- and his moolah --  for all this, and to participate in  one-sided “dialogues” with Brother Leader  himself whenever he was able to spare the time.

This delighted Brother Leader. No doubt this was partly because of  his  deep intellectual curiousity about the very latest  economic and political theories. But, more practically, it also meant that prominent Western expert after expert had to fly  thousands of miles to Tripoli and back just to help his regime flaunt its wares on Libyan State TV and lend him unprecedented respectability.

Ultimately, you see, Gaddafi had  all these neoliberal academics pegged to the tee.

He understood from the start that many were frustrated by their powerlessness in (more) democratic Western societies.  Their secret wet dream is the absolute dictator who takes them seriously, and able and willing to test their theories on command, without the need for messy democratic processes.

Indeed, Gaddafi's personal power n Libya was so complete that he never even bothered to give himself a formal title other than "Colonel."

THE CARAVAN

From 2004 on, therefore, Tripoli became a kind of alternative Mecca for a veritable “Who’s Who” of leading Western intelligentsia. Among the key interlocutors were Professor Porter; Cambridge  University/LSE’s   “Baron” Anthony Giddens and George Joffe; LSE’s Director Sir Howard Davies (now resigned), and Professor David Held,  its leading expert on “globalization;”  and Monitor Group’s Rajeev Singh Molares (now at Alcatel), Mark Fuller (recently resigned as its Chair), and Bruce J. Allyn (formerly the head of Monitor’s Moscow office).

Others who tagged along for the camel ride included Ann-Marie Slaughter, Dean of Princeton’s Woodrow Wilson School; Princeton Professors Bernard Lewis and Andrew Moravcsik; the insidious neo-con Richard Perle (2 visits); MIT Professor Emeritus Nicholas Negroponte (several visits), brother of  US DNI John Negroponte, and the former head of the MIT Media Labs,  who was very eager to get Libyan funding for his ill-fated pet “One Laptop Per Child” project; a flurry of other Harvard profs, including the Kennedy School’s Robert Putnam, Joseph Nye, and Marshall Ganz, an organizer-guru who became involved in another tidy little dictatorship, Syria; and Johns Hopkins' "end of history" champion Francis Fukuyama, who made history himself by pulling down a record $80,000 for a single audience with Brother Leader.

 Nor were journalists entirely immune from the attractions of the Libyan honeypot. Here,  the Monitor ringmasters also went for high-profile celebrities, including Al Jazeera's David Frost, who collected $91,429 for a single visit.  They also nearly  recruited several others before the project got terminated.  One Monitor project memo reports, for example,  that:

“Monitor approached (Fareed) Zakaria who said that he is very interested in travelling to Libya in order to meet with the Leader….Monitor also approached ( the New York Times’ Thomas) Friedman who said that he was interested in travelling to Libya at some point in the future.”

Collectively this respectability caravan made dozens of such Gaddafi-tour site visits, logging tens of thousands of First Class miles and receiving millions of dollars in fees to commune about the “New Libya" – all the while helping to launder the regime’s  blood-stained image.

This activity seems to have gone far beyond simply helping Libya to restructure its economy and political system along more open,  competitive lines. Indeed, it is now clear that the regime probably never seriously intended any meaningful reforms, but was mainly trying to curry influence and favors.

The experts’ punch list included such dubious activities as ghost-writing Saif Gaddafi’s PhD thesis; helping to design a “national security agency” for Libya (!), quite probably with inputs from folks like the Negropontes and Richard Dearlove, the Monitor “senior advisor” who ran the UK’s MI6 from 1999 to 2004; offering to ghost-write a puffed-up version of Brother Leader’s collected works;  and, all along, orchestrating a flurry of favorable press coverage in influential papers like the Washingon Post, the New York Times, the International Herald, and the Guardian.

All of this was done without without ever bothering (until this Spring, in the case of Monitor Company) to register as what many of these high-toned folks truly turned out to be:  foreign agents of the Government of Libya.

BETTER SAIF THAN SORRY

There are many glaring examples of outright shilling for the Gaddafis by these brown-nosing academic and consulting mercenaries, but a handful captures the essential odor.

One good example was LSE Professor Emeritus/ Blair confidant/ Baron Anthony Gidden’s bold March 2007 speculation in the UK’s Guardian newspaper that Colonel Gaddafi’s Libya might soon turn out to be “the Norway of North Africa.” The piece mentioned Lord Giddens’ impressive academic credentials, but  it neglected to mention the fact that he had received $67,000 in fees from Libya, plus First Class round-trip travel expenses for at least two hajjs to visit with Brother Leader and his staff in Tripoli.

Another example is Rutgers Professor Emeritus Ben Barber’s even more wildly enthusiastic August 2007 Washington Post endorsement of the “surprisingly flexible and pragmatic” Gaddafi and his “gifted son Saif.” Of course Saif is much more familiar to the rest of us now for his blood-curdling “rivers of blood” speech on February 20, 2011, which contributed mightily to the subsequent polarization and bloodshed.

Professor Barber’s piece reminded his readers that he was a  best-selling author and a Distinguished Senior Fellow at the think-tank Demos. But it neglected to mention the fact that he’d also made multiple all-expense-paid trips to Tripoli, for which he’d been paid at least $100,000 in fees by the Libyan Government.

A third example is HBS Professor Michael E. Porter’s February 23 2007 Business Week interview, in which he reported that he had “taken on” a consulting project in Libya,  as if this were some kind of beneficent act. Gaddafi,  he maintained with a straight face,  wasn’t really a dictator after all: “In a sense, decision-making is widely distributed in (Libya). People [consider Libya] a dictatorship, but it really doesn't work that way. That is another reason for optimism.” (Emphasis added).

Prof. Porter neglected to mention the fact that he and Monitor Group, the Cambridge consulting firm that he, plus HBS grads Joe Fuller and Mark Fuller, had founded in the early 1980s, were not only earning several million dollars for their Libyan strategy work, but were also up to their proverbial eyeballs in a second multi-million dollar PR project to bolster Gaddafi’s image.

THE IMPACT

All this salacious material is interesting.  But did it really have any harmful impacts on Libya?  Or is all this merely frivolous second-guessing?

The answer is that this kind of orchestrated air-brushing of the Gaddafi regime by leading Western consultants and academics clearly was not only enormously harmful to the interests of most Libyans, but also that these negative impacts were entirely foreseeable – and, indeed, were anticipated by many critics who had the same intuitive reaction as Roger Kline (see above.)

✔ The academic white-washing helped to conceal the fact that the Gaddafi regime was enormously unpopular with its own people – that the opposition was broad based, that high-level corruption was rife, and that  the “tribal”/al Qaeda paradigm of the Libyan opposition was simplistic and dangerously misleading, not to mention self-serving for the Gaddafi clan.

✔Academic air-brushing also contributed to the misleading view that “reforming Libya" was mainly just a technocratic exercise for the insider-elite and their Western advisors,  to which constitutive matters like elections, rights, the rule of law, and genuine popular representation could take a back seat.

✔The bevy of  big-name Western intellectuals and consultants who courted the Gaddafis not only inflated their egos even larger than they already were, but also encouraged them to believe they could easily  buy influence, as well as arms, in the West -- and delay fundamental political reforms.

In short, the white-washing and the kid glove treatment of the Gaddafi regime by leading Western academics may well have discouraged that regime from pursuing deeper political reforms much earlier, and from negotiating in good faith once conflict increased.

In other words, it probably cost lives.  

 If and when the Gaddafi clan is captured and put on trial, either in  Libya or before the ICC, we hope that these courts seize the opportunity to examine the conduct and responsibilty of these  neoliberal fellow travelers of dictatorship very closely.     

***

So, in the waning hours of the Gaddafi regime,  it is important to recall that Brother Leader and his band of thugs did not simply become a menace to Libya’s people and the world on their own.

Nor was his particular brand of madness simply due to the “usual suspects:” anti-Western radicalism, liberation ideology,  Gaddafi's own imperialistic ambitions in Africa, his idiosyncratic version of political Islam, or even the fact that he spent far too much time spent frolicking in the desert sun with Ukrainian nurses.

No – while Gaddafi’s buddies in Venezuela still portray  him as a stalwart opponent of Western imperialism,  the fact is that in recent years he actually continued to increase his influence in the West only with the really quite extraordinary assistance of prominent, high-priced, incredibly smart, but ultimately quite gullible Western “friends.”

(c) JSH 2011

 

Is Medical Care In Haiti Really Better Now Than Before the Quake? James S.Henry

(HEUH,Port au Prince, May 12, 2010)

On Monday AP carried a story, unfortunately replayed with no editing by the Huffington Post , which baldly claimed that medical care in Haiti is now actually much better and more accessible than it was before the January 12th quake.

Having spent much of the past week in Haiti visiting nurses, doctors, and medical workers at the main hospital and leading clinics in Port au Prince, as well as several of the largest camps here, I've concluded that this report is, at best, highly misleading.

At worst, it is yet another striking example of sloppy AP reporting and the virtually-unedited brave new world of "fast food" Internet journalism.

While the supply of medical care in Haiti has indeed increased since January, mainly because of the temporary influx of foreign volunteers and donations, the fact is that the demand for most kinds of care has increased even more.

For example, in the aftermath of the quake, there was an immediate need to treat traumatic injuries and perform amputations. That need, which had not really existed before Haiti, naturally got most of the world's attention.

By now that specific need has indeed mostly been met, however. Accordingly, most US volunteer surgeons and nurses have either rotated out, or are in the process of leaving.

However, according to more than a dozen nurses, doctors and health workers at HEUH, the main hospital in PauP, and at the leading clinic at the 50,000 person Camp Jean-Louis, this hardly means the country's medical needs are now being better served than before the quake.

The need for the kind of high-visibility, "ER-" type fly-in care has now been replaced by a surge in other maladies, which may be less visually-dramatic to international TV audiences, but no less life-threatening.

Unfortunately, treating these other less glamorous quake-related medical consequences demands a longer term commitment -- plus basic improvements in nutrition and community health that are -- like Adam Smith's "invisible hand" -- for the most part still nowhere to be seen.

For example, since the quake, there's been a sharp rise in under-5 age mortality and physical illnesses and injuries. These include not only infectious diseases like malaria, typhus, and diptheria, but also tetanus (from rubble), accidental poisoning toxic, injuries due to fires.

I spoke with medical workers at Partners in Health, a leading NGO that has been active in Haiti since the mid 1980s, and now operates 15 clinics here, including 4 in PauP. They attribute this surge in infant illness and injuries to the dire living conditions for the 1.412 million (as of this week) still living in temporary shelters. They also attribute many of the health problems they are seeing for kids and adults alike to the increasing prevalance of hunger and malnutrition in the camps. And that, in turn, is due in large measure to the total inadequacy of Government/NGO food and water distribution -- right up to the present.

The PIH clinic workers that I spoke with also report that there has been a serious increase in mental health problems, due to the quake's unusual capacity to inflict severe simultaneous traumas: the sudden loss, not only of one's loved ones and many friends, but also of shelter, job, savings, community, and sense of security. PIH mental health workers described patients who have recurrent feelings that the ground is shaking, irrepressible memories of the sights and smells of death and destruction, acute fears about entering buildings, nightmares and daymares about searching for the missing.

0f course before the quake, this country had a grand total of 17 psychiatrists, only 9 of whom were public doctors, to serve a population of at least 8.5 million. There were more Haitian mental health workers in any one of New York, Miami, Boston, and Montreal than in all of Haiti.

Now, after the quake, dedicated NGOs like Partners in Health are indeed working hard to beef up their community mental health efforts -- PIH will launch mental health services at up to 4 of its clinics this year.

However, even PIH freely admits that they are just beginning to scratch the service -- and to understand how vast the need is for post-traumatic therapy on a community-wide scale as a result of the quake. This will require a long-term commitment on all sides.

It would also be really helpful if foreign journalists would make a long-term commitment to really understanding this country, rather than treating it as an endless source of "unexpected natural disasters" and "amazing recoveries."

(C) SubmergingMarkets, 2010


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THE GOLDMAN SACHS CASEPart III: "Jokers to My Right"James S. Henry

 

Well, la gente Americano may not know the difference between a synthetic CDO and a snow shovel,  but the masses are clearly frothing for a  taste of banquero al la brasa, fresh from the spit.

"Financial reform," whatever that means, is now far more popular than "health care reform."  And it has only recently  become even more so, in the wake of all the recent investigations and prosecutions -- Warren Buffett  might say "persecutions" -- of the "demon bank" Goldman Sachs.     

Evidently the masses' appetite for banker blood was  only slightly sated by the SEC's April 16th civil charges against Goldman, Senator Levin's  11-hour show-trial  of senior Goldman officials on April  27, and the "entirely coincidental"  announcement on April 30th that the US Justice Department --   which is under  strong political pressure  to bring more fraud cases to trial, but also tends to screw them up -- has launched a criminal investigation into Goldman's mortgage trading.

INSIDE BASEBALL

In the wake of this populist uprising, Senate Republicans have suddenly adopted "financial reform" as their cause too,  allowing the Senate to commence debate this week on Senator Dodd's 1600-page reform bill. 

However, this promises to be a lengthy process.  While reform proponents like US PIRG and Americans for Financial Reform were hoping for final action as early as this week,  Senator Reid  now  expects to have a Senate bill by Memorial Day at the earliest, and Obama only expects to be able to sign a bill by September. 

That's just two months ahead of the fall 2010 elections, so there's not much room for error.  But the beleaguered Democrats may just be figuring  that they'd rather bash banks than run on their rather mixed track record on health care reform,  unemployment, climate change,  and offshore drilling, let alone -- Wodin forbid --  immigration reform.     

In any case,  Senator Dodd's  bill has now been through more permutations than a Greek budget forecast.  The latest one  discards the $50 billion bank restructuring fund as well as new reporting requirements  that would helped to spot abusive lending practices.

These concessions apparently were part of retiring Senator Chris Dodd's Grail-like quest for that elusive 60th (Republican) vote -- rumored to be hidden away and  guarded by an ancient secret order known as "Maine Republicans."  

A GOAT RODEO

Meanwhile, behind the scenes, leading Republicans, aided by several Democrats from big-bank states like New York, California, and Illinois, and countless lobbyists,  have been trying to weaken other key provisions in the bill, which was already pretty tame to begin with. 

The most important  measures at issue pertain to derivatives and proprietary trading, the power of the new Consumer Financial Products Bureau (especially, according to Senator Shelby, the Federal Reserve's shameless power grab over orthodontists),  the regulation of large "non-banks,"  and (interestingly, from a states' rights perspective)  the power of states to preempt federal regulation. 

On the other hand,  the bill has also inspired dozens of amendments  from a cross-section of Senators who appear to be genuinely concerned  -- even apart from the opportunities for grandstanding  -- that the Dodd bill isn't nearly hard-hitting enough.

Some of these amendments are purely populist anger-management devices that don't really have much to do with preventing future financial crises. 

These include Senator Sanders' proposals to revive usury laws and audit the Federal Reserve, a proposal by Senators Barbara Boxer and Jim Webb  for a one-time  surtax on bank bonuses, Senator Mark Udall's proposal for free credit reports, and Senator Tom Harkin's proposal to cap ATM fees.

The very first amendment adopted was also in this performative utterance  category: Senator Barbara Boxer's bold declaration that "no taxpayer funds shall be used" to prevent the liquidation of any financial company in "receivership." 

Cynics were quick to point out that in any real banking crisis, this kind of broad promise would be unenforceable, since it would also be among the very first measures to be repealed. 

STRUCTURAL REFORM?

Other proposed amendments sound like more serious attempts at structural reform.

These include  the Brown-Kaufman amendment that tries to limit the number of "too big to fail" institutions by placing upper limits on the share of system-wide insured deposits and other liabilities held by any one bank holding company, and the Merkley-Levin amendment, which  attempts to  "ban" proprietary trading and hedge fund investments by US banks, and also  defines tougher fiduciary standards for market-makers.  

But so far neither of these measures has received the imprimatur of the Senate Banking Committee, let alone Senator  Reid.  This means that for all practical purposes they are may amount to escape valves for venting popular steam,  but little more. 

This is especially true, given the delayed schedule that Reid, Dodd, and the Obama Administration seem to have accepted, which will relieve the pressure for such reforms.

Furthermore,  upon closer inspection, both proposals leave much to be desired.  Indeed, one gets the distinct impression that they dreamed up by Hill staffers on the midnight shift to appease the  latest  cause célèbre,

For example, the Brown-Kaufman amendment,   highly touted by  chic  liberal "banking experts" like Simon Johnson, doesn't mandate the seizure and breakup of any particular large-scale financial institutions directly.  Nor does empower the FTC to set tougher standards for competition in this industry, as it might have done, or even specify what kind of industry structure would be desirable from the standpoint of avoiding banking crises. 

To a large extent that simply reflects the paucity of knowledge about the relationship between structure and behavior in financial services. As a bootstrap, the amendment  specifies arbitrary caps on bank activities that may or may not be related to actual misbehavior -- for example, the share of "insured deposits" managed by any one bank holding company (≤ 10%), and the ratio of "non-deposit liabilities to US GDP" (≤ 2%).

This has arbitrary consequences. Under the limits in the amendment,  for example, Wells Fargo and Citigroup, the # 4 and #1 banks in the country by asset size, would  nearly avoid any breakup, while JPMorgan and BankAmerica would feel much more pressure. 

Meanwhile, evil Goldman Sachs' minimal .3% shares under both limits would leave it plenty of room to grow -- perhaps even by acquiring the extra share that the "Big Four" would have to spin off.

Furthermore,  even the largest US institutions might be able to avoid  the caps by devoting more attention to  large-scale private banking customers, whose deposits and other investments would avoid these regulations,  or by conducting more of their risky business through offshore banking centers.

Indeed, this also suggests a key problem with the Merkley-Levin amendment as well: it is a  US  solo act. It  completely ignores the fact that  even our largest banks, and the US financial system as a whole, are part  of a competitive global financial market.

As  this week's Greco-European financial crisis has underscored, to be effective,  bank regulation and structural reform must be conducted on a coordinated international basis. Unilateral initiatives only drive bad behavior to the myriad of under-regulated offshore and onshore financial centers.

From this perspective, I'm  surprised that  Senator Levin,  a long-time critic of offshore financial centers, has proceed in such a ham-handed way  with this.  This  was his year to finally round up global support to crack down on offshore centers -- a precondition for effective global bank regulation.  Instead he decided to  target Goldman and pursue this wayward, sloppy attempt  at unilateral reform -- as if  the Isle of Man, Guernsey, Jersey, Bermuda, and the Cayman Islands, let alone London and Zurich and Singapore and Hong Kong, are not waiting in the wings. 

WHAT HAVE WE LEARNED?   

If we step back from this political goat rodeo, what have we learned about the political economy of financiali reform? 
 

CONSOLIDATION (UNDER BOTH PARTIES)

First, as shown in the above chart, the US banking industry has indeed undergone a major structural transformation, especially December 1992. The following 15 years became the era of Wild West banking, when all the lessons that should have been learned from the Third World debt crisis were forgotten.  It became an era of rampant deregulation, rising US public and private debt levels, and asset speculation.

The impacts on financial structure were far reaching and rapid. Back in December 1992,  there were more than 13,500 banks, and the top four US banks accounted for less than 10 percent of the sector's jobs. 

Already by 1998, there was a decided increase in this concentration level, to more than 20 percent.  Today there are fewer than 8000 banks. The top 4 alone  -- Citigroup, JPMorganChase, Bank of America, and Wells Fargo -- now employ more than 800,000 people, over 40 percent of the US total. Indeed, together with the failed banks they acquired, the top four banks have accounted for almost all the sector's employment growth;  the rest of the sector has shrunk.

Tiny Goldman has also been growing, but it now only accounts for about 18,900, less than 10 percent of any one of the top four.  

 

This growing concentration is also reflected in most key US banking markets, especially the markets for deposits, overall bank loans, real estate loans in general, home mortgages, and credit derivatives. As indicated, in each of these markets, the market share commanded by top four banks  has increased from less than 10 percent in 1992 to 40-50 percent or more by 2010. In the case of the credit derivatives market, the share now approaches 90 percent.

Nor has this increasing concentration been accounted for by superior performance. Indeed, the "big four" also now account for more than 78 percent of all bad home mortgages -- behind in payments, or suspended entirely. While some of that is accounted for by the acquisition of failing institutions, most of it is not.   

THE ECONOMICS OF GOLDMAN BASHING

Third, once again, for the sake of Goldman bashers in the audience, as indicated above, its share of each of these key market indicators is trivial. Even in credit derivatives, the segment for which Goldman has taken such a beating, its market share today is just 8 percent, compared to the "Big Four's" commanding 88 percent. And Goldman's share of real estate loans, home loans, insured and uninsured bank deposits, and bad home mortgages are even lower.

Just to pick one example: today the "top 4" banks have more than $204 billion of bad home loans, compared with Goldman's $0.0 of such loans.  

From this standpoint, the Levin hearings were a stellar example of  completely ignoring industry economics. They singled out a smaller,  more successful,  widely-envied target for political scapegoating, while ignoring the much more economically  much more important financial giants. 

THE MORTGAGE-INDUSTRIAL COMPLEX

The  key driver on the domestic side of all these developments is a political-economy complex that in the long run has had perhaps as profound an influence on our nation's political and economic system as the  legendary "military industrial" complex.  This is  what we've called (in the first chart above) the "US mortgage-industrial complex," including financial institutions, real estate firms, and insurance companies. From 1992 to 2010, in comparable $2010, this industry spent an average of $2793 per day per US Senator and Congressman on federal campaign contributions and lobbying -- far more than the corresponding levels in the 1970s and 1980s.  

Except for the insurance industry -- where health care reform efforts by Clinton and Obama tilted the giving -- Democrats and Republicans have more or less divided this kitty pretty evenly. It is also important to note that more than 71 percent of total federal spending by these industries  from 1990 to 2010  was on lobbyists, not campaign contributions. While  cases like the recent Citizens United decision may affect this balance,

  

Furthermore, within the financial services industry, the top four US  banks alone have accounted for at least 20 percent of all spending on federal lobbying and campaign contributions (in comparable $2010) from 1992 to 2010. Investment banks as a group -- including Goldman, Lehman Brothers, Bear Stearns, Morgan Stanley, UBS, Credit Suisse, and their key predecessors, especially Paine Webber and Dean Witter -- added another 8 percent.   But once again, by comparison, and contrary to its reputation as the premier political operator in Washington,   Goldman Sach's share of total "real" spending on lobbying and contributions was relatively small -- just 2.2 percent. 

This was just 40 percent of what Citigroup spent, and less than 60 percent of what JPMorganChase spent during  this same period.  

C'mon guys -- Is it any really wonder that Jamie Dimon gets invited to the Obama White House for dinner while Lloyd Blankfein gets served for dinner on a spit up on the Hill?  

Ironically,  if it were just a question of a given institution's loyalty to the Democratic Party, Goldman -- and indeed Lehman Brothers and Bear Stearns as well -- would have clearly had the inside edge. As shown below,  these investment firms clearly preferred Democrats over the long haul.
 
Ironically, to paraphrase Senator Levin, especially in Goldman's case the Democratic Party appears at least so far to have "put its own interests and profits" first, basically turning a blind eye  -- at least so far -- to the substantially much larger potential misbehavior of the "big four."

Meanwhile, when President Obama traveled to New York two weeks ago to give a speech on the urgent need for financial reform, the peripatetic Mr. Dimon could be found in Chicago.  He was rumored to have met with CME and/or Board of Trade executives to prepare to invest in an exciting new "derivatives exchange," should JPMorgan need to transfer its substantial share of that business -- several times Goldman's market share, even in credit derivatives -- to an open exchange. 

JOKERS TO MY RIGHT 

So all this concentration of political and economic power in US financial markets would appear to make a strong prima facie case for a serious structural reform, perhaps even along the lines of the Brown-Kaufman amendment,  n'est pas?  Unfortunately, no.

As we argued earlier, that amendment sets very crude targets that bear little immediate relationship to bank misbehavior or even political influence. At worst, the caps might just force bad behavior like risky derivatives and hedge fund investing offshore. And the bill's  current caps would, at best, just force banks like Cit, JPM, and BankAmerica to shed less than 10 percent of their market shares, setting them back to -- say -- 2005 levels.

In other words, they're not a substitute for effective regulation. But that puts us back in the chicken-egg problem with "regulatory capture."

My own particular solution to these dilemmas is suggested by the following chart -- although it also suggests
that the most opportune time to implement it has already come and gone.  In terms of the current  banal  American political  discourse,   it would be probably be  quickly dismissed as  'socialist,"  although that term is such a catch-all that it has really become virtually useless, except as a device for red-baiting timid liberals.  

THE CHILEAN MODEL

So don't take my word for it; let's ask the ghost of Chile's General Pinochet, whom I'm quite certain no one ever accused of being a "socialist," at least not to his face. For years he was best known among economists as one of the key political proponents of Milton Friedman's so-called "Chicago School" of ultra-free market economics.  But in February 1983, during a severe crisis when all the banks in Chile failed, Pinochet showed that he could be quite pragmatic -- with a little arm-twisting from from leading US banks, which threatened to cut off his trade lines if he didn't nationalize the banks' debts.

So, after swearing up and down that private debts and private banks would never be nationalized, Pinochet's government did so. Three to six years later, after restructuring the banks and cleaning them up,  and privatizing their substantial investments in other companies, they were sold back to the Chilean people and the private sector -- for a nice profit. (Similar policies were also followed by "socialist" Sweden in the case of a 1990s banking crisis, but the Pinochet example provides a more instructive example for so-called conservatives. Much earlier, General Douglas MacArthur, a lifelong Republican,  also employed similar pragmatic tactics in restructuring Japanese banks in the early 1950s.) 

Now this is the plan that the US Treasury (under Paulson and then Geithner) might have adopted in the Fall 2008 - Spring 2010, if only it had not been so hide-bound -- and in the case of the Obama Administration, so wary of being termed a "socialist." 

In hindsight, the economics of such a pragmatic temporary government takeover and reprivatization would have been compelling. At its market low in March 2009, the  combined "market cap" of the "big four" banks was just $120 billion -- including $5 billion for Citi and $15 billion for Bank of American.  This was a mere fraction of the capital and loans that were ultimately provided to them. (At that point Goldman's market cap had fallen to $37 billion from $80 billion a year earlier -- not as steep a decline as the giants, but clearly no picnic for its shareholders, either.)

Only a year later, while the "demon bank" Goldman has recovered to more or less where it was in June 2008, before the crisis, the market cap of the "top four"  US banks is now nearly six times higher than its low in March 2009, and, indeed, at an all time high -- well above both previous peaks.

Too bad the US taxpayers have only captured a small fraction of that $500 billion industry gain.

Too bad the US Treasury hasn't exercized strong "socialist" control over these institutions, changing the way they behavior directly, and restructuring them in the interests of the economy as a whole before selling them back to the private sector.

Too bad that "big four" lobbyists are now back in force on the ground in Washington DC, influencing the fine print of the "financial reform" bill in ways that we will probably only understand years hence. Despite its woes, undoubtedly this will be a bumper year for political spending by the  financial services industry.  

Of course, President Obama  IS now being widely demonized as a "socialist"  -- anyway.

***

(c)JSH, SubmergingMarkets, 2010

       

   

   

 

THE GOLDMAN SACHS CASEPart II: "The Crucible"James S. Henry

Whatever the ultimate legal merits of the SEC's case against Goldman Sachs -- and those appear to me to be questionable at best --  its most important contributions are being made right now. They are not judicial, but political. 

'Lord knows I've been about as critical as one can possibly be of Wall Street banks, as well as of unfettered free marktets. (See, for example, a, b, and c.)

However, after listing to today's  showdown hearings before  US Senator Carl M. Levin's Permanent Investigations Subcommittee,  I'm convinced that:

(1) If anyone needs the benefit of the new "financial literacy" program proposed  by S.3217, Senator Dodd's proposed financial reform bill, it is the US Senate. Many  members of the Senate -- and by extension, the House -- don't  seem to understand very basic things about  the structure and role of private capital markets, finance, and business economics, let alone global competition. In the world's largest capitalist economy, this level of ignorance  on behalf of our political elite is really mind-boggling.

(2) After 18 months of intensive investigation, the US Senate's Permanent Subcommittee on Investigations  and the SEC have not so far been able to find anything that is clearly illegal to pin on Goldman Sachs.

(3) On the other hand, on the secondary trading side of Goldman's  business, Goldman traders  clearly have "market maker" ethics, not investment adviser ethics. They've grown accustomed simply to  providing market liquidity for whatever securities clients  happen to want -- or can be persuaded to want, even if Goldman is taking opposite positions at the very same time in the very same securities. 

For example, regardless of what Goldman's own sales people  felt about the terrible quality of the synthetic CDOs they were selling in 2007  -- including many securities packaged out of  "stated income" mortgages --  they continued to sell anything for which there was a current price.  

Goldman's trader culture simply  doesn't  buy the notion that market makers  have any "duty to serve the best interests of their clients. In competitive world, this amoral culture may well be essential to being a successful "market  maker,"  and Goldman is one of the most successful secondary traders in the world  However, if we expect some higher standard of behavior toward clients, this is likely to require new rules; Goldman will never get there on its own.

Of course, in a highly competitive global market,  any such rnew ules might just cause  this entire business to move offshore, to London, Hong Kong, Singapore, or any number of other offshore financial centers.

(4) With great respect to Michael Lewis, the notion that Goldman Sachs engaged in a hugely profitable "big short" in 2007-2008, in the sense of secretly betting systematically against the same securities that it was underwriting for its clients, is easily overstated. Goldman's investment portfolio in mortgage securities turned negative in early 2007,  was net short all year long in 2007, and at times had up to $13 billion of gross shorts, the bank's net profits from all this shorting that year was $500 mllion to $1 billion. The following year, 2008, its mortgage portfolio lost $1.8 billion 

(5) There appears to be enormous pent-up rage and ressentiment in the country at large, right now, driven by the financial crisis, the slow recovery, high unemployment, and the loss of homes and pensions, on the one hand, and the widespread perception that banks not only created the crisis, but have also profited immensely from it.  Most people may not know a CDO from a dustpan, but there is a very disturbing tendency to seek scapegoats, dividing the world into villains and victims. Ironically,  the most obvious targets include companies like Goldman Sachs, one of our most successful, better-managed, if trader-ridden  companies.

(6) Compared to other major US banks, Goldman Sachs' role in the credit derivatives market, the mortgage market, and bank lending in general, as well as in the roots of the most recent crisis, was minor at best. Indeed, compared with the more than $240 billion of past due/non-performing mortgage loans now on the books of the "big four" banks,  the sums involved even in Goldman's most questionable deals were trivial. Why the US Senate and the SEC decided to focus so heavily on Goldman, as compared with Citi, Bank of America, JP Morgan, and Wells Fargo, is an interesting political-economic puzzle.  

(7) On the other hand, these other major  private banks, plus Lehman  Brothers and Bear Stearns, were by far the largest players in the private mortgage market. If they  had followed Goldman's risk management, accounting, disclosure, and leverage practices, the worst of this crisis might well have been avoided.  Indeed, it appears that one reason these generally much larger firms did not adopt such practices was because -- unlike Goldman -- they genuinely believed they were "too big to fail."  

(8) Going forward, the real problem with Goldman market was not, by and large,  illegal behavior, but an excess of perfectly legal behavior that may well be socially unproductive and way under-regulated.  Especially in a world where other countries have fallen behind in the move to  update their financial regulations, dealing with this problem will require much more than lawsuits and investigative hearings.  

IN THE DARK TRUNKS...

Today's hearings probably came as close to fireworks  as investment banking and "structured finance"  ever gets.  In one corner there was Goldman Sach's slightly shaken,  but still-unbent  CEO Lloyd C. Blankfein (Harvard '75/ HLS '78).

 

There was also Blankfein's articulate, amiable  life-time Goldman employee David Viniar  (HBS '80); the now-notorious, side-lined 31-year old Goldman VP Fabrice P. (aka "fabulous Fab") Tourre (Stanford M.S. '01),  architect of the particular "synthetic CDO" at the heart of the SEC case;  and several other  past and present stars from the "devil bank's" specialists in mortgage banking.  

Apparently not pressent was Goldman's President and COO,  Gary D. Cohn (American U, 'whenever)  (aka "Aeolus,"). Perhaps he had flown to Athens to arrange more  cosmetic "dirty debt swaps"  for Greece,   

Ring-side support for the Goldman front line  was  provided by a hand-picked team of  very high-priced trainer/coaches.  This included former Democratic House Speaker Richard Gephardt,  former Reagan Chief of Staff Ken Duberstein, and Janice O'Connell (aka "Puerta Giratoria"), a former key aid to Senator Dodd.

 Senator Dodd, the retiring Chair of the Senate Banking Committee, has been working since November on  S.3217, an epic 1600-page bill that Senate Republicans (with perhaps a little help from Fed staffers who opposed the bill) have  just prevented from coming to a vote. 

Of course Goldman has also hired Obama's own former chief counsel Gregory Craig as a key member of its defense team.

Once taken seriously as a "liberal" Democratic Presidential candidate, Gephardt has gone the way of all flesh, and is now  completely preoccupied with serving such worthy clients as Peabody Energy, the world's largest private coal company; NAPEO, an association of "professional employer organizations" that is trying to dis-intermediate what little remains of labor rights for outsourced workers; UnitedHealthCare, a stalwart opponent of the "public option" in health care reform; and of course, Goldman Sachs, which has also employed the  prosaic Missourian to pitch the (really insidious) idea of "infrastructure privatization"  all over the country to cash-strapped state and local governments.

IN THE WHITE TRUNKS.. 

In the other corner is the aging  heavyweight champion from Michigan. Senator Levin (Harvard Law '59), is a low-key but tenacious warrior, with a mean-right hook; Goldman would do well not to underestimate him.   He's a  veteran critic, investigator, and opponent  of  global financial chicanery, dirty banks, and tax havens -- except perhaps when it comes to GM's captive leasing shells and re-insurance companies in the Cayman Islands and Bermuda (Heh, even a Dem's  gotta eat!)  

Sen. Levin is backed up by several knowledgeable, tough cross-examiners, especially Democratic Sen. Kaufman of Delaware and Republican Senator Collins of Maine. On the other hand, Republican Senators McCain and Sen Tom Coburn  were a bit more  "understanding" of Goldman's basic amoral attitude toward market-making. 

FIRST ROUND

In handicapping this contest, some observers predicted that the best and brightest from our nation's leading  investment bank  would basically roll over the "old folks" from the Senate.

In the first few hours, however, it quickly became clear that the bankers were a little under-prepared for the Senators' often-times impatient, hard-nosed tone, especially from former Prosecutor Levin, Collins, and Kaufman.

Nor were they prepared for the widespread, if perhaps naive and even "Midwestern" view  that there was just something fundamentally wrong with the lines Goldman drew between pure "market-making" and providing investment advice.

LEVIN DOG

For example, Sen. Levin  was a real rat terrier  on the question  of whether it was ethical for Goldman market-makers in 2007 to  be aggressively pushing clients like Bear Stearns  to buy a CDO security called "Timberwolf" that Goldman's own internal analysts had called  "shitty."  Meanwhile, Goldman's ABS group was shorting Bear by buying puts.  The panel of five present or former Goldman executives had trouble recognizing that there was any problem at all -- given the fact that, from a legal standpoint, Goldman had fully informed these clients about the risks they were taking.

For another $2 billion "Hudson" CDO deal that Goldman sold from its inventory, the firm's own sales people characterized the product as "junk," and indicated that more sophisticated customers might not buy it.  Yet, according to Senator Levin,  Goldman's selling documents for a portion of the sale characterized  the deal as one where Goldman's interests and the client's interests were "aligned" because Goldman retained an equity interest in the Hudson package. In Senator Levin's view, this  "retention" was misleading, simply because Goldman took time to sell down its position.

On the question of the Abacus transaction at the core of the SEC law suit,  Sen. Levin was able to establish that the  Goldman's  Tourre never told the German bank that invested in the deal that  John Paulson, the hedge fund manager who helped choose the portfolio, although he claimed to have told portfolio selection manager ACA.  Oddly enough, from what we heard about other "raw deals" today for the first time, this now appears to have been perhaps the weakest deal for SEC to attack.

Similarly, Senator Collins pressed a group of Goldman securities "market-makers"  very hard about whether  or not they felt they had a "duty" to work in the "best interests of their clients." The responses she received indicated that these Goldman executives, while insisting on the organization's high ethical standards, also simply "did not get" the point that there might be some higher ethical, let alone legal,  duties to clients, for pure market makers, beyond just providing them with legally-required disclosure.

CONTEXT

Senator Levin claimed that these hearings have been in the works for more than a year. He says that it is just sheer coincidence that they are occurring soon after the SEC decided to file its case by a narrow 3-2 party lines vote, and right when Senator Dodd's reform bill just happens to be on the verge of being introduced. 

Other sources indicate that Levin's investigation had been scheduled to continue through May, and that it was abruptly rescheduled after the SEC vote.

Furthermore, for someone who is supposedly holding hearings to gather facts and find out what was really went on,  Senator Levin had already formed quite a few strong opinions prior to hearing from any witnesses -- as shown in his latest press release.  

 But so what?  Even if  he's was a little simplistic, filled with anti-bank animus, and eager to portray the financial crisis as a kind of morality play,  and even if there's no big payoff other than the theatrics, it was definitely kind of fun to  watch the "show trial" -- finally  see someone  asking  big bankers tough questions under oath.  After all,  regardless of what  "caused" the financial crisis and its interminable aftermath,  it is pretty clear who is paying for it -- and it is certainly  was neither these Senators nor the bankers in the dock. 

( Stay tuned for Part III, which takes a closer look the Goldman Sachs case in light of these hearings, and consider the broader question of other "big bank" roles in the crisis.)

***

(c) JSHenry, SubmergingMarkets (2010)

ORDINARY INJUSTICEEven Beyond Guantanamo, Rendition, and Torture, the US Criminal (In)Justice System Is a National Disgrace James S. Henry

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(click on graph to expand)

In 1840, Tocqueville, otherwise usually an astute observer of American society, proclaimed that “there is no country where criminal justice is administered with more kindness than in the US.” 

In the modern-day  “Law and Order”/ Perry Mason made-for-TV  version of this story, the US is still viewed by many as having,  in author Amy Bach’s words,  “the world’s finest criminal justice system.”

Certainly this is the preferred self-image when, as it is wont to do, the US criticizes the quality of criminal justice in other countries.

 In this sanguine view, US prosecutors, police, investigators, and judges leave no stones unturned to see that crimes are punished, justice is done, and the  US Constitution is respected.

Juries take their independence seriously and fight tooth and claw for the truth;  parole officers and prison wardens are all deeply committed to “correction.”

Public defenders are not only thoroughly informed about  the latest nuances of criminal law,  but also work tirelessly to insure that each and every defendant has his day in court.  

Fortunately, Ms. Bach, a young New York attorney and law professor,  has provided a compelling, well-researched antidote to this conventional fairy tale. 

Her new book, the product of seven years of first-hand research in the bowels of the state and local court systems of New York, George, Mississippi, and Chicago, focuses on “ordinary injustice” -- the routine failure of judges, prosecutors, and defense attorneys as a community  to deliver on the Constitution’s basic promises.

EXCEPTIONS?

Tocqueville was not alone in his naivete'. Initially, the sheer amount of attention given to criminal justice in the US Constitution as well as state constitutions led many observers to  expect that the US  really might be distinctive.

Indeed, criminal rights are the subject of Article I’s explicit reiteration of habeas corpus, plus four  of the first ten amendments (known  collectively as the “Bill of Rights”), and their extension to states and non-citizens by the XIV th  Amendment.

Of  course legal scholars have long been aware of serious gaps between theory and practice  with respect to such rights.  But the gaps have usually been regarded as exceptions. 

Many of the exceptions have occurred in times of war or perceived security  threats  – for example, the Sedition Acts of 1798 and 1918, the World War II internment of Japanese-Americans, the frequent persecution of labor unions, civil rights workers,  and Left wing dissidents from the 1880s right up through the 1970s,  the 2001 Patriot Act, the NSA's illegal spying program, and the systematic mistreatment of "enemy combatants" at Guantanamo and elsewhere. 

Other exceptions have involved the application of "Jim Crow justice” to native Americans, Afro-Americans, and other minorities.

Overall,  however,  most legal scholars have treated these episodes as abnormal deviations. In the long run,  the system as a whole is supposedly always improving,  always trying to do the right thing. 

On this theory,  the US Constitution and the courts that interpret it  are a kind of homeostatic machine, with built-in stabilizers that eventually prevent any serious rights violations from becoming permanent.

THE REALITY: FAST-FOOD JUSTICE

Ccritics on the Left have long maintained that in practice, no such automatic stabilizers  exist. From this perspective,  securing human rights is not ever accomplished once and for all, but  requires a constant, repetitive struggle.

It is also conceivable that "path dependency" and "feedback loops" in the legal system may  be destabilizing. The erosion of rights in one period may increase the chance that rights continue to erode later on.

Critics of the conventional view have also argued that rich people and poor people – including the indigent defendants who now account for about 70 to 90 percent of all felony cases –  essentially confront two very different US criminal justice systems,  especially in state and local courts. 

Only a tiny fraction of mainly affluent criminal defendants ever receive   full-blown Perry Mason/ Alan Derschowitz-type adversarial trials -- and even there, as Harvey Silverglate's recent book emphasizes, even the affluent still face the hazards of vague statutes and prosecutorial zeal. 

Meanwhile, 90 percent of criminal defendants soon learn the hard way that their nominal "rights"  consist of one brief collect call from a jail cell, followed by a tango with an alliance of police, prosecutors, and public defenders whose shared objective is to talk them into pleading guilty.

As Clarence Darrow said in his 1902 address to the inmates at the Cook County Jail, “First and foremost, people are sent to jail because they are poor.” And as the American Bar Association  -- not usually aligned with wild-eyed radicals -- reiterated in 2004, “The indigent defense system in the US remains in a state of crisis.”

  This pervasive “fast food”/ assembly-line plea bargain system  is hardly new, although it has recently become a much greater problem than ever before because of soaring rates of incarceration in the US, as we'll see below. 

DETAILS FROM THE FRONT

 The special merit of Ms. Bach’s book  is that she takes such pat generalizations  about “ordinary injustice” down from the shelf  and brings them to life with a series of extraordinary case studies.

In doing so, she tackles one of the main challenges that confronts any investigator who seeks to understand how the criminal justice system really works. This is the fact that “ordinary injustice,” while pervasive,  is very hard to observe without detailed, painstaking field work.

 As Ms. Bach emphasizes,  this lack of transparency also prevents the public from being able to tell  just what they are getting for the hundreds of billions of  taxes  spent on the criminal justice system --  as well as  how the courts are doing with respect to delivering what is supposed to be their key product – justice. 

 One immediate benefit of Ms. Bach's field work is a rich trove of amazing real world stories about how the system actually works.

 ✔   For example,  in her book we meet a Troy New York city judge who routinely fails to inform defendants in his court of their rights to counsel, imposes $50,000 bails for $27 thefts and $25,000 bails for loitering, and enters guilty pleas for defendants without even bothering to tell them.  

 ✔  We meet a Georgia public defender who runs a “meet’ em, greet’em, and plead ‘em”  shop that delivers just 4 trials in 1500 cases, with guilty pleas entered in more than half of these cases without any lawyer present or any witnesses interviewed. 

 ✔  We meet Mississippi prosecutors who are so concerned about their win/loss records and reelections  that they simply “disappear” all the harder-to-prosecute cases from their files. 

✔  We meet a Chicago prosecutor who allows two iinnocent young people to sit in jail for 19 years before he finally works up the gumption to examine the relevant DNA evidence. This new evidence not only cleared them, but it also helped to disclose a much larger  police conspiracy.

✔  Ms. Bach also reminds us of the unbelievable 2001 case before the Fifth Circuit Court of Appeals (Texas)  where the court labored hard to overrule a lower court decision that would have permitted a defendant on trial for his life to receive the death sentence, despite the fact that his attorney had been fast asleep through much of the trial.  

PATTERNS

Amy Bach’s  book is more than just a series of such horror stories, however.  By doing  painstaking legal anthropology in multiple locations, she's been able to go beyond the limits of the typical one-off journalistic expose about the courts. (See, for example,  A, B, and C.) 

Bach's focus is on identifying recurrent patterns of misbehavior. These patterns were unfortunately  not “exceptional” at all,  but routine and widespread.

Most important, her research underscores the fact that  ordinary injustice is not just due to isolated “bad apples.”  There is a system at work here.  Indeed, injustice thrives on a culture of tolerance for illegal practices  cultivated in whole communities of lawyers, judges, and police over many years.  This culture, and the “fast food”  plea bargaining  that  it facilitates,  are at the root of all her cases. 

Unfortunately Ms. Bach offers no real solutions to the problems that she has described so well. She ends up leaning rather heavily on a fond hope that “new metrics”  will be developed to measure how well individual courts actually deliver “justice” -- sort of the legal equivalent of "No Child Left Behind."  

There may be something to this. But in my experience,  metrics, whether in education or judicial policy,  are the last refuge of the policy wonk.  They will  undoubtedly be a  long time coming. This is  partly because of budget constraints. But  it is also because if the metrics are really worth a damn, they will  provoke stiff resistance from the  very same bureaucratic interests that Ms. Bach had to overcome  in her own research. 

Pending the dawn of this brave new world of  metrics,  I suspect that we will just have to depend on a handful of dedicated lawyers,  investigative journalists, and creative legal scholars like Ms. Bach to keep an eye on the courts,  root out what’s really going on,  and insist that all of the rights we have on paper and take for granted are  still around when we really need them.

ROOT CAUSES

So where does “ordinary injustice” come from, and what can we do about it?  Fundamentally, as noted, the kind of ordinary injustice described by Ms. Bach basically exists because of the “fast food” plea bargaining system. But as she also recognizes,  it would be a waste of time to outlaw this directly. This is  because the plea bargaining treadmill basically derives from the unsuccessful attempt to reconcile several deeply-inconsistent public demands. 

First,   9/11, the war on terror and GWB notwithstanding, most Americans still fundamentally believe in freedom.  Most of us still want to preserve the Bill of Rights --  at least on paper. 

Second,  we all want to save money – especially in these times.  Implementing the full-blown version of the adversarial trials in  every case would be very costly. While taxpayers value human rights, they’re not all frothing to pay a whole lot for them. This is partly just because at any given point in time   their value is a little abstract --  like health insurance before you become ill.

Of course the truth is that the  “fast food” system is anything but cheap. The entire  system –  courts, prisons and police – now costs US taxpayers over $250 billion a year.  That figure has been growing like Topsy – it  is now at least three times the 1990 level.

Over  80 percent  of these costs are born by the hard-pressed state and local governments.  Most of the funds are digested by police and prisons;  courts only account for about one fifth.  Even so, it is far from clear that ordinary  taxpayers  – most of whom never expect to see the inside of a criminal court or jailhouse  themselves --  would be willing to pay anything more to help defend the poor  or curb ordinary injustice. 

Third, what US taxpayers do care about, at least until now,  is “fighting crime,” especially drug-related and lower-level  street crime. Ever since the 1970s, these have been the fastest growing contributors to system-wide criminal justice costs.

For many  taxpayers, under the influence of thirty  years of campaign propaganda from  the “war on drugs” industry and “tough-on-street crime” politicians, this has usually been reduced to  “lock ‘em up  and throw away the key, as fast as possible.” 

The result is that today, in the US, the number of inmates in our local jails and state and federal prisons is at an all-time high: over 2.3 million, 6.8 times the number in 1974.

This means the US has the highest per capita incarceration rate in the world. It is  754 per 100,000, higher than Russia (610), Cuba (531), Iran (223), and China (119),  let alone developed countries like the UK (152), Canada (116), France (96), Germany (88), and Japan (63).

  Indeed, southern states like Louisiana (1138), Georgia (1021), Texas (976),  Mississippi (955), Oklahoma (919), Alabama (890),  Florida (835), and South Carolina (830) have distinguished themselves with even higher rates -- by far the highest rates of incarceration in the world.   This policy appears to be driven in part by the political benefits of so-called "prison gerrymandering," which permits prisoners to be counted as residents of the places where prisons are located, rather than where they come from, for purposes of allocating legislative seats. 

This alone helps to explain the fact that annual cost of all US prisons now exceeds $80 billion a year. Indeed, the annual cost of warehousing prisoners in California and New York prisons is at least $50,000 per year per prisoner – much more than the cost of providing them with full time jobs outside!  In addition, in the US, there are over 9 million former prisoners who are now outside prison. More than  5.1 million others remain under supervision, on parole or probation.

All told,  the US now has more than 11.3 million past and present inmates. This is  the world’s largest domestic criminal population, an incredible 23.5 percent of all current prisoners in the world.  No doubt the sheer scale of our “criminal industry experience curve”   gives us at least one  clear national competitive advantage -- in crime.  

Indeed, because of our  propensity to throw people in jail regardless of what becomes of them there,  we now account for over a third of the entire world’s living past and present prisoners.  Not surprisingly, this also affords us by far the most costly judicial and corrections systems that the world has ever seen.

For all these costly incarcerations, despite the vast sums and short-cuts associated with processing all of these millions through the pipeline as rapidly as possible, there is not one speck of evidence that this system has contributed one Greek drachma to falling crime or safer streets. 

Indeed, the best evidence is just the opposite. Over two-thirds of US offenders who are released from prison are likely to be re-arrested within three years.  Reactionary voices may argue that this just shows we should hold more of them longer, a sure recipe for system bankruptcy. What it really shows is the complete lack of  any real “correction” or retraining in most US prisons. The system that the entire criminal justice machine works so hard to get people into as fast as possible has become the world’s largest training ground for serial offenders.

In short,   if we really want to understand the roots of "ordinary injustice,"  as well as  the intense pressure that each and every player in the US criminal justice system feels to cut corners and slash costs each and every day,  we need to look no further than this self-perpetuating  failed prison state-within-a-state.

After all, this particular failed state already has a total population of current inmates and former inmates under supervision that is greater than Somalia’s!

 

***

"WE HAVE LIFT-OFF!" What a Difference a Day Makes to Obama's "Base" James S. Henry

It was altogether fitting and proper that yesterday's historic House vote on health care reform took place on the first day of Spring 2010. All across the country, progressive activists -- including many of us who worked hard for President Obama's election not only in November 2008 but in endless primaries before that --  have been  in a deep funk about the Administration's "failure to launch" on a wide range of issues, from health care and immigration reform to climate change and financial regulation, to Guantanamo and Middle East peace talks.

For months it seemed as if our two-party system had been surrendered to  a one-party veto,  that  Hill Democrats had become feckless and supine,  and that  "Si Se Puede" had somehow been translated into "Beltway" as "No Way, Jose."

Now the clouds have lifted, at least temporarily, and the first rocket soars skyward. Of course this is only the beginning. But it sure feels good for a change to be staring up at the sky, watching that baby split the clouds.

PURISTS

 Some purists on the Left are already denouncing the House bill as a handout to insurance companies that falls far short of the "single payer" or "public option" alternatives of their dreams. Of course the bill also does not extend public subsidies to cover abortions -- although that was already the case under existing Federal law.  

 Despite these shortcomings, most progressive observers -- including Krugman, Kucinich, and Michael Moore -- see this as a critical step forward.

They realize that the only alternative to passing the House bill was a Republican victory that would not only have jeopardized the rest of the Democratic agenda for the rest of this year, but would have also led to a catastrophic defeat at the polls in November.

Short of organizing yet another doomed Third Party quest, they  also realize that there is simply no alternative to pushing for further reforms within the Democratic Party.

BAGGERS

Meanwhile, on the Right, as usual, there is Sturm, Drang, und Zorn, all of which add up to a strong prima facie case for providing free anger management coverage to qualified Republicans  in the final Senate health care bill.  

Vulture capitalist Mitt Romney, author of a not-wildly-dissimilar Massachusetts health plan, has already promised to seek to "repeal" the bill, while a group of mainly Red State attorney generals is threatening  to challenge the bill's constitutionality.

Meanwhile, the rag-tag "Tea Bag" army has completely lost control, exposing its frothing bigotry and astounding ignorance for everyone to see.

Far from being intimidated by these reactionaries, Democrats should be delighted. Not only is all the adolescent right-wing rage unappealing, but it is a sure sign that our policies are finally shaking things up.

BASE JUMP

Net net, the impact of this bill's passage on Obama's  "base" is one of its most important consequences -- in addition to  the series of health care reforms that are now much more likely to follow.

Eventually these  reforms really will help the millions of Americans who struggle each and every day with our high-cost,  minimally-efficient health care system. 

Meanwhile, this victory has an immediate short-term payoff. It reminds Obama's  "base"  that, as President Obama said last night, "Big changes are still possible in America." 

It also  reminds us of how good it feels to actually win.

Far beyond health care,  as the American Right clearly fears more than anything else, this  could provide a huge lift for many other progressive reforms.

Houston, we have lift off!

***

True Unemployment: 20% and Still RisingSend Geithner Home to Wall Street!His Legacy: 30+ MM Underemployed, Failed Stimulus, No Bank Reform, Soaring Deficits, Sinking $$James S. Henry

With official US unemployment now at 10.2 percent,  the third highest among the 29 OECD countries,  and unofficial unemployment at least two times  higher, more than 30 million American workers and their families are now being forcefully reminded  every day that "the reserve army of the unemployed" is not just pure Marxist rhetoric.  

While China and most developing countries are already recovering nicely from this First World-made debt crisis, all indications are that US unemployment is still rising, and that we will soon see a new postwar record -- -- two years after the "Great Recession," the longest and deepest since the 1930s,  began in December 2007. 

UNEMPLOYMENT:  GET REAL

To get the real unemployment picture, we need to adjust the official statistics upwards. First, as the Bureau of Labor Statistics' own data shows, the "official" rate leaves out many workers who are (a) underemployed, working only part time when they'd prefer full time jobs (9.3 million now); (b) fully unemployed,  and desirous of jobs, but not counted in the official statistics because they've given up look (2.3 to 5.6 million). Allowing for these two adjustments already boosts "underemployment" to the 17.5% figure cited in some recent press reports.

But even that figure is too low.  First,  it omits the country's 20 million "self-employed" (incorporated and unincorporated), a growing share of the labor force. All  are counted as "employed" in the official statistics, no matter how underutilized they are. Yet other surveys report that this group is also experiencing serious underemployment.

Furthermore, the official statistics also leave out  about 1.6 million who are now serving in the military, plus the record 2.33 million  US prison inmate population. Both populations are heavily young, male,  and undereducated, and would therefore experience relatively high unemployment. This is especially important for the sake of historical comparability  -- say, for comparisons with the 1930s, when the US military  and the prison populations were both tiny. 

In addition, of course, when the Great Recession started there were at least 8 to 10 million undocumented workers in the US, none of whom appear in the official statistics. Whatever we think of illegal immigration, the fact is that most of these workers have not been able to return to their homelands, and are still here, quietly suffering through this recession. Indeed, to the extent that they are unable to draw on unemployment benefits and other social programs to cushion the blow, they are being forced to compete with the rest of us more fiercely than ever.

All told, therefore, as shown in the adjacent chart (click to pop up), this makes the "real" US unemployment in October 2009 at least 20 percent or more -- twice the official rate.

TO WHOM DO WE TURN?

One might have expected this historic jobs crisis to have provoked a quick, decisive response from Washington  Unfortunately, American workers have also recently been reminded that, disturbingly, the Democratic Party can simply no longer be counted on to put labor's interests ahead of capital's. 

This was evident to some of us when Obama's first stimulus package was being designed -- given that it was loaded up with so many Christmas goodies for special interests and so many regressive tax cuts. 

But by now it should be clear to anyone but the most bullet-headed diehard party ideologues.

Whatever else Obama's February 2009 stimulus package has accomplished, it simply hasn't created nearly enough new jobs, fast enough.

Nor has it provided nearly enough aid to debt-ridden homeowners --  as the continued record-setting pace of home foreclosures and bankruptcies testifies.

These basic policy shortcomings are not due to some Herbert Hoover or Ronald Reagan.  While Obama obviously inherited a mess, by now enough time has passed that his administration has become responsible for  its continuation.

How high does unemployment have to go for the Obama Administration to actually  want to do something more about it?

When FDR took office in March 1933, unemployment stood at nearly 25 percent of the labor force, and he immediately took decisive action to make sure that unemployment was reduced, by establishing targeted federal job creation programs, attacking anti-competitive practices by large banks and corporations, and making sure debt relief got through to small businesses, farmers, and homeowners. 

What is it about the character of the Obama Administration that has made its response so different?

THE FIFTH COLUMN

As we've argued for some time (See "The Pseudo Stimulus," The Nation, February 3, 2009, and "Too Big Not to Fail," The Nation, February 23, 2009),  one basic problem seems to be that Obama's Administration, unlike FDR's, has been overly dependent from the get-go on pro-Wall Street insider/ fifth columnists, captained by the Supreme "Jimmy Do-little"/  Andrew Mellon of the period,  Treasury Secretary Timothy Geithner. 

Not only has Geithner  been far too slow to recognize that the first stimulus was woefully inadequate.

Time and again, he and his x Goldman groupies at Treasury have also piled out of the Trojan horse to defend traditional Wall Street prerogatives. They have:

• ☛Opposed serious restrictions on executive compensation and perks for senior bank staff that are unrelated to performance;

• ☛Opposed  clawbacks or windfall profits taxes on the hundreds of millions in stock options  granted by bailed-out banks last spring;

☛Opposed serious debt relief for homeowners, and failed to strengthen the loan modification program introduced last spring, even after it had clearly failed;

☛Failed to fight hard for "cram-down" legislation that would have required banks to accelerate loan modifications;

☛Opposed   the establishment of a new independent consumer protection agency for financial products; 

☛Opposed forcing banks that have accepted US aid to accelerate lending to small business and homeowners;

☛Opposed proposals for a "Tobin tax" on financial transactions, as suggested by the UK and France, as a way of financing climate change aid;

☛Opposed G20 proposals to clean up a wide variety of tax haven abuses by major bank and companies around the globe;

☛Failed to achieve any serious reforms whatsoever  of financial regulation, more than a year after the crisis;

☛Failed to get anywhere with the vaunted "toxic asset buyback" program;

☛Insisted that any reforms leave the ultimate regulatory authority in the hands of the US Federal Reserve  -- an anti-democratic, pro-Wall Street institution if ever there was one, whose policy errors  have contributed significantly to this costly crisis. 

LOSE THE BOZO

Of course at this stage, with US budget deficits at a postwar high, and controversial measures like health care reform, climate change, Afghanistan, and immigration still in stuck in traffic, plus a mid-term Congressional election fast approaching,  it may well be too late for the Obama Administration to propose a second stimulus. If this were going to happen, it  would have needed Treasury and White House leadership already. 

It is not too late, however, for Obama to send a signal that he actually holds his own senior executives accountable.

Secretary Geithner, I'm told, already has multiple job offers from at least a half a dozen leading banks and hedge funds, so he will only profit from this exit  -- which he probably anticipated all along. 

By clearing the decks and bringing in a fresh team with some new, more progressive ideas,  more daring-do, and independence, this could  help prevent Obama from repeating Jimmy Carter's sad, rapid one-term involution. 

In any case, when the history of the Obama Administration is written, it is worth remembering that at least a few progressives warned about all this very early  --  the risks of adopting a "pseudo-stimulus," failing to aid small debtors and businesses, and failing to exert strong control over the banks.

Ultimately, that may be one of the biggest costs of this crisis --  the lost opportunity to show that Democrats really are still capable of providing the country with outstanding, disinterested economic leadership in times of crisis. 

(c) SubmergingMarkets, 2009

SOCIALISM FOR BANKERS, SAVAGE CAPITALISM FOR EVERYONE ELSE? Bailout Jeopardizes the Entire Progressive AgendaJames S. Henry

"“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” --  Warren Buffet, June 2008

Ladies and gentlemen: pardon my intemperance,  but it is high time for some moral outrage --  and a little good old-fashioned class warfare as well, in the sense of a return to seriously-progressive taxation and equity returns for public financing.

After all, as this week's proposed record-setting Wall Street bailout with taxpayer money demonstrates once again,  those in charge of running this country have no problem whatsoever waging "class warfare" against the rest of us -- the middle classes, workers and the poor -- whenever it suits their interests.

At a time when millions of Americans are facing bankruptcy and the risk of losing their homes without any help whatsoever from Washington DC,  the CEOs and speculators who created this mess, and the top 1 percent of households that owns at least 34 percent of financial stocks, and the top 10 percent that owns 85 percent of them, have teamed up with their "bipartisan" cronies in Congress, the US Treasury and the White House to stick us with the bill, plus all of the risk, plus none of the upside.

Upon close inspection, the Treasury's proposal is nothing more than a bum's rush for unlimited power over hundreds of $billions, to be distributed at Secretary Paulson's discretion behind closed doors and without adequate Congressional oversight.

This time they have gone too far.

As discussed below, the cost of this bailout could easily jeopardize our ability to pay for the entire economic reform program that millions of ordinary citizens across both major parties have been demanding.

Some kind of bailout may indeed be needed from the standpoint of managing the so-called "systemic risk" to our financial system.

However, as discussed below, the Paulson plan does not really tackle the real problem head on. Thsi is the fact that many financial institutions, including hundreds of banks, are undercapitalized, and need more equity per dollar of debt, not just fewer bad assets.

To provide that, we may well want to mandate debt restructurings and debt swaps, or provide more equity capital .

If private markets can't deliver and we need to inject public capital into financial services companies on a temporary basis, so be it. But it should only be in return for equity returns that compensate the pubilc for the huge risks that it is taking.

Call that "socialism" if you wish -- I think we are already well beyond that point -- sort of like Chilean economists became in 1983, when the entire private banking sector collapsed and was nationalized -- successfully -- by the heretofore "Los Chicago Boys."

To me, public equity investment, in combination with increased progressive taxation, should be viewed as just one possible way to get these companies the equity they need, while providing fair compensation to the suppliers of capital and participation in any "upside," if there is one.

Absent such measures, progressives certainly have much less reason to support this plan. After all, the increased public debt burdens that it would impose are so large that they could easily jeopardize our ability to pay for the entire economic reform program that millions of ordinary citizens (across both major parties) have been demanding.

From this angle, the Paulson program, in effect, is a cleverly-designed program to "nationalize" hundreds of billions of risky, lousy assets of  private financial institutions, without acquiring any public stake in the private institutions themselves, and without raising any tax revenue from the class of people who not only created this mess, but would now like to be bailed out. 

Any mega-bailout should come at a high price for those who made it necessary.

In particular, we must make sure that the butcher's bill is paid by the tiny elite that was responsible for creating this mess in the first place.

This is not about retribution. It is about insuring taxpayers are truly rewarded for the risks that they are taking -- isn't that the capitalist way?  And it is also about making sure that this kind of thing never happens again.

After all, the real tragedy of this bailout is its opportunity cost. Consider a well-managed $1 trillion "matching" investment in strategic growth sectors like energy and health....If we really wanted to insure our competitive health, we would not be investing $1 trillion in lousy bank portolios generated by the chicanery-prone financial services sector.

CAPITALISTS AT THE TROUGH

In financial terms, this latest Wall Street bailout is likely to cost US taxpayers at least $100-$150 billion per year of new debt service costs -- just for starters.

This estimate is consistent with the $700 billion ("at any point in time") that President Bush and Treasury Secretary Hank Paulson are requesting from Congress this week to fund their virtually-unfettered ("unreviewable by any court") new "Troubled Asset Relief Program." (TARP)

The sheer scale of Paulson's proposal implies that federal authorities plan to acquire at least $3 trillion of mortgage-backed securities, derivatives, and other distressed assets from private firms -- on top of Fannie/ Freddie Mac's $5.3 trillion mortgage securities portfolio. How the Fed and the Treasury actually propose to determine the fair market value of all these untrade-able assets is anyone's guess. But since  40 percent derive from the exuberant, fraud-prone days of 2006-7, they will probably all be subject to steep (60-90 percent) discounts from book value.

That's consistent with the 78 percent  "haircut" that Merrill Lynch took on the value of  its entire mortgage-backed securities portfolio earlier this month -- actually, more like a 94.6% haircut, the portion that it received in cash.

This implies, by the way, that if the Federal Government were required to "mark to market" their $29 billion March 2008 investment in Bear Stearns' securities, it would now have a cash value of just $1.6 billion. Not a very hopeful sign from a taxpayer's standpoint.

Paulson's latest proposal dictates another sharp increase in the federal debt limit, to $11.313 trillion. This limit stood at just $5.8 trillion when Bush took office in 2001.  By October 2007 it stood at $9.8 trillion. Then it jumped again to $10.6 trillion in July 2008, during in the Fannie/Freddie meltdown. As of March 2008, the actual amount of Federal debt outstanding was $9.82, just six months behind the limit and gaining.   

All this new TARP debt will be on top of $200 billion of new debt that was issued to buy Fannie/Freddie's preferred stock, plus the assumed risk for their $1.7 trillion of debt and $3.1 trillion of agency mortgage-backed securities.

It is also in addition to  the $85 billion 2-year credit line that Federal Reserve just extended to AIG, the $29 billion "non-recourse" loan provided for the Bear Stearns deal noted above; $63 billion of similar Federal Reserve lending to banks this year; $180 billion of newly-available Federal Reserve "reciprocal currency swap lines:" $5 billion of other emergency Treasury buybacks of mortgage-backed securities;  $12 billion of Treasury-funded FDIC losses on commercial bank failures this year (including IndyMac's record failure in July); perhaps another $455 billion of Federal Reserve loans already collateralized by very risky bank assets;  and the FDIC's request for up to $400 billion of Treasury-backed borrowings to handle  the many new bank failures yet to come.

There is also the record $486+ billion budget deficit  (net of $180 billion borrowed this year from Social Security trust fund) that the Bush Administration has compiled for 2008/09, drivem in part by the continued $12-$15 billion per month cost of the Iraq and Afghan Wars and the impact of the deepening recession on tax revenues. Longer term,  there is also the projected $1.7 trillion to $2.7 trillion "long run" cost of those wars (through 2017). 

All told, then, we're talking about borrowing at least another $1-1.4 trillion of federal debt to finance a record level of lousy banking.

COMPARED TO WHAT?

By comparison, Detroit's latest request for a mere $25 billion bailout looks miserly. And if we were in Vienna, we would say, "We wish we could play it on the piano!"

Compared to other bailouts, this is by far the largest ever.

For example, the total amount of debt relief provided to all Third World countries by the World Bank/IMF, export credit agencies, and foreign governments from 1970 to 2006 totaled just $334 billion ($2008), about 8 percent of all the loans. (Henry, 2007).

The savings and loan bailout in the late 1980s cost just $170 billion ($2008).

And the FDIC's 1984 bailout of Continental Illiinois, the largest bank failure up to this year, was (in $2008) just $8 billion (eventually reduced to $1.6 billion by asset recoveries).

Meanwhile, compared with other countries that are well on their way to building forward-looking "sovereign wealth funds" to make strategic investments all over the world, the US seems to be on a drive to create this introverted "sovereign toxic debt dump." 

CASH COST

No one has a very precise idea of how much all this will cost, not only because many of the securities are complex and thinly traded,  but also because their value depends to a great extent on the future of the US housing market. Housing prices  have already fallen by 20-32 percent in the top 20 markets since mid-2006, and they continue to fall in 11 out of 20  major markets, especially Florida,  southern California, and Arizona, where the roller-coaster has been the most steep.

At current T-bond rates (2-4 percent for 2-10 year bonds, the most likely maturities), near-term cash cost of this year's bailu is likely to be an extra $40 to $60 billion a year in interest payments alone. 

Furthermore, since the borrowed funds will be invested in high-risk assets, the most important potential costs involve  capital risk. There's a good chance that, as in the case of Bear Stearns, we'll ultimately get much less than $.50 for each $1 borrowed and invested. For example, Fannie and Freddie alone could easily be sitting on $500 billion of losses (=$2 trillion/$5.3 trillion* 50% default*50% asset recovery).

This could easily make the long-run cost of this bailout to taxpayers at least $150 billion a year.   

No wonder traders on the floor of the New York Stock Exchange reportedly broke out singing "the Internationale" when they heard about the bailout.

But the direct financial costs of the bailout are only the beginning....

HIJACKING THE FUTURE

Last week's events produced terabytes of erudite discussion by an army of Wall Street journalists, prophets and pundits about short-selling rules, "covered bonds," and the structure of the financial services.

This is absolutely par for the course, as modern financial crisis journalism is concerned -- the "story" is always told mainly from the standpoint of what's in it for the industry, the banks, the regulators, and the investors.   

For the 90 percent of Americans who own no money-market funds, and less than 15 percent of all stocks and bonds, however, this bailout means just one thing.

All of the money has just been spent.  And it has not been spent on you.

For example, unless we demand an increase in taxes on the rich, big banks, and  big corporations, as well as some public equity  in exchange for the use of all this money, we can expect that the long-term costs of this bailout will "crowd out" almost all of the $140 to $160 billion of new federal programs that Barack Obama proposed. It will certainly make it impossible for Obama to finance his programs without either borrowing even more heavily, or going well beyond the  tax increases (on oil companies and the upper middle classes) that he has proposed.

Without such changes, there will be no federal money available for comprehensive health insurance, or the reform of the health care delivery system.

There will be no additional funding for pre-school education, child care, or college tuition.

There will be no additional funding for investments in energy conservation, wind, or  solar power.

There will be no additional investments in national infrastructure (e.g., the reconstruction of our aging roads, highways, and bridges to "somewhere.")

Highway privatization and toll roads, here we come.

There will be no money to bail out the millions of Americans who are on the brink of losing their homes.

The supply of housing loans and other credit will remain tight, despite the bailout.

Indeed, if the economic elite has its way,  the long-sought dream of "a home for every middle-class American family" may be abandoned as a goal of government policy.

Meanwhile, the government-sponsored consolidation of the financial services industry will make financial services more profitable than ever.

This is good news for the "owners of the means of finance." For the rest of us, it means steeper fees and rates.  And if we fail to keep up with the new charges, we'll  face the rough justice delivered by the latest  bankruptcy "reform," which was rammed through the Congress in 2005 with support from many top Democrats.   

There will be no money to shore up the long-run drain on Social Security or Medicare.

Indeed, ironically enough, this latest bank bailout may even increase the financial pressure to privatize these comparatively successful government programs.

There will be no extra money to house our thousands of new homeless people,  relieve poverty, rebuild New Orleans, or support immigration reform.

There will be no additional funds for national parks.

Indeed, we might as well start  by privatizing our national and state parks, and drilling for oil and gas in the Arctic National Wildlife Refuge,  Yosemite,  the Grand Canyon, and right off the Santa Barbara coast. We're going to need those federal lease royalties. (Perhaps the oil barons will lend us an advance.) 

There will be no funds available for increased homeland security.

There will certainly be no "middle-class" tax cut.  Absent a progressive tax reform, the only "cut" the middle class is going to receive is another sharp reduction in  living standards.

TRUMPING REAGAN

All told, the Bush/Paulson "permissive banking/ massive bailout" model  beats even the old 1980s vintage Reagan formula, which tried to force government down-sizing with huge tax cuts. 

Contrary to the sales pitch, those cuts never produced any incremental tax revenues, let alone any significant down-sizing.  It has simply proved too easy for the federal government to borrow. And "conservatives" can always find wars, farm subsidies, defense contractors,  and "bridges to nowhere" to spend the money on, just as fast as liberals. 

Lately, however, it appears that US debt levels may indeed be reaching the point where they could impose a limit on increased spending.  Given the sheer size of the new federal debt obligations, foreign creditors,who have recently been supplying more than half of new Federal borrowing, have been muttering about taking their lending elsewhere. And outside the financial services industry, Main Street companies are concerned being "crowded out" by record federal borrowing.

THE ALTERNATIVE -- THE "GET REAL" NEW DEAL

To make sure that real economic reform is still feasible, we need to demand a "Get Real/ New Deal" from Congress right now. 

At a minimum, this Get Real/New Deal package should consider measures like: 

(1) The restoration of stiff progressive income and estate taxes on the top 1 percent of the population (with net incomes over $500,000 a year and estates over $5 million) -- especially on excessive CEO and hedge fund manager compensation;

(2) Much more aggressive enforcement and tougher penalties against big-ticket corporate and individual tax dodgers;

(3) Tougher regulation of financial institutions  -- possibly by a new agency that, unlike the US Federal Reserve, the SEC, and the US Treasury, is not "captive" to the industry;

(4) A crackdown on the offshore havens that have been used by leading banks, corporations,  and hedge funds to circumvent our securities and tax laws;

(5) The immediate revision of the punitive bankruptcy law that Congress enacted in 2005 at the behest of this now-bankrupt elite; and

(6) While we are at it, stiff "pro-green" luxury taxes on mega-mansions, private jets, Land Rovers, yachts, and all other energy-inefficient upscale toys. 

We also need (7) a National Commission to investigate the root causes of this financial crisis from top to bottom, and actually (unlike the hapless, ineffectual 9/11 Commission) hold people accountable.

Finaily, if the pubilc is going to provide so much of the risk capital for this restructuring, we should demand (8) public equity in the private financial institutions that receive so much of our help.

This will permit taxpayers to share in the upside of this restructuring, rather than just the downside risks.

Along the way, this will require that we explain to Secretary Paulson that this country is not Goldman Sachs. Even after 8 years of President Bush, this is still a democracy. 

Secretary Paulson is not going to be given unfettered discretion to hand out closet "liquidity injections" to his buddies on the street -- no matter how worthy they are. 

Over time, this progressive Real/ New Deal would help raise the hundreds of billions in new tax revenue needed to offset the costs of this bailout.

This will be essential, if the Federal Government is to be able to afford key reforms like health insurance, clean energy, and investments in education.

These may not matter very much to Wall Street executives, financial analysts, Treasury and Federal Reserve executives, or the more than 120-130 Members of Congress and 40-45 US Senators who earn more than $1 million a year -- and are already covered by a generous "national health care" package of their own design.

But these  are the key "systemic risks" that ordinary Americans face. 

These reforms may sound ambitious. So is the bailout.  And the reforms that we are discussing are only fair.

After all, we the American people have recently been the very model of forgiveness and understanding. 

We have tolerated and footed the bill for stolen elections,  highly-preventable terrorist attacks, gross mismanagement of "natural" disasters, prolonged, poorly conceived, costly wars, rampant high-level corruption, pervasive violations of the US Constitution,  and the systematic looting of the Treasury by politically-connected  defense contractors, oil companies, oligopolistic cable TV and telecommunications firms, hedge fund operators, big-ticket tax evaders, and our top classes in general.

Does "class" still matter in America?  You betcha -- perhaps more than ever. But enough is enough.  Call your Congressperson now. Demand a"Get Real/ New Deal" qualifier to the bailout package before it is too late. We deserve to get much more for our money. So do our kids.

(c) SubmergingMarkets, 2008

NARRATIVES, NOT IDEASMcCain's Contradictory, Fearful Vision of the Next Four YearsJames S. Henry

Outside the Republican convention hall, Twin City cops and National Guardsmen in full-scale battle gear were arresting credentialed journalists like Amy Goodman and pepper-spraying peaceful demonstrators -- though you didn't hear much about that from the respectable TV commentators who were safe inside, battling balloon drops.   

Inside the hall, we were treated to an odd combination of "Naughty Librarian" Gov. Sarah Palin, John McCain trying for the nth time to appear natural while reading the teleprompter and bashing his own party, and 2380 raucous Republican delegates -- 1.5 percent black, 5 percent Hispanic, 32 percent female,  80 percent over 50, and nearly 100 percent over-fed  -- trying to appear jubilant, grinding to the heavy-metal rhythms that someone in the RNC hierarchy must have thought were a cool idea.   

We also had yet another recapitulation of the Arizona Senator's horrific five years in a POW camp, after being shot down on his 23rd mission over Hanoi back in 1967.

Indeed, if McCain somehow manages to win this election, he will have no one more to thank than Nguyen Van Dai, the 68-year old retired  Vietnamese colonel who actually launched the SAM missile that downed McCain's A-4 Skyhawk on October 27, 1967.

In any case, after watching the Republican Convention from mind-numbing start to finish, it is now crystal clear that,  apart from McCain's 41-year-old combat narrative -- supplemented by the less familiar narrative about Palin's decade-long  battle to combine procreation, small-time government, and the Assembly of God's "Plan for Alaska" -- the Republican Party has become the equivalent of the US housing industry.

It is intellectually bankrupt, with almost no new ideas. As former Reagan speech writer Peggy Noonan correctly put it, "They went for this, excuse me, political bullshit about narratives."

Worse than that, the Republican Party has also turned its back on many of its old favorite best ideas and brand values -- for example,  "small government," "balanced budgets," "non-intervention," "environmental protection," and "the US Constitution."

Palin's first 15-minutes of fame temporarily blinded many commentators  to this basic fact.  But even the most faithful die-hard Republican strategists now agree that, apart from the novelty of her Bat Mitsvah,  this abbreviated convention was a gigantic, expensive messaging mess -- and, on balance,  a gift to the hapless Democrats -- who are otherwise still fully capable of losing this race, even with a full-scale political and economic gale at their backs.

We'll explore the numerous contradictions in McCain's program below.

(c) SubmergingMarkets, 2008

CONTRADICTIONS EVERYWHERE

I. CHANGE WE CAN BELIEVE IN?

Obviously McCain is trying to jump on the "party of change" bandwagon. This is hardly a strategic insight,  given overwhelming popular discontent with the "country's direction" and Obama's success with this theme.

On the level of practical policies, however, it is a little late. 

Indeed, it has really been McCain's policy team that has been doing most of the "changing." 

>For example,  McCain has adopted the idea, which he once opposed,  of extending Bush's tax cuts for corporations and the rich -- the $10 trillion long-run cost of which  is even larger than th $7 trillion that Bush's cost.

Even if we abolish all future Congressional "earmarks," this scheme would cause the US deficit to soar even higher than its record $500 billion current level.

If we have learned anything from the last eight years, it is that such tax cuts don't pay for themselves or reduce government spending; they just produce larger government deficits. 

>McCain's gone completely quiet on the constitutional issues of torture, closing Guantanamo, and illegal surveillance.

To some extent so has Obama. But these were supposed to be the kind of "vintage maverick" issues where McCain spoke truth to power.

>He's got nothing to offer on the deepening economic recession or the national housing crisis, beyond more of the same.

His close friend former Senator Phil Gramm has resigned as Co-Chair of the campaign, but he is still likely to be named McCain's Secretary of the Treasury. 

Yet he is a leading banking industry shill and an opponent of tougher regulation, whose efforts helped contribute to the lax lending policies that have produced the joint housing/banking crisis.

> McCain's ideas about privatizing education, health insurance, Medicare and Social Security are all warmed- over versions of the same proposals the Republicans have tried and failed to implement for over a decade, despite their control of Congress for much of this period.

Especially with the new, probably Democratic-controlled House and Senate, these proposals will be dead on arrival. We will not have "change," but four more years of stasis.

> McCain's only ideas for solving the energy crisis are (1) drilling offshore or in Alaska, and (2) building more nuclear power plants.

Regardless what one thinks of them, these two tactics would both take years to have any impact.

Even if they could overcome the substantial state and federal regulatory obstacles in their way,  they would not produce any additional energy for at least 10 to 12 years.

In contrast, conservation and alternative energy sources like wind and solar produce benefits very quickly.   

> McCain has nothing interesting to say about a whole host of pressing international economic issues, including the faltering WTO round, addressing global poverty, and reviving the global Kyoto accords on the environment.

>On the question of Iraq,  McCain still opposes the idea of a definite timetable for withdrawal, which even the Iraqi Government now supports.

> On the questions of Iran and Georgia, McCain has sounded even more aggressive than VP Cheney, who wisely did not even bother to attend his own Party's convention.

II. "ANTI-WASHINGTON?" 

At least since Barry Goldwater, the Republican Party simply can't get enough of portraying itself as "outside the Beltway," the underdog from the hinterland, and the victim of some vast liberal media conspiracy.

A visitor from another planet might be surprised to learn that  the Republican Party has actually won the White House 9 out of 16 times since 1948. And John McCain, in particular, has been a member of Congress since 1982.

Furthermore, it also controlled the US House of Representatives from 1996 to 2006, and the US Senate from 2000 to the present, with enough seats to prevent any Democratic initiatives.  It  has of course controlled the White House from 2000 to the present. Along the way, it has also taken control of the US Supreme Court and the leadership of key "independent"  federal agencies, like the Federal Reserve.

The Republican Party has also recently compiled a record number of convictions for illegal lobbying activities -- indeed, shortly before McCain was deliver his acceptance, the legendary White House intimate Jack Abramoff was receiving a four-year jail sentence for corruption and bribery. 

The only "change" we can be sure of will come when -- as now appears likely -- the Republican Party  loses control of all these institutions this November.

III.  A BIPARTISAN MAVERICK? 

As noted above,  McCain has actually become less and less of a maverick, and more and more partisan, as time goes by.

The night before his own address to the convention, his own VP candidate could not have been more partisan in her feral attacks on Obama.

Indeed, just by nominating this hard-right, anti-choice, anti-gay, anti-environment, anti-libertarian for VP despite her self-evident lack of credentials,  rather than choosing any number of more talented, moderate Republican women (or men), McCain has clearly helped to polarize the national debate.

This puts paid to all the rhetoric about bipartisanship in his acceptance speech.

IV. OPPOSED TO BIG BROTHER? 

We were amazed and delighted to hear Mitch Romney describe his party not only as "the party of ideas," but as being opposed to "Big Brother."   

It seems that Mitch should stick to pillaging troubled companies, his forte. Is he really not aware that it is the Bush Administration that has been conducting illegal wiretaps and e-mail surveillance on millions of Americans during the last six years?

V. NATIONAL SECURITY EXPERIENCE? WHERE'S OSAMA? 

 To listen to McCain, Bush, Giuliani, Romney, and Co., our visitor from another planet would probably conclude not only that 9/11 did  not happen on the Republican Party's watch, but also that the Iraq War was eminently justified -- indeed, in candidate Palin's memorable words, it is "a task from God".

According to the rhetoric at the Republican convention, the war against Osama Bin Laden and  the Taleban in Afghanistan and Pakistan (remember them?  the original perpetrators of 9/11?)  must also be going so well that we can:

(1) Afford not to mention Osama or Afghanistan at all;

(2) Afford to extend NATO to Georgia and the Ukraine, right on Russia's borders;

(3) Afford to call Iran "the biggest supporter of state terrorism," and threaten it  with military force! 

When it comes to national security, Republicans do have this praiseworthy tendency to recall over and over again great moments of courage and honor that occurred long ago -- say 41 years ago.

But when it comes to all the shameful events that have happened on their own watch in just the last eight years,  they become forgetful.

In my experience, Republicans are systematically incapable of apologizing for anything, even when they are grossly in the wrong.  Indeed, that is a pretty good litmus test for a Republican.

>Lest we forget, Osama bin Laden, still safely ensconced in Pakistan (our putative ally), was the author of 9/11. Next week we'll commemorate the 7th anniversary of that date -- why has he not been brought to justice in seven years?

> Lest we forget,   it was the Bush Administration -- especially Condi Rice and George Tenet -- that ignored numerous signals that allowed 9/11 to happen.

> Lest we forget, Mayor Giuliani was the genius who located the World Trade Center's  emergency command post right across from the Twin Towers with a diesel fuel tank (even though they'd been an obvious target since at least 1993),  ordered the cheap Motorola radios for NYC first- responders, and recommended the mobbed-up former Police Commissioner Bernard B. Kerik to be head of the Department of Homeland Security. 

>Lest we forget, it was the Bush Administration -- with the so-called "maverick/military expert" John McCain toeing the party line, unlike Obama -- that took us to war in Iraq on a pack of lies.

Lest we forget, it was the Bush Administration that, once we got there, completely mismanaged the war effort -- for example, by choosing Kissinger protege  L. Paul Bremer to administer the situation.

Bremer's very first decision was to disband the Iraqi Army -- alienating all those thousands of Sunnis who have recently become our best friends in the "Awakening,"  and setting the stage for Al Qaeda's first real entry into the country -- on US coat-tails!

THE IRAQ/ AFGHAN CONUNDRUM

Finally, returning once more to the question of Iraq, it seems as if the Republican Party is trying to pull off the same game it played with 9/11.

Rather than talking about responsibility for the original fiasco, the Republicans want to focus on claiming credit for what transpired after the event. 

In the case of 9/11, they took credit for managing the crisis after the attack, ignoring their utter mismanagement before.

In the case of Iraq, they are even more cynical:  McCain and the Republicans like to take credit for the progress since January 2007, ignoring the nearly four years of disastrous management after the March 2003 invasion.   

In this spirit, McCain also likes to talk about the "surge" a lot, which he claims is a big success. 

The surge was not his idea, but he takes credit for having supported it ever since General Petraeus and President Bush first introduced it in early 2007. 

Obama, he says,  opposed it,  preferring a timetable that  would have "lost the war."

In fact Obama has never insisted on such any such timetable.

He did, however, courageously oppose entering Iraq in the first place, which would have made the surge unnecessary.

In retrospect,  Obama's fundamental political and military judgment looks pretty astute, compared with "experienced" McCain.

If Obama had been in charge, we might have saved $2 trillion and thousands of young lives.

On the other hand, in McCain's case, despite saying that he "hates war," he has yet to ever oppose one.

He still actually believes, like George W. Bush, that the US made a terrible mistake by withdrawing from Vietnam in 1973! 

True, if we'd followed Obama's course, Saddam & Co. might still be in power, just like Kim Jong Il or Robert Mugabe or the tyrants in Burma (and China!)   

But Saddam would not have any more "weapons of mass destruction" than he ever had. Under the pressures of continued isolation, backed by the UN, his own people might have overthrown him, or he might have died of a heart attack. We can never say.

What is clear is that the main reason that the surge has "worked" is that we are now working closely with many of Saddam's former supporters among the Sunni "Awakening," who have turned on al Qaeda.

The Sunnis have "awakened" partly just because we finally decided to pay them, and partly because they got sick of being ordered around by these fanatical extremists -- who'd never taken root in Iraq before the US invaded the country, outraged the local population, and created a seedbed for insurgency.

It is also because many Shiites have wisely decided that the fastest way to get the US out of Iraq is to quiet down, supporting the Maliki government, probably with the backing of Iran.

Ironically, for someone so concerned about Iran's supposed threat to the region, McCain does not acknowledge the fact that the Iraq invasion, and the continued US presence there,  have only strengthened Iran's hand.

So it is as misleading for McCain and the Republicans to take credit for the surge as it is for them to take credit for fighting the (very incomplete) war against al Qaeda and the Taleban in Afghanistan, in the wake of 9/11.

Once again, however, if you have no original ideas or solutions of your own, it is tempting to concentrate on telling stories about the past.

(c) SubmergingMarkets, 2008

OBAMA: "PALIN/MCCAIN HAVE NOTHING TO OFFER BUT PERSONAL ATTACKS"

THE CLINTONS ARE STILL AT LARGE!Part I. BLACKENING OBAMA, EVEN IF IT ELECTS JOHN MCCAINJames S. Henry

For six months now, partly under the influence of Senator Barack Obama's refreshingly naive quest  for a higher level of discourse in American politics, we've resisted the temptation to "go negative" on his arch-rival -- "Sir Hillary" Diane Rodham Clinton, the relentless one-and-one-third term New York Senator,  two-term First Lady, five-term Arkansas Governor's wife, and life-long honorary Queen of the State of Blind, Unbridled Ambition.   

Along the way, we've watched aghast as some of our closest associates -- people who describe themselves as "Democrats" and "Hillary supporters," but really turn out to be Obama haters who threaten to vote for John McCain in November if Hillary is not the Democratic nominee -- have tried nearly every trick in the book to tear Obama down.   

BLACK FACE

For example, on January 4, 2008,  just one day after the Iowa primary, one pundit was overheard suggesting to members of Sir Hillary's inner circle that the best way to undermine Obama's surprisingly broad appeal would be to "blacken" him. 

At the time, Hillary's campaign was still reeling from her third-place finish in Iowa, based on the fact that Barack had done so well across conventional racial, ethnic, gender, and age boundaries.   

Evidently the advice was taken. This helps to explain Hillary's odd, a-historical comments on January 7 in New Hampshire, when she compared Lyndon Johnson's role in securing US civil rights legislation during the 1960s to that of Martin Luther King, Jr. ("It took a President to get it done.") 

(Actually it took a mass protest movement, based on years of organization and lots of blood, sweat, and tears, to get it done. Hillary's inaccurate recollections about that period may be have been due to the fact that in 1964, at age 17, she had spent her time campaigning actively for Barry Goldwater, the Republican Presidential candidate who opposed the US Civil Rights Act.)

This cynical tactic also helps to explain Bill Clinton's patronizing remarks in South Carolina on January 26, when he compared Obama's campaign to the Rev. Jesse Jackson's 1984 and 1988 Presidential bids -- as if Obama were just another "black niche" candidate. 

The point is that these statements were deliberately made,  regardless of their merit, because the Clinton camp wanted to provoke rebuttals from prominent black celebrities like the Rev. Jackson, the Rev. Al Sharpton, and Spike Lee.

Bill and Hillary probably knew full well that this might well cost them votes in a handful of states like South Carolina, where blacks are a majority of registered Democrats. Indeed, they were both widely criticized for their remarks.

However,  in their cynical calculus, what really mattered was that the official black response would remind white voters elsewhere that  while Senator Obama might seem to be "articulate and bright and clean" (in Joe Biden's memorable description),  he's really just (as one anonymous Clinton campaign adviser put it) "the black candidate."

DIE HARDISM...OR WORSE?

In the short term, many observers thought that such cynical tactics had backfired. Indeed they may have. Contrary to Hillary's best laid plans, Barack not only survived "Super Tuesday" on February 5, but went on to acquire a commanding lead in delegates.

Even after the most recent machine-state primary in Pennsylvania, Barack still leads by at least 133 delegates. If the latest polls in the remaining nine primaries hold up,  Hillary would need  to capture at least 73 percent of the remaining unpledged "super delegates" to win. (Click on the chart below.)

Unfortunately, this situation appears to have only redoubled the Clintons' willingness to engage in McCarthyite tactics, including  race-baiting and "guilt by association,"  regardless of the impact on the Democratic Party's chances in November.

The Clintons are notorious for pursuing their own interests at the expense of the Party (just ask Bill Bradley, Al Gore, and John Kerry). But this spectacle is setting new records.

These tactics include trying to smear Senator Obama with the radical views of the Rev. Wright, the Rev. James Meeks, or even the Rev. Louis Farrakhan; reminding people of the Senator's admitted occasional drug use 25 years ago (as compared with Gov. Bill Clinton's denied, much heavier use of cocaine during the same period); and attacking Obama for having a few corrupt contributors in Chicago ("...NOT Chicago!!!") like Antoin "Tony" Rezko (compared with the Clintons' legions of corrupt contributors); and associating Obama with former Weatherman and now Distinguished University of Chicago Prof. William Ayers, who was never convicted of anything (while Bill Clinton had sought fit to pardon two former Weathermen who'd been convicted of involvement in terror-related crimes.)

The tactics also include promoting the idea that Obama can't possibly appeal to white working -class voters, Hispanics, Jews, or Catholics in battleground states, simply because.... well, you see, the country may just not be "ready" for a "black" President -- whatever those terms mean.

Of course the Clintons argue that dwelling on such material now is justified because Karl Rove and the Republicans would only focus on it later. Furthermore, Obama's prolonged side-show with his former pastor appears to have done a perfectly job of undermining his campaign without much help from them.

This is mostly self-serving flim-flam. The fact is that Hillary & Co. have run a terrible campaign, and are now reduced to relying on hyping bogus issues like Rev. Wright rather than talking about real issues.

If the Clintons had not underestimated Obama so badly, they would have At this point, if they believe that the Democratic Party will reject Obama and opt for Hillary, they are delusional -- such a move would only lead the majority of Party activists that has supported Obama overwhelmingly to sit this election out.  By continuing to battle Obama down all the way to the convention, the Clinton machine is wasting precious attention and resources that ought to be devoted to attacking the real enemy.

THE AGENDA

So why are the Clintonistas employing these Die-Hard, polarizing, kamikaze-style tactics?

Well, first, the hard-core stormtroopers down in the Bunker actually still hope to achieve a "Hail Mary" knock-out in the last few primaries,  shocking the super-delegates into a wholesale defection from Obama. They simply can't admit that it is far too late for anything other than an Obama candidacy.

Second, Clinton supporters have spent hundreds of millions of dollars on this battle, and many of them have been preparing for it literally for decades. Many of them genuinely resent Obama's upstart campaign, and feel entitled to reclaim their White House.

Third,  many (highly-paid) Clinton campaign operatives are not exactly looking forward to seeking real jobs in the midst of a recession.

Fourth,  key Clinton supporters desperately fear being left out in the cold if Obama wins the nomination, let alone the Presidency, for as much as another eight years. Especially for those in Hillary's "boomer" generation, that's an eternity.

Finally, and most cynically of all, if 72-year old John McCain wins the Presidency, the odds are that he will only last one term. That would give Hillary another shot in four years.

Whereas if 47-year old Obama wins, he might well last two terms -- by which time Hillary will be approaching dotage and Bill Clinton will be in a retirement community for sexual predators. 

From the standpoint of naked Clinton self-interest, therefore,  the cynical calculus prevails again.

You see, it is a far far better thing to go after one's fellow Democrat with all the malevolence that one can muster, even at the risk of ruining his chances this November, than to withdraw now and help his chances.

Naturally this kind of cynical strategy has attracted all kinds of miscreants, Republicans-in-sheeps' clothing, stragglers, pimps, shills, camp followers, and hangers-on.

There ought to be a special place in Hell for such people. 

But if there is not, we should endeavor to create one right here on Earth.

(c) SubmergingMarkets, 2008

SNATCHING VICTORY?The Democrats Descend Into the Politics of Mutually-Assured Destruction James S. Henry

On an occasion of this kind, it becomes more than a moral duty to speak one's mind. It becomes a pleasure.

-- Oscar Wilde

Isn't this a pretty picture? 

On the one hand, after seven long years of catastrophic incompetence in Washington, our country is literally begging for new ideas and leadership, especially from the erstwhile Party of the Opposition.

Recent polls show that an unprecedented 81 percent of Americans believe their country is "on the wrong track," while President Bush's approval rating has sunk to an all-time low of 28 percent. There is a growing popular demand for decisive government action on any number of issues that have been festering while "Nero" Bush and "Imperator" Cheney have been fiddling.

THE DEMAND FOR CHANGE

John "McSame's" feisty personality notwithstanding, this is not the ideal moment to be plumping for free-market solutions, let alone more tax cuts for the extremely rich,  hands-off deregulation for our wondrous mortgage banking, health care, automotive, airlines, handgun, coal-fired utility, and social insurance industries, and the unending prospect of more unilateral, open-ended wars.

No -- this is a time that cries out for smart, can-do, progressive, and -- yes -- youthful government.

Its precise slogan should be:  Yes, we had better -- or else.

 
REAL ISSUES

At the risk of depressing our readers, among the many tough issues that demand this  pragmatic approach right now are the following:

>Containing the mortgage crisis and the deep recession that it has produced.
>Withdrawing from Iraq as soon as possible, while discouraging Iran from filling the void.
>Intensifying the hunt for Bin Laden, without losing Pakistan and Afghanistan to a Taleban revival.
>Protecting our nation against the genuine on-going global terrorist menace.
>Fixing our high-cost, inhumane health insurance system once and for all.
>Biting the bullet on climate change and global warming.
>Rebuilding public education and college assistance.
>Guaranteeing the financial integrity of Social Security and Medicare.
>Restoring civil liberties and reversing the drift toward a state of siege.
>Reviving American's reputation in the world and its relations with key allies.

> Revising our increasingly disfunctional "free trade" agreements.
>Reviving efforts to prosecute corrupt politicians, war profiteers, and big-ticket tax evaders to the limits of the law, as opposed to granting them Presidential pardons.
>Slashing government waste, especially the bloated $800+billion "total war"  budget and the huge agro-industry subsidies that are literally wiping out poor farmers all over the world. 

All together,  this adds up to a demand for nothing less than at least a decade of intense regime change right here at home.

THE SUPPLY OF CHANGE ?

Is the Party of the Opposition up to this challenge?  Unfortunately, the habitually ham-handed Democratic Party,  as well as much of broadcast journalism,  have responded to the soaring demand for substantive change and attention to real issues by focusing on.....Well, what, exactly?

Let's see.  If last night's televised debate in Philadelphia is any indication, both candidate Hillary Clinton and the news media -- or at least pro-Hillary flacks like ABC News' George Stephanopoulos and the ponderous, self-important Charles Gibson --  are far more concerned with (1) Obama's Rev. Wright's alleged relationships with Rev. Farrakhan and a visiting Hamas associate, (2) Obama's even more tangential relationship with an obscure former Chicago "Weatherman" named Ayers, (3)his recent (really quite defensible) "Bittergate" comments about the roots of working-class culture, and (4) the torturous question of whether or not the Junior Senator from Illinois should demonstrate his patriotism by wearing a flag pin on his lapel.

>>As if Hillary and Bill have not accumulated a long list of even more dubious relationships,  several of whom had to be pardoned.

>>As if  Stephanopolous did not get his questions about Ayers directly from Fox News' mad-hatter host Sean Hannity the day before the debate.

>> As if there were not -- by definition -- quite a few other black males at Louis Farrakhan's  rather successful 1995 "Million Man March" in Washington, D.C.  -- at least 670,000 to 1 million, according to one careful aerial survey.

>>As if one could find a single photo on the Internet of John McCain wearing a flag pin -- although George W. Bush wears one all the time.

>>As if Gibson and his sidekick did not tilt so far to starboard in their questioning that one Washington Post journalist titled his review,  "In Pa. Debate, The Clear Loser Is ABC."

LAST GASP

This attempt to focus on a series of jaundiced Obama "gotchas" is actually a sign of Hillary's increasing desperation. 

Obviously she is furious at having been repeatedly up-staged and out-campaigned over the past year -- despite her vast experience, wealth, and connections with wealthy donors and lobbyists, not to mention Bill. The smooth-talking Chicago upstart with the Harvard Law degree and the Bill Clinton-like hard luck story is actually trying to deprive her of her rightful place in history!

Hillary's focus on character assassination also reflects her sheer frustration at the fact that Obama now clearly has the inside track for the nomination.

This has not been a pleasant month for Ms.Clinton. She's just fired her long-time campaign strategist, after firing her campaign manager. She's just been caught in a bald-face lie about coming under fire in Tuzla. Her lead in Pennsylvania has dropped to five points. With just 10 primaries left to go, Obama is now at least 139 delegates ahead. Even if Hillary captures, as expected, more than half of the delegates elected in these primaries, she will still need to win two-thirds of the remaining 319 uncommitted "superdelegates."  Obama just needs 125. (Click on chart.)

That's a pretty large gap for Hillary to overcome -- especially considering the fact that Obama's fund-raising machine allows him to outspend his rival by two-to-one in key states.

This explains Hillary's increasing reliance on negative advertising in Pennsylvania and the other primary states, her endless repetitions of the Rev. Wright and "Bittergate" story, and her grasping at all those other petty straws in last night's debate -- even while conceding that Obama, with all his flaws, could still beat John McCain in November.

In short, those of us who long for probing discussions of serious issues will probably have to look elsewhere than Hillary, let alone ABC News.  And we should certainly not expect to hear much about them until Hillary faces facts and does the right thing -- which, just to spell it out for her clearly, is not to remain in this race "until the last dog dies."

(c) SubmergingMarkets, 2008      

  

 

 

 

 

 

John McCain: "No We Can't" Reviving The "Daisy" Strategy in 2008 James S. Henry

My friends:  we have spent far too much time and treasure on the prolonged, intense, but ultimately intra-familial and largely issues-free beauty contest between Hillary Clinton and Barack Obama.   

Now that that contest is finally drawing to a close, it is time for us to focus like a gamma-ray laser on the real enemy in the fast-approaching November 2008 Presidential election -- Senator John McCain, the bellicose 5'7" septuagenarian fly-boy from Arizona.  

What is it about Air Force-trained Republican Senators from Arizona, anyway? 

In many respects this year's race recalls 1964, when Senator Barry Goldwater, another war-mongering, outspoken, short-tempered Air Force veteran and Republican Presidential candidate from Arizona,  scared the B'Jesus out of the entire country with his threats to use nuclear weapons preemptively ("Let's lob a nuclear bomb into the men's room at the Kremlin").

Usually such pro-war designs are kept well hidden until after the election, as the Bush Administration did in 2000 --  and, indeed, as President Lyndon Johnson did in the 1964 election, when he made Goldwater out to be a mad-man (the "Daisy" strategy," after the notorious political ad by that name: Download 20_johnson_64.mov). Johnson conveniently failed to tell the public during the election campaign that he was also a mad-man, already planning to park more than 500,000 US troops in Vietnam within a year.   

In any case, not since 1964 have the Democrats faced a Republican candidate who is as openly pro-war as John McCain is. This should provide them with  a remarkable opportunity for party unity,  a clear brand, and victory in November.     

However, it is very important to reunite the Party and get moving. McCain is already attracting fuzzy-minded support from  moderate Democrats and independents who are beguiled by his tough-guy "maverick" image -- especially lower middle-class white males who are (a) bearing the brunt of this year's  economic downturn, and (b) not entirely comfortable with voting for either  Barack  ("the black guy"_ or ("that woman") Hillary. Oddly enough, many of these folks also claim to be anti-war.

Partly because the Democrats have been so distracted by their own interminable (..19 debates??!...six months of primaries?) nominating process, the most  telling criticisms of John McCain have so far been provided by his enemies among the Very Far Right Ranters (VFRRs), including leading professional ranters  like Anne Coulter, Rush Limbaugh, and James C. Dodson. This crew complains that McCain doesn't quite pass muster on pet right issues like undocumented immigration, gay marriage, and tax cuts. Ironically, Barry Goldwater himself would have also failed these same litmus tests. Indeed, if the 1964 Presidential election had been fought on social issues and the economy rather than on war and peace, the former Air Force Major General from Arizona would most likely have carried many more states than the 6 that he did carry. Defeating Goldwater in 1964 may not have absolutely required the war-mongering issue, but it certainly helped.  

Some conservatives have also criticized McCain's preference for voluptuous office assistants and fly-boy-style socializing.  From their angle, he also lacks appropriate Christian zeal, was once involved in the shady "Keating Five" savings-and-loan scandal,  and has an intermittent work ethic.

Indeed, in the last five Congresses he missed an incredible 21 percent of all Senate votes, including 56 percent in the current 110th Congress. This high rate of absenteeism is also no doubt partly due to the Presidential race, McCain's long-standing battle with cancer, and the fact that at age 71.5,  he is already the oldest living leading Presidential candidate ever, having already lived longer than over half of all US Presidents.

The real problem for Democrats and independents, however, should not be McCain's lack of religious fervor, moldy old rumors about the Keating Five or extra-marital relationships, his age, or even his absenteeism, unless that is due to health problems.

And after this year's endless bouts of the smooth-talking ignoramus the Rt. Reverend Huckabee, the lack of religious zeal and ideological purity in a leading Republican candidate is really rather refreshing.

No -- our core problems with John McCain are twofold. First,  whenever he actually manages to show up in the Senate and legislate, the  results are usually far to the right of what most Democrats, independents, and sensible people in general stand for  -- and what both Barack and Hillary, in particular,  stand for.

For example,  while Barack and Hillary have both earned lifetime voting scores from the American Conservative Union (ACU) of just 8 percent, McCain's  lifetime score is 82. While this may be insufficient for VFRRs like Limbaugh and Coulter, it is well above the tail end of the Republican Senate distribution.

McCain may have mellowed slightly in recent years -- in 2006, for example, his ACU score was just 65.  However, this is still higher than any Senate Democrat, and it is more than three times the 17 rating scored by McCain's turncoat friend Joe Lieberman.  Indeed, on a wide range of key issues that progressives and independents should really care about --  from Supreme Court nominations and extending Bush's tax cuts for the rich to the State Children's Health Insurance program, setting a timetable for withdrawal from Iraq, and  bankruptcy reform, and even on his own trademark issues like campaign finance, immigration, the definition of torture, and the Bush tax cuts, the senior Senator from the Grand Canyon state is usually a big disappointment.   

Second, and even more important, on the most crucial issue of our time, the conduct of present and future wars,  McCain appears to have quite frankly gone completely off the rails.

Misguided Democratic Party strategists like John Podesta, Mark Penn, and Bob Schrum notwithstanding,  this issue of the war, and not just "the economy" or "health care," should be at center stage for this election. 

This is precisely because, on the one hand,  military affairs are supposed to be McCain's core competence, and because, on the other hand, he has gotten this central issue completely wrong.      

As discussed below, while millions of Iraqis continue to vote with their feet and either flee abroad or stay there, McCain just keeps repeating the big lie that "the surge is working."

In fact the main reasons that US military casualties,  and, to a lesser extent, Iraqi civilian casualties have dropped is not because of "the surge," but because (a) Baghdad has been ethnically cleansed, and is now a sharply divided, Shiite-dominated enclave;  (b) Sunni insurgents, fed up with al-Qaeda, have decided temporarily to ally with the "occupiers" and assert control over the "foreign terrorists;" and (c) Iran has temporarily decided to cut down on its support for attacks on US troops, in the interests of undermining the "neocon" coalition in the US, Saudi Arabia, and Israel that is plumping for a McCain-style bombing. (See the video below).

None of this implies that the surge has achieved anything more than a kind of stop-gap temporary stabilization of this very ill patient's condition -- a Bush Adminstration effort that just happens to coincide with a Presidential election year. Since it is unlikely that the surge is sustainable, in terms of troops and dollars, and since its benefits are likely to be temporary, McCain should be compelled to explain on every possible occasion whether the slim increased chance that a Republican president will get elected is really worth the price.

But McCain is at least consistent. Apparently he also still believes that the Vietnam War could have been won with just a little more persistence and less interference from Washington.
 

For all his putative military experience, therefore,  in the grand tradition of Major General/ Senator Goldwater and Air Force General Curtis {"Bombs Away") LeMay,  in his 20 hours of flight time over North Vietnam, and his five years of captivity, apparently John McCain never managed to learn the fundamental lesson that millions of ground troops have learned the hard way -- that guerrilla wars, and, indeed, wars on terror,  are ultimately won or lost by political and economic development, not by military tactics. And, furthermore,  that the blind over-application of military force to a hostile civilian population by an occupying army and Air Force can actually increase enemy resistance much faster than it can be controlled.

Far from repeating the 2004 Kerry campaign's central mistake and focusing this campaign only on the US economy, therefore, it will be vital for us to keep McCain's extraordinary appetite for war in plain view.

The more general question of why so many Air Force professionals -- including, for example, the Israeli General who was widely blamed for mismanaging last year's conflict with Hezbollah in Lebanon -- tend to systematically overestimate the efficacy of military power, will be left for another time. Plainly this is not just an Arizona malady.

 For the interested reader, the following is a smattering of sundry provocative materials with respect to Senator McCain. Not all of it is worth taking seriously --- some of it even resembles the scurrilous attacks on John Kerry's war record in 2004,  when McCain, it should be recalled, came to Kerry's defense.  We've presented it here in the interests of of airing it out and redirecting our attention to the clear and present danger of a Republican Party that, even in its death throes,  may still be able to unite around this "great white hawk" from Arizona. 

 

The "Surge" Is Working?" "100 More Years in Iraq?"

""MIA Cover-Up Artist?""

""War Hero?""

 

From VietnamVeteransAgainstJohnMcCain:

FACT SHEET:  Military record of John Sidney McCain

"Both McCain III’s father and grandfather were Admirals in the United States Navy.  His father Admiral  John S. ”Junior” McCain was commander of U.S. forces in Europe - later commander of American forces in Vietnam while McCain III was being held prisoner of war. His grandfather John S. McCain, Sr. commanded naval aviation at the Battle of Okinawa in 1945. McCain III, like his father and grandfather, also attended the United States Naval Academy.  McCain III finished near the bottom of his graduating class in 1958.

McCain III lost five U.S. Navy aircraft:

1 - Student pilot McCain III lost jet number one in 1958 when he plunged into Corpus Christi Bay while practicing landings.

2 - Pilot McCain III lost another plane two years later while he was deployed in the Mediterranean. ”Flying too low over the Iberian Peninsula, he took out some power lines  which led to a spate of newspaper stories in which he was predictably identified as the son of an admiral.

3 - Pilot McCain III lost number three in 1965 when he was returning from flying a Navy trainer solo to Philadelphia for an Army-Navy football game.  McCain III radioed, ”I’ve got a flameout” and ejected at one thousand feet. The plane crashed to the ground and McCain III floated to a deserted beach.

4 - Combat pilot McCain III lost his fourth on July 29, 1967, soon after he was assigned to the USS Forrestal as an A-4 Skyhawk combat pilot. While waiting his turn for takeoff, an accidently fired rocket slammed into McCain Jr’s. plane. He escaped from the burning aircraft, but the explosions that followed killed 134 sailors, destroyed at least 20 aircraft, and threatened to sink the ship.

5 - Combat pilot McCain III lost a fifth plane three months later (Oct. 26, 1967) during his 23rd mission over North Vietnam when he failed to avoid a surface-to-air missile. McCain III ejected from the plane breaking both arms and a leg in the process and subsequently parachuted into Truc Bach Lake near Hanoi. After being pulled from the lake by the North Vietnamese, McCain III was bayoneted in his left foot and shoulder and struck by a rifle butt. He was then transported to the Hoa Lo Prison, also known as the Hanoi Hilton.

The 1973 New York Daily News labeled POW McCain III a “PW Songbird” On McCain III’s fourth day of being denied medical treatment, slapped, and threatened with death by the communist (they were demanding military information in exchange for medical treatment), McCain III broke and told his interrogator, ”O.K., I’ll give you military information if you will take me to the hospital.” U.S. News and World Report, May 14, 1973 article written by former POW John McCain.

It was then that the communist learned that McCain III’s father was Admiral John S. McCain, the soon-to-be commander of all U.S. Forces in the Pacific. The Vietnamese rushed McCain III to Gai Lam military hospital (U.S. government documents), a medical facility normally unavailable for U.S. POWs. By Nov. 9, 1967 (U.S. government documents) Hanoi press was quoting McCain III describing his mission including the number of aircraft in his flight, information about rescue ships, and the order of which U.S. attacks would take place. 

While in still in North Vietnam’s military hospital, McCain III gave an interview to prominent French television reporter Francois Chalais for a series titled Life in Hanoi. Chalais’ interview with McCain III was aired in Europe. Vietnamese doctors operated on McCain’s Leg in early December, 1967. Six weeks after he was shot down, McCain was taken from the hospital and delivered to a U.S. POW camp, In May of 1968,  McCain III allowed himself to be interviewed by two North Vietnamese generals at separate times.”  May 14, 1973 article written by former POW John McCain In August 1968, other POWs learned for the first time that John McCain III had been taken prisoner.

On June 5, 1969,  the New York Daily News  reported  in  a article headlined  Reds Say PW Songbird Is Pilot Son of Admiral,   “ . . . Hanoi has aired a broadcast in which the pilot son of  United States Commander in the Pacific, Adm. John McCain, purportedly admits to having  bombed civilian targets in North Vietnam and praises medical treatment he has received since being taken prisoner . . .” 

The Washington Post explained McCain III’s broadcast: “The English- Language broadcast beamed at South Vietnam was one of a series using American prisoners. It was in response to a plea by Defense Secretary Melvin S. Laird, May 19, that North Vietnam treat prisoners according to the humanitarian standards set forth by the Geneva Convention.”

In 1970, McCain III agreed to an interview with Dr. Fernando Barral, a Spanish psychiatrist who was living in Cuba at the time. The meeting between Barral and McCain III (which was photographed by the Vietnamese) took place away from the prison at the office of the Committee for Foreign Cultural Relations in Hanoi (declassified government document). During the meeting, POW McCain sipped coffee and ate oranges and cakes with the Cuban. While talking with Barral, McCain III further seriously violated the military Code of Conduct by failing to evade answering questions ”to the utmost of his ability” when he, according government documents, helped Barral by answering questions in Spanish, a language McCain had learned in school. The interview was published  in January 1970.

McCain III was released from North Vietnam March 15, 1973 In 1993, during one of his many trips back to Hanoi, McCain asked the Vietnamese not to make public any records they hold pertaining to returned U.S.  POWs.  McCain III claims, that while a POW, he tried to kill himself.

McCain III was awarded “medals for valor” equal to nearly a medal-and-a-half for each hour he spent in combat For 23 combat missions (an estimated 20 hours over enemy territory), the U.S. Navy awarded McCain III, the son of famous admirals, a Silver Star, a Legion of Merit for Valor, a Distinguished Flying Cross, three Bronze Stars, two Commendation medals plus two Purple Hearts and a dozen service medals.

“McCain had roughly 20 hours in combat,” explains Bill Bell, a veteran of Vietnam and former chief of the U.S. Office for POW/MIA Affairs -- the first official U.S. representative in Vietnam since the 1973 fall of Saigon. “Since McCain got 28 medals,” Bell continued, “that equals to about a medal-and-a-half for each hour he spent in combat.  There were infantry guys -- grunts on the ground -- who had more than 7,000 hours in combat and I can tell you that there were times and situations where I’m sure a prison cell would have looked pretty good to them by comparison. The question really is how many guys got that number of medals for not being shot down.”

For years, McCain has been an unchecked master at manipulating an overly friendly and biased news media. The former POW turned Congressman, turned U.S. Senator, has managed to gloss over his failures as a pilot and his collaborations with the enemy to become America’s POW-hero presidential candidate."

Another Bellicose Wack-a-Doodle?

"Legendary Temper Could Undermine McCain" Friday, May 25, 2007  By RALPH VARTABEDIAN and MICHAEL FINNEGAN

SPECIAL FROM THE LOS ANGELES TIMES

" An angry, profane exchange between Sen. John McCain, R-Ariz., and another Republican senator last week prompted a new round of questions about whether McCain's legendary temper is becoming a liability in his campaign for the presidency. In a private meeting just off the Senate floor, McCain got into a shouting match with Sen. John Cornyn, R-Texas, over details of a compromise on immigration legislation. Cornyn accused McCain of being too busy with his campaign to take part in the negotiations, prompting McCain to utter, "F... you." McCain spokesman Danny Diaz acknowledged that a "spirited exchange" took place but said media reports over the weekend had exaggerated its intensity. McCain's political handlers have plenty of experience in explaining McCain's salty language and strident attacks. His temper has ranged far and wide, directed at other members of the Senate, congressional staffers, heads of government agencies, corporate chieftains, high-ranking military officers and teenage campaign volunteers.

McCain has shouted at people for any number of reasons, including errors of judgment, disagreements on public policy and even how to set up a podium. "In McCain's world, there aren't legitimate differences of opinions," said David Keene, chairman of the American Conservative Union, which differs with McCain on some conservative issues. "There is his way and there is evil. That is how he approaches issues. That is one of the reasons for conservative nervousness about him." His temper has been an issue for years. In the 2000 presidential primaries, McCain was dubbed "Senator Hothead" by Newsweek.

That year, he won endorsement from only a few Senate colleagues, not so much because of his conservative credentials but because of his frequent attacks and volatile personality. "McCain notes," which offer apologies after heated words, are held by many members of Congress. McCain has written about what he describes as his impatience in three books. "Although I try to refrain from being intentionally discourteous, I am demonstrative in showing my displeasure. I am often impatient and can speak and act abruptly," he wrote in "Why Courage Matters" in 2004. In a 1999 interview with the Los Angeles Times, McCain admitted, "I do everything I can to keep my anger under control. I wake up daily and tell myself, 'You must do everything possible to stay cool, calm and collected today.' "

One bureaucrat who felt McCain's wrath was former NASA administrator Daniel Goldin, who was called in by McCain in 1999, not long after a $125 million probe crashed on Mars because of confusion over the use of metric units. McCain's Senate Commerce Committee had oversight over NASA. "McCain went ballistic the moment Goldin walked into McCain's office," said a participant in the meeting. "He was shouting and using profanity, saying he was sick of NASA's screw-ups. It went on for a few minutes and then he kicked Goldin out of the office." Goldin started walking down the hallway but was summoned back to the senator's office by a McCain aide. "When he came back in, McCain started yelling at Goldin all over again. And then McCain kicked Goldin out a second time, before he ever said a word," the source said.

Julian Zelizer, a history and politics professor at Boston University, said the spectacle of a senator getting into "yelling matches with his colleague" undermines his leadership image. "It is an issue he needs to be cautious with," Zelizer said. Until the latest flap, McCain had managed lately to quell the image that he is easily angered. His campaign leadership took sharp exception to the entire matter, characterizing it as political theater. "If something is written every time members of Congress and leading politicians, behind closed doors, try to get the other's attention, and tempers flare, you'd run out of ink," said John Weaver, McCain's chief campaign strategist. Nonetheless, the issue was used effectively in the 2000 primaries by opponents who planted rumors that he was unstable because of his years as a prisoner of war in North Vietnam. Although some ex-POWs did have psychological problems, McCain came through the experience in good psychological shape, said Navy doctors.

As for his temper, "John McCain is John McCain," said Dr. Bob Hain, director of the Navy's Robert E. Mitchell Center for Prisoner of War Studies. Meanwhile, Democrats said McCain was in deep trouble on the matter. "Apparently, John McCain's do-anything-to-win campaign strategy doesn't include anger management classes," said Damien LaVera, Democratic National Committee spokesman. "We have had eight years of cowboy diplomacy and McCain is even more of a cowboy than the current president," said Roger Salazar, a Democratic political consultant who worked for John Edwards in 2004. "The public wants somebody who is strong but can sit across from allies and adversaries without lunging at them."

(c) SubmergingMarkets, 2008

REMEMBERING THE GENERALPart I: OverviewJames S. Henry

---

I was born a Chilean,  I am a Chilean,
I will die a Chilean.
They, the fascists, were born traitors,
live as traitors, and will be remembered forever as fascist traitors.

-- Orlando Letelier, 1932-76

---

Both Chile's General Augusto Pinochet and Saddam Hussein, two formerly US-backed dictators, have at last had to confront Higher Authorities that they were unable to intimidate, compromise, or evade.

However, unlike Saddam, who was hanged in the middle of a night on December 30, 2006, by a nervous Iraqi Government tribunal,  Pinochet managed to escape human justice for his crimes, and died of natural causes at the age of 91. 

How does the General deserve to be remembered? Did he not richly deserve the same fate as Saddam? And how did he manage to avoid it? 

Was he simply a ruthless, corrupt right-wing tyrant, the puppet of foreign interests and their handmaidens, like ITT,  Nixon, Kissinger, the CIA, George H.W. Bush, Margaret Thatcher, and Reagan?   

Or was he, as many of his defenders still maintain,  an essential bulwark against the Leftist Horde in Latin America?

If perhaps not exactly the world's staunchest defender of political liberalism, was he at least -- as Thatcher, some neoliberal  economists, The Wall Street Journal, and even supposedly "liberal" newspapers like The Washington Post now maintain --  a staunch defender of  "free markets" who deserves much of the credit for Chile's economic performance since the 1970s?

As we'll see,  most conventional portraits of General Pinochet are flat-out wrong, not only with respect to his alleged role in combating Soviet expansionism, but also with respect to his regime's alleged beneficial influence on Chile's economy.

First,  Pinochet was at best only a non-essential bit player in the anti-Soviet struggle.  Allende's broad-based social democratic "revolution" was never taken seriously by Moscow or Havana. Nor was it strong enough to mount a Cuban-style revolution, or even to precipitate a civil war. Left to its own devices, Allende's "leftish" alliance would probably have burned itself out by the next election or plebiscite in 1974.

Furthermore, even if Chile's leftists had somehow managed to create a "Soviet Republic of Patagonia," tiny Chile was already completely surrounded by other countries that had much greater strategic importance to the West.

By 1973, they either already had their own right-wing dictatorships (Brazil, Paraguay, and Bolivia), or were well on the way (Argentina and Uruguay).

In short,  killing off Chile's long-standing democracy was gratuitous -- the political equivalent of exaggeratinging Iraq's "slam dunk" WMD threat.

All the repression was for nothing.

On the economic front, Pinochet's interregnum was also a costly, needless detour. 

Indeed, one key reason why Chile's so-called "economic miracle" has proved to be so successful in the long run -- with great help from human capital finally brought back home by many well-educated returning "Leftists" who were  driven out of country in 1973-90 -- was precisely because Pinochet's first decade of experiments with "Los Chicago economics" proved to be so disastrous. Giving Pinochet credit for the subsequent corrective reforms is like crediting Leonid Brezhnev with last decade's revival of economic growth in Eastern Europe.

(For more details, see Parts II and III...)

 

   

Blood DiamondsPart 1: The Empire Strikes Back!by James S. Henry

"...(O)ne of the great dramas of Africa: extremely rich areas are reduced to theaters of misery...."

-- Rafael Marques, Angolan journalist (July 2006)

"For each $9 of rough diamonds sold abroad, our customers, after cutting them, collect something like $56..." 

-- Sandra Vasconcelos, Endiama (2005)

"We found the Kalahari clean. For years and years the Bushman have lived off the land....thousands of years...We did not buy the Kalahari. God gave it to us. He did not loan it to us. He gave it to us. Forever. I do not speak in anger, because I am not angry. But I want the freedom that we once had."

-- Bushman, Last Voice of an Ancient Tongue, Ulwazi Radio, 1997 

 

---

The global diamond industry, led by giants like De Beers, RTZ,  BHP Bililton, and Alrosa  Co Ltd., Russia's state-owned diamond company,  a handful of aggressive independents like Israel's Lev Leviev,  Beny Steinmetz's BSG Group, and Daniel Gertier's DGI, a hundred other key "diamantaires" in New York,  Ramat-Gan, Antwerp,  Dubai, Mumbai, and Hong Kong,  and leading "diamond industry banks" like ABN-AMRO, is not exactly renowned for its abiding concern about the welfare of the millions of diamond miners, cutters,  polishers, and their families who live in developing countries.

But the industry -- whose top five corporate members still control more than 80 percent of the 160 million carets that are produced and sold each year into the $70 billlion  world-wide retail diamond jewelry market -- certainly does have an undeniable long-standing concern for its own product's image.

PERENNIAL FEARS

Indeed, for decades, observers of the diamond industry have warned that it was teetering on the brink of a price collapse, because the industry's prosperity has been based on a combination of artificial demand and equally-artificial -- but often more unstable -- control over supply.

Most of the doomsayers have always predicted that the inevitable downfall, when it came, would arrive from the supply side, in the form of some major new diamond find that produced a flood of raw diamonds onto the global market.

The precise culprits, in turn, were expected to be artificial diamonds (in the 1960s and 1970s), "an avalanche of Australian diamonds" (in the 1980s,) and Russian diamonds (in the 1990s.)

This supply-side pessimism has lately been muted, given the failure of the earlier predictions and the fact that raw diamond prices -- though not, buyers beware,  retail diamond resale prices!! --  have recently increased at a hefty 10-12 percent per year.  There is also some evidence that really big "kimberlite mines" are becoming harder and harder to find.

However, there are still an awful lot of raw diamonds out there waiting to found, and one does still hear warnings about the long-overpredicted Malthusian glut, now from new sources like deep mines in Angola, Namibia's offshore fields, Gabon, Zambia, and the Canadian Northwest.

THE REAL THREAT?

Meanwhile, the other key threat to the industry's artificial price structure -- where retail prices are at least 7 to 10 times the cost of raw diamonds -- comes from the demand side. This is the concern that diamonds may lose the patina of glamour, rarity and respectability that the industry has carefully cultivated since the 1940s.

It is therefore not surprising that the industry has been deeply disturbed by the December 8, 2006, release of Blood Diamond, a block-buster Hollywood film that stars Leonard DiCaprio, Jennifer Connelly, and Djinmon Hounsou.

While extraordinarily violent and a bit too long, the film is entertaining, mildly informative, and far from "foolish" -- the sniff that it received from one snide NYT reviewer -- who clearly knew nothing about the subject matter, other than, perhaps, the fact that the Times' own Fortunoff- and Tiffany-laden ad department didn't care for  the film. 

Indeed,  this film does provide the most critical big-screen view to date of the diamond industry's sordid global track record, not only in Africa, but also in Brazil, India, Russia, and, indeed, Canada and Australia, where diamonds have often been used to finance civil wars, corruption, and environmental degradation, and  indigenous peoples often been pushed aside to make room for the industry's priorities.

Surely the film is a small offset to decades of the diamond cartel's shameless exploitation of Hollywood films, leading ladies like Marilyn Monroe, Elisabeth Taylor, and Lauren Bacall, and scores of supermodels, rock stars, and impresarios.

INDUSTRY WHITE WASH
 

Dismayed at the potential negative impact of the film ever since the industry first learned about Blood Diamond in late 2005, it is reportedly spending at least an extra $15 million on a  PR campaign that responds to the film  -- in addition to the $200 million per year that the World Diamond Council already spends on regular marketing.

For example, if you Google "blood diamonds," for example, you'll see that the industry has purchased top billing for its own version of the "facts" regarding this film. Always eager for a new marketing angle, some diamond merchants have also seized the opportunity to pitch their own product lines as "conflict diamond - free."

DEF JAM'S  BLACK WASH

This shameless PR campaign has also included a "black wash" effort by the multimillionaire hip hop impresario Russell Simmons, who launched his own diamond jewelry line by way of the Simmons Jewelry Co. in 2004,  in partnershp with long-time New York diamond dealer M. Fabrikant & Sons.

Simmons, who admits to "making a lot of money by selling diamonds," rushed back to New York on December 6 from a whirlwind nine-day private jet tour of diamond mines in South Africa and Botswana -- but, admittedly,  not in conflict-ridden Sierre Leone, Angola, the Congo, the Ivory Coast or Chad.

Simmons was originally scheduled to travel with one of his latest flames, the  27-year old Czech supermodel and Fortunoff promoter, Petra Nemcova. But Petra reportedly preferred to stay home and accept a huge diamond engagement ring of her own from British singer/soldier James Blunt, whose 2005 pop hit "You're Beautiful" was recently nominated the "fourth most annoying thing in Britain," next to cold-callers, queue-jumpers, and caravans.

The timing of Simmons' trip, which he filmed for UUtube, just happened to coincide with the December 8 release of the Warner Brothers feature.

Upon his return, Simmons held a press conference, accompanied by his estranged wife Kimora Lee Simmons and Dr. Benjamin  F. Chavis Mohammed, a former civil rights activitist and fellow investor in the jewelry company who is perhaps best remembered for being fired as NAACP Director in 1994  after settling a costly sexual harassment suit, and for joining the Rev. Louis Farrakhan's Nation of islam. Simmons' astounding conclusion from his wonder-tour: "Bling isn't so bad."

Whatever the credibility of Simmons and his fellow instant experts, it was  evidently not enough to save M. Fabricant & Sons,  which filed for Chapter 11 in November.

THE GODS MUST (STILL) BE CRAZY

Simmons managed to tour a few major diamond mines on his African safari, but apparently he lacked time to examine the contentious land dispute between the Kalahari  San Bushmen, the members of one of Africa's oldest indigenous groups,  and the Botswana Government -- with the diamond industry's influence lurking right offstage.

In the 1990s, after diamond deposits were reportedly discovered on the Bushmen's traditional lands, the Botwana Government -- which owns 15 percent of De Beers, is a 50-50 partner with De Beers in the Debswana diamond venture, the largest diamond producer in Africa, and derives half its revenue from diamond mining -- has pressured the Bushmen to leave their tribal lands.

The methods used were not subtle. To force the Bushmen into resettlement camps outside the Reserve, the Botswana Government closed schools and clinics, cut off water supplies, and subjected members of the group to threats, beatings, and other forms of intimidation for hunting on their own land -- all of it ordained by F.G. Mogae, Botswana's President,  who declared in February 2005 that he 'could not allow the Bushmen to return to the Kalahari." Those who have been resettled have been living in destitution, without jobs and little to do except drink. (See a recent BBC video on the subject.) 

Thankfully, on December 13, 2006, Botswana's High Court ruled that in 2002, more than 1000 Bushmen had been illegally evicted by the Botswana Government from the Central Kalahari Game Reserve, where they'd lived for 30,000 years.

The Botswana Attorney General has already attempted to attached strict conditions to the ruling, so this struggle is far from over. But at least the first prolonged legal battle has been won -- thanks to the determination of the Bushmen, public-spirited lawyers like Gordon Bennett, their legal counsel, courageous crusaders like Professor Kenneth Good, and  NGOs like Survival International, which has supported the legal battle.

In the wake of this decision, as usual,  the global diamond industry, led by De Beers, has denied that any responsibility whatsoever for the displacement of the Bushmen.

However, the fact is that De Beers and other companies has been prospecting actively in the Kalahari Reserve, especially around the Bushman community of Gope (see this video),  where De Beers has falsely claimed that no Bushmen were living when it started mining. It has actively opposed recognizing the rights of indigeneous peoples in Africa. In 2002, at the time of the eviction, Debswana's Managing Director -- appointed by De Beers -- commented that "The government was justified in removing the Basarwa (Bushmen)….’.

De Beers' behavior in Botswana has so outraged activists that they have joined together with prominent actors like Julie Christie and several Nemcova-like supermodels who used to appear in De Beers ads, in an appeal for people to boycott the now-UK-based giant -- which has lately been trying to move downstream into retail diamonds.

However, De Beers is far from alone in this effort.  Indeed, as has often been the case with  "conflict diamonds," less well-known foreign companies have been permitted to do much of the nastier pioneering. 

In Botswana's case, these have included Vancouver-based Motapa Diamonds and Isle of Jersey-based Petra Diamonds Ltd. both of which have have obtained licenses to explore and develop milliions of acres, including CKGR lands. Petra is not unfamiliar with "conflict diamonds;" it is perhaps best known for a failed 2000 attempt to invest in a $1 billion diamond project in the war-torn DR Congo, in which Zimbabwe's corrupt dicator, Robert Mugabe, reportedly held a 40 percent interest.

In the case of Botswana, in September 2005 Petra acquired the country's largest single prospecting license -- covering 30,000 square miles, nearly the size of Austria -- by purchasing Kalahari Diamonds Ltd, a company that was 20 percent owned by BHP Billiton and 10 percent by the World Bank/IFC -- which apparently saw the sponsorship of CKGR mining as somehow consistent with its own financial imperatives, if not its developmental mission. (!!!). Petra has also licensed proprietary explorations technology from BHP Billiton, and offered it development rights, a front-runner for the Australian giant.

Meanwhile, at least 29 of the 239 Bushmen who filed the lawsuit have perished while living in settlement camps, waiting for the case to be decided, and many others are impoverished. 

Perhaps the diamond industry's $15 million might be better spent simply helping these Bushmen return to their homes -- and also settling up with  the Nama people in South Africa, the Intuit and Kree peoples in Canada, and the aborigines in Australia.

FAR CRY

Meanwhile, as we'll examine in Part II, despite the "Kimberly Process" that was adopted by many -- but not all -- key diamond producers in 2003, the fact is that diamonds continue to pour out of conflict zones like the Congo, Ghana, and the Ivory Coast, providing the revenues that finance continuing bloodshed.

The industry's vaunted estimate that they account for just "1 percent" of total production is based on thin air -- there are so many loopholes in the current transnational supply chain that there is just no way of knowing. Of course, given the scale of the global industry, and the poverty of the countries involved, even a tiny percent of the global market can make a huge difference on the ground.

Furthermore, in cases like Angola, the Kimberly Process has provided an excuse for corrupt governments to team up with private security firms and diamond traders to crack down on independent alluvial miners.

Finally, the diamond industry still has much work to do on other fronts --  pollution, deforestation, and, most important, the task of creating a fairer division of the spoils, in an industry where the overwhelming share of value-added is still captured by just a handful of First World countries. 

The objective here is not to kill the golden goose. In principal, the diamond industry should be able to reduce world inequality and poverty, since almost all retail buyers are relatively-affluent people in rich countries, while more than 80 percent of all retail diamonds come from poor countries.

But beyond eliminating traffic in "blood diamonds," however,  we should also demand that this industry starts to redress its even more fundamental misbehaviors.

                                                           ***

(c) SubmergingMarkets,2006

---

EVO'S HISTORIC VICTORYBolivia's Democratic RevolutionJames S. Henry LaPaz, Bolivia

The mood at Tuto Quiroga's well-appointed campaign headquarters at the Hotel Radisson in downtown LaPaz was funereal, while across town at MAS Party headquarters in the former Brazilian Embassy, and later on in the impoverished township of El Alto,  people were chanting and singing in the streets late into the night. Not long after the polls in Bolivia closed late this Sunday afternoonn,  it was already clear that the country's impoverished majority had finally elected one of their own as the country´s next President -- and by a much larger margin than any foreign policy expert, journalist, or Latin America political pundit had expected.

This is easily one of the most surprising and important elections in the history of Latin American democracy. For fans of the "neoliberal," free-market approach to development, as well as coca eradication, it is also a time for soul-searching.

Evo Morales, the 46-year old working-class meztizo, cocalero organizer, and leader of the neo-left "Movement Toward Socialism" party, has soundly defeated the seven other Presidential candidates in the race, capturing close to 50 percent of the nationwide vote.

While the final vote tally still has to be certifed by Bolivia's Electoral Court,  this clearly puts Evo within reach of becoming the first Bolivian President ever to have won a first-round victory outright -- without having the choice default to Bolivia`s fractious, "rent-seeking" Congress.

From an historical perspective, Evo's performance is an all-time record for a Bolivian Presidential candidate, far surpassing the 31 percent received by the second-place candidate, the free-market oriented-former President, Tuto Quiroga. It also surpasses the previous all-time high registered by Hernan Solis in 1982, as well as the 34 percent captured by neoliberal businessman "Goni" Sanchez de Lozada in 1993.

For that matter, relative to other recent elections in the Western Hemisphere, Evo has also outperformed the victory margins achieved by the US´President Bush, Brazil´s Lula, and Argentina's Kirchner. Whatever one thinks of Evo's economic platform -- and it certainly contains more than a little wishful thinking-- there is no doubt that, at least for the moment, he has far more credibility with the Bolivian people than his opponents.

A DEMOCRATIC REVOLUTION?

Even more important than the historical records,  Bolivians have clearly voted en masse in favor of at least three fundamental changes in Bolivia`s social and political landscape -- all of them supported by MAS.

 

• Reasserting public control over Bolivia`s natural resources, especially its huge natural gas reserves -- already, in official terms, the second largest in Latin America, and quite possibly much more.

  Evo's vague, rhetorical shorthand for this is "nationalization," but there is a whole range of policy options that MAS is considering to increase the public`s share of the income generated by its natural resources, and add more value, and generate more jobs by using these resources at home. Whether or not any of these will make practical economic sense is far from clear. But it is hard to argue that this program will  necessarily be any more disappointing for ordinary people than the last two decades of neoliberal policies.

 

• Rejecting (US-backed) coca eradication programs. This supply-side approach to cocaine trade has been pursued by Bolivia since at least the mid-1980s, especially under the Banzer-Quiroga administration from 1997 to 2002.

  Unfortunately, as most observers outside the "drug enforcement complex" now agree -- including good solid conservatives like Milton Friedman and Steve Forbes --  the impact on ultimate cocaine supplies have been limited at best.

  At the same time,  the social, political, and economic impacts on countries like Bolivia, Columbia, and Peru have been disastrous.

  Oddly enough, with respect to drug enforcement, Evo is the true "neoliberal."  He believes that a poor country like Bolivia has a right to grow crops like coca if it makes economic sense, that punishing them for doing so is like punishing Dupont because some of its chemicals end up in illicit drugs, and that Bolivian farms should not be made to pay for the fact that  Americans and Brazilians can't control their bad habits.

  From this angle, his election is just one in a growing series of "corrective interviews" that Andean countries are giving to Washington on the huge costs of the failed supply-side drug control strategy. To summarize the matter quickly -- wouldn't the American people really have preferred to be buying several million cubit feet per day of LNG from Bolivia this winter, rather than pursue coca eradication policies in Bolivia that have had little impact on drug supplies while fostering a hostile political movement?

• Much greater effective representation for Bolivia´s impoverished, excluded, indigenous and meztizo majority. In this case the cliche happens to be true -- for centuries, the Bolivian people have stood by and watched the country´s incredible raw materials -- silver, tin, iron ore, guano, rubber, and now natural gas -- being expropriated by private interests or elite-controlled state companies, while the vast majority have remained dirt poor.

  Futhermore, since the 1990s, Bolivia has been a virtual laboratory for neoliberal economics, as well as coca eradication. The country ended up with its most valuable assets in private hands, while more than half the population remained poor and inequality increased dramatically. Evo´s election sends a message, loud and clear, that Bolivians have had enough. Indeed, from this standpoint, their voting behavior is not particularly radical -- in capitalist terms, they are  simply a group of shareholders who have finally decided to show incompetent managers the door.

This  is a message that will reverbrate throughout the region -- in next year's elections in Peru, Colombia, and even Mexico, for example. This is a message that the US, in particular -- so obsessed with implanting "democracy" in the Middle East, and recently so careless about paying attention to Latin America's troubled democracies closer to home -- ignores at its peril.    

EVO'S ALLIES?

There is an old Russian proverb that says, "Keep an eye on your friends -- your enemies will take care of themselves."

Of course it is to be expected that hard-line America haters like Venezuela's Hugo Chavez and Cuba's Fidel Castro, as well as leading Latin leftlists like Lula and Kirchner,  will take pleasure in Evo's victory, just as many simple-minded American neoconservatives will regard it as an unmitigated setback. 

But Evo's erstwhile left-wing allies should be careful not to celebrate too soon.

In Fidel's case, the key question is, how soon is he prepared to give Cubans the same democratic rights that Bolivians have just exercized?   

In Hugo's case, the question is, is he prepared to make up all for the economic aid, debt relief, and lost exports that Bolivia will lose if it alienates the US and the international community by adopting policies like coca legalization and gas nationalization?  Isn't it just possible that he may well prefer for Bolivia's gas to stay in the ground, where it can't compete with Venezuela's proposed pipeline to Brazil and its proposed LNG exports to the US? 

In the case of Lula's Brazil and Kirchner's Argentina, the question is, are they really willing to renegotiate the lucrative gas export contracts they now have with Bolivia, helping Evo by sharply increasing the prices that they pay, while increasing their Bolivian investments?  Assuming that Bolivia is going to export at least part of its gas, shouldn't it consider competitors to Brazil and Argentina, rather than continue to be a captive supplier to these monopsonists?

Overall, therefore, it is easy for Latin America's kneejerk Left to celebrate Evo's rise as yet another defeat for Yankee imperialism -- and, indeed, there is just enough truth in that story to keep the brew bubbling. 

But every day that  Evo wakes up, he needs to remind himself that it was not the Yankees who are responsible for the fact that his country is one-half the size that it was 150 years ago;  that it is not Yankees who consumed most of his country's silver and other resources; that it is not Yankees that are consuming up to 30 million cubic feet per day of Bolivian gas at prices less than a fifth of US market levels (but Brazil and Argentina -- and Chile, by way of Argentina);  that it not Yankees who are content to keep Bolivia landlocked. On the other hand, it IS Yankees who have provided Bolivia with more foreign aid per capita than almost any other Third World country since 1948 -- much of which was admittedly wasted, but much of which undoubtedly did some good. 

In short, now that Evo is President, and not just an angry outside critic of the system, he will have to take responsibility for governing, and admit that Venezuelan, Brazilian, Argentine, and Chilean imperialism -- or, indeed, Chinese imperialism --  are no better than gringo imperialism.

As I`ll argue in Part II, none of these changes will be easy for Evo to implement within the bounds of Bolivia's existing political system, with its increasing regional polarities.   

Indeed, he faces an extraordinary list of challenges -- the least of which will be to become an effective head of government.  He will need a great deal of help. The US could usefully start by lifting its ban on holding discussions with him, and by granting him a visa. 

Despite all the obstacles, it is not too early to pronounce the strong, unified outpouring in favor of this program a ¨democratic revolution.¨

And what is perhaps most striking about this particular one is that Bolivia's people have made it on their own -- without the costly outside intervention that has been required to construct Lego-democracy in other well-known energy-rich developing countries.

(c)SubmergingMarkets, 2005

MONGOLIA'S FOUR HOURSA Special Report from the Front in Ulaan BataarJoachim Nahem**

Not usually known as a world traveler, President George W. Bush has recently been behaving like an itinerant Lonely Planet ghost writer. On November 21,  he and his 300-person entourage  -- including Ms. Bush and US Secretary of State Condi Rice -- stopped off in Mongolia for four hours on the last leg of an 8-day whirlwind tour through Asia.

With the mass protests of early November in Buenos Aires and Seoul still ringing in their ears,  it must have been a relief to be greeted in Ulaan Bataar by just three well-mannered lonely souls with one placard, urging the US to sign the Kyoto Agreement.

The President could also take enormous pride in the fact that he is the very first US President in history to have visited Mongolia --  a land-locked, Alaska-sized grassy flatland with a per capita income below $500 and 2.8 million people, a third of whom herd sheep, live in round huts called "yurts," and dine on endless varieties of mutton stew.

Later, in a speech before a packed assembly of Mongolian troops and lawmakers,  Bush declared that the US is now Mongolia’s “third neighbor.” According to the President,  the two countries are “standing together as brothers in the cause of freedom…..”  He added that Mongolia is  "an example of success for the region and for the world… a free society in the heart of Central Asia.”

No, really. These hyperbolic assertions must have been somewhat perplexing to Mongolia's neighbors, Russia and China. But they no doubt amused and delighted the Mongolians, who gave Bush a thunderous ovation.

What was this mutual admiration all about? Does Mongolia really deserve all this praise because it has indeed established a thriving market democracy?

Or do the tributes perhaps have more to do with the fact that Mongolia has volunteered for two very difficult assignments -- a prolonged series of neoliberal economic policy experiments, and die-hard duty in the rapidly dwindling "Coalition of the Less-and-Less Willing?"

 

STILL WILLING?

Many of those in the audience must have understood that President Bush's special visit was not only determined by Mongolia's profound contributions to liberal democracy.Bush reminded them that there are still 160 Mongolian soldiers stationed with the Polish battalion in Iraq  -- relative to population size, the third largest country contribution to the “Coalition of the Willing.” This is the largest Mongolian contingent in Iraq since the Mongols sacked Baghdad in 1258.

Bush also paid a special tribute to two Mongolian soldiers in the audience who had shot and killed a would-be suicide-bomber outside Baghdad this year, preventing him from driving explosives into an army mess hall.   

With France and Germany AWOL right from the start of the Iraq War,  Spain  long since buggering out,  and  other  US “allies” like Italy, South Korea, Japan,  and the UK now actively debating the withdrawal of their troops next year, this US-spawned effort is threatening to become a “Coalition of One."

So it is not surprising that the Empire has finally decided to pay more attention to its most loyal, if distant and geographically insignificant, allies.

In fact Mongolia has recently been treated to a surfeit of such state visits, including  US Defense Secretary Donald Rumsfeld, Joint Chiefs Chairman Richard B. Meyers, and a US Congressional delegation led by House Speaker Dennis Hastert  --  who reportedly spent most of his time in the country discussing wrestling moves with his Mongolian counterparts. 

Mongolians are also aware that providing just a few hundred troops in Iraq and Afghanistan is bringing the country many other rewards. Earlier this year, President Bush announced a new “Solidarity Initiative,” offering financial assistance to Mongolia and other developing countries that ‘are standing with America in the war on terror.’  Under this initiative, Mongolia is already receiving $11 million to improve its military.

The United States has recently become Mongolia’s second largest foreign aid donor.  Indeed, it will probably soon eclipse Japan as the largest donor – the country has already qualified for aid under the Bush Administration’s new “Millennium Challenge Account (MCA) funding. Although the MCA was ostensibly set up to assist countries that ‘govern justly, invest in their people, and promote economic freedom,’ Mongolia  certainly did not hurt its chance by contributing its soldiers to Iraq.

LAB RAT?

On paper, from a distance, Mongolia is a post-communist success story, which has made a rapid recent  transformation to democracy and market economy. Indeed, compared with its Central Asian neighbors like Uzbekistan and Tajikistan,  it is a virtual Switzerland -- minus the alps, Davos, and private banking, of course.

However, Bush’s accolades notwithstanding, the truth is a little more complicated.  Most Mongolians are acutely aware that their erstwhile “democracy” is still very far from perfection.

Mongolia was not only the first Asian country to adopt communism – it was also the first to abandon it. When the Soviet Union collapsed in the early 1990s, Mongolia turned to the West for political and financial advice on how to restructure the country. Agencies like the IMF, the World Bank, and the Asian Development Bank  insisted that  Mongolia follow virtually the same neo-liberal formula of shock therapy and rapid privatization that  had just been applied --- with very mixed results -- in  Russia and Eastern Europe.

These economic policies were coupled with a radical overhaul of the political system, which led to free elections, a liberal constitution, and human rights for all citizens – at least on paper.

ROOSTING CHICKENS

Fifteen years later,  the results  of this neoliberal experiment with “market democracy”  are now in, and they have been mixed at best.

• In a recent nation-wide survey, a majority of the population reported that the transition has not improved their lives.

• By most measures, poverty has increased significantly since communism, with more than a third of the population living on less than two dollars a day.

• Rapid migration from the country-side has created large pockets of extreme poverty in  Ulaan Baatar, the capital,  where up to 300,000 people live in Ger (traditional Mongolian felt tents) slums without access to electricity or proper sanitation.

• Endemic corruption, low trust in the political system, increasing crime rates, collapse of the welfare system, and growing disparities are just a few of the other  pressing issues that are threatening to undermine Mongolia’s democratic transition.

• As in many other developing countries, so-called austerity programs,  and the  privatization of state assets recommended by multilateral financial institutions like the World Bank and the IMF, have left ordinary Mongolian citizens and the most vulnerable.

• Nomads and other pastoralists have experienced tremendous hardship during this period. For example, natural disasters (‘dzuds’) in 2000 and 2001 wiped out much of their livestock, and the livelihoods of several thousand families. In the “New Mongolia,” they have no safety net.

WEALTH FOR WHOM?

Meanwhile, vast mining riches have recently been discovered in Mongolia. In principle, this might offered this country a much-needed break,  but by most account these new natural resources have actually compounded development issues – as in many other developing countries.

Rather than using profits from these resources (record high prices for commodities like copper and gold make this a very lucrative business) on much needed social spending and infrastructure, most of the revenues has gone to foreign mining companies and the tiny elite of Mongolians who often control or influence mine licensing.

The Mongolian economy grew by almost 11% last year, yet the lion’s share of this “growth” actually benefited international mining investors and the Mongolian arrivistes who dominate the urban landscape with their brand-new Hummers™ and Land-Cruisers™.

The privatization of land and environmental degradation caused by mining is also disturbing Mongolia’s traditional  social and demographic patterns, with pastoralists forced to leave what has traditionally been communal areas used for herding livestock. Artisan mining (which takes place illegally in areas that mining companies own but usually do not exploit) has become a way out of poverty for many Mongolians.  But the human costs have been huge, with incredible health hazards and little access to public services  -- entire families move to mining areas during the warmer seasons, where much of the work is done by child labor.

Although no one is longing for a return to the Communist past in Mongolia, there is growing apathy and discontent. Recent protests by pensioners and students show that a political backlash is quite possible, in what is generally seen as a very stable country.

The issue is not so much the country’s commitment to democracy in the abstract, but the way the political process actually functions.   Neo-liberal policies -- including privatization and the general shrinking of the state -- have proved to be disastrous, with a tiny elite managing to capture most of the political and economic benefits of this transition. Evidence from other developing parts of the world, especially Latin America, tends to show that this elite capture becomes entrenched over time, leading to even greater disparities between rich and poor.

Perhaps if Mr. Bush and his entourage had a stayed a few more hours in Mongolia,  they might have begun to appreciate some of these troubling realities.  They might have begun to understand that ‘democracy’ and ‘counter-terrorism’ have little meaning to most Mongolians,  who are struggling  harder than  ever just to make ends meet.  But after four hours of speeches, carefully-scripted receptions, a little mutton and Mongolian beef, and reassurances that Mongolians will continue to fight on in Iraq, they got back on the plane and headed home.

**Joachim Nahem is a development specialist for the UN Development Programme and a SubmergingMarkets Contributing Editor, currently based in Ulaan Bataar. All articles for this website, however, are written in his personal capacity and do not in any way represent the views of UNDP.

(c) SubmergingMarkets, 2005

TIME'S ARROWA Media Conglomerate's Fateful Decision to Undermine Investigative JournalismJames S. Henry

It was disappointing, but not really surprising,  that Norman Pearlstine, Time Inc.'s Editor-in-Chief since 1995, decided last week to comply with a federal subpoena and turn over documents to the federal government that will probably burn one of his own leading journalist's sources.

As discussed below, this spineless decision was a cardinal sin against investigative journalism and the First Amendment. 

But it was entirely in keeping with Time Warner's long-standing passivity and obsequiousness toward the powers-that-be. 

It also reflects this media conglomerate's increasingly entangled interests with governments and corporations around the world.  Thank goodness that Matt Cooper wasn't working for Time's China subsidiary!

Our condolences go out to the dwindling crop of serious investigative journalists at Time, People, Sports Illustrated, and TWX's other 130 publications, as well as CNN and HBO. 

There is, however, one ray of light in Pearlstine's otherwise cowardly, inexcusable decision. We may finally get to learn the identity of the White House felon who leaked Valerie Plame's CIA relationship to the press. Already there's been some very interesting speculation....!

THE CONTEXT

For the past year,  some marketing genius at AOL Time Warner -- now just Time Warner Inc. ("Twinkie," as journos know it, or TWX, as it is known to its hapless stockholders) -- has been sending us free copies of its "weekly news magazine," Time Magazine.

Even though Twinkie's stock price has been dropping more or less continuously since 1999, I am delighted that it can still afford this kind of largess. It is, after all, "the world's largest media company."

Personally, I've always enjoyed the covers and that pretentious "Person of the Year" award -- which really should still be called "Man of the Year," since they've only honored 2 women, Queen Elizabeth and Corazon Aquino, (plus 1 black and 4 Asians) since 1927. (Peter Ueberroth and Jeff Bezos, but not Nelson Mandela? FDR three times, and Truman, Ike, LBJ, Nixon, Bill Clinton, Dubya, Stalin, Deng Xiaoping, Gorbachev, and Churchill twice each? Does anyone there enjoy sucking up to power, or what?

And who WILL it be this year? The deceased Pope? The new Pope? Justice O'Connor? Bono? Abu Musab al-Zarqawi?)

Anyway, apart from all that, I almost never actually read the damn thing -- at least not since 1973, when Skip (Henry Louis) Gates and I shared an apartment in London, and he was interning for Time. It seemed like a comradely thing to do for a brother.

CONVENTIONAL JUDICIOUSNESS   

In general, Time Magazine, and TWINK's myriad other publications -- People, Sports Illustrated, Yachting, Wedding & Home, Popular Science, Marie Claire, Ski, Family Circle, and over 130 others -- may be helpful and even informative for people who have regular day jobs.

But they have simply never been noted for cutting-edge investigative journalism. 

On the rare occasions when they try to do it, as in CNN/Time's infamous Tailwind investigation in 1998, they usually get caught in their own knickers.

To borrow from a few leading Time Inc. titles, they're really more comfortable keeping things Real Simple, providing Entertainment Weekly, and making a lot of Money, or perhaps even a Fortune -- unless you are a hapless TWX investor.

Of course TWINK's other media properties -- especially CNN and HBO -- have contributed some valuable reporting over the years. But "Chicken Noodle Network,"  in particular,  has been under increasing pressure from rivals like Fox to do more info-tainment and be more gung-ho.

Recently they've also had big fish to fry with the Pentagon, given the increasing importance of embedded journalism and satellite feeds in all sorts of new Third World war zones.

None of this has been especially encouraging to crusading Edward R. Murrow-style  journalism.

GETTING BURNED

In this case, the Time Magazine journalist whose sources were burned, Matthew Cooper, has been fighting this subpoena through the courts for 18 months. He and New York Times' reporter Judith Miller had both refused to reveal their sources to a federal grand jury that is investigating the Valerie Plame case, and had appealed their subpoenaes all the way to the US Supreme Court. After the court ruled against them in late June,  Pearlstine reached his own verdict.

Pearlstine denied that he was influenced at all by the risk that TWX might be subjected to a $1,000 per day fine, much less the even more costly possibility that defiance of the subpoena might jeopardize last year's settlement with the US Department of Justice. Under that settlement, the DOJ filed a criminal complaint against AOL TW for certain misconduct under securities laws, but agreed not to prosecute, so long as the company cooperated fully with the terms of the settlement.

Instead, Pearlstine simply asserted that since the US Supreme Court has decided the matter, he has no option but to comply with the subpoena.

To their credit, The New York Times, Judith Miller, and Matt Cooper, as well as -- we hope -- most other journalists and publishers -- all see it differently.

• They understand that investigative journalists simply cannot do their jobs -- and by extension, the First Amendment can't be effective --  if they are not able and willing to protect their sources.

• They understand that source confidentiality is a long-standing common law tradition which has already been recognized in statutes enacted by 45 states.

• They understand that the so-called trade-off between grand jury access to confidential sources and journalists' rights is no trade-off at all -- since without confidential sources, none of the information sought would even exist in the first place.

• They understand that in individual cases, journalists who have agreed to protect their sources may have a moral obligation that may  indeed, depending on the facts of the case, transcend the legal duty to help prosecute a specific crime. 

In short, Pearlstine's short-sighted stance, if emulated by other news-gathering organizations, could pose a real challenge to hard-hitting investigative journalism -- at least to any that is still being done inside media conglomerates like TWX, Disney, and Viacom.

This is just one more example of the kind of pusillanimous behavior that we have come to associate with publicly-owned media giants.

They have so many interests at stake in their dealings with the government and their fellow corporate giants that they simply lack the will to do vigorous investigative reporting.

The good news is that while these corporate giants atrophy, a whole new generation of spunky alternative sources for news and investigative reporting are springing up.

Unlike some media conglomerates, we protect our sources -- and there are no corporate hirelings who might "balance the interests at stake" and say otherwise.   

We do feel sorry for all the many good reporters at organizations like Time, CNN, and HBO, as well as for any writers affiliated with Little, Brown or TWX's other publishing ventures.

Like Matt Cooper, they may be willing to keep promises to their sources themselves.

But how can they ever be sure now, if push comes to shove, that the commitments they've made to their sources will be respected by the myriad of senior editors and other corporate executives above them?

AND THE LEAKER IS....?

Meanwhile, speculation continues to build about who the White House source or sources might be who leaked Valerie Plame's status as a CIA operative to the press last year -- reportedly out of pique at her husband's anti-Bush stance. The latest rumor on the street is that it is Karl Rove. 

If true, some might say -- well, source confidentiality be damned! What could be more satisfying that to see this bloated blow-hard take a few laps in the federal pen for perjuring himself before a grand jury?

After all, should  a confidential sources rule that is primarily intended to protect whistle-blowers really be extended to a government leaker who's gone on the offense, trying to punish political enemies while hiding behind confidentiality? Some in the journalism community have indeed argued not.

However, from our standpoint, one person's "offensive leaker" is another's "whistleblower" -- that's not an easy line to draw.

Far better that we protect the right of journalists to honor their commitments to confidential sources of all kinds -- except perhaps in the "hard cases" where human lives are clearly at risk. Unless Dubya is a threat to Karl, presumably that's not the situation here.

(c) SubmergingMarkets, 2005

GREEN-'HOUSING' GAZANSJames S. Henry and Andrew Hellman

The US government, the Palestinians, and indeed most Israelis are delighted that the Sharon Government has finally stood up to some settler extremists, and is still on track to pull out of the Gaza Strip by mid-August.  

However, we should all pay closer attention to the precise way that the Israelis are leaving.  There appear to be several missed opportunities to leave a much healthier economic base for Gaza's 1.4 million Palestinians when the Israelis leave-- a necessary, if not sufficient, condition for eventual peace. 

In particular, Israel is  now on a path to dismantle or destroy over 1500 homes and 1000 acres of greenhouses, which already provide thousands of jobs for Palestinians, and might provide thousands more....

GHETTO-FICATION?

At current course and speed, Israel may be missing a huge opportunity to help Gaza become something more than – in the words of Muhammad Dahlan, the Palestinian disengagement coordinator – "a giant prison camp," with 35 percent unemployment, 77 percent poverty, a youthful population whose median age is 16,  no seaport, a unusable airport, and few visible means of support other than foreign aid, rock-throwing, and amateur rocket-building.

No wonder that Hamas has been able to recruit a huge base of supporters there. It won seven out of ten local council seats in Gaza's municipal elections last December, and would likely have soundly defeated Mahmoud Abbas' Fatah Party in the Palestinian parliamentary elections that were originally scheduled for July 17th, but were postponed by Abbas indefinitely in June.

URBAN DE-RENEWAL

One missed opportunity is housing. At a recent press conference, Secretary of State Rice stated that 1,600 Israeli settler’s houses will be destroyed. The official rationale is that such single-family homes are not economically viable for the Palestinians in Gaza.

In reality, however, that rationale was just for public consumption, insisted upon by the Sharon Government for PR purposes.  With more than 1 million Gazans to consider, surely there are of course quite a few elderly couples,  young couples, and smaller families who might have used the houses. They also have other  potential uses -- business and government offices, clinics, even guest houses for visiting tourists, if the area ever stabilized.

The truth is that the houses will be destroyed for much less defensible reasons. First, it is widely viewed as one of the easiest ways to insure that the 8,500 Israeli settlers actually leave once and for all.

Only 284 families had signed up for compensation under the Evacuation Compensation Law, and officials are expecting more violence between Israelis and Palestinians as the August 15th disengagement approaches.

From Israeli's standpoint, the destruction also prevents the politically dangerous image of victorious Palestinians waving Hamas flags on the roofs of former settler's homes, celebrating another Lebanon-like eviction.

GREENHOUSE WEALTH

Greenhouses could be an even more important missed opportunity. Currently, there are about 1000 acres of Israeli-owned state-of-the-art greenhouses in Gaza. They are worth up to $80 million and employ about 3,500 Palestinians.  The fruits and vegetables that they produce account for 15% of Israel’s agricultural exports, mainly to Europe. According to agricultural experts, they might potentially provide  as many as 7,000 regular jobs, supporting, in turn, up to 30,000, and perhaps stimulating the growth of related industries. 

In short, figuring out a way to keep the greenhouses going could provide stable jobs and incomes for tens of thousands of Gazans, continued good business for Israel,  and also offer an opportunity for Israelis and Palestinians to show a little badly-needed cooperative spirit.

However, while the fate of these greenhouses is still being negotiated, and the idea of preserving them has some  advocates,  the outlook for them at this late date is grim.

According to two Israeli sources in a position to know, the most likely scenario is for the greenhouses to be dismantled and relocated elsewhere, or just demolished and replaced with new greenhouses at new settlements in Nitzanim, just 12 miles from Gaza.

These sources mentioned several key obstacles to a Gaza greenhouse idea.

First, with no seaport and Israel unwilling to permit Gaza to have air rights, and no highway to the West Bank, the perishable goods produced in these greenhouses could not reach the international market unless other transport arrangements are made. 

Second, Israel's settler certainly have no good will toward the Gazans, and Israel's agro-businesses don't  want to, in effect, put the Palestinians into business to compete with them.  A deal would have to be worked out for joint marketing and profit sharing, as well as compensation for the value of the greenhouses. Presumably the World Bank or USAID might be willing to finance such a solution, as they've indicated. Indeed, James Wolfensohn, former World Bank President and  Special Envoy for Gaza Disengagement, has evidently been trying to work out such a solution. The Dutch Government has also offered to buy them for the Palestinians.

Third, some have expressed concerns that the Palestinians may not be able to protect the greenhouses from looting by their own people -- though Palestinian sources deny that this is a real concern.

More generally,  there is no question that Israelis and Palestinians have little love lost for each other.  Right now the Israeli Government is focused on leaving as quickly and safely  as possible, and the Palestinians are focused on just having them go. Left to their own devices,  there will be no "win-win" solution.

 

IRAQ’S ONLY ELECTION More Lipstick on the Pig?James S. Henry

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On Sunday January 30, according to the official results finally  released on February 13, 8.46 million Iraqis, or 58 percent of Iraq’s 14.6 million registered voters, seized the opportunity to participate in a “free election” of sorts. They voted for candidates and parties that most of them had never heard of,  marked ballots that a majority of them could not read, walked for miles to secret polling booths under the watchful eyes of a foreign occupation army that had “collaterally” killed, injured or brutalized tens of thousands of their fellow citizens, and defied threats from thousands of other blood-thirsty, anti-democratic insurgents.

About 265,148 of those who voted were located outside the country -- just 13 percent of all the relatively affluent Iraqis who live abroad. Indeed, on Election Day, a large fraction of the Iraqi elite, and many officials in the interim government, were not to be found in the country -- like many members of the Iraqi elites, they had decamped for Jordan, Dubai, or London, anticipating that the insurgents would strike hard.

These non-resident voters did include some 56,568 Iraqis who voted from Iran, 15,062 who voted from Syria, and 11,409 who voted from the UAE -- places that are not otherwise known for holding free elections.  That might indeed be viewed as one small victory for "democracy" in the Middle East.

But most ordinary Iraqis had little choice but to stay in Iraq, and a majority of them braved all the difficulties -- including 260 attacks and more than 50 fatalities -- to vote.

Clearly the Iraqi people deserve much credit for this electoin-day bravery – especially those who tried to vote in more heavily Sunni Arab  districts where the insurgents have been most active.

Indeed, for once, this display of bravery was something about Iraq that most international leaders could agree on.

In President Bush’s words, “The Iraqi people themselves made this election a resounding success.” The UN’s Kofi Annan described the Iraqi people as “courageous.” Britain’s Tony Blair reported that he was “humbled”  – no mean accomplishment in itself. Even Iran’s Foreign Minister Kamal Kharrazi, perhaps anticipating a Shiite victory, and hoping that this will accelerate a US withdrawal, pronounced the elections a "success" and a "sign of nobility of the Iraqi people.”

It is clear as well that the long-suffering Iraqi people also deserve our respect  for simply having survived more than three decades of costly wars, occupations, international embargoes, and a brutal dictatorship – aided, armed, and abetted by several of the very same foreign powers that are now boasting so loudly about being the midwives of Iraq democracy.

Despite all the collateral damage, the security forces -- mainly unknown young Iraqi, American, and British soldiers -- who protected these voters also deserve credit.  Without this protection, even with all the Iraqi bravery, there would have been no election. These efforts go a long way toward repaying the moral debt that is owed to the Iraqi people   for the Great Powers’ decades of complicity with authoritarian regimes in Iraq, their failure to reckon with Saddam much earlier, and the fact that the Bush Administration and its friends have otherwise botched this latest intervention so thoroughly.

Does anyone else deserve credit for this achievement? Precisely what has been accomplished,  at what cost? And when will the Coalition be able to withdraw its troops?  Our answers may surprise you.

ANY OTHER CREDITS FOR THIS MOVIE?

In addition to the courageous Iraqi people and those who protected them, who else genuinely deserves praise for Sunday’s election?

As usual, success has generated paternity suits.

According to France’s Jacque Chirac, who spearheaded opposition to the war at the UN and has been of little assistance since then, the election was somehow “a success for the international community.” Chirac did not explain how this was consistent with the fact that the US alone has so far provided more than 90% of the funding, non-Iraqi Coalition forces, and Coalition casualties.

We could have held better elections much earlier, with much less bloodshed.

On the other hand, if you listen to President Bush and his supporters,, as illustrated by the President's State of the Union speech, the election is nothing less than another “mission accomplished,” a complete vindication for the Administration’s entire Iraqi strategy.

There is also no shortage of hyperbole and self-congratulation from journalists and pundits, especially those who supported the invasion from the get-go – marching up one rationale and down another.

~ For example, The New York Times Magazine’s Michael Ignatieff declared that Sunday’s election in Iraq was “without precedent,” a bold experiment in democracy that everyone ought to “embrace.”

~ Similarly, The Guardian’s David Aaronovitch, another long-time supporter of the invasion, wrote that, however we may feel about how we arrived in Iraq and what it cost to get there, the only issue now is, “Are you for or against democracy?”

~ FOX’s flak-jacketed Jerry Rivers (Geraldo Rivera), surrounded by four heavily-armed US Army riflemen, and this time apparently reporting from where he said he was without giving away any troop positions, called the Iraqi election “right up there with “1776 (sic), voting in Selma in 1960 or whatever (sic), and the fall of the Berlin Wall.”

Indeed, this newfound enthusiasm for democracy on the American center-right is so thick that some observers have been reminded of The New York Times’ upbeat assessment of South Vietnam’s Presidential elections in September 1967. The headline read , “US Encouraged by Vietnam vote: Officials Cite 83% Turnout Despite Vietcong Terror."

So we are all Wilsonian democrats now – except perhaps when elections produce outcomes that we don’t like.

In the local elections in the West Bank and Gaza in December 2004, for example, an unprecedented 81 percent of registered Palestinians voted, and more than a third of them voted for Hamas.

Was this comparatively free election, held under Israeli guns in the occupied territories, not a “resounding success?” Were the Palestinians who braved rival factions and the Israeli Army and came out to vote not “courageous?” Are we really, after all, “for or against democracy?” 

THE HIGH COST OF MIDDLE EAST DEMOCRACY

It is not surprising that so many have stepped forward to take credit for the courage demonstrated this weekend by ordinary voters, soldiers, and police in Iraq. After two years of terrorist dentistry, we were starved for good news from Iraq.

Expectations have been incredibly low. To paraphrase Samuel Johnson’s remark about the singing dog, we were not surprised that the Iraqi election had imperfections; we were surprised there was any election at all.

The war’s supporters are also down to their very last official justification for preemptively invading a country that never attacked us. Having given up on justifying preemption by finding WMDs, and having made Iraq more of a terrorist base camp than it ever was before, those who “embraced” the original invasion are leaping at the opportunity to say – hey, look, maybe there will be at least some return on this incredibly costly experiment. Maybe the West really can plant democratic seeds in Middle Eastern deserts!

The investment certainly has been huge. It includes more than 1,606 Multilateral Force fatalities, 10,371 US wounded, 1,200 other MLF forces wounded, at least 1,362 fatalities among pro-Coalition Iraqi security forces, and anywhere from 15,563 to 100,000 or more Iraqi civilian and insurgent fatalities, depending on who is counting.

The direct dollar cost of the war and its aftermath is fast approaching $220 billion for the US alone, plus whatever costs the other Coalition members  and the Iraqi interim government have paid out of their own pockets – and another $9 billion of Iraqi money that apparently simply vanished under Paul Bremer's administration.

All told, this amounts to nearly$30,000 per Iraqi voter, 15 times the country’s per capita income.

Nor was all this spending only a financial cost, because there were opportunity costs – a fancy way of saying that the money could have been spent elsewhere and saved thousands of lives. After all, it amounts to eight times the annual level of all foreign aid provided by all First World countries,and100 times the amountrequested this year by the World Health Organization to fight the global HIV/AIDS epidemic.

In practice, of course, if President Bush had not been able to launch his pet project in Iraq, he might well have just pursued another tax cut.

But for that much money, maybe we could at least have persuaded Saddam and his loyalists to leave the country and set up shop in Panama or Cuernavaca, following in the Shah’s footsteps. Like the Shah, Saddam has now contracted cancer, and may just have a couple years to live.If only we had waited…..?

EMBRACING REALITY

Under a microscope, most of the ex-post back-patting turns out to be simplistic, self-serving nonsense. Before we take off the flak jackets and break out the champagne, let's recall some sobering realities:

1. Most Iraqis Want Us Gone

Whether or not most First Worlders and the Bush Administration “embrace” Iraqi democracy,most Iraqis have clearly not “embraced” occupation.

Recent opinion polls show that the vast majority – not only the insurgents, but also those who voted in this election – would like nothing more than for the foreign occupation to end.

Indeed, if they had had the chance to vote directly on this subject, one suspects that Sunday's turnout would have increased to 90 percent, and that more than 80 percent would have voted to send all US and British troops packing, to replace them with a few thousand peacekeepers from neutral countries, and to immediately cease construction of the Pentagon's 14 permanent military bases in Iraq.

2. We Could Have Held Better Elections, Much Earlier

In recent months, as the insurgency gathered steam, some observers began to suggest that it should be postponed. But Sunday’s election came nearly two years after the US-led invasion. The real issue is, what did we really gain from waiting so long?

In fact, largely because of the deteriorating security situation, this election was almost certainly much less effective, efficient, and democratic than the election that we could have held within a few months of the invasion – using the same simple ration card- and finger-printing based system for voter registration that we ended up using anyway.

Way back then, we probably could have achieved even higher turnout at much lower cost, with a much weaker insurgency -- as the Ayatollah Al-Sistani, Iraq’s chief Shiite cleric, advised Paul Bremer some 20 months ago.

Indeed, in other transitional situations, like South Africa’s transition from apartheid in 1994 and East Timor’s election in 2001, snap elections were held with only a few months of preparation, with great success – more than 90 percent turnout in both cases.

Instead, the Bush Administration decided to postpone the election for almost two years, in a failed effort to manage Iraqi’s political destiny, assert control over Iraq’s domestic policies, head off Shiite and Kurdish regionalism, and install a government that would be more sympathetic to US "neocon" ambitions.

As a result, the Bush team really deserves responsibility for stoking an insurgency -- now estimated by some observers at having at least 10,000 to 20,000 fighters. This armed resistance, in which foreign fighters actually play only a minor supporting role,  has derived much of its fire from the continued occupation and the perpetuation of the unelected “interim” government.

This insurgency, in turn, came very close this month to squelching this election entirely -- to the point where Prime Minister reportedly called President Bush in mid-January to propose delaying it again.

In the end, only an all-out mobilization of Coalition forces, including shipping another 12,000 US troops to Iraq on top of the 140,000 already there, prevented a disaster.

While this transition was never going to be easy, the US control-oriented strategy also antagonized many other Iraqis, making it harder to work with local allies and train Iraqi forces. It exacerbated  divisions within Iraqi society, as groups like the Kurds grew more and more independent, radical Shiites took up arms, and more and more Sunni Arab areas became no-go war zones.

Far from serving democracy’s cause, therefore, the Bush Administration’s high-risk strategy actually amounted to a dangerous game of “chicken.” After two years of this, we arrived at a situation where people were amazed that the election could even take place. It is bizarre for us to celebrate this close escape as a triumph for the President  -- we really have only the Iraqi people and our troops on the ground to thank for narrowly avoiding disaster.  As usual, the fortuitous G. W. has just skated by. 

3. The Real Meaning of “High” Turnout

“Higher than expected” turnout in this election has been the main cause for celebration so far. But in fact many other developing countries have also held first-time elections and achieved even higher turnouts, even under occupation.

We already mentioned the case of Palestine’s recent elections. UN-supervised elections in Indonesian-occupied East Timor in August 2001 saw a 93 percent turnout. Kosovo’s 2001 legislative election, also supervised by UN peacekeepers, recorded a 65 percent turnout. In Afghanistan’s October 2004 Presidential election, the turnout was 70 percent.

Of course in non-occupied developing democracies like South Africa, Indonesia the Philippines, India, and Brazil, 80-85 percent or higher turnouts are the order of the day.

Only in the US, where voter turnout struggles to exceed fifty percent, does he Iraqi turnout look like a big number. 

The overall turnout also masks some important potential problems in Iraq, because turnout rates varied sharply along religious, ethnic, and regional lines. 

For example, among the Shiites, who constitute 60 percent of Iraq’s population and live mainly in better-defended parts of Baghdad and the south, turnout reportedly averaged more than 80 percent. Among the 15 percent of the population that lives in Iraq’s three Sunni/Kurdish provinces in the better-defended north, turnout was even higher.

Iraq’s population statistics are subject to huge uncertainties – there has been no census since 1997, and in the case of the Kurdish areas, since 1987. But if we assume that these conventional population share estimates are roughly right, they already add up to more than 8 million votes in Sunday’s election -- even if turnout in Iraqi’s Sunni Arab-dominated provinces was zero.

In other words, the final voter turnout would have to have been substantially greater than 8 million for there to be any room left over for Sunni Arab participation. This is consistent with many reports that this participation was very low.

 

4. Signs of Disunity?

Since the overall turnout rate was partly a product of these growing divisions, it may not be a sign of health. 

Sunday’s election employed a nation-wide list proportional representation system to select the 275-member National Assembly that will choose interim leaders and draft a new Iraqi constitution.

In other contexts, such a voting system is arguably much more democractic than many others. For example, if it had been employed to elect representatives to the US Congress, rather the current "single member district/first one past the post" system, the Democratic Party would control both the House and the Senate.

However, in Iraq's case, this system asked a great deal of many people who had never before voted, did not know the candidates, and, indeed, often could not even read.  Almost half of them are under the age of 18; the median age of voters is under 25. Adult literacy is just 39 percent. These voters were expected to choose among more than 111 different national parties and 200 separate candidate lists, which, in turn, contained 7,000 candidates for the Assembly and 12,000 for regional offices.

Most of these parties and candidates were virtually unknown. The ballots were so complex that even the Kurdish leader, Jalal Talabani, needed special instructions on how to fill them out. Because of the security situation, there were severe constraints on how much campaigning could be done beforehand by all but the best-funded parties – for example, interim Prime Minister Iyad Allawi’s Iraqi List party, which was somehow rich enough to afford massive TV advertising and $100 bills for embedded journalists. Most individual candidates chose not to be publicly identified – the leading United Iraqi Alliance party only identified 37 of its 225 candidates, “to keep them alive.”

This peek-a-boo national list system may have been the only one that was feasible, given the late date of the election and the precarious security situation. But as we have just argued, that was not inevitable. It almost certainly increased the leverage of a handful of political gatekeepers like Allawi. It also reinforced the incentives for block voting, and the potential for regionalism and fratricide. 

5. Another “Mission Accomplished?"

While Sunday’s election was an essential battle for democracy to win, it is premature to declare victory. Even apart from the insurgency, which is likely to continue as long as there are any US or UK troops in the country, Iraq remains a semi-artificial colonial construction that is subject to strong centrifugal forces. This election may have only succeeded in increasing these forces, by reinforcing group and regional polarities.

For example, to maximize their influence on the constitutional debate, and press their not-so-secret ambition to have an independent Kurdish state, the two leading Kurdish political parties established a united front, the Kurdish Alliance List, for Sunday’s election. They also sponsored a referendum on "Kurdistan’s" independence, side-by-side with the election.

One country’s liberation is another’s nightmare. Turkey’s Prime Minister Erdogan recently expressed grave concern over the Kurds’ designs on oil-rich Kirkuk, their continued interest in an independent state, and the refuge they have provided to some 5000 fighters from the Kurdistan Workers Party (PKK) fighters – “terrorists” in some vernaculars -- in northern Iraq. Two pro-PKK parties also participated in the Iraqi elections, despite Turkey’s denunciation of them as “terrorists.” There were also complaints from Kirkuk’s Turkomen community that 72,000 Iraqi Kurds had migrated there and registered to vote, to shift the balance of power.

Meanwhile, Iraq’s Shiites are also struggling to organize their political power. One reason why Shiite turnout was so high is that 75-year old Iran-born Grand Ayatollah Ali Al-Sistani, issued an edict declaring it a religious duty for them to vote, and also permitted women to vote. Al-Sistani could not vote in the elections himself because he is not  even an Iraqi citizen. But together with fellow cleric Abdel-Aziz al-Hakim, and accused Iran spy/ bank fraudster Ahmad Chalabi, al-Sistani helped to organize the United Iraqi Alliance, which has reportedly captured at least 45 percent of the vote.

The UIA is a diverse lot, and it is by no means clear who will lead it or what policies it will support. But what is clear is that some of its leaders would make very strange bedfellows for the United States of America, and that perhaps, at a minimum, we should not count on them to serve as the vanguard of our efforts to export democracy to the Middle East.

For example, Al-Hakim is the head of the Supreme Council for the Islamic Revolution in Iraq (SCIRI), one of two leading Shiite parties in Iraq, has been openly opposed the “US occupation.” The second element of the Alliance’s program demands: “…A timetable for the withdrawal of the multinational forces from Iraq.”

In May 2003, two months after the US invasion, Al-Hakim returned from exile in Iran and set up shop in Najaf. SCIRI, which has been called the “Hezbollah of Iraq,” also maintains the Badr Corps, an Iranian-trained militia that Al-Hakim helped to found in the early 1980s, is based in Teheran, and numbers anywhere from 10,000 to 30,000.

There is more. In the run-up to the war, SCIRI was one of six Iraqi exile organizations that shared at least $92 million in US military aid. (Another was Chalabi’s Iraqi National Congress.)

However, in April 2003 it earned Donald Rumsfeld’s wrath. He sternly warned Iran about using Badr Corp, which had also developed strong relations with the Kurd’s military wing, to interfere in Iraq’s internal affairs. The SCIRI is also staunchly opposed to the recognition of Israel until the “occupation of Palestine” has ended.

In October 2004, Iraq’s national intelligence chief Mohammed al-Shahwan accused the Badr militia of assassinating 10 of his agents, and accused Chalabi, Al-Hakim’s ally, of being a spy for Iran. Indeed, according to the US 9/11 Commission, SCIRI, Hezbollah, and Hamas are all basically sister organizations that are heavily supported by Iran.

Of course this is the Middle East, so one has to take all such scuttlebutt with a grain of saffron. Maybe just the experience of participating in elections will cause religious radicals to become moderates! True,  that hasn't exactly happened yet on the US religious right, much less among Iranian, Arab, or Israeli true believers. But hope springs eternal -- after all, US foreign policy is a faith-based initiative!   

So perhaps now we understand another reason why Iran’s Foreign Minister was just as enthusiastic about the elections in Iraq as President Bush. Hamas’ recent victory in Palestine may not have been his only cause for celebration. Or perhaps everyone is reading Woodrow Wilson these days!

But you ‘re still either for democracy or against it, right? 

6. Seedbed for Democracy?

Whatever the longer-term consequences of this election for Iraq, can we at least be assured that it has had a salutary effect on the rest of the Middle East? Here again the waters are murky.

Not surprisingly, Hamid Kharzai, “the mayor of Kabul,” was enthusiastic about the election. Jordan's King Abdullah, a dapper, English-speaking Arab Sunni monarch and a leading US aid recipient whose own country doesn’t quite yet hold Iraq-style elections for some reason, worried that the Sunni Arab turnout was "a lot lower than any of us hoped.” But he also added that "This is a thing that will set a good tone for the Middle East, and I am optimistic."

Other US allies in the Muslim world have found Iraq’s example much less contagious.

Pakistan’s President Musharraf has made no public comment on the elections. But in December 2004 he called the Iraq War a “mistake” that “made the world a more dangerous place.” That same month he also broke his solemn promise to give up absolute power, extending his term as Army Chief and President several more years. The US currently gives Musharraf's nuclear-armed military dictatorship more than $300 million a year in military aid and $306 million in economic aid, and has also recently helped it reschedule billions of foreign debt.

Egypt’s President Hosni Mubarak ventured the hope that the Iraqi election “would open the way for the restoration of calm and stability.” But just last week, Mubarak, who gets $2 billion a year of US economic and military aid, said he may run for a fifth 6-year term – unless his son runs. Just this weekend, as Iraq starting to hold elections, his government detained Egypt’s main opposition leader.

You are either for democracy or you are against it, right?

SUMMARY

So now that we’re here, where are we? How do we make sense of this bizarre, contradictory outcome, where the overwhelming majority of Iraqis want us to leave their country forthwith, but could not retain their electoral freedoms for one New York minute without us?

Was trying to force-feed democracy-to-go in this complex environment really ever a good idea? Once there, couldn't we have done a vastly better job of it than we have?  Will the astronomical price that we and the Iraqi people have paid, in terms of blood, distraction, international law, and treasure, ever be worth it? How long will it be until we will know for sure?

But history is not made by critics, historians, and other second-guessers. For better or worse, it is often made by simplistic, decisive little men (and women) who are able, one way or another, to grab hold of the reigns of power and say -- "Follow me - I'm sure the trail is this way." Our continuing propensity to respond to such appeals, in the face of mounds of evidence about the likely results, is astounding and disturbing.

In any case, whatever else the Iraqi experiment has accomplished, at least the Iraqi people have now held their first election since…..Well, come to think of it, up to now, there never has been a truly free election in “Iraq,” the pseudo-nation that Britain and the World War I Allies cobbled together out of three Ottoman Empire administrative eyalets (provinces), Basra, Baghdad, and Mosul in 1921, and deemed “independent” in 1932.

For that matter, the Great Powers of that day probably could have mandated an election way back then that was no less free, secure, or fair than  last Sunday’s and avoided the whole bloody sequel.

***

(Note to readers: SubmergingMarkets™ enjoys the dubious satisfaction of having been roughly right about developments in Iraq for the past year and a half. For example, see Reference 1 and Reference 2.) 

© James S. Henry, Submerging Markets™, February 05

(Some) Justice Finally Comes to Chile -Is More on the Way? James S. Henry

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After decades of inaction, Chile's own judicial system is finally beginning to hold leading members of the Pinochet dictatorship directly responsible for the brutal reign of terror that it inflicted on Chile  from September 11, 1973 to March 11, 1990.

The latest  piece of good news was this week's indictment of 89-year old former Chilean dictator General Augusto Pinochet Ugarte on charges stemming from the disappearance and murder of several individual activists.

In July 2002, another serious human rights case against General Pinochet had been dismissed in Chile on grounds that he was mentally incompetent to stand trial. That case echoed the controversial March 2000 decision by UK authorities to permit him to return home rather than extradite him to Spain, France, Switzerland, or Belgium, after he’d spent more than 17 months under house arrest in London.

As noted below, this week's indictment is just the latest in a series of recent efforts by Chile's judicial system to provide justice for more than 3,200  civilians who were murdered by the regime, more than 28,000 others who recently stepped forward to bare witness about being illegally jailed and tortured, and tens of thousands more who had similar experiences, but have so far kept silent. 

Several other cases that have been brought against Pinochet in Chile have recently been allowed to proceed, especially after Pinochet gave a lucid, self-serving interview to Channel 22, a Spanish language TV station in Miami,  in November 2003. This incredible act of hubris may have finally brought Pinochet to ground.

While this latest ruling will no doubt be appealed to Chile’s Supreme Court, it is at least another step in the right direction.

In addition to providing justice, such efforts also provide a measure of vindication for those who have long maintained that the Pinochet dictatorship was an unwarranted, illegal, and counterproductive intrusion on Chile's long-standing traditions of democracy and respect for human rights.

However, the real disgrace now is that while Spain, France, Belgium, Switzerland, Argentina, and Chile itself have already brought serious criminal charges against Pinochet or his key associates, the US Government has never done so.

This is despite the fact that several US citizens were also murdered by the regime, not only in Chile but also in the US itself.   

Furthermore, as examined below,  many of the Chilean junta's most important confederates and accomplices -- including leading bankers, economists, lawyers, media magnates, convicted professional terrorists, and several senior government officials -- continue to enjoy sanctuary abroad -- especially in the US, the supposed champion of the “post-September 11^th” global anti-terrorist campaign.

Many Americans may not recall that there was another September 11^th, one that was even more bloody and terror-stricken than their own. Indeed, this “other September 11^th” was one that their own government helped to create.

To do so, the US worked closely with an incredible bevy of transnational terrorists, butchers, and tin-horn "generals," like Pinochet (Chile), and later, Videla (Argentina), Banzer (Bolivia), Stroessner (Paraguay), and Rios Montt (Guatemala). These valorous "generals" specialized in the use of terror against defenseless civilians.

It is time for Americans who really care about human rights to demand that their own government follow the courageous lead that Chile has taken, and  help bring these uniformed savages and their foreign and domestic collaborators to justice.  

THE END OF IMPUNITY?

As noted above, there have been several other important recent steps toward justice in Chile with respect to the Pinochet regime. Among the most important are the following:

è On December 10, 2004, Colonel Mario Manriquez, a retired Chilean colonel, was arrested and charged with ordering the September 1973 execution of Victor Jara, an internationally-reknowned Chilean folksinger and playwright. Jara, 38 at the time, was detained and tortured to death at Santiago’s infamous National Stadium, where thousands were detained after the coup.  (For an example of Jara's songs, Download vctor_jara_ni_chicha_ni_limona_.mp3.)

è In addition to the decision by Judge Juan Guzman noted above, on December 4, 2004, Chile’s Court of Appeals also lifted Pinochet's immunity from prosecution with respect to his possible involvement in the  1974 murder of his precedecessor as Commander-in-Chief of the Chilean Army, General Carlos Prats Gonzales.

General Prats, a highly-regarded "constitutionalist" who stalwartly opposed the Army's intervention in political affairs, had fled Chile in September 1973 after the coup against Allende’s duly-elected government. 

In one of that decade’s clearest cases of international terrorism, General Prats and his wife Sofia Cuthbert were killed by a car bomb in Buenos Aires in September 1974.

In 2000, Eduardo Arancibia Clavel, a member of Chile's DINA, its secret service, was convicted by an Argentine court of helping to organize the killing, and was sentenced to life in prison. Argentina also requested the extradition of six other DINA agents to stand trial in the case, plus Pinochet, who was indicted for first-degree murder as the "intellectual author" of the crime. Chile's Supreme Court denied the extradition request in 2003, but the case was picked up by a Chilean prosecutor.  The recent ruling means that the case can proceed. Pinochet has appealed the decision to Chile's Supreme Court.

è On November 29,  2004, the Chilean Government released the Valech report, a year-long investigation of human rights crimes committed by the Pinochet regime. The report, requested by Ricardo Lagos, Chile's current Socialist President, documented the fact, long-denied by Pinochet and his loyalists, that systematic, widespread  torture had indeed been state policy during his reign -- including more than 3400 instances of sexual abuse.  Even Pinochet’s eldest daughter was shocked by the report, which was based on nearly 28,000 interviews with victims of the junta’s repression – the first opportunity they had ever had to tell their stories. The victims who had managed to survive to tell their stories were offered modest pensions by the Chilean government in compensation.

In anticipation of the report, on November 5, General Juan Emilio Cheyre, the head of the Chilean Army, reversed the Army’s previous refusal to accept responsibility for these abuses, declaring:   

"The (Chilean) Army has made the difficult but irreversible decision to acknowledge the responsibilities that it has as an institution in all the punishable and morally unacceptable acts of the past… Human rights violations never, and for no one, have an ethical justification."

è In October 2004,  Chile’s IRS filed tax evasion charges against the former dictator and his long-time financial advisor, Oscar Aitken. For these charges alone, Pinochet may face fines up to three times any taxes that he evaded, plus a jail term of up to five years. In late November, on the eve of the General’s 89^th birthday, a Chilean judge did manage to freeze more than $4 million of Pinochet’s Chilean assets, pending the outcome of investigations for tax fraud and money laundering.

è In May 2004, Pinochet’s immunity was lifted by Chilean judges investigating the Condor case,  a 1970s conspiracy among several “Southern cone” dictatorships at the time (Argentina, Brazil, Bolivia, Uruguay, and Chile) with US support and coordination, to disappear political opponents. The decision was upheld in August.  Pinochet has denied all responsibility for the disappearances. 

THE RIGGS CASE

So far, the main US contribution to these developments took place in July 2004, when the US Senate's Permanent Subcommittee on Investigations released a report on General Pinochet’s offshore banking -- especially his ownership of up to $15 millions of "funny money" in more than a dozen Pinochet-owned bank accounts at

Riggs National Bank (DC, Miami, London), Citibank (Miami), and Bank of America.

The reported, which had been conducted at the behest of Senator Carl Levin, the Subcommittee’s ranking Democrat, revealed that ten key Pinochet-related accounts were handled by Washington DC’s Riggs National Bank. These accounts, plus numerous Riggs-managed offshore trusts and companies, were reportedly established for General Pinochet in the mid-1980s and 1990s  with the knowledge and active involvement of Rigg’s owner and CEO, Joseph L. Allbritton (Baylor Law ’49).

Allbritton, a prominent Houston-based banking and media magnate who is now in his seventies, is a close friend of the Bush family, and a trustee of the Lyndon B. Johnson Foundation, the George Bush Presidential Foundation, the Reagan Presidential Foundation, the Kennedy Center, the Houston Symphony, and the Houston Museum of Fine Arts. He has also served on the board of the National Geographic Society and Washington DC’s Federal City Council.

A former owner of the now-defunct Washington Star, Allbritton started acquiring Riggs in the early 1980s, eventually buying at least 40.1 percent of the $6.3 billion asset bank. He served  as Rigg’s Chairman and CEO until 2001, when his only son, Robert L. Allbritton, took over.

The Allbrittons also owns several other businesses, including Allbritton Communications Co., which controlled WJLA, Washington D.C.'s main Disney/ABC affiliate, plus TV stations in Little Rock, Tulsa, Lynchburg, Charleston, Harrisburg, and Tuscaloosa.

But Riggs National Bank was the crown jewel in the empire. Founded in 1815, it was Washington D.C.'s oldest and largest bank, touted as "the most important bank in the most important city in the world,” where “at least 21 First Families banked.”

It acquired a commanding share of the city’s “Embassy banking” business, handling  prominent diplomatic customers for key foreign embassys, like Saudi Arabia’s Embassy. (The US Senate Committee on Governmental Affairs continues to investigate Rigg’s relationships to the Saudis.

These reportedly included more than 150 private accounts, one of which was apparently used, perhaps unintentionally, by Princess Haifa al-Faisal, the wife of Prince Bandar, Saudi Arabia’s Ambassador to the US, to relay funds to two September 11^th 2001 hijackers. In September 2004, several families of September 11^th victims filed a class action lawsuit against Riggs with respect to this matter.)

Under the Allbrittons, Riggs was not shy about recruiting political allies. Fellow Texan Jack Valenti (U of Houston, Harvard), the influential motion picture industry representative, is a long-time Riggs board member.

In 1997, Riggs acquired J. Bush & Co., an asset management firm owned by Jonathan J. Bush, George H.W.’s brother, George W.'s uncle and a former Chairman of the New York State Republican Finance Committee. In May 2000, Jonathan Bush briefly became CEO of the Riggs Investment Management Company, but now he concentrates on managing the private assets of wealthy clients at J. Bush & Co. In 2003, “JJ’s” Yale classmate, William H. Donaldson, was nominated by President Bush to head the SEC.

Ironically enough, in 1999, the US Treasury had even selected Riggs to redesign and manage its “CA$HLINK” cash management system, reportedly the world's largest deposit/cash reporting system. 

It is not yet clear whether “JJ” was involved in managing any assets for the bank’s wealthy private clients like General Pinochet, the Saudi Princess, or Equatorial Guinea's dictator, Teodoro Obiang Nguema, the bank's largest single private banking customer.

But other senior Riggs managers were involved in handling the relationship with General Pinochet, including the bank’s former President, Timothy C. Coughlin (Brown U., NYU MBA, US Marines, Federal City Council), who resigned in May 2004; Robert C. Roane, (UVA, George Washington MBA), the bank’s chief operating officer, and the former head of Riggs - London, who resigned on November 26, 2004;  Carol Thompson, Riggs' former SVP for Latin America, who also resigned in 2004; and Raymond M. Lund, the former EVP of the International Banking Group, who left the bank in March 2004.   

Also implicated in the Pinochet affair was Steven B. Pfeiffer (Wesleyan ‘69 – Chairman Emeritus;  Oxford - Rhodes Scholar; Yale Law School, US Naval Commander; Council on Foreign Relations), a Riggs board member since 1989, a former chairman of the bank’s International Committee, a former Vice Chairman of Riggs Bank Europe Ltd., and the bank’s Chairman in 2001. Pfeiffer remains a senior partner at Fulbright & Jaworski, the leading DC law firm, where he  has served as head of the firm’s International Practice, and, from 1998 to 2002, its Partner-in-Charge. According to the Senate report, Pfeiffer and his law firm provided key legal advice to Riggs with respect to its handling of the Pinochet accounts. 

BANKING ON THE GENERAL

Riggs' banking relationship with Pinochet may have dated back to the 1970s, when it was reportedly involved in helping to finance several Chilean arms deals. But it really heated up in the mid-1990s, when Pinochet came under investigation for more than 66 international criminal complaints involving human rights violations, drug trafficking, torture, assassination, illegal arms sales, and corruption, not only by Judge Garzon in Spain, but also by Argentina, Belgium, France, Switzerland, and the UK. The General was trying desperately to conceal his family’s assets around the world. 

According to the Senate report, Riggs National Bank participated in a long-term conspiracy to launder Pinochet's offshore holdings and conceal their ownership from US federal bank regulators, including the Comptroller of the Currency. Quite coincidently, the bank also reportedly hired  R. Ashley Lee, an OCC bank examiner who happened to be in charge of auditing Riggs from 1998 to 2002.  

That helped Riggs conceal the Pinochet matter for a couple years. But in May 2004, Riggs  was fined $25 million in civil penalties for "willful, systemic" violations of anti-money-laundering laws" with respect to its dealings with two other dubious clients, Saudi Arabia and Equatorial Guinea.

In light of all these embarrassments, the Allbrittons decided to sell the bank. In July 2004, it agreed in principle on a $779 million sale to PNC Financial Services Group Inc. However, this  merger is now reportedly on hold until at least April 2005,  and it may never be consummated, given all the many lawsuits and investigations that have arisen out of Rigs involvement in money laundering. If permitted, the PNC transaction would effectively permit the Allbrittons and their close associates to "launder" their profits from more than twenty years of scandalous, morally-unconscionable behavior, undertaken at the behest of some of the world's worst dictatorships.

Meanwhile, Riggs is fighting a number of other legal actions pertaining to this scandal. In April 2004, three law firms that specialize in shareholder derivative suits teamed up to sue Riggs’ directors for “intentionally or recklessly” ignoring the risks of failing to update the bank’s money laundering controls and dealing with dubious clients like the Saudis and Pinochet. 

In September 2004, several former Riggs senior managers and board members were named in a legal action filed by the courageous Spanish judge, Balthazar Garzon, who has been investigating human rights violations committed against Spanish citizens by the Pinochet regime. Judge Garzon has asked that US authorities seize the assets of their personal assets, prosecute them for money laundering,  and also freeze more than $10.3 million in alleged Pinochet assets.

So far, the US Department of Justice has basically ignored Judge Garzon’s request.

(c) James S. Henry, SubmergingMarkets™, 2004.

THE BEST WEEK IN UKRAINIAN HISTORY? KIEV REPORT #2Matthew Maly

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Ukraine has just had perhaps its luckiest week in its history -- a week where everything went right, and the educational process was so intense, so logical, so marvelously cogent that the country went through a hundred years of political evolution. It is now, by right, a part of Europe, a part of the Western cultural tradition, a true democracy! This has been not merely a week in life of one country, but an entire page in the history of the world -- and, let us hope, global democracy!

MEET THE CANDIDATES

It all started out rather unpromising with this fall's presidential elections. The alternatives were the usual: on one hand, Prime Minister Viktor Yanukovich, with a much smarter and more sinister person, Viktor Medvedchuk (and Kuchma’s son-in-law Viktor Pinchuk in tow), lurking behind; on the other hand, former Prime Minister Viktor Yushchenko, with a much smarter and more sinister person, Yulia Timoshenko, lurking behind.

Both Yanukovich and Yushchenko were appointed by one and the same President Kuchma. Medvedchuk and Timoshenko had both proved that they know how to turn their government connection into enormous personal wealth. I could tell the difference between these two teams no better than I could tell Coke from Pepsi.

There was another divide: Ukraine speaks Ukrainian and Russian, it has Western and Eastern part, it can join NATO or ally itself with Russia. Yanukovich is from the Russian-speaking part of Ukraine, speaks bad Ukrainian, and so his campaign was getting its local currency by exchanging the rubles it had. Yanukovich’s campaign tone was thuggish, unmistakably betraying presence of Russian political consultants.

Yushchenko’s power base was in Western Ukraine, its tone was uncharacteristically sleek, it tended to mention democracy, and it was not hurting for dollars and euros.

Since I wanted Ukrainian people to actually have a better life, I had no preference between the two. But I strongly felt that using a thuggish tone was a better electoral tactic as that was something the Ukrainians could relate to. My money was on Yanukovich, and I thought I was smart.

SURPRISES

Then an amazing thing happened: people appeared to deeply resent Yanukovich talking down to them, while actually appreciating Yushchenko’s respectful and meaningful messages.

Yanukovich’s billboards, with wonderful, in a certain way, ultimate, slogans “Just because!” and “That’s the way it should be!” were everywhere, while Yushchenko’s slogan “Yes!” (with a horseshoe as a symbol of luck), were nowhere to be seen. In Ukraine, it is called “using the administrative resource”: after all, Yanukovich is a current Prime Minister while Yushchenko is just an opposition leader. Ukraine is a democracy, and everyone can sell advertising space to Yushchenko if they wish to have all their documents for the last five years audited by someone extremely unfriendly and their permits and licenses withdrawn. And of course there could not be any fair description of Yushchenko on any state-owned media.

Then, right in the middle of the campaign, Yushchenko had a little problem: in one day, his entire face got covered with horrific acne-like inflammation, his nose swelled to twice its former size, so that he started to look like a Hollywood movie monster. Since nobody in the world has ever had such a disease, especially one that developed so quickly and in such an inopportune time, people suspected that Yanukovich may have poisoned Yushchenko, probably with dioxin.

There is no direct evidence that Yanukovich was involved. But if you look like a thug, talk like a thug, and behave like a thug, people tend to suspect that you are a thug. It does not help matters if you come from a mafia-controlled Donetsk region of Ukraine, have a long history of association with the murderous mafioso who controls the region, and having had two criminal convictions, did time in jail. In a word, Yanukovich got stereotyped.

Yushchenko got stereotyped as well: people assumed that since he had suffered horrible disfigurement for talking about the truth and democracy he must have really meant it. You have the stigmata – you must be Jesus Christ. And as a result, two things happened: Yushchenko became infallible; for Ukrainians, he became the focus of all their dreams and aspirations, and (pay close attention!) truth and democracy became important because Yushchenko was talking about them. As far as poisoning, believers duly noted that mortal poison did Yushchenko no lasting harm.

Let me say it again, since this is very important. Jesus was the guy who could perform a miracle here and there. People did not have, nor could they understand, the moral code that Jesus was proposing. But since Jesus could do miracles, people accepted his moral code as their own.

Same here. Make no mistake, truth and democracy meant nothing for Ukrainians. Ukrainian students cheated and waited for the time when they become businessmen so they could start stealing. Kiev’s Mercedes-riding bureaucrats were the very epitome of graft, and now they are walking after Yushchenko with the strange smile on their faces, inviting students who demonstrated in the cold to spend the night in their palaces: obviously, there was more to them than graft.

Ukrainians did not accept the theoretical notion that somewhere there could be a government that actually served the people, respected them, and told them the truth. It has all changed now in Ukraine, probably forever, just because Yushchenko said that it should.

THE "ELECTIONS"

Then there came the first round of voting on October 31. It is now clear that Yushchenko got more than 50% of the vote. But God had mercy on Ukraine and prevented Yushchenko’s win in the first round. God has firmly decided to make Ukraine free and democratic once and for all, and for that Ukraine needed to go through some suffering so as to earn its freedom. There was serious fraud in favor of Yanukovich, with the result that both Yushchenko and Yanukovich got about 39% each, with Yushchenko getting marginally more votes. The total is less than 100% because there were 22 other candidates.

Now, that was really something. Never in the post-Soviet space did the opposition presidential candidate get more votes than the candidate of power. In fact, many people thought that voting against Yanukovich was quite useless. Other people thought that voting for Yanukovich was quite useless, but Yanukovich did much to disabuse them of this notion. Regional officials of the regions where Yanukovich would not win, knew they would be immediately fired (and they were). So, a lot of little tricks were used. Voting in Ukraine is voluntary, and students who wanted to get a failing grade on their next exam could abstain from voting. For the rest, the procedure was as follows: a student would obtain a ballot, choose any candidate he or she wanted as long as it was Yanukovich, show the ballot to the person quietly standing by the ballot box, probably their Civics or Ethics professor, drop the ballot into the ballot box, and be assured of a passing grade on their next Chemistry examination. For the older generation, there was another trick. Fail to vote for Yanukovich, and see your heat and water turned right off.

And yet, even with all these tricks, Yanukovich only obtained 45% of the vote. It meant that his true level support could not have been greater than 30%. And yet, Yanukovich HAD to win the second round, had to get at least 20% more. Why could not Yanukovich lose? Because there is a lot of stolen property at stake, and when property is stolen, there is no receipt to prove ownership. That means that a new government could take the property away. Whatever you could say about the famous Khodorkovsky case, it is no longer advisable for the oligarchs to have property for which they have absolutely no legal title.

In the second round, there was even more fraud on behalf of Yanukovich. As this is now well documented, I will not go into that. People of Ukraine are no strangers to fraud, and they could have submitted to it easily, with barely a sigh. But now they had a lightning rod of Yushchenko, a highly moral person they imagined him to be. Regardless of who Yushchenko actually is, what matters is that people appointed him as a personification of all the best that is in them, a focal point of all their hopes. From now on, a stab at Yushchenko was a stab in their heart.

And that made Yushchenko much more than a President: he is now in the same league with Reagan, the Pope of Rome, and the Beatles. There is a Woodstock atmosphere in Kiev, and Yushchenko supporters, people of all ages, look like the happiest people in the world. They have clearly found themselves, their inner freedom, and their strength.

IRONIES

Let us again return to what happened here, as it is unprecedented. In the second round of voting on November 21, Yushchenko got about 70% of support, and if the elections were fair he would have by now be the President-elect. Would Ukraine be a real democracy now?

Absolutely not!!! Ukraine would have gotten Yushchenko as President, and would have calmly gone back to cheating, stealing, hiding from authorities, and suffering as it always has.

After all, Yushchenko already HAD BEEN a Prime Minister, and quite recently. And there was no enthusiasm, no support, no happiness, no tears of joy, and lousy economic results, worse than those demonstrated by Yanukovich.

If the elections were fair, it would have made no difference who won, Yushchenko or Yanukovich. Again. After all, Yanukovich is no worse than Ken Lay: just a tough, self-serving, and cynical kind of guy.

What happened? With great help from Yanukovich, and thanks to him, Yushchenko has lit the inner light in the souls of mortally insulted people, the light they did not know was there. Truth, democracy, justice, or heroism mean nothing unless they are sanctified. In one fell swoop, Yushchenko have sanctified them all, and faces of his followers have changed. What happened in Ukraine is that the truth and justice were lost and are now being defended as a newfound, cherished, and fundamental possession of every citizen.

If Yushchenko now represents God, his detractors are with the Devil. Some of them, to be sure, are hellish personalities, gangsters and murderers, such as the Head of the Donetsk Region or the Mayor of Odessa.

TRANSFORMATION

I am more interested in a momentary transformation. There is a woman I know who went on TV to defend Yanukovich. Her eyes looked dead, her hands were shaking, and she had made her worst hairdo. Across from her, there was a woman who defended Yushchenko, and that one grew ten years younger in four days, her back was straight and her eyes were shining. Was the debate about Yushchenko? Absolutely not.

Actually both of these women used to be equally skeptical about him. But inside one woman a tiny flickering light was now almost extinguished, while the other had the light of her soul burning as brightly as it could, just like the bright orange she wore. It was the debate about human dignity, with Yushchenko as a starting point.

Yushchenko is a tall man with a robust face of a peasant. Women here consider him attractive. But after the second round of elections, with his pockmarked and swollen face, he is universally seen as beautiful. This adoration brings a real danger of Yushchenko not being able to live up to it, but this is the case right now.

And let me just mention the designer revolution that happened here: people that used to choose between gray and gray were now proudly wearing bright orange, and 99% of them are doing so for the very first time in their lives.

Ukrainian TV these last four days is beyond description. First, there was Channel 5, a pro-Yushchenko private channel beamed straight to the Independence Square where most of the demonstrations took place. Channel 5 had a constant stream of interviews with intellectuals, artists, politicians, etc, all of them wearing something orange. Most of the times, the orange color looked attractive, stylish, appropriate for a successful, accomplished, strong-willed person that was being interviewed.

But I remember a man in his seventies, in the cheapest brown suit and a pitiful tie. Around his thin wrinkled neck, he was wearing an bright orange woolen scarf they gave him in the studio, and this scarf looked horribly out of place on this frail, poor, sickly creature. Very uncomfortable in front of the camera, the man said, “I am a retired army major, a World War II veteran. I wish to address myself to the soldiers. My sons! Soldiers! I am kneeling before you! Do not shoot at people, the people have made their choice! I want to say… Soldiers… When I was young…”

The old man was searching for words, panicking as he was being broadcasted live to a huge, country-wide audience. “Thank you very much!” said the anchorwoman in a bright and crisp professional voice, eager to end his suffering. The camera zoomed in for a goodbye. For the first time, the old man looked straight into the camera and said, “People just want to be free!” The orange scarf did not look out of place, and I could suddenly tell the guy really was a major. The guy was having his moment, even if a bit late in life.

And this is important. God did not create Man to chew cud for seventy years and then die: God created Man for one, two, or three defining moments, and the old man was having his.

But sometimes official channels were even better than the opposition TV. One report I saw informed the public that “special riot police is always ready to defend the Constitution” and the camera proceeded to get a close-up of fearsome black police dog.

Then I realized that President Kuchma, unwittingly, is a true father of his nation!

There are things in the world, such as trees, oceans, and countries, whose existence depends on all people. And then there are things, such as love, truth, dignity, inspiration, that exist only because of you. If you are not ready to give your all to defend your love and your truth they cease to exist. Again: truth is something that depends solely and exclusively on you; if you fail to defend it, it dies.

There simply is no way to transfer this responsibility on someone else’s shoulders. And from the bottom of my heart I thank God for the existence of President Kuchma, who showed guard dogs to thousands and thousands of Ukrainian students so that they would stand up, put away their Chemistry textbooks, attach their orange armbands and go to the Square.

For truth cannot be defined as a statement that corresponds to reality. Truth is what makes you unafraid of guard dogs. What happens on that Square is no rock concert, people are braving dogs and weapons – and hallelujah! – a nation is reborn!

© Matthew Maly, SubmergingMarkets™, 2004

***

REPORT FROM KIEV - A DEMOCRATIC REVOLUTION?Monday Nov. 22, 2004Matthew Maly

(Note:  Matthew Maly is a courageous and astute Russian-American who is based in Kiev, and is a SubmergingMarkets Contributing Editor. He filed the following brief eyewitness report late Saturday night, as demonstrations in the city were mounting.  As journalists who are intimately familiar with so-called "democratic" countries that routinely subvert democratic elections and press freedoms, we wish to express our solidarity with the people of the Ukraine.)

-----------------------------------------------------------------------------------

Kiev is a city of 4 million people. About a million of them today wore
Yushchenko's orange color, and that includes all students, and a fair number of grandmothers, yuppies, businessmen, etc. His opponent is a twice convicted Al Capone, for whom no more than 30% of Ukrainians voted.

There was tremendous electoral abuse. There is a Woodstock
atmosphere in the city which the people will never forget. Half a
million Kievites and "visitors" (some with good military skills)were on the main square today, screaming "Yushchenko" so that I heard it a mile away.

Nothing like that has ever happened in the CIS, ever. It is not even similar to winning a Superbowl. Ukraine will never be the same, whatever happens, as the young people will never forget.

Tonight the people may storm the Presidential Administration, and there may be lots of blood. I tried to stop the bloodshed all day today by pushing a neat political trick I invented, a certain Open Letter I wrote. They listened, but they already were handing out the guns....

©Matthew Maly, SubmergingMarkets™, 2004

***

November 23, 2004 at 04:57 PM | Permalink | Comments (1) | TrackBack

Saturday, October 30, 2004

IRAQI FUBAR:The Road to God Knows Where

We have made a desert and called it “peace” – or, at least, “Iraqi democracy.”

Whatever Americans may choose to believe about whether they are really better off with Saddam Hussein gone, it is by now evident that, nineteen months after the US invasion of Iraq, most ordinary Iraqis feel much less secure, much less well-off, and more anti-American than ever before. 

Indeed, the country appears to be spiraling out of control. Nor is it clear that even a sharp post-US election crackdown by Coalition Forces, with all the attendant Iraqi casualties that it is likely to produce, will be able to turn this trend around.
 
So far, neither leading US Presidential candidate appears to have fully come to grips with this deteriorating situation in Iraq,  or the fundamental strategic blunders that underlie it. At least they are not saying so in public.   

A rather undistinguished, pig-headed,  President continues to defend his faith-based initiative for “democratizing” the Middle East. 

A rather undistinguished junior Senator from Massachusetts -– who has spent much of his life trying to be on all sides of recent US wars -- continues to argue that the key problems with the Iraq War have been tactical – too few troops and equipment,  too little Allied support, too few trained Iraqis, careless handling of high explosives, and so forth.

Neither of these positions is realistic.

Indeed, as we will argue below, regardless of who is elected US President on November 2, the facts on the ground in Iraq are now pointing relentlessly toward one seemingly counter-intuitive conclusion:

The US will only be able to stabilize Iraq, preserve that country's national unity, win more support for the interim government,  undermine the role of “foreign terrorists” in the country, and secure a modicum of domestic and international support for “democratization” if and when it links the calendar for Iraqi democratization and constitutional reform to a firm, near-term timetable for the withdrawal of all US forces (though not necessarily all Coalition forces) from the country. 

October 30, 2004 at 06:29 PM | Permalink | Comments (1) | TrackBack

Monday, September 27, 2004

Democracy in America and Elsewhere:Part IIIB. Campaigns, Voting, and Representation

James S. Henry and Caleb Kleppner** Download PDF Version

As we began to explore in Part IIIA of this election-season series, contrary to the conventional wisdom, the United States of America actually has a great deal to learn from other countries – especially several young democracies -- about designing and operating electoral institutions that are truly democratic. This part of the series continues our comparison with one of those countries, Brazil.

There was perhaps a time when much of the rest of the world viewed the United States of America not just as a militaristic crusader, but as a role model for advocates of liberal democracy everywhere.

These days, however, as former President Carter’s recent caustic comments about the likelihood of continued rigged voting in Florida this year have underscored, the American beacon of liberty is flickering in the wind.

Increasingly the US is viewed by the rest of the world -- and by some of its most astute internal critics -- as an arrogant, hypocritical, sclerotic plutocracy, whose own electoral institutions, as former President Carter correctly observes, are at risk of no longer meeting even minimal international standards for democratic elections.

Meanwhile, the US has the temerity to lecture other countries (as it did, for example, just this week with respect to Hong Kong) about the meaning of “democracy,” and to selectively intervene in the affairs of other countries in the name of democracy, whenever it suits perceived US interests.

As shown in Table A, this concern with democratizing the world may be a preoccupation of US policy elites, or it may just be pure rhetoric.

A recent poll by the Chicago Center on Foreign Relations shows that for the American public at large, the goal of bringing democracy to other nations ranks last on a list of fourteen major US foreign policy goals, with only 14 percent believing it to be “very important.” This made it less than one fifth as as important as securing energy supplies, protecting US jobs, or fighting terrorism. Even among policy elites, “democratization” ranked 12th on the list.

Once again, our aim here is to help Americans understand why their own electoral system has become so anachronistic and dysfunctional. We also hope to encourage them to take more interest in the rest of the world, be a little more modest, and understand that they too live in a “developing country” – one whose own particular version of “democracy” is in dire need of rejuvenation.

CAMPAIGN PROCESSES

Campaign Duration/ Candidate Selection

Brazil. Like the UK and many other democracies, Brazil’s process for selecting Presidential candidates and the political campaigns that follow are relatively abbreviated, with most candidates selected by national parties caucuses, and campaign advertising and other electioneering activities limited to 60 days before the general election. (This is far from the shortest period. Indonesia just held a Presidential election, with 150 million registered voters, about 10 million more than in the US. It limits public campaigning to just 3 days in order to curb political violence, a long-standing Indonesian problem.)

The US. The US primary process for selecting Presidential candidates is a costly and tedious. It begins up to two-and-a-half years before the general election, wends its way through more than 37 state primaries and party caucuses by mid-March of the election year, and concludes with the main candidates already selected at least 6 months before their party conventions, and 8 months before election day.

The US primary process also gives extraordinary influence to a tiny fraction of voters who turn out for caucuses or primaries in “white bread,” states like Iowa (total primary turnout = just 9 percent of VAP) and New Hampshire (total primary turnout= 29 percent of VAP) that happen to have early primaries.


Several of these states also follow primary procedures that are only remotely democratic. In Iowa’s bizarre “house party” caucuses, for example, there is no secret ballot, so that one’s corporate bosses or fellow union members can easily observe whether one follows instructions.


The primary process also has a dramatic impact on campaign costs. With so many primaries bunched together, candidates are compelled to run national campaigns in multiple states. On the other hand, since the order of primaries has nothing to do with each primary’s weight in national totals, the country as a whole is compelled to sit through 9-sided “debates” between pseudo-candidates, over and over again.

All this probably reduces the supply of first-rate candidates who are willing to endure this grueling march. By the time the November election finally rolls around, most Americans are also probably sick and tired of the whole affair. On the other hand, campaign advisors, advertisers, and the news media like the current system -- it generates a prolonged “horse race” and recurrent employment.

Campaign Finance

While most leading democracies, like Germany, France, and Japan, have experienced serious campaign finance abuses, finance has much more leverage in systems like Brazil and the US, where Presidents are selected through expensive direct elections, not parliamentary polls. So far, despite numerous efforts, neither Brazil nor the US has been able to contain the excessive influence of campaign finance directly, but Brazil has made progress indirectly, by providing media access and some public financing.

In Brazil’s case, the campaign finance issue was highlighted by a recent series of scandals, including the 1992 impeachment and removal of President Fernando Collor, the 1994 “Budgetgate” scandal, the 1997 “Precartorios” scandal in Sao Paulo, the 2002 scandals involving illicit funds raised by Roseanna Sarney and Jose Serra, and the 2004 scandals involving senior Workers Party official Diniz and the “Blood Mafia.”

In the US, this year’s Presidential election will be by far the most expensive in history, nearly twice as expensive as the 2000 election, despite new legislation like the Bipartisan Campaign Finance Reform Act of 2002 (McCain-Feingold), which tried to limit the use of “soft money.”

“Supply-Side” Limits. Both the US and Brazil have repeatedly tried to legislate against the corrosive influence of money on elections by establishing such “supply-side” limits. In the US these efforts date back more than a century. Since the 1980s there have been a string of “reforms of reforms” in both countries to require disclosure of contributions by individual and corporate donors (Brazil), disclose receipts by candidates and parties (Brazil, US), limit the size of individual, union, and corporate contributions (Brazil, US), ban anonymous donations (Brazil, US) limit campaign expenditures (Brazil), and limit the amount that parties can raise (Brazil).

In the US, virtually all elections at all levels of government are privately funded, with no spending limits unless candidates opt for matched public funding. In federal races, contributions limits are now quite high -- $4,000 per election cycle. And these may be increased if opponents spend their own money. Corporations and unions are prohibited from making campaign contributions, but they have found ways to make huge indirect contributions, by way of Political Action Committees (PACs), state and national political parties, unregulated “in-kind” contributions (like Cisco’s $5 million of free networking services to each party convention) and most recently, virtually-unregulated “527” committees and 501-C4s.

So far, these “supply side” efforts to limit campaign contributions have proved unsuccessful in both countries. Donors and recipients are simply too creative, laundering contributions through “independent” fronts, providing in-kind contributions, spreading contributions across multiple family members, and so forth. Ultimately the reality is that in advanced capitalist societies that have very powerful private interest groups, highly unequal income distributions, sophisticated lawyers, and important government policies up for grabs, the most one can hope for from supply-side regulation is window-dressing – and that the insiders occasionally cancel each other out.

Demand-Side Limits. A much more effective approach is to limit the demand for private campaign funds with a combination of free media, direct controls on campaign spending, and public funding.

In the US, efforts to limit campaign expenditures directly have been throttled by the 1976 Supreme Court decision in Buckley vs. Valeo, which determined that “money is speech” – e.g., that any direct limits on campaign spending by candidates or parties violate the First Amendment.

US law does allow limits to be imposed on candidates who accept matched public funds, which have been available since 1974. But public funding has been limited, and is getting scarcer – the US matched public funding system is now on the brink of insolvency, partly because voluntary taxpayer contributions on tax returns have plummeted. (Among other reasons, the $3 check-off limits has not recently been increased.)

So while lesser candidates like Ralph Nader and Al Sharpton relied heavily on public funding for their campaigns, well-funded candidates like Bill Clinton in 1996, George W. Bush in 2000 and 2004, and John Kerry in 2004 have either refused public funding completely, or have limited their use of it to the final few months of the campaign. A few states – Maine, Minnesota, and Arizona, for example – have experimented with providing public funds for state candidates, with positive results, including a sharp reduction in the amount of time politicians devote to fund-raising. But these programs are not expanding, partly because of state budget crises.

As noted, no US-like constitutional limits on campaign spending controls exist in Brazil, or for that matter, in most other democracies, like the UK or Canada, for example. Brazil has adopted some spending limits for political parties and individual candidates, which seem to have been somewhat effective. Brazil has also provided some public funds for all registered political parties to defray campaign and administrative costs.

Free Media

Brazil. By far the most effective measure that Brazil has introduced to level the campaign finance playing field, however, has been the provision of free access to TV and radio for political candidates. TV advertising, in particular, is otherwise by far the most important ingredient in campaign costs. Furthermore, at least in principle, the airwaves are owned by the public. So it is not surprising that Brazil and more than 70 other democracies around the world have adopted such provisions, including most Western European countries, South Africa, India, Russia, and Israel. (Among First World countries that provide free political airtime: the UK, France, Germany, Spain, Italy, Sweden, and Japan.)

In Brazil’s case, ironically, the early adoption of this provision is partly due to the fact that the ownership of radio and TV broadcasting networks in Brazil are even more concentrated than they are in the US, dominated by the Marinho family’s Globo empire and 2-3 other private owners. On the other hand, a majority of Brazilians are poor and semi-literate, and depend heavily on TV and radio for all their news.

Under Brazil’s free media law, the only forms of paid political advertising permitted are newspaper advertising, direct mail, and outdoor events. Sixty days before an election, 1.5 hours of programming per day - the “horário eleitoral gratuito” - are requisitioned from broadcasters and divided up among political parties in proportion to their seats in the Camara, with a minimum allocation for parties that have no seats. Newscasters and debate broadcasters are required to give equal time to all candidates during this period, punishable by fines. Brazil’s political parties are also entitled to free public transportation, the free use of schools for meetings, and special tax status.

Some broadcasters have complained that these provisions are very costly (to them), that they may reduce news coverage for controversial subjects, and that the viewing public will simply tune out. However, it appears that most Brazilians continue to tune in as usual, and that they actually welcome the concentrated dose of campaigning, as compared with prolonged agony of the US approach.

The US. The US is one of a minority of leading democracies that still provides no free radio or TV access for political candidates. (In addition to Brazil, others that do include the UK, France, Italy, Israel, Hungary, India, Germany, Spain, and Sweden.)

This is especially important, because in many ways, TV advertising is the key factor underlying the whole campaign finance issue. From 1970 to 2000, US campaign spending on TV ads increased more than 10-fold, faster than any other campaign cost element. This year, the political ad revenues of US broadcasters will exceed $1.4 billion. This makes political advertising second only to automotive advertising as a revenue generator for TV networks. This year, most of this revenue will flow to broadcasting conglomerates like ClearChannel, Cox, and Viacom that are especially well-positioned in the battleground states.

In theory, since 1971 the Federal Communications Commission – now chaired by Michael Powell, son of the Secretary of State Powell -- has required US broadcasters to sell airtime to political candidates at the “lowest unit rates” available, but in practice this requirement has not been very effective. The 2002 BCRA also tried to limit corporate and labor funding for broadcast advertising to the last 30 days before primaries, but it did nothing about so-called “Section 527” or 501-C4 advertising by issue-oriented groups that are theoretically independent of campaigns.

Among its many other impacts, this policy compels incumbent US politicians to spend a huge portion of their time – at least 28 percent, in one recent study -- raising campaign funds. It also invites incumbents to be unduly empathetic to the media conglomerates that now dominate the US cable, satellite, broadcasting, and publishing markets.

Its key beneficiaries include:

ClearChannel(1200 radio stations, 37 local TV stations, 103 mm listeners);

Cox Enterprises(43 newspapers in Florida, Ohio, Texas, North Carolina, Georgia, Colorado; 9 TV stations; 75 radio stations;

Disney (ABC, E!, A&E, History Channel, Lifetime, Tivo (partial), Miramax, ESPN, 10 local TV stations, 66 radio stations);

GE(NBC, PAX TV Network, MSNBC, CNBC, Universal Pictures, Telemundo, Bravo, Sci-Fi, Vivendi Entertainment, 28 local TV stations);

News Corp/Rupert Murdoch (Fox Network, 20th Century Fox, National Geographic, HarperCollins, The NY Post, Sunday Times (UK), The Times(UK), multiple other Australian and UK newspapers, Avon Books, TV Guide (part), The Weekly Standard, BSkyB, 34 local TV stations);

Tribune Company(27 TV stations, Newsday, Chicago Tribune, Baltimore Sun, LA Times, 11 other newspapers, 1 radio station, etc.)

Time Warner(CNN, HBO, Warner Bros., Court TV, TNT, New Line Cinema, AOL, Netscape, Time Inc. (People, Time, Fortune, Sports Illustrated, Bus 2.0, Life, Popular Science, etc.) Mapquest, Little,Brown);

Viacom(CBS, BET, MTV, Comedy Central, 13 other cable channels, Paramount, Simon & Schuster, Free Press, Scribners, Infinity Radio (185 radio stations), 39 TV stations, 5 other radio stations).

Not surprisingly, under the influence of this tidy little interest group, federal regulation has become more and more lax on a wide range of broadcast- and cable-related issues in the last twenty years, including acquisitions, “lowest unit rate” regulations, “equal time,” digital spectrum, and pricing guidelines for cable network franchise agreements.

Meanwhile, the detente established between incumbent politicians and this “Sun Valley” alliance has stymied proposals for free political media in the US – and helped to perpetuate the role of money in American politics.

Vote Fraud/ Absentee Ballot Abuse/ Missing Ballots

Brazil. Outright vote fraud and vote buying are long-standing problems in Brazil, as in many other developing countries. One recent survey indicated that up to 3 percent of voters – almost 2 million people - may have sold their votes in Brazil’s 2002 election. A new law was adopted in 1999 to increase penalties for buying votes, but evidently there is still much work to do.

On the other hand, one beneficial side-effect of Brazil’s particular approach to electronic voting – which only provides printed copies for a sub-sample of voters – is that most voters aren’t able to prove that they have voted as instructed.

Absentee ballots are also not a problem in Brazil or other countries with centralized voter registration, because they don’t exist – people can vote anywhere, once. Those who happen to be outside the country on Election Day are permitted to cast ballots at Brazilian consulates.

The US. Outright vote buying is also an ancient American tradition – at least since George Washington bought a quart of booze for every voter in his district when he first ran for the Virginia legislature in 1757. Vote buying still occasionally turns up in the US today, and the Internet has added a new dimension to traditional vote buying, with the appearance in 2000 of sites like www.voter-auction.net and www.winwin.org that permitted voters to swap or even sell their votes in online auctions.

As one of these site’s authors rationalized it, this approach is much more efficient and direct than the standard practice, in which political middlemen like campaign consultants and advertising gurus routinely take 10-15 percent off the top of a campaign’s media spending in exchange for delivering votes.

However, the main areas that are ripe for massive abuse in the US now are probably absentee ballots and “missing/ faulty votes.”

Absentee Ballot Problems. The liberalization of absentee ballot laws since the late 1970s, combined with increasingly lax voter registration laws, and the absence of a national identity system or central voter registration list, have made this a growing problem in the US.

This year, absentee ballots may account for as much as 20 percent of the total US vote, up from 14 percent in 2000. This enables a panoply of specific malpractices, including (1) fraudulent registration and voting in the names of phantom, relocated, or deceased voters; (2) voting by the same individuals in multiple states; (3) gross violations of voter secrecy, including pressuring senior citizens to fill out their absentee ballots in a specific way; and (4) fraudulent voting by Americans civilians or military personnel who are located offshore – that also played a key role in the 2000 Presidential election.

It is not clear which major party has benefited the most from such practices. Bogus registration may have had its finest hour in the notorious 1960 “Chicago miracle,” when thousands of dead people allegedly voted for President Kennedy. This year, however, with the Republican Party in control of all three branches of the US federal government, 28 out of 50 state governorships (including 5 BG states), and 17 state legislatures (including 9 BG states), the Republicans may bear the most watching.

Missing/ Faulty Ballots. Of course the recent US track record with respect to mechanical vote processing is also not encouraging. During the 2000 US Presidential election, the whole country was forced to agonize for months over Florida’s mechanical voting machines, until a highly-politicized US Supreme Court awarded the election to President Bush by a 5-4 vote. CNN and other mainstream media organizations later hired the National Opinion Research Center to conduct a six-month audit of the 2000 Florida vote. Amazingly, when it was concluded, they declared that it showed that “Bush would have won anyway.” In fact a careful reading of the report shows that precisely the opposite was the case.

Furthermore, subsequent analysis of the 2000 Florida outcome shows that the balloting problems that figured in the Supreme Court decision were just the tip of the iceberg – compared with other glaring problems, like the bogus exclusion of thousands of black “pseudo-felons” from Florida’s voter rolls, and the intentional spoiling of thousands of black ballots.

According to the nonpartisan election monitoring group Votewatch, in the 2000 election Florida’s “hanging chad” problem was dwarfed by other counting problems. An estimated 4 to 6 million voters simply had their votes wasted because of faulty equipment and confusing ballots (1.5- 2 million), registration mix-ups (1.5 – 3 million), and screw-ups at polling places (up to 1 million).

This year, the US State Department has responded to concerns about a repetition of such behavior by inviting international observers from Vienna’s Organization for Security and Cooperation in Europe to monitor the US Presidential election – for the first time ever.

Other Measures

To prevent public officials in the Executive Branch from abusing their powers to manipulate voters, Brazil’s Constitution also requires them to resign six months before elections if they or their immediate family members intend to run. The US has no such disqualification period for political candidates who have worked in the executive branch.

VOTING SYSTEMS

National Administration of Elections

Brazil. Like many other emerging democracies, Brazil has an entire separate judicial branch, the Justicia Eleitoral, that is responsible for implementing all campaign finance and voting procedures all levels of government. (1988 Constitution, Articles 118-121).

This system is by no means perfect, but it is far more objective and “party-neutral” than the US system, which is heavily influenced by state and local politics. Brazil’s approach has also contributed to the rapid nation-wide adoption of reforms, like electronic voting.

The US. Since 1974, campaign finance for US federal elections has been administered by an independent regulatory body, the Federal Election Commission. But US voting procedures remain under the control of state and local authorities, even in the case of federal elections. While the National Institute of Standards and Technology makes recommendations concerning voting machines and registration procedures, these are voluntary.

The result is a hodge podge of inconsistent, incompatible and often out-dated paper ballot, machine, and electronic recording procedures that vary enormously among states, and often even within the same states.

Direct Elections/Run-Offs/”Electoral College”

Brazil. In the case of Brazil’s Presidential elections, there is no “electoral college” that stands in the way of the popular will. Article 77 of Brazil’s 1988 Constitution explicitly provides that Brazil’s President is that political party candidate who obtains an absolute majority of bona fide votes. If no candidate emerges from the first round of voting with an absolute majority, a run-off election is to be held within 20 days – as it was in October 2002. Elections for Brazil’s 26 state governors and the mayors of its large cities are also subject to similar runoffs.

The US. Presidential elections are decided by the notorious “electoral college.” As discussed below, this is really just a throwback to the protection of Southern slavery. Currently it serves mainly to protect the influence of “strategic minorities” in a handful of smaller so-called battleground states. (See the discussion in Part I of this series. ) In today’s highly partisan environment, it also (temporarily) gives minority candidates like Nader tremendous destructive power – without, however, affording them any representation at all between elections.

Indeed, the US’ “winner-take-all” system systematically discourages third party power and minority representation. In a more democratic system with proportional representation, preference voting, or even Presidential run offs (see below), voters could freely vote for candidates like Nader without fear of electing their “third choice.” It is no accident that parties like the Green Party, the Libertarian Party, and the Reform Party are in deep crisis, even as Nader’s stubborn crusade continues. Would that more of his spite were directed at “winner take all” and the electoral college, which has helped to institutionalize a political duopoly.

Technically, under the US Constitution (Article II), Americans don’t even have the right to vote for their President or Vice President. This right is delegated to Presidential electors, who may be selected by state legislatures any way they see fit. Indeed, popular vote totals for President and Vice President were not even recorded until 1824, and most state legislatures chose the electors directly. Since then, most states have chosen them according to the plurality of the popular vote in each state. But South Carolina – always a hotbed of reaction, with the highest ratio of slaves to whites -- continued to ignore the popular vote until the end of the Civil War.

Nor is the number of Presidential electors per state even determined by the relative population or voters per state. It is fixed at the number of Senators and Congressmen per state, with a minimum of 3 for each state and the District of Columbia. This guarantees that small rural states are over-represented. Because of the winner-take-all system, it also effectively disenfranchises everyone in a state who votes for candidates who lose that state, and partly disenfranchises all those in large states. At least four times in US history – 1804, 1824, 1876, 1888, and 2000 – this anti-democratic system produced Presidents who failed to win a plurality of the popular vote.

In the context of other democracies around the world, the electoral college is a very peculiar institution indeed. Kenya’s former dictator, Daniel Arap Moi, adopted something similar to control the influence of the country’s dominant tribe, the Kikuyu. The Vatican’s College of Cardinals has something similar.

There have been many calls for the electoral college’s abolition, most recently by the New York Times in August 2004. But this would require a Constitutional amendment that would have to be ratified by three-fourths of the states – at least a quarter of whom have disproportionate power under the existing system.

It is course possible for a state to provide that its own electors are awarded to Presidential candidates in proportion to the popular vote within a state -- as Colorado is considering this year. However, unless all battleground states go along with this, which is unlikely, it is unlikely to gain national momentum.

Electronic Voting/ Registration

Brazil. To the surprise of many, Brazil has recently become the world pioneer in electronic voting and registration. When it held national elections in October 2002, 91 million out of its 115 million registered voters turned out – more than 70 percent of those of voting age, and 3 million more than voted in the US elections that same fall. In terms of global electoral history, the number of votes received by the winner, Luis Ignacio de Silva (“Lula”), was second only to Ronald Reagan’s total in 1980.

To handle this heavy turnout, Brazil relied heavily on electronic voting. The Tribunal Superior Eleitoral (TSE) had been experimenting with electronic voting systems since the early 1990s, becoming a real pioneer in the use of “DREs” (“direct recording electronic”) voting machines. Brazil first used DREs on a large scale in its 1996 elections, with 354,000 in place by 2002. For that election, it deployed another 52,000 “Urnas Eletronica 2002,” a state-of-the-art DRE that had been designed by Brazilian technicians with the help of three private companies – Unisys and National Semiconductor, two US companies, and ProComp, a Brazilian assembler that has since been acquired by Diebold Systems, the controversial American leader in electronic voting systems.

Because Brazil has been willing to commit to such a large-scale deployment, each Urna costs just $420, less than 15 percent of the cost of the $3000 touch-screen systems that Diebold features in the US. The Brazilian system lacks a touch screen; voters punch in specific numbers for each candidate, calling up his name and image, and then confirm their selections. The numerical system was intended to overcome the problem of illiteracy, which is still a problem in parts of the country. To handle operations in remote areas like the Amazon, the machine runs on batteries up to 12 hours. Initially there were no printed records, but the Electoral Commission decided to retrofit 3 percent with printers, to provide auditable records.

Like any new technology, Brazil’s approach to electronic voting is by no means perfect. Indeed, significant concerns have been voiced about the system’s verifiability and privacy – especially about the TSE’s recent move to eliminate the printers, supposedly because they slowed voting.

Among the most important proposed improvements are a requirement that all voting machines produce both electronic and paper records, in order to leave an audit trail and increase voter confidence in the system; that system software be based on “open” standards and available for audit; and that the system for identifying eligible voters be separated from voting, to insure privacy.

Despite these concerns, most observers agree that Brazil’s system performed very well in 2002. In Brazil’s case, within a couple days, winners were announced almost entirely without dispute, not only for the Presidential race, but also for the 54 Senate races, 513 Congressional races, 27 state governorships, 5500 mayors, 57,316 councilmen, and many other local contests – all told, races involving more than 315,000 candidates.

Given this success story, many other countries that have traditionally had serious problems with paper ballot fraud are also considering its use, including Mexico, Argentina, the Dominican Republic, India, the Ukraine, and Paraguay.

The US. This country, where the choice of voting technology is localized and highly political, still relies very heavily on paper ballot-based and mechanical voting system – while 42 states will have new voting machines in 2004, only about 29 percent of US voters (at most) will cast electronic ballots this year. And with each state free to adopt its own local variant on the technology, it is not surprising that implementation has been problematic -- recent experiments with electronic voting in New Mexico, California and Florida have all been riddled with problems.

In 2002, the US Congress passed the “Help America Vote Act” (HAVA), which authorized $3.9 billion to be spent by 2006 to help state and local governments upgrade their election equipment. Given the fragmented nature of US election administration, however, this has produced a competitive scramble for government contracts among 3-4 leading US electronic voting firms, including Diebold Election Systems, ES&S, and Smartmatic, the Florida-based company whose 20,000 electronic voting machines successfully handled Venezuela’s Presidential Recall referendum this summer.

But with no mandatory national standards and the numerous operating problems that we’ve already seen at state and local levels, it is not surprising that there is widespread, perhaps exaggerated, concern about the potential for hacking and manipulation. In this highly-politicized context, with no adequate checks and balances over the procedures, some observers have argued that computerizing US voter registration and electronic voting will actually make things worse.

Relative to more basic problems like absentee ballots, phony registration, malapportionment, and misrepresentation, we believe that these concerns are exaggerated. However, like many other elements of our “pseudo-democratic” political system, it is very hard to argue that the US track record with respect to electronic voting is an achievement.

REPRESENTATION

Proportional Representation

Brazil. Brazil’s 81 Senators are elected by simple plurality for eight-year terms. But Article 45 of Brazil’s Constitution provides that the 513 members of Brazil’s House of Deputies are elected for four year terms according to a voting system called “proportional representation” (PR). Brazil also uses PR to elect city councils and state legislatures.

Unlike the “plurality/single member district/ “first past the post” system that is used in most US federal and state elections, this approach insures that the overall mix of elected representatives more accurately reflects voter preferences. It also represents a wider range of opinions, since party candidates compete with each other. Indeed, various forms of PR are now used for the election of “lower houses” by all other countries in Latin America, almost all European countries, all the world’s largest democracies, the new democracies in Iraq and Afghanistan, and, indeed, the vast majority of democracies in the world today -- except for the US, Canada, the UK, and former British Caribbean colonies like Jamaica and the Bahamas.

Indeed, many of the world’s leading corporations have also turned to proportional representation, cumulative voting, or other forms of preference voting for purposes of electing their corporate boards.

Brazil uses what’s known as the "open list d’Hondt” version of PR. Here, political parties or coalitions register proposed lists of congressional candidates with the Electoral Court. There are no single-member congressional districts – rival candidate lists are drawn up by each party for each of Brazil’s 26 federal states, with the number of representatives per state determined by population, subject to minimums and maximums. Voters can opt for a party’s entire list, or select among individual candidates – unlike a “closed list” PR system, where candidates don’t compete with each other.

Of course Brazil’s proportional representation system is by no means perfect. Some have argued, for example, that using its 26 states as electoral districts has made Brazil’s legislators too remote from voters, and that smaller districts, or even a “mixed” PR system like that used in Mexico, Germany, or Venezuela may be preferable. Some voters may also find it too difficult to choose among so many different candidates, leading them to opt for party slates.

However, when it comes to buying shampoo or automobiles, most consumers believe that increased variety is a good thing – why should politics be any different? And it is hard to imagine an elected official who is more remote from minority voters than one who is elected – as more than 95 percent of US Congressmen now are – in a district that predictably goes either Democrat or Republican, year after year. This system, in turn, encourages the country to divide into polarized sectarian camps, where even majority voters feel less well-represented because incumbents can take them for granted.

Some have argued that the Brazil’s open list version of the PR system has contributed to a weaker party system, and to competition among a party’s own candidates. For example, any political party in Brazil can put forth candidates without having to obtain a minimum of the national vote. Party weakness may also be encouraged by the fact that incumbents can change parties without losing their spots on the ballot, one of several measures that favors candidates over parties. This may indeed have encouraged a proliferation of political parties – in Brazil’s 2004 Camara dos Deputados and Senado Federal, for example, 16 different ones are represented. Even with stable coalitions among the top 3-4 parties, the concern is that all this can substantially increase the negotiation costs of legislation, block Presidential initiatives, and lead to deadlock.

On the other hand, such negotiations may also produce outcomes that are more reflective of the popular will. And recent studies of the actual operation of Brazil’s Congress suggest that the concerns about fragmentation and policy deadlock have been overstated. Furthermore, the fact that delegate turnover in Brazilian elections since democracy has averaged more than 50 percent may be viewed as a good thing – especially compared with the “dynastic legislature” that the US has acquired.

The US. There is actually a long history of preference voting and proportional representation in the US at the state and local level. For example, a majority of the original 13 colonies’ legislatures were elected using multi-member candidate slates, and more than 60 percent of city councils in the US are still elected with at-large slates. There have also been numerous proposals to expand their use at the federal level, especially for the US House, which could be done without a Constitutional amendment.

However, currently, delegates to the House and Senate and almost all state legislatures are chosen in single-member-district “first one past the post” contests, where voters each district choose just one candidate for each office. Those voters whose candidate wins a plurality of counted votes (e.g., less than or equal to 50.1%) are awarded 100 percent of a district’s seats; all other voters get zero representation. This implies two kinds of inefficiency – “over-represented votes,” those that a winning candidate didn’t need in order to prevail, and “under-represented votes,” those cast for losing candidates.

Compared with a PR system like Brazil’s, the US is monumentally inefficient – in two-way races, 49.9 % of all votes in “winner take all” races are always wasted, in the sense that they are either more than winners need to prevail, or are votes for the loser that receive no representation.

There is a huge literature on the merits and demerits of proportional representation, which contrast its increased representation for minority interests with its alleged tendency to produce unstable coalition governments (the classic cases being Italy and Israel.) At the end of the day, there are undoubtedly some empirical trade-offs to be made. But the fact is that the vast majority of the world’s democracies, as well as many of the world’s leading private companies, have opted for various forms of PR systems for representation – with the exceptions of the US, Canada, and the UK. And among those that have opted for PR systems are all of the world’s newest democracies, including Brazil, South Africa, Indonesia, East Timor -- and even our own favorite new Middle Eastern democracies, Afghanistan and Iraq. Is there no content in this signal?

Apportionment/Gerrymandering/ “Safe Seats”

Like other countries with federal systems, Brazil and the US have struggled to (1) provide representation that is proportional to the actual number of voter-aged residents in all regions of the country, while at the same time (2) providing at least a minimum degree of representation for all regions, no matter how heavily populated.

In Brazil’s case, significant “malapportionment” – departures from representation that is strictly proportional to population -- continues exist, mainly in the form of overrepresentation for rural states in the National Camara and Senate. This is because Brazil’s Constitution guarantees each of its 26 states, plus the Federal District, at least 3 Senators regardless of population, and because representation in Brazil’s Camara is a truncated function of population, with each state guaranteed a minimum of 8 representatives and a maximum of 70, regardless of population.

However, as shown in Table 6,the overall degree of “mal-apportionment” -- defined as the median ratio of a state’s share of representatives to its share of VAP – is only slightly higher for Brazil’s Camara than in the US House, while the degree of mal-apportionment for Brazil’s Senate is much lower.

Furthermore, unlike the US, Brazil permits its federal district – Brasilia – to elect both Senators and Congressmen. In contrast, the US has stubbornly refused to permit the 563,000 residents of the District of Columbia to have any voting representation in either the House or Senate.

Finally, the total number of elected national representatives in Brazil – 513 deputies for the Camara and 81 Senators – is more than twice as high per voting age resident in Brazil than the US. Since the US has been slow to adjust the total number of House and Senate members in response to increases in population, it now has one of the lowest ratios of members to voters among leading democracies – more than six times the ratios in the UK, Canada, and South Africa.

Compared with countries like Brazil that elect their Congressmen from multi-candidate lists for fixed states, the US political system’s focus on “single-member districts” is also far more open to partisan gerrymandering. There is a long history of dominant parties drawing district lines to favor their own candidates or create safe seats. Traditionally, every ten years, state legislatures in the US redraw their district boundaries to the fit the latest Census data.

Several other factors have also exacerbated this trend toward the creation of careerist legislators in the US. As one recent analysis concluded,

…(T)he incidence and extremism of partisan redistricting have escalated. Voting patterns have become more consistently partisan, enabling political mapmakers to better predict how voters will vote. And advances in computer technology and political databases allow cartographers to fine- tune district boundaries to maximize partisan advantage.

In addition, in its recent decisions, the US Supreme Court has relaxed its constraints on gerrymandering. So state legislatures that are dominated by single parties have recently become much more aggressive. In the last decade, for example, Republican-dominated legislatures in Pennsylvania, Colorado, and Texas decided not to wait for a new Census, but to exert their muscles during the middle of the decade. The results were extraordinary power grabs, especially in Texas, where 5 new Congressional seats were created by the Republican-dominated legislature. And this aggressive redistricting, it now turns out, was also fueled by campaign finance abuses –- completing the circle.

More generally, districting isn’t an issue that necessarily favors either main party. But one consequence of it is a clear trend toward more safe seats for incumbents of both parties, fewer competitive races, and a growing geographic polarization into “red” and “blue” districts – the so-called “Retro-Metro” divide.

In this fall’s US Congressional races, for example, out of 435 US House races, only about 30 will be decided by margins of less than 10 percent, and just 5-6 percent, or 20-25, that will be “effectively contested,” with a serious possibility that seats may change party hands. Many of these involve seats where incumbents are voluntarily retiring. For the US Senate, where redistricting is not an issue, the incumbency advantage is only slightly lower -- only 4-5, or 10-12 percent, of this year’s 34 Senate races will be effectively contested.

So regardless of who wins the Presidency this year, the reality is that the US House and Senate are both likely to remain under Republican control.

This is consistent with a trend toward increased advantages for incumbents in US elections. In 2002, for example, just 4 out of 383 US House incumbents lost their seats to non-incumbent challengers. This was the highest rate of incumbent reelection since 1954. Of 435 races in 2002-04 (including special elections), 81 percent were won by incumbents with margins of more than 20 percent. Of the 379 incumbents who were reelected in 2002, the median margin of victory was 39 percent. (See Table 7.)

Among the 56 non-incumbents who were elected, 11 won in newly created “safe” districts, by a median margin of 19 percent. Thirty-two were elected from the same parties that had represented their districts before, by a median margin of 15 percent. Just 13 were new non-incumbents who managed to oust the prevailing party in their districts, mostly by defeating other new non-incumbents. In fact, in 2002, more US Congressmen were elected in uncontested races, with 100 percent of the vote (n=31), than in “close” races where the winning margin was 10 percent or less.

Given these trends, it is not surprising that the average lifespan of Congressmen has been increasing -- apart from voluntary resignations. As of 2004, the median Congressman had served 8 years, and 20 percent had served at least 16 years or more. The main source of turnover in this increasingly entrenched, carefully-districted, careerist “people’s house” is now retirement, death, or incarceration, not voter decisions.

Similar trends are evident for the US Senate and the Presidency, although the advantages of incumbency are less than for House races. In the case of 2002 Senate races, 16 of 33 races (48%) were won by more than 20 percent, and 67 percent were won by more than 10 percent. Incumbents were reelected in 23 (88 percent) out of 26 races where they decided to run. As in the House, the main source of turnover was retirement or death. As of 2004, the median Senator had been in office 10 years, and the top 20 percent had median tenures of 28 years.

As for the Presidency, out of 42 Presidents through Clinton, 25 ran for reelection, and 16 (64 percent) were reelected. Whether or not President Bush can take comfort in these odds is less clear, however – among the ten post-War Presidents that preceded him, just four (Eisenhower, Nixon, Reagan, and Clinton) were reelected.

At least at the Congressional level, there appear to be strong interdependencies between incumbent advantage and the existing systems for financing campaigns, conducting elections, representing voters, and defining districts. Finance not only strengthens incumbent advantage; it also follows from it, in the sense that incumbency makes it much easier to raise money.

Having once established this interdependent system of interests, it is very hard to unravel. Is it any wonder that more and more Americans have simply decided that they have better things to do with their time than vote – even though the issues at stake have never been more important, not only for Americans, but for the world at our mercy?

SUMMARY - BRAZIL V. US, DEMOCRACY 101

As we’ve argued here and in Part IIIA, compared with the Unite States, Brazil’s new developing democracy has a much fairer, more efficient, more trustworthy system for administering elections, qualifying voters, conducting campaigns, curbing the influence of private money on campaign outcomes, making sure votes count, providing representation in proportion to voter sentiments at both the Presidential and legislative levels, and defining geographical boundaries for election districts.

All this adds up to an electoral system that is, on the whole, much more democratic than that in the United States.

OTHER THIRD WORLD ROLE MODELS?

Nor is Brazil alone in providing a potential role model for those in the US who are serious about revitalizing democracy at home:

In April 2004, South Africa held its third national election, with 15.9 million South Africans, or 76.7 percent of registered voters, turning out. While the ANC won a commanding 69.7 percent of the vote, 20 other parties also participated, and 11 of them won seats in Parliament. Compared with 1994, when South Africa held its first post-apartheid election, public confidence in the political system and the future have both risen substantially.

This 2004 turnout, while impressive, was below the record level set in 1994, when more than 19 million South Africans voted in the country’s first democratic elections ever. However, the difference may be explained by the fact that in that first election, no formal registration was required -- South Africa wisely considered it far more important to hold national elections as soon as possible, rather than worry too much about registration niceties. In subsequent elections, as it implemented formal registration, voter turnout has declined somewhat. (The new US-backed regime in Iraq and Afghanistan, which have devoted an inordinate amount of time to preparing for national elections and registering voters, might well have learned from this example.)

To reinforce confidence in its electoral processes, South Africa has adopted special procedures to insure that independent international observers are present at its elections; in 1999 its elections were attended by more than 11,000 observers, including representatives from the OAU and the Commonwealth.

India, the world’s largest constitutional democracy, also held a successful parliamentary election in April-May 2004. More than 387 million people, or 56 percent of registered voters, voted, choosing among 220 parties and 5400 candidates, using more than 1 million electronic voting machines to register their preferences.

Indonesia, the world’s largest Muslim country, and its second largest democracy, held its first-ever Presidential election, as well as parliamentary and local elections, in May-September 2004. More than 155 million people, or 75 percent of registered voters,turned out to choose among six different Presidential candidates, for the most part by driving nails through the pictures of their favorite candidates on paper ballots. With few exceptions, the voting proceeded peacefully, and although there was substantial vote-buying on all sides, about 9 percent invalid votes, and some intimidation, independent monitors like the Carter Center and the LP3ES-NDI found the election generally fair.

Venezuela’s President Chavez is undoubtedly a very divisive leader – not unlike some recent US Presidents that we have known. But at least his opponents have been able to make use of a right that no Americans have – the constitutional right to initiate a recall petition half-way through a President’s term, and if 20 percent of registered voters agree, to demand a recall referendum.

After a prolonged efforts by the opposition to gather the necessary signatures, in May 2004 Venezuela’s Supreme Court – albeit, like the US Supreme Court, populated with supporters of the President -- certified that there were indeed enough signatures to require a referendum on whether Chavez could serve out his current term until 2007.

In August 2004, in a national referendum that was conducted with electronic voting machines, Chavez won by an overwhelming 59-41 percent margin. While diehard opposition leaders, as well as the Wall Street Journal and the US Government -- which had supported a 2002 coup attempt against Chavez -- expressed doubts about the margin, the referendum was validated by independent observers like President Carter, the OAS, and a team of Johns Hopkins/Princeton political scientists.

This means that Chavez has now held five free elections and referenda in seven years, more than any other Venezuelan President. He won them all by commanding margins.

We recall the fact that in 2000, the hapless Al Gore captured a plurality of the US popular vote (48.4 percent), despite all the games played with ex-felons, absentee vote abuses, and lost ballots discussed above, and even with third- party candidates taking another 3.7 percent of the vote.

Since it is hard to believe that President Bush’s absolute popularity has increased very much since then, one wonders what the results might have been if only the US were as democratic as Venezuela – e.g., if only Americans had been able to initiate such a Presidential recall referendum, and like our good Latin neighbor to the south, determine the outcome by popular vote of the nation as a whole, under the watchful eyes of international observers.

Instead, as we've argued here, the US is still captive to age-old anti-democratic contraptions, superstitions, and subterfuges, and its particular version of "democracy" still labors in the long dark shadows cast by venerable institutions like states rights, felon disenfranchisement, and white supremacy.

We can try to impose our self-image on to the world if we like, but we should not be surprised if the world asks us to hold up a mirror.

*** (Next: Democracy in American and Elsewhere, Part IV: Four Years Later, Four More Years?)

**

Credos to Inter-Brasil's Lourival Baptista Pereira Jr. for the inspiration for this piece.

©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

September 27, 2004 at 12:07 PM | Permalink | Comments (0) | TrackBack

Wednesday, September 22, 2004

Democracy in America and Elsewhere:Part III: How the US Stacks Up: - A. Qualifying Voters

James S. Henry and Caleb Kleppner

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These are curious times, with President George W. Bush, long an outspoken critic of “nation-building” and the UN, now become a radical Wilsonian, declaring to the General Assembly this week his intention to establish a “UN Democracy Fund” to propagate democracy around the world.

We certainly wish President Bush much greater success than President Woodrow Wilson, who saw his own favorite proposal to “make the world safe for democracy,” the Versailles Treaty, throttled by Republican Senators who opposed the League of Nations, and suffered a stroke in the ensuing battle.

Knowing President Bush, he will probably not be dissuaded from his mission by this unhappy history, or by the fact that many other world leaders, like France's Chirac and Brazil's Lula, are now much more concerned about fighting global poverty and taxing "global bads" like arms traffic, anonymous capital in offshore havens -- an idea we first proposed in the early 1990s -- and environmental pollution than they are about neo-Wilsonian evangelism.

But of course any suggestion by the US that democracy can actually be propagated by multilateral consensus rather than by unilateral military aggression is always to be welcomed.

Before proceeding any farther with this latest American crusade to sow democracy abroad, however, it may be helpful to examine how the US itself really stacks up as a “democracy," relative to "best democratic practices" around the world.

One approach to this subject would be to start off with a comparison with other leading First World democracies like the UK or France. After all, at the outset, one might think that only such countries have the well-educated, politically-engaged citizenry, political traditions, affluence, and technical know-how needed to implement truly state-of-the-art democratic processes.

However, following the lead of former President Jimmy Carter’s brief comparative analysis of Peru in 2001, we find it more interesting to see how the US compares with younger developing democracies that lack all these advantages – much less access to the yet-to-be-created UN Democracy Fund.

In our case, we’ve chosen Brazil, the world’s sixth most populous country, with 180 million inhabitants, two-thirds of South America’s economic activity, a federal system and a long history of slavery (like the US).

As we’ll see, our overall finding is that while Brazil’s democracy has plenty of room for improvement, it already boasts a much more democratic electoral system than the United States of America.

BRAZIL VS. THE US -- AND THE WINNER IS.....

From 1937 to 1945, and again from April 1964 until early 1985, Brazil was ruled by (US-backed) military dictatorships. Since then, however, Brazilians have freely voted to elect their President three times. They’ve also elected their bicameral National Congress, 26 state governors and legislatures, and thousands of city mayors and councilmen every two years.

While Brazil’s electoral institutions are by no means perfect, and its campaign finance laws and federal structure have many of the same drawbacks as the US, it has recently been working very hard to improve these institutions. I

Indeed, it turns out that Brazil is making remarkable progress toward effective representative democracy, especially for a country with enormous social problems, a high degree of economic and social inequality, and a per capita income just one third of the US level

Brazil’s new democracy provides a striking contrast along many dimensions – in particular, the processes and structures by which it (1) qualifies voters, (2) conducts campaigns, (3) administers voting, and (4) provides fair representation of voter preferences. The following essay focuses in on the first of these elements; the sequel will deal with the others.

QUALIFYING VOTERS

1. Mandatory Voting/Registration

To begin with, Brazil treats voting as a civic duty, like military service (which is obligatory, with alternative service available) and paying taxes. Voting is mandatory for all citizens age 18 to 70, except for illiterates.

Actually “mandatory voting” is a misnomer – people are just required to show up at a polling station or consular office and submit a vote, which can be blank. There are fines for violators who lack valid excuses, like illness.

Brazil adopted mandatory voting in part to overcome the apathy induced by more than two decades of military rule. It is just one of many countries that have mandatory voting, including Australia, Belgium, Cyprus, Greece, Luxembourg, Liechtenstein, one Swiss canton, Egypt, Fiji, Singapore, Thailand, Argentina, Bolivia, Costa Rica, the Dominican Republic, Ecuador, Uruguay, and Venezuela.

Mandatory voting in Brazil is facilitated by the fact that, as in 82 other countries, all Brazilians age 18 or over are required to obtain a national identity card, with their photo, fingerprint, signature, place and date of birth, and parents’ names.

These cards, which are now becoming digital, are needed to qualify for government services and to conduct financial and legal transactions. They also enable cardholders to vote at polling booths anywhere in the country, eliminating the need for a separate, costly voter registration process.

To encourage voter turnout, Brazil also makes Election Day a national holiday, and often holds its elections on Sundays. Any eligible voter may be required to assist for free at the polls.

Mandatory voting, plus Brazil’s proportional representation system (See Part IIIB), have yielded voter turnouts in recent national elections that have routinely exceeded 75 percent of the voting-age population (VAP).

By comparison, US voter turnouts have recently averaged less than 45 percent of the VAP.

Brazil’s mandatory system has also had many other benefits. It has probably increased turnout the most among social groups that have much less access to education and income, thereby boosting their “voice” in the political system. It has also placed pressure on public authorities to implement efficient voting procedures, and shifted responsibility for registration and turnout away from Brazil’s political parties, allowing them to focus on campaigning.

As one might expect, mandatory voting does produce slightly more blank votes as a proportion of all votes than we see in US elections. But the system also seems to have made voting more habitual.

Some countries, like Austria and the Netherlands, have recently abandoned the practice, and Brazil is also considering this, now that the population has re-acquired the voting habit. As Brazil matures, especially given its use of proportional representation, it may well be able to follow in the footsteps of these other countries and eliminate mandatory voting without sacrificing high turnout.

The US. Voting is entirely voluntary in the US, and there are no national identity cards or centralized voter registration systems. Originally, many states viewed voter registration as undemocratic. But in the course of the 19th century, growing concerns over vote fraud, combined with the desire in some states to curb voting by blacks and the lower classes, led to the widespread adoption of stricter voter registration laws. By now, every state but North Dakota requires voters to “register” before they can “vote.” US elections are also never held on Sundays, nor is Election Day a national holiday.

As we’ll examine closer in Part IIIB, the US’ “winner-take-all” electoral system is also highly inefficient, with more than 95 percent of all Congressional incumbents now re-elected, and almost all US House and Senate races now a foregone conclusion. So US voters are naturally not eager to participate in such “Potemkin” elections, which are approaching Soviet-like party reelection rates (though the US does have TWO Soviet-like parties.)

None of this has helped to encourage voter turnout. Not surprisingly, therefore, for the entire period 1948-1998, US voter turnout averaged just 48.3 percent as a share of VAP, and ranked 114th in the world. This was the lowest level among all OECD countries -- forty percent lower than the average turnouts recorded in First World countries like Germany, Italy, Sweden, and New Zealand. Even if we omit the 17 countries like Brazil with mandatory voting, it is hard to make this track record look like an achievement.

One can argue that relatively low turnout is precisely the point. Indeed, participation by ordinary Americans in their political system has always been a bit trifle unwelcome. For example, just 6 percent of all American citizens – 20 percent of whom were slaves -- participated in George Washington’s election in 1789. This was mainly because most state legislatures at the time had decreed that voters had to be white, propertied, male, Protestant and at least 21 years old. Studies of 19th century voter turnout in the South also show that turnout, which once exceeded 60 percent in the 1880s, plummeted sharply in the next 30 years under the impact of tougher registration laws that targeted black voters. To this day, the Neo-Republican South still boasts the lowest turnout rates and highest black population shares in the country.

Some cynics argue that low US turnout rates are just a sign of how deeply “satisfied” American voters are with the way things are. However, these turnout rates have declined sharply over the last three decades, at a time when it is hard to believe that Americans have become more and more satisfied with their political system.

In 1968, for example, 73.2 million Americans voted, a 61 percent turnout level. Thirty years later, in 1998, the number of Americans who voted was still just 73 million -- despite the fact that US population had increased by 40 percent.

Beyond voting, as of 2002, one US citizen in three (33.6 percent) did not even bother to register to vote. And that proportion was higher than it was in 1993, when Congress passed the National Voter Registration Act, which was intended to facilitate voter registration.

Evidently a majority of American voters have now become so “satisfied” that they no longer choose to participate in it at all. According to this bogus "apathy" theory of non-registration, the most “satisfied” groups of all must be blacks, other minorities, youth, the poor, and residents of Southern states, whose turnout rates are all miserably low.

In 2002, in four states (Texas, West Virginia, Indiana, and Virginia), less than 40 percent of all eligible citizens of voting age voted. Of 24 million Americans between the ages of 18 and 24, 38 percent registered, and 4.7 million, or 19.3 percent, voted. Just 27 percent of unemployed citizens, 30 percent of Hispanic citizens, 30 percent of Asian American citizens, 30 percent of the 35 million disabled Americans, 35 percent of all women ages 18 to 44, 37 percent of high school graduates, and 42 percent of all black citizens voted.

In fact, as we’ll examine later, there are very important structural reasons that help to explain why these groups fail to register or vote.

In the case of black males, for example, prisoner and ex-felon disenfranchisement may account for a substantial fraction of their relatively low participation rates. And 70 percent of those who registered and didn’t bother to vote in 2002 blamed logistical problems – transportation, schedule conflicts, absence from home, registration problems, homelessness (2.3-3.5 million adult Americans, depending on the year), the failure to get an absentee ballot on time, inconvenient polling places, or illness (including 44% of non-voting registrants age 65 or older).

All these obstacles affect poorer, less educated, older voters more than others. Most of them might easily be addressed with improved voting technology, if this country’s leaders, despite their putative concern for democratization around the world, were really serious about implementing democracy at home.

Meanwhile, in 1998, some 83 million Brazilians voted – 5 million more than in the entire US, which has about 100 million more citizens. Brazil’s voter turnout increased dramatically since the 1960s, from 37 percent of VAP in 1962 to an average of more than 80 percent in 1994-2002. In 2002, while 88 million Americans were proudly exercised their right to vote, so were 91 million Brazilians – for an 81 percent turnout. On the “satisfaction” theory, all these Brazilians must be nostalgic for the dictatorship.

After the 2002 Congressional elections, some US political pundits were impressed because voter turnout had increased slightly, from 41.2 percent in 1998 to 42.3 percent (46.1 percent of all citizens).

From an international perspective, however, that merely put the US on a par with Haiti and Pakistan –- just half of Brazil’s level.

Overall, the US trends described here are hardly indicative of “voter satisfaction.” Rather, they are a very disturbing sign that there are deep structural impediments to voting in America. Furthermore, the grass roots organizing power that has always been essential for getting out the vote in this country, much of it supplied by parties and unions, may have been waning.

From this angle, it will be very interesting to see whether this November’s contest, and the elaborate new organizing drives that have been mounted to increase US voter turnout and registration, will reverse these trends. No doubt turnout will be higher than it was in the dismal 2002 off-year election, but that's not saying very much. A more telling indicator will be to see whether turnout surpasses the (relatively modest) 59 percent median VAP turnout rate that the US recorded in nine Presidential elections over the whole period 1968-2000. We would love to see it happen, but since that would amount to a 10 percent improvement over the turnouts recorded in 1996 and 2000, we doubt it will happen.



2. Voting Rights for Prisoners and Ex-Felons

Brazil. Disenfranchising prisoners and ex-felons is unfortunately a longstanding, widespread departure from “one person, one vote” -- a legacy of the age-old practice of ex-communicating social outcasts. Worldwide, there is a growing trend toward discarding this medieval practice, with 32 countries now allowing all prisoners to vote and 23 more that allow certain classes of them to do so.

Brazil is one of 54 countries that prohibit prisoners from voting while they are in jail, but it permits them to vote after they are released, or are on parole or probation.

The US. The American approach to prisoner voting is much more restrictive than Brazil's. All but 2 (Vermont and Maine) of the 50 states disenfranchise all incarcerated prisoners, including those awaiting trial. Thirty-four states disenfranchise all felons on parole, while thirty disenfranchise those on probation.

Furthermore, the US is one of only 8 countries where ex-felons are temporarily or permanently disenfranchised even after they have completed their sentences, unless they successfully petition the authorities to have their voting rights restored. In 7 US states, felons are disenfranchised for several years after serving their sentences – for example, 5 years in Delaware, or 3 years in Maryland. In 3 states – Arizona, Maryland, and Nevada -- recidivists are permanently disenfranchised. And in 7 other states – Alabama, Nebraska, Kentucky, Mississippi, and the “battleground states” of Iowa, Florida, and Virginia – all ex-felons are permanently disenfranchised.

Many of these rules date back to the Ante-Bellum period of the 1880s, when they were enacted by Southern and border states to maintain control over the newly-freed blacks -- contrary to the spirit of the 15th Amendment.

The impact of prisoner and ex-felon disenfranchisement on electoral outcomes is much greater in the US than Brazil, because of the electoral college system and the size, composition and location of the US convict population. Indeed, while Brazil's prison system is horribly overcrowded, its entire prison population is just 285,000 inmates -- .2% of Brazil’s voting-age population.

The US, in contrast, now has the world’s highest proportion of its population in prisons, jail, on probation or parole, or under correctional supervision, outside jail. As of August 2004, this “correctional population” totaled 7.2 million adults, 3.3% of the US VAP. Relative to population, as well as in absolute terms, this is the largest US prison population ever. It is also by far the largest prison population in the world, well ahead of the US’ closest competitors, China and Russia.

There are also another 3.2 million American citizens – 1.4% of the US VAP -- who have served time in state or federal prison for felonies and are no longer in correctional programs. Depending on their states of residence, they may be subject to the voting restrictions imposed on former felons in the US.

Both these totals have soared since 1980 because of stiffer drug laws and sentencing laws -- the “correctional” population as share of VAP has almost tripled, from 1.17% to 3.3%. (See Figure 3A-1.) (See Figure 3A-1.)

Furthermore, compared with 1980, when a majority of state and federal prison inmates were serving time for violent crimes, a majority are now either awaiting trial because they cannot afford bail, or are serving time for non-violent offenses, more than a quarter of which were relatively minor drug-related offenses.

Drug Offenses and Disenfranchisement. As other analysts have recently noted, such drug offenses rarely involve “victims,” and there is a high degree of prosecutorial discretion. This makes them especially vulnerable to racially-discriminatory arrest practices. For example, recent studies of drug arrest rates show that black arrest and conviction rates for drug-related offenses are way out of proportion to drug use in the black community, and that the disparity between black and white arrest rates for drug use has been soaring because of policing practices, not because of greater underlying criminality.

The resulting steep rise in the US prison population since the 1980s provides a strong contrast with European countries and leading developing countries, where per capita prison populations have been stable or even declining. Not surprisingly, the disparity is also consistent with the fact that Europe’s drug laws are much less punitive.

Unemployment Impacts.The increase in the US correctional population as a share of the population since 1980 has not only reduced the ranks of poorer voters. It has also reduced the size of the “observed” civilian labor force and the official US unemployment rate by 18-20 percent. In other words, the US unemployment rate in July 2004, for example, would have been 6.43 percent, not the official 5.43 percent reported by the Bureau of Labor Statistics. So without this swollen prison population, there would now be more than 10 million unemployed in the US – at least 2.2 million more than the official statistics show, and more than enough to swamp any alleged “job growth” in the last year.

So US penal policies have not only removed a huge number of prisoners from the ranks of potential voters. They have also helped to disguise the seriousness of the US economy’s rather tepid recovery.

And some of us thought the point of the US’ punitive drug laws was to reduce drug trafficking! (Note to reader: US real retail cocaine prices have plummeted since the 1980s. See Figure 3A-2.)

While it is not easy to measure the impact that US prisoner disenfranchisement has had on recent elections, it may have been substantial, as several analysts have recently noted. For example, one recent study estimated that in 2000, more than 3.0 million prisoners, parolees, and probationers, plus 1.5- 1.7 million ex-felons, were formally disenfranchised – 2.1% of the US voting age population. Another recent study of prisoner disenfranchisement in the state of Georgia found that 13% of adult black males were disenfranchised by this policy, and that it explained nearly half the voter registration gap between black males and non-black males.

There were also another 358,000 who had been jailed awaiting trial, and 218,000 more who had been jailed on misdemeanor charges. All these people were also effectively disenfranchised.

All told, during the 2000 Presidential race, the total number of potential American citizen/voters who were disenfranchised because of the US penal system and its archaic laws was about 5 million. Since the numbers have continued to grow since then, by now they have reached 5.5 – 5.8 million.

As other commentators have noted, this policy is also practically unique -- no other putative “democracy” comes anywhere close to this kind of systematic vote deprivation.

No doubt there are some determined ex-felons, parolees, and probationers who manage to slip through and vote even in states that prohibit them from doing so. Many others would not vote even if given the chance. However, even apart from the question of whether such harsh treatment encourages better behavior, this disenfranchisement policy is far from politically neutral:

• About 45 percent of the 4.9 million convicts on probation and parole, and 67 percent of the current US prison population, are black or Hispanic, and more than ninety percent are from poor families. So the impact of these prisoner voting rules falls disproportionately upon groups whose real “crime” is to be black, Hispanic, or poor. These laws currently disenfranchise at least 13 to 18 percent of all adult black males and 4-6 percent of all adult Hispanic males in the US.
• These disenfranchisements are the modern equivalent of white supremacist Jim Crow laws.Their impacts are concentrated in a handful of mainly Southern states – including half the “battleground states” -- that have an unusual combination of large black or Hispanic populations, relatively punitive criminal justice and penal systems, a long history of racist practices, and disproportionate influence on the US electoral college.
• While US incarceration rates have increased dramatically in almost all states since the 1980s, the 15 original Southern “slave states,” for example, have consistently maintained rates of incarceration at least 25 to 98 percent higher than the US median, and 45 percent higher than those in the original 18 “Union” States.

Texas alone has at least 500,000 ex-felons and more than 200,000 prisoners and other inmates who have been disenfranchised, the overwhelming majority of whom are black or Hispanic.

Of Florida’s 13.4 million people of voting age, at least 600,000 to 850,000 prisoners, parolee/probationers, and ex-felons, have been disenfranchised by such voter registration laws, including at least one-fifth of all adult black males who reside there. Other battleground states, including New Mexico, Virginia, Iowa and Washington, have also used such laws to disenfranchise 15-25 of their adult black male populations.

All told, the top 15 battleground states account for at least 1.4 to 1.6 million excluded potential prison/ ex-felon votes this year. Combined with US’ knife-edged “winner take all” electoral system, this is clearly a very important policy choice.

Furthermore, in states like Florida, Texas, Mississippi, and Virginia, the opportunity to purge thousands of minority voter from the polls in the search for “ex-felons” has opened the doors to many other abuses.

For example, in 2000, there was the notorious purge by Florida’s Republican Secretary of State of 94,000 supposed “felons.” It later turned out that this number included more than 50,000 blacks and Hispanics, but just 3,000 actual ex-felons.

One might have hoped that one such flagrant anti-democratic maneuver would have been enough. But that was followed attempts by Florida’s Republican state administration to do the very same thing again in 2002 and again this year, when Florida tried to use another “bogus felons” list with another 40,000 names.

From this angle, all of the many arguments over Nader’s candidacy, “hanging chads,” and the narrow 537 vote margin by which Bush carried that state in 2000, were side-shows.

We are reminded of the Reconstruction period from 1867 to 1877, when Florida and 8 other Southern states had to be put under military occupation by the US Government, to prevent the white elites’ systematic attempts to deprive freed slaves of their voting and other civil rights. By the late 1870s, Northern passions toward the South had cooled, the Union troops left, and white-supremacist governments reacquired power. Unfortunately, unlike the 1860s, the “Radical Republicans” in Congress now side with the closet supremacists.

Counting Prisoners for Apportionment.The punitive US policy toward current and former prisoners appears even more bizarre, once we take into account the fact that for purposes of redistricting, the US Census – unlike Brazil – counts prison and jail inmates as residents of the counties where the prisoners are incarcerated, rather than the inmates’ home towns.

In general, this approach to counting prisoners for districting purposes tilts strongly in favor of rural Southern and Western states – areas that also now happen to vote Republican. (See Figure 3A-3), It has an important impact on the apportionment of Congressional seats and seats in state legislatures, the allocation of federal funds to Congressional districts, and the total number of electoral college votes that each state receives. It also creates a huge, influential, coalition of interests -- construction companies, prison administrators and guards, and politicians -- that mounts to a “politician-prison-industrial complex,” with powerful selfish motives to support tough sentencing laws and the construction of new prisons and jails.

The resulting combination of disenfranchisement and malapportionment recalls the “three-fifths compromise” that was built into the US Constitution in 1787, to accommodate the original six Southern slave states, where slaves constituted more than forty percent of the population. Under this provision, even though slaves could not vote, they were counted as three-fifths of a person, for purposes of determining each state’s Congressmen and Presidential electors.

Given this provision, it was no accident that 7 of the first 8 US Presidents were Virginian slave owners. This exaggerated Southern political power, entrenched by the anti-democratic electoral college, had disastrous consequences – it made resolving the problem of slavery without a regional civil war almost impossible. (Contrast Brazil’s relatively peaceful abolition of slavery.) From this perspective, the electoral college and prisoner disenfranchisement are both just throwbacks to America’s “peculiar institution,” slavery. As John Adams wrote in 1775,

All our misfortune arise(s) from a single source, the reluctance of the Southern colonies to republican government….The difficulties lie in forming constitutions for particular colonies and a continental constitution for the whole…This can only be done on popular principles and maxims which are so abhorrent to the inclinations of the barons of the South and the proprietary interests of the middle colonies…..

In a sense, the modern analog is even worse: prisoners can’t vote either, but they count as one whole person in the districts where they are imprisoned, for purposes of redistricting. In general, this approach to counting prisoners for districting purposes tilts strongly in favor of rural Southern and Western states – areas which also now happen to vote Republican.

Surprisingly, illegal immigrants are also included in the US Census count for redistricting purposes. Depending on where immigrants locate, this may reinforce the prisoner effect in some key states. The US illegal immigrant population has also been growing rapidly, with a Census-estimated 7.7 - 8.9 million illegals in the US by 2000, compared with about 3.5 million in 1990. According to the INS, two-thirds are concentrated in just five states – California, Texas, New York, Illinois, and Florida. However, unlike prisoners, estimating where illegal immigrants are located is much more uncertain. So the US policy of including non-voting illegals in the Census for purposes of drawing voting districts is also very peculiar.

3.Teen Voting

Brazil. To encourage young people to get involved in politics, Brazil gives those who are 16 or 17 the right (but not the duty) to vote. This measure increases Brazil’s VAP by abou 6 percent. Brazil argues that a relatively low voting age is consistent with the spirit of the UN’s Convention on the Rights of the Child. It also argue that this youth vote acknowledges the basic fact that a majority of 16-17 year olds (in both Brazil and the US) pay taxes and can marry, drive, and be tried as adults, so they ought to be able to vote. So far Brazil has only been joined in this experiment by a handful of other countries, including Indonesia (age 17), Cuba (16), Iran (15), and Nicaragua (16). But the UK is now also seriously considering teen voting.

The US. The minimum voting age in the US has been 18 since 1971, when the 26th Amendment was adopted. A few states (Maine, California) have recently considered reducing the voting age below 18, but so far voting rights for 16-17 year-olds, much less the more radical proposal to let children of all ages vote, has not taken off. Obviously this cause has not been strengthened by abysmal voter turnout levels by 18-24 year old Americans in recent elections.

*** (Next: Democracy in American and Elsewhere, Part IIIB: Campaigns, Voting, and Representation) ©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

September 22, 2004 at 02:50 PM | Permalink | Comments (1) | TrackBack

Thursday, September 16, 2004

Democracy in America and Elsewhere:Part II: Recent Global Trends Toward Democracy

James S. Henry and Caleb Kleppner

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Most Americans are probably used to thinking about their own political system as a shining example of “representative democracy” – not only one of modern democracy’s original pioneers, but also a contemporary role model for other emerging democracies around the globe.

Of course we are also very proud of our free markets, our relative affluence, and our occasional ambitions -- at the moment perhaps a bit muted -- to provide equal opportunities for all our citizens.

However, when we try to market our country’s best features to the rest of the world, or teach our children to be proud of their country, it is not the economy that we brag about.

Even self-styled “conservatives” usually lead, not with glowing descriptions of perfect markets and opportunities for unlimited private gain, but with our supposedly distinctive commitment to defending and expanding political democracy and human rights at home and abroad.

Indeed, one of the most important official justifications for recent US forays into the Middle East, as well as our many other foreign interventions, has been to help bring “democracy” to supposedly backward, undemocratic societies like Iraq and Afghanistan (…and before that, Haiti, Colombia, Panama, Nicaragua, Grenada, Panama, the Dominican Republic, Cuba, Guyana, Guatemala, Iran, Laos, Vietnam, the Philippines, etc. etc. etc.)

Even though, time and again, this noble commitment has turned out to be pure rhetoric, it provides such an elastic cover story for all our many transgressions that it keeps on being recycled, over and over and over again.

THE EMERGING DEMOCRACY GAP

Whatever the truth about US motives for such interventions, it may come as a surprise to learn that in the last two decades, the United States itself has actually fallen behind the rest of the democratic world in terms of “best democratic practices” and the overall representativeness of our own domestic political institutions.

Meanwhile, many developing countries have recently been making very strong progress toward representative democracy, without much help from us.

Indeed, in some cases, like South Africa, this progress was made in the face of opposition from many of the very same neoimperialists who have lately voiced so much concern about transplanting democracy to the Middle East.

While we have been resting on our democratic laurels, or even slipping backwards, the fact is that emerging democracies like Brazil, India, and South Africa, as well as many of our First World peers, have been adopting procedures for electing governments that are much more democratic at almost every stage of the electoral process than those found in the US.

The institutions they have been developing include such bedrock elements of electoral democracy as the rules for:

• (1) Apportioning geographic boundaries for congressional districts;


• (2) Selecting candidates and conducting campaigns;


• (3) Qualifying and registering voters;


• (4) Establishing effective controls over campaign finance;


• (5) Providing equitable access to the public airwaves for campaign advertising;


• (6) Encouraging voter turnout;


• (7) Preventing outright vote fraud;


• (8) Insuring that votes are accurately and quickly counted – and, if necessary, recounted;


• (9) Insuring that voter preferences are fairly and proportionately represented in the legislative and executive branches of government; and


• (10) Enforcing other helpful provisions, like run-off and recall provisions.

Of course effective democracy has many other crucial elements beside electoral processes alone. These include (1) the relative influence of legislative, executive, and judicial branches; (2) the concrete opportunities that ordinary citizens have -- as compared with highly-organized special interests and professional lobbyists -- to influence government decisions between elections; (3) the respective influence of private interests, religious groups, and the state; (4) the degree to which the rule of law prevails over corruption and "insider" interests; and (5) the overall degree of political consciousness and know-how.

However, fair and open electoral processes are clearly a necessary, if not sufficient, condition for effective democracy -- all these other elements simply cannot make up for their absence.

We hope that increasing the recognition of this “electoral democracy gap” between the US and the rest of the democratic world will be helpful in several ways:

• It may make Americans more modest about our own accomplishments, and less patronizing toward other countries;
• It may spur us to consider that we may actually have something to learn about democracy from other countries.
• It may provide an antidote for the recent revival of anti-democratic doctrines in the US, some of have acquired a disturbing level of influence among our political elites.
• It may help to show how our own idiosyncratic version of democracy is exerting a profound influence on this year’s profoundly dissatisfying Presidential race.

DEMOCRATIC PRAXIS - WHAT CAN WE LEARN FROM THE THIRD WORLD?

One useful place to start is with an assessment of best practices among the growing number of democracies around the globe.

This used to be much easier than it is now. As of the early 1970s, there were only about 40 countries that qualified as “representative democracies,” and most were First World countries.

Since then, however, there has been a real flowering of democratic institutions in the developing world. This was partly due to the collapse of the Soviet Empire in the late 1980s. But many more people were in fact “liberated” by the Third World debt crisis, which undermined corrupt, dictatorial regimes all over the globe, from Argentina, Brazil, and Chile to Indonesia, the Philippines, South Africa, and Zaire.
Voting in the Philippines, 2004

Assessments of the degree of “freedom” of individual regimes by organizations like Freedom House or the UN Development Program’s Human Development Indicators, are notoriously subjective. However, while there is plenty of room for disagreement about specific countries, there is little disagreement on the overall trend. (See Table 3.)

By 2004, about 60 percent, or 119, of the nearly 200 countries on the planet could be described as “electoral democracies,” compared with less than one-third in the early 1970s. Another 25-30 percent have made significant progress toward political freedom.

Voting in South Africa, 1994

Indeed, notwithstanding our present challenges in Iraq and Afghanistan, from the standpoint of global democracy, this has been a banner year. As of September 2004, 32 countries had already held nationwide elections or referenda, with 886 million people voting. (See Table 4.) By the end of 2004, another 33 countries will join the US in doing so – nearly three times as many national elections as were held each year, on average, in the 1970s.

All told, this year, more than 1.7 billion adults – 42 percent of the world’s voter-age population -- will be eligible to vote in national elections, and more than 1.1 billion will probably vote. That that will make American voters less than 10 percent of the global electorate.

Of course, some of these elections will be held in countries where democratic institutions and civil liberties are still highly imperfect. And some developing countries like Russia and Venezuela have recently been struggling to find a balance between democracy and national leadership, partly to undo the effects of neoliberal policies in the 1990s, or in response to terrorist threats.

But the good news is that democracy is clearly not a “luxury good.” The demand for it is very strong even in low-income countries like Bolivia, Bangladesh, Mozambique, Guatemala, and Botswana. And while self-anointed dictators, military rulers, and one-party elites or theocracies are still clinging to power in 50-60 countries that have more than 2.4 billion residents, such regimes are more and more anachronistic. (See Table 5.)

Interestingly, Asian dictatorships, especially China and Vietnam, now account for more than three-fifths of the portion of the world’s population that still lives under authoritarian rule. While several Islamic countries appear on the list of authoritarian countries, they account for just one fifth of the total. Furthermore, by far the most important ones happen to be close US “allies” like Pakistan, Egypt, Morocco and Saudi Arabia.

Evidently the simple-minded neoconservative “clash of cultures” model, which pits supposedly democratic, pluralist societies against an imaginary Islamic bloc, doesn’t have much explanatory power.

Furthermore, the US also clearly faces some very tough choices, if it is really serious about promoting non-discriminatory, secular democratic states that honor the separation between church and state among its Islamic allies, as well as in Palestine, and, for that matter, Israel.
Voting in East Timor. 2001

A more encouraging point is that many developing countries are already providing useful lessons in democratization. Indeed, as we will see in Part III of this series, there is much to learn from the experiences of new democracies like Brazil and South Africa.

These countries are undertaking bold experiments with measures like free air time for candidates, “registration-free” voting, direct Presidential elections, electronic voting, proportional representation, and the public finance of campaigns. While not all these experiments have worked out perfectly, the fact these countries have already demonstrated a capacity to innovate in “democratic design” is very encouraging.

Of course there is a long-standing tension between the US dedication to Third World democracy and its tolerance for the independence that democratic nationalism often brings. By renewing and deepening our own commitment to democracy at home, we will also protect it abroad -- even though (as in Venezuela, Russia, Iran, and perhaps eventually also Iraq) it does not always produce governments that we agree with.

(Next: Part III: "Brazil Vs. the US -- And the Winner Is....")

***

©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

September 16, 2004 at 09:08 PM | Permalink | Comments (2) | TrackBack

Wednesday, September 15, 2004

Democracy in America and Elsewhere:Part I: Does It Really Have to Be This Way?

James S. Henry and Caleb Kleppner

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After more than a year of intense primary coverage, pre-convention foreplay, and two carefully-scripted, almost protest-proof party conventions, the US Presidential marathon has finally entered the backstretch, with the overall contest still too close to call –- despite President Bush’s brief post-convention surge in the polls.

Although many pundits and politicians have hailed this contest as the “most important election of our lives," and talked about the “striking difference” between the two top candidates, most opinion polls show that a majority of ordinary Americans are profoundly dissatisfied with the limited choices available on this year's Presidential menu, with a majority of undecided voters disapproving of both Bush and Kerry in this week's polls.

They correctly sense that the prolonged, torturous process by which we choose the Leader of the Free World is deeply flawed. Many are asking, “Am I the only one who is unhappy with having to choose between these two Yale-bred prima donnas?......the only one who feels that this year's campaigns and the mass media have systematically avoided most of the critical issues that confront our country??”

If so many Americans prefer a different type of politics, however, why can’t they have it?

It turns out that this year’s unsatisfying campaign isn’t just an aberration. Rather, many of its less attractive features are a direct byproduct of deep-seated structural flaws in our electoral system, most of which are decades- or even centuries-old.

Unless we undertake the fundamental reforms required to fix these problems, our version of "democracy" is likely to become less and less attractive as a role model.

These structural flaws come into sharp relief is when we compare the US to other democracies, especially several younger ones that have proved to be much more innovative than we are when it comes to "designing democracy."

When we do so, we arrive at a disturbing conclusion: in many respects, American democracy is falling behind the rest of the democratic world.

As we will explore in this series, the fact is that many other countries – including several developing countries as well as our First World peers – have adopted electoral processes that are much more democratic than our own.

Rather than bemoan this year’s Presidential campaign, therefore, we propose to explore the root causes of our political malaise. We will tackle this problem with the help of a comparative approach, examining "best practices" in other leading democracies that are working hard to insure that national elections are more than just the costly, high-carb biennial beauty pageants that they have become in the US.

Politics As Usual

When this race is finally over, most Americans will probably breathe a sigh of relief regardless of the outcome -- at least until the next election cycle begins again in just 1.5 years. But for conventional political reporters it has turned out to be a classic horserace, which promises to capture audience “eyeballs” right down to the final flag. The race’s essential unpredictability has been determined by several factors. There is exceptional animosity between the dominant parties and lasting scars from Bush’s controversial road to the White House. To the surprise of many, the Democrats have fielded a centrist, if somewhat vacillating, candidate – the only genuine war veteran on either ticket, a gun-owning, church-going Catholic who basically supports both the Iraq War and a balanced budget, and, as liberals go, has been a devoted husband. Except for the fact that Kerry is from Massachusetts and wants somewhat higher taxes on the top 1%, this has made it hard to paint him into the “McGovern/Mondale/Dukakis/Dean” corner. Of course this has not suspended the rules of Politics 101 for Republicans – (1) when you have nothing much to brag about, go negative, and (2) if people are scarred enough, they will vote for Alfred E. Newman, so long as he promises to keep them safe.

Another factor that has made the race close is the record level of campaign spending on both sides – more than $795 million for the Presidential race alone, plus at least $272 million of “527” money, including $20 million from the National Rifle Association and $2.6 million from the Swift Boat Veterans group. Contrary to expectations, both parties have stayed about even in the money rush, despite President Bush’s renowned fund-raising abilities.

Finally, there have also been an unusual number of wild-cards – putative terrorist threats, oil price shocks, North Korean nukes, job growth, Ralph Nader’s quixotic quest, and the continuing ups and downs of the Iraq and Afghan Wars, plus all the typically American quasi-religious disputes over gay marriage, the Vietnam War, assault rifles, stem cell research, and late-term abortions.

Along the way, we've had a floodtide of small-bore reporting, encouraged by instant polling, “rapid response,” and the army of several thousand reporters who have nothing better to do than cover the campaign 24/7 and 31/12.

Much of the resulting reportage reads like a kluge of the Daily Racing Form and the National Enquirer, with far less attention paid to hard policy issues than to campaign tactics, polls, and candidate “features" -- values, personal histories, eating habits, wives, children, appearances, misquotes, and mood swings. (For a good example, witness, for example, today's cover stories on "where's Edwards?" in both the San Francisco Chronicle and the New York Times.)

So far the candidates, their campaigns, and their advertising have reinforced this pattern, spending far more time on their own values and competence than on fundamental issues -- or on the real benefits that voters would derive from electing them. Even when they do get down to issues and actual benefits, the focus is on just a handful that won't offend undecided voters in key states. (See Box A.) Given the electoral college, they are also spending almost all their time and resources in the same 15-16 “battleground states,” where the polls show a gap between Kerry and Bush of 3 percent or less. (See Table 1.) Within these states, they are also focusing on the same 6-10 percent of voters who have somehow managed to remain “undecided” even at this late date.

As a result, this year's election will be decided by just a sliver of potential voters in a handful of states. The battleground states account for less than a third of all US “voter-age” residents or “potentially-eligible voters” -- after deducting non-citizens, convicts, and others not eligible to vote. If these states repeat the modest turnouts that prevailed in 2000, less than 57 percent of their voting age populations will vote. And since a winning candidate only needs a plurality, which can be less than 50%, this implies that in a country with more than 293 million people and 223 million of voting age, the outcome of this "critical" election will be determined by at most 18.3 million “undecided” voters – just 6 percent of the country's population.

Given the way our particular version of democracy is structured, therefore, the rest of us face the fact that the chances that we will die in an accident on the way to the voting booth are infinitely greater than that our votes will have any impact whatsoever on this election. As we will see below, the chances are also slim to nilthat we will exert any influence on the vast majority of Senate or Congressional races.

All this might not matter so much if undecided voters in battleground states were good proxies for the rest of us. But they are not.
As indicated in Table 2, they differ from the rest of the country in many important respects. Most of these states are relatively backward, in the bottom half of all 50 states in terms of per capita incomes and education levels, with a much higher-than-average share of poor residents. Nearly a quarter of their populations live in rural areas, twice the average share for non-BG states.

Compared with non-BG states, the residents of these states are also more likely to own guns, and much less likely to have lost factory jobs in the recent recession. They are also more religious -- Catholic voters account for 40 percent and 35 percent, respectively, of all potential voters in New Mexico and New Hampshire, while conservative Christians account for more than a third of the population in 10 of the 15 BG states, and orthodox Jews are a key voting bloc in Florida. Hispanics account for more than 15 percent of potential voters in Florida, Arizona, Nevada, and New Mexico. Illegal immigrants constitute a critical part of the work force and Census headcount (for apportionment purposes) in half the BG states.

Furthermore, as shown in Table 1, almost half of the BG states have harsh “felon disenfranchisement” laws. Most of these permanently deprive anyone ever convicted of a felony within their states of the right to vote, even after their sentences have been served. These laws could play a decisive role in battleground states like Florida, Virginia, Arizona, Tennessee, and Iowa, just as they did in 2000.

All told, given the “winner take all” nature of the US electoral college system (see below) and the strategic role of so-called “undecided voters” will play in battleground states, it is not surprising that there is a long list of important issues where both Bush and Kerry have either both been completely silent, or have adopted straddling positions, many of which can only be distinguished from the President's under an electron microscope.

So far, at least, Kerry appears to have bet heavily that the American people will choose him mainly because he's brighter, more competent and more trustworthy than Bush, not because his foreign and domestic policy alternatives are wildly different and exciting. This is a bet that the far more well-liked, if quasi-competent and semi-literate Bush has been delighted to accept.

As a result, as discussed in Box A, even though a majority of US voters may well be open to far less timid new approaches to issues like the Iraq War, farm subsidies, illegal immigration, gun control, energy conservation, corporate crime, our relationships with “allies” like Israel and Saudi Arabia and “enemies” like Cuba, Iran, and Venezuela, not to mention the Patriot Act, balancing the budget, global warming, reforming Social Security, and revising drug laws, from the standpoint of capturing marginal voters in battleground states, many of these issues have been deemed “no win” and too-hot-to-handle.

Furthermore, when other candidates – independents and third party candidates – try to raise such issues, they are either ignored or tagged as “spoilers” whose presence only serves to help those voters’ least preferred candidates. Since such candidates are marginalized by the mainstream media and excluded from US Presidential debates, the major party candidates can easily skip over any special issues that they seek to raise.

Despite all the hoopla, therefore, many American voters justifiably feel like they've been invited to dinner and served pictures of food. In effect, discourse on fundamental issues has been stifled by the rules of the American electoral game.

E.g., it is not only the felons who have been disenfranchised by this US Presidential election process.

Does it really have to be this way? To get a handle on this question, it will be helpful for us to step back and take stock of how the US stacks up against other democratic countries, especially those in the developing world -- not in terms of economic performance, but in terms of effective electoral democracy. Interestingly, it turns out that we actually have quite a few things to learn from them.

***

©James S. Henry and Caleb Kleppner, SubmergingMarkets™, 2004

September 15, 2004 at 10:38 PM | Permalink | Comments (2) | TrackBack

Friday, July 02, 2004

Fourth of July, 2004: "A Time to Weep""Ted SorensenCommencement Address, The New School, New York City, May 21, 2004

(Note: Theodore C. Sorensen, the leading Wall Street lawyer and former top aid to President John F. Kennedy, gave the following commencement address at The New School University in New York City on May 21, 2004. This speech is a call to arms, which deserves the serious attention of every patriotic American on this Fourth of July 2004 weekend.)

A TIME TO WEEP

As a Nebraska émigré, I am proud to be made an Honorary Doctor of Laws by another Nebraska émigré, President Bob Kerrey, at an institution founded by still another, Alvin Johnston.

Considering the unhealthy state of our laws today, they probably could use another doctor.

My reciprocal obligation is to make a speech.

This is not a speech. Two weeks ago I set aside the speech I prepared. This is a cry from the heart, a lamentation for the loss of this country's goodness and therefore its greatness.

Future historians studying the decline and fall of America will mark this as the time the tide began to turn - toward a mean-spirited mediocrity in place of a noble beacon.

For me the final blow was American guards laughing over the naked, helpless bodies of abused prisoners in Iraq. "There is a time to laugh," the Bible tells us, "and a time to weep." Today I weep for the country I love, the country I proudly served, the country to which my four grandparents sailed over a century ago with hopes for a new land of peace and freedom. I cannot remain silent when that country is in the deepest trouble of my lifetime.

I am not talking only about the prison abuse scandal - that stench will someday subside. Nor am I referring only to the Iraq war - that too will pass - nor to any one political leader or party. This is no time for politics as usual, in which no one responsible admits responsibility, no one genuinely apologizes, no one resigns and everyone else is blamed.

The damage done to this country by its own misconduct in the last few months and years, to its very heart and soul, is far greater and longer lasting than any damage that any terrorist could possibly inflict upon us.

The stain on our credibility, our reputation for decency and integrity, will not quickly wash away.

Last week, a family friend of an accused American guard in Iraq recited the atrocities inflicted by our enemies on Americans, and asked: "Must we be held to a different standard?" My answer is YES. Not only because others expect it. WE must hold ourselves to a different standard. Not only because God demands it, but because it serves our security.

Our greatest strength has long been not merely our military might but our moral authority. Our surest protection against assault from abroad has been not all our guards, gates and guns or even our two oceans, but our essential goodness as a people. Our richest asset has been not our material wealth but our values.

We were world leaders once - helping found the United Nations, the Marshall Plan, NATO, and programs like Food for Peace, international human rights and international environmental standards. The world admired not only the bravery of our Marine Corps but also the idealism of our Peace Corps.

Our word was as good as our gold. At the start of the Cuban Missile Crisis, former Secretary of State Dean Acheson, President Kennedy's special envoy to brief French President de Gaulle, offered to document our case by having the actual pictures of Soviet nuclear missiles in Cuba brought in. "No," shrugged the usually difficult de Gaulle: "The word of the President of the United States is good enough for me."

Eight months later, President Kennedy could say at American University: "The world knows that America will never start a war. This generation of Americans has had enough of war and hate…we want to build a world of peace where the weak are secure and the strong are just."

Our founding fathers believed this country could be a beacon of light to the world, a model of democratic and humanitarian progress. We were. We prevailed in the Cold War because we inspired millions struggling for freedom in far corners of the Soviet empire. I have been in countries where children and avenues were named for Lincoln, Jefferson, Franklin Roosevelt and John F. Kennedy. We were respected, not reviled, because we respected man's aspirations for peace and justice. This was the country to which foreign leaders sent not only their goods to be sold but their sons and daughters to be educated. In the 1930's, when Jewish and other scholars were driven out of Europe, their preferred destination - even for those on the far left - was not the Communist citadel in Moscow but the New School here in New York.

What has happened to our country? We have been in wars before, without resorting to sexual humiliation as torture, without blocking the Red Cross, without insulting and deceiving our allies and the U.N., without betraying our traditional values, without imitating our adversaries, without blackening our name around the world.

Last year when asked on short notice to speak to a European audience, and inquiring what topic I should address, the Chairman said: "Tell us about the good America, the America when Kennedy was in the White House." "It is still a good America," I replied. "The American people still believe in peace, human rights and justice; they are still a generous, fair-minded, open-minded people."

Today some political figures argue that merely to report, much less to protest, the crimes against humanity committed by a few of our own inadequately trained forces in the fog of war, is to aid the enemy or excuse its atrocities. But Americans know that such self-censorship does not enhance our security. Attempts to justify or defend our illegal acts as nothing more than pranks or no worse than the crimes of our enemies, only further muddies our moral image.

Thirty years ago, America's war in Vietnam became a hopeless military quagmire; today our war in Iraq has become a senseless moral swamp.

No military victory can endure unless the victor occupies the high moral ground. Surely America, the land of the free, could not lose the high moral ground invading Iraq, a country ruled by terror, torture and tyranny - but we did.

Instead of isolating Saddam Hussein - politically, economically, diplomatically, much as we succeeded in isolating Khadafy, Marcos, Mobutu and a host of other dictators over the years, we have isolated ourselves. We are increasingly alone in a dangerous world in which millions who once respected us now hate us.

Not only Muslims. Every international survey shows our global standing at an all-time low. Even our transatlantic alliance has not yet recovered from its worst crisis in history. Our friends in Western Europe were willing to accept Uncle Sam as class president, but not as class bully, once he forgot JFK's advice that "Civility is not a sign of weakness."

All this is rationalized as part of the war on terror. But abusing prisoners in Iraq, denying detainees their legal rights in Guantanamo, even American citizens, misleading the world at large about Saddam's ready stockpiles of mass destruction and involvement with al Qaeda at 9/11, did not advance by one millimeter our efforts to end the threat of another terrorist attack upon us. On the contrary, our conduct invites and incites new attacks and new recruits to attack us.

The decline in our reputation adds to the decline in our security. We keep losing old friends and making new enemies - not a formula for success. We have not yet rounded up Osama bin Laden or most of the al Qaeda and Taliban leaders or the anthrax mailer. "The world is large," wrote John Boyle
O'Reilly, in one of President Kennedy's favorite poems, "when its weary leagues two loving hearts divide, but the world is small when your enemy is loose on the other side." Today our enemies are still loose on the other side of the world, and we are still vulnerable to attack.

True, we have not lost either war we chose or lost too much of our wealth. But we have lost something worse - our good name for truth and justice. To paraphrase Shakespeare: "He who steals our nation's purse, steals trash. T'was ours, 'tis his, and has been slave to thousands. But he that filches our good name...makes us poor indeed."

No American wants us to lose a war. Among our enemies are those who, if they could, would fundamentally change our way of life, restricting our freedom of religion by exalting one faith over others, ignoring international law and the opinions of mankind; and trampling on the rights
of those who are different, deprived or disliked. To the extent that our nation voluntarily trods those same paths in the name of security, the terrorists win and we are the losers.

We are no longer the world's leaders on matters of international law and peace. After we stopped listening to others, they stopped listening to us. A nation without credibility and moral authority cannot lead, because no one will follow.

Paradoxically, the charges against us in the court of world opinion are contradictory. We are deemed by many to be dangerously aggressive, a threat to world peace. You may regard that as ridiculously unwarranted, no matter how often international surveys show that attitude to be spreading. But remember the old axiom: "No matter how good you feel, if four friends tell you you're drunk, you better lie down."

Yet we are also charged not so much with intervention as indifference - indifference toward the suffering of millions of our fellow inhabitants of this planet who do not enjoy the freedom, the opportunity, the health and wealth and security that we enjoy; indifference to the countless deaths of children and other civilians in unnecessary wars, countless because we
usually do not bother to count them; indifference to the centuries of humiliation endured previously in silence by the Arab and Islamic worlds.

The good news, to relieve all this gloom, is that a democracy is inherently self-correcting. Here, the people are sovereign. Inept political leaders can be replaced. Foolish policies can be changed. Disastrous mistakes can be reversed.

When, in 1941, the Japanese Air Force was able to inflict widespread death and destruction on our naval and air forces in Hawaii because they were not on alert, those military officials most responsible for ignoring advance intelligence were summarily dismissed.

When, in the late 1940's, we faced a global Cold War against another system of ideological fanatics certain that their authoritarian values would eventually rule the world, we prevailed in time. We prevailed because we exercised patience as well as vigilance, self-restraint as well as self-defense, and reached out to moderates and modernists, to democrats and dissidents, within that closed system. We can do that again. We can reach out to moderates and modernists in Islam, proud of its long traditions of dialogue, learning, charity and peace.

Some among us scoff that the war on Jihadist terror is a war between civilization and chaos. But they forget that there were Islamic universities and observatories long before we had railroads.

So do not despair. In this country, the people are sovereign. If we can but tear the blindfold of self-deception from our eyes and loosen the gag of self-denial from our voices, we can restore our country to greatness. In particular, you - the Class of 2004 - have the wisdom and energy to do it. Start soon.

In the words of the ancient Hebrews:

"The day is short, and the work is great, and the laborers are sluggish, but the reward is much, and the Master is urgent."

***

© Theodore C. Sorensen, SubmergingMarkets™, 2004

The "Reagan Revolution," Part Two:The View from Developing Countries

Printable PDF Version.

"Man wants to forget the bad stuff and believe in the made-up good stuff. Its easier that way."

--Rashomon, Kurosawa

"He (Reagan) may have forgotten us. But we have not forgotten him."

-- Angolan refugee and landmine victim

"Folly is a more dangerous enemy to the good than evil. One can protest against evil; it can be unmasked and, if need be, prevented by force....Against folly we have no defense. Neither protests nor force can touch it; reasoning is no use; acts that contradict personal prejudices can simply be disbelieved. Indeed, the fool can counter by criticizing them, and if they are undeniable, they can just be pushed aside.... So the fool, as distinct from the scoundrel, is completely self-satisfied. In fact, he can easily become dangerous, as it does not take much to make him aggressive...."

--Dietrich Bonhoeffer

Following last week's prolonged national memorial to President Reagan, the most elaborate in US history, most Americans have turned their attention back to the troubled present. But we cannot resist continuing down the revisionist path that we started on in Part One of this series.

Contrary to Henry Ford, history is not "bunk," nor is it "just one damn thing after another." In fact, it is one of our most valuable possessions. But unless we take the time to learn from it, it can easily come back to haunt us -- as it is doing right now. At the very least this exercise will prepare us to evaluate President Clinton's new autobiography, which is due out next week.

As noted in Part One, most recent discussions of Ronald Reagan's foreign policy legacy have focused almost entirely on the Cold War. Even there, as we argued, his legacy is decidedly mixed. While he may have helped to pressure the Soviets to reform, he also took incredible risks with the balance of nuclear forces, including some risks that we are still living with to this day.

When we turn from superpower relations to Reagan's impact on developing countries, the legacy is even starker. In The Blood Bankers, we've detailed how the Reagan Administration's lax policies toward country lending and bank regulation exacerbated the 1982-83 Third World debt crisis. And then the administration did very little to help developing countries fundamentally restructure their debt burdens and recover. By the end of the 1980s, most country debt burdens were higher than ever.

Here we will focus on another long-term legacy of Reagan's relations with the developing world -- the consequences of his support for a plethora of reactionary dictatorships and contra armies all over the globe.

Most Americans are probably not aware of it, but this bloody-minded policy fostered several nasty wars in developing countries that have cost literally millions of lives -- and are still producing fatalities every day, by way of wounds, continuing conflicts, unexploded ordnance, and landmines.

Furthermore, as described below, the Reagan Administration was also responsible for several of the clearest examples in history of state-sponsored terrorism.

Unfortunately, it turns out that very little of this was really necessary, either from the standpoint of defeating the Soviets, pushing the world toward democracy and free markets, or enhancing US security.

Indeed, in the long run, Reagan's policies basically destabilized a long list of developing countries and increased their antagonism towards the US. Combined with the policies of "benign neglect," stop-go intervention, and ineffective neoliberal reforms that characterized the Clinton Administration's policies toward developing countries, and the neoconservative policies pursued by both Bushes, it is no accident that America's reputation in the developing world is now at a record low.

Unfortunately, like some of the risks that Reagan's policies introduced into the nuclear balance, these effects may have a very long half-life. Surely they will be with us long after Ronald Reagan has met his Maker. We just hope for the Gipper's sake that his Maker does not read this article before pronouncing judgment upon him.

THE INDICTMENT

There is an abundance of examples of the Reagan Administration's strong negative impacts on developing countries. To cite just a few:

In the case of the Philippines, the Reagan Administration was a staunch ally of Ferdinand and Imelda Marcos right up to their last helicopter ride to Hawaii in February 1986. Vice President George H.W. Bush visited Manila in March 1981, soon after Reagan was elected, to thank him for his generous support. He toasted Marcos in glowing terms: "We love your adherence to democratic principles and democratic process....." The thousands of political opponents who were tortured, imprisoned, or died fighting this corrupt conjugal dictatorship and the millions of Filipinos who have spent the last twenty-five years servicing the couples' unproductive foreign and domestic debts would probably disagree.

In the case of Iran and Iraq, Reagan helped arm and finance Saddam Hussein throughout the 1980s, encouraged the Saudis and Kuwaitis to finance his invasion of Iran when it bogged down, helped to equip him with chemical and biological weapons, sent Donald Rumsfeld to Baghdad to assure close relations and propose a new pipeline to Saddam to help him export his oil, and even provided a team of 60 Pentagon analysts who sat in Baghdad, using US satellite imagery to target Saddam's chemical weapons against the Iranians.

At the same time, as the Iran-Contra arms scandal later disclosed, Reagan also helped Iran buy spare parts and advanced weapons for use against Iraq. He also looked the other way when Saddam decided to turn his US-supplied Bell Helicopters and French-supplied Mirage jets and chemical weapons on the defenseless Kurds at Halabja. Of course, the fact that the UN, under strong US pressure, did nothing at the time to condemn Saddam for this behavior did not exactly discourage further aggression.

This bipolar policy contributed to prolonging the 1980-88 Iran-Iraq War, one of the largest and bloodiest land wars since World War II. It cost 500,000 to 1 million lives and 1-2 million wounded, and created more than 2.5 million refugees. It also caused a huge amount of damage to both countries' economies, and left Iraq, in particular, broke and heavily indebted. As we've argued in The Blood Bankers, that destabilization, in turn, contributed significantly to Saddam's 1991 decision to invade Kuwait in 1991 -- and ultimately, our current Iraq fiasco.

In the case of South Africa, the Reagan Administration steadfastly opposed any US or UN sanctions on international trade and investment. Indeed, it continued to work closely with the apartheid regime on many different fronts, including the civil wars in Angola (see below), Namibia, and Mozambique.

It also now appears that both Carter and Reagan turned a blind eye to South Africa's development of nuclear weapons and ballistic missiles, in collaboration with Israel, which purchased its uranium from the Pretoria regime. Fortunately, no thanks to Reagan, Bush I, or for that matter, Bill Clinton, apartheid came to an end in the early 1990s, and South Africa became the first nuclear power ever to dismantle its nuclear weapons.

Rios Montt

In the case of Guatemala, Reagan gave a warm embrace to the brutal dictatorship of General Efrain Rios Montt in the early 1980s. Rios Montt, a graduate of Fort Benning's School for the Americas, was also an ordained "born-again" minister in California-based Gospel Outreach's Guatemala Verbo evangelical church. Evidently that combination endeared him to the Reagan Administration -- US Assistant Secretary of State Thomas Enders praised him for his "effective counter-insurgency," and President Reagan called him "a man of great personal integrity," "totally dedicated to democracy," someone who Amnesty International had given "a bum rap."

This cleared the way for hundreds of $millions in World Bank loans and US aid that helped to make Rios Montt and his generals rich. Meanwhile, the junta implemented a genocide that a UN-backed Truth Commission later found was responsible for the deaths of 200,000 Guatemalan peasants, mainly Mayan Indians.

General Galtieri

In the case of Argentina, Reagan turned a blind eye to the "dirty war" waged by the military junta against its opponents, at a cost of 30,000 lives and many more destroyed families.

When this junta launched the April 1982 invasion of the Falkland Islands to deflect public attention from its political and economic woes, Reagan and Secretary of State Al Haig ultimately decided to side with the UK's Margaret Thatcher, a fellow neoconservative. However, key Reagan aids Jeane Kirkpatrick and Michael Deaver worked behind the scenes to support the fascist junta, encouraging it to believe that the US might stay neutral. The very evening that the invasion was launched, Kirkpatrick was the guest of honor at an elaborate Washington D.C. banquet that was sponsored by the junta.

In the case of Panama, Reagan's CIA subsidized and promoted the rise of General Manual Noriega, another graduate of the notorious US School of the Americas. The US made extensive use of Noriega's intelligence gathering capabilities during the contra war with Nicaragua (see below).

This encouraged Noriega to believe that he could get away with anything. For a while he did: in the early 1980s, he became one of the most important cocaine wholesalers in the region, shipping a ton of coke per month to Miami on INAIR, a Panama airline that he co-owned, literally under the US Customs' nose. By 1989, even George H.W. Bush was embarrassed, and he had the dictator forcibly removed -- at a cost of the lives of 23 US troops, 314 Panamanian Defense Forces, and several hundred Panamanian civilians.

In the case of tiny Honduras, the poorest country in Central America, the Reagan administration turned another of its many blind eyes to the rise of death squads in the early 1980s. John Negroponte, the former US Ambassador to the UN and our new "proconsul" in Iraq, served as Ambassador to Honduras from 1981 to 1985. As this author knows from first-hand experience, reports of human rights abuses in Honduras were rampant during this period. It is hard to believe that Negroponte, who cultivated close relations with the Honduran military, was simply unaware of all these reports.

One of the key offenders was Battalion 3-16, the CIA-trained and funded Honduran military unit that was responsible for hundreds of disappearances and torture cases, including several that involved Americans.

One US embassy official later reported that in 1982, Negroponte had ordered any mention of such abuses removed from his annual Human Rights reports to Congress. Negroponte has denied any knowledge of this, and has skated through several confirmation hearings to arrive at the very top of the US diplomatic corps, where he will soon be running the world's largest US embassy.

In the case of El Salvador, the Reagan Administration also sharply increased economic and military support to a brutal oligarchical regime that was also deeply involved in death squads. President Carter had also provided military aid to the regime -- indeed, Archbishop Oscar Romero's condemnation of that aid was one key factor in his assassination in March 1980. After Reagan's November 1980 election, the Salvadoran military felt it had a "green light" to become even more aggressive with its opponents in the Church and unions, as well as the FMLN rebels.

One immediate byproduct of the "green light" was the murder of four US Maryknoll nuns in December 1980. Reagan's first Secretary of State, Al Haig, later suggested that the nuns might have been killed in a "crossfire" when they "ran a roadblock. " But their murders were later attributed to five Salvador National Guard members, who, in turn, appear to have acted on orders from senior members of the Salvador military.

A law suit was eventually brought on behalf of the nuns against the commanders to whom these guardsmen ultimately reported -- Jose Guillermo Garcia, El Salvador's Minister of Defense from 1979-1983, and Carlos Eugenio Vides Casanova, the former head of the National Guard. These were the Reagan Administration's key Salvadoran allies in the early 1980s, and they'd been rewarded with retirement in Florida.

In 2000 a jury ruled that even though they had given the orders, they did not have "effective control" over their subordinates, given the instability in the country. However, in July 2002, another jury in West Palm Beach found the duo liable for torture and other human rights abuses against three other victims, and ordered them to pay $54.6 million in damages.

Meanwhile, their paymasters and other collaborators in the Reagan Administration have gotten off scot free. Reagan's insistence on a military solution to the conflict in El Salvador helped to perpetuate the civil war throughout the 1980s, at a cost of more than 75,000 lives. Ultimately, under Bush I and Clinton, the long-delayed negotiated solution was achieved.

As for Archbishop Romero's assassin, he has never been found. There are credible reports, however, that the actual triggerman now lives -- naturally enough -- in Honduras.

In the case of Lebanon, Reagan was responsible for a broken promise to the Palestinians that ultimately contributed to the 1982 massacres at the Sabra/ Shatila refugee camps. To get the PLO to withdraw from Beirut, Reagan promised to protect Palestinian non-combatant refugees in those camps. Indeed, the PLO fighters left on August 24, 1982, and US Marines landed on August 25. But they were withdrawn just three weeks later, on September 10, after the PLO fighters left. Ariel Sharon,Israel's Defense Minister at the time, promptly ordered the Israeli Defense Forces to surround the camps. They refused to let anyone leave, and then permitted his Lebanese allies, the rightist Christian Phalangists, to move in.

The result was the slaughter of at least 900 to 3000 unarmed Palestinians, including many women and children, on September 16-18, 1982. As former Secretary of State George Schultze later commented, "The brutal fact is, we are partially responsible." Israeli's own Kahan Commission later found Sharon "indirectly responsible" for the massacre, but imposed no penalties, other than forcing him to resign as Defense Minister.

In the case of Angola, Reagan, in cooperation with South Africa's apartheid regime and Zaire's dictator Mobutu, helped to sponsor UNITA, Joseph Savimbi's rebel band, against the left-leaning MPLA, which also happened to have far stronger support from the Angolan people. Reagan hailed the power-hungry Savimbi as a "freedom fighter," and enlisted wealthy arch-conservatives like beer merchant Joseph Coors and Rite-Aid owner Lewis E.Lehrman to organize assistance and lobby Congress for millions in aid.

In fact Savimbi turned out to be one of the world's most lethal terrorists. Even after UNITA lost UN-supervised elections in September 1992, he continued the war, financing his operations by trafficking in "blood diamonds."

The resulting guerilla war cost the Angolan people up to 1 million dead, turned a quarter of Angola's 12 million people into refugees, and devastated health and education programs and the domestic economy. It also left an estimated 6 to 20,000,000 land mines scattered all across the country, one of the world's most heavily mined countries, with more than 80,000 amputees as a byproduct. Only with Savimbi was finally killed in May 2002 was the country finally restored to peace.

Savimbi

In the case of Afghanistan, Reagan considerably expanded aid to the Afghan rebels in the early 1980s, providing them more than $1 billion in arms and sophisticated weapons like Stinger missiles to fight the Soviets. The resulting battle ultimately cost the Soviets 15,000 lives. But the price to Afghanistan was much higher -- the Afghan people lost more than 1 million dead and wounded, plus millions of refugees. Furthermore, after the Soviets finally left in the 1989, the country became a stomping ground for opium-dealing warlords, religious fanatics like the Taliban, and al-Qaeda's global terrorists.

Furthermore, we now know that Gorbachev had offered to pull Soviet troops out of Afghanistan in 1987, in exchange for reduced US arm shipments to the rebels. However, he was rebuffed by the Reagan Administration, which wanted to prolong the Soviets' agony. This not only cost a great many more Afghan (and Soviet) lives, but also helped turn Osama Bin Laden from a nobody into a folk hero. All this helped to pave the way to 9/11, the continuing war in Afghanistan, and the even more dangerous global terrorist war.

All told, then, the Reagan Administration clearly has a lot to answer for with respect to the developing world. And this is even apart from one of the most perfidious examples of Reagan's brutilitarian policies, that of Nicaragua -- as the following excerpt from The Blood Bankers makes clear.

NICARAGUA'S COUNTERREVOLUTION

By the end of 1980, with Nicaragua's civil war concluded, General Anastasio Somoza deBayle dead in Paraguay, and the country''s debt settlement with its foreign banks concluded, many Nicaraguans were looking forward to rebuilding their economy and finally achieving a more peaceful society. Alas, it was not to be.

Undoubtedly the Sandinistas deserve some of the blame for the way things turned out, though, as we will see, the odds were clearly stacked against them. As the strongest faction in the winning coalition, and “the boys with the guns,” at first they commanded overwhelming popular support for having rid the country of the world’s oldest family dictatorship outside of Saudi Arabia and Paraguay. However, like Venezuela’s Hugo Chavez in the 1990s, they were torn between leading a social revolution and building a multi-party democracy.

Their hero, Augusto “Cesar” Sandino, “the general of free men,” had fought the US military and the Nicaraguan army for six years to a standstill, before he was betrayed and murdered by General Anastasio Somoza Garcia in 1934. After a decade of insurgency in the 1970s, the Sandinistas’ most important experiences to prepare them for the job of running the country were limited to armed struggle, clandestine organizing, and some very rough times in Somoza’s jails. Unhappily, one of their most accomplished political leaders, Carlos Fonseca, had been murdered by the National Guard in 1976.

Sandino

On the other hand, as South Africa demonstrates, it is not impossible for committed revolutionaries to lead a fairly peaceful transition to a multi-party democracy. After all, the ANC had waged just as long a struggle against a state that was no less repressive as Somoza’s. Many of the ANC’s supporters were also just as radical as the Sandinistas, and it also sourced most of its weapons and advisors from radical watering holes like the Soviet Union, East Germany and Libya.

However, ironically, South Africa was not as easy for the US to push around as Nicaragua. South Africa accounted for two-thirds of sub-Saharan Africa’s economy and most of the world’s gold, diamonds, platinum, and vanadium. By 1982, with some help from the UK and Israel, it had acquired nuclear weapons. Compared with Nicaragua, South Africa’s economy was actually in pretty good shape when the ANC came to power. While there had been a protracted low-intensity war against apartheid, South Africa managed to avoid the full-blown civil war that Nicaragua was forced to undertake in the 1970s to rid itself of the Somoza dictatorship.

Nicaragua was also objectively a far less strategically important target. To Washington’s national security planners, however, that made it an ideal opportunity for a relatively low-cost “demonstration." Its population was the same as Iowa’s. Its entire economy was smaller than Des Moines’s. It had few distinctive natural resources. Its only “weapons of mass destruction” were volcanoes, earthquakes, and hurricanes. It was surrounded by other countries that were also of modest strategic value – except for whatever symbolic value was associated with repeatedly crushing the aspirations of impoverished peasants into the dirt.

During the late 19th century, Nicaragua had been selected several times over by US Canal Commissions for a canal across Central America, until Teddy Roosevelt finally opted to create Panama and build a canal across it in 1902, for reasons that had more to do with Wall Street than engineering. After that, Nicaragua’s canal plans went nowhere, especially after the US Marines landed in 1910 to collect debts owed to British and US banks and to depose a nationalist leader who, among other things, made the fatal mistake of seeking European funding for an alternative to the Panama canal.

The ANC also had one other weapon that the Sandinistas clearly lacked. This was the extraordinary wisdom and good fortune of 72-year old Nelson Mandela, who had earned everyone’s respect during his 27 years in prison. He had also learned survival skills like patience, diplomacy, and the capacity for making adroit compromises with bitter enemies. Under his influence, the ANC set out to build a mass party. It agreed to hold new elections within two years of his release. It went out of its way to commit itself publicly to multi-party democracy, a market economy, civil liberties, and peaceful reconciliation.

Most of the Sandinistas’ top leaders – the so-called cupola -- were not really interested in building a mass party, much less a multi-party democracy, at least not initially. They saw themselves as a vanguard party, leading the masses toward a social revolution. As Sergio Ramirez, a leading FSLN member who served as Nicaragua’s Vice President under Daniel Ortega from 1984 to 1990, wrote in his 1999 book, Adios Muchachos,

The FSLN was not prepared...to assume its role of party of opposition inside a democratic system, because it had never been designed for this. Its vertical structure was the inspiration of Leninist manuals, of the impositions of the war and of caudillismo, our oldest cultural heritage.

To be fair, the FSLN leadership also believed that the first priority was to attack the country’s dire health, literacy, land ownership, and education problems, and to build “direct democracy” through civic organizations, not through party politics and national elections. Given the country’s emergency and the need to recover from the civil war, this was entirely understandable. But it did provide cheap shots for the FSLN’s opponents and the mainstream US media, which basically wrote Nicaragua off very early as a reprise of Castro’s Cuba.

The Sandinistas were also widely criticized for lacking the soft touch when it came to domestic politics. Among their many ham-handed moves was their May 1980 decision to expand the Council of State to include “mass organizations,” the August 1980 decision to postpone elections until 1984, the rough way they dealt with the Miskito Indians, the 1986 decision to shut down the (by then, CIA-subsidized) La Prensa, and Daniel Ortega’s various high-visibility trips to Havana, Moscow, Libya and Gucci’s eyeglass counter in New York They were also criticized for implementing a compulsory draft, detaining alleged contra sympathizers without trial after the contra war heated up, permitting the FSLN’s National Directorate (Daniel Ortega, Tomas Borge, Victor Tirado, Henry Ruiz, and Bayardo Arce) to remain an unelected (all-male) body until 1991, and seizing a huge amount of property from ex-Somocistas, even middle-class ones, for their own use during the “pinata” period after Ortega lost the 1990 election -- including more than a few beach houses.

At the same time, they were not given much credit for preserving a mixed economy, reforming the health and education systems, pursuing aid from numerous non-Communist countries in Latin America and Europe, implementing a badly-needed land reform, tolerating the virulent La Prensa, which supported the contras and called for their overthrow, until they finally reached the limit and shut it down in 1986, ultimately holding free elections in November 1984 and February 1990, and respecting the outcome of those elections even when, as in 1990 (...and 1996, and 2001..) they lost.

The basic reality is that from at least 1981 on, Nicaragua’s new government was operating in an increasingly hostile international environment, where the Western media and the USG, as well as the Miami-based Somocistas, were predisposed to seize upon the slightest departures from Roberts’ Rules of Orders to consign them to hell – and if no such departures were readily at hand, to invent them out of whole cloth. These hostile attitudes had much less to do with the FSLN’s behavior than with the USG’s new aggressive stance with respect to the Soviet Union – actually dating back at least to President Carter’s initiation of a contra-like war against the Soviet-backed government in Afghanistan in July 1979.

STATE-FUNDED TERRORISM - REAGAN STYLE

So, despite all the FSLN’s undeniable missteps, it would probably have taken divine intervention to save Nicaragua from the wrath of Ronald Reagan, who decided almost immediately upon taking office to single tiny Nicaragua out for a replay of the Carter/ Brzezinski strategy in Afghanistan.

As former CIA analyst David MacMichael testified at the International Court of the Hague’s hearings on a lawsuit brought by Nicaragua against the US in 1986, from early 1981 on, the US Government set out to create a “proxy army” that would “provoke cross-border attacks by Nicaraguan forces and demonstrate Nicaragua’s aggressive nature,” forcing the Sandinistas to “clamp down on civil liberties.....arresting its opposition, (and) demonstrate its allegedly inherent totalitarian nature.”

In other words, if they were not totalitarian enough to begin with, we would see to it that they became totalitarian – and then blame them for making the switch.

President Reagan offered several different justifications for this ultimately rather bloody-minded policy. In March 1983, in a speech to Congress, he presented his subversion theory, Congress, warning that the Sandinistas had already “imposed a new dictatorship…supported by weapons and military resources provided by the Communist bloc, (that) represses its own people, refuses to make peace, and sponsors a guerrilla war against El Salvador. (emphasis added).”

At other times, he emphasized the beachhead theory, according to which the Sandinistas provided a “Soviet beachhead… only two hours flying time away from our borders…with thousands of Cuban advisors…camped on our own doorstep…close to vital sea-lanes.” He offered similar characterizations of the threat posed by left-wing guerillas in El Salvador, Honduras, and Guatemala. In 1982, Jeane Kirkpatrick, Reagan's hawkish UN Ambassador, also promoted this beachhead theory with her own profound geographical analysis:

I believe this area is colossally important to the US national interest. I think we are dealing here not...with some sort of remote problem in some far-flung part of the world. We are dealing with our own border when we talk about the Caribbean and Central America and we are dealing with our own vital national interest.

Other elements were also sometimes thrown into the mix. On November 6, 1984, just two days after the Sandinistas won a decisive 67-percent victory in the country’s freest elections in history, there was a huge media flap in the US press over their alleged attempt – later proved false – to buy Soviet MiGs for air defense. This story later turned out to be a wholesale concoction of the State Department’s “Office of Public Diplomacy,” and of Oliver North, Otto Reich, and Robert McFarlane in particular, just one of many US propaganda efforts that were designed to distract attention from the FSLN’s victory in those elections.

Together, the subversion theory and the beachhead theory added up to a revival of the time-worn domino theory, transposed from Southeast Asia to Central America. Apparently, the notion was that since Nicaragua bordered on Honduras and El Salvador, which bordered on Guatemala and Belize, which bordered on Mexico, the Red Army might soon be drinking margaritas on the banks of the Rio Grande. Or the Reds might just jet in to El Paso in their MiGs from Managua, “only two hours away.” The fact that “they” were already 90 miles away in Havana, armed with brand new MiG 23 Flogger bombers and MiG 29s, did not get much mention from the Gipper. After all, Cuba had already demonstrated that it could stand up to a US invasion, and the Bay of Pigs was not a happy memory.

This rather strained analysis of Nicaragua’s purported threat to US national security was later endorsed, with only slight variations, by the January 1984 Bipartisan National Commission on Central America chaired by Dr. Henry Kissinger. One might have expected Kissinger to reach a different conclusion, given his long personal experience with Vietnam, Laos, Cambodia, and China, whose leftist regimes spent most of the 1970s fighting with each other, demonstrating conclusively the power of nationalism over solidarity. But he was performing the assignment to ingratiate himself with the Republican Party’s conservative wing. And unlike the National Commission on Terrorist Attacks, which he resigned from in December 2002, it did not require him to identify his consulting firms’ private clients.

In any case, well into the 1990s, long after there were peace settlements in Nicaragua, El Salvador, and Guatemala, and long after the Sandinistas had handed over political power to their opponents, hawkish Republicans like Senators John McCain and Jesse Helms were still seeing ghosts in Nicaragua, trying to make hay out of the Sandinistas’ potential subversive threat. Indeed, as we’ll see, these charges even played a role in Daniel Ortega’s defeat in Nicaragua’s Presidential elections in 2001, even when his running mate was Violeta Chamorro’s son-in-law!

AUC paramilitary

Eventually, in fact, all the stockpiles of AK47s, landmines, rocket launchers, and surface-to-air missiles acquired by the Sandinistas to defend Nicaragua against the contras did end up posing a security threat to the US. But it was not precisely the one that that the Sandinistas' right-wing critics had predicted. In November 2001, Colombia’s 11,000-strong nasty, right-wing, drug-dealing paramilitary group, the AUC, procured 3,500 AK47’s from Nicaragua’s military stockpiles, by way of Israeli arms merchants based in Panama and Guatemala. The arms were part of a five-shipment package that included 13,000 assault rifles, millions of bullets, grenade and rocket launchers, machine guns, and explosives. The AUC, which was on the G.W. Bush’s administration’s official list of terrorist groups, was supported by landlords who wanted to combat Colombia’s leftist guerillas, the ELN and the FARC. The AUC was also supposedly fighting Colombia’s Army. From 2000 to 2003, Colombia received $2.5 billion of US military aid, plus more than 400 Special Forces troops, making it the world’s third largest recipient of US aid. The AUC also reportedly purchased arms from army stockpiles in El Salvador and Guatemala. In 2002, a OAS study also revealed that a Lebanese arms broker with al Qaeda links had tried to purchase 20 SA-7 missiles from Nicaragua’s stockpiles. The US starting pressuring Nicaragua’s President Bolanõs, a neoliberal businessman, to reduce these stockpiles – but hopefully not by selling more of them to the AUC.

In the long run, therefore, by forcing the comparatively-harmless Sandinistas to stockpile all these weapons to defend themselves, and by also arming the right-wing militaries of El Salvador and Guatemala to the teeth, the US had set a trap for itself.

In reality, of course, Nicaragua’s leftists, even if they had been so inclined, were neither necessary nor sufficient to “subvert” their neighbors. Those neighbors with the most serious liberation movements, like El Salvador, Guatemala, and Colombia, had long since done a perfectly good job of subverting themselves. Their rebel movements developed over many decades from within, on the basis of incredibly-unbalanced social structures. For example, El Salvador’s catorce, its top 14 families, controlled 90-95 percent of that country’s land and finance capital, while in Guatemala, just 2 percent of the population controlled more than 70 percent of arable land. These situations were only a slightly more anonymous version of Nicaragua, where the Somoza family alone had laid claim to a quarter of the country’s arable land. And the resulting social conflicts were similar -- in the 1980s, El Salvador’s class war claimed more than 80,000 lives, while Guatemala’s claimed 200,000, with the vast majority due to their own brutal armed forces and paramilitaries.

On the other hand, Costa Rica, Nicaragua’s good neighbor to the south, had long since inoculated itself against revolution by developing an old-fashioned middle-class democracy, with lots of small farms and more teachers than police, having completely abolished its military in 1948.

Furthermore, while the Reagan Administration asserted over and over again in the early 1980s that the Sandinistas had shipped arms to leftist guerillas in El Salvador, two decades later, these allegations have been shown to be as spurious as the MiG purchases. In fact, the Sandinistas’ aid to El Salvador’s rebels, the FLMN, was miniscule, and it was terminated in 1981, as the World Court concluded in 1986. The claim that El Salvador’s FLMN had acquired several hundred tons of weapons from the East Bloc, Arafat and Libya (!), had also been pulled out of thin air. In fact, the rebel armies in El Salvador and Guatemala were poorly armed, except for Galil rifles and rocket launchers they managed to steal or purchase from corrupt army officers. Leading Sandinistas like Tomas Borge also explicitly rejected the notion of “exporting revolution,” except by way of the FSLN’s own example. After all, the FSLN had not needed Soviet or Cuban backing for their own revolution. They also had their hands full rebuilding Nicaragua. The last thing they needed was another war with El Salvador or Guatemala, in addition to the contra war.

Finally, while the Sandinistas were not liberal democrats, and, as noted, committed many political blunders, they were scarcely in a position to run a “dictatorship,” even within Managua’s city limits. To their credit, they had greatly increased the amount of popular involvement in the country’s governance. In November 1984, they held national elections that most international observers, including Latin American scholars and Western European parliaments, agreed were reasonably clean, despite the Reagan Administration’s provision of $17 million to opposition candidates, its systematic efforts to discredit the elections, and the fact that by then Nicaragua was already under steady assault from US-backed contras. Certainly by comparison with the Somozas’ rigged elections, other countries in post-war situations, and El Salvador and Guatemala in particular, Nicaragua’s degree of political freedom was tolerable, if not beyond reproach.

Yet when 75 percent of registered voters turned out for the November 1984 elections, and the FSLN received a commanding 67 percent of the vote, capturing the Presidency and 61 of 96 seats in the new National Assembly, Nicaragua was again accused by the Reaganites of being a “dictatorship.” As former New York Times Editor John Oakes remarked at the time, “The most fraudulent thing about the Nicaraguan election was the part the Reagan Administration played in it.”

The other troubling fact for Reagan’s Nicaraguan policy was that, objectively, the Soviet Union really did not have much interest in acquiring yet another dependent, state-socialist backwater like Vietnam, Afghanistan, or Cuba -- which by the early 1980s was already costing the USSR about $3 billion a year in aid. In hindsight, we now know that, far from being an expansionist Evil Empire, at this point, the USSR was really just hanging on for dear life -- a wounded giant, obsessed with its own serious economic problems, which were even forcing it to import grain from Argentina’s fascist junta! Internationally, it had its hands full just trying to stave off an embarrassing defeat in Afghanistan on its own southern border. It was also pressing existing client states in Eastern Europe and Southeast Asia hard to practice self-reliance.

Finally, in 1980-81, before the US made it absolutely clear that it was seeking “regime change” in Nicaragua, the Sandinistas tried to restore good economic relations, plus access to World Bank and IDB loans. But for the US intervention, this access would have been maintained. And that, in turn, would have significantly reduced Nicaragua’s dependence on East-Bloc aid. After all, as a senior World Bank official noted in 1982, “Project implementation has been extraordinarily successful in Nicaragua, perhaps better than anywhere else in the world.”

About that time, Nicaragua also sought aid from many non-Soviet countries, including Venezuela, Mexico, and France. It was most successful with Mexico, which resisted US pressure and became Nicaragua’s largest aid provider until 1985. Nor did Nicaragua turn immediately to the Soviet Bloc for aid. When it tried to buy $16 million of arms from France in early 1982, however, President Reagan got the French President, Francois Mitterand, to delay the sale “indefinitely.” Only then – under increasing attack from the contras -- did Nicaragua turn to the Soviet Union and Cuba for significant quantities of arms and advisors.

Of course, as noted, many Sandinistas were undoubtedly committed radicals, dedicated to policies like land reform, free health and education, and the seizure of Somocista-owned properties. But these policies were entirely defensible, given Nicaragua’s economic conditions and its need to play catch-up with basic social justice. These are, after all, policies that the US has itself supported, or at least tolerated, in other times and places, when they happened to serve its interests.

The Sandinistas may have been mulish and full of radical bravado, but they were far from anyone’s pawns. These characterizations were 1950-vintage hobgoblins, left over from the days when Ronnie ran the Commies out of the Actors Guild in LA. At best, they reflected a desire to show the Evil Empire who was boss, by making an example of some weak little pinko regime.

On this view, then, in the early 1980s, the USG basically succeeded in pushing tiny Nicaragua into relying heavily on Soviet and Cuban arms and economic aid for its own survival– as, indeed, the USG may have also done with Fidel’s Cuba back in 1959-60. The USG then used that reliance as an excuse to expand its own provocations into a full-scale war that ultimately claimed 30,000 lives. In the historical record books, this is surely one of the clearest examples of state-funded terrorism ever.

SAYING "UNCLE"?

All these inconvenient little details were brushed aside by the Reaganites when they took office in January 1981, raring, in President Reagan’s words, to make the Sandinistas “say uncle.” Say uncle they never did -- in fact, by 1988, they’d “whupped” Olly North’s contras pretty good. But that was not for want of US efforts.

In March 1981, President Reagan signed an Executive Order that mandated the CIA to undertake covert operations in Central America, to interdict arms shipments “by Marxist guerillas.” By November 1981, the US focus had shifted from arms interdiction to regime change. That month, the Administration provided an initial $19 million to mount a pretty transparent “covert” effort to destabilize Nicaragua. The strategy, implemented by the now-famous gang of Presidential pardonees, was the classic scissors tactic that had been employed by the US and its allies in many other 20th century counterrevolutionary interventions, notably Russia (1918), Guatemala (1954), Cuba (1959-60), and Chile(1973).

On the one hand, the USG tried to cut off Nicaragua’s cash flow, reducing access to new loans from the IMF, the World Bank, and the IDB, as well as all EXIM Bank funding and OPIC risk insurance. In September 1983, the US slashed Nicaragua’s sugar quota. In November 1985, it added a total embargo on all trade with the US, Nicaragua’s main trading partner and foreign investor up to then. Given the country’s dire economic straits, this had the practical effect of cutting off all US private investment and bank lending.

At the same time, the Reagan Administration was stubbornly opposing all efforts to embargo trade or investment with respect to South Africa’s racist apartheid regime. In September 1983, for example, the State Department approved a Westinghouse application to bid on a $50 million ten-year contract to maintain and supply South Africa's two nuclear power stations. The US also continued to support World Bank and IDB loans to the right-wing regimes in Guatemala and El Salvador throughout the 1980s.

The other half of the scissors strategy was the USG’s effort to create, finance, arm, and determine strategy and tactics for an 18,000-person contra army, financed with $300 million of taxpayer money, in-kind military assistance, another $100-$200 million raised from private donors like the Sultan of Brunei, and an untold amount of cocaine proceeds. The main faction, the Frente Democrático Nacional (FDN), consisted of 3,000 ex-Somocista National Guard members and another 12-13,000 assorted mercenaries, anti-Castro Cubans, Israeli trainers, Argentine interrogators, and cocaine traffickers of several different nationalities. The Reaganites knew they were not dealing with angels here. As the CIA’s Inspector General later admitted in 1998, the agency made sure to get a statement from the US Department of Justice in 1982, waiving the CIA’s duty to report drug trafficking by any contra contractors.

From 1982 to 1989, this murderous scalawag army stoked a war that ultimately took about 30,000 lives, including those of 3,346 children and more than 250 public school teachers. Another 30,000 people were wounded, and 11,000 were kidnapped, according to the National Commission for the Protection and Promotion of Human Rights. Another half million fled the country to avoid the chaos. With the help of Harvard Law School Professor Abram Chayes, Nicaragua later successfully sued the US for launching these and other terrorist attacks and causing all this damage. In November 1986, the International Court at the Hague found the US liable for several clear violations of international law – notably, for launching an unprovoked war that was not justified by any “right of self defense.” The Court suggested that appropriate damages for the resulting property damage were on the order of $17 billion. But the Reagan Administration declined to appear in court, and refused to recognize the judgment.

THE WORLD'S HEAVIEST DEBT BURDEN

The detailed history of Nicaragua’s contra war has been told elsewhere, at least those parts of it that are not still classified, like much of the record of US knowledge about the contras’ extensive cocaine trafficking activities, and President Reagan’s confidential discussions with his aides, kept off limits for an indefinite period by a Executive Order signed in 2001 by President G.W. Bush.

Our main interest here is in the war’s devastating impact on Nicaragua’s economy and its crushing foreign debt burden. Ultimately, the FSLN soundly defeated the contras with a combination of adroit military tactics – for example, heavily-mined “free-fire” zones along its northern border with Honduras – and a large standing army, raised by draft. To pay for all this, however, the FSLN had to boost military spending, from 5 percent of national income in 1980 to 18 percent in 1988, when the first in a series of armistices was finally signed. By then, more than half of Nicaragua’s government budget was devoted to paying for an army that numbered 119,000 regular soldiers and militia – 7 percent of all Nicaraguans between the ages of 18 and 65.

Early on, the Sandinistas had made a strong commitment to building new health clinics and schools in the county. These social programs, plus land reform, were among their most important accomplishments. Even in the midst of the war, with the help of 2500 Cuban doctors, they managed to increase spending on health and education, open hundreds of new medical clinics, and sharply reduce infant mortality, malnutrition, disease, and illiteracy. They also implemented a land reform that redistributed more than 49 percent of Nicaragua’s arable land to small farmers.

But the war made it very hard to sustain these undeniable social accomplishments Despite the FSLN’s military “victory,” Nicaragua’s regular economy took a direct hit. Trade and investment plummeted, unemployment soared to 25 percent, and inflation reached more than 36,000 percent by 1988-89. From 1980 to 1990, Nicaragua’s average real per capita income fell 35 percent, and the incidence of poverty rose to 44 percent. To deal with shortages in the face of soaring inflation, the FSLN had to implement a rationing system for food and other basic commodities. As the Nixon Administration had done to the Allende regime in Chile a decade earlier, so the Reaganites did to Nicaragua – they made the economy “scream.”

All told, by 1990, Nicaragua had displaced Honduras as the poorest country in Central America. It had also become the world’s most heavily indebted country. To fund the defense budget and their other commitments in the face of declining tax revenues, trade, investment, and multilateral funding, the FSLN partly relied on inflationary finance, by having the Central Bank just print more cordobas. But for vital foreign purchases, including oil and weapons, it required dollar loans from sympathetic countries, mainly the Soviet Union ($3.3 billion), Mexico ($1.1 billion), Costa Rica, Germany, Spain, Venezuela, Brazil, and Guatemala (!), plus more than $500 million from the Central American Bank for Economic Integration, one multilateral institution that the US did not control.

When the newly-elected government of Violeta Barrios de Chamorro took office in April 1990, the debt stood at $10.74 billion – more than 10 times its level in 1980, and nearly 11 times Nicaragua’s national income.

This was by far the highest foreign debt burden in the world, thirty times the average debt-income ratio for all developing countries. And it was not derived from “technical policy errors,” “economic accidents,” or “geographic misfortune. ” Part of it was the $1.5 billion of dirty debt left over from the Somoza years. The rest derived from the ruthless persecution by world’s most powerful country of a tiny, stubborn Central American nation that was determined to finally make its own history.

CONCLUSION - REAGAN'S IMPACT ON NICARAGUA

In the 1980s, against all odds, and woefully ignorant of economics, politics, business, and diplomacy, a handful of rather foolhardy Nicaraguans dared to challenge the Reagan Administration's attempt to prevent them from controlling their own destiny.

They made many mistakes, and they required much on-the-job training. But at least they tried to stand up.

When they did so, they were attacked, and when they defended themselves, they were portrayed as the aggressors. Ultimately they won a victory of sorts, but it left their country a shambles.

Then their successors, worshipers of the latest fashions in neoliberal economic theology, came to power promising reform and freedom, and ended up turning the country into a bantustan.

Perhaps Nicaragua will need another revolution.

***

(c) James S. Henry, SubmergingMarkets.com(tm) 2004. Not for reproduction or other use without express consent from the author. All rights reserved.

June 17, 2004 at 08:05 PM | Permalink | Comments (2) | TrackBack

Thursday, June 03, 2004

We Remember - Tiananmen Square, Beijing June 4, 1989

Those who take
the most from the table
teach contentment.
Those for whom
the taxes are destined
demand sacrifices.
Those who eat their fill
speak to the hungry
of the wonderful times to come.

Those who lead
the country into the abyss
call ruling too difficult
for ordinary men.

-- Bertold Brecht

(c)SubmergingMarkets(tm), 2004

June 3, 2004 at 11:28 PM | Permalink | Comments (0) | TrackBack

Sunday, May 09, 2004

04509.US Brutilitarianism Comes to Iraq-Part II: The Roots of Brutality

"No country has better motives for all the damage that it does."

--Graham Greene, 1956

“There were three types of guards. First, there were tough but fair guards who followed prison rules. Second, there were "good guys" who did little favors for the prisoners and never punished them. And finally, about a third of the guards were hostile, arbitrary, and inventive in their forms of prisoner humiliation. These guards appeared to thoroughly enjoy the power they wielded, yet none of our preliminary personality tests were able to predict this behavior.”

--Stanford Prison Experiment, 1971

“We have been silent witnesses of evil deeds. ...We have learned the art of equivocation and pretense. Experience has made us suspicious of others And kept us from being truthful and open. Are we still of any use?”

-- Dietrich Bonhoeffer, German theologian and anti-fascist, 1937

“I tremble for my country when I reflect that God is just, and that his justice cannot sleep forever.”

-- Thomas Jefferson

In the midst of all the hoopla and finger-pointing over Secretary Rumsfeld’s apology for the Iraqi prisoner abuses at Abu Ghraib prison, we seem to have avoided getting to the bottom of the fundamental question begged by all those ugly photos: why did it happen?

In other words, how could young American soldiers, raised in a nominally democratic, civilized “Judeo-Christian” society, and members of the world's most advanced military, which has no business being in Iraq if not to “liberate” it from precisely this kind of oppression, come to act in this way?

From this angle, whether or not Rumsfeld or a few military commanders resign is beside the point – a juicy chance for Senator Kerry and his supporters to make political hay, perhaps, but largely irrelevant to our understanding of these disturbing events and the prevention of their recurrence.

This is especially true if, as we will argue here, they may have been part and parcel of the very nature of this ethnically-divisive dirty little urban guerilla war.

ALTERNATIVE EXPLANATIONS

At this point, the official US investigation, as well as press accounts, of the recent abuses at Abu Ghraib prison are incomplete. Already, however, there are several conflicting explanations.

“Exceptional Evil-Doers.” As noted in Part I of this series, the prevailing view of US officials is the “bad apple” theory -- in President Bush's words, "the wrongdoing of a few." This explanation -- which has deep roots in American culture, dating as least as far back as the Salem Witch trials, and is also at the heart of our conventional view of "terrorists" -- attributes the problem to brutal, distinctly “un-American” misbehavior by handful of “bad” people. In this view, this tiny group is clearly distinct from the vast majority of decent, Geneva Convention-abiding US military personnel. This explanation has been adopted by a wide variety of political and military leaders, from President Bush, Secretary Rumsfeld, and General Myers to Senators MeCain, Kerry, and Clinton. It also appears to be the predominant view in the mainstream press, perhaps because it lends itself to the kind of lengthy profiles of soldiers that, for example, the New York Times and the Washington Post have both front-paged several times this week. It is also necessarily more comforting to supporters of the Iraq War -- including all the leaders and newspapers just mentioned -- who view this scandal as an embarrassing, unhelpful distraction from the immediate task at hand, which is to get on with "stabilizing" the security situation in Iraq (e.g., crushing the resistance).

This kind of explanation is a standard one for individual criminal conduct in general. Typically it locates the roots of abusive behavior in the supposed predispositions of particular abusers to commit them. The contributing dispositive factors may vary -- pathological or "authoritarian" personalities, genetic defects, retributions for perceived injustices, inadequate schooling, too much TV, weak role models, or Salem witchery, for all we know. Whatever these underlying, the indicated prescription focuses on identifying and and handling these “bad seeds,” and in this case, any individual commanders who may have also “failed” to supervise them.

(to be continued....)

May 9, 2004 at 02:55 PM | Permalink | Comments (2) | TrackBack

Thursday, April 22, 2004

422."Letters from the New World" (South Africa)Denis Beckett#1: "Return."

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(Note from the Editor: The following is the first in a series of "Letters from the New World" from Denis Beckett, one of South Africa's best-known journalists. At a time when a great many countries are struggling just to make ends meet and keep hopes for democratic development alive, South Africa has just held its third democratic election in a row. True, it has more than its share of serious challenges, from crime and corruption to inequality, HIV/AIDs, unemployment, and lingering racism. But as Denis' extraordinary eye for individual stories makes clear, it is also a place where a huge number of people of all races are excited to get up in the morning, meet and greet each other, and pitch in together to build a new and better country. That's a spirit that many of us in the so-called "developed world" may well look to with some degree of jealousy. Denis' latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.))

RETURN

When she left for Australia, Joy cited all the regular reasons, crime and decline and Africa’s uncertainties. She got a nice job in Sydney, and lots of peace and security, and nobody stole the paper from public toilets, never mind the seats.

But Joy’s six siblings in Jo’burg made much reason for many visits. From time to time she’d get a sense that in South Africa she felt the sun on her face in a warmer way.

She kept it quiet, of course. Men in white coats would come. Aus was for The Chosen..

One day Joy and her laaitie, Luke, were at the jungle-gym at the Zoo Lake. This is a very individual jungle gym. It didn’t come out of a box, with plastic fittings. It came out of a forest, big solid logs. It’s the gorilla of jungle gyms, a cousin of the army’s combat training courses, high on opportunity for kids to break arms and bash heads.

Luke was nervous. This was a fearsome thing, after the park at home in Sydney. That park was lawsuit proof, waxed and pasteurised and shrinkwrapped, certified safety precautions at every hinge.
But as he got into it Joy noticed a strange thing: he was having more fun. In fact, she was having more fun too.

She was enjoying this pre-waxed Africa-type park, and enjoying Luke enjoying it. Also, people greeted Luke, and greeted her, and talked to her, sommer, as in “a stranger’s a friend you do not know”. In the waxed world, thought Joy, that was stuff you heard in church. To walk up in a spirit of “hullo, friend I do not know” … you’d get a harassment charge.

On a train in Cape Town an old man befriended Luke, like a grandad, sharing sweets and games, as if Joy wasn’t there. And the conductor ad libbed. Each time he called the route he gave her a wink and a last line like “and enjoy the ride.” It struck Joy that if his Aussie counterpart broke the rules like that, there’d be disciplinary hearings.

A touring black school group and their teacher include Luke as an honorary member. Joy asks the teacher why. She’s implying: “he pays you no fees and no bonus, why should you bother?” She’s also implying, deeper down: “and what is more he’s not even your, um, race”. The teacher replies: “children are our future”. Full stop.

Joy returns to Aus. After a year there, she tallies how many strangers interacted with Luke. Answer = two. In South Africa, she reckons, it’d be hundreds, mainly of course blacks, the pastmasters, but some of the pale lot as well. That was a thing about SA’s new freedoms; the whites were picking up the good habits of Africa, by osmosis.

Joy mumbles about a return to SA. Everybody says What! You crazy? Not only the Aussies say that, so do Seffricans. She feels very alone. Is she crazy? Someone points her to www.homecomingrevolution.co.za, and she’s astounded. Lots of South Africans are going home. That fortifies her, but people say: “To indulge yourself you’re inflicting crime and decline and dead-end-for-whites on your innocent son.” She says: “No, that’s exactly wrong, it’s for my son, so he can grow up enriched by the human connectivity of Africa.” The chorus: What! You crazy?

Joy knows she’s right, in her bones, but damn, she’s scared. The chorus says: “at least put him in private school”. She can’t afford it. Everyone insists a SA government school will doom Luke to placards on street corners. She nearly chickens out. Then her Jo’burg teacher friend Dale phones to say “you’re hearing junk, you want to be here, block your ears and get here.” She did.

Last week Luke’s government school asked Joy if she could do transport, for an outing. She burst into tears. They were surprised. She explained. She’d love to help with transport. She wasn’t allowed, before. Only designated buses and certified drivers carry Aus school outings. No cowboy stuff like Mom’s Taxi.
“I realised”, says Joy, “that I like the cowboy stuff. I like a world with loose ends. I like a world that isn’t all comfort zone. And I like being required to give. It’s not ideal that so many are in need, but for me it’s better to have to give than to never give. You think bigger.”

You do, hey. You think frinstance that we may never be the world’s richest country or continent, or the calmest, or even the kings of the pitch. But heck, we can be the nicest.

***

© Denis Beckett, SubmergingMarkets™, 2004. All rights reserved. No reproduction without express consent of the author.

April 22, 2004 at 09:55 PM | Permalink | Comments (0) | TrackBack

Thursday, April 01, 2004

"The Worst April Fool's Joke Ever:" Brazil's 1964 Coup The Foundations of Regressive Development

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April 1, 2004 is not only April Fools Day in the US and Europe. It is also the fortieth anniversary of “the worst April Fools’ joke ever,” as many Brazilians called it, the 1964 US-backed military coup in Brazil that overthrew the constitutional, democratically-mandated government of its populist President, João Goulart.

This coup led directly to 21 years of disastrous rule by Brazil’s military. During that period, the military cracked down sharply on all political opposition, independent trade unions, and critical media. It also piled up one of the world’s largest foreign debts, tried to develop nuclear weapons and intercontinental missiles, and pursued a national development strategy that favored the construction of huge, poorly-planned but highly lucrative hydro dams, Amazonian highways, and nuclear plants over investment in education and other basic human needs.

As described in more detail in the following excerpt from The Blood Bankers, all this proved to be very profitable for the officials, generals, and foreign and domestic bankers that catered to the regime’s needs.

But it also created a legacy of distorted development, poverty, concentrated land and media ownership, deforestation, environmental pollution, high-level corruption, and inequality, as well as a culture of violence and disregard for human rights.

Fortunately, Brazil, a country with 182 million people that accounts for more than two-thirds of South America's entire economy, returned to civilian rule in 1985. But it still struggles with most of these problems to this day.

As the following account makes clear, the US Government was deeply involved in encouraging the coup at the highest levels -- n.b. recently-declassified White House tapes and documents. Once in power, Brazil’s military also played a crucial role in the empowerment of right-wing regimes in several other Latin American countries, including Bolivia and Uruguay. Indeed, top US policymakers viewed Brazil’s military as a very useful agent, which could be used to impart a hard right spin to political development all over the Southern Hemisphere.

The standard apology for all this is that it was the price that had to be paid to contain the global Communist menace. When examined carefully in the bright light of day, this excuse turns out to be a canard. The fact is that Brazil never faced a serious revolutionary threat from the Left; that Goulart and his supporters were at worst populist, nationalistic land-reformers and union supporters; that the generals and their friends in Brazil's elite systematically exaggerated the leftist threat in order to justify their appetite for power, which gave many of them offshore bank accounts; that Presidents Kennedy, Johnson, and, later on, Nixon, were completely spooked by the Castro fiasco into overreacting to such populists all over the Third World; that the Brazilian coup completely undermined the rule of law, labor unions, human rights, and political freedoms for many years; and that it also led to decades of short-sighted economic policies that damaged millions of lives.

In short, if we really want to understand the roots of Latin America's comparative poverty, inequality, violent culture, and distorted development, as well as why many Latin Americans do not necessarily share the gringos' high esteem for their own role in history, the story of Brazil's 1964 military coup is a good place to start.

FOUNDATIONS

One long-time Brazilian banker recalled that at that time (the early 1960s) JPMorgan's position in Latin America was “essentially nowhere.” Years earlier, of course, it had been one of the first U.S. banks to do international banking. In the l880s, J.P. Morgan Sr. acquired Morgan et Cie in France and a third of London’s Morgan Grenfell, and in l908 the bank added Guaranty Trust Company, which had French, Belgian, and UK branches. From l890 to l930 Morgan floated more Latin American bonds than any other bank. But from the Depression until the l950s it had largely neglected Latin America. By l964, its entire Mexican exposure was only $15 million, and its Brazilian exposure just $50 million, and Morgan’s Latin American group was run by people who were ”not very aggressive....bright but not out-going.....(the head) would show up in Rio and wait at his hotel for clients to call on him.” Of the group’s five bankers, only Fred Vinton, the son of a long-time Citibank rep in Buenos Aires, had ever lived in Latin America. Citibank, Chase, and Bank of Boston all had local branches in Rio and São Paulo, but not Morgan.

Kubitschek

Of course, at the time, Brazil was viewed as quite a risky place to do banking. Juscelino Kubitschek, the country's President from l955 to l961, had embarked on an ambitious ”Fifty Years in Five” program, promoting industrialization and huge projects like Brasilia, the new federal capital in the remote state of Goiás, that was aptly described as “the revenge of a Communist architect against bourgeois society.” Kubitschek’s program produced five years of 7 percent growth, unprecedented corruption, and the Third World's largest debt, $2.54 billion by l960. That may not sound like much now, but it consumed forty percent of Brazil’s export earnings. In l961, Janio da Silva Quadros, Kubitschek's successor condemned this debt in terms that later generations would fully understand:

All this money, spent with so much publicity, we must now raise bitterly, patiently, dollar by dollar and cruzeiro by cruzeiro. We have spent, drawing on our future to a greater extent than the imagination dares to contemplate.

Kubitschek’s excesses provoked a conservative reaction. In 1960, Quadros, a former Governor of São Paulo, ran for President on an anti-corruption platform with a broom as his symbol. He was elected, and took office in January 1961. His Finance Minister, a wealthy banker, quickly signed a tough IMF agreement that agreed to devalue the currency, slash subsidies, and repay the debt.

Janio Quadros

But Janio Quadros soon proved to be one of Brazil’s weirdest leaders. He also tried to ban horse racing, boxing matches, and bikinis on the beach, and when the U.S. pressured him to embargo Castro, he defiantly journeyed to Havana and awarded Che Guevara the Ordem do Cruzeiro do Sul, Brazil's equivalent of the Legion d'Honeur. At one point early in his term he had been visited by Adolfe Berle, Jr., President Kennedy’s special assistant on Latin America. Kennedy was quietly seeking Quadros’ support for the upcoming Bay of Pigs invasion. According to John M. Cabot, the US Ambassador to Brazil at the time, Berle effectively offered “Brazil” a $300 million bribe in return for cooperation. But Quadros became “visibly irritated” after Berle ignored his third rejection, and sent Berle off to the airport unaccompanied. A few months later, in August 1961, Quadros resigned, complaining of being surrounded by ”terrible forces,” and blamed his downfall on a cabal that included “reactionaries” Berle, Cabot, and US Treasury Secretary C. Douglas Dillon.

Goulart and Kennedy

This allowed the succession of João Goulart, Janio’s Vice President, a wealthy populist cattle farmer from Rio Grande do Sul. Goulart visited the US in April 1962, addressed a joint session of Congress, and received a ticker tape parade in New York City. But he immediately proceeded to alienate every key interest group at once, launching an aggressive land reform, boosting taxes on foreign investors, nationalizing utilities and oil refineries, and even encouraging enlisted men in the Army to organize a union. Inflation soared to the unheard-of level of 100 percent, exhausting four Finance Ministers in two years. All this was a splendid recipe for counterrevolution -- Brazil’s usually fractitious military leaders banded together and organized a coup, was supported by business, most of the “middle class,” and the U.S., which spent tens of millions of dollars on a covert ant-Goulart media campaign. In l963, Goulart's second Finance Minister visited Washington and asserted that the left-leaning regime’s social reforms had been inspired by President Kennedy’s so-called "Alliance for Progress" But he received a cold shoulder -- the US aid window closed down until April 1964, after the coup. As early as l962 U.S. intelligence had warned of coup preparations, and was more than sympathetic. As David Rockefeller, who was at that point the President of his family’s bank, Chase Manhattan, told a closed-door conference at West Point in the fall of l964, ”It was decided very early that Goulart was unacceptable....and would have to go.”

Amb. Gordon

Ball and Johnson

A newly-declassified audio tape, recorded by the White House taping system on March 31, 1964, just as the coup was just beginning to unfold, shows President Lyndon Johnson personally involved in reviewing US support for the coup, and monitoring the latest developments. In a phone conversation with Undersecretary of State George Ball, who was coordinating US activities, Johnson expressed support for aggressive action: "I think we ought to take every step that we can, be prepared to do everything that we need to do, just as we were in Panama if that is at all feasible. I’d put everybody who had any imagination or ingenuity in (Ambassador) Gordon’s outfit or (CIA Director) McCone’s or yours or (Secretary of Defense) McNamara’s. We just can’t take this one, and I’d get right on top of it and stick my neck out a little.” US Undersecretary of State George Ball: That’s our own feeling about it, and we’ve gotten it well organized.”

The April 1, 1964, coup that followed -- ”the worst April Fool's joke ever” -- was led by General Humberto de Alencar Castello Branco, commander of the Fourth Army in Recife. During World War II, he had served with Brazil’s Expeditionary Force, which fought with the Allies in Italy. His “trench buddy” there was Colonel Vernon A. Walters, the U.S. “military attaché” from September 20, l962 to l967, who would later be promoted to Lt. General for his accomplishments in Brazil, and then move on to serve as senior CIA officer, the CIA’s Deputy Director from March 1972 to 1976, and Ronald Reagan’s UN Ambassador in the 1980s. Colonel Walters spoke fluent Portuguese and also very close to General Emílio Garrastazu Médici, head of Brazil’s Black Eagles military school during the 1964 coup, then military attaché to Washington (64-65), head of Brazil’s CIA, the “Serviço Nacional de Informaçoes (SNI)” from 1967 to 1969, and then Brazil’s President, courtesy of the junta.
Castello Branco

General Walters

During the coup, Castello kept both General Walters and U.S. Ambassador Lincoln Gordon “very well-informed of pre-coup deliberations,” a US Navy “fast” Carrier Task Group was standing by offshore, and six US Air Force C-135 transport plants with 110 tons of arms and ammunition were standing by, in case there was any resistance. Fortunately, the coup was almost bloodless, although there would be many disappearances, deaths, and cases of political torture during the 21 years that followed.

Castello Branco was supposed to step down after a short period of housecleaning, but Brazil’s military proved to be a better master than a maid -- it stayed in power from l964 to l985. At first, Castello turned the economy over to Octavio Bulhões, an academic-cum-Finance Minister, and Roberto Campos, a U.S.-educated ex-Jesuit and former head of Brazil’s powerful National Development Bank (BNDES), who became Planning Minister. Their reign from April l964 to March l967 was the first in a series of rather disappointing Latin American experiments with monetarism, the notion that controlling the money supply was the sine qua non of economic policy. To fight inflation, they reigned in credit, slashed spending (which they viewed as driving money growth, because the government was financing by selling bonds to the banking system) , and opened the door to imports. They also eased restrictions on foreign investment, eliminated taxes on foreign profits, and outlawed strikes. Dozens of labor leaders were jailed, and wages were frozen, although inflation was still raging at forty percent a year. But the regime was careful to protect investors against inflation by indexing bonds and bank deposits. A new capital markets law also created Brazil’s first investment banks and provided “the most sophisticated company law in Latin America.” In l965, in an attempt to control the money supply, Campos also created Brazil’s first Central Bank and a National Monetary Authority.

All these conservative measures went down rather well with bankers and the U.S. government. Regardless of who staged the coup, it soon became quite clear who would pay for it. From l964 to l970, Brazil got more than $2 billion of U.S. aid, which made it the third largest aid recipient in the world. About $900 million of this arrived in the first six months after the coup -- in l964, after the coup, the U.S. Treasury paid seventy percent of the interest due on Brazil's debt. In July 1964, Brazil also signed another IMF agreement, and in the next three years it got $214 million of IMF loans, which had been zero from l959 to l964. Brazil also suddenly became the World Bank’s largest customer, after getting no loans at all from 1950 to l965, as well as the largest borrower the IDB and from our old friends, the US EX-IM Bank. From l964 to 1970, direct investment by American companies increased fifty percent. In January l967, the IMF held its 22nd convention in Rio, presided over by General Artur Costa e Silva, a former War Minister and Castello Branco's successor.

General Golbery

Unfortunately for the majority of Brazilians living in poverty, most of this aid went to pay for budget deficits, planning exercises, and capital-intensive projects -- original Alliance for Progress objectives like “eliminating illiteracy from Latin America by l970” and “income redistribution” got short shrift. The real value of the minimum wage dropped by one-fourth from l964 to l967, and malnutrition and infant mortality rose dramatically. Domestic industry was hit by foreign competition and a recession at once, even as multinationals were getting cheap finance and lower taxes. Many foreign investors also got ”sweetheart” deals -- Campos was especially generous to Amforp, an American-owned utility, and in l965 the American billionaire Donald Ludwig was allowed to buy an Amazon forest tract twenty percent larger than Connecticut for $3 million. General Artur Golbery Couto e Silva, the military’s “gray eminence,” later became President of Dow Chemical do Brasil and a representative of Dow’s Banco Cidade. A top professor at the Escola Superior de Guerra, Brazil’s version of the National War College, and the author of the seminal Geopolitica do Brasil, in the early 1960s Golbery had used CIA funding to launch the Institute for Research and Social Studies (Instituto de Pesquisas e Estudos Sociais--IPES), the SNI’s precursor. Over the next two decades, the SNI would employ more than 50,000 people to spy on and otherwise deal with “subversives” at home and abroad. Golbery later served as head of the Casa Civil, a key aid to President Ernesto Geisel. Not surprisingly, along the way, Dow Chemical got special permission for a new plant in Bahia.

Roberto Campos

Ernesto Geisel

Soon, even nationalist critics started attacking Roberto Campos' program as a ”pastoral plan” designed by Americans to eliminate domestic industry -- he became widely known as ”Bob Fields,” “a full-time entreguista.” In l964, a popular Rio bumper sticker said, “Enough of intermediaries! -- (U.S. Ambassador) Lincoln Gordon for President!” In l966, the U.S. Ambassador complained that American advisors were implicated in ”almost every unpopular decision concerning taxes, salaries and prices.”

In October 1965, in the last free elections until l982, the military’s candidates for state governorships in Rio de Janeiro and Minas Gerais were defeated. Workers, students, and church organizers turned radical, and several civilian leaders who had supported the coup, including Magalhães Pinto and Carlos Lacerda, also pressed for new elections. There was a sharp increase in capital flight -- in 1966 Brazilians sent more money abroad than all the new foreign investment and foreign aid brought in. The nationalists in the military also began to treat the “internationalist” segments of the upper classes harshly -- they unleashed a spy operation to catch wealthy Brazilians who had foreign accounts. In November 1966 the police, assisted by Brazil’s intelligence service, the SNI, under the command of General Fiuza de Castro, raided the offices of Bernie Cornfeld's Swiss-based I.O.S. flight capital operation in seven cities, arrested 13 salesmen, and seized files on 10,000 clients.

Costa e Silva

All this set the stage for a hard-line backlash, led by members of the military who believed that the castellistas were selling out to foreigners and were not tough enough on subversivos. In late l966, Castello Branco gave way to the IMF’s favorite, General Costa e Silva. Political parties were consolidated into a ”majority” party, ARENA, and an official ”opposition” party, the PMB -- as they soon came to be known in the underground, the parties of ”yes” and ”yes sir.” Many opposition politicians, union leaders, and students were stripped of their civil rights. In December 1968, when a federal deputy asked Brazilian women to stop having sex with military officers until political repression ceased, the Army demanded that Congress lift the fellow’s immunity so he could be prosecuted for “insulting the Armed Forces.” When the Congress refused, Costa e Silva closed it, disbanded state assemblies and city councils, suspended habeas corpus, and imposed press censorship. Dictatorial niceties like arrests without warrant and torture now became common, while elections were reduced to ratifications of the military’s “bionic” candidates.

As for Roberto Campos, in March l967 he moved over to the private sector, giving way to a more dirigiste economic team. He never again exercised much power, although he served as Ambassador to England in the mid-1970s. His l982 diary reads like a “Who’s Who” of prominent Brazilians and Americans. Tony Gebauer was one of the friends listed there. But unlike some of his successors, apparently Roberto Campos didn’t do his private banking at Morgan -- the diary lists accounts at Geneva’s Pictet et Cie and Trade Development Bank, whose founder, Edmond Safra, also founded Republic Bank of New York and Safra Bank, and was an old Campos acquaintance.

So by 1967, Brazil was thus well on its way to becoming a marshal law state. With the support and guidance of the US government, a left-leaning, if democratically-elected, government had been vanquished, and a right-wing dictatorship put in its place. Especially after 1968, until the mid 1970s, the level of repression increased, and the number of political opponents who were murdered or “disappeared” reached into the low thousands. This was modest, compared with what went on in Argentina, Chile, and Paraguay, , but Brazil made up for the body count by sharing its early experiences with these countries. (See below.)

DICTATORSHIP OF THE IMAGINATION

While Brazil’s military deserved much of the credit for this new system, the US national security apparatus also played a key role. One of its crucial long-term influences was a variation on the “Mighty Wurlitzer” concept that it had pioneered with great success in France, Italy, Germany, and Japan in the 1940s and 1950s, and continues to use right up to the present in places like post-Soviet Eastern Europe, Southeast Asia, Lebanon, Pakistan, Iraq, and the Philippines.

This was to develop a nation-wide media network that could be used to shape public opinion. In 1964, an energetic, personable young Time-Life executive named Joe Wallach went to work with Roberto Marinho, a Brazilian businessman who at that point was running a newspaper and a local TV station in Rio. Wallach, didn’t speak any Portuguese at the time, but he had a background in TV production and accounting in California. Suddenly he became O Globo’s Executive Director. “Time-Life” also invested $4 million -$6 million in a joint venture with Globo, a great deal of money for that time, which helped Globo buy up concessions and steal a march on its competitors. “Time-Life” and its friends also encouraged multinationals to direct advertising to Globo, which soon came to run a kind of advertising cartel. Meanwhile, Globo also was careful to take a pro-government line in its reporting – cynics came to refer to it as “The Ministry of Information.”

All this, plus the special licenses for satellite broadcasting, radio, and local stations that it received again and again from the government, made Globo prosper. Over the next twenty-five years, under Wallach’s leadership, TV Globo became the world’s fourth largest TV network. The deal was rather simple – Globo provided favorable coverage to its political allies, and they helped it get the TV, satellite broadcasting, radio, and cable concessions that it needed to keep growing. In special cases, the politicians and their families also shared in the ownership of these “goodies,” as we’ll see below.

Over the next three decades, Globo became one of the most politically-influential media empires in the developing world – by 1990 it owned 78 stations in Brazil, with more than 50 million viewers in Brazil alone, ad revenue of $600 million a year, 8,000 employees, more than 30 subsidiaries in Italy, Portugal, Cuba, Japan, and other countries, and it was producing and exporting TV programming to 112 countries. Furthermore, even after Brazil returned to democracy in 1985, Globo continued to exert strong influence over political selection of many key political leaders, including several Presidents. All along, it was a consistent opponent of candidates that it perceived as threats to the system, often using blatant propaganda to influence elections, as in the hard-fought 1989 Presidential race between Lula and Fernando Collor.

Only in 2001-2002, long after Wallach had retired and Roberto Marinho had passed the empire on to his evidently less-able sons, would Globo’s disappointments in Internet and cable investments and crushing foreign debts finally bring it down to earth – not unlike the similar fate that befell its original partners at “Time-Life,” now part of the hapless AOL Time Warner conglomerate. The Marinho family’s estimated wealth on the Forbes’ annual billionaire survey peaked at $6.4 billion in 2000, with the Internet’s peak. By 2002 they were down to their last $1 billion, barely eligible for a mention on the Forbes list.

Even then, however, Globo still would try to use its political influence as currency. In the 2002 Presidential race, in a move that must have made its original partners turn circles in their graves, Globo for the first time threw its support to Lula, the left-wing candidate, who ended up finally winning on this fourth try for office. Evidently, having backed the “system” that, as we’ll soon see, ultimately made Brazil the world’s largest debtor, Globo was hoping for some government relief from its own crushing foreign debts.

BANKING ON THE STATE

In any case, in addition to military action and media support, the top-down development strategy adopted by Brazil’s military and its foreign allies in the 1960s also had a crucial economic component. At first glance – and indeed, at second – this strategy was a little hard to reconcile with free-market principles and democratic rule. But it cleared the way for bankers like Tony to earn huge fortunes. As Auden says, “When there was peace, he was for peace. When there was war, he went.” These bankers joined forces with a corrupt coalition of officials, industrialists, and agro-exporters to support a new debt-intensive strategy that was designed and implemented by a powerful new Minister also named Antonio, who became one of JPMorgan's Tony Gebauer’s closest friends of all.

Antonio Delfim Neto was an extremely fat academic-cum-bureaucrat from a middle-class Italian family in São Paulo. In the l950s, he wrote a brilliant Ph.D. dissertation on the coffee industry and taught macroeconomics at the University of São Paulo (U.S.P.). In the l960s he was a consultant to Ralph Rosenberg, whose Ultra Group was the largest private investor in Petrobras, as well as Antonio Carlos de Almeida Braga, the owner of Bradesco, Brazil's largest bank, and Pedro Conde, another bank owner. From 1963 to l967, Delfim, in his late thirties, advised São Paulo governors Carvalho Pinto and Lauro Natel, who was on leave from Bradesco. Then, from l967 to 1985, Delfim came to wield more influence over the economy than anyone before or since.

He was as quick-witted as Campos, but most of his success was due to a lack of ideology. As Delfim said in l969, “I am not going to sacrifice development only to pass into history as someone who defeated inflation at any cost.” He was the grand master of bureaucratic infighting, inserting his “Delfim boys,” mostly U.S.P.-trained economists, into key positions all over the government, where they operated a kind of Florentine patronage system, keeping a running tally of favors owed to important people. “I was in the office of (an important banker) when Delfim called. He needed $5 million right away,” one banker recalled. “The only argument was how to get it to him. We knew he'd make it up to us.” In a country where most ministers rotated quickly, this network of favors and influence earned Delfim unusual longetivity. He was Finance Minister in l969-74, Ambassador to France in l974-78, Minister of Agriculture in l979, Planning Minister in l979-85, and even after civilian rule returned in l985, an important behind-the-scenes leader in Congress, where he also enjoyed immunity from prosecution. Among those responsible for Brazil's massive debt burden in the 1980s, only Tony Gebauer enjoyed similar continuity.

In August 1969, General Costa e Silva died of a stroke, after learning that his wife had helped deliver Brasilia’s telephone exchange contract to Ericsson, a Swedish company that bribed its way all over Latin America. Vernon Walter’s friend, the even-more hawkish General Emilio Medici (1969-74), then took over, and some of Delfim’s critics seized the opportunity to accuse Delfim of corruption. But he was so popular with all his other “clients” that Delfim was soon reappointed. He promised Medici, echoing the grandiose Kubitschek in the 1950s, “Give me a year and I will give you a decade.”

General Medici

Meanwhile, from a national security standpoint, Medici was exactly what Brazil’s US allies were looking for – he visited Nixon, Henry Kissinger, and General Walters in December 1971. In the meeting just two weeks later with Secretary of State William Rogers, recorded in a transcript only just released by the National Archives in 2002, Nixon described Medici in glowing terms:

• Rogers: “Yeah, I think this Médici thing is a good idea. I had a very good time with him at lunch and he…”
• Nixon: “He’s quite a fellow, isn’t he?”
• Rogers: “He is. God, I’m glad he’s on our side.”
• Nixon: “Strong and, uh, you know…(laughs)…you know, I wish he were running the whole continent.”
• Rogers: “I do, too. We got to help Bolivia. He’s concerned about that. We got to be sure to…”
• Nixon: “Incidentally, the Uruguayan thing, apparently he helped a bit there…”

The “Uruguayan thing” was clarified in another transcript, recently released, of a Nixon conversation with Britain’s Prime Minister Edward Heath that same month. According to Nixon, “The Brazilians helped rig the Uruguayan election…Our position is supported by Brazil, which is after all the key to the future. ”(emphasis added.) He was referring to the November 28, 1971, elections, in which Uruguay’s Frente Amplio, a coalition of left-leaning political parties not unlike Allende’s Unidad Popular in Chile, had been defeated by the right-wing Colorado Party. The result was indeed unexpected, and evidently Medici had had a key role in it.

In March, 1972, the Colorado’s new right-wing President Bordaberry, gave Uruguay’s security forces a green light to go not only after the Tupamaros, Uruguay’s urban guerillas, but also against its labor unions, student associations, and political opponents. In June 1973 the military made Bordaberry a puppet, and in 1976 took complete power, following in Brazil’s footsteps. The result was a bloodbath that anticipated the thousands of political murders that later occurred in Chile, after Allende’s demise in September 1973, and in Argentina after its military seized power in 1976. By then, Uruguay, a country with just 3 million people that had once been known as “the Switzerland of Latin America,” had become its torture chamber, with more political prisoners per capita than any other country in the world. Like Brazil, once gone, civilian government did not return to Uruguay until 1985.

According to other newly-released documents, General Medici had also assisted with the right-wing in Bolivia in August 1971. More generally, it has recently become clear that Brazil’s military, with US support and coordination from the US, played a key role in training and guiding the repression that went on in Chile, Argentina, Paraguay, and Bolivia in the late 1960s and 1970s. As one scholar noted, “Brazil had a head-start on terror.” Even prominent journalists, like Waldimoro Herzog, who was murdered by the Brazilian regime in 1975, were not safe.

Indeed, one of the victims may even have been former President João “Jango” Goulart himself, who died in 1976 of a curious “heart attack” at the age of 58, at his ranch in Parana. Goulart’s family had long suspected that he’d been murdered by the military. In 2000, Brazil’s Congress finally got around to starting an official investigation of the death. Of course Brazilian Presidents have a history of unfortunate endings – Juscelino Kubitschek, Quadros’ predecessor, also died in 1976, in a car accident, and Tancredo Neves, the first civilian President after military rule ended in 1985, died after three months in office.

In any case, whether or not the “domino theory” really ever applied to Communist revolutions, clearly it worked quite well with respect to these Latin American right-wing regimes. And their US patrons discovered that with only a little nudge, one big domino – “the key to the future” – could wield extraordinary influence.

***

© James S. Henry, SubmergingMarkets™, 2004

1 The above is an excerpt from James S. Henry, The Blood Bankers. Tales from the Global Underground Economy. (New York: Four Walls, Eight Windows, December 2003, 417 pp.)

April 1, 2004 at 02:30 AM | Permalink | Comments (2) | TrackBack

Tuesday, March 23, 2004

One Year Later A Balance Sheet for the Iraq War

Printable PDF Version "WAR IS PEACE!FREEDOM IS SLAVERY!" "Iraq Is Free! Al-Qaeda Is Defeated! No Child Is Left Behind!""

More than a million people around the world marked the first anniversary of the US/UK invasion of Iraq this weekend with large street demonstrations. Compared with the huge protests before the war started, however, this was a much lower turnout. This is partly because mass protests obviously failed to prevent the invasion. It is also because many believe that even if war was wrong to begin with, the US and the UK now have an obligation to the long-suffering Iraqi people to see that some kind of decent social order is established before they withdraw.

However, this by no means relieves the instigators of this precipitous venture of responsibility for what, in retrospect, appears to have been an illegal, costly, poorly-managed, distracting, divisive, and entirely unnecessary engagement with the wrong enemy at the wrong time.

While it may be decades before the consequences of the Iraq Invasion are completely clear, enough time has already passed for us to begin to take stock.

The following is the first year's balance sheet.

CONSEQUENCES

1. We have now almost satisfied everyone's curiosity about Saddam’s WMDs. They have not existed for quite some time. The US-led coalition’s weapon inspectors have searched high and low. Ellos no encontraron nada. Of course the hawks still assure us that they will turn up eventually, and that we should now search for them in Syria....

2. For purposes of the next time around, what we do now know for sure is that the CIA, MI-6, and the Mossad, as well as many of the hawkish senior Bush and Blair Administration officials and media pundits who "sold" us the war, are unreliable, careless with the truth, and trigger-happy.

On the other hand, the UN weapons inspectors, as well as “dovish” France, Russia, China, and Germany, were basically right all along.

This is an invaluable lesson. We should now proceed to apply it in the upcoming elections in the US and the UK, as Spain has already done.

3. We now know much more about where other countries got their WMDs. In the last year, while the Iraq War was proceeding, we identified the true sources of the last three decade’s WMD proliferations, thanks in part to Libya’s decision to turn in its WMDs.

One key source turns out to have been our ally Pakistan, in the case of North Korea, Iran, and Libya. In addition, as we've known for some time, the other key sources were our ally Israel, plus the US and West Germany, in the case of nuclear weapons for South Africa and India; and the US itself (plus Security Council members France, the UK, Germany, Russia, and China), in the case of Iraq’s chemical and biological weapons capabilities. Iran and Libya have reportedly agreed to cooperate with UN nuclear weapons inspectors. Israel and Pakistan, our close “non-Nato” allies, have refused to do so.

Libya’s concessions probably had little to do with the Iraq invasion per se, so we might well have learned all this without it. But at least we now know for sure that Saddam had nothing to do with WMD proliferation. The real culprit was our own behavior and that of our self-seeking “allies.”

Of course the other great irony here is that while we've been chasing phantom WMDs in Iraq, it appears to be Iran that is, next to Pakistan, the Islamic country with the most advanced nuclear weapons program. It is not obvious to many observers that the Iraq War has strengthened the US hand with respect to Iran -- indeed, with our hands so obviously full, and with Iraq's Shiites in such a strategic position, it may well have reduced our leverage on Iran.

4. We now know all about Saddam’s links with al-Qaeda and 9/11. They were non-existent. A majority of Americans apparently still believe that there were ties between Saddam and Al-Qaeda, and that Saddam was involved in 9/11, perhaps in part because the US President and Vice President persist in encouraging this poppycock. However, the best evidence – including the testimony just this week of President Bush’s own former top counterterrorism expert, Richard Clarke - suggests that these beliefs are completely without foundation. Apparently the warmongers in the Bush Administration decided to punish Iraq, on top of Afghanistan, because, as Secretary Rumsfeld reportedly put it, Iraq "had more targets to bomb."

Of course the warmongers have also argued that al-Qaeda might have links to many other countries, notably Iran, Syria, and Saudi Arabia. As we evaluate these claims, we should remember the expensive lesson that we’ve just learned about al-Qaeda’s purported links to Saddam.

5. Saddam’s ruthless Ba’athists have finally been removed from power.

In this respect, at least, the war helps to make up for the fact that the US played a major role in bringing the Ba’athists to power back in the 1960s, the assistance that the US, Saudi Arabia, and Kuwait (as well as Russia, the UK, Germany, etc.) provided to Saddam throughout the 1980s, and the Allied coalition’s failure to remove him from power in 1991, at a cost of several hundred thousand Shi’ite lives.

In addition to Saddam's removal, some of the war's supporters have concluded that the Iraqi people have already been “liberated.” This is a huge overstatement -- as if, simply by Saddam’s demise, Iraq had already become a peace-loving constitutional democracy with Swiss-like cantons. One can almost smell the Alpine air.

Those Iraqis who have survived the war do now enjoy many new freedoms. Almost as many Iraqis are now employed, with access to electricity, running water, and health care, as before the invasion. They are free to look for work, to start companies, to open bank accounts, to read about their troubles in the media and the mail, and to shop. Except for the fact that more than a quarter of them are still unemployed, are finding it very hard to make ends meet from one day to the next, and fear for their lives because of the security situation, all this is wonderful.

By June 30, they will also presumably be allowed to vote for the “local councils” that the US is setting up all over the country, although these appear to have carefully-vetted candidates. Actual elections for national leaders is a long way off, and the fundamental question of the balance of power among this somewhat artificial “nation’s” Shiite, Sunni, and Kurdish communities remains unresolved.

Nor is it helpful that the US has permitted the return and empowerment of émigré parasites like “Iraqi National Congress” émigré leader Ahmed Chalabi, a well-spoken con artist who was convicted of bank fraud in Jordan in 1992, and sentenced to 22 years at hard labor, is reportedly wanted on similar charges in Lebanon, and whose well-armed minions now hold forth at the Baghdad Hunt Club.

Looking forward to the day when the 100,000-man US-led coalition army leaves, it is also a concern that, just as in Haiti, the US saw fit to completely abolish the Army. Let’s all hope that Iraq’s new US-trained Police Force does a better job defending democracy than the US-trained Police Force did in Haiti. Former Haitian President Aristide, now in Jamaica, may be available for consultations on this point, having just been overthrown by a tiny force of only two hundred armed irregulars while his "Police" took to the hills.

All this only leaves about a dozen or so other brutal regimes in the Middle East left to go. Unfortunately, their ranks include such leading US allies like Saudi Arabia, Egypt, Morocco, Kuwait, Dubai, Djibouti, and Pakistan, as well as Syria. They have all been watching the progress of our experiment with “democracy” closely, and they are reportedly not that impressed.

6. Whether or not Iraq was a haven for terrorists before the war, it has clearly become one now. The destruction of Iraq’s Army, its wide-open new borders, and the opportunity that it presents to hunt US and UK troops has attracted new “terrorists” by the hundreds.

Some argue, painting lipstick on the pig, that this is actually a good thing, since we now have all these enemies in one place. This view is rooted in the assumption that there are only a finite number of terrorists in the world, and that if they were not in Iraq, they would just be operating somewhere else. In fact, it is more likely that many of those who have come to Iraq are new recruits, appalled by the US occupation of an Arab country, and persuaded that we are there to fight Islam and seize Iraqi’s oil.

Of course some of the war’s proponents don’t really care which of these views of the "terrorists" is correct. They were primarily interested in seeing the US sucked in….errr, persuaded…to establish its own long-term military base in the center of the Middle East, take sides in the interminable battle against the evil Muslim/ Arab hoard…..err, “terrorists,” sorry, and contribute most of the fighting, dying, and finance.

7. The Iraq War has not done much to halt terrorism outside Iraq, either. While the US has been fortunate enough to avoid another 9/11, the last year has seen a significant increase in global terrorism elsewhere, with countries like Spain, Turkey, Morocco, Indonesia, France, the UK, Germany, Pakistan, and Russia getting used to a whole new level of permanent insecurity – somewhere between “code amber” and “code red.”

Overall, the Iraq War appears to have indeed distracted attention and resources from the war on terrorism, inflamed world sentiment, and created armies of new recruits for terrorist organizations. This is having serious economic as well as political consequences, with the “terrorism risk premium” built into world stock markets now at its highest point since September 2001.

In short, from the standpoint of fighting terrorism, launching the Iraq War was really a pretty dumb thing to do.

8. Afghanistan and Pakistan are increasingly bogged down with the terrorist struggle, and the Iraq War has certainly not helped. Al-Qaeda, the Taliban, the Karzai Government, and Pakistan’s President Musharraf appear to be locked in a stalemate. Of course, Bin Laden and al-Qaeda’s other top leaders are now “surrounded,” but this just means that they are somewhere within a tiny, narrow 20,000-square-mile region in Northwest Pakistan. Meanwhile, Pakistan’s General Musharraf and Afghanistan’s Hamid Karzai really are confined to about 100 square miles around Islamabad and Kabul, where they have each both narrowly survived two assassination attempts in the last six months.

Just this week, Karzai lost his second Minister of Aviation in a year to assassination, not by “terrorists,” but by a local warlord. His government will try to hold elections this summer, but it is only likely to include about 10-15 percent of the country’s potential registered voters. Elsewhere the warlords are too busy growing opium and producing heroin base to pay much attention to Karzai’s central government, which -- compared with Iraq -- has received relatively limited funding from its foreign allies and the UN. Afghanistan has reverted to its pre-Taliban levels of opium production, accounting for more than 90 percent of the world’s supply, with Karzai warning that the country is becoming a “narco-state.”

Meanwhile, after two years in hiding, the Taliban is also staging a comeback in several parts of the country. This is partly because the Bush Administration decided to use so few US troops in the first attacks on Afghanistan that many of the Taliban and al-Qaeda were able to escape over the border to Pakistan. It is also because the locals are tiring of the warlords.

9. The “Middle East peace process” has, quite literally, run into a “Wall.” The Bush Administration, preoccupied with the War and an election, has paid scant attention to implementing its “road map,” and the Israeli-Palestinian relationship has basically defaulted to a perpetual state of war. Whether or not the World Court declares Sharon’s “Apartheid Wall” illegal, without US involvement, this situation is not likely to improve. Indeed, the tendency will be for the extremists on both sides to escalate the violence– as evidenced by today’s Israeli assassination of Hamas’ top leader. Without the Iraq War to distract US leaders from this root cause of global terrorism, this escalation might have been avoided.

10. Our friends and allies around the world have developed a much more hostile attitude toward the US. This bears a striking resemblance to the world’s a